<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARSON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2844 06-142-8605
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
64 ROSS ROAD
SAVANNAH, GEORGIA 31405
(912) 651-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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CARSON PRODUCTS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2844 51-032-5487
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
64 ROSS ROAD
SAVANNAH, GEORGIA 31405
(912) 651-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. LEROY KEITH
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CARSON, INC.
64 ROSS ROAD
SAVANNAH, GEORGIA 31405
(912) 651-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
---------------
COPY TO:
ARNOLD B. PEINADO III, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5732
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/8% Senior Subordinated Notes due
2007..................................... $100,000,000 100% $100,000,000 $29,500
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Guarantees of 10 3/8% Senior Subordinated
Notes due 2007........................... $100,000,000 (2) (2) (3)
</TABLE>
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(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
(2) No separate consideration will be received for the Guarantees.
(3) Pursuant to Rule 457(n), no separate fee is payable for the Guarantees.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
PROSPECTUS
CARSON, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
($100,000,000 PRINCIPAL AMOUNT) FOR
10 3/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
----------
Carson, Inc., a Delaware corporation (the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $100,000,000 of its 10 3/8% Senior
Subordinated Notes Due 2007, Series B (the "Exchange Notes") for up to an
aggregate principal amount of $100,000,000 of its outstanding 10 3/8% Senior
Subordinated Notes Due 2007, Series A (the "Existing Notes"). The Exchange
Notes and the Existing Notes are hereinafter collectively referred to as the
"Notes." The terms of the Exchange Notes are identical in all material respects
to those of the Existing Notes, except for certain transfer restrictions and
registration rights relating to the Existing Notes. The Exchange Notes will be
issued pursuant to, and be entitled to the benefits of, the Indenture (as
defined) governing the Existing Notes.
The Exchange Notes will bear interest at the rate of 10 3/8% per annum,
payable semi-annually on May 1 and November 1 of each year, commencing on May
1, 1998. The Exchange Notes will mature on November 1, 2007. Interest on the
Exchange Notes will accrue from the last interest payment date on which
interest was paid on the Existing Notes surrendered in exchange therefor or, if
no such interest has been paid on the Existing Notes, from the date of original
issue of the Existing Notes. Interest on the Existing Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes in exchange
therefor.
On or after November 1, 2002, the Company may redeem the Exchange Notes, in
whole or in part, at the redemption prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as defined), if any, to the date of
redemption. Notwithstanding the foregoing, at any time prior to November 1,
2000, the Company may redeem up to 35% of the aggregate principal amount of the
Notes originally issued with the net proceeds of one or more Equity Offerings
(as defined) at a redemption price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of redemption; provided that at least 65% in aggregate principal
amount of the Notes originally issued remains outstanding after each such
redemption and that any such redemption occurs within 90 days of such Equity
Offering. Upon the occurrence of a Change of Control (as defined), the Company
will be required to make an offer to purchase all of the outstanding Notes at a
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase. See "Risk
Factors--Possible Inability to Make A Change of Control Offer" and "Description
of the Exchange Notes--Change of Control." In addition, prior to a specified
reorganization of the Company, the Company will be required to make an offer to
purchase all of the outstanding Exchange Notes at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase plus the Applicable Premium
(as defined). See "Description of the Exchange Notes--Merger or Consolidation"
and "Risk Factors--Ability to Reorganize as a Foreign Corporation."
The Exchange Notes will be guaranteed (the "Guarantees") on a senior
subordinated basis by Carson Products Company, a Delaware subsidiary of the
Company, and certain other Restricted Subsidiaries (as defined) of the Company
(collectively, the "Guarantors"). The Exchange Notes and the Guarantees will be
general unsecured obligations of the Company and the Guarantors, respectively.
The Exchange Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company, including indebtedness
under the New Credit Facility (as defined), and pari passu or senior in right
of payment to any existing and future Subordinated Indebtedness (as defined) of
the Company. The Guarantees will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Guarantors, including
indebtedness under the New Credit Facility, and pari passu or senior in right
of payment to any existing and future Subordinated Indebtedness of the
Guarantors. As of September 30, 1997, on a pro forma basis after giving effect
to the sale of the Existing Notes, the aggregate principal amount of Senior
Indebtedness of the Company and the Restricted Subsidiaries to which the Notes
and the Guarantees would have been subordinated would have been approximately
$0.6 million. After giving effect to the New Credit Facility, the Company and
the Restricted Subsidiaries would have had additional borrowing availability of
approximately $75.0 million as of September 30, 1997, subject to certain
(Continued on next page)
----------
SEE "RISK FACTORS", WHICH BEGINS AT PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is , 1998.
<PAGE>
(Continued from cover)
borrowing base and other limitations. The Indenture will permit the Company
and its subsidiaries to incur additional indebtedness, including Senior
Indebtedness, subject to certain limitations. See "Description of the Exchange
Notes" and "Description of the New Credit Facility."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantors contained in the Registration
Rights Agreement dated November 6, 1997 (the "Registration Rights Agreement")
by and among the Company, Carson Products Company, Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as the Initial Purchasers (the "Initial Purchasers"), with
respect to the initial sale of the Existing Notes.
The Company will accept for exchange any and all Existing Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City
time, on , 1998, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Expiration Date will not in any event be extended to a
date later than , 1998. Tenders of Existing Notes may be withdrawn at any
time prior to 5:00 p.m. New York City time, on the Expiration Date. In the
event the Company terminates the Exchange Offer, and does not accept for
exchange any Existing Notes with respect to the Exchange Offer, the Company
will promptly return the Existing Notes to the holders thereof. The Exchange
Offer is not conditioned upon any minimum principal amount of Existing Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions. The Existing Notes may be tendered only in integral multiples of
$1,000.
The Company is offering the Exchange Notes in reliance on certain
interpretive letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties in unrelated transactions.
Based upon such interpretive letters, the Company is of the view that holders
of Existing Notes (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act")) who exchange their Existing Notes for Exchange Notes
pursuant to the Exchange Offer generally may offer such Exchange Notes for
resale, resell such Exchange Notes and otherwise transfer such Exchange Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act; provided that the Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes and
is not engaged in and does not intend to engage in a distribution of the
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Existing Notes if
such Exchange Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. See "Plan of Distribution." If
a holder of Existing Notes does not exchange such Existing Notes for Exchange
Notes pursuant to the Exchange Offer, such Existing Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon. In
general, the Existing Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. Holders of Existing Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law in connection with the
Exchange Offer. See "The Exchange Offer--Consequences of Failure to Exchange;
Resales of Exchange Notes."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes, or the price at which holders would be able to sell the
Exchange Notes. If a market for the Exchange Notes should develop, such
Exchange Notes could trade at a discount from their principal amount. The
Initial Purchasers have advised the Company that they currently intend to make
a market for the Exchange Notes. However, the Initial Purchasers are not
obligated to do so and any market making may be discontinued at any time
without notice.
The Company will not receive any proceeds from the Exchange Offer. Pursuant
to the Registration Rights Agreement, the Company or the Guarantors will pay
all the expenses incident to the Exchange Offer. See "The Exchange Offer."
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act, with respect to
the Exchange Notes. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. For further information with respect to the Company or the Exchange
Notes offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
public reference facility maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information
with the Commission. Such reports, proxy statements, and other information may
be inspected and copied at the Public Reference Room of the Commission, 450
Fifth Street, N.W., Washington, DC 20549; and at the Commission's regional
offices in Chicago (Northwest Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, IL 60661-2511), and in New York (7 World Trade Center, 13th
Floor, New York, NY 10048). Copies of such material may be obtained from the
Public Reference Section of the Commission 450 Fifth Street, N.W., Washington,
DC 20549 at prescribed rates or through the Commission's web site
(http://www.sec.gov).
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the related notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated or
the context otherwise requires, all references herein to the "Company" or
"Carson" refer to Carson, Inc. (the parent holding company of Carson Products
Company), Aminco, Inc. (the "Predecessor") and their direct and indirect
subsidiaries. Unless otherwise indicated, industry data and market-related data
regarding the Company's products in this Prospectus are based on sales
information collected from store register scanners at a sampling of food store
chains, drug store chains and mass merchandisers in the United States and
published by Information Resources Inc. ("IRI"). In addition, IRI does not
track sales of products at beauty and barber supply stores ("B&Bs"), a
significant distribution channel for the Company's ethnic hair care products.
Therefore, the IRI information is limited in scope with respect to the
Company's ethnic personal care products. While the Company believes this
information to be reliable, the Company has not independently verified the data
contained therein. All references herein to statement of operations data on a
pro forma basis give effect to the Cutex Acquisition (as defined) as if such
acquisition had occurred at the beginning of the period presented. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Overview."
THE COMPANY
GENERAL
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for both the ethnic market and the mass market.
The Company believes that it is one of the leading global manufacturers and
marketers of ethnic hair care products for persons of African descent. The
Company's flagship brand, Dark & Lovely, is the most widely recognized ethnic
brand name in the U.S. retail ethnic hair care market. The Company has the
number one retail market position in three of the four ethnic hair care
segments in the United States in which it currently competes, according to IRI.
The Company currently sells over 70 different products specifically formulated
to address the unique physiological characteristics of persons of African
descent under six principal brand names: Dark & Lovely, Excelle, Beautiful
Beginnings, Dark & Natural, Magic and Let's Jam. The majority of the Company's
net sales have historically been derived from hair relaxers and texturizers,
which are used to chemically treat and straighten hair (constituting
approximately 42.1% of the Company's net sales in the twelve months ended
September 30, 1997), hair color, men's depilatory products and hair care
maintenance products, primarily for persons of African descent. In addition,
the Company is expanding its product offerings to other segments of the ethnic
personal care market, including cosmetics and skin care products.
The Company is also a leading marketer of nail care products to the U.S. mass
market under the Cutex brand name. Cutex is the leading brand of nail polish
remover, with an estimated 31.8% market share in the twelve months ended June
1997, according to IRI. Other products marketed under the Cutex brand name
include nail enamel, nail care treatments and the newly introduced women's
depilatory product, Naturally Soft Body Creme. Carson acquired the rights to
use the Cutex brand name in the United States and Puerto Rico in April 1997
(the "Cutex Acquisition"). The Cutex Acquisition is expected to create an
entree into the U.S. mass market for products developed by Carson and increase
the Company's overall distribution strength.
During the twelve months ended September 30, 1997, the Company generated, on
a pro forma basis, net sales of $109.1 million and earnings before interest,
taxes, depreciation and amortization, excluding nonrecurring incentive
compensation charges ("Adjusted EBITDA") of $21.4 million. International net
sales represented 28.2% of total historical net sales for the twelve months
ended September 30, 1997. International net sales grew 51.5% in the twelve
months ended September 30, 1997 compared to the twelve months ended September
30, 1996. Since the fiscal year ended March 31, 1996 (the year in which the
Predecessor was acquired) through September 30, 1997, the Company experienced
net sales and Adjusted EBITDA compound annual growth of 28.1% and 15.3%,
respectively. See "The Company--Background." The Company's Class A common stock
is
1
<PAGE>
listed on the New York Stock Exchange (the "NYSE") and the shares of the
Company's South African subsidiary, Carson Holdings Limited ("Carson South
Africa"), are listed on the Johannesburg Stock Exchange.
COMPETITIVE STRENGTHS
The Company had the number one U.S. retail market position in three of the
four ethnic hair care categories in which it competes (hair relaxers and
texturizers, hair color and men's depilatory products) for the twelve months
ended June 1997, according to IRI. The acquisition of the Let's Jam brand name
in April 1997 added one of the leading brands in the fourth category, ethnic
hair care maintenance products. According to IRI, the Cutex brand name had the
number one market position in the United States in nail polish remover in the
same period. The Company attributes its leading market positions to a number of
competitive strengths, including its strong brand names, dedicated sales force,
broad distribution, research and development capabilities and experienced
management team.
. Strong Brands. The Company currently sells its products under seven
principal brand names: Dark & Lovely, Excelle, Beautiful Beginnings,
Dark & Natural, Magic, Let's Jam and Cutex. The Company's flagship
brand, Dark & Lovely, is the most widely recognized ethnic brand name in
the U.S. retail ethnic hair care market for African-Americans and Cutex
is the leading brand name for nail polish removers in the U.S. mass
market. The Company believes that the strength of its brands is based
upon product quality and value, properly targeted advertising, package
design, reputation for innovation and focused commitment to the unique
needs of its consumers.
. Experienced Sales Force and Broad Distribution. The Company believes
that it has the largest direct sales force serving the U.S. retail
ethnic hair care market. The Company also utilizes the experienced sales
force of AM Cosmetics, Inc., an affiliate of the Company ("AM
Cosmetics"), in the U.S. mass market. Both of these sales forces enhance
the Company's ability to further penetrate its markets with current and
new products. In the United States, the Company benefits from having its
extensive product line distributed broadly through several principal
channels including mass merchandisers, major food and drug chains,
discount chains and B&Bs (e.g., Alberto-Culver Company's Sally's Beauty
Supply stores and members of the National Beauty Supply Dealers
Association).
. Focused Research and Development. The Company believes that its
tradition of technological innovation and its focused research and
development ("R&D") effort are important to maintaining its market
leadership position. Three of the ethnic hair care industry's most
significant innovations were introduced by the Company: the first hair
color developed exclusively for hair of persons of African descent
(1972), the first no-lye relaxer (1978), which provided a safe relaxer
product for home use and the Fail Safe technology for no-lye relaxers
(1993), the only relaxer system to eliminate problems associated with
imprecise mixing, which the Company believes is the most common cause of
consumer complaints regarding relaxers. In addition, Carson has recently
introduced a women's depilatory product, Cutex Naturally Soft Body
Creme, which the Company believes eliminates many of the negative
features usually associated with women's hair removers. The Company,
through its affiliation with AM Cosmetics, also recently developed Dark
& Lovely Cosmetics, which the Company believes is the first
hypoallergenic, premium quality ethnic cosmetics line.
. Experienced Management Team. Since 1995, a team of seasoned senior
executives with extensive experience in the ethnic market and consumer
products industry has been recruited to build on the Company's strong
position in the global ethnic hair care market. As Chairman and Chief
Executive Officer, Dr. Leroy Keith, former President of Morehouse
College, entrepreneur and prominent member of the African-American
community, provides the Company with leadership and vision. Joyce M.
Roche, President and Chief Operating Officer, has over 20 years of
experience in the health and beauty aids industry, including positions
as Senior Vice President of Marketing and Vice President of Global
Marketing at Avon Products, Inc. ("Avon") and Director of Marketing at
Revlon, Inc. ("Revlon"). Robert W. Pierce, Executive Vice President of
Finance and Chief Financial Officer, has over 20 years
2
<PAGE>
of experience in the health and beauty aids industry, most recently as
chief financial officer of Maybelline, Inc.
GROWTH STRATEGY
By adhering to the following strategies, the Company believes that it is
well positioned to grow both internally and through acquisitions, in order to
enhance its market positions in both the ethnic and mass markets for personal
care products:
. Increase Share of Existing Markets. The Company seeks to increase its
market share in existing markets through product innovation and ongoing
upgrading of existing products. The Company has been on an aggressive
schedule of new product introductions or existing product upgrades with
19 stock-keeping units ("SKUs") having been introduced from January 1,
1996 through June 30, 1997 and an additional five SKUs expected to be
introduced during the remainder of 1997, in addition to Let's Jam
products, Dark & Lovely Cosmetics and Carson Compositions professional
hair care products.
. Leverage Brands into Cosmetics and Other New Product Categories. The
Company believes that its flagship Dark & Lovely brand name is
transferable to other ethnic health and beauty aids categories,
including cosmetics and skin care products. The Company recently
introduced a new line of cosmetics targeted to women of color under its
Dark & Lovely brand name which it began to ship in June 1997. Similarly,
the Company used the Cutex brand name to introduce its new women's
depilatory product, Naturally Soft Body Creme, which began to ship in
October 1997.
. Continue International Expansion. The Company believes it is poised for
continued growth in its international markets, particularly Africa,
Brazil and the Caribbean, each of which has a significant concentration
of consumers of African descent. The Company's key strategic initiatives
to achieve this international growth include, depending on the market,
local manufacturing and distribution, introduction of new products and
new product categories and selected acquisitions to increase market
presence. The Company currently markets its entire product line
(excluding Cutex products) in over 60 countries worldwide under the same
brand names as it uses in the United States. International sales in the
twelve months ended September 30, 1997 of $28.0 million represented
28.2% of the Company's net sales for such period and increased 51.5%
compared to the twelve months ended September 30, 1996.
. Enter the U.S. Professional Salon Market. The Company has developed a
new professional ethnic hair care product line under the Carson
Compositions brand name that will offer certain technological advantages
compared to ethnic hair care products currently offered in salons, as
well as a complementary line of hair care maintenance products for
exclusive purchase in salons. The Carson Compositions line will be
comprised of 54 SKUs in the relaxer, hair color and maintenance
categories. The Company estimates that there are in excess of 28,000
African-American hair care salons in the United States comprising an
approximately $2.1 billion market in 1995, according to Salon
Information Systems, Inc. The Company is engaged in market research and
expects to enter the U.S. salon market in the fourth quarter of 1997.
. Capitalize on Selective Acquisition Opportunities. In addition to
internally generated growth, the Company continually considers the
selective acquisition of related brands and businesses which would
increase the Company's market share or expand and complement its product
lines. In 1997, the Company acquired the right to use the Cutex brand
name and certain related assets in the United States and Puerto Rico,
the Let's Jam hair styling products brand name and certain related
assets, the Nu-Me cosmetics and skin care brand name and certain related
assets, the Restore Plus hair care brand name and certain related assets
and the Seasilk toiletries brand name and certain related assets. See
"Unaudited Pro Forma Consolidated Financial Data." There can be no
assurance that additional
3
<PAGE>
suitable acquisition or joint venture candidates can be identified, or
if an acquisition is completed, that the operations will be successfully
integrated or otherwise not have an adverse effect on the Company.
BACKGROUND AND ACQUISITIONS
The Company is a publicly-traded Delaware corporation listed on the NYSE. On
August 23, 1995, DNL Savannah Acquisition Corp. ("Acquisition Corp."), a
Delaware corporation and a wholly-owned subsidiary of the Company, acquired
all of the stock of the Predecessor (the "Aminco Acquisition"). Acquisition
Corp. was formed by Morningside Capital Group, L.L.C., a Connecticut limited
liability company ("Morningside"), as financial sponsor, on behalf of an
investor group consisting of DNL Partners, Limited Partnership ("DNL
Partners"), a partnership formed by Dr. Leroy Keith, the principals of
Morningside and the lenders providing the acquisition financing. The
Predecessor was acquired for a purchase price of approximately $95 million
(inclusive of transaction costs), funded primarily with Company debt. The
principal shareholder of the Predecessor, Mr. A. Minis, Jr., owned and
controlled the Predecessor since 1951 when he purchased it from its original
founders and owners who had started the business in 1901 with a single
product--Magic men's depilatory powder. Concurrent with the Aminco
Acquisition, Acquisition Corp. merged into the Company's subsidiary, Carson
Products Company ("Carson Products").
On April 8, 1997, the Company acquired the complete Let's Jam product line
from New Image Laboratories, Inc. in a cash transaction valued at $5.6
million. Let's Jam Shining and Conditioning Gel, one of the leading styling
products in the ethnic hair styling category in the United States, is used to
treat the unique hair care needs of persons of African descent. Other Let's
Jam products include conditioners, shampoo and spritzes, also for persons of
African descent. From the time of the acquisition through September 30, 1997,
the Company recorded an aggregate of $1.2 million of net sales from the total
Let's Jam product line.
On April 30, 1997, the Company consummated the Cutex Acquisition. Through an
Asset Purchase Agreement with Conopco, Inc. d/b/a Chesebrough-Pond's USA Co.
("Chesebrough-Pond's USA"), the Company acquired the rights to sell,
distribute, package, manufacture and market in the United States and Puerto
Rico (i) Cutex nail polish remover and (ii) Cutex nail enamel, nail care
treatment products and nail care implements, which had been marketed under
license by Jean Philippe Fragrances, Inc. ("Jean Philippe"). The aggregate
purchase price was approximately $41.4 million, with funds provided by
additional long-term debt. Net product sales of the Cutex nail polish remover
line approximated $18.2 million, excluding any results from the sale of nail
enamel or other products sold under license by Jean Philippe, for the twelve
months ended December 31, 1996. From the time of the acquisition through
September 30, 1997, the Company recorded an aggregate of $12.1 million of net
sales from Cutex nail polish remover, nail enamel, nail care treatment
products and nail care implements.
In the first half of 1997, Carson South Africa, through its wholly-owned
subsidiary, consummated three acquisitions in the African personal care
industry including the African Nu-Me Cosmetics, Restore Plus and Seasilk brand
names and certain related assets. The total purchase price including fees for
these three acquisitions was approximately $1.5 million, comprised of $0.7
million in cash and 500,000 shares of Carson South Africa common stock.
Carson South Africa announced on November 13, 1997 that it had completed the
acquisition of A&J Cosmetics, a toiletries company. A&J Cosmetics manufactures
and owns the Sadie brand of toiletry products, which has been selling in the
ethnic market for over 20 years and competes primarily in the roll-on
deodorant market. Carson South Africa will fund the acquisition with the
issuance of shares of its common stock. The purchase consideration payable for
the acquisition is approximately $10.3 million, with an additional purchase
price contingency of up to $2.4 million based upon the after tax profit of the
business for the year ended December 31, 1998. Approximately $5.9 million of
the purchase price is payable on January 31, 1998, approximately $4.4 million
is payable on or before January 3, 1999 and the remainder (subject to
adjustment) is payable by no later than March 31, 1999.
4
<PAGE>
THE EXCHANGE OFFER
Securities Offered...... $100,000,000 aggregate principal amount of 10 3/8%
Senior Subordinated Notes due 2007, Series B. The
terms of the Exchange Notes and the Existing Notes
are identical in all material respects, except for
certain transfer restrictions and registration rights
relating to the Existing Notes.
Registration Rights The Company, Carson Products and the Initial
Agreement.............. Purchasers entered into a Registration Rights
Agreement which grants the holders of the Existing
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which terminate upon the consummation of the
Exchange Offer.
The Exchange Offer...... The Company is offering to exchange up to
$100,000,000 aggregate principal amount of 10 3/8%
Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes") for up to $100,000,000 aggregate
principal amount of its outstanding 10 3/8% Senior
Subordinated Notes due 2007, Series A (the "Existing
Notes"). Existing Notes may be exchanged only in
integral multiples of $1,000.
Expiration Date;
Withdrawal of The Exchange Offer will expire at 5:00 p.m., New York
Tenders................ City time, on , 1998, or such later date and
time to which it may be extended by the Company. The
tender of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination of
the Exchange Offer.
Certain Conditions to
the Exchange Offer..... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer--Certain Conditions to the
Exchange Offer."
Procedures for
Tendering Existing Each holder of Existing Notes wishing to accept the
Notes.................. Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Existing Notes and any other required documentation
to the Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of Transmittal,
each holder will represent to the Company that, among
other things, (i) any Exchange Notes to be received
by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement or understanding
with any person to participate in the distribution of
the Exchange Notes and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities
Act, of the Company or, if it is an affiliate, it
will comply with the registration and prospectus
delivery requirements of the Securities Act to the
extent applicable.
5
<PAGE>
Guaranteed Delivery Holders of Notes who wish to tender their Existing
Procedures............. Notes and whose Existing Notes are not immediately
available or who cannot deliver their Existing Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date, must tender their
Existing Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Registration The Company has agreed to use its best efforts to
Requirements........... consummate by , 1998 the registered Exchange
Offer pursuant to which holders of the Existing Notes
will be offered an opportunity to exchange their
Existing Notes for the Exchange Notes which will be
issued without legends restricting the transfer
thereof. In the event the applicable interpretations
of the staff of the Commission do not permit the
Company to effect the Exchange Offer or in certain
other circumstances, the Company has agreed to file a
Shelf Registration Statement covering resales of the
Existing Notes and to use its best efforts to cause
such Shelf Registration Statement to be declared
effective under the Securities Act and, subject to
certain exceptions, keep such Shelf Registration
Statement effective until two years after the
effective date thereof.
Certain Federal Income
Tax Considerations..... The exchange of Notes pursuant to the Exchange Offer
should not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds......... The Company will not receive any proceeds from the
Exchange Offer.
Exchange Agent.......... Marine Midland Bank will act as Exchange Agent in
connection with the Exchange Offer (the "Exchange
Agent"). The address and telephone number of the
Exchange Agent are set forth in "The Exchange Offer--
Exchange Agent."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the Exchange Notes will not be eligible for
PORTAL trading.
TERMS OF THE EXCHANGE NOTES
The terms of the Exchange Notes and the Existing Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Existing Notes.
Principal Amount........ $100,000,000.
Maturity Date........... November 1, 2007.
6
<PAGE>
Interest Payment Interest on the Exchange Notes will accrue at the
Dates.................. rate of 10 3/8% per annum, payable semi-annually in
cash in arrears on May 1 and November 1 of each year,
commencing May 1, 1998. Holders of the Exchange Notes
will also receive accrued interest from the last
interest payment date on which interest was paid on
the Existing Notes surrendered in exchange therefor
or, if no such interest has been paid on the Existing
Notes, from the date of original issue of the
Existing Notes. Interest on the Existing Notes
accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.
Optional Redemption..... On or after November 1, 2002, the Company may redeem
the Exchange Notes, at the redemption prices set
forth herein, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. Notwithstanding the foregoing, at any
time prior to November 1, 2000, the Company may
redeem up to 35% of the aggregate principal amount of
the Notes with the net proceeds of one or more Equity
Offerings at a redemption price equal to 110.375% of
the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date
of redemption; provided that at least 65% in
aggregate principal amount of the Notes originally
issued remains outstanding after each such
redemption. See "Description of the Exchange Notes--
Redemption of Notes--Optional Redemption."
Ranking................. The Exchange Notes will be general unsecured
obligations of the Company, subordinated in right of
payment to all existing and future Senior
Indebtedness of the Company, including indebtedness
under the New Credit Facility, and pari passu or
senior in right of payment to any future subordinated
indebtedness of the Company. As of September 30,
1997, on a pro forma basis after giving effect to the
sale of the Existing Notes, the aggregate principal
amount of Senior Indebtedness of the Company and the
Restricted Subsidiaries to which the Exchange Notes
and the Guarantees would have been subordinated would
have been approximately $0.8 million. After giving
effect to the New Credit Facility, the Company and
the Restricted Subsidiaries would have had additional
borrowing availability of approximately $75.0 million
as of September 30, 1997, subject to certain
borrowing base and other limitations. The Indenture
permits the Company and its subsidiaries to incur
additional indebtedness, including Senior
Indebtedness, subject to certain limitations. See
"Description of the Exchange Notes--Certain
Covenants" and "Description of the New Credit
Facility."
Guarantees.............. The Exchange Notes will be guaranteed (the
"Guarantees") on an unsecured, senior subordinated
basis by Carson Products and certain of the Company's
other Restricted Subsidiaries (collectively, the
"Guarantors"). The Guarantees will be subordinated in
right of payment to all existing and future Senior
Indebtedness of the Guarantors to the same extent
that the Exchange Notes are subordinated to Senior
Indebtedness of the Company.
7
<PAGE>
Certain Offers to Upon a Change of Control, the Company will be
Purchase............... required to make an offer to purchase all of the
outstanding Exchange Notes at a price equal to 101%
of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of purchase. See "Description of the
Exchange Notes--Change of Control." In addition,
prior to certain specified reorganizations of the
Company, the Company will be required to make an
offer to purchase all of the outstanding Exchange
Notes at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date
of purchase plus the Applicable Premium. See
"Description of the Exchange Notes--Merger or
Consolidation" and "Risk Factors--Ability to
Reorganize as a Foreign Corporation."
Certain Covenants....... The Indenture contains certain covenants that, among
other things, limit the ability of the Company and
its Restricted Subsidiaries to: (i) incur additional
indebtedness; (ii) repay certain other indebtedness;
(iii) pay dividends or make certain other
distributions; (iv) repurchase equity interests; (v)
consummate certain asset sales; (vi) enter into
certain transactions with affiliates; (vii) enter
into sale and leaseback transactions; (viii) incur
liens; (ix) merge or consolidate with any other
person; (x) enter into certain guarantees of
indebtedness; or (xi) sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially
all of the assets of the Company or a Restricted
Subsidiary. In addition, under certain circumstances,
the Company will be required to make an offer to
purchase the Exchange Notes at a price equal to 100%
of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of purchase, with the proceeds of certain
Asset Sales (as defined). See "Description of the
Exchange Notes."
RISK FACTORS
An investment in the Exchange Notes involves certain risks associated with
the Company's business and the industry in which it competes, including (i)
risks relating to substantial leverage and debt service; (ii) the subordination
of the Exchange Notes and the Guarantees and risks relating to the Company's
holding company structure; (iii) risks inherent in the Company's growth
strategy; (iv) quarterly fluctuation of operating results; (v) the Company's
reliance on certain third party manufacturers; (vi) the Company's reliance on
certain of its suppliers; (vii) the Company's dependence on its trademarks in
its current and future markets; (viii) the increased risk of disruption of the
business because of the concentration of the Company's manufacturing operations
in Savannah, Georgia; (ix) social, political and economic risks that may affect
the Company's foreign operations or cause foreign currency fluctuations; (x)
competition; (xi) changes in distribution channels; (xii) the effect on the
Company of compliance with consumer laws and government regulation; (xiii)
reliance on key managers; (xiv) control of the Company by certain existing
stockholders; (xv) the uncertainty of forward-looking information; (xvi) risks
relating to the cost of future compliance with environmental requirements;
(xvii) risks related to the mandatory offer to repurchase the Exchange Notes
upon a Change of Control; (xviii) risks relating to the Company's ability to
reorganize as a foreign corporation; (xix) fraudulent transfer considerations;
and (xx) the absence of a public market for the Exchange Notes. Failure to
exchange Existing Notes for Exchange Notes also involves certain risks. For a
more detailed discussion of these and certain other risks, see "Risk Factors."
8
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
Set forth below are summary consolidated historical and pro forma financial
data of the Predecessor and the Company as of the dates and for the periods
shown. Effective December 31, 1996, the Company changed the end of its fiscal
year from March 31 to December 31. References herein to the "Transition Period"
refer to the nine months ended December 31, 1996. The summary consolidated
historical financial data of the Predecessor as of March 31, 1993 and 1994 and
for the fiscal years ended March 31, 1993 and 1994 were derived from audited
consolidated historical financial statements of the Predecessor not included in
this Prospectus. The summary consolidated historical financial data of the
Predecessor as of March 31, 1995 and for the fiscal year ended March 31, 1995
were derived from the audited consolidated balance sheet not included in this
Prospectus and the audited historical statements of income and of cash flows of
the Predecessor for such periods appearing elsewhere in this Prospectus. The
summary consolidated historical financial data for the fiscal year ended March
31, 1996 were derived from the audited consolidated historical financial
statements of the Predecessor for the period from April 1, 1995 to August 22,
1995 and from the audited consolidated historical financial statements of the
Company for the period from August 23, 1995 through March 31, 1996, each
appearing elsewhere in this Prospectus. The summary consolidated historical
financial data of the Company as of December 31, 1996 and for the Transition
Period were derived from the audited consolidated historical financial
statements of the Company appearing elsewhere in this Prospectus. The summary
consolidated historical financial data of the Company as of and for the nine
months ended September 30, 1996 and 1997 were derived from the unaudited
consolidated historical financial statements of the Company appearing elsewhere
in this Prospectus. The summary pro forma consolidated financial data for the
nine months ended December 31, 1996 and the nine months and twelve months ended
September 30, 1997 were derived from the Unaudited Pro Forma Consolidated
Financial Data of the Company, together with the notes thereto. The summary
consolidated historical data of the Company as of and for the nine months ended
September 30, 1996 and 1997 are unaudited; however, in the opinion of
management, all such unaudited data include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
information included therein. The results of operations for the nine months
ended September 30, 1996 and 1997 are not necessarily indicative of the results
for the entire fiscal year or any other interim period. Because of the
revaluation of the assets and liabilities and related impact to the statement
of operations, the financial statements of the Predecessor for the periods
prior to August 23, 1995 are not strictly comparable to those of the Company
subsequent to that date. The summary consolidated historical financial data
should be read in conjunction with "Unaudited Pro Forma Consolidated Financial
Data," "Selected Consolidated Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Predecessor and the Company and
accompanying notes thereto appearing elsewhere in this Prospectus.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(A) COMBINED(A) COMPANY(A)
-------------------------- ----------- -----------------------------
TRANSITION
PERIOD
FROM
APRIL 1, NINE MONTHS
1996 TO ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------ ----------------
1993 1994 1995 1996 1996 1996 1997
------- ------- ------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $49,335 $50,108 $58,126 $68,319 $59,938 $56,488 $77,791
Cost of goods sold(b)... 21,585 24,222 25,692 30,319 26,940 24,853 35,431
------- ------- ------- ------- ------- ------- -------
Gross profit............ 27,750 25,886 32,434 38,000 32,998 31,635 42,360
Marketing and selling
expense................ 14,863 14,639 17,888 17,048 15,692 13,283 19,602
General and administra-
tive expense........... 5,453 6,834 5,246 7,337 5,836 6,658 9,005
Incentive
compensation(c)........ -- -- -- -- 7,123 7,123 --
Depreciation and amorti-
zation................. 695 828 1,085 1,833 1,896 1,830 2,686
------- ------- ------- ------- ------- ------- -------
Operating income........ 6,739 3,585 8,215 11,782 2,451 2,741 11,067
Interest expense........ (115) (97) (136) (4,543) (4,545) (5,523) (3,924)
Net income (loss)....... 4,586 1,511 5,438 5,038 (6,783) (4,093) 4,441
OTHER DATA:
Adjusted EBITDA(d)...... $ 7,434 $ 4,521 $ 9,450 $13,800 $11,533 $11,875 $13,644
Non-acquisition related
capital expenditures... 1,330 1,515 974 1,845 3,805 3,895 5,108
Net sales growth(e)..... (1.2)% 1.6% 16.0% 17.5% 18.6% 13.3% 37.7%
Adjusted EBITDA
growth(e).............. (14.1) (39.2) 109.0 46.0 17.2 36.7 14.9
Gross profit as a per-
centage of net sales... 56.2 51.7 55.8 55.6 55.1 56.0 54.5
Adjusted EBITDA as a
percentage of net
sales.................. 15.1 9.0 16.3 20.2 19.2 21.0 17.5
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(F) (G)
----------------------------------------------------------
NINE MONTHS NINE MONTHS TWELVE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1997 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $74,781 $82,997 $109,100(g)
Cost of goods sold(b)... 33,286 37,738 49,884
------- ------- --------
Gross profit............ 41,495 45,259 59,216(g)
Marketing and selling
expense................ 17,958 20,449 27,081
General and administra-
tive expense........... 5,836 9,005 10,768
Incentive
compensation(c)........ 7,123 -- --
Depreciation and amorti-
zation................. 2,721 3,273 4,149
------- ------- --------
Operating income........ 7,857 12,532 17,218
Interest expense........ (7,840) (7,830) (10,467)
(Loss) income from con-
tinuing operations..... (1,947) 3,043 4,310
OTHER DATA:
Adjusted EBITDA(d)...... $17,701 $15,696 $ 21,367(g)
Non-acquisition related
capital expenditures
("CAPEX").............. 3,805 5,108 5,879
Net sales growth(e)..... 48.0% 46.9% 50.6%
Adjusted EBITDA
growth(e).............. 79.9 32.2 46.8
Gross profit as a per-
centage of net sales... 55.5 54.5 53.4
Adjusted EBITDA as a
percentage of net
sales.................. 23.7 18.9 19.8
Ratio of Adjusted EBITDA
to interest expense.... 2.0x(g)
Ratio of Adjusted EBITDA
less CAPEX to interest
expense................ 1.5(g)
Ratio of net debt to Ad-
justed EBITDA(h)....... 4.2(g)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(I)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 4,987 11,130
Working capital......................................... 28,976 39,838
Total assets............................................ 170,849 179,924
Total debt (including current maturities)............... 87,918 100,642
Stockholders' equity.................................... 58,905 56,975
</TABLE>
10
<PAGE>
- --------
(a) The fiscal year ended March 31, 1996 reflects data of the Company and its
subsidiaries and of the Predecessor, all of the stock of which was acquired
by the Company on August 23, 1995. The periods prior to and including
August 22, 1995 reflect data of the Predecessor exclusively. See "The
Company--Background." Because of the revaluation of the assets and
liabilities acquired and the related impact to the statement of operations,
the financial statements of the Predecessor for the periods prior to August
23, 1995 are not strictly comparable to those of the Company subsequent to
that date. The combined presentation is not in conformity with generally
accepted accounting principles but is included for comparative purposes.
(b) During the second quarter of 1997, the Company changed its method of
valuing inventories in the United States from the lower of last-in, first-
out (LIFO) cost or market to the lower of first-in, first-out (FIFO) cost
or market. To the extent material, the effect of this change has been
reflected in all periods presented in these financial statements. See Note
15 of Notes to Consolidated Financial Statements of the Company appearing
elsewhere in this Prospectus.
(c) The Company recognized $7.1 million of non-recurring incentive compensation
charges during the nine-month period ended December 31, 1996 relating to
costs under certain long-term incentive compensation agreements and the
purchase of shares prior to its initial public offering by several outside
directors and certain members of senior management and for the shares of
Carson South Africa awarded to certain members of its management.
Approximately $6.3 million of these charges were incurred in the six months
ended December 31, 1996.
(d) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and Adjusted EBITDA represents EBITDA before nonrecurring
incentive compensation charges. While Adjusted EBITDA should not be
construed as a substitute for net income or a better indicator of liquidity
than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. Adjusted EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs.
(e) Current pro forma period versus the year earlier actual comparable prior
period.
(f) The pro forma consolidated data gives effect to the Cutex Acquisition, the
sale of the Existing Notes, the application of the net proceeds therefrom
and the refinancing of the Existing Bank Credit Facility with the New
Credit Facility.
(g) The pro forma consolidated data presented excludes all pre-acquisition
results of Let's Jam hair styling products (acquired by the Company during
April 1997) and Jean Philippe (which produced under license Cutex branded
nail enamel and related products). In the five month period ended September
30, 1997 since the acquisitions, the Company generated net sales of $4.3
million, gross profit of $2.2 million and EBITDA of $1.7 million from Let's
Jam products and Cutex products previously sold by Jean Philippe. There is
no assurance that the Company will continue to achieve the same rate of
performance.
(h) Represents the ratio of total debt (including current portion) less cash
and cash equivalents to Adjusted EBITDA.
(i) Adjustments include the repayment of all borrowings outstanding under the
Existing Bank Credit Facility of $87.3 million. Additional proceeds from
the sale of the Existing Notes, net of expenses related to the New Credit
Facility and the sale of the Existing Notes, are included in cash. See "Use
of Proceeds."
11
<PAGE>
RISK FACTORS
Holders of Existing Notes should consider carefully all of the information
set forth in this Prospectus and, in particular, should evaluate the following
risks before deciding to accept the Exchange Offer.
LEVERAGE AND DEBT SERVICE
After the sale of the Existing Notes and application of the proceeds
therefrom, the Company has substantial indebtedness and debt service
obligations. At September 30, 1997, on a pro forma basis after giving effect
to the sale of the Existing Notes and the use of proceeds described herein,
the Company's total long-term indebtedness, on a consolidated basis, would
have been approximately $100.6 million. After giving effect to the New Credit
Facility, the Company and the Restricted Subsidiaries would have had
additional borrowing availability of approximately $75.0 million as of
September 30, 1997, subject to certain borrowing base and other limitations.
See "Description of the New Credit Facility." In addition, subject to the
restrictions under the New Credit Facility and the Indenture, the Company may
incur additional indebtedness, including Senior Indebtedness, from time to
time. See "Description of the Exchange Notes--Certain Covenants--Limitation on
Incurrence of Indebtedness."
The level of the Company's leverage may have important consequences for the
Company, including: (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes may be impaired or such financing may not be on terms favorable to
the Company; (ii) a portion of the Company's cash flow will be used to pay the
Company's interest expense and under certain conditions to repay indebtedness,
which will reduce the funds that would otherwise be available to the Company
for its operations and future business opportunities; (iii) a substantial
decrease in net operating cash flows or an increase in expenses of the Company
could make it difficult for the Company to meet its debt service requirements
and force it to modify its operations; (iv) the Company may be more highly
leveraged than its competitors, which may place it at a competitive
disadvantage; and (v) the Company's leverage may limit its flexibility to
react to changes in its operating environment or economic conditions, making
it more vulnerable to a downturn in its business or the economy generally. Any
inability of the Company to service its indebtedness or obtain additional
financing, as needed, would have a material adverse effect on the Company.
The Company's ability to pay principal of, and interest and Liquidated
Damages, if any, on the Exchange Notes and to satisfy its other debt
obligations will depend upon the future operating performance of its
subsidiaries, which may be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control. The Company anticipates that its operating cash flow, together with
borrowings under the New Credit Facility, will be sufficient to meet its
operating expenses and to service its debt requirements as they become due.
However, if the Company is unable to service its indebtedness, it will be
forced to take actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. There can be no assurance that any of these
remedies can be effected on satisfactory terms, if at all.
The New Credit Facility contains restrictive covenants, including
limitations on the incurrence of additional liens or indebtedness, which may
limit the Company's operating flexibility. The New Credit Facility also
requires the Company to satisfy certain financial condition tests, including
total interest coverage ratios, fixed charge coverage ratios and leverage
ratios. The Company's ability to meet those tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those tests. A breach of any of these covenants could result in a default
under the New Credit Facility and the Indenture. Upon the occurrence of an
event of default under the New Credit Facility, the lenders thereunder could
elect to declare all amounts outstanding under the New Credit Facility,
together with accrued interest, to be immediately due and payable. If the
Company were unable to repay those amounts, such lenders could proceed against
the collateral granted to them to secure that indebtedness. Any indebtedness
outstanding under the New Credit Facility is secured by liens on all accounts
receivable, inventory, property, plant and equipment and other personal,
intellectual and real property of the Company and certain of the Company's
subsidiaries and is guaranteed by the Company and
12
<PAGE>
certain of its present and future subsidiaries. If the New Credit Facility and
the Exchange Notes were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full the Exchange Notes.
See "Description of the New Credit Facility."
SUBORDINATION OF THE EXCHANGE NOTES AND THE GUARANTEES; HOLDING COMPANY
STRUCTURE
The Exchange Notes and the Guarantees will be subordinated in right of
payment to all existing and future Senior Indebtedness of the Company and the
Guarantors, respectively, including all obligations under the New Credit
Facility. In the event of a bankruptcy, liquidation or reorganization of the
Company or a Guarantor or in the event of acceleration of any indebtedness of
the Company or a Guarantor upon the occurrence of any event of default, the
assets of the Company or such Guarantor, as the case may be, would be
available to pay obligations on the Exchange Notes and the Guarantees only
after the Senior Indebtedness of the Company and the Guarantors, respectively,
has been paid in full. The Indenture limits, but does not prohibit, the
incurrence by the Company and its Restricted Subsidiaries of additional Senior
Indebtedness. At September 30, 1997, after giving pro forma effect to the sale
of the Existing Notes, the Company and the Restricted Subsidiaries, on a
consolidated basis, would have had approximately $0.6 million in principal
amount of Senior Indebtedness outstanding and would have had additional
borrowing availability under the New Credit Facility of approximately $75.0
million, subject to the certain borrowing base and other limitations.
The Company is structured as a holding company which owns, directly or
indirectly, the stock of its operating subsidiaries. As a holding company, the
Company's cash flow and ability to service its debt obligations, including its
obligations under the Exchange Notes, are dependent on the earnings of its
subsidiaries and the distribution of those earnings to the Company in the form
of dividends, loans, advances or other intercompany transfers of funds. Under
the terms of the Indenture, the Company's subsidiaries may incur certain
indebtedness pursuant to agreements that may restrict the ability of such
subsidiaries to make such dividends or other intercompany transfers necessary
to service the Company's obligations, including its obligations under the
Exchange Notes, the Indenture and the Registration Rights Agreement. Any
failure by the Company to satisfy its obligations with respect to the Exchange
Notes upon maturity (with respect to payments of principal) or prior thereto
(with respect to payments of interest or required repurchases) would
constitute a default under the Indenture and the New Credit Facility and could
cause a default under agreements governing other indebtedness of the Company
and its subsidiaries. See "Description of the Exchange Notes--Certain
Covenants" and "Description of the Exchange Notes--Events of Default and
Remedies."
RISK OF INABILITY TO SUCCESSFULLY IMPLEMENT GROWTH STRATEGY
The Company's growth strategy is to (i) increase its share of existing
markets, (ii) leverage brands into new product categories, (iii) continue
international expansion, (iv) enter the U.S. professional salon market and (v)
continue to capitalize on selective acquisition opportunities. The Company's
continued ability to implement its growth strategy successfully will be
dependent on business, financial and other factors beyond the Company's
control, including prevailing economic conditions, changes in consumer
preferences and changes in the competitive environment. There can be no
assurance that the Company will continue to be successful in the
implementation of its growth strategy. See "Selected Consolidated Historical
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company appearing elsewhere herein.
The Company's ability to anticipate changes in market and industry trends
and to successfully develop and introduce new and enhanced products on a
timely basis will be a critical factor in its ability to grow and remain
competitive. There can be no assurance that new products and product
enhancements will be completed on a timely basis or will enjoy market
acceptance following their introduction. In addition, the anticipated
development schedules for new or improved products are inherently difficult to
predict and are subject to delay or change as a result of component part
manufacturing delay, longer than anticipated R&D or market research, shifting
priorities in response to customers' requirements and competitors' new product
introductions. Moreover, the Company expects that it will devote substantial
resources to R&D efforts, including quality control, and
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marketing to raise consumer awareness of new products. The costs of such
efforts are likely to be expensed as they are incurred, notwithstanding that
the benefits, if any, from such efforts (in the form of increased revenues or
decreased product costs) may not be reflected until subsequent periods. See
"Business--Research and Development and Quality Control."
The Company's growth will be partially dependent upon its ability to
increase its manufacturing capacity. The Company is currently operating at
near capacity in its Savannah facility and at capacity in its South Africa
facility. However, the Company is in the process of reconfiguring its
production lines, as well as outsourcing the manufacture of certain of its
products, in Savannah and expanding its physical space in South Africa in
order to increase the capacity of such facilities. While the Company believes
its sources of financing are adequate to fund its current level of operations,
the Company will need to seek additional debt or equity financing if it makes
significant expansions or acquisitions. Future growth will be dependent, in
part, upon the capital resources available to the Company from time to time.
There can be no assurance that such additional financing, if required, will be
available in amounts and on terms satisfactory to the Company, if at all. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Another element of the Company's growth strategy is to continue to
capitalize on selective acquisition opportunities. However, there can be no
assurance that suitable acquisition or joint venture candidates can be
identified, or that, if identified, adequate financing sources will be
available on terms satisfactory to the Company. There can be no assurance that
the operations of the Company's recent or future acquisitions will be
successfully integrated with those of the Company or that such acquisitions
will not otherwise have an adverse effect on the Company.
If the Company is unable to increase its share of existing and international
markets, leverage brands into new product categories, penetrate the U.S.
professional salon market or continue to capitalize on selective acquisition
opportunities, such failure could have a material adverse effect on the
Company's business, results of operations and financial condition.
OPERATING RESULTS MAY FLUCTUATE QUARTERLY
The Company's operating results historically have varied, and in the future
may vary, significantly from quarter to quarter, in part because of changes in
the Company's product mix, buying patterns of ethnic product distributors, the
timing of, and costs related to, acquisitions, aggressive competition, and
timing of promotions. Historically, the Company has typically experienced its
slowest quarter in the three months ending December 31. The Company's
operating results for any particular quarter are not necessarily indicative of
any future results. The uncertainties associated with new or improved product
introductions and market trends may limit management's ability to accurately
forecast short-term results of operations.
RELIANCE ON THIRD PARTY MANUFACTURERS
The Company relies on a limited number of contractors to manufacture its
products to the Company's specifications. For example, the Company currently
relies on AM Cosmetics to manufacture the Dark & Lovely line of cosmetics and
Cutex nail enamels, Chesebrough-Pond's USA to manufacture the Cutex nail
polish remover products and Cosmetics Essence, Inc. ("CEI") to manufacture the
Company's shampoos and conditioners as well as the Let's Jam line. In the
event that any of the Company's subcontractors were to experience financial,
operational, production, supply or quality assurance difficulties which could
result in a reduction or interruption in supply to the Company or would
otherwise fail to meet the Company's manufacturing requirements, the Company's
business, financial condition and results of operations could be materially
adversely affected. There can be no assurance that the Company's current or
alternative third party manufacturers will be able to meet the Company's
future requirements or that such manufacturing services will continue to be
available to the Company on favorable terms, or at all. To the extent the
Company would be required to find replacements for AM Cosmetics, Chesebrough-
Pond's, CEI or its other manufacturers, a change in manufacturers could result
in cost increases and time delays in deliveries of finished assemblies, which
could
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have a material adverse effect on the Company's business, results of
operations and financial condition, and possibly on its relationships with
customers. See "Business--Manufacturing."
RELIANCE ON SUPPLIERS
The Company purchases raw materials from third-party suppliers for use in
its manufacturing operations. The Company does not have any long-term written
contracts with suppliers. Although the Company believes that other suppliers
are available who can produce similar materials and products, there can be no
guarantee that such materials would be available to the Company on an
immediate basis if needed, or at prices similar to those now paid by the
Company. From time to time, the Company has experienced delays in shipments
from suppliers in the ordinary course of operations, but none of such delays
has had a material adverse effect on the Company's business, results of
operations or financial condition. Guanidine carbonate is an essential raw
material used in the manufacturing of no-lye relaxer products and has been
purchased by the Company for over 15 years from the one principal supplier to
all manufacturers of no-lye relaxers, located in Austria. The Company
maintains a stock of guanidine carbonate at its Savannah facility which could
satisfy its requirements for approximately four to six months of future
production. The Company has begun to source smaller amounts of guanidine
carbonate of comparable quality from other suppliers. In the event that the
Company is unable to obtain sufficient guanidine carbonate from its current
principal supplier, the Company believes that sufficient quantities of
guanidine carbonate could be obtained from these alternative suppliers on
comparable terms before its reserves run out. However, the failure to timely
secure an alternative source of guanidine carbonate in sufficient quantities
and at a price satisfactory to the Company would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Manufacturing."
DEPENDENCE ON TRADEMARKS FOR CURRENT AND FUTURE MARKETS
The market for the Company's products is significantly dependent upon the
goodwill engendered by its trademarks and trade names. Trademark protection is
therefore material to the Company's business. Although the Company's material
trademarks and trade names are registered or in the process of being
registered in the United States and, other than Cutex, in the principal
foreign countries in which the Company sells its products, there can be no
assurance that the Company will be successful in asserting trademark or trade
name protection for its significant marks and names in the United States or
other markets, and the costs to the Company of such efforts may be
substantial. See "Business--Trademarks and Patents."
CONCENTRATED MANUFACTURING OPERATIONS INCREASE RISK OF DISRUPTION
The Company manufactures its products domestically at its facility in
Savannah, Georgia, and internationally at its facilities in Midrand, South
Africa and Accra, Ghana (the Accra facility began production in June 1997).
Any prolonged disruption to the operations of any such facility, whether due
to labor difficulties, destruction of or damage to the facility, severe
weather conditions or other reasons, could have a material adverse effect on
the Company's business, results of operations and financial condition. For
example, hurricanes caused the evacuation of the City of Savannah for two days
during September 1996, resulting in shortfalls in production at the Company's
Savannah facility. The Company maintains business interruption insurance in an
amount which it deems reasonable to cover the occurrence of such events;
however, there can be no assurance that the proceeds of any such insurance
would be sufficient to meet the Company's needs if such an event were to
occur. See "Business--Facilities."
SOCIAL, POLITICAL AND ECONOMIC RISKS AFFECTING FOREIGN OPERATIONS AND EFFECTS
OF FOREIGN CURRENCY FLUCTUATIONS
The Company's products are sold in more than 60 countries and territories
outside the United States and the Company has a manufacturing facility in
Midrand, South Africa as well as in Savannah, Georgia and Accra, Ghana. For
the twelve months ended September 30, 1997, approximately 28.2% of the
Company's net sales and approximately 43.0% of the Company's operating income
were derived from outside the United States, including domestic exports and
sales by the Company's South African operations. All of the Company's sales
are in dollars
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with the exception of sales to South Africa, Botswana, Lesotho, Namibia and
Swaziland which are denominated in South African Rand. A significant component
of the Company's business strategy is to expand its international operations.
The Company is exposed to the risk of changes in social, political and
economic conditions inherent in foreign operations, including changes in the
laws and policies that govern foreign investment in countries where it has
operations as well as, to a lesser extent, changes in U.S. laws and
regulations relating to foreign trade and investment. In addition, the
Company's results of operations and the value of its foreign assets are
affected by fluctuations in foreign currency exchange rates, which may
favorably or adversely affect reported earnings and accordingly, the
comparability of period-to-period results of operations. The Company does not
currently engage in hedging activities to minimize its exposure to such
fluctuations. Changes in currency exchange rates may affect the relative
prices at which the Company and foreign competitors sell their products in the
same market. There can be no assurance as to the future effect of any such
changes in social, political and economic conditions on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"The Company--Corporate Structure."
COMPETITION
The U.S. ethnic hair care market for African-Americans is competitive and
highly fragmented with a number of market participants that focus specifically
on this market. The five largest companies generated approximately 49.1% of
industry sales in the U.S. retail ethnic hair care market in the twelve months
ended June 1997 with the remainder being generated by a number of smaller
companies, according to IRI. In the U.S. retail market segments for nail
enamel/treatments and for nail polish remover, the five largest companies
generated approximately 69.0% and 59.5%, respectively, of industry sales for
the twelve months ended June 1997, according to IRI. In the U.S. retail market
for cosmetics, including the ethnic cosmetics market, the five largest
companies generated approximately 75.4% of industry sales for the twelve
months ended June 1997, according to IRI. In the U.S. retail market for
women's depilatory products, the five largest companies generated
approximately 78.7% of industry sales for the twelve months ended June 1997,
according to IRI.
Some of the Company's competitors are mass market companies which are larger
and have substantially greater financial and other resources than the Company.
Competitive market conditions could materially and adversely affect the
Company's business, results of operations and financial condition if the
Company were required to reduce product prices to remain competitive or
experienced decreased sales volume. The Company plans to increase sales
internationally. Expanding the Company's share of international markets will
require the Company to address competitive factors similar to those it faces
in the United States, as well as comply with any local regulatory
requirements. See "Business--Competition."
CHANGES IN DISTRIBUTION CHANNELS
The Company relies upon five principal distribution channels in the U.S.
retail personal care market to sell its products, including mass
merchandisers, major food and drug chains, discount chains and B&Bs. Chain
stores and distributors in the United States and in foreign markets have
periodically experienced consolidation and other ownership changes and may in
the future consolidate, undergo restructurings or realign their affiliations
which could decrease the number of stores that sell the Company's products or
increase the ownership concentration within the retail industry. A significant
portion of the Company's products sold by chain stores is purchased through
ethnic product distributors. Some of these distributors may be thinly
capitalized and unable to withstand changes in business conditions. If a
significant distributor of the Company's products performs poorly and is
unable to pay for purchased products, or reorganizes or liquidates and is
unable to continue selling the Company's products, the Company's business,
results of operations and financial condition could be materially adversely
affected. While such changes in distribution channels to date have not had a
material adverse effect on the Company's business, results of operations and
financial condition, there can be no assurance as to the future effect of any
such changes. See "Business--Distribution and Sales."
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COMPLIANCE WITH CONSUMER LAWS AND GOVERNMENT REGULATIONS
The Company is subject to the U.S. Food, Drug and Cosmetics Act, the U.S.
Consumer Product Safety Act, the U.S. Federal Hazardous Substance Act and to
the jurisdiction of the U.S. Consumer Product Safety Commission as well as
product safety laws in foreign jurisdictions. Such regulations subject the
Company to the possibility of requirements to repurchase or recall products
found to be defective and the possibility of fines or penalties. The U.S. Food
and Drug Administration ("FDA") has promulgated certain regulations concerning
product ingredients, product labeling and product claims. In addition, the
U.S. Federal Trade Commission ("FTC") regulates product claims. The Company is
subject to consumer laws in foreign countries where its products are sold.
Existing and future FDA, FTC and foreign regulations could impact distribution
and sales of certain of the Company's products. See "Business--Consumer Laws,
Government and Industry Regulations."
RELIANCE ON KEY MANAGEMENT
The Company's executive officers have extensive experience serving the
consumer products industry and the ethnic market. If, for any reason, key
members of senior management, including Dr. Leroy Keith, Joyce M. Roche,
Dennis E. Smith, Miriam Muley and Robert W. Pierce (see "Management"), do not
continue to be active in management, the Company's business, results of
operations or financial condition could be adversely affected. All of these
key senior management employees have employment contracts, which generally
contain non-compete clauses, with the Company as described in "Management--
Compensation of Executive Officers-Employment Agreements," but there can be no
assurance that such individuals will remain with the Company.
CONTROL BY CERTAIN EXISTING STOCKHOLDERS
DNL Partners beneficially owns approximately 46.1% of the total shares of
Common Stock of the Company and has 75.8% of the combined voting power of the
outstanding Common Stock of the Company. Accordingly, DNL Partners has
sufficient voting power to elect the Company's Board of Directors and to
control the vote on all matters submitted to a vote of stockholders, including
extraordinary transactions such as mergers, sales of all or substantially all
of the Company's assets or going private transactions. Such concentration of
ownership may have the effect of delaying or preventing certain types of
transactions involving an actual or potential change in control of the
Company. See "Principal Stockholders and Management Ownership."
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements contained in this Prospectus, including in the sections
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" may contain forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in such forward-looking statements. Such
statements include, without limitation, (i) the Company's plans to introduce
new products and product enhancements, (ii) the Company's plans to expand its
international operations, (iii) the Company's plans to penetrate the ethnic
cosmetics product category, (iv) the Company's plans to enter the U.S.
professional salon market for ethnic hair care products, (v) the Company's
plans to make selective acquisitions, (vi) the Company's marketing,
distribution and manufacturing expansion plans and (vii) the Company's
expectation and estimates as to future financial performance, including growth
in net sales, cash flows from operations, improved results from acquisitions
and capital expenditures. Readers are urged to consider statements which use
the terms "believes," "no reason to believe," "expects," "plans," "intends,"
"estimates," "anticipated" or "anticipates" to be uncertain and forward-
looking. Such statements reflect the current views of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. In addition to factors that may be described in this "Risk
Factors" section and elsewhere in this Prospectus and in the Company's
Commission filings, the following factors, among others, could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by the Company: (a) the Company's success in
implementing its growth strategy, including its success in arranging financing
where required, (b) the nature and extent of future competition in the
Company's principal marketing areas, and (c) political, economic and
demographic developments in the United States,
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Africa, Brazil, the Caribbean, Europe and other countries where the Company
now does business or in the future may do business.
COST OF FUTURE COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS MAY BE MATERIAL
The Company is subject to federal, state, local and foreign environmental
requirements, including those relating to discharges to air, water and land,
the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. Certain environmental laws, such
as the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended ("CERCLA"), impose strict, retroactive and joint and several
liability upon persons responsible for releases of hazardous substances.
Based upon its experience to date, the Company believes that the future cost
of compliance with existing environmental requirements, and liability for
known environmental claims pursuant to such requirements, will not have a
material adverse effect on the Company's business, results of operations or
financial condition. However, future events, such as new information, changes
in existing requirements or their interpretation, and more vigorous
enforcement policies of regulatory agencies, may give rise to additional
expenditures or liabilities that could be material. See "Business--
Environmental Matters."
POSSIBLE INABILITY TO MAKE A CHANGE OF CONTROL OFFER
In the event of a Change of Control (as defined in the Indenture), the
Company will be required to offer (a "Change of Control Offer") to purchase
all of the outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of repurchase. However, the Company expects that prepayment of the Notes
following a Change of Control would constitute a default under the New Credit
Facility. The exercise by the holders of the Notes of their right to require
the Company to purchase the Notes upon a Change of Control could also cause a
default under other indebtedness of the Company, even if the Change of Control
itself does not, because of the financial effect of such purchase on the
Company. The Company's ability to pay cash to the holders of the Notes upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that in the event of a Change of Control, the
Company will have, or will have access to, sufficient funds or will be
contractually permitted under the terms of outstanding indebtedness to pay the
required purchase price for all the Notes tendered by holders upon a Change of
Control. In the event that a Change of Control occurs, the Company would
likely be required to refinance any indebtedness outstanding under the New
Credit Facility and the Notes. There can be no assurance that the Company
would be able to refinance such indebtedness or, if such refinancing were to
occur, that such refinancing would be on terms favorable to the Company. See
"Description of the Exchange Notes--Change of Control."
ABILITY TO REORGANIZE AS A FOREIGN CORPORATION
The Indenture permits the Company to consolidate with, merge into or
otherwise dispose of all or substantially all of its assets to Carson South
Africa. If the Company were to consummate such a disposition, the Exchange
Notes would become obligations of Carson South Africa, a South African company
approximately 28% of whose shares are traded on the Johannesburg Stock
Exchange. Prior to any such disposition the Company will be required to make
an offer to purchase all of the outstanding Notes at a specified price and
comply with certain other conditions. See "Description of the Exchange Notes--
Merger or Consolidation."
FRAUDULENT TRANSFER CONSIDERATIONS
The Company's obligations on the Exchange Notes will be guaranteed on a
joint and several basis by the Guarantors. The Company and the initial
Guarantor believe that the Guarantees, when incurred, will be incurred for
proper purposes and in good faith. Notwithstanding the Company's and the
Guarantor's beliefs, however, under fraudulent transfer law, if a court were
to find, in a lawsuit by an unpaid creditor or representative of creditors of
the Company or a Guarantor, that the Company or such Guarantor received less
than fair
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consideration or reasonable equivalent value for incurring the indebtedness
represented by the Exchange Notes and the Guarantees, respectively, and, at
the time of such incurrence, the Company or such Guarantor (i) was insolvent
or was rendered insolvent by reason of such incurrence, (ii) was engaged or
about to engage in a business or transaction for which its remaining property
constituted unreasonably small capital, (iii) intended to incur, or believed
it would incur, debts beyond its ability to pay as such debts mature, or (iv)
intended to hinder, delay or defraud its creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, such court could,
among other things, (a) void all or a portion of the Company's or such
Guarantor's obligations to the holders of the Exchange Notes and the
Guarantees and/or (b) subordinate the Company's obligations to the holders of
the Exchange Notes and the Guarantees to other existing and future
indebtedness of the Company or such Guarantor, the effect of which would be to
entitle such other creditors to be paid in full before any payment could be
made on the Exchange Notes and the Guarantees. The measure of insolvency for
purposes of determining whether a transfer is voidable as a fraudulent
transfer varies depending upon the law of the jurisdiction which is being
applied. Generally, however, a debtor would be considered insolvent if the sum
of all of its liabilities were greater than the value of all of its property
at a fair valuation, or if the present fair saleable value of the debtor's
assets were less than the amount required to repay its probable liability on
its debts as they become absolute and mature. There can be no assurance as to
what standard a court would apply in order to determine solvency. To the
extent that proceeds from the sale of the Existing Notes were used to repay
existing indebtedness of a Guarantor, a court may find that the Company did
not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented thereby.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and other factors, the Company believes
that, after giving effect to the sale of the Existing Notes and the issuance
of the Exchange Notes, the Company and the initial Guarantor were and will be
solvent, did and will have sufficient capital for the business in which they
are engaged and did not and will not have incurred debts beyond their ability
to pay such debts as they mature. There can be no assurance, however, that a
court would necessarily agree with these conclusions.
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes generally will be freely transferable (subject to the
restrictions discussed elsewhere herein) but will be new securities for which
there is currently no public market. The Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in the NASDAQ National Market. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, but they are not obligated to do so and, if commenced, may
discontinue such market making at any time. There can be no assurance as to
the development of any market or liquidity of any market that may develop for
the Exchange Notes. If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending on prevailing interest rates, the market for similar securities and
other factors, including general economic conditions and the financial
condition and performance of the Company. Prospective investors in the
Exchange Notes should be aware that they may be required to bear the financial
risks of such investment for an indefinite period of time. See "Description of
the Exchange Notes--Existing Notes; Registration Rights; Liquidated Damages".
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Existing Notes under the Securities Act. No holder of Existing Notes will be
entitled to receive any Liquidated Damages with respect to such Existing
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Notes, if a holder of such Existing Notes was, at any time while the Exchange
Offer is pending, eligible to exchange, and did not validly tender, such
Existing Notes for Exchange Notes in the Exchange Offer. The Company expects
that substantially all of the Existing Notes will be exchanged for Exchange
Notes pursuant to the Exchange Offer, which will negatively affect the market
for the Existing Notes. Based on interpretations by the staff of the
Commission, Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes (i) could not rely on
the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. The Company
has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the Exchange
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes reasonably requests in
writing. See "The Exchange Offer" and "Description of the Exchange Notes--
Existing Notes; Registration Rights; Liquidated Damages."
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THE COMPANY
GENERAL
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for both the ethnic market and the mass
market. The Company believes that it is one of the leading global
manufacturers and marketers of ethnic hair care products for persons of
African descent. The Company's flagship brand, Dark & Lovely, is the most
widely recognized ethnic brand name in the U.S. retail ethnic hair care
market. The Company has the number one retail market position in three of the
four ethnic hair care segments in the United States in which it currently
competes, according to IRI. The Company currently sells over 70 products
specifically formulated to address the unique physiological characteristics of
persons of African descent under six principal brand names: Dark & Lovely,
Excelle, Beautiful Beginnings, Dark & Natural, Magic and Let's Jam. The
majority of the Company's net sales have historically been derived from hair
relaxers and texturizers, which are used to chemically treat and straighten
hair (constituting approximately 42.1% of the Company's net sales in the
twelve months ended September 30, 1997), hair color, men's depilatory products
and hair care maintenance products, primarily for persons of African descent.
In addition, the Company is expanding its product offerings to other segments
of the ethnic personal care market, including cosmetics and skin care
products.
The Company is also a leading marketer of nail care products to the U.S.
mass market under the Cutex brand name. Cutex is the leading brand of nail
polish remover products, with an estimated 31.8% market share in the twelve
months ended June 1997, according to IRI. Other products marketed under the
Cutex brand name include nail enamel, nail care treatments and the newly
introduced women's depilatory product, Naturally Soft Body Creme. Carson
acquired the rights to use the Cutex brand name in the United States and
Puerto Rico in April 1997. The Cutex Acquisition is expected to create an
entree into the U.S. mass market for products developed by Carson and increase
the Company's overall distribution strength.
The Company markets its products in the United States with its own
experienced direct sales force. The Company also currently markets its
products in more than 60 countries outside of the United States, primarily
through local distributors. International net sales represented 28.2% of the
Company's net sales for the twelve months ended September 30, 1997.
BACKGROUND
The Company is a publicly-traded Delaware corporation listed on the NYSE.
The Company (formerly DNL Savannah Holding Corp.) was established in May 1995.
On August 23, 1995, Acquisition Corp., a wholly-owned subsidiary of the
Company, acquired all of the stock of the Predecessor. Acquisition Corp. was
formed by Morningside, as financial sponsor, on behalf of an investor group
consisting of DNL Partners, Dr. Leroy Keith and the lenders providing the
acquisition financing.
CORPORATE STRUCTURE
The following chart sets forth the corporate structure of the Company.
Except as noted below, each of the Company's direct and indirect subsidiaries
are wholly-owned.*
[CHART]
--------------------------
CARSON, INC. (NYSE/CIC)
(the "Company")
--------------------------
--------------------------
CARSON PRODUCTS COMPANY
("Carson Products")
--------------------------
--------------------------
CARSON HOLDINGS LIMITED
("Carson South Africa")
(Johannesburg Exchange/CHL)
(72.22% owned)
--------------------------
- ------------------------- ----------------------- ------------------------
CARSON PRODUCTS CARSON PRODUCTS CARSON PRODUCTS
WEST AFRICA LIMITED EAST AFRICA (EPZ) (PROPRIETY)LIMITED
(Ghana) LIMITED ("Carson Products S.A.")
- ------------------------- (Kenya) (South Africa)
----------------------- -------------------------
- --------
* Does not include inactive subsidiaries.
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Carson Holdings Limited, a South African company incorporated on February
14, 1996, is currently 72.22% owned by Carson Products. Carson Products
(Proprietary) Limited ("Carson Products S.A."), a South African registered
company, which is wholly-owned by Carson South Africa, serves as the operating
company for the Company's South African operations. On July 3, 1996, Carson
South Africa sold 25% of its shares to the public in an initial public
offering on the Johannesburg Stock Exchange, which raised approximately $4.2
million in net proceeds. At the same time an additional 1.875% of Carson South
Africa shares were issued to certain employees, directors and officers of the
Company involved in the South Africa operations. The net proceeds were used by
Carson South Africa to purchase a manufacturing facility and related equipment
as well as to provide funds for the Company's strategic initiatives in Africa.
In June 1997, Carson South Africa completed a rights offering of its shares to
its existing shareholders (including Carson Products), which generated cash
proceeds of $1.5 million (net of $4.2 million invested by Carson Products in
order to maintain its ownership percentage at approximately the same level).
Carson Products West Africa Limited is a wholly-owned subsidiary of Carson
South Africa and is a Ghana registered company incorporated on October 9,
1996. Carson Products East Africa (EPZ) Limited is also a wholly-owned
subsidiary of Carson South Africa and is a Kenya registered company
incorporated on July 8, 1997.
Carson Products S.A. has been in operation for the past four years and
manufactures and distributes ethnic hair care products under license from
Carson Products. In-house manufacturing of products, previously carried out
through a contract manufacturer, began in March 1996. Pursuant to a
distribution agreement with Carson Products dated May 14, 1996, Carson
Products S.A. has the exclusive right to distribute and sell the Company's
entire product line (other than Cutex products) throughout the African
continent and has the right to supply the Company's products to the European
market in an amount up to 20% of the Company's budgeted European sales. The
initial term of the agreement expires on April 1, 2001; however, the agreement
continues indefinitely thereafter until terminated by either party upon 12
months written notice. Carson Products S.A. has a license agreement with
Carson Products dated April 7, 1994 whereby Carson Products S.A. has licensed
certain of the products of the Company (currently totalling over 60 products).
In conjunction with the South African initial public offering, the license
agreement was amended to provide that, commencing on April 1, 1998, Carson
Products S.A. will pay to Carson Products a royalty in the amount of 3.0% of
the net sales price of all licensed products sold. The amount of the royalty
increases to 3.5% on April 1, 1999 and 4.0% on April 1, 2000 until the
termination of the agreement. The initial term of the agreement expires on
April 1, 1999; however, the agreement continues indefinitely thereafter until
terminated by either party upon twelve months written notice. This agreement
is being amended to reflect the Company's expanded product line.
The Company's principal executive offices are located at 64 Ross Road,
Savannah Industrial Park, Savannah, GA 31405, and its telephone number is
(912) 651-3400.
USE OF PROCEEDS OF THE EXCHANGE NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive, in exchange, Existing Notes in like
principal amount. The form and terms of the Exchange Notes are identical in
all material respects to the form and terms of the Existing Notes, except as
otherwise described herein under "The Exchange Offer--Terms of the Exchange
Offer." The Existing Notes surrendered in exchange for the Exchange Notes will
be retired and cancelled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the outstanding debt of the
Company. The net proceeds from the sale of the Existing Notes, after
underwriting discounts and commissions and expenses related to the Offering,
were approximately $96.5 million. The Company used a portion of such net
proceeds (i) to repay in full the debt outstanding under its then existing
senior bank credit facility (the "Existing Bank Credit Facility")
(approximately $87.3 million as of September 30, 1997), plus accrued and
unpaid interest thereon, and (ii) to pay transaction fees and expenses related
to the New Credit Facility. The remaining net proceeds will be used for
working capital and general corporate purposes, including acquisitions. The
Company does not currently have any outstanding agreements or commitments to
make any acquisitions or enter into any joint ventures.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, the Company and Carson
Products have agreed (i) to file an Exchange Offer Registration Statement with
the Commission on or prior to 45 days after November 6, 1997 (the "Issue
Date"), (ii) that the Company will use its reasonable best efforts to have the
Exchange Offer Registration Statement (as defined) declared effective by the
Commission on or prior to 180 days after the Issue Date, (iii) that unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its reasonable best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Notes tendered prior thereto in
the Exchange Offer and (iv) that if obligated to file a Shelf Registration
Statement, the Company will use its reasonable best efforts to file the Shelf
Registration Statement with the Commission on or prior to 45 days after such
filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 180 days after such obligation
arises. See "Description of the Exchange Notes--Existing Notes; Registration
Rights; Liquidated Damages."
If (a) the Company and Carson Products fail to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for
such effectiveness (the "Effectiveness Target Date"), (c) the Company and the
Guarantors fail to consummate the Exchange Offer within 30 business days of
the Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will be obligated to pay Liquidated Damages, if
any, to each Holder of Notes constituting Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Notes constituting Notes held by such Holder. The amount
of the Liquidated Damages, if any, will increase by an additional $.05 per
week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages, if any, of $.50 per week per $1,000 principal amount of such Notes.
All accrued Liquidated Damages, if any, will be paid by the Company on each
Damages Payment Date (as defined in the Registration Rights Agreement) to the
Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages, if any, will cease.
See "Description of Exchange Notes--Existing Notes; Registration Rights;
Liquidated Damages."
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Existing Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Exchange Offer with the intention or for the purpose of participating
in a distribution of the Exchange Notes cannot rely on such interpretation by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Unless an exemption from registration is
otherwise available,
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<PAGE>
any such resale transaction should be covered by an effective registration
statement containing the selling security holders information required by Item
507 of Regulation S-K under the Securities Act. This Prospectus may be used
for an offer to resell, resale or other retransfer of Exchange Notes only as
specifically set forth herein. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Existing Notes, where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Existing Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Existing Notes surrendered pursuant to the Exchange
Offer. Existing Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Existing Notes except the Exchange Notes will be registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof. The Exchange Notes will evidence the same debt as the Existing Notes.
The Exchange Notes will be issued under and entitled to the benefits of the
Indenture, which also authorized the issuance of the Existing Notes, such that
both series will be treated as a single class of debt securities under the
Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Existing Notes being tendered for exchange.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Existing Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Existing
Notes. There will be no fixed record date for determining registered holders
of Existing Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Existing Notes which are not tendered for exchange in
the Exchange Offer will remain outstanding and continue to accrue interest and
will be entitled to the rights and benefits such holders have under the
Indenture and the Registration Rights Agreement. Notwithstanding the
foregoing, no holder of Existing Notes will be entitled to receive any
Liquidated Damages with respect to such Existing Notes, if a holder of such
Existing Notes was, at any time while the Exchange Offer is pending, eligible
to exchange, and did not validly tender, such Existing Notes for Exchange
Notes in the Exchange Offer.
The Company will be deemed to have accepted for exchange properly tendered
Existing Notes when, as and if the Company gives oral or written notice
thereof to the Exchange Agent and complies with the provisions of Section 6 of
the Registration Rights Agreement. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from
the Company. The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Existing Notes not
theretofore accepted for exchange, upon the occurrence of any of the
conditions specified below under "--Certain Conditions to the Exchange Offer."
Holders who tender Existing Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Existing
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
24
<PAGE>
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time on ,
1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders of Existing Notes an announcement thereof, each prior to
9:00 a.m., New York City time, on the next business day after the then
Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Existing Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
"--Certain Conditions to the Exchange Offer" has not been satisfied, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders of Existing Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 10 3/8% per annum,
payable semi-annually on each May 1 and November 1 of each year, commencing
May 1, 1998. Holders of Exchange Notes will receive accrued interest from the
last interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor or, if no such interest has been paid on the
Existing Notes, from the date of original issuance of the Existing Notes.
Interest on the Existing Notes accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Existing Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Existing Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the
staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation of
the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Existing Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Existing Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Existing
Notes not accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions
25
<PAGE>
of the Exchange Offer specified above under "--Certain Conditions to the
Exchange Offer." The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the
Existing Notes as promptly as practicable, such notice in the case of any
extension to be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights will not be deemed a waiver
of any such right and each such right will be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Existing Notes, if at such time any stop order is threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
PROCEDURES FOR TENDERING
Only a holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) Existing Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of book-
entry transfer (a "Book-Entry Confirmation") of such Exchange Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth below under""--Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Existing Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal
and delivering such owner's Existing Notes, either make appropriate
arrangements to register ownership of the Existing Notes in such owner's name
or obtain a properly completed bond power from the registered holder of
Existing Notes. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
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<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as
defined below) unless the Existing Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantor
must be a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Existing Notes listed therein, such Existing Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Existing
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves
the absolute right to reject any and all Existing Notes not properly tendered
or any Existing Notes the Company's acceptance of which would, in the opinion
of counsel for the Company, be unlawful. The Company also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Existing Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Existing Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of
Existing Notes, neither the Company, the Exchange Agent, the Trustee, nor any
other person will incur any liability for failure to give such notification.
Tenders of Existing Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Existing Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In all cases, issuance of Exchange Notes for Existing Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Notes or a timely Book-Entry
Confirmation of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Existing Notes will be returned without expense to the
tendering holder thereof (or, in the case of Existing Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such Book-
Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this
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<PAGE>
Prospectus, and any financial institution that is a participant in the Book-
Entry Transfer Facility's system may make book-entry delivery of Existing
Notes by causing the Book-Entry Transfer Facility to transfer such Existing
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of the Existing Notes may be effected through book-
entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal
or facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date or, if the guaranteed delivery procedures
described below are to be complied with, within the time period provided under
such procedures. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Existing Notes and (i) whose Existing Notes
are not immediately available or (ii) who cannot deliver their Existing Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Existing Notes and the principal amount of Existing Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Existing
Notes or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a form of Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Existing Notes to be withdrawn, identify the
Existing Notes to be withdrawn (including the principal amount of such
Existing Notes), and (where certificates for Existing Notes have been
transmitted) specify the name in which such Existing Notes were registered, if
different from that of the withdrawing holder. If certificates for Existing
Notes have been delivered or otherwise identified to the Exchange Agent, then,
prior to the release of such certificates the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Existing Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Existing Notes and otherwise comply with the procedures of such facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Company, whose
determination will be final and binding on all parties. Any Existing Notes so
withdrawn will
28
<PAGE>
be deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Existing Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Existing Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
above, such Existing Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Existing Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" above at any time on
or prior to the Expiration Date.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and request for assistance, request for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
MARINE MIDLAND BANK
By Mail, By Overnight By Facsimile:
Courier or By Hand:
(For Eligible Institutions Only)
Marine Midland Bank (212) 658-2292
140 Broadway, Level A Confirm by Telephone:
New York, New York 10005-1180 (212) 658-5931
Attention: Corporate Trust
Operations
For Information Call:
(800) 662-9844
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates
representing Existing Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of Notes tendered, or if tendered
Notes are registered in the name of any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason
other than the exchange of Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
29
<PAGE>
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register Exchange Notes in the name of, or request
that Existing Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
30
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
The following table sets forth the cash, short-term debt and the
consolidated capitalization of the Company at September 30, 1997 and as
adjusted to give effect to the sale of the Existing Notes, the application of
the net proceeds therefrom and the replacement of the Existing Bank Credit
Facility with the New Credit Facility. This table should be read in
conjunction with the Consolidated Financial Statements of the Company and
accompanying notes thereto appearing elsewhere in this Prospectus. See "Use of
Proceeds" and "Selected Consolidated Historical Financial Data."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Cash.................................................... $ 4,987 $ 11,130(a)
======== ========
Current portion of long-term debt....................... $ 3,000 $ --
======== ========
Long-term debt:
Existing Bank Credit Facility:
A Term loans.......................................... $ 21,250 $ --
B Term loans.......................................... 49,250 --
Revolving line of credit.............................. 13,776 --
New Credit Facility(b):
Term loans............................................ --
Revolving line of credit.............................. --
Senior Subordinated Notes............................... -- 100,000
Other................................................... 642 642
-------- --------
Total long-term debt................................ 84,918 100,642
-------- --------
Stockholders' equity:
Common stock, Class A, B and C par value $.01 per
share (165,000,000 shares authorized, 14,984,182
shares issued and outstanding)....................... 150 150
Paid-in capital......................................... 62,899 62,899
Retained earnings (deficit)(c).......................... (1,234) (3,164)
Foreign currency translation adjustment................. (1,473) (1,473)
Notes receivable, net of discount....................... (1,437) (1,437)
-------- --------
Total stockholders' equity.......................... 58,905 56,975
-------- --------
Total capitalization................................ $143,823 $157,617
======== ========
</TABLE>
- --------
(a) Estimated based on cash remaining after repayment of amounts outstanding
under the Existing Bank Credit Facility as of September 30, 1997. Such
amount will be reduced to the extent cash is used in operations or
additional indebtedness is incurred by the Company after September 30,
1997.
(b) Concurrently with the consummation of the sale of the Existing Notes, the
Company entered into the New Credit Facility. The New Credit Facility
includes a $25.0 million revolving credit facility subject to borrowing
base limitations and a $50.0 million acquisition term loan. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operation--Liquidity and Capital Resources" and "Description of the New
Credit Facility."
(c) Debt issuance costs with respect to the Existing Bank Credit Facility of
approximately $2.0 million, net of related tax benefits, were written off
due to the retirement of such debt with a portion of the net proceeds from
the sale of the Existing Notes. See "Use of Proceeds."
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
The unaudited pro forma consolidated financial data are based on the
historical consolidated financial statements for the Predecessor and the
Company and the assumptions and adjustments described in the accompanying
notes. The unaudited pro forma consolidated statements of operations are
presented as if the Cutex Acquisition, the sale of the Existing Notes and the
application of the proceeds thereof had occurred as of the beginning of each
period presented. The unaudited pro forma consolidated statements of operations
do not purport to be representative of the Company's actual results of
operations had the events described above occurred as of the dates indicated or
what such results will be for any future periods. The unaudited pro forma
consolidated financial data are based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the Consolidated
Financial Statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMPANY CUTEX ACQUISITION OFFERING
HISTORICAL HISTORICAL ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $59,938 $15,313 $ (470)(1) $74,781 $ -- $74,781
Cost of goods sold...... 26,940 7,732 (1,386)(2) 33,286 33,286
------- ------- ------- ------- ------ -------
Gross profit............ 32,998 7,581 916 41,495 41,495
------- ------- ------- ------- ------ -------
Marketing and selling
expense................ 15,692 655 1,113 (3) 17,460 17,460
498 (4) 498 498
General and administra-
tive expense........... 5,836 5,836 5,836
Incentive compensation.. 7,123 7,123 7,123
Depreciation and amorti-
zation................. 1,896 766 (5) 2,662 (337)(9) 2,325
276 (6) 276 (115)(10) (115)
(276)(11) 0
190 (12) 190
321 (13) 321
------- ------- ------- ------- ------ -------
Operating income........ 2,451 6,926 (1,737) 7,640 217 7,857
------- ------- ------- ------- ------ -------
Interest expense, net... (4,545) (2,692)(7) (7,237) 7,178 (14) (59)
(7,781)(15) (7,781)
Other income, net....... 565 565 565
------- ------- ------- ------- ------ -------
(Loss) income before in-
come tax............... (1,529) 6,926 (4,429) 968 (386) 582
Provision for income
tax.................... 1,727 949 (8) 2,676 (147)(16) 2,529
------- ------- ------- ------- ------ -------
Net (loss) income from
continuing operations.. $(3,256) $ 6,926 $(5,378) $(1,708) $ (239) $(1,947)
======= ======= ======= ======= ====== =======
Earnings (loss) per com-
mon share from continu-
ing operations......... $ (0.25) $ (0.13) $ (0.15)
Weighted average common
shares outstanding..... 12,715 12,715 12,715
Other Data:
Adjusted EBITDA......... $11,533 $ 6,926 $17,701 $17,701
Non-acquisition related
capital expenditures... 3,805 3,805 3,805
Gross profit as a per-
centage of net sales... 55.1% 49.5% 55.5% 55.5%
Adjusted EBITDA as a
percentage of net
sales.................. 19.2 45.2 23.7 23.7
</TABLE>
See accompanying pro forma footnotes.
32
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CUTEX
HISTORICAL
FOR THE
FOUR MONTHS
COMPANY ENDED ACQUISITION OFFERING
HISTORICAL APRIL 30, 1997 ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- -------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $77,791 $5,387 $ (181)(1) $82,997 $ -- $82,997
Cost of goods sold...... 35,431 2,834 (527)(2) 37,738 37,738
------- ------ ------- ------- ------- -------
Gross profit............ 42,360 2,553 346 45,259 45,259
------- ------ ------- ------- ------- -------
Marketing and selling
expense................ 19,602 224 390 (3) 20,216 20,216
233 (4) 233 233
General and administra-
tive expense........... 9,005 9,005 9,005
Depreciation and amorti-
zation................. 2,686 340 (5) 3,026 (111)(9) 2,915
123 (6) 123 (276)(11) (153)
190 (12) 190
321 (13) 321
------- ------ ------- ------- ------- -------
Operating income........ 11,067 2,329 (740) 12,656 (124) 12,532
------- ------ ------- ------- ------- -------
Interest expense, net... (3,924) (1,191)(7) (5,115) 5,066 (14) (49)
(7,781)(15) (7,781)
Other income, net....... 608 608 608
------- ------ ------- ------- ------- -------
Income before income
tax.................... 7,751 2,329 (1,931) 8,149 (2,839) 5,310
Provision for income
tax.................... 3,310 170 (8) 3,480 (1,213)(16) 2,267
------- ------ ------- ------- ------- -------
Net income from continu-
ing operations......... $ 4,441 $2,329 $(2,101) $ 4,669 $(1,626) $ 3,043
======= ====== ======= ======= ======= =======
Earnings per common
share from continuing
operations.............. $ 0.30 $ 0.31 $ 0.20
Weighted average common
shares outstanding..... 15,005 15,005 15,005
Other Data:
Adjusted EBITDA......... $13,644 $2,329 $ (277) $15,696 $15,696
Non-acquisition related
capital expenditures... 5,108 5,108 5,108
Gross profit as a per-
centage of net sales... 54.5% 47.4% 54.5% 54.5%
Adjusted EBITDA as a
percentage of net
sales.................. 17.5 43.2 18.9% 18.9%
</TABLE>
See accompanying pro forma footnotes.
33
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CUTEX
HISTORICAL
FOR THE SEVEN
COMPANY MONTHS ENDED ACQUISITION OFFERING
HISTORICAL APRIL 30, 1997 ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- -------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $99,033 $10,308 $ (241)(1) $109,100 $ -- $109,100
Cost of goods sold...... 45,501 5,416 (1,033)(2) 49,884 49,884
------- ------- ------- -------- -------- --------
Gross profit............ 53,532 4,892 792 59,216 59,216
------- ------- ------- -------- -------- --------
Marketing and selling
expense................ 25,463 430 754 (3) 26,647 26,647
434 (4) 434 434
General and administra-
tive expense........... 10,768 10,768 10,768
Incentive compensation.. -- -- --
Depreciation and amorti-
zation................. 3,308 596 (5) 3,904 (168)(9) 3,736
(115)(10) (115)
215 (6) 215 (368)(11) (153)
253 (12) 253
428 (13) 428
------- ------- ------- -------- -------- --------
Operating income........ 13,993 4,462 (1,207) 17,248 (30) 17,218
------- ------- ------- -------- -------- --------
Interest expense, net... (4,740) 0 (2,097)(7) (6,837) 6,744 (14) (93)
(10,374)(15) (10,374)
Other income, net....... 770 0 770 770
------- ------- ------- -------- -------- --------
Income before income
tax.................... 10,023 4,462 (3,304) 11,181 (3,660) 7,521
Provision for income
tax.................... 3,979 0 795 (8) 4,774 (1,563)(16) 3,211
------- ------- ------- -------- -------- --------
Net (loss) income from
continuing operations.. $ 6,044 $ 4,462 $(4,099) $ 6,407 $ (2,097) $ 4,310
======= ======= ======= ======== ======== ========
Earnings (loss) per
common share from
continuing operations.. $ 0.40 $ 0.43 $ 0.29
Weighted average common
shares outstanding..... 15,012 15,012 15,012
Other Data:
Adjusted EBITDA......... $17,301 $ 4,462 $ (396) $ 21,367 $ 21,367
Non-acquisition related
capital expenditures
("CAPEX").............. 5,879 5,879 5,879
Gross profit as a per-
centage of net sales... 54.3% 47.5% 54.3% 54.3%
Adjusted EBITDA as a
percentage of net
sales.................. 19.8 43.3 19.8 19.8
Ratio of Adjusted EBITDA
to interest expense.... 2.0x
Ratio of Adjusted EBITDA
less CAPEX to
interest............... 1.5
Ratio of net debt to Ad-
justed EBITDA.......... 4.2
</TABLE>
See accompanying pro forma footnotes.
34
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------
OFFERING PRO
ACTUAL ADJUSTMENTS FORMA
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 4,987 $ 6,143 (17) $ 11,130
Accounts receivable..................... 26,259 26,259
Inventories............................. 18,413 18,413
Other current assets.................... 723 723
-------- -------- --------
Total current assets.................. 50,382 6,143 56,525
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation................. 19,314 19,314
INVESTMENTS............................... 3,483 3,483
INTANGIBLE ASSETS, net.................... 91,473 91,473
OTHER ASSETS.............................. 6,197 2,025 (12) 8,222
4,275 (13) 4,275
(3,368)(18) (3,368)
-------- -------- --------
TOTAL ASSETS.............................. $170,849 $ 9,075 $179,924
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 8,382 $ -- $ 8,382
Accrued expenses........................ 10,024 (1,719)(18) 8,305
Current maturities of long-term debt.... 3,000 (3,000)(18) --
-------- -------- --------
Total current liabilities............. 21,406 (4,719) 16,687
LONG-TERM DEBT:
Existing Bank Credit Facility
Term A loan............................. 21,250 (21,250)(19) --
Term B loan............................. 49,250 (49,250)(19) --
Revolving credit agreement.............. 13,776 (13,776)(19) --
Other................................... 642 642
New Credit Facility
Term loans.............................. -- -- --
Revolving credit agreement.............. -- -- --
Senior Subordinated Notes............... -- 100,000 (18) 100,000
-------- -------- --------
Total long-term debt.................. 84,918 15,724 100,642
DEFERRED INCOME TAXES AND OTHER LIABILI-
TIES..................................... 1,701 1,701
MINORITY INTEREST IN SUBSIDIARY........... 3,919 3,919
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock......................... -- --
Common stock............................ 150 150
Paid-in capital......................... 62,899 62,899
Note receivable, net of discount........ (1,437) (1,437)
(Accumulated deficit) retained earn-
ings................................... (1,234) (1,930)(18) (3,164)
Foreign currency translation adjust-
ment................................... (1,473) (1,473)
-------- -------- --------
Total stockholders' equity............ 58,905 (1,930) 56,975
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUI-
TY....................................... $170,849 $ 9,075 $179,924
======== ======== ========
</TABLE>
See accompanying pro forma footnotes.
35
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Background and Basis of Presentation
During March 1997, the Company entered into an Asset Purchase Agreement with
Conopco, Inc. d/b/a Chesebrough-Pond's USA Co. in order to acquire the rights
to manufacture and market Cutex nail polish remover, nail enamel, nail care
treatment products and nail care implements in the United States and Puerto
Rico. The purchase price approximated $41.4 million including amounts paid to
Chesebrough-Pond's USA of $37.5 million, inventory acquired from Chesebrough-
Pond's USA of $600,000 and inventory acquired from Jean Philippe of $3.3
million. In addition, the Company incurred debt-related acquisition costs of
approximately $2.6 million and other direct acquisition fees and expenses of
$1.4 million. This acquisition is accounted for under the purchase method of
accounting. Funds were provided by additional long-term debt and the
transaction was completed on April 30, 1997.
During March 1997, the Company entered into an Asset Repurchase Agreement
with Jean Philippe, the entity that previously held the license to package,
distribute and sell nail enamel and nail care treatment products, nail care
implements and lipstick under the Cutex trademark in the United States and
Puerto Rico. In connection with the termination on April 30, 1997 of the
license agreement between Conopco, Inc. and Jean Philippe by Carson as
successor in interest to Conopco, Inc., Carson acquired certain assets of Jean
Philippe used in connection with the Cutex license agreement.
On April 8, 1997, the Company acquired the complete Let's Jam product line
from New Image Laboratories, Inc. in a cash transaction valued at $5.6
million. The pro forma consolidated data presented excludes all pre-
acquisition results of Let's Jam hair styling products due to immateriality
and excludes all pre-acquisition results of Jean Philippe. In the five month
period ended September 30, 1997 since the acquisitions, the Company generated
net sales of $4.3 million, gross profit of $2.2 million and EBITDA of $1.7
million from Let's Jam products and the Cutex products previously sold by Jean
Philippe. There is no assurance that the Company will continue to achieve the
same rate of performance.
EBITDA represents earnings before interest, taxes, depreciation and
amortization and Adjusted EBITDA represents EBITDA before nonrecurring
incentive compensation charges. While EBITDA and Adjusted EBITDA should not be
construed as substitutes for operating earnings (loss) or net income (loss)
(as determined in accordance with generally accepted accounting principles) as
measures of the Company's performance or to net cash provided by operating,
investing and financing activities (as determined in accordance with generally
accepted accounting principles) as measures of the Company's ability to meet
cash needs, the Company believes that EBITDA and Adjusted EBITDA are measures
commonly reported and widely used by investors and other interested parties as
measures of a company's operating performance and debt service ability because
they assist in comparing performance on consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods (particularly when acquisitions are involved) or non-
operating factors (such as historical cost). Accordingly, this information has
been disclosed in this Prospectus to permit a more complete comparative
analysis of the Company's operating performance relative to other companies
and of the Company's debt servicing ability. However, EBITDA and Adjusted
EBITDA may not be comparable in all instances to other similar types of
measures used. No historical information with respect to depreciation and
amortization is available for Cutex; accordingly, Adjusted EBITDA for Cutex
equals operating income.
The historical financial information has been derived from the Company's
Consolidated Financial Statements appearing elsewhere in this Prospectus.
Acquisition Adjustments
(1) As a result of the termination of the Jean Philippe license agreement
upon the Cutex Acquisition, the Company has recorded a pro forma reduction in
net sales equal to the royalty fee paid to Chesebrough-Pond's USA by Jean
Philippe, in accordance with the license agreement. Jean Philippe manufactured
and marketed
36
<PAGE>
Cutex branded nail enamel, nail care implements and lipsticks under a
licensing agreement with Chesebrough-Pond's USA. All financial results of Jean
Philippe have been excluded from the Company's pro forma results, including
the payment of royalties to Chesebrough-Pond's USA. Concurrent with the Cutex
Acquisition, the Company began to directly market and distribute the Cutex
branded nail enamel, nail care implements and lipsticks previously sold by
Jean Philippe.
(2) The Company entered into a manufacturing agreement with Chesebrough-
Pond's USA to manufacture nail polish remover at standard contractual costs
and manufacturing overhead rates. As a result, a pro forma adjustment has been
included to lower cost of goods sold to equal the total cost of units sold
using these new contractual rates.
(3) The Company entered into an agreement with AM Cosmetics, a related
party, to sell products under the Cutex brand name. See "Relationships and
Related Transactions--AM Cosmetics." As a result, a pro forma adjustment has
been included to increase selling expense by the contractual rate of 7.5% of
net sales of Cutex products.
(4) The Company entered into a transitional services agreement for
accounting services, order processing and similar services with Chesebrough-
Pond's USA. As a result, a pro forma adjustment has been included to increase
selling expense in accordance with this agreement.
(5) Goodwill of approximately $40.9 million was recorded as a result of the
Cutex Acquisition and is being amortized over a period of 40 years. The
Company is currently performing a valuation of the Cutex assets acquired. As a
result, the amount assigned to goodwill and the amortization of intangibles
may change based upon the results of this valuation.
(6) Debt issue costs associated with the Cutex Acquisition of $2.6 million
are being amortized over the life of the debt of seven years.
(7) A pro forma adjustment has been included to record incremental interest
expense at the Company's actual borrowing rates on $44.3 million of debt used
to finance the Cutex Acquisition.
(8) The net effect of the Cutex Acquisition and the related pro forma
adjustments has been taxed at the Company's historical marginal tax rate.
Offering Adjustments
(9) Amortization of debt issue costs recorded on the Existing Bank Credit
Facility has been reversed. These debt issue costs were written off and
reported as an extraordinary loss upon issuance of the Existing Notes.
(10) Amortization of the discount on the senior subordinated notes, PIK
subordinated notes and junior subordinated notes issued in connection with the
Aminco Acquisition has been reversed. These notes were repaid using the
proceeds of the Company's initial public offering in October 1996.
(11) Amortization of debt issue costs recorded as a result of the Cutex
Acquisition has been reversed. These debt issue costs were written off and
reported as an extraordinary loss upon issuance of the Existing Notes.
(12) Concurrently with the consummation of the sale of the Existing Notes,
Carson Products and the Company entered into a New Credit Facility with Credit
Agricole Indosuez, as agent and a lender, which include (i) a $50.0 million
acquisition term loan (the "Term Loan Facility") and (ii) a $25.0 million
revolving credit facility (the "Revolving Credit Facility"). The final
maturity date for each of the Term Loan Facility and the Revolving Credit
Facility is October 2006 and 2003, respectively. Borrowings under the Term
Loan Facility and
37
<PAGE>
the Revolving Credit Facility will generally bear interest at the Base Rate
(as defined in the Credit Agreement relating to the New Credit Facility) plus
1.0% and the Base Rate plus 0.5%, respectively, or at Carson Products' option,
the Eurodollar Rate (as defined in the Credit Agreement) plus 2.5% and the
Eurodollar Rate plus 2.0%, respectively. Debt issue costs related to the New
Credit Facility of $2.0 million have been recorded and are being amortized
over the estimated life of the debt.
(13) Debt issue costs associated with the sale of the Existing Notes were
approximately $4.3 million and are being amortized over the ten year life of
the Existing Notes.
(14) Interest expense recorded on the Existing Bank Credit Facility has been
reversed.
(15) Interest expense associated with the Existing Notes has been recorded
at the rate of 10 3/8%.
(16) The effect of the adjustments related to the sale of the Existing Notes
has been taxed at the Company's historical marginal tax rate.
(17) Represents cash proceeds, net of expenses related to the sale of the
Existing Notes and the New Credit Facility, received from the Existing Notes.
(18) Represents the issuance of the Existing Notes. Debt issuance costs with
respect to the Existing Bank Credit Facility of approximately $2.0 million,
net of related tax benefits, was written off due to the retirement of such
debt with a portion of the net proceeds from the sale of the Existing Notes.
(19) Represents repayment of existing indebtedness with a portion of the
sale of the Existing Notes and debt issue costs associated with the sale of
the Existing Notes and the New Credit Facility of $4.3 million and $2.0
million, respectively. Debt repayment includes the following:
<TABLE>
<S> <C>
Current maturities.................................................. $ 3,000
Term A loan......................................................... 21,250
Term B loan......................................................... 49,250
Revolving credit agreement.......................................... 13,776
-------
Total repayment of existing indebtedness.......................... $87,276
=======
</TABLE>
38
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
Set forth below are selected consolidated historical financial data of the
Predecessor and the Company as of the dates and for the periods shown.
Effective December 31, 1996, the Company changed the end of its fiscal year
from March 31 to December 31. References herein to the "Transition Period"
refer to the nine months ended December 31, 1996. The selected consolidated
historical financial data of the Predecessor as of March 31, 1993 and 1994 and
for the fiscal years ended March 31, 1993 and 1994 were derived from audited
consolidated historical financial statements of the Predecessor not included
in this Prospectus. The selected consolidated historical financial data of the
Predecessor as of March 31, 1995 and for the fiscal year ended March 31, 1995
and for the period from April 1, 1995 through August 22, 1995 were derived
from the audited consolidated historical balance sheet not included in this
Prospectus and the audited historical statements of income and of cash flows
of the Predecessor for such periods appearing elsewhere in this Prospectus.
The selected consolidated historical financial data of the Company as of March
31, 1996 and for the period from August 23, 1995 through March 31, 1996 and
for the Transition Period were derived from the audited consolidated
historical financial statements of the Company for such periods appearing
elsewhere in this Prospectus. The selected consolidated historical data of the
Company as of December 31, 1996 were derived from the audited financial
statements of the Company appearing elsewhere in this Prospectus. The selected
consolidated historical financial data of the Company as of and for the nine
months ended September 30, 1996 and 1997 were derived from the unaudited
consolidated historical financial statements of the Company appearing
elsewhere in this Prospectus. The selected consolidated historical financial
data of the Company for the nine months ended September 30, 1996 and 1997 are
unaudited; however, in the opinion of management such unaudited data include
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the information included therein. The results of
operations for the nine months ended September 30, 1996 and 1997 are not
necessarily indicative of the results for the entire fiscal year or any other
interim period. Because of the revaluation of the assets and liabilities and
related impact to the statement of operations, the financial statements of the
Predecessor for the periods prior to August 22, 1995 are not strictly
comparable to those of the Company subsequent to that date. The selected
consolidated historical financial data should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Predecessor and the Company and
accompanying notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(A) COMPANY(A)
-------------------------------------------- ----------------------------------------
NINE MONTHS
TRANSITION ENDED
FISCAL YEAR ENDED MARCH 31, FULL FISCAL YEAR 1996 PERIOD SEPTEMBER 30,
------------------------------- ---------------------- FROM ----------------
AUGUST 23 APRIL 1,
APRIL 1 TO 1995 TO 1996 TO
AUGUST 22, MARCH 31, DECEMBER 31,
DECEMBER 31, 1996 1993 1994 1995 1995 1996 1996 1996 1997
- ----------------- --------- --------- --------- ----------- ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ 49,335 $ 50,108 $ 58,126 $26,854 $41,465 $59,938 $56,488 $77,791
Cost of goods sold(b)... 21,585 24,222 25,692 11,513 18,806 26,940 24,853 35,431
--------- --------- --------- ------- ------- ------- ------- -------
Gross profit............ 27,750 25,886 32,434 15,341 22,659 32,998 31,635 42,360
Marketing and selling
expense................ 14,863 14,639 17,888 7,467 9,581 15,692 13,283 19,602
General and administra-
tive expense........... 5,453 6,834 5,246 2,276 5,061 5,836 6,658 9,005
Incentive
compensation(c)........ -- -- -- -- -- 7,123 7,123 --
Depreciation and amorti-
zation................. 695 828 1,085 502 1,331 1,896 1,830 2,686
--------- --------- --------- ------- ------- ------- ------- -------
Operating income........ 6,739 3,585 8,215 5,096 6,686 2,451 2,741 11,067
Interest expense........ (115) (97) (136) (56) (4,487) (4,545) (5,523) (3,924)
Net income (loss)....... 4,586 1,511 5,438 3,934 1,104 (6,783) (4,093) 4,441
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(A) COMPANY(A)
------------------------------------ ---------------------------------------
NINE MONTHS
FISCAL YEAR ENDED TRANSITION ENDED
MARCH 31, FULL FISCAL YEAR 1996 PERIOD SEPTEMBER 30,
----------------------- ---------------------- FROM ---------------
AUGUST 23 APRIL 1,
APRIL 1 TO 1995 TO 1996 TO
AUGUST 22, MARCH 31, DECEMBER 31,
DECEMBER 31, 1996 1993 1994 1995 1995 1996 1996 1996 1997
- ----------------- ------ ------ ------ ----------- ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA(d)...... $7,434 $4,521 $9,450 $5,601 $8,199 $11,533 $11,875 $13,644
Non-acquisition related
capital expenditures... 1,330 1,515 974 375 1,470 3,805 3,895 5,108
Net sales growth(e)..... (1.2)% 1.6% 16.0% N/A N/A 18.6% 13.3 37.7
Adjusted EBITDA
growth(e).............. (14.1) (39.2) 109.0 N/A N/A 17.2 36.7 14.9
Ratio of earnings to
fixed charges(f)....... 66.6 44.2 66.2 111.3 1.5 0.7 0.7 2.8
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------- -------------------------------------
MARCH 31,
----------------------- MARCH 31, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997
------- ------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $14,256 $11,267 $15,140 $13,855 $15,852 $ 28,976
Total assets............ 37,572 38,609 43,863 87,980 97,529 170,849
Total debt (including
current maturities).... 288 -- -- 66,788 27,101 87,918
Stockholders' equity.... 30,473 29,313 34,358 9,775 54,215 58,905
</TABLE>
- --------
(a) The period beginning August 23, 1995 reflects data of the Company and its
subsidiaries. The periods prior to and including August 22, 1995 reflect
data of the Predecessor, all of the stock of which was acquired by the
Company on August 23, 1995. See "The Company--Background." Because of the
revaluation of the assets and liabilities acquired and the related impact
to the statement of operations, the financial statements of the
Predecessor for the periods prior to August 23, 1995 are not strictly
comparable to those of the Company subsequent to that date.
(b) During the second quarter of 1997, the Company changed its method of
valuing inventories in the United States from the lower of last-in, first-
out (LIFO) cost or market to the lower of first-in, first-out (FIFO) cost
or market. To the extent material, the effect of this change has been
reflected in all periods presented in these financial statements. See Note
15 of Notes to Consolidated Financial Statements of the Company appearing
elsewhere in this Prospectus.
(c) The Company recognized $7.1 million of non-recurring incentive
compensation charges during the nine-month period ended December 31, 1996
relating to costs under certain long-term incentive compensation
agreements and the purchase of shares prior to its initial public offering
by several outside directors and certain members of senior management and
for the shares of Carson South Africa awarded to certain members of its
management. Approximately $6.3 million of these charges were incurred in
the six months ended December 31, 1996.
(d) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and Adjusted EBITDA represents EBITDA before nonrecurring
incentive compensation charges. While Adjusted EBITDA should not be
construed as a substitute for net income or a better indicator of
liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. Adjusted EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
(e) Current period versus the year earlier comparable prior period.
(f) Earnings represents pre-tax income from continuing operations plus
interest expense and amortization of debt issuance costs. Fixed charges
represents interest expense or capitalized interest and amortization of
debt issuance costs.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for both the ethnic market and the mass
market. The Company currently sells over 70 different products specifically
formulated to address the unique physiological characteristics of persons of
African descent in the United States and more than 60 other countries under
six principal brand names. The majority of the Company's net sales have
historically been derived from four categories of the ethnic health and beauty
aids market: hair relaxers and texturizers (which constituted approximately
42.1% of the Company's net sales in the twelve months ended September 30,
1997), hair color, men's depilatory products and hair care maintenance
products. The Company is also a leading marketer of nail care products to the
U.S. mass market under the Cutex brand name.
In the nine months ended September 30, 1997, 28.2% of the net sales of the
Company were to customers outside the United States. The following table
presents the Company net sales by geographic region for such period:
<TABLE>
<CAPTION>
NET SALES TO: (IN THOUSANDS) % OF TOTAL
------------- -------------- ----------
<S> <C> <C>
United States................................... $55,895 71.8
Africa.......................................... 13,360 17.2
Other........................................... 8,536 11.0
------- ----
Total......................................... $77,791 100%
======= ====
</TABLE>
With the exception of sales by Carson Products S.A. to South Africa,
Botswana, Lesotho, Namibia and Swaziland which are denominated in South
African Rand, all of the Company's sales are made in U.S. Dollars. The Company
does not view the exposure to Rand exchange rate fluctuations as significant
because the South African subsidiary incurs all of its costs in Rand. Assets
and liabilities of the Company's South African operations are translated for
consolidation purposes from South African Rand into U.S. Dollars at the rate
of currency exchange at the end of the fiscal period. Revenues and expenses
are translated at average monthly prevailing exchange rates. Resulting
translation differences are recognized as a component of stockholders' equity.
Adjustments resulting from translations have historically been immaterial to
the Company's financial statements.
In the first half of 1997, Carson South Africa consummated, through Carson
Products, S.A., three acquisitions in the African personal care industry
including the African Nu-Me Cosmetics, Restore Plus and Seasilk brand names
and certain related assets. The total purchase price, including fees, for
these three acquisitions was approximately $1.5 million, comprised of $0.7
million in cash and 500,000 shares of Carson South Africa common stock. These
acquisitions are accounted for under the purchase method of accounting.
During March 1997, the Company entered into an Asset Purchase Agreement with
Conopco, Inc. d/b/a Chesebrough-Pond's USA Co. in order to acquire the rights
to sell, distribute, package, manufacture and market Cutex nail polish
remover, nail enamel, nail care treatment products and nail care implements in
the United States and Puerto Rico. The purchase price was approximately $41.4
million, with funds provided by additional long-term debt, and the transaction
was completed on April 30, 1997. Net product sales of Chesebrough-Pond's USA
Cutex line approximated $18.2 million, excluding any results from the sale of
nail enamel or other products under license by Jean Philippe, for the twelve
months ended December 31, 1996. This acquisition is accounted for under the
purchase method of accounting.
During March 1997, the Company entered into an Asset Repurchase Agreement
with Jean Philippe. In connection with the termination of the license
agreement between Conopco, Inc. and Jean Philippe by Carson as successor in
interest to Conopco, Inc., Carson acquired certain assets of Jean Philippe
used to package, distribute and sell nail enamel and nail care treatment
products, nail care implements and lipstick under the Cutex
41
<PAGE>
trademark in the United States and Puerto Rico on April 30, 1997. Immediately
upon consummation of the Jean Philippe Repurchase Agreement on April 30, 1997,
the license agreement with Jean Philippe was terminated. In the five months
ended September 1997, the Company generated net sales of approximately $3.1
million and operating profit of approximately $669,000 from the product
previously distributed by Jean Philippe.
During April 1997, the Company completed the acquisition of the Let's Jam
product line from New Image Laboratories, Inc. This acquisition added one of
the leading hair care maintenance brands in the ethnic retail market to the
Company's portfolio of brands. The purchase price was approximately $5.6
million in cash, subject to post-closing adjustments, funded primarily by
additional long-term debt. This acquisition is accounted for under the
purchase method of accounting.
Carson South Africa announced on November 13, 1997 that it had completed the
acquisition of A&J Cosmetics, a toiletries company. A&J Cosmetics manufactures
and owns the Sadie brand of toiletry products, which has been selling in the
ethnic market for over 20 years and competes primarily in the roll-on
deodorant market. Carson South Africa will fund the acquisition with the
issuance of shares of its common stock. The purchase consideration payable for
the acquisition is approximately $10.3 million, with an additional purchase
price contingency of up to $2.4 million based upon the after tax profit of the
business for the year ended December 31, 1998. Approximately $5.9 million of
the purchase price is payable on January 31, 1998, approximately $4.4 million
is payable on or before January 3, 1999 and the remainder (subject to
adjustment) is payable by no later than March 31, 1999.
EFFECT OF RECENT ACQUISITIONS ON RESULTS OF OPERATIONS
The consummation of recent acquisitions affected the Company's results of
operations in certain significant respects. The Cutex Acquisition and the
other recent acquisitions have been reflected using purchase accounting, with
the excess of the purchase price over the fair value of the identifiable net
assets being classified as goodwill. Therefore, depreciation and amortization
expense increased for periods following each such acquisition, and interest
expense also increased following the Cutex Acquisition due to increased debt
used to finance the Cutex Acquisition. Similarly, the Aminco Acquisition was
reflected using purchase accounting with the purchase price being allocated to
the Company's identifiable assets and liabilities based on fair values at the
date of acquisition, which was August 23, 1995. The excess of the purchase
price over the fair value of the Company's identifiable net assets has been
classified as goodwill. The depreciation and amortization expense of the
Company are significantly higher than the corresponding amounts for the
Predecessor. Additionally, interest expense increased due to debt used to
finance the Aminco Acquisition. Due to these increased expenses, the financial
statements of the Predecessor are not strictly comparable to those of the
Company for subsequent periods. However, the following table combines
historical fiscal 1996 data for the Predecessor and the Company in order to
facilitate discussion of financial results.
42
<PAGE>
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PREDECESSOR (A) COMBINED (A) COMPANY (A)
--------------- ---------------------- --------------------------------
FISCAL FISCAL NINE NINE NINE NINE
YEAR YEAR MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, SEPT. 30, SEPT. 30,
1995 1996 1995 1996 1996 1997
--------------- --------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Data As a Percentage of
Net Sales:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold(b)... 44.2 44.4 44.2 44.9 44.0 45.5
----- ----- ----- ----- ----- -----
Gross profit............ 55.8 55.6 55.8 55.1 56.0 54.5
Marketing and selling
expense................ 30.8 25.0 26.9 26.2 23.5 25.2
General and
administrative
expense................ 9.0 10.7 9.4 9.7 11.8 11.6
Incentive
compensation(c)........ -- -- -- 11.9 12.6 --
Depreciation and
amortization........... 1.9 2.7 2.5 3.2 3.2 3.5
----- ----- ----- ----- ----- -----
Operating income........ 14.1% 17.2% 17.0% 4.1% 4.9 14.2
EBITDA(d)............... 16.3 20.2 19.5 7.4 8.4 17.5
Adjusted EBITDA(d)...... 16.3 20.2 19.5 19.2 21.0 17.5
</TABLE>
- --------
(a) The statement of operations of the Predecessor for the period from April
1, 1995 to August 22, 1995 is combined with the statement of operations of
the Company for the period August 23, 1995 to March 31, 1996. The
statement of operations of the Predecessor for the period from April 1,
1995 to August 22, 1995 is combined with the statement of operations of
the Company for the period August 23, 1995 to December 31, 1995. The
combined presentation is not in conformity with generally accepted
accounting principles but is included for comparative purposes.
(b) During the second quarter of 1997, the Company changed its method of
valuing inventories in the United States from the lower of last-in, first-
out (LIFO) cost or market to the lower of first-in, first-out (FIFO) cost
or market. To the extent material, the effect of this change has been
reflected in all periods presented in these financial statements. See Note
15 of Notes to Consolidated Financial Statements of the Company appearing
elsewhere in this Prospectus.
(c) The Company recognized $7.1 million of non-recurring incentive
compensation charges during the nine-month period ended December 31, 1996
relating to costs under certain long-term incentive compensation
agreements and the purchase of shares prior to its initial public offering
by several outside directors and certain members of senior management and
for the shares of Carson South Africa awarded to certain members of its
management. Approximately $6.3 million of these charges were incurred in
the six months ended December 31, 1996.
(d) EBITDA represents earnings before interest, taxes, depreciation and
amortization, and Adjusted EBITDA represents EBITDA before nonrecurring
incentive compensation charges. While EBITDA and Adjusted EBITDA should
not be construed as substitutes for net income or better indicators of
liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, they are
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. EBITDA and Adjusted EBITDA
are not necessarily measures of the Company's ability to fund its cash
needs.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales. Consolidated net sales increased 37.7% to $77.8 million in the
nine months ended September 30, 1997 from $56.5 million in the comparable
period in 1996. This increase is primarily a result of incremental net sales
related to the Cutex and Let's Jam acquisitions of $12.1 million and $1.2
million, respectively. Dark & Lovely Cosmetics generated year to date net
sales of $854,000. Sales of the Company's domestic core business, ethnic hair
care products, amounted to $41.7 million, a decrease of approximately 0.9% for
the nine months ended September 30, 1997 compared to the same period in 1996,
reflecting industry softness due in part to drug chain consolidation.
International sales including South Africa increased by 52.5% for the nine
months ended September 30, 1997. Carson South Africa continued to demonstrate
strong results with an increase in net sales
43
<PAGE>
of 104.2% to $12.9 million in the nine months ended September 30, 1997 from
$6.3 million in the comparable period of 1996.
Gross Profit. Gross profit increased to $42.4 million in the nine months
ended September 30, 1997 from $31.6 million in the nine months ended September
30, 1996. Gross profit margin decreased to 54.4% from 56.0% for the nine
months ended September 30, 1997 compared to the same period in 1996. Gross
margin continues to be affected by inefficiencies in the logistics and
manufacturing processes, due in part to complexities associated with the rapid
growth in number of stock keeping units, multiple inventory locations and
difficulties in coordination with new outsource manufacturers. During the
third quarter the Company hired a Senior Vice President, with extensive
experience in consumer products manufacturing and logistics, who has assumed
responsibility for all operations at the Savannah plant. Additionally, in
October, the Company hired an experienced director of materials management who
will have full responsibility for procurement and warehousing of inventories.
Management believes it is taking the appropriate steps to address the
operational inefficiencies and to improve related customer service
performance.
Marketing and Selling Expenses. Marketing and selling expenses increased to
$19.6 million in the nine months ended September 30, 1997 from $13.3 million
in the nine months ended September 30, 1996, an increase of 47.6%. As a
percentage of net sales, these expenses increased to 25.2% from 23.5% during
this period. This increased spending is a result of increased advertising and
promotional spending as well as higher selling expenses associated with Cutex.
Advertising spending in 1997 is higher in part because the Company changed
advertising agencies early in 1996, and had ceased most advertising during
first and second quarters while awaiting new creative material.
General and Administrative Expenses. Excluding a nonrecurring incentive
compensation charge of $7.1 million recorded in the nine months ended
September 30, 1997, general and administrative expenses increased to $11.7
million in 1997 from $8.5 million in 1996, an increase of 37.7%. This increase
is due in part to increased amortization related to recent acquisitions
combined with increased professional fees and personnel costs associated with
the enhancement of infrastructure needed to support the Company's growth. As a
percentage of net sales, general and administrative expenses were level at
15.0% during this period.
Operating Income. As a result of the above changes, operating income
increased to $11.1 million in the nine months ended September 30, 1997 from
$2.7 million in the nine months ended September 30, 1996.
Interest Expense. Interest expense decreased to $3.9 million in the nine
months ended September 30, 1997 from $5.5 million in the nine months ended
September 30, 1996. The decreased interest expense is a result of the use of
the proceeds from the Company's initial public offering to retire certain
debt, offset in part by interest on the additional borrowings used to finance
the Cutex acquisition.
Other Income. Other income increased in the nine months ended September 30,
1997 compared to the same period in 1996 primarily as a result of the
management contract entered into in June 1996 with AM Cosmetics. Under the
terms of the investment and the management agreement, the Company is entitled
to a 12% paid-in-kind dividend on its $3.0 million preferred stock investment
in AM Cosmetics. In addition, as a result of the management contract, the
Company receives a minimum annual management fee of $500,000. Other income
includes the effects of these transactions since June 1996.
Provision for Income Taxes. The provision for income taxes increased to $3.3
million from $1.8 million during this period. The effective tax rate was 42.7%
for the nine months ended September 30, 1997. This rate is not comparable to
the 1996 rate due to nonrecurring incentive compensation charges recorded in
the second and third quarters of 1996 which were not fully deductible for tax
purposes.
Company Nine Months Ended December 31, 1996 Compared to Combined Nine Months
Ended December 31, 1995
The Company is comparing its actual historical results of operations for the
nine months ended December 31, 1996 to a Predecessor period of April 1, 1995
to August 22, 1995 combined with a Company period of
44
<PAGE>
August 23, 1995 to December 31, 1995. This combined presentation is not in
conformity with generally accepted accounting principles but is included for
comparative purposes only.
Net Sales. Net sales increased from $50.5 million for the combined nine-
month period ended December 31, 1995 to $59.9 million for the nine-month
period ended December 31, 1996, an increase of 18.6%. In the United States,
relaxers and texturizers, hair color and hair care maintenance products each
generated net sales increases. Carson South Africa continued to demonstrate
strong results with an increase in net sales of 69.2% from $5.2 million for
the combined nine-month period ended December 31, 1995 to $8.8 million for the
nine-month period ended December 31, 1996.
Gross Profit. Gross profit increased from $28.2 million for the combined
nine-month period ended December 31, 1995 to $33.0 million for the nine-month
period ended December 31, 1996, an increase of 17.0%. This increase was almost
entirely due to the increase in net sales. Gross margin decreased from 55.8%
for the combined nine-month period ended December 31, 1995 to 55.1% for the
nine-month period ended December 31, 1996, primarily due to an inventory
adjustment related to repackaging and reformulation of several product lines.
Marketing and Selling Expenses. Marketing and selling expenses increased
from $13.6 million for the combined nine-month period ended December 31, 1995
to $15.7 million for the nine-month period ended December 31, 1996, an
increase of 15.4%. The increase in marketing and selling expenses was almost
entirely a result of the increase in net sales. As a percentage of net sales,
marketing and selling expenses decreased from 26.9% to 26.2% during this
period, primarily as a result of the timing of advertising and promotional
expenses.
General and Administrative Expenses. General and administrative expenses
increased from $4.8 million for the combined nine-month period ended December
31, 1995 to $5.8 million for the nine-month period ended December 31, 1996, an
increase of 20.8%. As a percentage of net sales, general and administrative
expenses increased from 9.4% to 9.7% during this period. This increase in
general and administrative expenses as a percentage of net sales was a
function of several factors relating to the Aminco Acquisition and the new
management structure. First, the new management team included the addition of
several new senior executives and the promotion of certain key executives that
increased personnel costs which management believed was necessary to support
the future growth of the Company. Second, the Company entered into a
management agreement with Morningside which provides strategic consulting
advice to the Company for a fee of $0.4 million per annum. Third, travel
expenses increased significantly due to the new management's focus on
international markets which required extensive travel. Finally bank fees and
professional fees increased due to the new credit agreements relating to the
debt incurred to finance the Aminco Acquisition.
Incentive Compensation Expenses. The Company recognized $7.1 million of
incentive compensation expenses during the nine-month period ended December
31, 1996 relating to costs under certain long-term incentive compensation
agreements and the purchase of shares prior to the initial public offering by
several outside directors and certain members of senior management and for the
shares of Carson South Africa awarded to certain members of its management. No
similar costs were previously recorded.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.3 million for the combined nine-month period ended December
31, 1995 to $1.9 million for the nine-month period ended December 31, 1996. As
a percentage of net sales, depreciation and amortization expense increased
from 2.5% to 3.2% during this period. This increase was primarily due to
goodwill amortization which resulted from the application of purchase
accounting. The increase in amortization due to the Aminco Acquisition was
partially offset by a change in the way the Company accounts for package
design costs. Prior to the Aminco Acquisition, the Predecessor capitalized
package design costs and amortized them over a four year period. Since the
Aminco Acquisition, the Company has expensed package design costs as incurred.
45
<PAGE>
Operating Income and EBITDA. As a result of the above changes, operating
income decreased from $8.6 million for the combined nine-month period ended
December 31, 1995 to $2.5 million for the nine-month period ended December 31,
1996. EBITDA decreased from $9.8 million to $4.4 million during this period.
Interest Expense. Interest expense increased substantially from $2.7 million
for the combined nine-month period ended December 31, 1995 to $4.5 million for
the nine-month period ended December 31, 1996, as a result of the new debt
incurred to finance the acquisition.
Other Income. Other income decreased as a result of the elimination of
royalty income associated with the Caribbean. The Company now handles
Caribbean sales through its in-house sales organization. Investment income
decreased because most of the Predecessor's investments were liquidated in
conjunction with the acquisition. Additionally, in June of 1996, the Company
made an investment and entered into a management contract with AM Cosmetics.
Under the terms of the investment and the management agreement, the Company is
entitled to a 12% paid in kind dividend on its $3.0 million investment and an
annual management fee of the greater of $0.5 million or 1% of net sales.
Provision for Taxes. The provision for taxes decreased from $2.8 million to
$1.7 million during this period. The effective tax rate is not proportionate
to the statutory rates as a result of the majority of the incentive
compensation charge not being deductible for income tax purposes.
Combined Twelve Months Ended March 31, 1996 Compared to Predecessor Fiscal
Year Ended March 31, 1995
The Company is comparing the Predecessor's actual historical results of
operations for the year ended March 31, 1995 to a Predecessor period of April
1, 1995 to August 22, 1995 combined with a Company period of August 23, 1995
to March 31, 1996. This combined presentation is not in conformity with
generally accepted accounting principles but is included for comparative
purposes only.
The Company changed its method of accounting for inventories from LIFO to
FIFO. See Note 15 of Notes to Consolidated Financial Statements included
elsewhere in this offering memorandum.
Net Sales. Net sales increased from $58.1 million for fiscal 1995 to $68.3
million for fiscal 1996, an increase of 17.6%, as a result of positive market
acceptance of new product formulation and new packaging and the efforts of the
Company's in-house sales organization, which was established in April 1995. In
the United States, relaxers and texturizers, hair color, men's depilatory
products and hair care maintenance products all generated net sales increases.
Carson South Africa continued to show strong growth with an increase in net
sales of 80.4% from $3.6 million recorded for fiscal 1995 to $6.6 million for
fiscal 1996, a function of both the rapid expansion of the African market and
increasing market share. International sales excluding sales by Carson South
Africa also increased, primarily due to European sales where the Company
increased its sales representation.
Gross Profit. Gross profit increased from $32.4 million for fiscal 1995 to
$38.0 million for fiscal 1996, an increase of 17.2%. This increase was almost
entirely due to the increase in net sales. Gross margin decreased slightly
from 55.8% to 55.6% during this period.
Marketing and Selling Expenses. Marketing and selling expenses decreased
from $17.9 million for fiscal 1995 to $17.0 million for fiscal 1996, a
decrease of 4.7% despite an increase in net sales of 17.6%. As a percentage of
net sales, marketing and selling expenses decreased from 30.8% to 25.0% during
this period. This decrease was due to the Company's decision to establish an
in-house sales organization and terminate the majority of its sales broker
relationships. In fiscal 1995, brokers were paid a commission which averaged
slightly above 5%. The commission expense was almost entirely eliminated in
fiscal 1996. This savings was offset in part by an increase in sales salaries
and other payroll costs related to the new sales employees.
46
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased from $5.2 million for fiscal 1995 to $7.3 million for fiscal 1996,
an increase of 39.9%. As a percentage of net sales, general and administrative
expenses increased from 9.0% to 10.7% during this period. This increase in
general and administrative expenses as a percentage of net sales was a
function of several factors relating to the Aminco Acquisition and the new
management structure. First, the new management team included the addition of
several new senior executives and the promotion of certain key executives that
increased personnel costs which management believed were necessary to support
the future growth of the Company. Second, the Company entered into a
management agreement with Morningside which provides strategic consulting
advice to the Company for a fee of $0.4 million per annum. Third, travel
expenses increased significantly due to the new management's focus on
international markets which required extensive travel. Finally, bank fees and
professional fees increased due to the new credit agreements relating to the
debt incurred to finance the Aminco Acquisition.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.1 million for fiscal 1995 to $1.8 million for fiscal 1996.
As a percentage of net sales, depreciation and amortization expense increased
from 1.9% to 2.7% during this period. This increase was due to goodwill
amortization which resulted from the application of purchase accounting. The
increase in amortization due to the acquisition was partially offset by a
change in the way the Company accounts for package design costs. Prior to the
Aminco Acquisition, the Predecessor capitalized package design costs and
amortized them over a four year period. Since the Aminco Acquisition, the
Company has expensed package design costs as incurred. The application of
purchase accounting related to the Aminco Acquisition did not have a material
impact on the Company's depreciation expense.
Operating Income and EBITDA. As a result of the above changes, operating
income increased from approximately $8.2 million for fiscal 1995 to $11.8
million for fiscal 1996, an increase of 43.4%. As a percentage of net sales,
operating income increased from 14.1% to 17.2% during this period. EBITDA
increased from approximately $9.5 million to $13.8 million, an increase of
46.0% during this period.
Interest Expense. Interest expense increased substantially from $0.1 million
for fiscal 1995 to $4.5 million for fiscal 1996 as a result of the new debt
incurred to finance the Aminco Acquisition.
Other Income. Other income remained approximately the same for fiscal 1996
as compared to fiscal 1995. Investment income increased from $0.6 million for
fiscal 1995 to $1.1 million for fiscal 1996 as the Predecessor realized gains
on the liquidation of certain investment securities.
Provision for Taxes. The provision for income taxes increased from $3.2
million for fiscal 1995 to $3.5 million for fiscal 1996, an increase of 10.9%.
This increase occurred despite pre-tax income decreasing from $8.9 million in
fiscal 1995 to $8.6 million for fiscal 1996 as a result of goodwill
amortization of $0.7 million for fiscal 1996 that was not deductible for tax
purposes. Accordingly, the effective tax rate increased from 35.8% to 41.1%
during this period.
LIQUIDITY AND CAPITAL RESOURCES
On June 26, 1996, Carson Products invested $3.0 million in Morningside AM
Acquisition Corp., the parent of AM Cosmetics, a leading low-cost manufacturer
of cosmetics. The investment was made through the purchase of $3.0 million of
12% cumulative, payment-in-kind preferred stock. The Company's consolidated
statement of operations for periods subsequent to June 26, 1996 include the
dividend income from this investment, although dividends are anticipated to be
paid through the issuance of additional preferred stock. Therefore, it is
anticipated that no cash will be generated from this investment in the near
future. In connection with the investment, Carson Products entered into a
management agreement and certain related sales agreements and manufacturing
agreements with AM Cosmetics. See "Certain Relationships and Related
Transactions--AM Cosmetics."
The Company completed the offering of 4,818,500 shares of Class A common
stock on the NYSE on October 18, 1996 at a price of $14.00 per share. Of these
shares, 3,113,000 were sold by the Company with the
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balance sold by selling stockholders, none of which included any members of
management or the principal investors. The Company used the net proceeds of
such offering to repay certain indebtedness of Carson Products used to finance
the Aminco Acquisition.
Concurrent with the sale of the Existing Notes, the Company entered into the
New Credit Facility which includes (i) a $50.0 million term loan to be used
solely for the purpose of making acquisitions (the "Term Loan Facility") and
(ii) a $25.0 million revolving credit facility (the "Revolving Credit
Facility"). The final maturity date for each of the Term Loan Facility and the
Revolving Credit Facility is October 2006 and 2003, respectively. Borrowings
under the Term Loan Facility and the Revolving Credit Facility will generally
bear interest at the Base Rate (as defined in the Credit Agreement evidencing
the New Credit Facility) plus 1.0% and the Base Rate plus 0.5%, respectively,
or at Carson Products' option, the Eurodollar Rate (as defined in the Credit
Agreement) plus 2.5% and the Eurodollar Rate plus 2.0%, respectively. The
obligations of Carson Products under the New Credit Facility are secured by
security interests in all accounts receivable, inventory, property, plant and
equipment and other personal, intellectual and real property of the Company
and its domestic subsidiaries, as well as by a pledge of the capital stock of
Carson Products and its subsidiaries. The New Credit Facility is guaranteed by
the Company and each present and future subsidiary of the Company (excluding
Carson Products, which is the primary borrower, and certain foreign
subsidiaries). The Credit Agreement contains customary covenants relating to,
among other things, (i) maintenance by the Company of certain total interest
coverage ratios, fixed charge coverage ratios and leverage ratios and (ii)
restrictions on the incurrence of additional liens or indebtedness. The Credit
Agreement also contains events of default customary for credit agreements of
this type. See "Risk Factors--Leverage and Debt Service" and "Risk Factors--
Subordination of the Notes and the Guarantees; Holding Company Structure."
The Revolving Credit Facility is available for working capital and other
general corporate purposes. The Term Loan Facility is to be used to consummate
permitted acquisitions, and will be available until November 6, 1998. The
Company used a portion of the net proceeds received from the sale of the
Existing Notes to repay all of the outstanding borrowings under the Existing
Bank Credit Facility. See "Use of Proceeds" and "Capitalization."
In the nine months ended September 30, 1997, net cash flow used in
operations was $7.0 million largely as a result of a $5.9 million increase in
inventory and a $10.0 million increase in accounts receivable offset in part
by a $4.3 million increase in current liabilities. The increase in accounts
receivable is primarily a result of collections through September 1997 of $5.7
million on total Cutex sales of $12.1 million. The Company believes that the
slow collections on Cutex sales is a temporary phenomenon related to the
transition of order entry, invoicing and cash collection by third parties on
behalf of the Company. The majority of the increase in inventory is in
finished goods and is in part attributable to increases in domestic core
products finished goods inventory necessary to improve customer service
performance.
Net cash used in investing activities for the nine months ended September
30, 1997 totaled $54.5 million which consisted primarily of cash paid for
acquisitions of business assets of $49.4 million and capital expenditures of
$5.1 million.
Net cash provided from financing activities for the nine months ended
September 30, 1997 totaled $62.3 million primarily as a result of additional
borrowings related to acquisitions. Additionally, the Company's South African
subsidiary completed an equity rights offering which generated $1.5 million of
cash, net of $4.2 million which was invested indirectly by the Company.
Carson South Africa consummated a rights offering of additional shares of
its common stock to its existing shareholders in June 1997 in order to raise
capital to fund the physical expansion of the Midland, South Africa plant,
complete the factory in Accra, Ghana, accelerate the development of recently
acquired brands and provide additional working capital. The Company
participated in the rights offering indirectly by having Carson Products
subscribe for additional shares in the amount of approximately $19.0 million
(approximately R4.2 million), and
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therefore its ownership percentage remained approximately the same. The rights
offering raised approximately R25.9 million (approximately $5.7 million),
including amounts paid by Carson Products.
The Company's non-acquisition related capital expenditures for the nine
months ended September 30, 1997, the Transition Period and the combined fiscal
year ended March 31, 1996 were $5.1 million, $3.8 million and $1.8 million,
respectively. The Company anticipates that such capital expenditures for the
three months ended December 31, 1997 will be approximately $1.5 million.
The Company believes that cash flow from operating activities, existing cash
balances and available borrowings under its New Credit Facility will be
sufficient to fund working capital requirements, capital expenditures and debt
service requirements in the foreseeable future.
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BUSINESS
GENERAL
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for the both the ethnic market and the mass
market. The Company believes that it is one of the leading global
manufacturers and marketers of ethnic hair care products for persons of
African descent. The Company's flagship brand, Dark & Lovely, is the most
widely recognized ethnic brand name in the U.S. retail ethnic hair care
market. The Company has the number one retail market position in three of the
four ethnic hair care segments in the United States in which it currently
competes, according to IRI. The Company currently sells over 70 different
products specifically formulated to address the unique physiological
characteristics of persons of African descent under six principal brand names:
Dark & Lovely, Excelle, Beautiful Beginnings, Dark & Natural, Magic and Let's
Jam. The majority of the Company's net sales have historically been derived
from hair relaxers and texturizers, which are used to chemically treat and
straighten hair (constituting approximately 42.1% of the Company's net sales
in the twelve months ended September, 1997), hair color, men's depilatory
products and hair care maintenance products, primarily for persons of African
descent. The Company's hair care products are specifically formulated to
address the unique physiological characteristics of hair of persons of African
descent, which typically include curliness and dryness. In addition, the
Company is expanding its product offerings to other segments of the ethnic
personal care market, including cosmetics and skin care products.
The Company is also a leading marketer of nail care products to the U.S.
mass market under the Cutex brand name. Cutex is the leading brand of nail
polish remover, with an estimated 31.8% market share in the twelve months
ended June 1997, according to IRI. Other products marketed under the Cutex
brand name include nail enamel, nail care treatments and the newly introduced
women's depilatory product, Naturally Soft Body Creme. Carson acquired the
rights to use the Cutex brand name in the United States and Puerto Rico in
April 1997. The Company believes that the Cutex product line complements its
existing hair care and cosmetics product lines. The Cutex Acquisition is
expected to create an entree into the U.S. mass market for products developed
by Carson and increase the Company's overall distribution strength. The
Company has contracted with AM Cosmetics to manufacture, market and distribute
certain Cutex products to capitalize on AM Cosmetics's expertise in cosmetics
and to limit operating and financial risk. Management believes that AM
Cosmetics, an affiliate of the Company, is the largest manufacturer and
distributor of nail enamel in the United States.
In order to capitalize on new growth opportunities, the Company has
assembled a team of seasoned senior executives with extensive experience
serving the ethnic market and consumer products industry. As Chairman and
Chief Executive Officer, Dr. Leroy Keith, former President of Morehouse
College, entrepreneur and prominent member of the African-American community,
provides the Company with leadership and vision. Joyce M. Roche, President and
Chief Operating Officer, has over 20 years of experience in the health and
beauty aids industry, including positions as Senior Vice President of
Marketing and Vice President of Global Marketing at Avon and Director of
Marketing at Revlon. Robert W. Pierce, Executive Vice President of Finance and
Chief Financial Officer, has over 20 years of experience in the health and
beauty aids industry, most recently as chief financial officer of Maybelline,
Inc. Dennis Smith, Executive Vice President of Sales, has over 20 years of
experience in the ethnic hair care industry, including senior management
positions with a competitor and 14 years with the Company. Miriam Muley,
Executive Vice President of Marketing, has over 17 years of consumer products
industry experience, having held marketing positions at Avon, Bristol-Myers
Squibb Company's Clairol division and Johnson & Johnson, and as a Vice
President at Uniworld Group, a leading advertising agency targeting the
African-American market segment.
The Company has undertaken several important initiatives to enhance its
position in the ethnic hair care marketplace. In 1996, the Company's R&D
department finalized the development of several product innovations, including
the Fail Safe and DL 2000 hair relaxer technologies and a full line of hair
care maintenance products. The introduction of new and attractive product
packaging for many of the Company's products was also completed in 1996. The
in-house sales force formed in April 1995 was further expanded in 1996 with
the addition of several experienced senior sales executives. In addition, the
Company established its own
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manufacturing plant in South Africa by acquiring a former Pfizer facility,
which began operations in early 1996, and recently completed a new
manufacturing facility in Ghana. The Company established a distribution
network, began training stylists through a strategic alliance with Servico
Nacional de Aprendizagem (SENAC), a national professional services training
organization, received governmental approvals for the sale of its complete
line of hair care products and, in the first quarter of 1997, began shipping
product to Brazil. The Company intends to use Brazil as a base for expanding
to other South American and Central American countries.
During the twelve months ended September 30, 1997, the Company generated, on
a pro forma basis, net sales of $109.1 million and Adjusted EBITDA of $21.4
million. The Company also currently markets its products in 60 countries
outside of the United States, primarily through local distributors.
International net sales represented 28.2% of total historical net sales for
the twelve months ended September 30, 1997. International net sales grew 51.5%
in the twelve months ended September 30, 1997 versus the twelve months ended
September 30, 1996. Over the approximate two-year period from the Aminco
Acquisition on August 23, 1995 through September 30, 1997, the Company has
experienced annualized net sales and Adjusted EBITDA growth of 28.1% and
15.3%, respectively.
INDUSTRY OVERVIEW
Ethnic Hair Care Market
The U.S. retail ethnic hair care market, principally targeting the distinct
hair care needs of African-Americans, was estimated, according to a July 1995
report published by Packaged Facts, an independent market research company
(the "Packaged Facts Report") to be a $1.2 billion retail business in 1995.
According to 1995 U.S. Census Data ("Census Data") published by the U.S.
Department of Commerce, the African-American population was approximately 34
million and represented 12.7% of the U.S. population. This segment of the U.S.
population is projected by the U.S. Department of Commerce to grow
significantly faster than the general population through the middle of the
next century. The personal income of African-Americans doubled from 1980 to
1990 and their combined purchasing power was estimated to be approximately
$260 billion in 1990, according to the Census Data. Moreover, the Packaged
Facts Report indicates that African-American consumers generally spend up to
three times as much of their disposable income on health and beauty products
as Caucasian consumers. According to IRI, sales in the domestic market for
ethnic hair care in the categories tracked by IRI declined by approximately
2.0% in the twelve months ended September 1997 compared to the twelve months
ended September 1996.
The U.S. retail ethnic hair care market for African-Americans is competitive
and highly fragmented, with a number of market participants that focus
specifically on this market. The five largest companies generated
approximately 49.1% of industry sales for the twelve months ended September
1997 with the remainder being generated by a number of smaller companies,
according to IRI. Most of the larger competitors in the ethnic hair care
market are privately owned and compete only in this market. A few general
market health and beauty aids companies produce a limited line of ethnic
products.
In addition to the retail segment of the U.S. ethnic hair care market, there
are also professional ethnic hair care salons which the Company estimates to
exceed 28,000 in the United States. According to market research studies
commissioned by the Company in 1990, which have been updated annually through
focus groups and other internal research conducted by the Company
(collectively, "Company Market Research"), approximately 40% of African-
American women patronize salons exclusively, 40% maintain their hair at home
exclusively and 20% switch between salons and home hair care. The professional
segment of the U.S. ethnic hair care market is also highly fragmented, with
the leading competitor being a general market health and beauty aids company.
The Company is engaged in market research and expects to enter the U.S. salon
market in the fourth quarter of 1997. See "--Growth Strategy."
On a global scale, the Company currently estimates that there are
approximately 900 million people of African descent outside the United States,
including an estimated 750 million people on the African continent,
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100 million people in Brazil, 20 million people in the Caribbean, 10-15
million people in Europe and 10-13 million people in Central America. The
Company's experience in developing regions, such as South Africa, the
Caribbean and Brazil, indicates the percentage of women who patronize salons
is dramatically higher in these developing markets than in developed markets
such as the United States. These women tend to patronize salons because
relaxer products are generally unavailable on a retail basis, professionals
have the expertise, as well as ready access to hot water, which is necessary
for effective use of relaxer products, and the local salon is often a social
gathering place for its patrons. Although there is no independent market data
to support the size of the international market, the Company believes that the
international market is significant. For example, the Company estimates that
in Southern Africa, with a Black population of approximately 100 million,
manufacturers of ethnic hair care products generated approximately $40 million
in sales in 1995. Southern Africa refers to Angola, Botswana, Lesotho, Malawi,
Mozambique, Namibia, South Africa, Swaziland, Zambia and Zimbabwe.
The major segments of the ethnic hair care market in which the Company
competes are described below:
. Hair Relaxers and Texturizers. Chemical hair relaxing is the process of
permanently straightening curly hair. Texturizers generally work in a
similar manner as relaxers to loosen curly hair, but do not straighten
the hair completely. The amount of curl in any type of hair is
determined by the abundance of disulfide bonds as well as the shape of
the hair follicle from which the hair emerges, either straight, slightly
curved or curly. Relaxed hair serves as the foundation for and
facilitator of daily hair styling. Consequently, its popularity is not
significantly related to current fashion trends. For the person with
relaxed hair, relaxers represent a basic personal care product, similar
to shampoos and conditioners for the general market. Further, the
continual need for "touch-ups" approximately every six weeks requires
the relaxer user to frequently purchase relaxers and related products.
According to the Packaged Facts Report, over 50% of African-American
women use chemical relaxers in their hair. For persons of African
descent, chemical relaxation became popular in the 1940's with the
introduction of sodium hydroxide or "lye" relaxer which was the sole
product available until the Company invented and patented "no-lye," or
guanidine carbonate hydroxide relaxers in 1978. In the retail market,
no-lye relaxers are generally sold in kits which include a cream base
component and a chemical activator component, which are mixed together
to create the requisite chemical reaction. One of the most significant
sources of consumer complaints in the industry is inconsistent results
caused by mixing errors. Fail Safe technology, developed by the Company,
eliminates such mixing problems. Although lye relaxers do not require
mixing and tend to work faster than no-lye relaxers, they have a much
higher risk of hair damage and skin irritation than no-lye relaxers.
Until the Company invented no-lye relaxers, relaxing hair was relegated
primarily to salons where it was applied by trained technicians for
safety reasons. The introduction of Dark & Lovely no-lye relaxers by the
Company offered an effective and less expensive in-home alternative
which significantly changed the industry.
As of June 1997, the U.S. retail ethnic women's and children's relaxer
and texturizer segment was the largest category of U.S. retail ethnic
hair care products, representing approximately 29.2% of the U.S. retail
ethnic hair care market, according to IRI. The relaxer and texturizer
market is highly fragmented with almost 50 brands available; however,
according to IRI, the top five brands generated more than half of the
sales volume in 1996, with the Company's Dark & Lovely brand having the
largest share of the women's relaxer market with approximately 18.0% of
the total sales in this segment, and all of Carson's relaxer products
having an aggregate share of approximately 20.2% of total segment sales,
according to IRI.
. Hair Color. Hair coloring involves the addition of chemical coloring
agents to the natural pigment of hair, or a lightening or "lifting" of
the natural pigment followed by the addition of color to brighten hair.
The hair of individuals of African descent has more pigment in the hair
cortex than Caucasian hair. This type of hair also has a lower sulfur
content, a slightly lower lipid content and possesses sulfur-containing
bonds that have a different configuration than Caucasian hair. As a
consequence of
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these characteristics, the pigment in hair of individuals of African
descent reacts to coloring agents differently than Caucasian hair and
chemically relaxed hair will react more quickly to lightening which can
result in a brassy appearance. All of the Company's Dark & Lovely hair
colors are formulated to react appropriately to the hair of individuals
of African descent to ensure the delivery of the intended color without
brassiness.
The three major categories of hair color are: temporary, semi-permanent
and permanent. Temporary hair colors are generally removed from the hair
in the first or second shampooing. Temporary color is only deposited on
the hair surface and for the most part, no chemical reactions take
place, so it is safe to use immediately after relaxing. Temporary color
can only deposit pigment, it cannot lighten the hair color. Semi-
permanent hair colors are more resistant to removal and are formulated
to last from four to six shampoos. They are applied without peroxide, so
they do not change the basic structure of the hair and are also safe to
use immediately after relaxing. Semi-permanent colors are only designed
to add color to the hair. Permanent hair colors produce the most
effective and durable coloration. Due to dye penetration of the cortex
of the hair as well as the addition of peroxide, these colors can both
lighten hair and deposit color. Therefore, permanent color offers the
greatest range of shades. According to the Packaged Facts Report,
approximately one quarter of all African-American women color their
hair, with approximately one half of this group coloring their hair at
home.
As of June 1997, the U.S. retail ethnic hair color segment represented
approximately 6.5% of the U.S. retail ethnic hair care market, according
to IRI. For the twelve months ended June 1997, according to IRI, Dark &
Lovely and Dark & Natural hair colors had a combined market share of
approximately 84.9% of this segment. The Company believes that it has
the leading market share in this segment. Three ethnic and two general
market health and beauty aids companies produce hair color product lines
specifically targeted to consumers of African descent.
. Hair Care Maintenance Products. The physiological differences between
the hair of individuals of African descent and Caucasian hair create the
need for a variety of products to treat or "maintain" the hair and
scalp. Hair is lubricated by the sebaceous gland which excretes oil that
flows down and lubricates the hair shaft. While this generally happens
in straight hair and in wavy hair, it is very difficult for oils to
follow the curves and undulations of curly or kinky hair. The lack of
oil causes curly or kinky hair to become very dry and brittle, leaving
the hair with a matte, almost dull finish. This condition is the major
reason that hair care maintenance products such as oil sheens, hair
dress conditioners, comb-outs/detanglers and wave products are popular
among individuals of African descent.
Women, children and men of African descent use a variety of products in
order to permanently change the structure of their hair. In most
instances, chemical processes (e.g., relaxing and color treating hair)
leave the hair more dry and brittle than it would be otherwise and can
significantly damage hair if used improperly. Thus there is an even
greater need to condition, replenish and protect hair before, after and
in between treatments. In order to protect the hair, strengthen it and
return it to a soft, shiny condition with a healthy-looking appearance,
the consumer in this market has an even greater need for hair care
maintenance products than her or his general market counterpart.
Numerous ethnic hair care companies and several general market health and
beauty aids companies sell hair care maintenance products to consumers
of African descent. For the twelve months ended June 1997, according to
IRI, Let's Jam recorded an approximately 4.7% market share in the highly
fragmented hair dress category, which is the second largest category,
representing approximately 18.5% of the U.S. ethnic hair care market.
. Men's Depilatory Products. "Razor bumps," known medically as
Pseudofolliculitis Barbae (PFB), is a condition which primarily affects
men of African descent. Razor bumps are both caused and aggravated by
shaving due to the way curly facial hairs grow on some men, because as
their beards
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grow back after shaving with a razor, the sharp tip of each hair will
continue curling until it grows back into the skin. Razor bumps may lead
to an unpleasant appearance or even permanent disfigurement and can
cause great discomfort during the shaving process. The incidence of men
of African descent who suffer from some degree of razor bumps is
estimated to range from 35% to 40% and, of this group, an estimated 50%
seek some sort of relief, according to reports published in 1995 by the
National Medical Association, a group of predominantly African-American
physicians. The primary alternative to shaving is using a depilatory
such as the Company's Magic product line. The advantage of depilatories
is that they remove hair chemically by weakening and dissolving the hair
so that it can be easily removed give a smooth, close, razorless shave.
Because depilatories do not leave sharp tips on the ends of hair, they
reduce the probability that hair will grow back into the skin.
Two companies specializing in men's depilatories compete in this market
in the United States, but the Company leads this segment with an
approximately 73.7% market share for the twelve months ended June 1997,
according to IRI.
Ethnic Cosmetics Market
The physiological differences between the skin of women of African descent
and Caucasian women create the need for a variety of products specifically
manufactured for women of African descent. The differences between the two
groups stem from the wide variety of skin tones that are representative of
women of African descent versus Caucasian women. First, the skin tones of
women of African descent are captured in 33 distinct shades versus seven
distinct shades for Caucasian women. This variety of skin tones makes it
important for an ethnic cosmetics line to have a wide variety of shades to
appeal to the broader range of consumers. Second, hyperpigmentation and
hypopigmentation--or uneven skin tone--makes cosmetic selection more complex
for women of color. Uneven skin tone is a problem experienced by many African-
American women. Products that provide ample coverage are important to blend
away uneven skin tone color and provide a smooth, even palette. Third, certain
ingredients that are widely used in general market brands produce unacceptable
results for women of African descent. These ingredients include titanium
dioxide and zinc oxide, which produce a graying or whitening effect on darker
skin tone; oil-based formulas, which tend to clog skin pores of women of
African descent who have a greater tendency to have oily skin; and lanolin-
based formulas which are not conducive to the skin condition of African-
American women.
In 1995, the Packaged Facts Report projected that the U.S. retail cosmetics
segment would include approximately $251.0 million in sales of ethnic
cosmetics products. Sales of ethnic cosmetics products were forecasted to grow
at an annual rate of 15% in future years according to the same source.
Personal Care Market
. Nail Care Market. Nail care has been a rapidly growing segment in the
cosmetics market, with an increase in sales volume of approximately
12.8% over the twelve months ended September 1997, according to IRI.
Three segments, namely nail enamel/treatments and cuticle treatments,
artificial nail products and nail polish removers (including dryers and
thinners), make up the nail care market. According to IRI, for the
twelve months ended June 1997 Cutex had a market share of approximately
31.8% and 3.9% of the nail polish remover and nail enamel/treatments
segments, respectively.
. Women's Depilatory Market. Current methods of removing unwanted hair
include shaving with a razor (approximately 60%), waxing, and using a
creme or lotion depilatory (approximately 15%). Shaving, while fast,
easy and inexpensive, can cause nicks, cuts, razor burns and bumps.
Shaving with a razor must be performed more often to maintain smooth
skin. Waxing, while longer lasting, can be very painful and expensive if
done in a salon on a regular basis. Depilatories offer longer lasting
smoothness, and are safer and less likely to cause burns or bumps.
Current depilatory products often contain an unpleasant odor and are not
completely effective in removing unwanted hair.
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For the twelve months ended June 1997, the U.S. retail women's depilatory
category was estimated at approximately $73.3 million in sales by IRI.
Nair (with approximately 28.0% market share), Sally Hansen (with
approximately 26.8% market share) and Neet (with approximately 7.5%
market share) represent the principal brands, according to IRI,
targeting women aged 18-44 years. Carson, with its almost century-old
expertise in men's depilatories, is introducing its first women's
depilatory product under the Cutex Naturally Soft Body Creme brand name.
The Company believes it has an opportunity to penetrate this market with
a product that delivers smooth, soft skin in less time than existing
brands. In addition, the Company believes that the pleasant scent and
ease of use of the brand should give it a competitive advantage.
COMPETITIVE STRENGTHS
The Company had the number one U.S. retail market position in three of the
four ethnic hair care categories in which it competes (hair relaxers and
texturizers, hair color and men's depilatory products) for the twelve months
ended June 1997, according to IRI. The acquisition of the Let's Jam brand name
adds one of the leading brands in the fourth category, ethnic hair care
maintenance products. According to the same source, the Cutex brand name had
the number one market position in the United States in nail polish remover
during the same period. The Company attributes its leading market positions to
a number of competitive strengths, including its strong brand names, dedicated
sales force, broad distribution, R&D capabilities and experienced management
team.
. Strong Brands. The Company currently sells its products under seven
principal brand names: Dark & Lovely, Excelle, Beautiful Beginnings,
Dark & Natural, Magic, Let's Jam and Cutex. The Company's flagship
brand, Dark & Lovely, is the most widely recognized ethnic brand name in
the U.S. retail ethnic hair care market for African-Americans and Cutex
is the leading brand name for nail polish removers in the U.S. mass
market. The Company believes that the strength of its brands is based
upon product quality and value, properly targeted advertising, package
design, reputation for innovation and focused commitment to the unique
needs of its consumers.
. Experienced Sales Force and Broad Distribution. The Company believes
that it has the largest direct sales force serving the U.S. retail
ethnic hair care market. The Company also utilizes the experienced sales
force of AM Cosmetics, an affiliate of the Company, in the U.S. mass
market. Both of these sales forces enhance the Company's ability to
further penetrate its markets with current and new products. The
Company's competitors primarily use commissioned sales brokers, who tend
to have conflicting brand loyalties and provide minimal marketing and
sell-through support. In the United States, the Company benefits from
having its extensive product line distributed broadly through several
principal channels: mass merchandisers (e.g., WalMart, K-Mart), major
drug chains (e.g., Walgreens, Eckerd's, CVS/Revco), food chains (e.g.,
Winn Dixie, Kroger), discount chains (e.g., Family Dollar, Dollar
General), and B&Bs (e.g., Alberto-Culver Company's Sally's Beauty Supply
stores and members of the National Beauty Supply Dealers Association).
See "--Distribution and Sales." The Company believes that the Cutex
Acquisition enhances the Company's overall distribution network.
. Focused Research and Development. The Company believes that its
tradition of technological innovation and its focused R&D effort are
important to maintaining its market leadership position. Three of the
ethnic hair care industry's most significant innovations were introduced
by the Company: the first hair color developed exclusively for hair of
persons of African descent (1972), the first no-lye relaxer (1978),
which provided a safe relaxer product for home use, and the Fail Safe
technology for no-lye relaxers (1993), the only relaxer system to
eliminate problems associated with imprecise mixing, which the Company
believes is the most common cause of consumer complaints regarding
relaxers. In addition, Carson has recently introduced a women's
depilatory product, Cutex Naturally Soft Body Creme, which the Company
believes eliminates many of the negative features usually associated
with women's hair removers. The Company, through its affiliation with AM
Cosmetics, also developed Dark
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& Lovely Cosmetics, which the Company believes is the first
hypoallergenic, premium quality ethnic cosmetics line, to be marketed
through Carson's existing distribution channels.
. Experienced Management Team. Since the Aminco Acquisition, a team of
seasoned senior executives with extensive experience in the ethnic
market and consumer products industry has been recruited to build on the
Company's strong position in the global ethnic hair care market. As
Chairman and Chief Executive Officer, Dr. Leroy Keith, former President
of Morehouse College, entrepreneur and prominent member of the African-
American community, provides the Company with leadership and vision.
Joyce M. Roche, President and Chief Operating Officer, has over 20 years
of experience in the health and beauty aids industry, including
positions as Senior Vice President of Marketing and Vice President of
Global Marketing at Avon and Director of Marketing at Revlon. Robert W.
Pierce, Executive Vice President of Finance and Chief Financial Officer,
has had 20 years of experience in the health and beauty aids industry,
most recently as chief financial officer of Maybelline, Inc. Dennis
Smith, Executive Vice President of Sales, has over 20 years of
experience in the ethnic hair care industry, including senior management
positions with a competitor and 14 years with the Company. Miriam Muley,
Executive Vice President of Marketing, has over 17 years of consumer
products industry experience, having held marketing positions at Avon,
Bristol-Myers Squibb Company's Clairol division and Johnson & Johnson,
and as a Vice President at Uniworld Group, a leading advertising agency
targeting the African-American market segment. See "Management."
GROWTH STRATEGY
By adhering to the following strategies, the Company believes that it is
well positioned to grow both internally and through acquisitions, in order to
enhance its market positions in both the ethnic and mass markets for personal
care products:
. Increase Share of Existing Markets. The Company seeks to increase its
market share in existing markets through product innovation and ongoing
upgrading of existing products. The Company recently incorporated into
all of its relaxer products its latest innovation in relaxer technology,
called Fail Safe, which eliminates the problem of mixing errors which
occur with the in-home use of no-lye relaxers. The Company also is in
the process of updating the Cutex product line which it expects to re-
launch in the first quarter of 1998. The Company has been on an
aggressive schedule of new product introductions or existing product
upgrades with 19 SKUs having been introduced from January 1, 1996
through June 30, 1997 and an additional five SKUs expected to be
introduced during the remainder of 1997, in addition to Let's Jam
products, Dark & Lovely cosmetics and Carson Compositions professional
hair care products, including the following:
-- Improved Dark & Lovely Relaxer: The Company's flagship line was
upgraded to include its innovative Fail Safe technology.
Simultaneously, conditioning benefits (ultra-conditioning relaxer
base and shampoo) were added to every step of the relaxer system and
the packaging was updated. Company research indicates that the new
product out-performs both the competition and the former Dark &
Lovely product in five key areas: straightening, manageability,
softness, health and shine.
-- Improved Excelle Relaxer: The improved Excelle relaxer brand uses
Fail Safe technology as well as increased moisturizing benefits to
deliver more body and a finished, salon look.
-- Excelle Hair Care: An Excelle hair care moisturizing line was added
at the same time as the Excelle relaxer relaunch. Three "after-care"
products were added, highlighting the Excelle relaxer product and
providing necessary hair care maintenance items. The newest addition
to the Excelle maintenance line is Excelle Moisture Beads, a light
conditioning pomade formulated with botanicals.
-- Dark & Lovely Color Care Shampoo and Conditioner: Traditional
shampoos and conditioners can strip or dull the hair of individuals
of African descent that has been color treated. The
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Company has introduced a shampoo and conditioner especially designed
to add body and shine to color-treated hair to complement the
Company's hair color products.
-- Dark & Lovely Permanent Hair Color: The Company is introducing a new
color shade, Mocha Brown, to the Dark & Lovely hair color line,
raising the total number of permanent hair color shades to 16 SKUs.
-- Beautiful Beginnings: The Company is extending its children's brand
name into a pre-teen girls' relaxer product, Straight and Healthy,
as well as a new bubble bath product for boys and girls aged four to
eight years. Both products are targeted to mothers seeking mild and
gentle products for their children. The bubble bath is intended to
be the first product in a line of personal care products for
children of African descent.
-- Magic Mild Cream Formula: The Company has developed a mild cream
formula which is in a no-mix, easy-to-use form and is targeted to
younger users. The traditional Magic powder product line is sold
primarily to older men of African descent.
-- Magic Smooth: The Company has developed a men's mild depilatory
cream product especially formulated for use on the scalp, in
response to the growing number of African-American men who wear
their heads shaved for the athletic bald look.
. Leverage Brands into Cosmetics and Other New Product Categories. The
Company believes that its flagship Dark & Lovely brand name is
transferable to other ethnic health and beauty aids categories,
including cosmetics and skin care products. According to the Packaged
Facts Report, the cosmetics segment of the U.S. retail ethnic health and
beauty aids market was projected to be approximately $251 million in
retail sales in 1995, and is forecasted to grow at 15% per year through
1999. The Company recently introduced a new line of cosmetics targeted
to women of color under its Dark & Lovely brand name, which it began to
ship in June 1997. The Company intends to take advantage of (i) the
strong positive brand recognition of the Dark & Lovely name, (ii) its
ability to introduce its consumers to the Dark & Lovely cosmetics line
through inserts in Dark & Lovely relaxer and hair color kits (sales of
which total 11 million units annually), (iii) its strong relationships
with its current customers which will enable it to distribute new
cosmetics products efficiently through the same ethnic and general
market channels as the Company currently services and (iv) its contract
manufacturing arrangement with AM Cosmetics, a leading low-cost
manufacturer of cosmetics. Similarly, the Company used the Cutex brand
name to introduce its new women's depilatory product, Naturally Soft
Body Creme, which began to ship in October 1997.
. Continue International Expansion. The Company believes it is poised for
continued growth in its international markets, particularly Africa,
Brazil and the Caribbean, each of which has a significant concentration
of consumers of African descent. The Company's key strategic initiatives
to achieve this international growth include, depending on the market,
local manufacturing and distribution, introduction of new products and
new product categories and selected acquisitions to increase market
presence. The Company currently markets its entire product line
(excluding Cutex products) in over 60 countries worldwide under the same
brand names as it uses in the United States. International sales in the
twelve months ended September 30, 1997 of $28.0 million represented
28.2% of the Company's net sales for such period and increased 51.5%
compared to the twelve months ended September 30, 1996.
-- Africa: The Company currently sells to 17 of the 53 African
countries, with net sales for the twelve months ended September 30,
1997 of approximately $17.6 million, a 86.8% increase over the
twelve months ended September 30, 1996. In Southern Africa the
current customer base, which consists primarily of professional
salon owners and stylists, is serviced through regional distributors
and specialty cash-and-carry wholesale outlets. The Company
currently offers professional training through salons and seminars
in order to educate the professional salon owner or stylist as well
as to differentiate itself from its competitors in South Africa.
Retail product distribution is currently being expanded to mass
merchandisers and other large retail
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chains in South Africa. The Company commenced its own manufacturing
operations in South Africa in March 1996 to support its African
strategic initiatives and is currently doubling its manufacturing
and warehousing capacity in South Africa. The Company expects to
benefit from the cost and quality advantages of in-house production
going forward. The Company recently completed a new manufacturing
facility in Ghana to support sales in West Africa. The Company's key
strategic initiatives to achieve growth throughout the African
continent are to: (i) continue market penetration and expansion of
the core Southern African and recently initiated West African
operations; (ii) establish and develop a distribution and/or
manufacturing facility in East Africa; (iii) extend existing product
lines to include related product categories such as cosmetics with
the introduction of Dark & Lovely cosmetics; and (iv) continue to
identify selected strategic acquisitions, such as the 1997 purchases
of the Nu-Me cosmetics and skin care brand, the Restore Plus relaxer
brand, and the Seasilk toiletries brand. In July 1996, Carson South
Africa sold 25% of its shares in an initial public offering on the
Johannesburg Stock Exchange. The proceeds of such offering were used
to purchase the manufacturing facility and related equipment as well
as to fund the Company's African strategic initiatives. Carson South
Africa consummated a rights offering in June 1997, the proceeds of
which will be used, among other things, to fund the expansion of its
manufacturing capacity and acceleration of the development of its
recently acquired brands.
-- Brazil and South America: Brazil has a population of approximately
100 million people of African descent, almost three times the number
of people of African descent as the United States. Moreover, the
Company believes that the ethnic hair care industry in Brazil is
underdeveloped and that the country's improving economy and
demographic trends make this market attractive for the introduction
of the Company's products. The Company established a distribution
network, began training stylists through a strategic alliance with
Servico Nacional de Aprendizagem (SENAC), a national professional
services training organization, received governmental approvals for
the sale of its complete line of hair care products and, in the
first quarter of 1997, began shipping product to Brazil. The Company
intends to use Brazil as a base for expanding its products and
facilities to other Central and South American countries.
-- Caribbean: In order to increase sales penetration in the Caribbean
region, the Company appointed a Caribbean Sales Manager position and
is investigating whether to establish a factory in the region which
would enable the Company to produce in a Caribbean Community and
Common Market (CARICOM) nation, thereby substantially reducing taxes
and tariffs. The Company has sold products into the Caribbean on an
export basis through brokers since before 1975. Carson's more
focused local marketing presence is reflected in net sales of $3.9
million for the twelve months ended September 30, 1997, a 119.9%
increase over the twelve months ended September 30, 1996.
. Enter the U.S. Professional Salon Market. The Company believes that its
R&D expertise and tradition as the technological innovator in the ethnic
hair care market will facilitate its entry into the U.S. professional
salon market. The Company has developed a new professional ethnic hair
care product line under the Carson Compositions brand name that will
offer certain technological advantages compared to ethnic hair care
products currently offered in salons, as well as a complementary line of
hair care maintenance products for exclusive purchase in salons. The
Carson Compositions line will be comprised of 54 SKUs in the relaxer,
hair color and maintenance categories. The Company estimates that there
are in excess of 28,000 African-American hair care salons in the United
States comprising an approximately $2.1 billion market in 1995,
according to Salon Information Systems, Inc. Company market research
indicates that African-American women are twice as likely as their
Caucasian counterparts to patronize salons and that of the total number
of African-American women who relax their hair, 40% are exclusive salon
users, 40% are exclusive at-home users, and 20% switch between salon and
at-home care. Of the approximately 40% of all African-American women who
color treat their hair, approximately one half treat their hair at
salons.
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The Company believes that it is well positioned to deliver products to
the U.S. professional salon market, in significant part because many
stylists purchase their ethnic hair care supplies at B&Bs, a
distribution channel in which the Company is well established.
Additionally, the Company has successfully entered the international
professional salon market through its South African subsidiary and is
implementing this strategy in other parts of Africa as well as in
Brazil. The Company is engaged in market research and entered the U.S.
salon market in the fourth quarter of 1997.
. Capitalize on Selective Acquisition Opportunities. In addition to
internally generated growth, the Company continually considers the
selective acquisition of related brands and businesses which would
increase the Company's market share or expand and complement its product
lines. In 1997, the Company acquired the right to use the Cutex brand
name and certain related assets in the United States and Puerto Rico,
the Let's Jam hair styling products brand name and certain related
assets, the Nu-Me cosmetics and skin care brand name and certain related
assets, the Restore Plus hair care brand name and certain related
assets, and the Seasilk toiletries brand name and certain related
assets. The Company believes that the Cutex Acquisition complements the
Company's existing product lines and will enable the Company to increase
its market share for existing products by expanding the number of stores
served by the Company. There can be no assurance that additional
suitable acquisition or joint venture candidates can be identified, or
if an acquisition is completed, that the operations will be successfully
integrated or otherwise not have an adverse effect on the Company.
PRODUCTS
The Company manufactures and markets a variety of products worldwide. The
following table sets forth the Company's principal products, by brand, as of
September 30, 1997 (with an asterisk indicating products expected to be
launched in the remainder of 1997 and first half of 1998.)
<TABLE>
<CAPTION>
BRAND PRODUCTS
<C> <S>
Relaxers: Creme Relaxer, Regular Strength; Creme Relaxer Plus,
Dark & Lovely Super Strength
Hair Care Maintenance Products: Corrective Leave-in Condition
Therapy; Pro Therapy Protein Intensive Conditioner; Rich &
Natural Hair Dress Conditioner; Silky Set Conditioning Set &
Wrap Lotion; Quik Freeze Super Shine Spritz; 3-N-1 Plus
Detangling/Conditioning Shampoo; Deep Conditioning Treatment;
Restore & Repair Reconstructive Hair Therapy; Quick Styling
Gel--Regular Hold; Quick Styling Gel--Super Hold; Ultra
Cholesterol Super Strengthening/Conditioning Treatment; 24-hr.
Therapy Moisture & Shine Replenisher; Ultra Strengthener Herbal
& Vitamin Hair Therapy; Restorer Super Strengthening Hot Oil;
Healthy Shine Oil Sheen Spray; Color Care Shampoo; Color Care
Conditioner
Hair Color: Permanent: Jet Black; Natural Black; Brown Sable;
Rich Auburn; Sunset Auburn; Autumn Red; Light Brown; Honey
Blonde; Golden Bronze; Chestnut Blonde; Spicy Cinnamon; Midnight
Blue; Black Ruby; Light Golden Blonde; Deep Copper; Mocha Brown
Reviving Colors Hair Color: Semi-Permanent: Radiant Black; Ebone
Brown; Spiced Auburn; Passion Plum; Natural Black; Brown
Cinnamon
Cosmetics: Easy-Blend Creme-to-Powder Foundations; Oil-Free
Liquid Foundations; Translucent Oil-Absorbing Loose Powders;
Oil-Controlling Pressed Powders; Oil-Free Powder Blushes; Color
Enhancing Eye Shadow Coordinates; Moisturizing Long-Wear Lip
Colors; Long-Wear Nail Enamels
Relaxers: Creme Relaxer, Regular Strength; Creme Relaxer Plus,
Excelle Super Strength
Hair Care Maintenance Products: Silky Sensation Shampoo; 5-
Minute Reconstructer; Leave-In Conditioning Mist; Moisture
Beads*
</TABLE>
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<TABLE>
<C> <S>
Relaxers: Children's Relaxer; Straight and Healthy Pre-
Beautiful Beginnings Teen Relaxer
Hair Care Maintenance Products: Conditioning Shampoo Plus
Detangler; Leave-In Conditioner Plus Detangler; Natural
Oil Moisturizer Plus Detangler; Scalp Conditioner and
Hair Dress
Personal Care Products: Bubble Bath*
Dark & Natural Texturizers: Texture Enhancer, Regular Strength; Texture
Enhancer, Extra Strength; Texture Enhancer for Short Hair
and Fades
Hair Care Maintenance Products: Moisturizing Shampoo; Dry
Hair & Scalp Moisturizer Conditioner; Wave Lotion; Wave &
Style Gel
Hair Color: Jet Black; Natural Black; Darkest Brown
Moustache & Beard Color: Jet Black; Natural Black
Magic Men's Depilatory Products: Men's Shaving Powder: Gold,
Platinum, Blue and Red; Pre-shave/after-shave lotion;
Cream Shave: Regular and Mild; Smooth Creme for the
Scalp*
Let's Jam Hair Care Maintenance Products: Shining & Conditioning
Gel; Oil-Free Shine; Pudding; Set & Hold Gel; Pomade;
LiquaJam; Moisture Jam; Braid & Shine Mist; Alcohol Free
Spritz; Super Hold Spritz.
Cutex Nail Polish Removers: Quick & Gentle Removers--Protein-
Enriched Non-Acetone, Nourishing or Strengthening
Formulas
Nail Enamels: Ultra One-Coat*; Strong Nail Color; Color
Quick; Salon Set
Nail Treatments: Ultra One-Coat*; Strong Nail; Salon Set
Women's Depilatory Products: Naturally Soft Body Creme*
</TABLE>
. Dark & Lovely. The Dark & Lovely relaxer was introduced in 1978 and
effectively changed the way African-American women could relax their
hair. The introduction of the no-lye technology by the Company
significantly reduced the possibility of hair damage and skin irritation
frequently caused by sodium-based (lye) relaxers. The Dark & Lovely
brand is positioned to appeal to the younger African-American woman who
is looking for a "straight" look.
For more than 20 years, Dark & Lovely Hair Color--the first hair color
formulated specifically for the distinct hair needs of women of African
descent--has been the market leader in ethnic hair color. Introduced in
1972, Dark & Lovely Hair Color targets consumers of African descent who
are interested in changing and enhancing the appearance of their hair
color. The brand is supported with a complete line of hair care
maintenance products for daily care. In addition, Reviving Colors by
Dark & Lovely offers women of African descent a range of semi-permanent
shades to choose from for a subtle change in color. Two new shades were
introduced in late 1996, offering a total of six shades. A line of hair
care products, Color Care, was launched in autumn of 1996 to address the
need to maintain and refresh hair that has been color-treated.
Dark & Lovely Cosmetics is an all new line of makeup designed
specifically for women of color. Dark & Lovely Cosmetics feature a
comprehensive line of makeup for eight product categories, created in
shades that match and compliment the diverse complexions of women of
color. The innovative Easy-Blend Creme-to-Powder Foundation is the first
of its kind for women of color, with each compact containing two
foundation shades for exact-to-match custom blending. The new line,
which has been dermatologist tested and is hypoallergenic, oil free,
non-comedogenic (does not clog pores) and non-acnegenic (does not cause
inflammation of the skin) became available through drug and mass retail
chains in August 1997.
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. Excelle. This is the Company's premier brand targeted to the more mature
fashion conscious African-American woman concerned with the appearance
and health of her hair who is trying to achieve a finished salon look at
home. Introduced in 1984, Excelle Salon Performance relaxer was
relaunched in 1996 with the aim of offering its target audience
healthier looking hair with luxurious body and sheen. The new Excelle
formula has improved relaxing capabilities and natural ingredients such
as aloe vera, vitamin E and protein. The Company believes that upgraded
packaging, a new hair care maintenance product line and increased
advertising helps to communicate the brand's upscale image to consumers.
. Beautiful Beginnings. This brand, targeted to parents of girls aged 5 to
12 years old, achieved the number three position in sales among
children's relaxers within three years of its introduction in 1993.
Beautiful Beginnings is an advanced conditioning Fail Safe relaxer
system for children with an exclusive Comfort Plus pretreatment that
protects sensitive young hair and scalp without inhibiting the relaxing
process. The Company believes Beautiful Beginnings is one of the safest
and gentlest children's relaxer systems available. The brand is
complemented with a complete line of hair care maintenance products. The
Company is introducing a line of personal care products for children of
African descent under this brand, beginning with a bubble bath product.
. Dark & Natural. This brand is targeted to men of African descent. The
Dark and Natural texturizer product delivers rich, natural-looking
waves. DL 2000 technology, a tension activated process in the Dark &
Natural product line, allows the user to control the amount of
relaxation in his hair through combing. Dark & Natural Hair Color for
men was introduced in 1992 and represents the first hair color targeted
to and developed exclusively for the African-American male. Dark &
Natural hair color products are designed to recapture the natural color
of hair that is dull or graying and produce a richer, deeper and
healthier looking color. The easy-to-mix formula contains no ammonia and
therefore is gentle to men's hair.
. Magic. This brand of men's depilatory products is the top-selling men's
depilatory product in the United States and globally among Black men. On
the market since 1901, Magic men's depilatory products are the only
depilatory products endorsed by the National Medical Association for the
treatment and prevention of "razor bumps". A no-mix cream targeted to
younger African-American men was introduced in the autumn of 1996. The
Company has also introduced Magic Smooth, a men's mild depilatory cream
product formulated for use on the scalp, targeted to African-American
men who wear their heads shaved for the athletic bald look.
. Let's Jam. This brand, introduced in 1989 and acquired by the Company in
1997, is a line of hair care products that caters to young and fashion-
conscious consumers in the ethnic market. New Image Laboratories, Inc.,
the original founder of Let's Jam, developed its product line
specializing in shining gels, but also including conditioners,
moisturizers, pomades and spritzes. The Let's Jam Shining & Conditioning
Gel is a leading product in the ethnic hair care maintenance category.
. Cutex. The Cutex brand name is known for premium nail care products and
has had an image of products that promote healthy and beautifully
manicured nails for nearly a century. Introduced as a cuticle care
product shortly after the turn of the century, the Cutex name received
wide-spread recognition with the creation of the industry-acclaimed Knox
Gelatin formula for Strong Nails enamel.
Cutex Quick and Gentle Removers are the number one nail polish removers
in the U.S. mass market, according to IRI and Cutex has been a market
leader in nail polish removers since its introduction in 1907. For the
twelve months ended June 1997, according to IRI data, the Cutex remover
has an estimated 31.8% share of the market with the closest brand
competitor having a 11.4% market share.
The Company will continue to offer the Cutex Strong Nail color enamel
with the most extensive collection of colors provided by Cutex in the
last seven years. The Cutex Strong Nail treatments will
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continue to offer a product that fortifies and rejuvenates nails and
cuticles through vitamin enriched formulations.
The Company plans to introduce a premium line of one-coat nail enamels
and one-coat nail treatments in the first half of 1998. Cutex Ultra One-
Coat Nail Enamel will be offered in a large array of shades and will
provide consumers with a high quality, reasonably priced nail enamel.
The Cutex Ultra Treatments for nails and cuticles will offer the latest
technology in alpha-hydroxy acid, vitamin and botanical formulas to
nourish, enrich and protect nails and cuticles.
The Company also plans to introduce a line of nail enamels and treatments
under the Cutex name for the salon user, with color enduring nail
enamels and treatment therapy products which assist in promoting healthy
and strong nails. The salon line of products is also expected to be
launched in the first half of 1998.
The Company began to ship in October 1997 an advanced formula depilatory
for women, Naturally Soft Body Creme, under the Cutex brand name. This
formula is a thick emulsion that does not run, works fast, and
moisturizes, giving skin a lasting, smooth finish without the odor of
existing depilatories.
MARKETING AND PROMOTIONS
The Company believes that understanding the consumer, meeting her or his
needs and delivering on product promises are critical in maintaining the
Company's competitive position. The Company spent an average of approximately
1% of net sales for each of the fiscal years ended March 31, 1995 and 1996 and
the twelve months ended September 30, 1997 on market research, such as in-home
consumer product placements for new products, tracking studies, concept
testing, package testing and advertising testing aimed at improving its
understanding of, and effectively targeting, its consumer. The Company also
maintains a toll-free telephone number to answer consumer questions and to
gather consumer feedback used to focus the Company's marketing programs.
Over 15.9% of net sales in the twelve months ended September 30, 1997 was
allocated to advertising and consumer promotions. The Company believes that it
is the leading advertiser in the ethnic hair care market, with most of its
emphasis on television and print. The Company regularly advertises in U.S.
magazines aimed at consumers of African descent, such as Essence, Ebony, Black
Enterprise and Jet, and in targeted spot advertising on television and cable
channels such as Black Entertainment Television (BET) and engages in
promotional activities and in-store displays to introduce new products or
attract new consumers. The Company also uses its kit packaging format to
conduct sampling programs for new products.
In January 1996, the Company's advertising account for ethnic products was
awarded to Don Coleman & Associates, Inc., considered by the Company to be in
the forefront of ethnic advertising. The previous agency had been in place for
over 20 years. A new campaign for the Company's flagship brand, Dark & Lovely,
including television, print, and radio advertising was launched in 1996.
Marketing for the Company's Dark & Lovely cosmetics line and the complete
line of Cutex products (other than the depilatory) will be provided by AM
Cosmetics through its agreements with Carson Products, allowing the Company to
capitalize on AM Cosmetics's expertise in cosmetics. See "Certain
Relationships and Related Transactions--AM Cosmetics."
The Company is actively involved in numerous public relations and community
relationship events. In 1996, the Company was involved in the Olympics both in
Savannah and Atlanta. In Atlanta, the Company was one of the sponsors of La
Maison Olympique Africaine, The African Olympic House, providing the Company
with an opportunity to highlight its presence in the global African business
community. The Company's commitment to the African-American community is
demonstrated through several support programs including sponsorship of the
Black Family Reunion Program and a Safe Shelter Program for homeless women and
children and the
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establishment of the Carson Scholarship Program at historically Black
universities such as Dillard, Hampton and Fisk Universities. From October to
December 1996, the Company, in conjunction with several leading African-
American women's organizations and the Celebrating Life Foundation,
participated in a campaign to promote awareness of breast cancer among
African-American women. The Company donated $150,000 from sales of Dark &
Lovely relaxer and hair color units during that period to the Celebrating Life
Foundation to help provide education on breast cancer and make screening
available to African-American women unable to afford the examination.
The Company is establishing an 800 number for its Cutex Research Center
which, with the assistance of AM Cosmetics, will be staffed by specialists to
provide consumers with assistance in nail and skin care. The Company believes
that its R&D effort provides the basis for setting high standards of quality
and technology in developing new high-performance beauty products. The Company
is also introducing the Cutex Research Center Seal of Approval which will be
on every Cutex product beginning in 1998 to signify the Company's commitment
to such standards.
DISTRIBUTION AND SALES
The Company's products are sold through five principal distribution channels
in the U.S. retail personal care market, as follows:
Mass Merchandisers. The Company's products are sold by mass merchandisers,
including WalMart and K-Mart. The Company's share of the ethnic hair care
products among mass merchandisers was 14.0% for the twelve months ended June
1997, according to IRI. The Cutex brand's share of nail polish removers among
mass merchandisers was 27.1% during the same period, according to the same
source.
Drug Chains. The Company's products are sold by drug chains, including
Walgreens, Eckerd's and CVS/Revco. The Company's share of the ethnic hair care
products among drug chains was estimated to be 13.6% for the twelve months
ended September 1997, according to the limited IRI data available for this
channel. The Cutex brand's share of nail polish removers among drug chains was
28.8% during the same period, according to the same source.
Food Chains. The Company's products are sold by food chains, including Winn
Dixie and Kroger. The Company's share of the ethnic hair care products market
among food chains was estimated to be 14.7% for the twelve months ended
September 1997, according to the limited IRI data available for this channel.
The Cutex brand's share of nail polish removers among food chains was 42.6%
during the same period, according to the same source.
Discount Chains. The Company's products are sold by discount chains,
including Family Dollar and Dollar General. Market share data for discount
chains is included by IRI in the mass merchandisers category.
Beauty & Barber Supply Stores. The Company's products are sold by Beauty &
Barber Supply Stores ("B&Bs"), which are dominated by the Sally's Beauty
Supply retail chain (Alberto-Culver Company) and the National Beauty Supply
Dealers Association (the "NBSDA"), a large group of independent family-
controlled retail outlets. B&Bs that are members of the NBSDA are prevalent in
the African-American community, typically in retail outlets in strip shopping
malls. B&Bs generally have convenient locations, low everyday prices, and a
wide selection of ethnic products relative to retail chains. The Company
believes that it is a leading supplier of ethnic hair care products to B&Bs
and expects to be able to sell cosmetics and nail care products through this
channel as well. However, no third party market share data is available.
The chains generally are an important part of the Company's retail business
because of their ability to draw customers from a large geographic area. The
Company's chain customers may purchase the Company's products directly from
the Company, through an ethnic product distributor or both. No single Company
customer accounted for more than approximately 5.7% of the Company's
consolidated net sales in the twelve months ended September 1997.
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The Company's strong relationships with its customers in the various
distribution channels are enhanced by its direct sales force comprised of
divisional managers, regional managers and sales merchandisers, covering the
Northeast, Mid-Atlantic, Mideast and Midwest regions in the Northern Division
and the Mid-South, Southeast, Southwest and Western regions in the Southern
Division. The sales force in each region markets the Company's products to all
of the various distribution channels doing business in its geographic region.
The Company distributes its cosmetics and nail care products through AM
Cosmetics' dedicated sales force and broker network. See "Certain
Relationships and Related Transactions--AM Cosmetics."
The Company has established distributor relationships in various countries
in international markets. In Africa, the Company focuses its direct sales
efforts on hair care salons which are serviced through regional distributors,
specialty cash-and-carry wholesale outlets, mass merchandisers and large
retail chains.
RESEARCH AND DEVELOPMENT AND QUALITY CONTROL
The Company believes that the strength of its competitive position in the
ethnic hair care industry is attributable, in part, to its tradition of
technological innovation and its focused R&D effort. Three of the ethnic hair
care industry's most significant innovations were introduced by the Company:
the first hair color developed exclusively for African-American hair (1972),
the first no-lye relaxer (1978), which provided a safe relaxer product for
home use, and the Fail Safe technology for no-lye relaxers (1993), the only
relaxer system to eliminate problems associated with imprecise mixing, which
the Company believes is the most common cause of consumer complaints regarding
relaxers. The Company believes that its R&D department, led by two industry
experienced chemists with Ph.D.s and including nine other researchers and
technicians, represents the largest R&D effort focused on the ethnic hair care
market. In 1996, the Company's R&D department finalized the development of
several product innovations, including the Fail Safe and DL 2000 hair relaxer
technologies, as well as a full line of hair care maintenance products.
The R&D department pursues an aggressive product development schedule and
intends to maintain its leadership in product innovations and technological
improvements. In particular, the R&D department intends to: (i) facilitate the
Company's expected entry in the fourth quarter of 1997 into the U.S.
professional salon market with a line of specially formulated products; (ii)
expand the line of Dark & Natural products; (iii) develop new and innovative
hair care maintenance products; (iv) strengthen the Company's hair color
products; and (v) develop more effective, milder depilatories for both men and
women, including the Cutex Naturally Soft Body Creme women's depilatory which
began to ship in October 1997, and Magic Smooth, a men's scalp depilatory
which is expected to be introduced in the fourth quarter of 1997. The R&D
department's agenda also includes the continued review and evaluation of
various packaging alternatives to ensure that the Company's products are
delivered in safe, secure and cost-effective containers. The Company's R&D
costs (principally for new products) for the fiscal years ended March 31, 1995
and 1996 was $0.3 million and $0.4 million, respectively, and was $0.5 million
for the twelve months ended September 30, 1997. The Company's estimated budget
for R&D costs for the twelve months ended December 31, 1997 is $0.6 million.
These amounts do not include amounts spent on quality control, analytical
chemistry, microbiology, package testing and consumer products testing.
The R&D department also supervises the Quality Control staff and performs
extensive safety and quality tests on the Company's products, including
analytical chemistry, microbiology and package testing. The Company tests its
new products with the aid of four in-house cosmetology technicians at its on-
site salon. The Company also benefits from its affiliation with AM Cosmetics,
whose R&D department has extensive experience in formulating and developing a
broad range of cosmetics. With the assistance of AM Cosmetics, the Company is
introducing the Cutex Research Center to signify its commitment to setting
high standards of quality and technology in developing new high-performance
beauty products.
MANUFACTURING
The Company uses a batching process in its manufacturing operations for
virtually all of its ethnic hair care products. The batching process begins
with chemical ingredients being mixed in kettles in batch sizes ranging
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<PAGE>
from 2,000 lbs. to 21,000 lbs. The kettles heat, cool, homogenize and blend
each batch of materials according to standard operating procedures (SOPs). The
SOPs for each product are established by the Company's R&D and Quality Control
staff and are periodically reviewed and improved to ensure uniformity and
batch-to-batch conformity with the manufacturing specifications for the
product.
The product is then transferred from the kettles into a holding tank or
another type of storage device until it is pumped into a filling machine that
volumetrically fills the liquid or cream into plastic jars, tubes, bottles or
packets. Each container (i.e., jar, tube, bottle or packet) is coded to
identify or track a specific batch. Hair care maintenance products are then
packed in shipping boxes and sent to the finished goods warehouse ready for
shipment to the Company's customers. Certain other products are filled,
capped, labeled, coded and stored temporarily until they are assembled as
components in the relaxer, texturizer or hair color kits.
The Company emphasizes quality and adherence to Good Manufacturing Practices
(according to FDA guidelines) throughout the production operation. Each batch
of finished product is tested by Quality Control staff before it is packaged
and shipped. The Company's quality control measures and standards include
testing raw materials and packaging materials.
The Company purchases raw materials, packaging, and components throughout
the world and reviews the efficiency and quality of its purchasing contracts.
Except as described below, the Company believes that alternate sources of
supplies exist and does not anticipate any significant shortages of, or
material difficulty in obtaining, such supplies.
Guanidine carbonate is an essential raw material used in the manufacturing
of no-lye relaxer products and has been purchased by the Company for over 15
years from the one principal supplier to all manufacturers of no-lye relaxers,
located in Austria. The Company maintains a stock of guanidine carbonate at
its Savannah facility which could satisfy its requirements for approximately
four to six months of future production. However, the Company has begun to
source smaller amounts of guanidine carbonate of comparable quality from other
suppliers. In the event that the Company is unable to obtain sufficient
guanidine carbonate from its current principal supplier, the Company believes
that it could obtain sufficient quantities of guanidine carbonate on
comparable terms from these alternative suppliers on comparable terms before
its reserves run out. See "Risk Factors--Reliance on Suppliers."
In order to increase the Company's manufacturing capacity, the Company has
added new production lines in Savannah and outsourced the production of
certain low volume maintenance products, freeing the resources of the Savannah
facility to concentrate on certain high volume relaxer and hair color
products. The Company relies on a limited number of contractors to manufacture
its products to the Company's specifications. For example, the Company
currently relies on AM Cosmetics to manufacture the Dark & Lovely line of
cosmetics and Cutex nail enamels, Chesebrough-Pond's USA to manufacture the
Cutex nail polish remover products and CEI to manufacture the Company's
shampoos and conditioners as well as the Let's Jam line. See "Risk Factors--
Reliance on Third Party Manufacturers" and "Certain Relationships and Related
Transactions--AM Cosmetics."
FACILITIES
The Company owns and occupies six buildings on an 11.6-acre tract in
Savannah. The plant, warehouses and offices encompass approximately 225,000
sq. ft. on seven acres of the property, with the remaining 4.6 acres
undeveloped. Four of the buildings are used primarily for warehousing and
storage. The largest building (more than 120,000 sq. ft.) houses the
manufacturing equipment for substantially all of the Company's products,
shipping, quality control, the R&D laboratories, customer research and a
professional hair salon which tests new products. The manufacturing and
warehousing space has been expanded seven times since it was originally built
in 1954. The Company is in the process of reconfiguring its production lines
and expanding its physical space in order to increase the productivity of the
Savannah facility. Following the planned reconfigurations, the Company
65
<PAGE>
believes that the capacity in the Savannah facility will be adequate for its
needs in the reasonably foreseeable future. The Company leases an additional
50,000 square feet of warehouse space in Savannah.
Carson South Africa owns and occupies one building on 4.5 acres in Midrand,
South Africa, 15 miles north of Johannesburg in a developing industrial park
located on the major highway between Johannesburg and Pretoria. The property
was previously occupied by Pfizer as a manufacturing facility and was easily
converted to suit the Company's needs. The building encompasses approximately
40,000 sq. ft. and houses the manufacturing equipment for all products,
shipping and receiving, raw material and finished goods storage, an R&D
laboratory and executive office space. The Company is currently doubling its
manufacturing and warehousing capacity at this facility, at an estimated cost
of $1.0 million funded primarily by a rights offering by Carson South Africa.
The Company believes that following this expansion, capacity in the South
African facility will be adequate for its needs in the reasonably foreseeable
future.
The Company recently completed a manufacturing facility in Accra, Ghana,
which began production in June 1997. The cost of this facility is
approximately $1.0 million, funded primarily by the Carson South Africa rights
offering.
COMPETITION
The U.S. ethnic hair care market for African-Americans is competitive and
highly fragmented with a number of market participants that focus specifically
on this market. The five largest companies generated approximately 49.1% of
industry sales in the U.S. retail ethnic hair care market in the twelve months
ended June 1997 with the remainder being generated by a number of smaller
companies, according to IRI. In the U.S. retail market segments for nail
enamel/treatments and nail polish remover, the five largest companies
generated approximately 69.0% and 59.5%, respectively, of industry sales for
the twelve months ended June 1997. In the U.S. retail market for cosmetics,
including the ethnic cosmetics market, the five largest companies generated
approximately 75.4% of industry sales for the twelve months ended June 1997.
In the U.S. retail market for women's depilatory products, the five largest
companies generated approximately 78.7% of industry sales for the twelve
months ended June 1997.
The Company primarily competes on the basis of brand recognition, product
quality, performance and price. Advertising, promotions, merchandising,
packaging and the timing of new product introductions and line extensions also
have a significant impact on buying decisions and the structure and quality of
the sales force affect product reception, in-store position, display space and
inventory levels in retail outlets.
Some of the Company's competitors are general market companies which are
larger and have substantially greater financial and other resources than the
Company.
TRADEMARKS AND PATENTS
The Company owns all of the trademark rights used in connection with its
principal brands both in the United States and in the other countries in which
its products are principally sold (other than Cutex outside of the United
States and Puerto Rico). Significant trademarks include: Dark & Lovely, Cutex,
Magic, Let's Jam, Dark & Lovely Excelle, Beautiful Beginnings, and Dark &
Natural. The Company utilizes certain proprietary or patented technologies in
the formulation or manufacture of a number of its products; however, the loss
of such proprietary rights would not have a material adverse effect on the
business, results of operations or financial condition of the Company. See
"Risk Factors--Dependence on Trademarks for Current and Future Markets."
CONSUMER LAWS, GOVERNMENT AND INDUSTRY REGULATIONS
The Company is subject to the U.S. Food, Drug and Cosmetics Act, the U.S.
Consumer Product Safety Act, the U.S. Federal Hazardous Substance Act and to
the jurisdiction of the U.S. Consumer Product Safety Commission as well as
product safety laws in foreign jurisdictions. Such regulations subject the
Company to the possibility of requirements of repurchase or recall of products
found to be defective and the possibility of fines
66
<PAGE>
or penalties. The FDA has promulgated certain regulations concerning product
ingredients, product labeling and product claims. In addition, the FTC
regulates product claims. The Company is subject to consumer laws in foreign
countries where its products are sold, for example, bilingual packaging
requirements (Canada) and new product registration requirements (Brazil).
Existing and future FDA, FTC and foreign regulations could impact distribution
and sales of certain of the Company's products.
The Company operates under the FDA's Good Manufacturing Practices (GMP)
guidelines and is regulated by the FDA, although its product formulas do not
have to be approved in advance by the FDA. Coloring agents used in the
Company's products may be either Food, Drug & Cosmetic (FD&C) or Drug &
Cosmetic (D&C) classified. Additionally, as a member of the Cosmetics,
Toiletries and Fragrances Association ("CTFA"), the Company agrees to adhere
to Quality Assurance Guidelines as promulgated by CTFA. The Company believes
that it is substantially in compliance with such guidelines and uses such
guidelines as standards for its operational activities. The Company is also
subject to various other Federal, state, local and foreign regulations.
Federal, State and local regulations in the United States that are designed to
protect customers or the environment have had an increasing influence on
product claims, contents and packaging. The Company believes that it is in
substantial compliance with such regulations.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 330 persons in
Savannah, an additional 38 elsewhere in the United States and 203
internationally. In the United States, 249 were hourly personnel and 119 were
salaried employees. The Company also utilizes temporary workers as needed,
primarily in manufacturing. An average of 30 such domestic temporary and 49
international temporary workers were utilized on a daily basis by the Company
during the nine months ended September 30, 1997. The Company is non-union and
believes that its relationship with employees is good.
LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to the
ordinary course of its business and believes that the outcome of all pending
legal proceedings, in the aggregate, will not have a material adverse effect
on the business, results of operations or financial condition of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign environmental
requirements, including those relating to discharges to air, water and land,
the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. Certain environmental laws, such
as the Comprehensive Environmental Response, Compensation, and Liability Act,
as amended ("CERCLA"), impose strict, retroactive and joint and several
liability upon persons responsible for releases of hazardous substances.
Based upon its experience to date, the Company believes that the future cost
of compliance with existing environmental requirements, and liability for
known environmental claims pursuant to such requirements, will not have a
material adverse effect on the Company's business, results of operations and
financial condition. However, future events, such as new information, changes
in existing requirements or their interpretation, and more vigorous
enforcement policies of regulatory agencies, may give rise to additional
expenditures or liabilities that could be material.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Leroy Keith......... 58 Chairman of the Board of Directors and Chief Executive Officer
Joyce M. Roche.......... 50 President, Chief Operating Officer, Director
Robert W. Pierce........ 54 Executive Vice President of Finance and Chief Financial Officer
Dennis E. Smith......... 50 Executive Vice President of Sales, Director
Miriam Muley............ 42 Executive Vice President of Marketing
Lawrence E. Bathgate,
II..................... 58 Director
Abbey J. Butler......... 59 Director
Suzanne de Passe........ 50 Director
Melvyn J. Estrin........ 54 Director
James L. Hudson......... 57 Director
Jack Kemp............... 61 Director
John L. Sabre........... 40 Director
Vincent A. Wasik........ 52 Director
</TABLE>
Dr. Keith became a Director of the Company upon its inception in May 1995,
and served as Vice President until August 1996, when he became Chairman and
Chief Executive Officer. Dr. Keith became Chairman and Chief Executive Officer
of Carson Products concurrent with the Aminco Acquisition in August 1995. He
has served as Chairman of the Board of Directors of AM Cosmetics since June
1996. He served on the Board of Directors of the Predecessor from June 1994 to
August 1995. Prior to that, he served as President of Morehouse College from
1987 to 1994. Dr. Keith is a member of the Board of Directors of Evergreen
Keystone Investment Services, the Mutual Funds Board of Phoenix Home Life
Insurance Company, One to One/The National Mentoring Partnership, Inc. and the
National Committee for the Performing Arts of the John F. Kennedy Center.
Ms. Roche became President, Chief Operating Officer and a Director of the
Company in August 1996. Prior to that, she held the position of Executive Vice
President of Global Marketing of the Company from August 1995 until July 1996.
Ms. Roche has served as President and Chief Operating Officer of Carson
Products since July 1996. Before joining the Company in August 1995, Ms. Roche
was employed with Avon for 19 years where she held the titles of Senior Vice
President of Marketing from 1991 to 1993 and Vice President of Global
Marketing from 1993 to 1994. Ms. Roche was previously employed by Revlon,
where she held the title of Director of Marketing from 1979 to 1981.
Mr. Pierce became Executive Vice President and Chief Financial Officer of
the Company in May 1997. Prior to May 1997, he held the positions of Executive
Vice President, Chief Financial Officer and Treasurer of Maybelline, Inc.,
where he had been employed since 1990. Prior to that, he was employed by
Noxell Corporation, a manufacturer of cosmetics and toiletries, for 15 years
where he held the titles of Vice President of Finance from 1986 to 1988 and
Senior Vice President of Administration and Finance from 1988 to 1990.
Mr. Smith became a Director of the Company in December 1995, and Executive
Vice President of Sales of the Company in August 1996. Mr. Smith became
Executive Vice President of Sales of Carson Products concurrent with the
Aminco Acquisition in August 1995. Prior to August 1995, he held the position
of Vice President of Sales of Carson Products from 1990 to 1995.
Ms. Muley became Executive Vice President of Marketing of the Company in
August 1996 and of Carson Products in July 1996. She served as Vice President,
Marketing from the time she joined Carson Products in April 1996 until July
1996. She was previously employed by Avon from 1992 to 1996 as General
Manager, African-American Business Unit and by Bristol-Myers Squibb's Clairol
division as Product Manager from 1990 to 1992.
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<PAGE>
Mr. Bathgate became a Director of the Company upon its inception in May 1995
and of Carson Products in August 1995. He served as Secretary of the Company
from May 1995 to August 1996. He also serves as President and Chief Executive
Officer of Bathgate, Wegener & Wolf, P.A., a law firm with which he has been
affiliated since 1970. Mr. Bathgate is a founder and principal of Morningside,
and has served on the Board of Directors of AM Cosmetics since June 1996. He
also serves on the Board of Trustees of Villanova University, the Board of
Regents of Seton Hall University and served as Finance Chairman of the
Republican National Committee from 1988 to 1992.
Mr. Butler became a Director of the Company in August 1996 and of Carson
Products in June 1996. Mr. Butler currently serves in the following capacities
for the following companies and organizations: Avatex (formerly FoxMeyer
Health Corporation), Director from 1990, Co-Chairman of the Board of Directors
from 1990, Co-Chief Executive Officer from 1990; Ben Franklin Retail Stores,
Inc., Director from November 1991 to March 1997 and Co-Chairman of the Board
of Directors from 1994 to March 1997; C.B. Equities Capital Corp., President
from 1982 and Director from 1982; Grand Banc Inc., Director from 1994; CST
Entertainment Inc., Director from 1994; UroHealth Systems, Inc., Director from
1995; Cyclone Fence Corp., Director from 1995; Phar-Mor, Inc., Director from
1995; The American University, Trustee from 1986; Starlight Foundation,
Director from 1990; Executive Council of the National Committee for the
Performing Arts of the John F. Kennedy Center, Director from 1989; and
President's Advisory Committee on the Arts, Member from 1992. Mr. Butler is
the former Co-Chief Executive Officer of FoxMeyer Drug Company which, along
with FoxMeyer Health Corporation and certain other of its subsidiaries and
affiliates, including Ben Franklin Retail Stores, Inc., filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on August 27, 1996.
Ms. de Passe became a Director of the Company in August 1996 and of Carson
Products in June 1996. Ms. de Passe has served as Chief Executive Officer of
de Passe Entertainment since 1991. She currently serves on the Board of
Directors of The American Film Institute and the Los Angeles Opera.
Mr. Estrin became a Director of the Company in August 1996 and of Carson
Products in June 1996. Mr. Estrin currently serves in the following capacities
for the following companies: Avatex (formerly FoxMeyer Health Corporation),
Director since 1990, Co-Chairman of the Board of Directors from March 1991,
Co-Chief Executive Officer from October 1991; Washington Gas Light Company,
Director from October 1991; Grand Banc Inc., Director from August 1993;
UroHealth Systems, Inc., Director from July 1995; Phar-Mor, Inc., Director
from September 1995; and Centaur Partners, L.P., Managing Partner from 1990;
University Research Corporation, Chief Executive Officer since 1978; and
Estrin International, Chairman and Chief Executive Officer since 1983. Mr.
Estrin has also served in the following capacities for the following companies
and organizations: Ben Franklin Retail Stores, Inc., Co-Chairman of the Board
of Directors from November 1991 to March 1997, Co-Chief Executive Officer from
1994 to March 1997, Director from 1991 to March 1997; University of
Pennsylvania, Trustee from 1990 to 1995; and Commissioner of the National
Capital Planning Commission, appointed by the President, from 1993 to 1995.
Mr. Estrin is the former Co-Chief Executive Officer of FoxMeyer Drug Company
which, along with FoxMeyer Health Corporation and certain other of its
subsidiaries and affiliates, including Ben Franklin Retail Stores, Inc., filed
for protection under Chapter 11 of the U.S. Bankruptcy Code on August 27,
1996.
Mr. Hudson became a Director of the Company in August 1996 and of Carson
Products in June 1996. Mr. Hudson has served as Chairman of JAH Development
Company since 1985. Mr. Hudson served as Chairman of the Board of Trustees of
Morehouse College, and as a member of the Board of the Metropolitan Washington
Airports Authority.
Mr. Kemp became a Director of the Company in December, 1996, and served as a
Director of Carson Products from February 1996 to August 1996, when he
resigned to accept the Republican nomination for Vice President of the United
States. Mr. Kemp served as Secretary of Housing and Urban Development for the
U.S. Government from 1989 to 1992. Mr. Kemp is also a member of the Board of
Directors of Landair, Cyrix Corp., Oracle Corp., Columbus Trust Realty,
American Bankers Insurance Corp., and Worldcorp and has served as Co-Director
of Empower America since 1993.
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<PAGE>
Mr. Sabre became a Director of the Company in August 1996 and of Carson
Products concurrent with the Aminco Acquisition in August 1995. He currently
serves as a partner at Capital Management Partners. He was previously employed
as Managing Director of Indosuez Capital, a position he held from April 1992
to August 1997. Prior to that, Mr. Sabre was a Vice President at Kidder,
Peabody & Co. from March 1990 to April 1992.
Mr. Wasik became Chairman of the Board of Directors and President of the
Company upon its inception in May 1995 and served as such until August 1996.
Mr. Wasik continues to serve as a Director of the Company and has been a
Director of Carson Products since August 1995. He became a member of the Board
of Directors of AM Cosmetics in June 1996 and currently serves as President.
He is also a founder and serves as President of Morningside. From 1985 to
1995, Mr. Wasik served as President of Fidelco Capital Group. He was also
President of Wondercamp Entertainment Company from 1994 to 1995. He served as
Chairman and Chief Executive Officer of National Car Rental Systems, Inc. from
December 1986 to January 1992. He is also currently a member of the Board of
Directors of the One to One/The National Mentoring Partnership, Inc., the
National Committee for the Performing Arts of the John F. Kennedy Center and
the Board of Trustees for Boston College.
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Cash and Certain Other Compensation. The following table sets
forth in summary form information concerning the compensation for all services
rendered in all capacities to the Company for Dr. Keith, and the four other
most highly compensated executive officers of the Company for services
rendered in all capacities to the Company (including its subsidiaries) for the
period from April 1, 1996 to December 31, 1996 and the fiscal years ending
March 31, 1996 and March 31, 1995. Effective December 31, 1996, the Company
changed its fiscal year end from March 31 to December 31.
SUMMARY COMPENSATION TABLE(A)
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- ------------------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/SARS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS AWARDS (#) OF SHARES
- --------------------------- ---------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Leroy Keith(b).......... 4/01/96-12/31/96 $ 274,449 $ 56,875
Chairman of the Board 4/01/95-03/31/96 190,816 215,000
and Chief Executive
Officer
Joyce M. Roche(b)....... 4/01/96-12/31/96 $ 179,670 $ --
President and Chief Op- 4/01/95-03/31/96 117,692 35,000 (c)
erating Officer
Bradford N. 4/01/96-12/31/96 $ 192,143 $ 43,750
Creswell(b)............ 4/01/95-03/31/96 146,681 --
Executive Vice Presi-
dent-Finance and Chief
Financial Officer
Dennis E. Smith......... 4/01/96-12/31/96 $ 146,136 $ 83,900 (c)
Executive Vice Presi- 4/01/95-03/31/96 150,405 75,870
dent 4/01/94-03/31/95 99,312 19,813
--Sales
Miriam Muley............ 4/01/96-12/31/96 $ 109,136 $ --
Executive Vice Presi-
dent-Marketing
</TABLE>
- --------
(a) The summary compensation table does not include the value of perquisites
and other personal benefits made available by the Company. However, no
named executive officer received such compensation in any fiscal year
valued in excess of the lesser of $50,000 or 10% of such officer's total
salary and bonus reported for such fiscal year.
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<PAGE>
(b) Dr. Keith, Ms. Roche and Mr. Creswell became executive officers of Carson
Products on August 23, 1995 and of the Company on August 14, 1996. Mr.
Creswell resigned from his position at the Company in May 1997.
(c) The securities underlying the SARs were shares of the former Class A
common stock of the Company. In August 1996, Ms. Roche surrendered her
SAR, and Mr. Smith surrendered one-half of his SAR, in exchange for the
right to subscribe for 118,713 shares and 59,357 shares of Class C common
stock of the Company, respectively.
Stock Options and Stock Appreciation Rights. No options to purchase stock
were granted during the twelve months ended December 31, 1996. The following
table sets forth information concerning the grant of stock appreciation rights
("SARs") to each of the named executive officers during the twelve months
ended December 31, 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------ -------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING SARS GRANTED TO
SARS EMPLOYEES EXERCISE OR EXPIRATION
NAME GRANTED (#)(A) IN FISCAL YEAR BASE PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- ---------------- ----------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dr. Leroy Keith......... -- -- -- -- -- --
Joyce M. Roche.......... (b) 23.53% (b) 8/23/05 -- --
Dennis E. Smith......... (b) 23.53% (b) 8/23/05 -- --
</TABLE>
- --------
(a) The securities underlying the SARs are shares of the former Class A common
stock of the Company.
(b) In August 1996, Ms. Roche surrendered her SAR, and Mr. Smith surrendered
one-half of his SAR, in exchange for the right to subscribe for 118,713
shares and 59,357 shares of Class C common stock of the Company,
respectively. Both Ms. Roche and Mr. Smith have exercised such rights. See
"Management--Compensation of Executive Officers--Employment Agreements"
for a discussion of the exercise of such rights and the treatment of Mr.
Smith's remaining SAR.
Option/SAR Exercises and Holdings. No options to purchase common stock were
outstanding and no SARs were exercised by the named executive officers during
the fiscal period ended 1996.
Long-Term Incentive Plans. No long term incentive plan awards were granted
to the named executive officers during the period from April 1, 1996 to
December 31, 1996.
Employment Agreements. Carson Products has entered into employment
agreements with Dr. Keith, Ms. Roche, Mr. Smith, Ms. Muley and Mr. Pierce,
which agreements provide for the terms discussed below (the "Employment
Agreements"). The Employment Agreements for Dr. Keith, Ms. Roche, Mr. Smith
and Ms. Muley provide for a term of employment expiring on October 18, 1999.
The Employment Agreement for Mr. Pierce provides for a term of employment
expiring on May 9, 2000. Under the Employment Agreements, the annual base
salary amounts for Dr. Keith, Ms. Roche, Mr. Smith, Ms. Muley and Mr. Pierce
are $385,000, $260,000, $200,000, $155,000 and $250,000 respectively. In
addition to such base salary, the Employment Agreements provide for, among
other things: an annual bonus determined under a formula based on specified
net revenue growth, net income, earnings per share and/or stock price growth;
eligibility in any pension and welfare benefit plans (other than certain
profit sharing plans) maintained by Carson Products; a monthly automobile
allowance for Dr. Keith, Ms. Roche, Mr. Smith and Mr. Pierce equal to $1,000,
$750, $500 and $500,
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<PAGE>
respectively; reimbursement for specified relocation expenses, including
without limitation general relocation payments to Dr. Keith, Ms. Muley and Ms.
Roche, equal to $50,000, $10,000 and $10,000, respectively; and such other
fringe benefits generally provided by Carson Products to its employees.
Carson Products retains the right to terminate the employment of Dr. Keith,
Ms. Roche, Mr. Smith, Ms. Muley and Mr. Pierce, and each such executive
officer retains the right to resign, at any time for any reason. If Carson
Products terminates the employment of any of the executive officers named
above for "cause" (as defined in the Employment Agreements) or with "good
reason" (as defined in the Employment Agreements) such officers will only be
entitled to any unpaid base salary amounts through and including the date of
termination. If Carson Products terminates the employment of Dr. Keith, Ms.
Roche, Mr. Smith or Ms. Muley without cause, such officer will be entitled to
receive severance pay equal to 150% of the officer's base annual salary (200%,
in the case of Mr. Smith). If such officer (other than Mr. Smith and Ms.
Muley) terminates his or her employment with Carson Products for good reason,
the officer will be entitled to receive severance pay equal to 200% of the
officer's annual base salary (payable in one lump sum). In the event of
"disability," as defined in the Employment Agreements, Carson Products may
terminate the employment of Dr. Keith, Ms. Roche, Mr. Smith, Ms. Muley or Mr.
Pierce and the officer will thereupon be entitled to receive 150% (200%, in
the case of Mr. Smith) of the officer's annual base salary (payable in one
lump sum).
Pursuant to the Employment Agreements, Ms. Roche, Mr. Smith and Ms. Muley
have purchased 118,713, 59,357 and 59,357 shares, respectively, of the Class C
common stock of the Company (the "Class C Common Stock") at a price per share
equal to $4.21. The aggregate purchase price for the shares acquired by each
officer was paid in the form of a non-interest bearing long-term full recourse
promissory note. In connection with such purchase, each officer pledged the
shares he or she acquired to the Company to secure payment of the principal
amount of the promissory notes. The principal amount of the notes will be due
and payable on the earlier to occur of the sale of the shares acquired,
termination of employment or the third anniversary of the date of purchase.
The officer may prepay the principal amount of his or her promissory note at
any time and from time to time.
Pursuant to Dr. Keith's agreement, the Company has issued him 341,100 shares
of the Class C Common Stock, which represented at the time of issuance 3% of
the Company's then outstanding common stock. These shares were issued in
consideration for securing the Acquisition. These shares were transferred
immediately after issuance to DNL Partners, as trustee under a certain voting
trust agreement, dated August 23, 1995, by and among DNL Partners, Dr. Keith
and certain other stockholders.
The Employment Agreements also provide that Dr. Keith, Ms. Roche, Mr. Smith,
Ms. Muley and Mr. Pierce, while employed by Carson Products and in the case of
Mr. Smith, Ms. Muley and Mr. Pierce, during the period in which Mr. Smith, Ms.
Muley or Mr. Pierce, respectively, is receiving Base Salary (as defined in the
Employment Agreements) payments from Carson Products (regardless as to whether
Mr. Smith, Ms. Muley or Mr. Pierce, respectively, is employed by Carson
Products), may not directly or indirectly (i) own, operate, represent,
promote, consult for, control or participate in the ownership, operation,
acquisition or management of any business manufacturing and/or distributing
ethnic hair care products or cosmetics within a 500-mile radius of Carson
Products' headquarters, (ii) solicit (other than on behalf of Carson Products
or any of its affiliates), divert or take away the business of any customers
of Carson Products or any of its affiliates, or any prospective customers of
Carson Products or any of its affiliates whose business Carson Products or any
of its affiliates actively solicits during such officer's employment with
Carson Products, or (iii) solicit or induce any employee of Carson Products or
any of its affiliates to terminate such employee's employment with Carson
Products or such affiliates.
Management Agreement. Carson Products has entered into a management
agreement with Morningside regarding the services of Mr. Wasik. See "Certain
Relationships and Related Transactions--Morningside."
1996 Long-Term Incentive Plan. The Company adopted the 1996 Long-Term
Incentive Plan (the "1996 Plan"), which is administered by a committee of the
Board comprised of non-employee directors (the
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"Committee"). The purpose of the 1996 Plan is to attract, retain and motivate
executives and other key individuals who will make significant contributions
to the growth and overall success of the Company and its subsidiaries and to
align the interests of such executives and individuals with those of the
Company's shareholders.
All salaried employees and consultants of the Company and its subsidiaries
are eligible to participate in the 1996 Plan. The 1996 Plan authorizes the
grant of (i) options to acquire shares of the Class A common stock of the
Company ("Class A Common Stock") intended to qualify as "incentive stock
options" under Section 422 of the Code ("ISOs"), (ii) options to acquire the
same that do not, or are not intended to, so qualify, (iii) restricted shares
of the Class A Common Stock, subject to specified forfeiture risks (the
"Restricted Shares"), (iv) stock appreciation rights ("SARs") based on the
Class A Common Stock and payable in cash or in shares of the new Class A
Common Stock, and (v) performance-based awards, payable in cash or in shares
of the Class A Common Stock.
The 1996 Plan authorizes 600,000 shares of the Class A Common Stock (equal
to approximately 4.2% of the aggregate outstanding shares of Common Stock) for
issuance, subject to adjustment in certain circumstances. No awards may be
granted under the 1996 Plan after December 31, 2006.
Pursuant to the regulations under Section 16(b) of the Exchange Act, so long
as certain conditions are met, an officer receiving an option award may be
able to exercise options that are then exercisable and sell the underlying
shares of the Class A Common Stock on the same day without incurring liability
under such Section 16(b). The ability to exercise options and concurrently
sell the Class A Common Stock obtained upon exercise means that officers face
no investment risk with respect to the shares subject to options, since they
will generally only exercise an option if the market value of the Class A
Common Stock is greater than the exercise price of the option.
ISOs granted to any person who is the beneficial owner of more than 10% of
the total combined voting of all classes of stock of the Company or the
Company will contain special limitation provisions required by Section 422 of
the Code. Unless otherwise determined by the Committee, no stock option
granted in connection with the 1996 Plan will be exercisable more than ninety
days after the date on which the optionee ceases to perform services for the
Company, except that in the event of death, disability or retirement or a
termination after a change of control, options may be exercised for up to one
year after such event. If, however, an optionee ceases to perform services for
the Company, any ISO exercised more than three months following the date the
optionee ceases to perform services will be treated as a non-statutory stock
option.
The Committee generally is empowered to interpret the 1996 Plan, prescribe
rules and regulations relating thereto, determine the terms of awards and
other agreements, amend them (in certain cases only with the consent of the
optionee), determine the individuals to whom awards are to be granted,
determine the number of shares subject to each award and the exercise price
thereto, and take all actions in connection with the Plan and the awards
thereunder as the Committee, in its sole discretion, deems necessary or
desirable. In general, the Board may modify, suspend, or terminate the Plan at
any time; provided, however, that any change in the 1996 Plan that may
adversely affect an award previously granted under the Plan requires the
consent of the adversely affected awardee.
BOARD OF DIRECTORS
The Company has three classes of directors, which are elected for staggered
terms of three years. The terms of each class expire at the annual meeting of
stockholders in 1998 (Class II) and 1999 (Class III) and 2000 (Class I),
respectively. Joyce M. Roche, Abbey J. Butler and Melvyn J. Estrin are Class
II directors, Dr. Leroy Keith, Lawrence E. Bathgate, II, John L. Sabre and
Vincent A. Wasik are Class III directors and Dennis E. Smith, Suzanne de Passe
and James Hudson are Class I directors. Each director holds office until his
or her successor is duly elected and qualified or until his or her resignation
or removal, if earlier.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board has an Audit Committee, a Compensation Committee, a Stock Plan
Committee and an Executive Committee. The Audit Committee is comprised of
Messrs. Butler and Sabre and is charged with reviewing the Company's annual
audit and meeting with the Company's independent accountants to review the
Company's internal controls and financial management practices. The
Compensation Committee is comprised of Messrs. Butler and Sabre, both of whom
are outside, non-employee members of the Board. The Stock Plan Committee is
comprised of Messrs. Butler and Estrin and Ms. de Passe, non-employee members
of the Board. The Executive Committee is comprised of Dr. Keith and Messrs.
Bathgate, Butler, Sabre and Wasik and has the authority to act on behalf of
the full Board with respect to all matters.
COMPENSATION OF BOARD OF DIRECTORS
1996 Non-Employee Directors Equity Incentive Program. During October 1996,
the Board established and approved, and the Company adopted, the 1996 Non-
Employee Directors Equity Incentive Program (the "Outside Directors Program").
The Outside Directors Program is designed to attract, retain and motivate
individuals who the Company believes are capable of making significant
contributions to the Board and the Company generally, and to align their
interests with those of the shareholders.
The Outside Directors Program authorizes the issuance of up to 400,000
shares of the Class A Common Stock, subject to adjustment in certain
circumstances. Under the Outside Directors Program, each non-employee director
of the Company received an option to acquire 1,500 shares of the Class A
Common Stock upon the closing of the initial public offering of the Class A
Common Stock. The exercise price per share for these options is equal to the
initial public offering price paid by the public for the Class A Common Stock
($14.00). Each such option is exercisable upon grant and will expire on the
first anniversary of the closing of the initial public offering (if such
option is not exercised prior thereto by the non-employee director grantee).
In addition, pursuant to the Outside Directors Program, each non-employee
director will receive, immediately following each annual meeting of the
Company's stockholders, (i) a number of shares, subject to certain forfeiture
restrictions, of the Class A Common Stock (the "Outside Director Restricted
Shares") equal to the quotient resulting when $25,000 is divided by the
average fair market value of the Class A Common Stock for the five trading
days preceding such annual meeting (the "Trading Period"), and (ii) an option
to acquire 5,000 shares of the Class A Common Stock with an exercise price
equal to the average fair market value of the Class A Common Stock for the
Trading Period (the "Outside Director Options").
The Outside Director Restricted Shares will vest and become non-forfeitable
as to one-third of the aggregate shares granted on each of the next succeeding
three anniversaries of the date of grant of such Restricted Shares. If a non-
employee director resigns voluntarily from the Board or is removed therefrom
with "cause" (as defined in the Outside Directors Program), the unvested
Outside Director Restricted Shares held by such non-employee director will be
immediately forfeited and automatically canceled by the Company.
The Outside Director Options will become exercisable on the first
anniversary of the date of grant of any such option and will expire on the
tenth anniversary of such date (if any such option is not exercised prior
thereto by the non-employee director grantee). If a non-employee director
resigns voluntarily from the Board or is removed therefrom for cause, the
Outside Director Option held by such director, if then unexercisable, will be
immediately forfeited by such director and automatically canceled by the
Company or, if then exercisable, must be exercised by such non-employee
director within 90 days after any such resignation or removal.
The Outside Directors Program is administered by the Board. The Board has
the full and final authority to interpret the Outside Directors Program and to
adopt and amend such rules and regulations for the administration of the
Outside Directors Program as the Board or such committee may deem desirable.
In addition, the Board has the right to amend or terminate the Outside
Directors Program, subject to certain restrictions set forth therein.
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PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class C Common Stock
outstanding as of September 30, 1997 by (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Class A Common
Stock or Class C Common Stock, (ii) each of the Company's directors and
nominees for director, (iii) each of the executive officers whose name appears
in the summary compensation table and (iv) all directors and executive
officers as a group. Unless otherwise noted in the footnotes to the table, the
persons named in the table have sole voting and dispositive power with respect
to all shares of Common Stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
CLASS A CLASS C
COMMON STOCK COMMON STOCK(A)
---------------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER % NUMBER %
- ------------------------------------- ---------------- -------------------
(IN THOUSANDS, EXCEPT FOOTNOTES)
<S> <C> <C> <C> <C>
DNL Partners Limited Partnership(b)..... 0 0 6,617 81.4%
c/o Morningside Capital Group L.L.C.
One Morningside Drive, North
Suite 200
Westport, CT 06880
Morgan Guaranty Trust Company(c)........ 24 * 1,187 14.6%
c/o J.P. Morgan Investment Management
522 Fifth Avenue
New York, NY 10036
Massachusetts Financial Services........ 617 12.3% 0 0
500 Boylston Street, 15th Floor
Boston, MA 02116
Dresdner Bank AG(d)..................... 798 15.9% 0 0
Jurgen-Ponto-Platz 1
60301
Frankfurt, Germany
Capital Guardian Trust Company(e)....... 430 8.6% 0 0
33 Hope Street, 52nd Floor
Los Angeles, CA 90071
Westfield Capital Management............ 257 5.1% 0 0
One Financial Center, 23rd Floor
Boston, MA 02111
Warburg, Pincus Counsellors, Inc.(f).... 464 9.3% 0 0
466 Lexington Avenue
New York, NY 10017-3147
Leroy Keith(g).......................... 0 0 0 0
Joyce M. Roche.......................... 1 * 119 1.5%
Dennis E. Smith......................... 60 1.2% 0 0
Robert W. Pierce(h)..................... 50 1.0% 0 0
Miriam Muley............................ 0 0 59 *
Lawrence E. Bathgate, II(i)(j).......... 5 * 0 0
Jack Kemp............................... 3 * 46 *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C
COMMON STOCK COMMON STOCK (A)
----------------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER % NUMBER %
- ------------------------------------- --------- ------- -------------------
(IN THOUSANDS, EXCEPT FOOTNOTES)
<S> <C> <C> <C> <C>
John L. Sabre(j)....................... 5 * 23 *
Vincent A. Wasik(b)(j)................. 7 * 6,617 81.4%
Melvyn J. Estrin(i)(j)................. 5 * 12 *
Abbey J. Butler(i)(j).................. 5 * 12 *
James L. Hudson(i)(j).................. 5 * 12 *
Suzanne de Passe(j).................... 5 * 12 *
All Directors and Officers as a Group 171 3.4% 6,899 85.4%
(14 persons)..........................
</TABLE>
- --------
* Less than 1%.
(a) Based on 5,033,248 and 8,127,937 outstanding shares of Class A Common
Stock and Class C Common Stock, respectively. Ownership of Class B Common
Stock (which is non-voting stock convertible into voting stock upon
transfer in certain circumstances) is not reflected. Each share of Class C
Common Stock is convertible at any time, at the option of the holder, into
one share of Class A Common Stock. Stockholders are entitled to one vote
for each share of Class A Common Stock and ten votes for each share of
Class C Common Stock. Calculation of percentage of beneficial ownership
assumes the exercise of all options and warrants exercisable within 60
days of the date hereof only by the respective named stockholder.
(b) Amounts shown represent the aggregate number of shares beneficially owned
by DNL Partners, including 818,640 shares subject to a Voting Trust
Agreement dated August 23, 1995. Pursuant to the Voting Trust Agreement,
DNL Partners was granted full power and authorization to vote the shares
of the members of the DNL Partners Limited Partnership Voting Trust (the
"Voting Trust"), including Dr. Keith and Northwest Capital, Inc., on all
matters. Mr. Wasik has a 99% ownership interest in the general partner of
DNL Partners, DNL Group L.L.C., and therefore is deemed to have voting and
dispositive control as to the shares held by DNL Partners and the Voting
Trust. Messrs. Wasik, Bathgate, Butler, Estrin and Hudson, who serve as
directors of the Company, are, or have interests in, limited partners of
DNL Partners, including in the case of Messrs. Wasik and Bathgate,
ownership interests in Morningside, one of the limited partners in DNL
Partners.
(c) As reported on Schedule 13G/A dated March 31, 1997 filed by J.P. Morgan &
Co., Incorporated, as parent holding company. Includes Morgan Guaranty
Trust Company, as Trustee of a Commingled Pension Fund-Multi-Market
Special Investment Fund II, Multi-Market Special Investment Trust Fund of
Morgan Guaranty Company of New York and Morgan Guaranty Trust Company New
York as Investment Manager and Agent for the Alfred P. Sloan Foundation
Multi-Market Account.
(d) As reported on Schedule 13G/A dated June 9, 1997 filed by Dresdner Bank,
AG as parent holding company, and as reported on a Schedule 13G dated June
9, 1997 filed by RCM Capital Management, L.L.C. ("RCM Capital"), RCM
Limited L.P. and RCM General Corporation collectively. Includes 748,500
shares acquired by RCM Capital Management, L.L.C., a wholly owned
subsidiary of Dresdner Bank AG, on behalf of client discretionary
investment advisory accounts as to which RCM Capital has sole dispositive
power (and as to 575,500 of which it has sole voting power).
(e) As reported on Schedule 13G dated February 12, 1997 filed jointly by The
Capital Group Companies, Inc., and Capital Guardian Trust Company. Capital
Guardian Trust Company, a wholly-owned subsidiary of The Capital Group
Companies, Inc., hold 430,000 shares on behalf of various institutional
accounts (and has sole voting power of 340,000 shares).
(f) Warburg, Pincus Counsellors, Inc. has sole dispositive power as to 463,800
shares.
(g) Excludes 341,100 shares held by the Voting Trust. See Note (b). In
addition, Dr. Keith owns 100 shares of Class A Common Stock.
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<PAGE>
(h) Includes 50,000 shares of Class A Common Stock underlying currently
exercisable stock options. Excludes 2,000 shares of Class A Common Stock
held by Mr. Pierce's children to which Mr. Pierce disclaims beneficial
ownership.
(i) These directors are, or have direct or indirect interests in, limited
partners of DNL Partners. See Note (b). Excludes 1,000 shares of Class A
Common Stock held by Mr. Bathgate's children to which Mr. Bathgate
disclaims beneficial ownership.
(j) Includes 1,500 shares of Class A Common Stock underlying currently
exercisable options granted to seven non-employee directors in connection
with the Company's initial public offering on October 18, 1996.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MORNINGSIDE
Carson Products and Morningside entered into a Management Assistance
Agreement dated August 23, 1995 (as amended, the "Morningside Management
Agreement"), pursuant to which Morningside agreed to supply the services of
Vincent A. Wasik (a principal member of Morningside) to provide advice and
assistance with respect to (i) the formulation of a "strategic direction";
(ii) the formulation of business plans, capital budgets and financial
strategies; (iii) the formulation of marketing, sales and operational plans;
(iv) the evaluation of investment and acquisition opportunities; and (v)
dealings with banks and other lending institutions. Such services are provided
for a fee of $350,000 per year, payable on a monthly basis in advance plus
reimbursement for out of pocket expenses. The Morningside Management Agreement
provides that Carson Products will indemnify Morningside, its members,
employees and agents, including Mr. Wasik, for all actions, claims, damages
and liabilities based upon or arising from the acceptance of or performance of
the obligations of Morningside under the Morningside Management Agreement
(other than actions resulting from gross negligence, willful misconduct or a
material breach of the Morningside Management Agreement by Morningside or
Mr. Wasik). The termination date of the Morningside Management Agreement is
August 23, 2003; however, the term of the agreement shall continue after such
termination date until terminated by not less than 30 days' advance notice by
either party.
Additionally, for the term of the Morningside Management Agreement,
Morningside has agreed that neither it nor Mr. Wasik shall directly or
indirectly (i) own (other than through the ownership of five percent (5%) or
less of any class of securities registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), manage, operate, represent,
promote, consult for, control or participate in the ownership, operation,
acquisition or management of any business manufacturing and/or distributing
ethnic hair care products or cosmetics within a 500-mile radius of Carson
Products' headquarters, or (ii) solicit (other than on behalf of Carson
Products or any of its affiliates), divert or take away the business of any
customers of Carson Products or any of its affiliates or any prospective
customers of Carson Products or any of its affiliates.
In connection with the Aminco Acquisition, Morningside received fees of
$500,000 from the Company for arranging and negotiating the financing for the
Aminco Acquisition and performing other consulting and financing advisory
services and was reimbursed by the Company for certain related expenses. In
addition, Morningside received fees of $520,000 and $125,000 for similar
services and expenses relating to the Cutex Acquisition and the acquisition of
the Let's Jam brand, respectively. Under the Morningside Management Agreement,
the Company paid Morningside approximately $25,000 in fiscal 1996 for
reimbursement of out-of-pocket expenses. Morningside received a fee of
$100,000 in October 1996 for arranging and negotiating the terms of a new
senior bank facility that includes (i) a $15.0 million term A loan, (ii) a
$10.0 million term B loan and (iii) a $15.0 million revolving credit facility
and performing other consulting and financial advisory services. In addition,
the Company reimbursed Morningside for approximately $35,000 of out-of-pocket
expenses incurred in connection with its initial public offering on October
18, 1996.
Morningside received fees of $250,000 in connection with the New Credit
Facility and the sale of the Existing Notes. From time to time Morningside may
provide additional financial advisory services to the Company, for which
Morningside will receive usual and customary compensation.
BATHGATE, WEGENER & WOLF, P.A.
Bathgate, Wegener & Wolf, P.A., a law firm for which Lawrence E. Bathgate,
II serves as President and Chief Executive Officer, was paid approximately
$690,000 for services rendered in arranging the equity investment in the
Company in connection with the Aminco Acquisition and $175,000 in connection
with the Cutex Acquisition.
CREDIT AGRICOLE INDOSUEZ
Credit Agricole Indosuez, an affiliate of certain stockholders of the
Company, received fees and reimbursement of out-of-pocket expenses totalling
approximately $1.78 million in connection with the Aminco
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Acquisition. Credit Agricole Indosuez received $1.75 million in fees for the
April 30, 1996 Amended and Restated Credit Agreement. Credit Agricole Indosuez
also received $150,000 in fees in connection with the acquisition of Let's
Jam. In connection with the New Credit Facility, Credit Agricole Indosuez is
acting as agent and a lender and received approximately $1.6 million in fees
and as well as reimbursement of expenses in connection with its services as
agent.
Indosuez Capital, a division of Credit Agricole Indosuez, acted as financial
advisor to the Company in connection with the sale of the Existing Notes and
received an advisory fee of $450,000 in connection therewith.
AM COSMETICS
Morningside AM Acquisition Corp. entered into a Subscription Agreement dated
as of June 26, 1996 (the "Subscription Agreement") with Carson Products,
providing for the purchase by Carson Products of 300 shares of cumulative
Payment in Kind Preferred Shares (the "PIK Preferred Shares") issued by AM
Acquisition, at a price of $10,000 per share. AM Acquisition was formed by
Morningside on behalf of an investor group to acquire the assets of Arthur
Matney Co., Inc. ("Matney"). AM Acquisition created a wholly-owned operating
subsidiary, AM Cosmetics, to hold such assets and to continue the operations
of Matney as a low-cost manufacturer of cosmetics. AM Cosmetics primarily
sells color cosmetics including nail enamel, two of which, Tropez and Black
Radiance, are targeted at the African-American consumer. The PIK Preferred
Shares are non-voting and are entitled to cumulative dividends payable
quarterly in additional PIK Preferred Shares at a rate of 12% per annum.
Additionally, the PIK Preferred Shares are subject to redemption in whole at
the option of Carson Products on or after July 1, 2005, at the stated value
per share (which is $10,000 per share) plus an amount in cash equal to all
accrued and unpaid dividends on the PIK Preferred Shares (the "Redemption
Price"), and are subject to redemption in whole at any time (or in part from
time to time if all dividends accrued and unpaid have been paid for all past
dividend periods and full dividends have been paid or declared and the amount
set apart for payment for the current dividend period) at the option of AM
Acquisition at the same redemption price.
Pursuant to the Subscription Agreement, AM Acquisition agreed on behalf of
itself and its wholly-owned subsidiary, AM Cosmetics, that for a period of
five years commencing on July 1, 1996, (i) AM Cosmetics would not "contract
manufacture" for any other ethnic cosmetics line, (ii) AM Cosmetics will agree
to produce a cosmetics line for Carson Products as designed and directed by
Carson Products, at AM Cosmetics' cost plus a maximum 25% markup, and (iii) AM
Cosmetics will agree to provide the necessary research and development for
formulations for the ethnic cosmetic product line(s) as determined by Carson
Products, at no additional cost to Carson Products.
Concurrent with its investment in AM Acquisition, Carson Products entered
into a Management Agreement (the "Carson-AM Management Agreement") with AM
Cosmetics, pursuant to which Carson Products agreed to manage the business
operations of, and provide certain other services to AM Cosmetics. Under the
Carson-AM Management Agreement, Carson Products is required to supervise the
production of a detailed business plan and budget for AM Cosmetics each year.
Once the business plan is approved by AM Cosmetics' Board of Directors, Carson
Products will supervise and administer AM Cosmetics within the confines of the
business plan, with the approval of AM Cosmetics' board for any material
deviations. Currently, in return for the management and other services it
provides, Carson Products is entitled to fees equal to 1% of AM Cosmetics'
annual base business net sales (excluding acquisitions) subject to a minimum
of $500,000 per annum. For the twelve months ended September 30, 1997, the
Company received $500,000 in management fees. As of January 1, 1998, this
management fee will be reduced to a fixed $250,000 annual fee. The Carson-AM
Management Agreement expires on June 26, 2004 unless terminated earlier, or
renewed for an additional three-year period at AM Cosmetics' option by giving
Carson Products written notice thereof at least 180 days prior to the
expiration date. Either party may terminate the AM Management Agreement by
providing the other party with written notice, at least 360 days in advance if
terminated by Carson Products and 60 days in advance if terminated by AM
Cosmetics. Certain members of senior management of the Company devote a
portion of their time to assisting the management of AM Cosmetics.
Pursuant to the Carson-AM Management Agreement, the parties have entered
into a manufacturing agreement expiring on May 1, 1999 (the "AM Manufacturing
Agreement"). Under the AM Manufacturing
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Agreement, AM Cosmetics manufactures the Dark & Lovely line of cosmetics and
the Cutex nail enamel/treatments and nail care treatment products in strict
accordance with Carson Products' specifications. AM Cosmetics is entitled to a
25% profit margin above all costs, including general administrative costs, on
the cosmetics products it produces under the AM Manufacturing Agreement,
except for the Cutex products for which the pricing is specified by SKU.
Carson Products is also liable to AM Cosmetics for costs relating to
marketing, research and development of the products covered by the AM
Manufacturing Agreement. Carson Products is entitled to reduce or discontinue
purchase of a product from AM Cosmetics covered by the AM Manufacturing
Agreement, but must compensate AM Cosmetics for all costs and expenses for
such reduced or discontinued shipments and reduce or discontinue purchasing
the same product from other suppliers in the same proportion. AM Cosmetics may
terminate the AM Manufacturing Agreement if Carson Products fails to make
payments to it as specified in the AM Manufacturing Agreement and either party
may terminate the AM Manufacturing Agreement if the other party remains in
default under the AM Manufacturing Agreement's terms 20 days after receiving
notice from the non-defaulting party. The AM Manufacturing Agreement does not
contain volume requirements for either party and does not provide any options
for renewal. See "Business--Manufacturing."
Carson Products and AM Cosmetics have also entered into a sales and
marketing agreement (the "AM Sales/Marketing Agreement") in accordance with
the Carson-AM Management Agreement. Under the AM Sales/Marketing Agreement,
which expires on September 19, 1999, AM Cosmetics is entitled to a 7.5 percent
sales commission on its sales of all Cutex products.
Dr. Leroy Keith has an ownership interest in AM Cosmetics and Vincent A.
Wasik, a principal stockholder of the Company, indirectly owns a controlling
ownership interest in AM Cosmetics. In addition, Dr. Keith serves as a member
of AM Cosmetics' Board of Directors, Mr. Wasik serves as President of AM
Cosmetics and Lawrence E. Bathgate, II also serves as a member of its Board of
Directors and chairman of its executive committee.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued, and the Existing Notes were issued,
pursuant to the Indenture, dated November 6, 1997, among the Company, Carson
Products and Marine Midland Bank, as trustee (the "Trustee"). The terms of the
Exchange Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act, as in effect on the
date of original issuance of the Exchange Notes. The Notes are subject to all
such terms, and holders of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. As used in this "Description
of the Exchange Notes" section, the "Company" means Carson, Inc. and not any
of its Subsidiaries. Capitalized terms used herein and not otherwise defined
have the meanings set forth below under the caption "--Certain Definitions."
The Indenture provides for the issuance of the $100.0 million principal
amount of Exchange Notes offered hereby and additional series of notes in
aggregate principal amounts of not less than $25.0 million per series, subject
to compliance with the covenant described below under the caption "--Certain
Covenants--Limitation on Incurrence of Indebtedness"; provided that no Default
or Event of Default exists under the Indenture at the time of issuance or
would result therefrom and that the aggregate principal amount of notes issued
under the Indenture does not exceed $150.0 million. All Notes will be
substantially identical in all material respects other than issuance dates.
The Company's obligations under the Indenture are, and the Exchange Notes
will be, guaranteed (the "Guarantees") on a senior subordinated basis as of
the date of the Indenture by Carson Products and, pursuant to the terms of the
Indenture, in the future may be jointly and severally guaranteed by certain
other Subsidiaries of the Company. See "--Certain Covenants--Subsidiary
Guarantees." As of the date of the Indenture, all of the Company's domestic
and foreign Subsidiaries are Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate one or more of its
existing Subsidiaries, Subsidiaries formed by the Company or Subsidiaries
acquired by the Company after the original issuance of the Notes as
Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to many
of the restrictive covenants set forth in the Indenture.
The Notes are limited to $150.0 million in aggregate principal amount, of
which $100.0 million in aggregate principal amount is being offered hereby.
The Exchange Notes will mature on November 1, 2007. The Exchange Notes will
bear interest at the rate set forth on the front cover of this Prospectus.
Interest on the Notes is payable semi-annually in cash in arrears on May 1 and
November 1 in each year, commencing May 1, 1998, to holders of record of Notes
at the close of business on the April 15 or October 15 immediately preceding
such interest payment date. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Holders of the Exchange Notes will
also receive accrued interest from the last interest payment date on which
interest was paid on the Existing Notes surrendered in exchange therefor or,
if no such interest has been paid on the Existing Notes, from the date of
original issue of the Existing Notes. Interest on the Existing Notes accepted
for exchange will cease to accrue upon issuance of the Exchange Notes. The
Exchange Notes will be issued in denominations of $1,000 and integral
multiples thereof.
Principal of, premium, if any, interest and Liquidated Damages, if any, on
the Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar in New
York, New York. Holders of Notes must surrender their Notes to the Paying
Agent to collect principal payments, and the Company may pay principal and
interest by check and may mail checks to a holder's registered address;
provided that all payments with respect to Global Notes and Certificated
Notes, the holders of which have given wire transfer instructions to the
Company, will be required to be made by wire transfer of immediately available
funds to the accounts specified by the holders thereof. The Registrar may
require payment
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of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection with certain transfers or exchanges. See "--Transfer and
Exchange." The Trustee will initially act as Paying Agent and Registrar. The
Company may change the Paying Agent or Registrar without prior notice to
holders of Notes, and the Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages, if
any, on the Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash or Marketable Securities
of all Senior Indebtedness, whether outstanding on the date of the Indenture
or thereafter incurred. The Indenture permits the incurrence of additional
Senior Indebtedness in the future.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash or Marketable Securities of all Obligations
due in respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the holders of Notes will be entitled to receive
any payment with respect to the Notes, and until all Obligations with respect
to Senior Indebtedness are paid in full in cash or Marketable Securities, any
distribution to which the holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under
"--Satisfaction and Discharge of the Indenture").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Satisfaction and Discharge of the Indenture") if (i) a default in the payment
of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a written notice (with a copy to the Company) of such other default
(a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Indebtedness. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received by the
Trustee, unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the date of receipt by the Trustee of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Notes that have come due
have been paid in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice (it being
understood that any subsequent action, or any breach of any covenant for a
period commencing after the date of receipt by the Trustee of such Payment
Blockage Notice, that, in either case, would give rise to such a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of Notes may recover less ratably than
creditors of the Company and the Guarantors who are holders of Senior
Indebtedness. On a pro forma basis, after giving effect to the sale of the
Existing Notes and the use of proceeds described herein, the aggregate
principal amount of Senior Indebtedness of the Company on a consolidated basis
outstanding at September 30, 1997 would have been approximately $0.6 million
and, subject to compliance with certain financial ratios, the Company would
have had unused availability under the New
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Credit Facility of $75.0 million. The Indenture and the New Credit Facility
limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness, that the Company and its
subsidiaries can incur. See "--Certain Covenants--Limitation on Incurrence of
Indebtedness."
GUARANTEES
The Company's obligations under the Indenture are and under the Exchange
Notes will be guaranteed on a senior subordinated basis by Carson Products and
in the future may be jointly and severally guaranteed by certain other
Subsidiaries (other than (i) Foreign Subsidiaries that are not guarantors
under the New Credit Facility and (ii) Unrestricted Subsidiaries) of the
Company in accordance with the covenant described below under the caption "--
Certain Covenants--Subsidiary Guarantees" (each such entity a "Guarantor" and,
collectively, the "Guarantors"). In addition, the Company may cause any
Foreign Subsidiary not otherwise required to guarantee the Notes to guarantee
the Notes on a senior subordinated basis, in which case such Foreign
Subsidiary will be a Guarantor for purposes of the Indenture. The Guarantees
will be subordinated to the prior payment in full in cash or Marketable
Securities of all Senior Indebtedness of each Guarantor (including such
Guarantor's Obligations under the New Credit Facility) to the same extent that
the Notes are subordinated to Senior Indebtedness of the Company. The
obligations of any Guarantor under its Guarantee is limited so as not to
constitute a fraudulent conveyance under applicable law.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving person), another
corporation, person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Guarantee of such Guarantor and the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Cash Flow Coverage Ratio, immediately after giving effect
to such transaction, to issue at least $1.00 of additional Indebtedness
pursuant to the Cash Flow Coverage Ratio test set forth in the first sentence
of the covenant described below under the caption "--Certain Covenants--
Limitation on Incurrence of Indebtedness." The requirements of clause (iii) of
this paragraph will not apply in the case of a consolidation with or merger
with or into the Company or another Guarantor.
The Indenture provides that in the event (a) of a sale, exchange, transfer
or other disposition of all or substantially all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale, exchange,
transfer or other disposition of all of the Capital Stock of any Guarantor,
(b) the designation by the Company of a Guarantor to be an Unrestricted
Subsidiary, or (c) the release of the guarantee of any Guarantor with respect
to the New Credit Facility or any Other Company Indebtedness (as defined)
which caused such Guarantor to deliver a Guarantee of the Notes in accordance
with clause (i) or clause (ii) of the covenant described below under the
caption "--Certain Covenants--Subsidiary Guarantees," then such Guarantor (in
the event of a sale, exchange, transfer or other disposition, by way of such a
merger, consolidation or otherwise, of all of the Capital Stock of such
Guarantor or any such designation or any such release) or each of the
corporation acquiring the property of such Guarantor and such Guarantor (in
the event of a sale, exchange, transfer or other disposition of all or
substantially all of the assets of such Guarantor) will be automatically
released and relieved of any obligations under the Guarantee of such
Guarantor, provided that the Net Proceeds of a sale, exchange, transfer or
other disposition described in clause (a) are applied in accordance with the
requirements of the applicable provisions of the Indenture. See "--Certain
Covenants--Limitation on Asset Sales."
REDEMPTION OF NOTES
Optional Redemption. The Notes may not be redeemed at the option of the
Company prior to November 1, 2002. During the 12-month period beginning on
November 1 of the years indicated below, the Notes will be redeemable, at the
option of the Company, in whole or in part, on at least 30 but not more than
60 days' notice
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to each holder of Notes to be redeemed, at the redemption prices (expressed as
percentages of the principal amount) set forth below, plus any accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................................. 105.188%
2003.............................................................. 103.458%
2004.............................................................. 101.729%
2005 and thereafter............................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to November 1, 2000, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Notes at a redemption price of 110.375% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net proceeds of one or more
Equity Offerings of the Company; provided that at least 65% of the aggregate
principal amount of Notes originally issued remain outstanding immediately
after the occurrence of any such redemption; and provided, further, that any
such redemption shall occur within 90 days of the date of the closing of any
such Equity Offering. The restrictions on optional redemptions contained in
the Indenture do not limit the Company's right to make open market, privately
negotiated or other purchases of Notes from time to time.
Mandatory Redemption. Except as described below under the captions "--Change
of Control," "--Certain Covenants--Limitation on Asset Sales" and "--Merger or
Consolidation," the Company is not required to make any mandatory redemption,
purchase or sinking fund payments with respect to the Notes.
Selection and Notice. In the event of a redemption of less than all of the
Notes, the Notes to be redeemed will be chosen by the Trustee pro rata, by lot
or by any other method that the Trustee considers fair and appropriate and, if
the Notes are listed on any securities exchange, by a method that complies
with the requirements of such exchange; provided that, if less than all of a
holder's Notes are to be redeemed, only principal amounts of $1,000 or
multiples thereof may be selected for redemption or accepted for payment. On
and after any redemption date, interest shall cease to accrue on the Notes or
portions thereof called for redemption. Notice of any redemption will be
mailed at least 30 days but not more than 60 days before the redemption date
to each holder of Notes to be redeemed at such holder's registered address.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (such date being the "Change of
Control Trigger Date"), each holder of Notes shall have the right to require
the Company to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Notes pursuant to a Change of Control Offer
(as defined) at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest to the date of
purchase. The Company shall furnish to the Trustee, at least two Business Days
before notice of a Change of Control Offer is mailed to all holders of Notes
pursuant to the procedures described below under the caption "--Change of
Control--Procedures for Change of Control Offer," notice that the Change of
Control Offer is being made. Transactions constituting a Change of Control are
not limited to hostile takeover transactions not approved by the current
management of the Company. Except as described in this section, the Indenture
does not contain provisions that permit the holders of Notes to require the
Company to purchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring, including an issuer
recapitalization or similar transaction with management. Consequently, the
Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by the Company,
management of the Company or an affiliate of the Company, if such transaction
does not result in a Change of Control. The Change of Control provisions may
not be waived by the Board of Directors of the Company or the Trustee without
the consent of holders of at least a majority in principal amount of the
Notes. See "--Amendment, Supplement and Waiver."
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"Change of Control" means the occurrence of any of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total Voting Stock of the Company; or (ii) the Company
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of the assets of the Company and its Subsidiaries, taken as a whole, to any
person, or any person consolidates with, or merges with or into, the Company,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where (A) the outstanding
Voting Stock of the Company is converted into or exchanged for (1) Voting
Stock (other than Disqualified Stock) of the surviving or transferee
corporation or (2) cash, securities and other property in an amount which
could be paid by the Company as a Restricted Payment under the Indenture and
(B) immediately after such transaction no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of the surviving or transferee corporation; or (iii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a
majority of the directors then still in office who are entitled to vote to
elect such new directors and were either directors at the beginning of such
period or persons whose election as directors or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office. Notwithstanding the
foregoing, a Change of Control shall not be deemed to result from a
Disposition (as defined) described below in clause (a)(i)(B) under the caption
"--Merger or Consolidation."
The definition of Change of Control includes a phrase relating to the sale,
assignment, lease, transfer, conveyance or other disposition of "all or
substantially all" of the Company's assets. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of Notes to require the Company to
repurchase such Notes as a result of a sale, assignment, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries to another person may be uncertain.
The Company expects that prepayment of the Notes following a Change of
Control would constitute a default under the New Credit Facility. In addition,
because the obligations of the Company with respect to the Notes are
effectively subordinated to all secured indebtedness of the Company and all
obligations of the Company's subsidiaries, existing or future secured
indebtedness of the Company or obligations of the Company's subsidiaries may
prohibit the Company from repurchasing the Notes upon a Change of Control. Any
future credit agreements or other agreements relating to Senior Indebtedness
to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when the Company
is prohibited from purchasing or redeeming Notes, the Company could seek the
consent of its lenders to the purchase of Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Company does not obtain
such a consent or repay such borrowings, the Company would remain prohibited
from purchasing Notes. In such case, the Company's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture which
would, in turn, constitute a default under the New Credit Facility. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. In addition, the Company's ability
to pay cash to the holders of Notes upon an offer to purchase may be limited
by the Company's then existing financial resources. There can be no assurance
that sufficient funds will be available at the time of any Change of Control
to make any required purchases.
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Procedures for Change of Control Offers. Within 30 days following any Change
of Control Trigger Date, subject to the provisions of the Indenture, the
Company shall mail a notice to each holder of Notes at such holder's
registered address stating: (a) that a change of control offer (a "Change of
Control Offer") is being made and setting forth in reasonable detail the
events giving rise to a Change of Control and the length of time the Change of
Control Offer shall remain open, (b) the purchase price, the amount of accrued
and unpaid interest as of the purchase date, and the purchase date (which
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Purchase Date")), and (c) such other
information required or authorized by the Indenture and applicable law and
regulations.
On the Purchase Date for any Change of Control Offer, the Company will, to
the extent required by the Indenture and such Change of Control Offer, (1)
accept for payment all Notes or portions thereof tendered pursuant to such
Change of Control Offer, (2) deposit with the Paying Agent the aggregate
purchase price of all Notes or portions thereof accepted for payment and any
accrued and unpaid interest on such Notes as of the Purchase Date, and (3)
deliver or cause to be delivered to the Trustee all Notes tendered pursuant to
the Change of Control Offer. The Paying Agent shall promptly mail to each
holder of Notes or portions thereof accepted for payment an amount equal to
the purchase price for such Notes plus any accrued and unpaid interest
thereon, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book-entry) to any such holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes and any Note not accepted for payment in whole or in part shall be
promptly returned to the holder thereof. The Company will publicly announce
the results of the Change of Control Offer as soon as practicable after the
Change of Control Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Notes as a result
of a Change of Control. To the extent that the provisions of any securities
laws or regulations conflict with provisions of the Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the Indenture by virtue
thereof.
Selection and Notice. In the event of a purchase of less than all of the
Notes, the Notes to be purchased will be chosen by the Trustee pro rata, by
lot or by any other method that the Trustee considers fair and appropriate
and, if the Notes are listed on any securities exchange, by a method that
complies with the requirements of such exchange; provided that, if less than
all of a holder's Notes are to be accepted for payment, only principal amounts
of $1,000 or multiples thereof may be accepted for payment. On and after any
purchase date, interest shall cease to accrue on the Notes or portions thereof
tendered for purchase or accepted for payment. Notice of any offer to purchase
will be mailed at least 30 days but not more than 60 days before the purchase
date to each holder of Notes to be purchased at such holder's registered
address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of the
Company and/or any Restricted Subsidiary and dividends or distributions
payable by a Restricted Subsidiary to a Restricted Subsidiary or to the
Company, and if such Restricted Subsidiary has shareholders other than the
Company or other Restricted Subsidiaries, to the other shareholders of such
Restricted Subsidiary on a pro rata basis or on a basis that results in the
receipt by the Company or other Restricted Subsidiaries of dividends or
distributions of equal or greater value); (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock or other Equity Interests of the
Company or any of its Restricted Subsidiaries held by persons other than the
Company or any Restricted Subsidiary of the Company; (iii) make any payment on
or with respect to, or
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purchase, redeem, defease or otherwise acquire or retire for value, any
Subordinated Indebtedness of the Company or any Subsidiaries, whether any such
Subordinated Indebtedness is outstanding on, or issued after, the date of
original issuance of the Notes, except a payment, purchase, redemption,
defeasance or other acquisition in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition; (iv) make any payment under the
Morningside Management Agreement or any amendment thereto; or (v) make any
Restricted Investment (all such dividends, distributions, purchases,
redemptions, acquisitions, retirements, payments and Restricted Investments
being collectively referred to as "Restricted Payments"), if, at the time of
such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the covenant
described below under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness"; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the Issue Date, without duplication, exceeds
the sum of (1) 50% of the cumulative Consolidated Net Income (including,
for this purpose, gains or losses from Asset Sales and, to the extent not
included in Consolidated Net Income, any gain or loss from a sale or
disposition of a Restricted Investment) of the Company (or, in case such
cumulative Consolidated Net Income is a loss, 100% of such loss) for the
period (taken as one accounting period) from the beginning of the fiscal
quarter commencing October 1, 1997 and ended as of the Company's most
recently ended fiscal quarter at the time of such Restricted Payment; plus
(2) 100% of the aggregate net cash proceeds and the fair market value of
any property or securities (as determined by the Board of Directors in good
faith) received by the Company or any Wholly Owned Restricted Subsidiary
from the issue or sale of Capital Stock or other Equity Interests of the
Company or any Restricted Subsidiary subsequent to the Issue Date (other
than (x) Capital Stock or other Equity Interests issued or sold to a
Restricted Subsidiary and (y) the issuance or sale of Disqualified Stock);
plus (3) the amount by which the principal amount of and any accrued
interest on or the redemption or repurchase price in respect thereof and
accrued dividends on, as the case may be, either (A) Indebtedness of the
Company or (B) any Indebtedness of any Restricted Subsidiary is reduced on
the Company's consolidated balance sheet upon the conversion or exchange,
pursuant to the terms of such Indebtedness, other than by a Restricted
Subsidiary, subsequent to the Issue Date of any Indebtedness of the Company
or any Restricted Subsidiary (not held by the Company or any Restricted
Subsidiary) for Capital Stock or other Equity Interests (other than
Disqualified Stock) of the Company (less the amount of any cash, or the
fair market value of any other property or securities (as determined by the
Board of Directors in good faith), distributed by the Company or any
Restricted Subsidiary (to persons other than the Company or any other
Restricted Subsidiary) upon such scheduled conversion or exchange); plus
(4) to the extent that any Restricted Investment that was made after the
Issue Date is sold or otherwise liquidated or repaid or any Unrestricted
Subsidiary which is designated as an Unrestricted Subsidiary after the
Issue Date is sold or otherwise liquidated, the return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) up to such amount as does not exceed the original amount of such
Restricted Investment; plus (5) any dividends or distributions actually
received in cash by the Company or a Restricted Subsidiary after the Issue
Date from an Unrestricted Subsidiary, to the extent that such dividends or
distributions were not otherwise included in the Consolidated Net Income of
the Company for such period; plus (6) if any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the Restricted
Payment that would result if such Subsidiary were redesignated as a
Unrestricted Subsidiary at such time, as determined in accordance with the
second and third sentences of the covenant described below under "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries";
provided, however, that for purposes of this clause (6), the value of any
redesignated Unrestricted Subsidiary shall be reduced by the amount that
any such redesignation replenishes or increases the amount of Restricted
Investments permitted to be made pursuant to clause (xv) of the definition
of "Restricted Investment"; plus (7) $5.0 million.
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Notwithstanding the foregoing, clauses (b) and (c) shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
this "Limitation on Restricted Payments" covenant);
(ii) the repurchase, redemption, retirement or acquisition of Equity
Interests of the Company or a Subsidiary from employees or directors of the
Company or a Subsidiary upon such employees' or directors' death,
retirement or termination of employment or otherwise in accordance with any
employment agreement, employee or director stock option plan or agreement
or employee or director equity subscription agreement, in an aggregate
amount not to exceed $1.0 million in any calendar year, plus the aggregate
cash proceeds received by the Company during such calendar year from any
issuance of such Equity Interests to employees or directors of the Company
or any Restricted Subsidiary, plus the portion of such $1.0 million which
remains unused at the end of the prior calendar year, but in no event to
exceed $2.0 million in any calendar year, provided, that the cancellation
of Indebtedness owing to the Company or a Restricted Subsidiary from
employees or directors in connection with a repurchase of Equity Interests
of the Company or a Restricted Subsidiary will not be deemed to constitute
a Restricted Payment;
(iii) the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other
Capital Stock or other Equity Interests (other than Disqualified Stock) of
the Company or the redemption, repurchase, retirement or other acquisition
of any Capital Stock or other Equity Interests (other than Disqualified
Stock) of any Restricted Subsidiary in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to the Company or a
Subsidiary of the Company) of other Capital Stock or other Equity Interests
(other than Disqualified Stock) of such Restricted Subsidiary; provided
that, in each case, any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clauses (c)(1) and (c)(2) of
the preceding paragraph;
(iv) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company)
of Capital Stock or other Equity Interests (other than Disqualified Stock)
of the Company or the redemption, repurchase, retirement, defeasance or
other acquisition of any Subordinated Indebtedness of any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to the Company or a Subsidiary of the Company)
of Capital Stock or other Equity Interests (other than Disqualified Stock)
of such Restricted Subsidiary; provided that, in each case, any net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition, and any Net Income resulting therefrom,
shall be excluded from clauses (c)(1) and (c)(2) of the preceding
paragraph;
(v) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, any
Refinancing Indebtedness relating to such Subordinated Indebtedness;
(vi) the redemption, repurchase or other acquisition of Notes or Exchange
Notes;
(vii) payments required pursuant to any indenture or agreement governing
Subordinated Indebtedness of the Company or any Restricted Subsidiary in
respect of any Change of Control or Asset Sale, provided that payment has
theretofore been made with respect to all Notes tendered in response to a
Change of Control Offer or Asset Sale Offer, as applicable; and
(viii) the payment of (a) management, consulting and financial advisory
fees pursuant to the Morningside Management Agreement or any amendment
thereto in an aggregate amount not to exceed (A) $500,000 in any fiscal
year, if the Company's Cash Flow Coverage Ratio for the four full fiscal
quarters next preceding the date such Restricted Payment is made was less
than 3.0 to 1, or (B) $750,000 in any fiscal year otherwise and (b)
expenses and indemnities pursuant to the Morningside Management Agreement
or any amendment thereto.
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The net proceeds from the issuance of shares of Capital Stock upon
conversion of Indebtedness will be deemed to be an amount equal to (i) the
accreted value of such Indebtedness on the date of such conversion and (ii)
the additional consideration, if any, received by the Company upon such
conversion thereof, less any cash payment on account of fractional shares. The
amount of all Restricted Payments (other than cash) will be the fair market
value (as determined by and set forth in a resolution of the Board of
Directors in good faith) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or a Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment.
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the Notes and the
Guarantees), except that the Company and any Restricted Subsidiaries may issue
additional Indebtedness if the Company's Cash Flow Coverage Ratio for its four
full fiscal quarters next preceding the date such additional Indebtedness is
issued would have been at least 2.00 to 1 on or prior to the second
anniversary of the Issue Date and 2.25 to 1 thereafter determined on a Pro
Forma Basis (including, for this purpose, any other Indebtedness issued and
any acquisition or sale consummated, since the end of the applicable four
quarter period) as if such additional Indebtedness and any other Indebtedness
issued since the end of such four quarter period had been issued at the
beginning of such four quarter period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and the Restricted Subsidiaries under the
New Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (x) $75.0 million or (y) the sum
of (i) 85% of the book value of the accounts receivable of the Company and
the Restricted Subsidiaries taken as a whole and (ii) 50% of the book value
of the inventory of the Company and the Restricted Subsidiaries taken as a
whole;
(ii) Indebtedness of Foreign Subsidiaries, including Carson South Africa,
in an aggregate principal amount at any one time outstanding not to exceed
the greater of (x) $10.0 million or (y) an aggregate amount equal to the
sum of, with respect to each Foreign Subsidiary, (A) 85% of the book value
of the accounts receivable of such Foreign Subsidiary and (B) 50% of the
book value of the inventory of such Foreign Subsidiary; provided, that such
indebtedness is issued for working capital purposes;
(iii) Indebtedness of the Company and its Restricted Subsidiaries issued
in connection with capital leases, purchase money obligations or similar
financing transactions relating to its properties, assets and rights as of
the date of original issuance of the Notes up to $10.0 million in aggregate
principal amount at any one time outstanding;
(iv) additional Indebtedness of the Company and the Restricted
Subsidiaries in an aggregate principal amount up to $10.0 million at any
one time outstanding; and
(v) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the covenant
described below under the caption "--Certain Covenants--Subsidiary
Guarantees", provided, however, that the foregoing will not limit or restrict
guarantees issued by Guarantors in respect of Indebtedness of other Guarantors
or of the Company.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness which the Company and any Restricted Subsidiary are permitted to
issue, the Company and such Restricted Subsidiary, as the case may be, will
have the right, in the Company's sole discretion, to classify such item of
Indebtedness at the time of its issuance and will only be required to include
the amount and type of such Indebtedness under the clause permitting the
Indebtedness as so classified. Neither the accrual of interest nor the
issuance of additional Indebtedness in the form of additional promissory notes
or otherwise in lieu of the payment of interest nor the accretion of accreted
value will be deemed to be an issuance of Indebtedness for purposes of this
covenant.
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No Senior Subordinated Indebtedness. The Indenture provides that (i) the
Company will not issue any Indebtedness that is subordinate or junior in right
of payment to any Senior Indebtedness and senior in any respect in right of
payment to the Notes, and (ii) no Guarantor will issue any Indebtedness that
is subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Guarantees.
Sale and Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, enter
into any sale and leaseback transaction; provided that the Company and its
Restricted Subsidiaries may enter into a sale and leaseback transaction if (i)
the Company and its Restricted Subsidiaries could have issued Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Company's Cash Flow Coverage Ratio test set forth
in the first sentence of the covenant described above under the caption "--
Certain Covenants--Limitation on Incurrence of Indebtedness" (ii) the cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iii) to the
extent such sale and leaseback transaction is an Asset Sale, the proceeds of
such transaction are applied in compliance with, the covenant described below
under the caption "--Certain Covenants--Limitation on Asset Sales."
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, create, incur, assume
or suffer to exist any Liens of any kind against or upon any of its property
or assets, or any proceeds therefrom, unless (x) in the case of Liens securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (y) in all
other cases, the Notes are equally and ratably secured, except for (a) Liens
existing as of the Issue Date and securing any extensions, refinancings,
renewals, replacements, substitutions or refundings of the Obligations secured
thereby, provided such Liens do not extend to or cover any property or assets
of the Company or any of its Restricted Subsidiaries not securing Indebtedness
as of the Issue Date; (b) Liens securing the Notes and the Exchange Notes and
Liens in favor of the Trustee and any Lien granted, in respect of amounts owed
to such trustee or similar institution, to any trustee or similar institution
under any indenture for Indebtedness permitted by the terms of the Indenture;
(c) Liens on assets of the Company and its Subsidiaries securing Senior
Indebtedness; (d) Liens in favor of the Company or any Restricted Subsidiary;
(e) Liens securing Indebtedness which is incurred to refinance Indebtedness
which has been secured by a Lien permitted under the Indenture and which has
been incurred in accordance with the provisions of the Indenture, provided,
however, that such Liens do not extend to or cover any property or assets of
the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced; and (f) Permitted Liens.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to: (a)
pay dividends or make any other distributions on its Capital Stock or any
other interest or participation in, or measured by, its profits, owned by the
Company or any Restricted Subsidiary, or pay any Indebtedness owed to, the
Company or any Restricted Subsidiary, (b) make loans or advances to the
Company, or (c) transfer any of its properties or assets to the Company,
except for such encumbrances or restrictions existing under or by reason of:
(i) applicable law or regulations;
(ii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary;
(iii) any instrument governing Indebtedness or any other encumbrance or
restriction of a person affecting such person or its property or assets
acquired by the Company or any Restricted Subsidiary at the time of such
acquisition (provided that such Indebtedness or other encumbrance or
restriction was not issued in contemplation of the acquisition), which
encumbrance or restriction is not applicable to any person, or
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the properties or assets of any person, other than the person, or the
property or assets of the person, so acquired;
(iv) the New Credit Facility;
(v) any other agreement or instrument evidencing Indebtedness of a
Foreign Subsidiary permitted under the Indenture;
(vi) any other agreement or instrument in effect as of or entered into on
the Issue Date or imposed by the Indenture, the Guarantees, the Notes, the
Exchange Notes or the guarantees thereon (or similar limitations pursuant
to other notes issued by the Company or other indentures relating thereto
that are substantially similar to those set forth in the Indenture);
(vii) any Refinancing Indebtedness permitted under the covenant described
above under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness"; provided that the encumbrances and restrictions created in
connection with such Refinancing Indebtedness are no more restrictive in
any material respect with regard to the interests of the holders of Notes
than the encumbrances and restrictions in the refinanced Indebtedness (as
determined by the Board of Directors in good faith);
(viii) the terms of purchase money obligations, but only to the extent
such purchase money obligations restrict or prohibit the transfer of the
property so acquired;
(ix) any other agreement or instrument evidencing or relating to secured
Indebtedness of the Company or any Restricted Subsidiary otherwise
permitted to be issued pursuant to the provisions of the covenants
described under the captions "--Certain Covenants--Limitation on Incurrence
of Indebtedness" and "--Certain Covenants--Limitation on Liens" that limit
the right of the debtor to dispose of the property or assets securing such
Indebtedness;
(x) customary net worth provisions contained in leases and other
agreements entered into in the ordinary course of business;
(xi) the terms of agreements with respect to the sale of assets of the
Company or a Subsidiary of the Company otherwise permitted by the
Indenture, provided that such restriction terminates if such transaction is
not consummated;
(xii) the terms of agreements that have been entered into for the sale of
all or substantially all of the Capital Stock, business, assets or
properties of a Restricted Subsidiary, provided that such restriction
terminates if such transaction is not consummated;
(xiii) with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary on the Issue Date, instruments in existence at the time such
Person becomes a Restricted Subsidiary and not entered into in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary;
(xiv) customary provisions in joint venture agreements and other similar
agreements with respect to dividends and other similar distributions to the
parties to such joint venture, the disposition or distribution of assets or
property of such joint venture, or transactions between or among the joint
venture and the parties to such joint venture; or
(xv) any Permitted Lien, with respect to restrictions on the sale or
other disposition of the assets or property subject to such Permitted Lien.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Restricted Subsidiaries may enter into any
transaction with an Affiliate, including, without limitation, any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or dispose of any properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter into or amend
any contract, agreement or understanding with, or for the benefit of, an
Affiliate (each such transaction or series of related transactions with such
Affiliate that are part of a common plan are referred to as an "Affiliate
Transaction"), except in good faith and on terms that are determined by the
Board of Directors, or, if applicable, a committee comprising the Independent
Directors of the Board of Directors, and, in the case of any Affiliate
Transaction involving aggregate payments or other transfers by the Company
and/or its Restricted Subsidiaries
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in excess of $1.0 million (including cash and non-cash payments and benefits
valued at their fair market value by the Board of Directors in good faith),
set forth in a resolution adopted by such committee, to be no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction on an arm's length basis from
an unrelated person.
The Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and/or its
Restricted Subsidiaries in excess of $7.5 million (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors in good faith) unless the Company delivers to the Trustee:
(i) a resolution of the Board of Directors, or, if applicable, a
committee comprising the Independent Directors of the Board of Directors,
stating that a majority of such directors has, in good faith, determined
such Affiliate Transaction to be no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in
a comparable transaction on an arm's length basis from an unrelated person
and otherwise complies with the provisions of the Indenture; and
(ii)(A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and (B)
above, a written certification from a nationally recognized professional or
firm experienced in evaluating similar types of transactions, in each case,
stating that the terms of such transaction are fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
(1) transactions between or among the Company and any Restricted
Subsidiaries;
(2) transactions permitted by the covenant described above under the
caption "--Certain Covenants--Limitation on Restricted Payments";
(3) fees and compensation paid to, and indemnity provided on behalf of,
directors, officers or employees of the Company or any Subsidiary as
determined in good faith by the Board of Directors;
(4) any issuance, award or grant of securities or payment in cash or
otherwise made as compensation for services rendered pursuant to the terms
of any Incentive Arrangement, as determined in good faith by the Board of
Directors;
(5) loans or advances to employees or directors of the Company or any
Restricted Subsidiary in the ordinary course and in an aggregate amount not
to exceed $1.0 million at any one time outstanding; or
(6) any transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not less favorable to the
Company than the terms of the relevant agreement in effect prior to any
such amendment as determined in good faith by the Board of Directors.
As used in the immediately preceding clause (6), "Existing Affiliate
Agreement" means the Morningside Management Agreement, the Carson-AM
Management Agreement, the AM Cosmetics Broker Agreement, the AM Manufacturing
Agreement, the Distribution Agreement and the License Agreement.
In addition, notwithstanding the foregoing, any Affiliate Transaction
between the Company and an Affiliate of the Company relating to the provision
to the Company or a Restricted Subsidiary of research and development,
manufacturing, sales and/or distribution services in the ordinary course of
business shall not be subject to clause (ii) of the second paragraph of this
covenant.
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Limitation on Asset Sales. The Indenture provides that the Company may not,
and may not permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale (including the sale of any of the Capital Stock of
any Restricted Subsidiary but excluding the sale of any interests in
Unrestricted Subsidiaries) providing for Net Proceeds in excess of $1.0
million unless the Net Proceeds from such Asset Sale are applied (in any
manner otherwise permitted by the Indenture) to one or more of the following
purposes in such combination as the Company or the applicable Restricted
Subsidiary, as the case may be, shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar, ancillary, complementary or reasonably related to that of, a line of
business or businesses of the Company and its Restricted Subsidiaries at the
time of the Asset Sale; provided that such investment occurs on or prior to
the 270th day following the date of such Asset Sale (the "Asset Sale
Disposition Date"), (b) the reimbursement of the Company or its Restricted
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking, (c) the purchase, redemption or other prepayment
or repayment of outstanding Senior Indebtedness of the Company or its
Restricted Subsidiaries on or prior to the 270th day following the Asset Sale
Disposition Date and permanent reduction of the amount of such Indebtedness or
(d) the cash collateralization of letters of credit or bankers acceptances
designed to facilitate the purchase of goods and services provided that any
cash collateral released to the Company or its Restricted Subsidiaries upon
the expiration of such letters of credit, bankers acceptances or other
instruments or arrangements shall again be deemed to be Net Proceeds received
on the date of such release. The Indenture also provides that the Company may
not, and may not permit any Restricted Subsidiary to, directly or indirectly,
consummate an Asset Sale unless at least 75% of the consideration thereof
received by the Company or such Restricted Subsidiary is in the form of cash,
cash equivalents or Marketable Securities; provided that, solely for purposes
of calculating such 75% of the consideration, the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto, excluding contingent liabilities
and trade payables) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from
such transferee that are promptly, but in no event more than 45 days after
receipt, converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash and cash
equivalents for purposes of this provision. Any Net Proceeds from any Asset
Sale that are not applied or invested as provided in the first sentence of
this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds (net of Foreign Proceeds, as
defined below) exceeds $10.0 million (such date being an "Asset Sale Trigger
Date"), the Company shall make an offer to purchase on a pro rata basis the
maximum principal amount of the Notes and pari passu Indebtedness of the
Company or any Restricted Subsidiary, if any, that requires, pursuant to its
terms, such an offer, then outstanding that may be purchased out of Excess
Proceeds (an "Asset Sale Offer"), at an offer price in cash in an amount equal
to 100% of the principal amount thereof plus any accrued and unpaid interest
to the Asset Sale Purchase Date in accordance with the procedures set forth in
the Indenture. Notwithstanding the foregoing, to the extent that any or all of
the Net Proceeds of an Asset Sale is prohibited or delayed by applicable local
law from being repatriated to the United States or such repatriation would be
expected to result in material tax liability to the Company or any Restricted
Subsidiary, as determined in good faith by the Board of Directors (such Net
Proceeds, the "Foreign Proceeds"), the Company shall not be required to make
an Asset Sale Offer with respect to such proceeds. Foreign Proceeds shall be
applied, in such combination as the Company shall select, in accordance with
clause (a), (b), (c) or (d) of the preceding paragraph, or, at the option of
the Company, may be retained as cash or Marketable Securities for so long, but
only for so long, as the applicable local law prohibits or delays repatriation
to the United States or would result in material tax liability as described
above.
To the extent that any Excess Proceeds (other than Foreign Proceeds) remain
after completion of an Asset Sale Offer, the Company may use such remaining
amount for general corporate purposes, including repayment of Subordinated
Indebtedness. If the aggregate principal amount of Notes surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased pro rata, by lot or by any
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other method that the Trustee considers fair and appropriate. Upon completion
of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero
plus the amount, if any, of cash or Marketable Securities attributable to
Foreign Proceeds.
Although the New Credit Facility permits dividends from the Company's
Subsidiaries to the Company for the purpose of paying interest on the Notes,
dividends for other purposes, such as repurchases of Notes by the Company upon
an Asset Sale, are not permitted under the terms of the New Credit Facility.
Accordingly, the Company would need to seek the consent of its lenders under
the New Credit Facility in order to repurchase Notes with the Net Proceeds of
an Asset Sale. See "Risk Factors--Leverage and Debt Service."
Procedures for Offers. Within 30 days following any Asset Sale Trigger Date,
subject to the provisions of the Indenture, the Company shall mail a notice to
each holder of Notes at such holder's registered address a notice stating: (a)
that an Asset Sale Offer is being made, the length of time the Asset Sale
Offer shall remain open and the maximum principal amount of Notes that will be
accepted for payment pursuant to such Asset Sale Offer, (b) the purchase
price, the amount of accrued and unpaid interest as of the purchase date, and
the purchase date (which shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed (the "Asset Sale Purchase Date")),
and (c) such other information required by the Indenture and applicable law
and regulations.
On the Asset Sale Purchase Date for any Asset Sale Offer, the Company will,
to the extent required by the Indenture and such Asset Sale Offer, (1) accept
for payment the maximum principal amount of Notes or portions thereof tendered
pursuant to such Asset Sale Offer that can be purchased out of Excess
Proceeds, (2) deposit with the Paying Agent the aggregate purchase price of
all Notes or portions thereof accepted for payment and any accrued and unpaid
interest on such Notes as of the Asset Sale Purchase Date, and (3) deliver or
cause to be delivered to the Trustee all Notes tendered pursuant to the Asset
Sale Offer. The Paying Agent shall promptly mail to each holder of Notes or
portions thereof accepted for payment an amount equal to the purchase price
for such Notes plus any accrued and unpaid interest thereon, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by book-
entry) to any holder of Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Notes and any Note not
accepted for payment in whole or in part shall be promptly returned to the
holder thereof. The Company will publicly announce the results of the Asset
Offer as soon as practicable after the Asset Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Notes as a result
of an Asset Sale. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Indenture by virtue thereof.
Selection and Notice. In the event of a purchase of less than all of the
Notes, the Notes to be purchased will be chosen by the Trustee pro rata, by
lot or by any other method that the Trustee considers fair and appropriate
and, if the Notes are listed on any securities exchange, by a method that
complies with the requirements of such exchange; provided that, if less than
all of a holder's Notes are to be accepted for payment, only principal amounts
of $1,000 or multiples thereof may be accepted for payment. On and after any
purchase date, interest shall cease to accrue on the Notes or portions thereof
accepted for payment. Notice of any offer to purchase will be mailed at least
30 days but not more than 60 days before the purchase date to each holder of
Notes to be purchased at such holder's registered address.
Subsidiary Guarantees. The Indenture provides that if (i) any Restricted
Subsidiary shall become a guarantor under the New Credit Facility, (ii) any
Restricted Subsidiary shall become a guarantor under any Indebtedness ("Other
Company Indebtedness") of the Company or a Restricted Subsidiary, other than
the Notes, the New Credit Facility or Indebtedness of a Foreign Subsidiary or
(iii) the Company or any of its Restricted Subsidiaries shall acquire or
create another Subsidiary after the date of the Indenture, then such
Restricted Subsidiary or newly acquired or created Subsidiary, as the case may
be, shall execute a Guarantee and deliver an
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opinion of counsel in accordance with the terms of the Indenture; provided,
however, that (A) any guarantee pursuant to clause (ii) of this paragraph
shall be limited to such portion of the aggregate principal amount of
outstanding Notes as equals the principal amount of such Other Company
Indebtedness that is guaranteed by such Restricted Subsidiary, (B) if the
Other Company Indebtedness guaranteed by such Restricted Subsidiary is (1)
Senior Indebtedness, the guarantee for the Notes shall be subordinated in
right of payment with the Other Company Indebtedness guarantee and (2)
Subordinated Indebtedness, the guarantee for the Notes shall be pari passu or
senior in right of payment to the Other Company Indebtedness guarantee and (C)
clause (iii) of this covenant shall not apply (x) to any Subsidiary of the
Company during such period as such Subsidiary is inactive, has assets of less
than $50,000 and has less than $1,000 of outstanding Indebtedness owed to any
person other than the Company or a Restricted Subsidiary or (y) to any newly
acquired or created Subsidiary that is also a Foreign Subsidiary. The
foregoing covenant shall not apply to any newly acquired or created Subsidiary
that has been properly designated as an Unrestricted Subsidiary in accordance
with the Indenture for so long as it continues to be an Unrestricted
Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under clause (c) of the first paragraph of the covenant
described above under the caption "--Certain Covenants--Limitation on
Restricted Payments." All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Limitations as to Unrestricted Subsidiaries. The Indenture provides that the
Company will not permit any Unrestricted Subsidiary to issue Indebtedness
except Non-Recourse Debt. The Company and its Restricted Subsidiaries will not
designate, create or purchase any Unrestricted Subsidiary, unless the Board of
Directors of the Company shall have made a determination (as set forth in the
resolution approving such designation, creation or purchase) that the
designation, creation and operation of the Unrestricted Subsidiary is not
reasonably expected to materially and adversely affect the financial
condition, business, or operations of the Company and its Restricted
Subsidiaries taken together as a whole (which resolution shall be conclusive
evidence of compliance with this provision).
Payments for Consent. The Indenture provides that the Company will not and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Notes for or as an inducement or any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes or the Guarantees, unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Limitation on Lines of Business. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, engage in or
conduct any business other than the manufacture, distribution and/or sale of
health and beauty aids, cosmetics and/or other personal care products, and
businesses ancillary, complementary or reasonably related thereto, and
reasonable extensions thereof.
MERGER OR CONSOLIDATION
(a) The Indenture provides that the Company shall not consolidate or merge
with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any corporation, person or entity (any
such consolidation, merger or sale being a "Disposition") unless: (i) the
successor person of such Disposition or the person to which such Disposition
shall have been made (A) is a corporation organized or existing under the laws
of the United States of America, any state thereof or the District of Columbia
or (B) is Carson South Africa;
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(ii) in the case of clause (i)(B), the Company, prior to any such transaction,
shall have complied with the second paragraph of this covenant; (iii) the
successor corporation of such Disposition or the corporation to which such
Disposition shall have been made expressly assumes the Obligations of the
Company under the Indenture and the Notes, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee (which supplemental
indenture, in the case of clause (i)(B), shall provide that such successor
shall irrevocably submit to the exclusive jurisdiction of the Supreme Court of
the State of New York, New York County and to the jurisdiction of the United
States District Court for the Southern District of New York for the purposes
of any proceeding relating to the Notes or the Indenture); (iv) immediately
after such Disposition, no Default or Event of Default shall exist; and (v)
the corporation formed by or surviving any such Disposition, or the
corporation to which such Disposition shall have been made, shall be permitted
immediately after the Disposition by the terms of the Indenture to issue at
least $1.00 of additional Indebtedness pursuant to the first sentence of the
covenant described above under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness" determined on a Pro Forma Basis; provided,
however, that a Disposition effected solely for the purpose of changing the
Company's jurisdiction of incorporation pursuant to clause (i)(A) need not
comply with the foregoing clauses (iv) and (v).
(b) Prior to any Disposition pursuant to the foregoing clause (a)(i)(B) the
Company shall make on at least 30 but not more than 60 days notice, an offer
to purchase all of the Notes then outstanding, at a purchase price in cash
equal to the sum of (i) the principal amount thereof plus (ii) accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase plus
(iii) the Applicable Premium.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of
(A) the present value of all remaining required interest and principal
payments due on such Note, computed using a discount rate equal to the yield
to maturity at the time of computation of United States Treasury securities
with a constant maturity most nearly equal to the then remaining average life
to stated maturity of the Notes (the "Treasury Rate"), plus 50 basis points,
over (B) the then outstanding principal amount of such Note. If the average
life to stated maturity of the Notes is not equal to the constant maturity of
a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given. The Treasury Rate shall
be determined by reference to the yields published in the most recent Federal
Reserve Statistical Release H.15(519) which has become publicly available at
least two business days prior to the date fixed for purchase of the Notes
following a Disposition pursuant to the foregoing clause (a)(i)(B), or if such
Statistical Release is no longer published, any publicly available source of
similar market data.
Procedures for Offer to Purchase upon a Certain Disposition. At least 30 but
not more than 60 days prior to the proposed effective date of a Disposition
pursuant to the foregoing clause (a)(i)(B), the Company shall mail a notice to
each holder of Notes at such holder's registered address stating: (a) that the
Company intends to effect a Disposition pursuant to which Carson South Africa
will be the successor and that an offer is being made to purchase all of the
Notes then outstanding and setting forth in reasonable detail the proposed
transaction, the proposed effective date of the Disposition and the length of
time the offer shall remain open, (b) the purchase price, the amount of
accrued and unpaid interest as of the purchase date, and the purchase date
(which shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed), and (c) such other information required by the
Indenture and applicable law and regulations.
On the purchase date (which shall be the effective date of the Disposition)
for any such offer, the Company will (1) accept for payment all Notes or
portions thereof tendered pursuant to such offer, (2) deposit with the Paying
Agent the aggregate purchase price of all Notes or portions thereof accepted
for payment and any accrued and unpaid interest on such Notes as of the
purchase date, and (3) deliver or cause to be delivered to the Trustee all
Notes tendered pursuant to such offer. The Paying Agent shall promptly mail to
each holder of Notes or portions thereof accepted for payment an amount equal
to the purchase price for such Notes plus any accrued and unpaid interest
thereon, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by
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book-entry) to any such holder of Notes accepted for payment in part a new
Note equal in principal amount to any unpurchased portion of the Notes and any
Note not accepted for payment in whole or in part shall be promptly returned
to the holder thereof. The Company will publicly announce the results of the
offer as soon as practicable after the purchase date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Notes in
contemplation of such Disposition. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Indenture by
virtue thereof.
(c) Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Indenture. The limitations in the Indenture on the
Company's ability to make a Disposition do not restrict the Company's ability
to sell less than all or substantially all of its assets, such sales being
governed by the provisions of the covenant described above under the caption
"--Certain Covenants--Limitation on Asset Sales."
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the Notes are outstanding, whether or not the Company or the
Guarantors are subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company and the Guarantors shall submit for filing with
the Commission (unless the Commission will not accept such filings) the annual
reports, quarterly reports and other documents relating to the Company and the
Guarantors that the Company and the Guarantors would have been required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if the Company and the Guarantors were subject to such reporting requirements.
The Company and the Guarantors will also provide to all holders of Notes and
file with the Trustee copies of such annual reports, quarterly reports and
other documents required to be furnished to securityholders generally under
Sections 13 and 15(d) of the Exchange Act. In addition, for so long as any
Notes remain outstanding and prior to the later of the consummation of the
Exchange Offer and the filing of the Initial Shelf Registration Statement, if
required, the Company will furnish to the Holders and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30
days in payment of interest on the Notes; (b) a default in payment when due of
principal or premium, if any, with respect to the Notes; (c) the failure of
the Company to comply with the provisions described above under the caption
"--Change of Control," clauses (i), (ii) and (iii) of the first paragraph
described above under the caption "--Certain Covenants--Limitation on
Restricted Payments" or the provisions described above under the caption "--
Merger or Consolidation"; (d) the failure of the Company to comply with any of
its other agreements or covenants in, or provisions of, such Indenture or the
Notes outstanding under such Indenture and the Default continues for the
period, if applicable, and after the notice specified in the next paragraph;
(e) a default by the Company or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there is issued or by which there is
secured or evidenced any Indebtedness for money borrowed by the Company or any
Restricted Subsidiary (or the payment of which is guaranteed by the Company or
any Restricted Subsidiary), whether such Indebtedness or guarantee now exists
or shall be created hereafter, if (1) either (A) such default results from the
failure to pay principal of or interest on any such Indebtedness (after giving
effect to any extensions thereof) or (B) as a result of such default the
maturity of such Indebtedness has been accelerated prior to its expressed
maturity and (2) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or, because of the acceleration of the maturity
thereof, aggregates in excess of $7.5 million; (f) a failure by the Company or
any Restricted Subsidiary to pay final
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judgments (not covered by insurance) aggregating in excess of $7.5 million
which judgments a court of competent jurisdiction does not rescind, annul or
stay within 60 days after their entry; (g) certain events of bankruptcy or
insolvency involving the Company or any Significant Subsidiary; and (h) the
Guarantee of any Guarantor ceases to be in full force and effect (other than
in accordance with the terms of such Guarantee and the Indenture) or is
declared null and void and unenforceable or found to be invalid or any
Guarantor denies its liability under its Guarantee (other than by reason of a
release of such Guarantor from its Guarantee in accordance with the terms of
such Guarantee and the Indenture). In the case of any Event of Default
pursuant to clause (a) or (b) above occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
principal intention of avoiding payment of the premium that the Company would
have to pay pursuant to a redemption of Notes as described under the caption
"--Redemption of Notes--Optional Redemption," an equivalent premium shall also
become and be immediately, due and payable to the extent permitted by law upon
the acceleration of the Notes.
A Default or Event of Default under clause (d) (other than an Event of
Default arising under the provisions described above under the caption "--
Merger or Consolidation" which shall be an Event of Default with the notice
but without the passage of time specified in this paragraph) is not an Event
of Default under the Indenture until the Trustee or the holders of at least
25% in principal amount of the Notes then outstanding notify the Company of
the Default and the Company does not cure the Default within 30 days after
receipt of the notice. A Default or Event of Default under clause (g) of the
preceding paragraph will result in the Notes automatically becoming due and
payable without further action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of at
least 25% in principal amount of the then outstanding Notes may declare all
Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same shall become
immediately due and payable or, if there are any amounts outstanding under the
New Credit Facility, shall become immediately due and payable upon the first
to occur of acceleration of the New Credit Facility or five business days
after receipt by the Company of such Acceleration Notice, but only if such
Event of Default is then continuing. The holders of a majority in principal
amount of the Notes then outstanding under the Indenture, by notice to the
Trustee, may rescind any declaration of acceleration of such Notes and its
consequences if all existing Events of Default (other than the nonpayment of
principal of or interest on such Notes that shall have become due by such
declaration) shall have been cured or waived. Subject to certain limitations,
holders of a majority in principal amount of the Notes then outstanding under
the Indenture may direct the Trustee in its exercise of any trust or power.
Holders of the Notes may not enforce the Indenture, except as provided
therein. The Trustee may withhold from holders of Notes notice of any
continuing Default or Event of Default (except a Default or an Event of
Default in payment of principal, premium, if any, or interest) if the Trustee
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may on behalf of all holders of such Notes waive any existing
Default or Event of Default under the Indenture and its consequences, except a
continuing Default in the payment of the principal of, or premium, if any, or
interest on, such Notes, which may only be waived with the consent of each
holder of the Notes affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (g) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the claims
of any holders of Notes given the contractual subordination of the Notes and
the Guarantees to Senior Indebtedness of the Company and the Guarantors,
respectively, and the structural subordination of the Notes to direct
obligations of the Subsidiaries of the Company. See "Risk Factors--
Subordination of the Notes and the Guarantees; Holding Company Structure."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
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NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND STOCKHOLDERS
No officer, employee, director or stockholder of the Company or any
Subsidiary of the Company shall have any liability for any Obligations of the
Company or any Subsidiary of the Company under the Notes, the Guarantees, the
Exchange Notes and the guarantees thereon or the Indenture, or for any claim
based on, in respect of, or by reason of, such Obligations or the creation of
any such Obligation. Each holder of the Notes by accepting a Note waives and
releases all such liability, and such waiver and release is part of the
consideration for issuance of the Notes, the Guarantees, the Exchange Notes
and the guarantees thereon. The foregoing waiver may not be effective to waive
liabilities under the Federal securities laws and the Commission is of the
view that such a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance option"), except for certain obligations
(including those with respect to the defeasance trust (as defined herein) and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes). The Company at any time may terminate
(1) its obligations under the covenant described above under the caption "--
Change of Control" and the covenants described above under the caption "--
Certain Covenants" and certain other covenants in the Indenture, (2) the
operation of clauses (c), (d), (e), (f) and, with respect to Significant
Subsidiaries only, (g) contained in the first paragraph of the "--Events of
Default and Remedies" provisions described above and (3) the limitations
contained in clauses (iv) and (v) under the "--Merger or Consolidation"
provisions and in clauses (ii) and (iii) in the second paragraph under the
caption "--Guarantees" above (collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes shall not be accelerated
because of an Event of Default specified in clauses (c), (d), (e), (f) or,
with respect to Significant Subsidiaries only, (g) in the first paragraph
under the "--Events of Default and Remedies" provisions described above or
because of the Company's failure to comply with clauses (iv) and (v) under the
"--Merger or Consolidation" provisions and clauses (ii) and (iii) in the
second paragraph under the caption "--Guarantees" above.
To exercise either defeasance option with respect to the Notes outstanding,
the Company must irrevocably deposit in trust (the "defeasance trust") with
the Trustee money or U.S. Government Obligations (as defined in the Indenture)
for the payment of principal of, premium, if any, and unpaid interest on the
Notes then outstanding to redemption or maturity, as the case may be, and must
comply with certain other conditions, including the passage of 91 days and the
delivery to the Trustee of an opinion of counsel to the effect that holders of
such Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Notes may transfer or exchange their Notes in accordance with the
Indenture, but the Registrar may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and to pay any taxes
and fees required by law or permitted by the Indenture, in connection with any
such transfer or exchange. Neither the Company nor the Registrar is required
to issue, register the transfer of, or exchange (i) any Note selected for
redemption or tendered pursuant to an Offer, or (ii) any Note during the
period between (a) the date the Trustee receives notice of a redemption from
the Company and the date the Notes to be redeemed
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are selected by the Trustee or (b) a record date and the next succeeding
interest payment date. The registered holder of a Note will be treated as its
owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Notes then outstanding under such Indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any
provision may be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding under the Indenture. Without
the consent of any holder of Notes, the Company and the Trustee may amend or
supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption by a successor
corporation of the Company's obligations to the holders of Notes in the case
of a Disposition, to add further Guarantees with respect to the Notes, to
release Guarantors when permitted by the Indenture, to secure the Notes, to
add to the covenants of the Company and any Subsidiary of the Company for the
benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company or any Subsidiary of the Company, to comply with
the Trust Indenture Act, or to make any change that does not materially
adversely affect the legal rights of any holder of Notes.
Without the consent of each holder of Notes affected, the Company may not
(i) reduce the principal amount of Notes whose holders must consent to an
amendment to the Indenture or a waiver under the Indenture; (ii) reduce the
rate of or change the interest payment time of the Notes, or alter the
redemption provisions with respect thereto (including the provisions relating
to the covenants described above under the captions "--Certain Covenants--
Change of Control" and "--Limitation on Asset Sales" and paragraph (b) under
the caption "--Merger or Consolidation") or the price at which the Company is
required to offer to purchase the Notes; (iii) reduce the principal of or
change the fixed maturity of the Notes; (iv) make the Notes payable in money
other than as stated in the Notes; (v) make any change in the provisions
concerning waiver of Defaults or Events of Default by holders of the Notes, or
rights of holders of the Notes to receive payment of principal or interest;
(vi) waive any default in the payment of principal of, premium, if any, or
unpaid interest on, and Liquidated Damages, if any, with respect to the Notes;
(vii) make any change to the subordination provisions of the Indenture and the
Notes in a manner that materially adversely affects the legal rights of any
holder of the Notes; or (viii) release any Guarantor from its obligations
under any Guarantee, other than in accordance with the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and has not been cured), the Trustee will be required, in the exercise of its
power, to use the degree of care and skill of a prudent person in similar
circumstances in the conduct of its own affairs. Subject to the provisions of
the Indenture, the Trustee will be under no obligation to exercise any of its
rights or powers under its Indenture at the request of any of the holders of
the Notes, unless such holders shall have offered to the Trustee security and
indemnity satisfactory to it.
EXISTING NOTES; REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Carson Products and the Initial Purchasers entered into the
Registration Rights Agreement on November 6, 1997, in connection with the sale
of the Existing Notes. Pursuant to the Registration
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Rights Agreement, the Company and the Guarantors have agreed to file with the
Commission the Exchange Offer Registration Statement (the "Exchange Offer
Registration Agreement") on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the Holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes. See "The Exchange Offer." If (i) the Company is
not required to file the Exchange Offer Registration Statement or not
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities notifies the Company within the specified time
period that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company and the Guarantors will file with the
Commission a Shelf Registration Statement to cover resales of the Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its reasonable best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until (i) the date on which such Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
an Exchange Note, the date on which such Exchange Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act or may be sold without restrictions
pursuant to Rule 144(k) under the Securities Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Issue Date, (ii) the Company will use its reasonable best
efforts to have the Exchange Offer Registration Statement declared effective
by the Commission on or prior to May 5, 1998, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company
will commence the Exchange Offer and use its reasonable best efforts to issue
on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Exchange
Notes in exchange for all Notes tendered prior thereto in the Exchange Offer
and (iv) if obligated to file the Shelf Registration Statement, the Company
will use its reasonable best efforts to file the Shelf Registration Statement
with the Commission on or prior to 45 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 180 days after such obligation arises. If (a) the Company and
the Guarantors fail to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Company and the Guarantors fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
be obligated to pay Liquidated Damages, if any, to each Holder of Notes
constituting Transfer Restricted Securities, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes
constituting Notes held by such Holder. The amount of the Liquidated Damages,
if any, will increase by an additional $.05 per week per $1,000 principal
amount of Notes constituting Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages, if any, of $.50 per week per
$1,000 principal amount of such Notes. All accrued Liquidated Damages, if any,
will be paid by the Company on each
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Damages Payment Date (as defined in the Registration Rights Agreement) to the
Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages, if any, will cease.
Holders of Existing Notes who wish to exchange such Existing Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to
have their Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages, if any, set forth above. See "The
Exchange Offer." Notwithstanding the foregoing, no holder of Transfer
Restricted Securities shall be entitled to receive any Liquidated Damages with
respect to such Transfer Restricted Securities, if a holder of such Transfer
Restricted Securities was, at any time while the Exchange Offer was pending,
eligible to exchange, and did not validly tender, such Transfer Restricted
Securities for freely transferable Exchange Notes in such Exchange Offer.
Payment of Liquidated Damages is the sole remedy available to the holders of
Notes in the event that the Company and the Guarantors do not comply with the
deadlines set forth in the Registration Rights Agreement with respect to the
conduct of the Exchange Offer or the registration of the Notes for resale
under a Shelf Registration Statement.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and
subject to certain expectations with respect to "affiliates" of the Company,
the Company believes that the Exchange Notes may be offered for resale, resold
and otherwise transferred by the Holders thereof without further compliance
with the registration and prospectus delivery provisions of the Securities
Act. See "Plan of Distribution."
Any broker-dealer who holds Existing Notes that were acquired for its own
account as a result of market-making activities or other trading activities
may exchange such Existing Notes pursuant to the Exchange Offer, however, such
broker-dealer may be deemed to be an "underwriter" within the meaning of the
Securities Act and therefore must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the
Exchange Notes received by such broker-dealer in the Exchange Offer. Pursuant
to the Registration Rights Agreement, such prospectus delivery requirement may
be satisfied by the delivery of this Prospectus. See "Plan of Distribution."
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Affiliate" with respect to any specified person means (i) any person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person, (ii) any spouse, immediate
family member or other relative who has the same principal residence as any
person described in clause (i) above, (iii) any trust in which any such
persons described in clause (i) or (ii) above has a beneficial interest, and
(iv) any corporation or other organization of which any such persons described
above collectively owns 10% or more of the equity of such entity. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any person,
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shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such person, whether
through the ownership of voting securities, by agreement or otherwise,
provided that beneficial ownership of 10% or more of the voting securities of
a person shall be deemed to be control.
"AM Cosmetics" means AM Cosmetics, Inc., a Delaware corporation.
"AM Cosmetics Broker Agreement" means the broker agreement dated as of
September 19, 1997 between Carson Products and AM Cosmetics as in effect on
the Issue Date.
"AM Manufacturing Agreement" means the manufacturing agreement dated as of
April 30, 1997, between Carson Products and AM Cosmetics as in effect on the
Issue Date.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
Issue Date or thereafter acquired, in a single transaction or in a series of
related transactions; provided that Asset Sales will not include such sales,
leases, conveyances or dispositions in connection with (i) the surrender or
waiver of contract rights or the settlement, release or surrender of contract,
tort or other claims of any kind, (ii) the sale of inventory in the ordinary
course of business, (iii) a sale-leaseback of assets within one year following
the acquisition of such assets, (iv) the grant of any license of patents,
trademarks, registration therefor and other similar intellectual property, (v)
a transfer of assets by the Company or a Restricted Subsidiary to the Company
or a Restricted Subsidiary, (vi) the designation of a Restricted Subsidiary as
a Unrestricted Subsidiary pursuant to the covenant described above under the
caption "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries", (vii) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company as permitted by the covenant
described above under the caption "--Merger or Consolidation," (viii) the sale
or disposition of obsolete, worn out, damaged or otherwise unsuitable or
unnecessary equipment or other obsolete assets, (ix) Restricted Payments
permitted by the covenant described above under the caption "--Certain
Covenants--Limitations on Restricted Payments", (x) the exchange of assets for
other non-cash assets that (a) are useful in the business of the Company and
its Restricted Subsidiaries and (b) have a fair market value at least equal to
the fair market value of the assets being exchanged (as determined by the
Board of Directors or the board of directors of the Restricted Subsidiary
which owns such assets in good faith), (xi) the sale or disposition of any
Restricted Investment or Marketable Securities, (xii) any Equity Offering by
the Company or (xiii) a transaction or series of related transactions that
results in a Change of Control.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including any preferred
stock.
"Carson-AM Management Agreement" means the management agreement dated June
26, 1996 between Carson Products and AM Cosmetics as in effect on the Issue
Date.
"Carson Products" means Carson Products Company, a Delaware corporation.
"Carson South Africa" means Carson Holdings Limited, a South African
company.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) any provision for taxes based
on income or profits to the extent such income or profits were
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included in computing Consolidated Net Income, plus (b) Consolidated Interest
Expense, to the extent deducted in computing Consolidated Net Income, plus (c)
the amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, and debt and financing costs), plus (d) all
depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO adjustments
but excluding charges recorded in anticipation of future cash expenditures and
non-cash Incentive Arrangements), to the extent deducted in computing
Consolidated Net Income, plus (e) any interest income, to the extent such
income was not included in computing Consolidated Net Income, plus (f) all
dividend payments on preferred stock (whether or not paid in cash) to the
extent deducted in computing Consolidated Net Income, plus (g) any
extraordinary or non-recurring charge or expense arising out of the
implementation of SFAS 106 or SFAS 109 to the extent deducted in computing
Consolidated Net Income, plus (h) any non-capitalized transaction costs
incurred in connection with actual or proposed financings, acquisitions or
divestitures; provided, however, that if an acquisition or sale of a person,
business or asset or the issuance or repayment of Indebtedness occurred during
the given period or subsequent to such period and on or prior to the date of
calculation, then such calculation for such period shall be made on a Pro
Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of (i) Cash Flow divided by (ii) Consolidated Interest Expense (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock)) in each case, without duplication; provided, however,
that if an acquisition or sale of a person, business or asset or the issuance
or repayment of Indebtedness occurred during the given period or subsequent to
such period and on or prior to the date of calculation, then such calculation
for such period shall be made on a Pro Forma Basis.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of (i) the interest expense in respect of all Indebtedness of such
person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including, without duplication,
amortization of original issue discount on any such Indebtedness, all non-cash
interest payments, the interest portion of any deferred payment obligation,
the interest component of capital lease obligations, and amortization of
deferred financing fees) and (ii) the product of (a) all cash dividend
payments (and, in the case of a Person that is a Restricted Subsidiary,
dividends paid or payable in additional shares of Disqualified Stock) on any
series of preferred stock of such Person and its Restricted Subsidiaries
payable to a party other than the Company or a wholly owned Subsidiary, times
(b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, on a consolidated basis and in
accordance with GAAP; provided, however, that for the purpose of the Cash Flow
Coverage Ratio, Consolidated Interest Expense shall be calculated on a Pro
Forma Basis; provided further that any premiums, fees and expenses (including
the amortization thereof) paid in connection with the sale of the Existing
Notes and the application of the net proceeds therefrom or any other
refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (i) the Net Income of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (ii) the Net Income of any person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent person, (iii) the Net Income of, or
any dividends or other distributions from, any Unrestricted Subsidiary shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent person, (iv) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by operation of
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the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (v) the cumulative effect of a change in
accounting principles shall be excluded, (vi) income or loss attributable to
discontinued operations shall be excluded; and (vii) all other extraordinary,
unusual or nonrecurring gains and losses shall be excluded; provided, however,
that for purposes of determining the Cash Flow Coverage Ratio, Consolidated
Net Income shall be calculated on a Pro Forma Basis.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Facility and (ii) any other Senior Indebtedness permitted
under the Indenture the principal amount of which is $10.0 million or more and
that has been designated by the Company as "Designated Senior Indebtedness."
"Disqualified Stock" with respect to any person means any Capital Stock or
Equity Interests that by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable other than at the Company's
option), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of the Notes other than for Equity Interests
(other than Disqualified Stock).
"Distribution Agreement" means the distribution agreement dated May 14, 1996
between Carson Products S.A. and Carson Products as in effect on the Issue
Date.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is by its terms convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation); provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company for cash
of Capital Stock or other Equity Interests and all warrants, options or other
rights to acquire Capital Stock, other than (i) an offering of Disqualified
Stock or (ii) Incentive Arrangements or obligations or payments thereunder.
"Foreign Subsidiary" means a direct or indirect Subsidiary of the Company
organized outside the United States of America and conducting the majority of
its business in its jurisdiction of organization or in other jurisdictions
outside the United States of America.
"GAAP" means generally accepted accounting principles, consistently applied,
as in effect from time to time in the United States of America. All financial
and accounting determinations and calculations under the Indenture will be
made in accordance with GAAP.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
similar agreements or arrangements, in each case designed solely to protect
such person against fluctuations of exchange rates, currency rates or
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interest rates; provided, that the notional amount of any such Hedging
Obligation shall not exceed the principal amount of the underlying Obligation
to which such Hedging Obligation relates.
"Incentive Arrangements" means any employment agreements, employee stock
option agreements, employee equity subscription agreements, non-competition
agreements, stock plans, stock option plans, stock appreciation rights and
other incentive and bonus plans and similar arrangements made in connection
with acquisitions of persons or businesses by the Company or the Restricted
Subsidiaries or the retention of directors or employees by the Company or the
Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, (i) any indebtedness,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers acceptances or
representing the deferred and unpaid balance of the purchase price of any
property (including pursuant to capital leases), except any such balance that
constitutes an accrued expense or a trade payable, any Hedging Obligations, if
and to the extent such indebtedness (other than a Hedging Obligation) would
appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with GAAP, and any indebtedness of others of
the type described in this clause (i) secured by a Lien on any asset of such
person (whether or not such indebtedness is assumed by such person) (the
amount of such indebtedness being deemed to be the lesser of the value of such
assets or the indebtedness being so secured) and also includes, to the extent
not otherwise included, the guarantee of items that would be included within
this definition; (ii) Disqualified Stock of such person, valued at the maximum
fixed redemption or repurchase price in respect thereof; or (iii) Preferred
Stock issued by a Restricted Subsidiary of such person; provided, however,
that "Indebtedness" shall not include any Incentive Arrangements or
obligations or payments thereunder or the pledge by the Company of its Equity
Interests in an Unrestricted Subsidiary of the Company to secure Non-Recourse
Debt of such Unrestricted Subsidiary.
"Independent Director" means a director who has not and whose Affiliates
have not, directly or indirectly, at any time during the twelve months prior
to the taking of any action which, under the terms of the Indenture, requires
the approval of Independent Directors of the Company or a Restricted
Subsidiary, received, or entered into any understanding or agreement to
receive, any compensation, payment or other benefit, of any type or form, from
the Company, any Restricted Subsidiary or any of their respective Affiliates,
other than customary directors fees (including pursuant to Incentive
Arrangements) and reimbursement of out-of-pocket expenses.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be issued by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary. For this definition, the terms "issuing," "issuer," "issuance" and
"issued" have meanings correlative to the foregoing.
"Issue Date" means November 6, 1997, the date of original issuance of the
Notes.
"License Agreement" means the license agreement dated April 7, 1994 between
Carson Products S.A. and Carson Products as in effect on the Issue Date.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under
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applicable law (including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature thereof, any other
agreement to sell or give a security interest).
"Marketable Securities" means (a) Government Securities, (b) any certificate
of deposit maturing not more than 270 days after the date of acquisition
issued by, or time deposit of, an Eligible Institution, (c) any bankers
acceptances or money market deposit accounts issued by an Eligible Institution
and (d) securities issued by any fund investing exclusively in investments of
the types described in clauses (a) through (c) above.
"Moody's" means Moody's Investors Service, Inc.
"Morningside" means Morningside Capital Group, L.L.C., a Connecticut limited
liability company.
"Morningside Management Agreement" means the management assistance agreement
dated August 23, 1995 between Carson Products and Morningside as in effect on
the Issue Date.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by the Company or any
of its Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the
cash expenses of such Asset Sale (including, without limitation, the payment
of principal of, and premium, if any, and interest on, Indebtedness required
to be paid as a result of such Asset Sale (other than the Notes) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any
portion of cash proceeds that the Company determines in good faith should be
reserved for post-closing adjustments, it being understood and agreed that on
the day that all such post-closing adjustments have been determined, the
amount (if any) by which the reserved amount in respect of such Asset Sale
exceeds the actual post-closing adjustments payable by the Company or any of
its Restricted Subsidiaries shall constitute Net Proceeds on such date, (iv)
any relocation expenses and pension, severance and shutdown costs incurred as
a result thereof and (v) any cash amounts actually set aside by the Company or
any Restricted Subsidiary as a reserve in accordance with GAAP against any
retained liabilities associated with the asset disposed of in such
transaction, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or
against any indemnification obligations associated with such transaction.
"New Credit Facility" means the credit agreement to be entered into on the
Issue Date among the Company, Carson Products Company and the guarantors named
therein, and Credit Agricole Indosuez as agent and lender, and the other
lenders party thereto, together with all loan documents and instruments
thereunder (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified
from time to time, including any agreement extending the maturity of,
refinancing, renewing, refunding, replacing or otherwise restructuring
(including, without limitation, increasing the amount of available borrowings
thereunder, and all Obligations with respect thereto, in each case, to the
extent permitted by the covenant described above under the caption "--Certain
Covenants--Limitation on Incurrence of Indebtedness" or adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee,
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indemnity, agreement or instrument that would constitute Indebtedness) or (b)
is directly or indirectly liable (as a guarantor or otherwise) and (ii) the
explicit terms of which provide that there is no recourse against any of the
assets of the Company or its Restricted Subsidiaries (other than to Equity
Interests in an Unrestricted Subsidiary pledged by the Company or a Restricted
Subsidiary) provided, however, that the Company or any Restricted Subsidiary
may make a loan to an Unrestricted Subsidiary if such loan is permitted by the
covenant described above under the caption "--Certain Covenants--Limitation on
Restricted Payments" at the time of the issuance of the loan, and such loan
shall not constitute Indebtedness which is not Non-Recourse Debt.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable to
the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and the Restricted Subsidiaries existing
as of the Issue Date and all related Obligations as in effect on such date;
(ii) Indebtedness of the Company and the Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in respect
of reimbursement-type obligations regarding workers' compensation claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding principal
amount of Indebtedness (including unused commitments) extended, refinanced,
renewed, replaced, substituted or refunded plus any amounts incurred to pay
premiums, fees and expenses in connection therewith, (B) the Refinancing
Indebtedness (other than Refinancing Indebtedness with respect to Senior
Indebtedness) shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted or refunded;
provided, however, that this limitation in this clause (B) does not apply
to Refinancing Indebtedness of Senior Indebtedness, and (C) in the case of
Refinancing Indebtedness of Subordinated Indebtedness, such Refinancing
Indebtedness shall be subordinated to the Notes at least to the same extent
as the Subordinated Indebtedness being extended, refinanced, renewed,
replaced, substituted or refunded;
(iv) Intercompany Indebtedness of and among the Company and the
Restricted Subsidiaries (excluding guarantees by the Company or a
Restricted Subsidiary of Indebtedness of the Company or a Restricted
Subsidiary, as the case may be, not issued in compliance with the covenant
described above under the caption "--Certain Covenants--Subsidiary
Guarantees");
(v) Indebtedness of the Company and the Restricted Subsidiaries under
Hedging Obligations;
(vi) Indebtedness of the Company and its Restricted Subsidiaries arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts, which will not be, and will not be deemed to be, inadvertent)
drawn against insufficient funds in the ordinary course of business;
(vii) guarantees by the Company or any Guarantor of Indebtedness of the
Company or of a Restricted Subsidiary if the Indebtedness so guaranteed is
permitted under the Indenture;
(viii) guarantees by any Foreign Subsidiary of Indebtedness of another
Foreign Subsidiary if the Indebtedness so guaranteed is permitted under the
Indenture;
(ix) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, completion, statutory, appeal or
similar bonds in the ordinary course of business; and
(x) Indebtedness of the Company and any Restricted Subsidiary (other than
for borrowed money) in connection with agreements providing for
indemnification, purchase price adjustments and similar obligations in
connection with the sale or disposition of any of its business, property or
assets.
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"Permitted Holders" means (i) DNL Partners Limited Partnership; (ii) DNL
Group, LLC; (iii) Morningside Capital Group, LLC; (iv) Vincent A. Wasik, S.
Garrett Stonehouse and Lawrence E. Bathgate, II or any of their respective
spouses or lineal descendants; (v) any controlled Affiliate of any of the
persons or entities described in clauses (i), (ii), (iii) and (iv); (vi) in
the event of the incompetence or death of any of the individuals described in
clause (iv), such person's estate, executor, administrator, committee or other
personal representative, in each case who at any particular date will
beneficially own or have the right to acquire, directly or indirectly, Capital
Stock of the Company; or (vii) any trusts created for the benefit of each of
the persons or entities described in this definition, including any trust for
the benefit of the parents or siblings of any of the individuals described in
clause (iv) or any trust for the benefit of any such trust.
"Permitted Junior Securities" means Equity Interests in the Company or
subordinated debt securities of the Company that (i) are subordinated to all
Senior Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to at least the same extent as the Notes are subordinated to
Senior Indebtedness pursuant to Article 8 of the Indenture, (ii) have a
Weighted Average Life to Maturity no shorter than the Weighted Average Life to
Maturity of the Notes and (iii) if there are any amounts outstanding under the
New Credit Facility, have a Weighted Average Life to Maturity at least as long
as the sum of (a) the Weighted Average Life to Maturity of the New Credit
Facility or any debt securities issued in exchange therefor (whichever is
longer) plus (b) the positive difference, if any, between the Weighted Average
Life to Maturity of the Notes and the Weighted Average Life to Maturity of the
New Credit Facility, in each case measured immediately prior to the issuance
of such Permitted Junior Securities.
"Permitted Liens" means, with respect to the Company and its Restricted
Subsidiaries,
(1) Liens for taxes, assessments, governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred on deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, governmental
contracts, performance, completion and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money) or to secure obligations arising from statutory, regulatory,
contractual or warranty requirements;
(4) judgment Liens not giving rise to a Default or an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(6) any interest or title of a lessor under any capital lease or
operating lease;
(7) purchase money Liens to finance the acquisition or construction of
property or assets of the Company or any Subsidiary of the Company acquired
or constructed in the ordinary course of business; provided, however, that
(i) the related purchase money Indebtedness shall not be secured by any
property or assets of the Company or any Subsidiary of the Company other
than the property and assets so acquired or constructed and (ii) the Lien
securing such Indebtedness either (x) exists at the time of such
acquisition or construction or (y) shall be created within 100 days of such
acquisition or completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to such Liens;
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(8) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(9) Liens securing Indebtedness under Hedging Obligations;
(10) Liens arising out of consignment or similar arrangements for the
sale of goods and Liens upon specific items of inventory or other goods and
proceeds of any person securing such person's obligations in respect of
bankers' acceptances issued or created for the account of such person to
facilitate the purchase, shipment or storage of such inventory or other
goods, entered into by the Company or any Restricted Subsidiary in the
ordinary course of business;
(11) Liens in favor of the Company or a Guarantor securing intercompany
Indebtedness issued by the Company or any Restricted Subsidiary to the
Company or a Guarantor;
(12) Liens on property or assets of a person acquired by or merged with
or into or consolidated with the Company or any Restricted Subsidiary at
the time of such acquisition, merger or consolidation, provided that such
Liens were not incurred in contemplation of such acquisition, merger or
consolidation;
(13) Liens on property or shares of Capital Stock of a person existing at
the time such person becomes a Restricted Subsidiary, provided that such
Liens were not incurred in contemplation of such person becoming a
Restricted Subsidiary;
(14) Liens on property or assets existing at the time of acquisition,
construction or improvement thereof by the Company or any Restricted
Subsidiary, provided that such Liens were not incurred in contemplation of
such acquisition, construction or improvement;
(15) Liens to secure Attributable Debt that is permitted to be incurred
pursuant to the covenant described above under the caption "--Certain
Covenants--Sale and Leaseback Transactions";
(16) Liens securing industrial revenue bonds, provided, the Indebtedness
represented thereby is permitted under the Indenture;
(17) Liens securing reimbursement obligations with respect to letters of
credit incurred in the ordinary course which encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof, provided, the Indebtedness represented thereby is permitted under
the Indenture;
(18) Liens on assets or Capital Stock of Unrestricted Subsidiaries;
(19) Liens to secure Indebtedness permitted to be incurred under clauses
(i), (ii) and (iii) of the second sentence under the covenant described
above under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness," provided that such Liens extend only to the assets of the
person directly issuing such Indebtedness; and
(20) additional Liens at any one time outstanding in respect of property
or assets of which the aggregate fair market value (determined on the date
such Lien is granted) does not exceed $10.0 million.
"Preferred Stock" of any person means Capital Stock of such person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such person, to shares
of Capital Stock of any other class of such person.
"Pro Forma Basis" means, for purposes of determining Consolidated Net Income
in connection with the Cash Flow Coverage Ratio (including in connection with
the covenants described above under the captions "--Certain Covenants--
Limitation on Restricted Payments", "--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries" and "--Merger or Consolidation" and
the incurrence of Indebtedness pursuant to the first sentence of the covenant
described above under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness"), giving pro forma effect to (x) any acquisition,
by way of merger, consolidation or otherwise, or sale of a person, business or
asset, related incurrence, repayment or refinancing of Indebtedness or other
related transactions, including any Restructuring Charges which would
otherwise be accounted for as an adjustment permitted by Regulation S-X under
the Securities Act or on a pro forma basis under GAAP, or
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(y) any incurrence, repayment or refinancing of any Indebtedness and the
application of the proceeds therefrom, in each case, which occurred during the
relevant period or subsequent to such period and on or prior to the date of
calculation, as if such acquisition or sale and related transactions,
restructurings, consolidations, cost savings, reductions, incurrence,
repayment or refinancing were realized on the first day of the relevant period
permitted by Regulation S-X under the Securities Act or on a pro forma basis
under GAAP. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of a person, business or asset, the amount of
income or earnings relating thereto, and the amount of Consolidated Interest
Expense associated with any Indebtedness issued in connection therewith, the
pro forma calculations will be determined in good faith by the chief financial
officer of the Company as specified in an officer's certificate of the Company
delivered to the Trustee. Furthermore, in calculating the Cash Flow Coverage
Ratio, (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the determination date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the determination date;
(2) if interest on any Indebtedness actually incurred on the determination
date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the determination date will be deemed to
have been in effect during the relevant period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Refinancing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund
Indebtedness Incurred in accordance with the first paragraph of the covenant
described above under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness" or any Other Permitted Indebtedness or any
Indebtedness issued to so extend, refinance, renew, replace, substitute or
refund such Indebtedness and any additional Indebtedness issued solely to pay
premiums required by the agreement governing such Indebtedness, and reasonable
fees and expenses incurred by the Company or any Restricted Subsidiary in
connection therewith.
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include: (i) Investments in Marketable
Securities and other negotiable instruments permitted by the Indenture; (ii)
Investments in the Company; or (iii) Investments in any Restricted Subsidiary
or in a Person that becomes a Restricted Subsidiary or is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary, in
each case as a result of such investment; (iv) the extension of credit to
vendors, suppliers and customers in the ordinary course of business; (v)
Investments which exist on the Issue Date; (vi) payments made pursuant to
Incentive Arrangements (including repurchases of Equity Interests deemed to
occur upon exercise of stock options, warrants or similar rights if such
Equity Interests represent a portion of the exercise price of such options,
warrants or similar rights); (vii) any loan, and any refinancing of such loan,
made to management to enable management to purchase Equity Interests in the
Company; (viii) any Investments made or received in connection with Hedging
Obligations; (ix) Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of the Company
or any Restricted Subsidiary of the Company, provided that if such sale,
transfer or disposition constitutes an Asset Sale and the Company complies
with the covenant described above under the caption "--Certain Covenants--
Limitation on Asset Sales", such Investment shall not count as a Restricted
Payment for purposes of the calculation in paragraph (c) of the covenant
described above under the caption "--Certain Covenants--Limitation on
Restricted Payments"; (x) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company;
(xi) the payment of cash in lieu of fractional shares in connection with
dividends or distributions permitted by clause (i) of the first sentence of
the covenant described above under the caption "--Certain Covenants--
Limitation on Restricted Payments"; (xii) loans or advances to employees or
directors of the Company or any Restricted Subsidiary in the ordinary course
in an aggregate principal amount not to exceed $1.0 million at any one time
outstanding; (xiii) any Investment constituting Permitted Junior Securities of
a person issued in exchange for trade or other claims against such person in
connection with a financial reorganization or
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restructuring of such person or as a result of a foreclosure by the Company or
any Restricted Subsidiary with respect to any secured Investment or any other
transfer of title with respect to any secured Investment in default; (xiv)
Investments made pursuant to this clause (xiv) at any time, and from time to
time, after the Issue Date, in one or more contract manufacturers, suppliers,
vendors and distributors that are Affiliates of the Company in connection with
the provision by any such person of manufacturing, research and development,
outsourcing, sales, marketing and/or distribution services to the Company
and/or one or more Restricted Subsidiaries in an aggregate amount at one time
outstanding not to exceed $10.0 million; and (xv) other Investments made
pursuant to this clause (xv) at any time, and from time to time, after the
Issue Date, in any person for a purpose which is reasonably related, ancillary
or complementary to the businesses of the Company and the Restricted
Subsidiaries on the date such investment is made, in an aggregate amount at
any one time outstanding not to exceed $10.0 million.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Ratings Group.
"Senior Indebtedness" means, with respect to any person, (i) all
Indebtedness of such person outstanding under the New Credit Facility and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
person permitted to be issued under the Indenture, provided, however, that
Senior Indebtedness shall not include any Indebtedness which by the terms of
the instrument creating or evidencing the same is subordinated or junior in
right of payment in any respect to any other Indebtedness of such person or
its Subsidiaries or Affiliates and (iii) all Obligations with respect to the
foregoing, in each case, whether outstanding on the Issue Date or thereafter
issued. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (w) any liability for Federal, state, local,
foreign or other taxes, (x) any Indebtedness of any such person to any of its
Subsidiaries or other Affiliates (other than Indebtedness arising under the
New Credit Facility), (y) any trade payables or liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities) or (z) any Indebtedness that is
incurred in violation of the Indenture.
To the extent any payment on the Notes, whether by or on behalf of the
Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential, set aside or required
to be paid to a trustee, receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is recovered by,
or paid over to, such trustee, receiver or other similar party, the Notes or
part thereof originally intended to be satisfied by such payment shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to Senior Indebtedness and to the Notes.
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"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Entity Interests are owned directly by such person or through one
or more Subsidiaries).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors as provided below) and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary or a
Person becoming a Subsidiary through merger or consolidation or Investment
therein) to be an Unrestricted Subsidiary only if: (a) such Subsidiary does
not own any Capital Stock of, or own or hold any Lien on any property of, any
other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to
be so designated or otherwise an Unrestricted Subsidiary; (b) all the
Indebtedness of such Subsidiary shall at the date of designation, and will at
all times thereafter consist of, Non-Recourse Debt; (c) the Company certifies
that such designation complies with the covenant described above under the
caption "--Certain Covenants--Limitation on Restricted Payments"; (d) such
Subsidiary, either alone or in the aggregate with all other Unrestricted
Subsidiaries, does not operate, directly or indirectly, all or substantially
all of the business of the Company and its Subsidiaries; (e) such Subsidiary
does not directly or indirectly, own any Indebtedness of or Equity Interest
in, and has no Investments in, the Company or any Restricted Subsidiary; (f)
such Subsidiary is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (1) to
subscribe for additional Equity Interests or (2) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (g) on the date such Subsidiary is designated
an Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company than those
that might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred as of such date. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and the Company could incur
the Indebtedness of such Subsidiary pursuant to the covenant described above
under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness" on a Pro Forma Basis taking into account such designation.
"Voting Stock" means any class or classes of Capital Stock of any person
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect the board of directors (or persons performing
similar functions) of such person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all of
the Equity Interests of which (other than Equity Interests constituting
directors' qualifying shares or shares required to be held by foreign
nationals, in each case to the extent mandated by applicable law) is owned by
the Company or one or more Wholly Owned Restricted Subsidiaries or by the
Company and one or more Wholly Owned Restricted Subsidiaries.
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DESCRIPTION OF THE NEW CREDIT FACILITY
Concurrent with the sale of the Existing Notes, the Company and Carson
Products entered into the New Credit Facility with Credit Agricole Indosuez,
as agent and a lender (the "Bank"), and the other lenders party thereto, under
which the Bank and the other lenders provided a term loan and a revolving
credit facility to Carson Products, subject to the conditions set forth
therein. The following summary of the New Credit Facility is subject to, and
qualified in its entirety by, the credit agreement entered into simultaneously
with the closing of the sale of the Existing Notes as of November 6, 1997 (the
"Credit Agreement").
The New Credit Facility includes (i) a $50.0 million term loan to be used
solely for the purpose of making acquisitions (the "Term Loan Facility") and
(ii) a $25.0 million revolving credit facility (the "Revolving Credit
Facility"). The aggregate of the Revolving Credit Facility and the aggregate
outstanding letters of credit may not exceed Carson Products' Borrowing Base,
which equals the sum of (i) 85% of Eligible Accounts Receivable and (ii) 50%
of Eligible Inventory (each such term is as defined in the Credit Agreement).
The final maturity date for each of the Term Loan Facility and the Revolving
Credit Facility is expected to be October 2006 and 2003, respectively. The
Term Loan Facility will amortize in quarterly installments beginning in
February 1999 and ending in October 2006, on a schedule to be determined.
Borrowings under the Term Loan Facility and the Revolving Credit Facility
will generally bear interest at the Base Rate (as defined in the Credit
Agreement) plus 1.0% and the Base Rate plus 0.5%, respectively, or at Carson
Products' option, the Eurodollar Rate (as defined in the Credit Agreement)
plus 2.5% and the Eurodollar Rate plus 2.0%, respectively. Interest on Base
Rate borrowings are payable quarterly in arrears and interest on Eurodollar
Rate borrowings are payable at the end of the applicable interest period or
quarterly, whichever is earlier.
The Credit Agreement provides for a commitment fee of 0.25% per annum on the
unutilized portion of the Term Loan Facility commitments and the Revolving
Credit Facility, payable quarterly in arrears.
The obligations of Carson Products under the New Credit Facility are secured
by security interests in all accounts receivable, inventory, property, plant
and equipment and other personal, intellectual and real property of the
Company and its domestic subsidiaries, as well as by a pledge of the capital
stock of Carson Products and its subsidiaries. The New Credit Facility is
guaranteed by the Company and each present and future subsidiary of the
Company (excluding Carson Products, which is the primary borrower, and certain
foreign subsidiaries). The Credit Agreement contains customary covenants
relating to, among other things, (i) maintenance by the Company of certain
total interest coverage ratios, fixed charge coverage ratios and leverage
ratios and (ii) restrictions on the incurrence of additional liens or
indebtedness. The Credit Agreement also contains events of default customary
for credit agreements of this type. See "Risk Factors--Leverage and Debt
Service," "Risk Factors--Subordination of the Notes and the Guarantees;
Holding Company Structure" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Revolving Credit Facility is available for working capital and other
general corporate purposes. The Term Loan Facility is to be used to consummate
acquisitions, and is available until November 6, 1998. The Company used a
portion of the net proceeds received from the sale of the Existing Notes to
repay all of the outstanding borrowings under the Existing Bank Credit
Facility. See "Use of Proceeds" and "Capitalization."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE EXCHANGE OFFER
The exchange of Exchange Notes for the Existing Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for United States federal
income tax purposes because the Exchange Notes will not be considered to
differ materially in kind or extent from the Existing Notes. Rather, the
Exchange Notes received by a Holder will be treated as a continuation of the
Existing Notes in the hands of such Holder. As a result, there will be no
United States federal income tax consequences to Holders exchanging the
Existing Notes pursuant to the Exchange Offer. The adjusted basis and holding
period of the Exchange Notes for any Holder will be the same as the adjusted
basis and holding period of the Existing Notes. Similarly, there would be no
United States federal income tax consequences to a Holder of Existing Notes
that does not participate in the Exchange Offer.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any holder which is (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who
acquired Notes directly from the Company or (iii) broker-dealers who acquired
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the staff of the
Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange pursuant to the
Exchange Offer (other than a resale of an unsold allotment from the sale of
the Existing Notes to the Initial Purchaser) with the Prospectus, contained in
the Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons,
if any, subject to similar prospectus delivery requirements to use this
Prospectus in connection with the resale of such Exchange Notes. The Company
and the Guarantors have agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, and any amendment or supplement
to this Prospectus, available to any broker-dealer that requests such
documents in the Letter of Transmittal.
Each holder of the Exchange Notes who wishes to exchange its Exchange Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer--Purpose
and Effect of the Exchange Offer." In addition, each holder who is a broker-
dealer and who receives Exchange Notes for its own account in exchange for
Existing Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that
it will deliver a prospectus in connection with any resale by it of such
Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver a prospectus, and by delivering a prospectus a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Existing Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes will be passed upon
for the Company by Milbank, Tweed, Hadley & McCloy, New York, New York.
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EXPERTS
The financial statements of Aminco, Inc. (predecessor to Carson, Inc.) for
the fiscal year ended March 31, 1995 included in this Prospectus have been so
included in reliance on the report (which contains an explanatory paragraph
relating to the Company's change in accounting method in accounting for
inventories as described in Note 15 to the financial statements) of Price
Waterhouse LLP, independent auditors, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of the Company included in this
Prospectus as of March 31, 1996 and for the period from August 23, 1995
through March 31, 1996 and as of December 31, 1996 and for the period from
April 1, 1996 through December 31, 1996 and the consolidated statements of
operations, shareholders equity and cash flows of the Predecessor for the
period from April 1, 1995 to August 22, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company's change in its method of accounting for
inventories and the retroactive restatement of the consolidated balance sheets
as of March 31, 1996 and December 31, 1996 and the consolidated statements of
operations, stockholders' equity, and cash flows for the period from August
23, 1995 to March 31, 1996), and has been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of the Cutex Brands of Chesebrough-Pond's USA Co.
as of December 31, 1995 and 1996 and April 30, 1997 and for each of the two
years in the period ended December 31, 1996 and for the four month period
ended April 30, 1997 have been audited by Coopers & Lybrand L.L.P.,
independent auditors, as stated in their report appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements for the Company and the Predecessor
Independent Auditors Reports.............................................. F-2
Report of Independent Accountants......................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Balance Sheets............................................... F-5
Consolidated Statement of Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows..................................... F-8
Notes to Consolidated Financial Statements................................ F-9
Unaudited Financial Statements for the Company
Condensed Consolidated Balance Sheet at September 30, 1997................ F-19
Condensed Consolidated Statements of Operations--Nine Months Ended
September 30, 1997 and 1996.............................................. F-20
Condensed Consolidated Statements of Cash Flows--Nine Months Ended
September 30, 1997 and 1996.............................................. F-21
Notes to Condensed Consolidated Financial Statements...................... F-22
Audited Financial Statements of the Cutex Brands of Chesebrough-Pond's USA
Co.
Report of Independent Accountants......................................... F-25
Statements of Net Assets Sold as of December 31, 1996 and 1995............ F-26
Statements of Net Sales, Cost of Sales and Direct Operating Expenses for
the Years ended December 31, 1996 and 1995............................... F-27
Notes to Financial Statements............................................. F-28
Report of Independent Accountants......................................... F-32
Statement of Net Assets Sold as of April 30, 1997......................... F-33
Statement of Net Sales, Cost of Sales and Direct Operating Expenses for
the four-month period ended April 30, 1997............................... F-34
Notes to Financial Statements............................................. F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS OF CARSON, INC.:
We have audited the accompanying consolidated balance sheets of Carson, Inc.
and its subsidiaries as of December 31, 1996 and March 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the periods from April 1, 1996 to December 31, 1996 and from August
23, 1995 to March 31, 1996. We also audited the accompanying statement of
operations, stockholders' equity, and cash flows of Aminco, Inc. (the
Predecessor) for the period from April 1, 1995 to August 22, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Carson, Inc. and its
subsidiaries as of December 31, 1996 and March 31, 1996, and the results of
its operations and its cash flows for the periods from April 1, 1996 to
December 31, 1996 and from August 23, 1995 to March 31, 1996, and the results
of operations and cash flows of the Predecessor for the period from April 1,
1995 to August 22, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 15 to the Consolidated Financial Statements, effective
June 30, 1997, the Company changed its method of accounting for inventories
and, retroactively, restated the Consolidated Balance Sheets as of March 31,
1996 and December 31, 1996 and the Consolidated Statements of Operations,
Stockholders' Equity and Cash Flows for the period from August 23, 1995 to
March 31, 1996.
Deloitte & Touche LLP
Atlanta, Georgia
March 7, 1997
(June 30, 1997 as to Note 15)
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated statements of operations, of changes in
stockholders' equity and of cash flows for the year ended March 31, 1995
present fairly, in all material respects, the results of operations and cash
flows of Aminco, Inc. and its subsidiaries (predecessor to Carson, Inc.) for
the year ended March 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management, our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Aminco, Inc. for any period subsequent to
March 31, 1995.
As discussed in Note 15 to the Consolidated Financial Statements, effective
June 30, 1997, the Company changed its method of accounting for inventories
and, retroactively, restated the Consolidated Statement of Operations,
Stockholders' Equity and Cash Flows for the year ended March 31, 1995. The
Company also changed its method of accounting for postretirement benefits
other than pensions during the fiscal year ended March 31, 1995.
Price Waterhouse LLP
May 8, 1995, except as to Note 15, which is as of June 30, 1997
F-3
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
---------------------------------------------------------
NINE MONTH PERIOD
-----------------------------
COMPANY UNAUDITED PREDECESSOR COMPANY PREDECESSOR
APRIL 1, 1996 AUGUST 23, 1995 APRIL 1, 1995 AUGUST 23, 1995 YEAR ENDED
TO DECEMBER 31, TO DECEMBER 31, TO AUGUST 22, TO MARCH 31, MARCH 31,
1996 1995 1995 1996 1995
--------------- --------------- ------------- --------------- -----------
AMOUNTS IN 000S EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net sales............... $59,938 $23,673 $26,854 $41,465 $58,126
Cost of sales........... 26,940 10,823 11,513 18,806 25,692
------- ------- ------- ------- -------
Gross profit............ 32,998 12,850 15,341 22,659 32,434
------- ------- ------- ------- -------
Selling expenses........ 15,692 6,129 7,467 9,581 17,888
General and
administrative
expenses............... 5,603 2,475 2,276 5,061 5,246
General and
administrative-fees
paid to Morningside.... 233
Incentive compensation,
directors and
management............. 7,123
Depreciation and
amortization........... 1,896 776 502 1,331 1,085
------- ------- ------- ------- -------
Operating income........ 2,451 3,470 5,096 6,686 8,215
------- ------- ------- ------- -------
Interest expense........ 4,545 2,640 56 4,487 136
Other income, net....... 121 35 1,137 182 783
Other income, AM
Cosmetics management
fee and dividend....... 444
------- ------- ------- ------- -------
(Loss) income before
income tax............. (1,529) 865 6,177 2,381 8,862
Provision for income
tax.................... 1,727 527 2,243 1,277 3,174
------- ------- ------- ------- -------
(Loss) income before
extraordinary item and
change in accounting
principle.............. (3,256) 338 3,934 1,104 5,688
Extraordinary item, net
of tax benefit......... (3,527)
Cumulative effect of
change in accounting
principle, net of tax
benefit................ (250)
------- ------- ------- ------- -------
Net (loss) income....... (6,783) 338 3,934 1,104 5,438
Dividends on preferred
stock.................. 554 1,109
------- ------- ------- ------- -------
(Loss) income available
to all shareholders.... $(6,783) $ 338 $ 3,380 $ 1,104 $ 4,329
======= ======= ======= ======= =======
Earnings (loss) per
common share:
Before extraordinary
item................... $ (0.25) $ 0.03 $ 0.09
Extraordinary item, net
of tax benefit......... (0.28)
------- ------- -------
Net (loss) earnings per
share.................. $ (0.53) $ 0.03 $ 0.09
======= ======= =======
Weighted average common
shares outstanding..... 12,715 11,871 11,871
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CARSON, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------- ------------
DOLLARS IN 000S EXCEPT
SHARE AND PAR VALUE DATA
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents... $ 4,191 $ 1,553
Accounts receivable (less
allowance for doubtful
accounts of $614 and $531
at December 31, 1996 and
March 31, 1996,
respectively).............. 14,855 12,611
Accounts receivable due
from AM Cosmetics.......... 262
Inventories................. 10,572 8,486
Other current assets........ 1,421 3,169
------------ ------------
Total current assets...... 31,301 25,819
------------ ------------
Property, Plant and
Equipment, at cost:
Land and improvements....... 545 545
Buildings and improvements.. 6,689 5,427
Machinery and equipment..... 7,436 5,806
Furniture and fixtures...... 396 277
Construction-in-progress.... 1,004 282
------------ ------------
16,070 12,337
Less: accumulated
depreciation............... 981 351
------------ ------------
15,089 11,986
------------ ------------
Investment in AM Cosmetics... 3,187
Goodwill, net of accumulated
amortization of $1,573 and
$688 at December 31, 1996
and March 31, 1996,
respectively................ 45,801 46,633
Other Assets................. 2,151 3,542
------------ ------------
Total Assets............ $ 97,529 $ 87,980
------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable............ $ 7,065 $ 3,600
Accrued expenses............ 4,451 5,354
Accrued expenses, directors
and employees.............. 1,333
Current maturities of long-
term debt.................. 2,600 3,010
------------ ------------
Total current liabilities. 15,449 11,964
------------ ------------
Long-term Debt............... 24,501 63,778
Other Liabilities............ 1,700 1,732
Deferred Income Taxes........ 731
Minority Interest in
Subsidiary.................. 1,664
Commitments and Contingencies
(Notes 11 and 14)
Stockholders' Equity:
Preferred stock, $.01 par
value, 10,000,000 shares
authorized, none
outstanding
Common stock:
Class A, voting, $.01 par
value, 150,000,000 shares
authorized, 4,996,568
shares issued and
outstanding as of
December 31, 1996........ 50
Class B, nonvoting, $.01
par value, 2,000,000
shares authorized,
1,859,677 shares issued
and outstanding.......... 19 19
Class C, voting, $.01 par
value, 13,000,000 shares
authorized, 8,127,937 and
9,510,323 shares issued
and outstanding at
December 31, 1996 and
March 31, 1996,
respectively............. 81 95
Paid-in capital........... 62,418 8,557
Notes receivable from
employee shareholders,
net of discount.......... (1,365)
(Accumulated deficit)
Retained earnings........ (5,679) 1,104
Foreign currency
translation adjustment... (1,309)
------------ ------------
Total stockholders'
equity................... 54,215 9,775
------------ ------------
Total Liabilities and
Stockholders' Equity... $ 97,529 $ 87,980
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK
-------------- --------------
TOTAL
PAID-IN RETAINED VALUATION ESOP DEBT TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT GUARANTEE STOCK EQUITY
------- ------ ------- ------ ------- -------- ---------- --------- -------- -------------
AMOUNTS IN 000S
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, March 31, 1994. 406,699 $1,220 606,752 $6,068 $214 $28,858 $ -- $(288) $(6,373) $29,699
Net income.............. 5,438 5,438
Cash dividends,
preferred stock........ (1,109) (1,109)
Reduction in ESOP debt
guarantee.............. 288 288
Issuance of treasury
stock.................. 94 232 326
Purchase of treasury
stock.................. (567) (567)
Unrealized gains on
investments available
for sale, net of taxes. 283 283
------- ------ ------- ------ ---- ------- ---- ----- ------- -------
Balance, March 31, 1995. 406,699 1,220 606,752 6,068 308 33,187 283 (6,708) 34,358
Net income.............. 3,934 3,934
Cash dividends,
preferred stock........ (554) (554)
Issuance of treasury
stock.................. 296 296
------- ------ ------- ------ ---- ------- ---- ----- ------- -------
Balance, August 22,
1995................... 406,699 $1,220 606,752 $6,068 $308 $36,567 $283 $ -- $(6,412) $38,034
======= ====== ======= ====== ==== ======= ==== ===== ======= =======
</TABLE>
F-6
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B CLASS C EARNINGS NOTES TOTAL
-------------- -------------- --------------- PAID-IN (ACCUMULATED TRANSLATION RECEIVABLE STOCKHOLDERS'
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS CAPITAL DEFICIT) ADJUSTMENT FROM OFFICERS EQUITY
------ ------- ------ ------- ------ ------- ------- ------------ ----------- ------------- -------------
AMOUNTS IN 000S
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY,
beginning August
23, 1995
Sale of common
stock.......... $ 569 $ 6 5,799 $58 $11,936 $ $ $ $12,000
Issuance of
common stock in
connection with
acquisition.... 1,291 13 2,006 20 2,717 2,750
Carryover of
predecessor
basis.......... 1,705 17 (6,096) (6,079)
Net income, as
restated....... 1,104 1,104
----- --- ----- --- ------ --- ------- ------- ------- ------- -------
Balance, March
31, 1996....... 1,860 19 9,510 95 8,557 1,104 9,775
Gain on sale of
South African
stock, net..... 2,808 2,808
Sale of common
stock, net..... 3,113 31 38,162 38,193
Conversion of
Class C shares
to Class A
shares......... 1,884 19 (1,884) (19)
Reduction of
debt from
shareholders... 5,530 5,530
Net loss........ (6,783) (6,783)
Translation
adjustment..... (1,309) (1,309)
Employee
shareholder
loans, less
discount....... (1,365) (1,365)
Incentive
compensation
and other...... 502 5 7,361 7,366
----- --- ----- --- ------ --- ------- ------- ------- ------- -------
Balance,
December 31,
1996........... 4,997 $50 1,860 $19 8,128 $81 $62,418 $(5,679) $(1,309) $(1,365) $54,215
===== === ===== === ====== === ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CARSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
-----------------------------------------------
TWELVE-MONTH PERIOD
------------------------
COMPANY
COMPANY UNAUDITED PREDECESSOR COMPANY
APRIL 1, AUGUST 23, APRIL 1, AUGUST 23, PREDECESSOR
1996 TO 1995 TO 1995 TO 1995 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, AUGUST 22, MARCH 31, MARCH 31,
1996 1995 1995 1996 1995
------------ ------------ ----------- ---------- -----------
DOLLARS IN 000S
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) income...... $ (6,783) $ 338 $ 3,934 $ 1,104 $ 5,438
-------- -------- ------- -------- --------
Adjustments to reconcile
net (loss) income to
net cash provided by
operating activities:
Depreciation and
amortization.......... 1,896 776 502 1,331 1,085
Extraordinary item,
net of tax benefit.... 3,527
Incentive
compensation.......... 6,163
Provision for doubtful
accounts.............. 112 110
Deferred income taxes.. (957) 805 25
Other, net............. (1,363) (2,238) (1,367) 701 394
Prepayment penalty on
long-term debt........ (1,328)
Changes in operating
assets and liabilities,
net of acquisitions:
Accounts receivable.... (2,356) (446) (588) (2,385) (1,275)
Accounts receivable,
related party......... (262)
Inventories............ (2,086) (1,579) 190 (1,409) 467
Other current assets... 1,748 (89) (546) (1,045) 313
Accounts payable....... 3,465 366 (732) 1,360 755
Accrued liabilities.... (903) (985) 1,688 (1,677) 479
Accrued liabilities,
related party......... 1,333
-------- -------- ------- -------- --------
Total adjustments.. 8,989 (4,085) (853) (2,319) 2,243
-------- -------- ------- -------- --------
Net cash provided by
(used in) operating
activities............ 2,206 (3,747) 3,081 (1,215) 7,681
-------- -------- ------- -------- --------
Investing Activities:
Additions to property,
plant and equipment... (3,805) (624) (375) (1,470) (974)
Long-term investments.. (3,000)
Proceeds from sales
and maturities of
investments........... 21,428 12,498
Package design costs... (244) (356)
Acquisitions of
business assets, net
of cash acquired...... (65,300) (65,300)
Purchases of
investments........... (6,760) (15,704)
Other.................. 299
-------- -------- ------- -------- --------
Net cash (used in)
provided by investing
activities............ (6,805) (65,924) 14,049 (66,770) (4,237)
-------- -------- ------- -------- --------
Financing Activities:
Proceeds from long-
term borrowings....... 32,704 58,550 58,550
Principal payments on
long-term debt........ (67,876) (500) (1,012)
Dividends paid,
preferred stock....... (554) (1,109)
Purchases of treasury
stock................. (296) (567)
Checks outstanding..... (1,043)
Proceeds from sale of
common stock.......... 38,193 12,000 12,000
Proceeds from sale of
subsidiary stock...... 4,216
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities............ 7,237 70,050 (850) 69,538 (2,719)
-------- -------- ------- -------- --------
Net Increase
(Decrease) in Cash
and Cash Equivalents.. 2,638 379 16,280 1,553 725
Cash and Cash
Equivalents at
Beginning of Period... 1,553 1,620 895
-------- -------- ------- -------- --------
Cash and Cash
Equivalents at End of
Period................ $ 4,191 $ 379 $17,900 $ 1,553 $ 1,620
======== ======== ======= ======== ========
Cash paid during the
period for:
Interest............... $ 4,178 $ 3,034 $ 56 $ 3,991 $ 136
Income taxes........... $ 2,421 $ 1,276 $ 457 $ 2,497 $ 2,654
Non-cash financing
activities:
Long-term debt issued
in Acquisition........ $ $ 11,753 $ $ 11,753 $
Reduction of debt from
shareholders.......... $ 5,530 $ $ $ $
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to
herein as the "Company") was established in May 1995 and until August 1995 its
operations were de minimus. On August 23, 1995, the Company acquired all of
the outstanding stock of Aminco, Inc. (also referred to as the "Predecessor").
Aminco's operations were principally conducted by its wholly owned subsidiary,
Carson Products Company. Subsequent to the acquisition of Aminco, Carson
Products Company was merged into Aminco; the surviving entity was renamed
Carson Products Company. The accompanying financial statements of the Company
include the operating results of Carson Products Company ("Carson Products")
from the acquisition date.
The Company is a leading manufacturer and marketer in the United States of
selected personal care products for both the ethnic market and the mass
market. The Company believes that it is one of the leading global
manufacturers and marketers of ethnic hair care products for persons of
African descent. The Company's more than 60 products are marketed under five
principal brand names. Certain of the Company's international activities are
conducted by its South African subsidiary.
The Company's acquisition of the Predecessor for approximately $95 million
in cash (including $6 million for fees and other costs directly associated
with the acquisition) was initially financed with long-term borrowings
aggregating approximately $68.0 million and has been accounted for as a
purchase (the "Acquisition"). Accordingly, the purchase price has been
allocated to the Predecessor's identifiable assets and liabilities based on
the fair values at the acquisition date. The excess of the purchase price over
the fair value of the Predecessor's identifiable net assets has been
classified as goodwill.
Certain previous shareholders of the Predecessor received 1,705,500 shares
of Class A Common Stock in the acquisition. Such share interest has been
carried over at such shareholders' proportionate equity in the book value of
Aminco (predecessor) basis in accordance with Emerging Issues Task Force Issue
No. 88-16, "Basis in Leveraged Buyout Transactions."
The purchase price of the Predecessor (net of carryover of negative
predecessor basis of approximately $6.1 million) has been allocated as follows
(in millions):
<TABLE>
<S> <C>
Current assets (including $17.9 of cash ac-
quired)....................................... $ 37.9
Property, plant and equipment.................. 10.8
Goodwill....................................... 47.2
Other assets................................... 4.5
Liabilities assumed............................ (11.4)
------
$ 89.0
======
</TABLE>
In July 1996, the Company's South African subsidiary sold 25% of its shares
in an initial public offering on the Johannesburg Stock Exchange. The
subsidiary received net proceeds of approximately $4.2 million from this sale
(which resulted in a gain to the Company of approximately $2.8 million which
was recorded in paid in capital). In conjunction with this public offering,
the Company entered into an amendment to its license agreement with its South
African subsidiary which provides that commencing on April 1, 1998, its South
African subsidiary will pay the Company a royalty in the amount of 3.0% of the
net sales price of all licensed products. The amount of the royalty increases
to 3.5% on April 1, 1999 and 4.0% on April 1, 2000 until the termination of
the agreement. The initial term of the agreement expires on April 1, 1999;
however, the agreement continues indefinitely thereafter until terminated by
either party upon 12 months written notice.
The Company completed an initial public offering of 4,818,500 shares of its
common stock on October 18, 1996. The Company used the proceeds of such
offering to repay certain indebtedness (see Note 7). This repayment resulted
in an extraordinary loss recorded at that time of approximately $3.5 million
(net of tax) for prepayment penalties and the write-off of unamortized debt
discount and deferred financing costs.
F-9
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1996, the Company amended its Certificate of Incorporation to
change the authorized capital stock to Class A Common Stock, Class B Common
Stock, Class C Common Stock and Preferred Stock (each with a par value of $.01
per share). Each share of the Company's former Class A Common Stock was
converted into 11,370 shares of newly created Class C Common Stock, and each
share of former Class B Common Stock was converted into 11,370 shares of newly
created Class B Common Stock. These stock conversions have been given
retroactive recognition in the accompanying financial statements.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Change in Fiscal Year
Effective December 31, 1996, the Company changed its fiscal year-end from
March 31 to December 31 in order to conform the Company's financial reporting
year to the natural business year of its industry.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries and the Predecessor. All significant
intercompany transactions and accounts have been eliminated.
Inventories
Inventories are valued at the lower of First-In, First-Out (FIFO) cost or
market. See Note 15.
Property, Plant and Equipment
Property, plant and equipment is recorded at assigned values or cost less an
allowance for depreciation. The Company capitalizes eligible expenditures with
a cost greater than $1,000. Depreciation is computed using the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings..................................... 42 years
Land improvements............................. 20 years
Machinery and equipment....................... 12 years
Furniture and fixtures........................ 10 years
Office equipment.............................. 8 years
Vehicles...................................... 5 years
Information systems........................... 5 years
</TABLE>
Intangible Assets
Goodwill is amortized over 40 years using the straight-line method. Debt
issue costs are amortized on the interest method over the life of the related
debt. Patents are amortized using the straight-line method over 17 years.
Trademarks are amortized using the straight-line method over 40 years. The
Company periodically assesses the recoverability of intangible assets based on
judgments as to future undiscounted cash flows from operations.
Income Taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying currently enacted statutory rates to differences
between financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in the results of operations in the period that includes the
enactment date.
F-10
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenue from sales of manufactured goods is recognized upon shipment to
customers.
Research and Development Costs
Research and development costs (principally for new products) are expensed
as incurred and aggregated $349,000 for the nine-month period ended December
31, 1996, $250,000 for the period August 23, 1995 to March 31, 1996, $160,000
for the period from April 1, 1995 to August 22, 1995 and $323,000 for the year
ended March 31, 1995. These costs are included in general and administrative
expenses in the accompanying statements of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of the Company's South African operations are
translated from South African Rand into U.S. dollars at the rate of currency
exchange at the end of the fiscal period. Revenues and expenses are translated
at average monthly exchange rates prevailing during the period. Resulting
translation differences are recognized as a component of stockholders' equity.
Net (Loss) Earnings Per Share
Net (loss) earnings per share is computed by dividing net income by weighted
average common shares outstanding. In accordance with the rules of the
Securities and Exchange Commission, all shares of common stock issued prior to
the Company's initial public offering are included in weighted average shares
outstanding as if they were issued at the Company's formation.
Supplementary Net (Loss) Earnings Per Share
Supplementary net (loss) earnings per share is computed as if the Company's
shares issued in its initial public offering of 3,113,000 were issued at the
beginning of the Company's formation and interest related to debt that was
paid off with proceeds is added back. Supplementary net (loss) earnings per
share was $(0.33), $0.13 and $0.26 for the periods April 1, 1996 to December
31, 1996, August 23, 1995 to December 31, 1995 and August 23, 1995 to March
31, 1996, respectively.
Cash and Cash Equivalents
Cash and investments with maturities of three months or less when purchased
are considered cash equivalents.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
inventories, investment in AM Cosmetics preferred stock, accounts payable and
accrued liabilities approximate fair values due to the short-term maturities
of the instruments. The carrying value of long-term debt approximates fair
value.
F-11
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassification
Certain prior period balances have been reclassified to conform with current
year presentation.
NOTE 3. INVENTORIES
Inventories at December 31, 1996 and March 31, 1996 are summarized as follows
(in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Raw materials....................... $ 7,017 $4,562
Work-in-process..................... 1,236 1,002
Finished goods...................... 2,319 2,922
------- ------
Total........................... $10,572 $8,486
======= ======
</TABLE>
NOTE 4. OTHER CURRENT ASSETS
Other current assets at December 31, 1996 and March 31, 1996 consist of the
following (in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Deferred income taxes............... $ 203 $ 860
Income tax receivable............... 872
Prepaid interest.................... 1,090
Prepaid other....................... 346 1,219
------ ------
Total........................... $1,421 $3,169
====== ======
</TABLE>
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Depreciation expense for the nine months ended December 31, 1996 and December
31, 1995 was $672,000 and $586,000, respectively. For the periods from August
23, 1995 to March 31, 1996, April 1, 1995 to August 22, 1995 and April 1, 1994
to March 31, 1995, depreciation expense was $351,000, $322,000 and $679,000,
respectively.
NOTE 6. OTHER ASSETS
Other assets at December 31, 1996 and March 31, 1996 are summarized as
follows (in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Deferred financing costs............ $ 937 $3,275
Deferred tax asset.................. 935
Prepaid interest.................... 433
Patents............................. 184 152
Trademarks and other................ 128
------ ------
2,184 3,860
Less: accumulated amortization...... 33 318
------ ------
Total........................... $2,151 $3,542
====== ======
</TABLE>
F-12
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. LONG-TERM DEBT
Long-term debt at December 31, 1996 and March 31, 1996 is summarized as
follows (in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Term Loans......................................... $24,350 $29,000
Revolving line of credit........................... 2,052 7,500
Senior subordinated notes, interest at 12.5%....... 16,693
Subordinated notes, interest at 15%................ 2,004
Junior subordinated notes, interest at 10%......... 11,544
Other.............................................. 699 47
------- -------
27,101 66,788
Less: current portion.............................. 2,600 3,010
------- -------
$24,501 $63,778
======= =======
</TABLE>
Annual maturities of outstanding indebtedness at December 31, 1996 are as
follows (in 000s):
<TABLE>
<CAPTION>
DECEMBER
31, 1996
--------
<S> <C>
1997................................ $ 2,600
1998................................ 2,840
1999................................ 2,891
2000................................ 2,745
2001................................ 2,623
Thereafter.......................... 13,402
-------
27,101
Less: Current maturities............ 2,600
-------
Long-term portion................... $24,501
=======
</TABLE>
The Company used the proceeds from its initial public offering to retire the
senior subordinated notes, subordinated notes and junior subordinated notes.
As a result, during the nine months ended December 31, 1996, the Company
incurred $3.5 million (net of the related tax benefit of $2.4 million) of
debt-related charges and write-offs reflected in the accompanying Statements
of Operations as an extraordinary item. In addition, as a result of
negotiation with shareholders, the Company reduced a portion of the junior
subordinated notes held by such shareholders totaling $5.5 million which is
reflected as a capital addition in the Statement of Shareholders' Equity.
In October 1996, the Company replaced its credit agreement with a new
facility (the "New Senior Bank Facility") that includes (i) a $15.0 million
term loan A, (ii) a $10.0 million term loan B and (iii) a $15.0 million
revolving credit facility, including up to $5.0 million of letters of credit.
Aggregate borrowings under the revolving credit facility and outstanding
letters of credit may not exceed the Borrowing Base, which equals the sum of
(i) 80% of Eligible Accounts Receivable and (ii) 50% of Eligible Inventory.
The amount available for borrowing under the revolver at December 31, 1996 was
$12.9 million. Term loan A, term loan B and the revolving credit facility
mature in September 2002, 2003 and 2002, respectively. Term loan A amortizes
in quarterly installments of $625,000, term loan B amortizes in quarterly
installments of $25,000 through September 2002 and in quarterly installments
of $2,350,000 beginning in December 2002.
F-13
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The term loan A and revolving credit facility bear interest at the
applicable prime rate plus 0.5% or LIBOR plus 2.0% and have a final maturity
of six years. The term loan B bears interest at the applicable prime rate plus
1.0% or LIBOR plus 2.5% and has a final maturity of seven years.
The Credit Agreement provides for (i) a commitment fee of 0.5% per annum on
the unutilized portion of the revolving credit facility, (ii) a fee of 2.0%
per annum on the maximum amount available to be drawn under letters of credit,
and (iii) a letter of credit issuance fee.
The obligations of Carson Products under the New Senior Bank Facility are
secured by substantially all of Carson Products' (and its subsidiaries)
assets, as well as by a pledge of the capital stock of Carson Products. The
New Senior Bank Facility is guaranteed by the Company and each present and
future subsidiary of Carson Products (other than Carson South Africa and its
subsidiaries). The New Senior Bank Facility contains covenants with respect
to, among other things, (i) maintenance by Carson Products of certain total
interest coverage ratios, fixed charge coverage ratios and leverage ratios,
and (ii) restrictions on the incurrence of additional liens or indebtedness.
The New Senior Bank Facility contains restrictions on the payment of any cash
dividends except for dividends or distributions payable in shares of capital
stock.
NOTE 8. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and March 31, 1996 consisted of the
following (in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Compensation and benefits........... $1,587 $2,227
Advertising......................... 1,070 1,340
Self-insurance...................... 719 927
Interest............................ 240 384
Income tax payable.................. 493 --
Other............................... 342 476
------ ------
$4,451 $5,354
====== ======
</TABLE>
NOTE 9. INCOME TAXES
The following is a reconciliation of the statutory tax rate on (loss) income
from continuing operations to the Company's effective tax rate for the periods
noted:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY PREDECESSOR
--------------------------------- ---------------- ---------------- --------------
UNAUDITED
APRIL 1, 1996 TO AUG. 23, 1995 TO APRIL 1, 1995 TO AUG. 23, 1995 TO YEAR ENDED
DEC. 31, 1996 DEC. 31, 1995 AUG. 22, 1995 MARCH 31, 1996 MARCH 31, 1995
---------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Statutory rate.......... (34.0)% 34.0 % 34.0 % 34.0 % 34.0 %
State income taxes (net
of federal benefit).... (2.6)% 2.6 % 4.0 % 4.0 % 4.0 %
Foreign taxes........... 33.8% 21.5 % 21.5 %
Foreign tax credit...... (33.8)% (21.5)% (21.5)%
Permanent differences:
Incentive Compensation.. 93.9 %
Goodwill................ 21.8 % 24.3 % 16.0 %
Other taxes............. 33.8 % (1.7)% (2.2)%
Effective rate.......... 112.9 % 60.9 % 36.3 % 54.0 % 35.8 %
</TABLE>
F-14
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) for the periods noted include the following (in
000s):
<TABLE>
<CAPTION>
TWELVE-MONTHS
---------------------------------
NINE-MONTHS
---------------------------------
COMPANY PREDECESSOR COMPANY PREDECESSOR
--------------------------------- ---------------- ---------------- --------------
AUG. 23, 1995 TO
APRIL 1, 1996 TO DEC. 31, 1995 APRIL 1, 1995 TO AUG. 23, 1995 TO YEAR ENDED
DEC. 31, 1996 UNAUDITED AUG. 22, 1995 MARCH 31, 1996 MARCH 31, 1995
---------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Current:
Federal................ $1,685 $117 $1,744 $ 204 $2,760
State.................. 405 19 333 33 294
Foreign................ 594 177 104 310 95
------ ---- ------ ------ ------
Total current
provision............. 2,684 313 2,181 547 3,149
Deferred:
Federal................ (749) 102 52 546 23
State.................. (269) 65 10 102 2
Foreign................ 61 47 82
------ ---- ------ ------ ------
Total deferred
provision............. (957) 214 62 730 25
Total provision for
continuing operations. 1,727 527 2,243 1,277 3,174
------ ---- ------ ------ ------
Benefit for
extraordinary item.... (2,351)
Benefit for accounting
change................ (147)
Total income tax
(benefit) expense..... $ (624) $527 $2,243 $1,277 $3,027
====== ==== ====== ====== ======
</TABLE>
The effects of temporary differences which gave rise to the deferred tax
asset and liability at December 31, 1996 and at March 31, 1996 are as follows
(in 000s):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
----------------- -----------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Deferred domestic tax assets related to:
Deferred compensation.................... $ $ 643 $ $ 638
Accrued expenses......................... 813 522 188
Package design costs..................... 533 412
Allowance for doubtful accounts.......... 219 199
Foreign tax credit carryforward.......... 702
NOL carryforward......................... 241
Inventories.............................. 14 125
Other.................................... 116 14
----- ------- ---- -------
1,046 2,235 860 1,238
Deferred domestic tax liabilities related
to:
Inventories.............................. (752) (-) (801)
Property, plant and equipment............ (1,300) (1,168)
Other.................................... (91)
----- ------- ---- -------
(843) (1,300) (-) (1,969)
----- ------- ---- -------
Deferred domestic tax asset (liability)... $ 203 $ 935 $860 $ (731)
===== ======= ==== =======
Deferred foreign tax liability............ $ $ (106) $ $ (54)
===== ======= ==== =======
</TABLE>
Deferred income taxes were not provided on undistributed earnings of certain
foreign subsidiaries ($5.7 million at December 31, 1996 and $1.0 million at
March 31, 1996) because such undistributed earnings are expected to be
reinvested indefinitely overseas. If these amounts were not considered
permanently invested, an additional deferred tax liability of approximately
$712,500 and $125,000 would have been provided as of December 31, 1996 and
March 31, 1996, respectively. The foreign tax credit and NOL carryforward of
$0.7 million and $0.5 million expire at December 31, 2001 and December 31,
2011, respectively.
F-15
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan which covers substantially all its
U.S. employees. Contributions to the plan are discretionary, as determined by
the Board of Directors. Contributions are made on an annual basis. The Company
contributed $401,000 to the plan for the period from April 1, 1996 to December
31, 1996 and $246,000 to the plan for the period from August 23, 1995 to March
31, 1996.
The Company is obligated for retirement benefits to a former employee for
the remainder of his (and his spouse's) life. The expected present value of
this obligation ($1.6 million at December 31, 1996 and $1.7 million at March
31, 1996) is classified in other liabilities in the accompanying balance
sheets.
The Company provides postretirement health care benefits to a limited number
of key executives. The accumulated postretirement benefit obligation ("APBO")
was $517,000 at December 31, 1996 and $499,000 at March 31, 1996. For
measurement purposes, the cost of providing medical benefits was assumed to
increase by 10% in the fiscal year ended December 31, 1996, decreasing to an
annual rate of 8% after December 31, 1999. The medical cost trend rate
assumption could have an effect on amounts reported. For example, an increase
of 1% in the assumed rate of increase would have an effect of increasing the
APBO by $63,000 and the net periodic postretirement benefit cost by $23,000.
The weighted average discount rate used in determining the APBO was 8%. Net
periodic postretirement benefit cost for the period from August 23, 1995 to
March 31, 1996 was $9,000. Net periodic postretirement benefit cost for the
period from April 1, 1996 to December 31, 1996 was $18,000.
The Company recognized $0.8 million of compensation expense during the
quarter ended June 30, 1996 relating to anticipated costs under certain
equity-based long-term incentive compensation arrangements (such awards and
compensation expense are based upon the fair market value of the Company at
the time of the initial public offering). Such arrangements were awarded
originally as stock appreciation rights ("SARs"). During 1996, the SARs were
amended and converted to immediately exercisable stock purchase rights, on a
complete or partial basis, as agreed to by the Company and the awardee. The
SARs entitled the holder to a specified value (determined as a percentage of
the Company's equity value) over a fixed base value subject to five year
vesting requirements (or earlier upon a public offering or sale of the
Company). Upon amendment and conversion, the SAR rights were cancelled (and
replaced with accelerated, immediately exercisable stock purchase rights).
These rights have a fixed purchase price equal in amount to the canceled SARs
fixed base value.
During August 1996, pursuant to the terms of the accelerated, immediately
exercisable stock purchase rights, several outside directors purchased 115,373
shares of Common Stock at approximately $2.17 per share for an aggregate
purchase price of $250,000 and members of senior management purchased 385,818
shares of Common Stock at approximately $4.21 per share for an aggregate
purchase price of $1.6 million. The purchase of such shares by senior
management was financed with $1.4 million (net of discount) in noninterest
bearing long-term full recourse loans from the Company. The incentive
compensation expense represents the excess of the initial public offering
price over the actual purchase price of these shares plus certain cash
payments. In connection with the South African offering, the Company also
issued shares of the subsidiary to certain members of its management; the
Company recorded compensation expense of approximately $0.3 million for these
share awards.
NOTE 11. CONTINGENCIES
The Company is a party to lawsuits incidental to its business. Management
believes that the ultimate resolution of these matters will not have a
material adverse impact on the business or financial condition and operations
of the Company.
F-16
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. U.S. AND FOREIGN OPERATIONS
The Company's operations are located in the United States and South Africa.
Financial information by geographic area is as follows (in 000s):
<TABLE>
<CAPTION>
TWELVE MONTHS
-----------------------------
NINE MONTHS
-----------------------------
COMPANY PREDECESSOR COMPANY PREDECESSOR
------------------------------- ------------- --------------- -----------
APRIL 1, 1996 AUGUST 23, 1995 APRIL 1, 1995 AUGUST 23, 1995 YEAR ENDED
TO DECEMBER 31, TO DECEMBER 31, TO AUGUST 22, TO MARCH 31, MARCH 31,
1996 1995 1995 1996 1995
--------------- --------------- ------------- --------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales:
United States:
Domestic............... $42,855 $17,386 $20,189 $30,676 $47,111
Export................. 8,274 3,304 4,407 6,494 7,382
South Africa........... 8,809 2,983 2,258 4,295 3,633
------- ------- ------- ------- -------
$59,938 $23,673 $26,854 $41,465 $58,126
======= ======= ======= ======= =======
Operating income:
United States.......... $ 723 $ 3,096 $ 4,733 $ 5,713 $ 7,852
South Africa........... 1,728 374 363 973 363
------- ------- ------- ------- -------
$ 2,451 $ 3,470 $ 5,096 $ 6,686 $ 8,215
======= ======= ======= ======= =======
Identifiable assets (at
end of period):
United States.......... $95,283 $82,109 $84,886 $42,585
South Africa........... 11,529 2,953 4,404 2,113
Eliminations........... (9,283) (971) (1,310) (835)
------- ------- ------- -------
$97,529 $84,091 $87,980 $43,863
======= ======= ======= =======
</TABLE>
Transfers of products from the United States to South Africa were not
material during the periods presented above. Export sales from the United
States include sales to customers in Europe, the Caribbean and Africa.
NOTE 13. FINANCIAL INFORMATION OF CARSON, INC. (PARENT COMPANY)
The assets of Carson, Inc. on an unconsolidated basis consist solely of its
investment in Carson Products Company. During the period from April 1, 1996 to
December 31, 1996, and for the period from August 23, 1995 to March 31, 1996,
the results of operations of Carson, Inc. consisted solely of its equity in
the earnings of Carson Products Company and its cash flows consisted solely of
the cash provided by financing activities of $42.4 million and $12.0 million,
respectively, from the sale of its common stock and cash used in investing
activities of $42.4 million and $12.0 million, respectively, for its
investment in Carson Products Company.
NOTE 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Morningside
Carson Products and Morningside Capital Group, L.L.C., ("Morningside")
entered into a Management Assistance Agreement dated August 23, 1995 (the
"Management Agreement"), pursuant to which Morningside CARSON, INC. and a
shareholder of the Company agreed to supply the services of a principal member
of Morningside to the Company to provide certain advice and assistance. Such
services are provided for a fee of $350,000 per year, payable on a monthly
basis in advance plus reimbursement for out-of-pocket expenses. The
termination date of the Management Agreement is August 23, 1998; however, the
term of the agreement shall continue after such termination date until
terminated by not less than 30 days' advance notice by either party.
In connection with the Acquisition, Morningside received fees of $500,000
from the Company for arranging and negotiating the financing for the
Acquisition and performing other consulting and financial advisory services
F-17
<PAGE>
CARSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and was reimbursed by the Company for certain related expenses. Under the
Management Agreement, the Company paid Morningside approximately $25,000 in
fiscal 1996 for reimbursement of out-of-pocket expenses. Morningside received
a fee of $100,000 for arranging and negotiating the terms of the New Senior
Bank Facility and performing other consulting and financial advisory services.
In addition, the Company reimbursed Morningside for approximately $35,000 of
out-of-pocket expenses incurred in connection with the initial public
offering. From time to time Morningside may provide additional financial
advisory services to the Company, for which Morningside will receive usual and
customary compensation.
Fees Related to the Acquisition
A corporation in which the Company's former chief financial officer serves
as President and is a principal stockholder, was paid $290,000 and received
159,180 shares of the Company's Class C Common Stock from the Company in
connection with financial advisory services related to the Acquisition. A law
firm in which a director and shareholder of the Company serves as President
and Chief Executive Officer was paid approximately $690,000 for services
rendered in arranging the equity investment in the Company in connection with
the Acquisition. A principal lender and a shareholder of the Company received
fees and reimbursement of out-of-pocket expenses totalling $1,783,000 in
connection with the Acquisition.
AM Cosmetics
Morningside AM Acquisition Corp. ("AM Acquisition"), entered into a
Subscription Agreement dated as of June 26, 1996 (the "Subscription
Agreement") with Carson Products, providing for the purchase by Carson
Products of 300 shares of cumulative Payment in Kind Preferred Shares (the
"PIK Preferred Shares") issued by AM Acquisition, at a price of $10,000 per
share. AM Acquisition was formed by Morningside on behalf of an investor group
to acquire the assets of Arthur Matney Co., Inc. Certain key management
personnel and shareholders of the Company are also key management and
shareholders of AM Cosmetics. AM Cosmetics sells three brands of "budget"
cosmetics, one of which is targeted at the African-American consumer. The PIK
Preferred Shares are non-voting and are entitled to cumulative dividends
payable quarterly in additional PIK Preferred Shares at a rate of 12% per
annum. Additionally, the PIK Preferred Shares are subject to redemption in
whole at the option of Carson Products on or after July 1, 2005, at the stated
value per share (which is $10,000 per share) plus an amount in cash equal to
all accrued and unpaid dividends on the PIK Preferred Shares.
Concurrent with its investment in AM Acquisition, Carson Products entered
into a Management Agreement (the "Carson-AM Management Agreement") with AM
Cosmetics, pursuant to which Carson Products agreed to manage the business
operations of, and provide certain other services to AM Cosmetics. In return
for the management and other services it will provide, Carson Products is
entitled to fees equal to 1% of AM Cosmetics' annual net sales subject to a
minimum of $500,000 per annum. The Carson-AM Management Agreement expires on
June 26, 2004 unless terminated earlier, or renewed for an additional three-
year period at AM Cosmetics' option by giving Carson Products written notice
thereof at least 180 days prior to the expiration date. Either CARSON, INC.
party may terminate the AM Management Agreement by providing the other party
with written notice, at least 360 days in advance if terminated by Carson
Products and 60 days in advance if terminated by AM Cosmetics.
NOTE 15. CHANGE IN ACCOUNTING METHOD
Effective June 30 1997, the Company changed its method of valuing
inventories in the United States from the lower of last-in, first-out (LIFO)
cost or market to the lower of first-in, first-out (FIFO) cost or market. The
effect of this change has been reflected to the extent material in all periods
presented in these financial statements. This change in valuing inventories
was made in order to provide conformity among all of the Company's
subsidiaries as well as to conform with general industry practices. As a
result of this change in accounting method, cost of goods sold increased and
net income decreased for the period ended March 31, 1996 by $177,000 and
$102,000, respectively. In addition, inventories decreased by $177,000,
retained earnings decreased by $102,000 and deferred income taxes decreased by
$75,000 as of March 31, 1996 and December 31, 1996. The effect on all other
periods presented was not significant.
F-18
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
(UNAUDITED)
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 4,987
Accounts receivable (less allowance for doubtful accounts and
returns of $3,054)............................................ 26,259
Inventories, net............................................... 18,413
Other current assets........................................... 723
--------
Total current assets......................................... 50,382
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation... 19,314
INVESTMENT IN AM COSMETICS....................................... 3,483
GOODWILL, net.................................................... 91,473
OTHER ASSETS..................................................... 6,197
--------
TOTAL ASSETS............................................... $170,849
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 8,382
Accrued expenses............................................... 7,447
Income taxes payable........................................... 2,577
Current maturities of long-term debt........................... 3,000
--------
Total current liabilities.................................... 21,406
LONG-TERM DEBT................................................... 84,918
MINORITY INTEREST IN SUBSIDIARY.................................. 3,919
DEFERRED INCOME TAXES AND OTHER LIABILITIES...................... 1,701
STOCKHOLDERS' EQUITY:
Preferred stock................................................ --
Common stock................................................... 150
Paid-in capital................................................ 62,899
Accumulated deficit............................................ (1,234)
Note receivable from employee shareholders, net of discount.... (1,437)
Foreign currency translation adjustment........................ (1,473)
--------
Total stockholders' equity................................... 58,905
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $170,849
========
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales.................................................. $ 77,791 $ 56,488
Cost of goods sold......................................... 35,431 24,853
-------- --------
Gross profit............................................... 42,360 31,635
Expenses:
Marketing and selling...................................... 19,602 13,283
General and administrative................................. 11,691 8,488
Incentive compensation..................................... -- 7,123
-------- --------
31,293 28,894
-------- --------
Operating income........................................... 11,067 2,741
Interest expense........................................... (3,924) (5,523)
Other income, net.......................................... 608 497
-------- --------
Income before income taxes................................. 7,751 (2,285)
Provision for income taxes................................. 3,310 1,808
-------- --------
Net income (loss).......................................... $ 4,441 (4,093)
======== ========
Earnings (loss) per share.................................. $ 0.30 $ (0.34)
======== ========
Weighted average common shares outstanding................. 15,005 11,871
</TABLE>
See notes to condensed consolidated financial statements
F-20
<PAGE>
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
-----------------
1997 1996
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $ 4,441 $(4,093)
-------- -------
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................ 2,686 1,830
Other, net............................................... (1,295) (456)
Minority interest in earnings of subsidiary.............. 507 88
Foreign currency translation adjustment.................. (164) (578)
Changes in operating assets and liabilities, net of
acquisitions
Accounts receivable...................................... (10,030) (2,070)
Inventories.............................................. (5,897) (1,850)
Other current assets..................................... (1,547) (1,074)
Accounts payable......................................... 261 591
Income taxes payable..................................... 2,577 (52)
Accrued expenses......................................... 1,501 783
-------- -------
Total adjustments...................................... (11,401) (2,788)
-------- -------
Net cash used in operating activities.................. (6,960) (6,881)
-------- -------
INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (5,108) (3,895)
Acquisitions of business assets, net of cash acquired.... (49,406) --
-------- -------
Net cash used in investing activities.................. (54,514) (3,895)
-------- -------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... 62,979 5,991
Principal payments on long-term debt..................... (2,162) (2,000)
Incentive compensation................................... -- 7,123
Other, net............................................... (72) 456
Proceeds from equity rights offering..................... 1,525 --
Proceeds from sale of common stock....................... -- 2,814
-------- -------
Net cash provided by financing activities................ 62,270 14,384
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 796 3,608
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 4,191 378
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 4,987 $ 3,986
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE>
CARSON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements of
Carson, Inc. (the "Company") presented herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
from these consolidated financial statements pursuant to applicable rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the audited Consolidated
Financial Statements and the notes thereto of the Company's 1996 Transition
Report on Form 10-K. In the opinion of management, the accompanying unaudited
financial statements contain all normal recurring adjustments necessary to
present fairly the Company's financial position, results of operations and
cash flows at the dates and for the periods presented. Interim results of
operations are not necessarily indicative of the results to be expected for a
full year. Certain prior period amounts have been reclassified to conform with
the current period presentation.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials........................................ $ 7,899 $ 7,017
Work-in-process...................................... 1,391 1,236
Finished goods....................................... 9,123 2,319
------- -------
$18,413 $10,572
======= =======
</TABLE>
The September 30, 1997 and December 30, 1996 inventory balances are net of
valuation allowances of $1.7 million and $181,000, respectively.
3. ACQUISITIONS
During March 1997, the Company entered into an Asset Purchase Agreement with
Conopco, Inc. d/b/a Chesebrough-Pond's USA Co. in order to acquire the rights
to manufacture and market Cutex in the United States and Puerto Rico (the
"Cutex acquisition"). Cutex is the leading brand of nail polish remover and is
also a line of nail enamels. The purchase price approximated $41.4 million
including amounts paid to Chesebrough-Pond's of $37.5 million and inventory
acquired of $3.9 million. In addition, the Company incurred direct acquisition
fees and expenses of $1.4 million including allowances for returned goods and
obsolete inventory. This acquisition has been accounted for under the purchase
method of accounting and the results of the operations have been included in
the condensed consolidated financial statements since the date of acquisition.
Funds were provided by additional long-term debt and the transaction was
completed on April 30, 1997.
During March 1997, concurrent with the Cutex acquisition, the Company
entered into an Asset Repurchase Agreement with Jean Philippe Fragrances, Inc.
On April 30, 1997, in connection with the termination of a license agreement
between Conopco, Inc. and Jean Philippe Fragrances, Inc. by Carson as
successor in interest to Conopco, Inc., Carson acquired certain assets of Jean
Philippe Fragrances, Inc. used in the packaging, distributing and selling of
nail enamel and nail care treatment products, nail care implements and
lipstick under the trademark Cutex in the United States and Puerto Rico.
F-22
<PAGE>
CARSON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the results of the Cutex
acquisition as if the acquisition had occurred as of the beginning of each
period presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net sales............................................ $ 82,997 $ 69,843
Net income........................................... 4,669 (2,977)
Net income per share................................. $ 0.31 $ (0.25)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as an adjustment to cost
of goods sold per a manufacturing agreement between the Company and
Chesebrough-Pond's USA Co., additional goodwill amortization, additional
selling expenses related to an agreement between the Company and AM Cosmetics
and additional interest expense on acquisition debt, among others. These
unaudited pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the Cutex acquisition
had been in effect as of the beginning of each period presented, or of future
results of operations of the consolidated Company. The pro forma nine months
ended September 30, 1996 reflects the change from last-in, first-out (LIFO)
cost or market to the lower of first-in, first-out (FIFO) cost or market.
During April 1997, the Company completed the acquisition of the Let's Jam
product line. This acquisition adds one of the leading hair care maintenance
brands in the ethnic retail market to the Company's portfolio of brands. The
purchase price was approximately $5.6 million cash with funds provided by
additional long-term debt. This acquisition has been accounted for under the
purchase method of accounting.
In the first half of 1997, Carson South Africa, through its wholly-owned
subsidiary, consummated three acquisitions in the African personal care
industry including the African Nu-Me Cosmetics, Restore Plus and Seasilk brand
names and certain related assets. The total purchase price including fees for
these three acquisitions was approximately $1.5 million, comprised of $0.7
million in cash and 500,000 shares of Carson South Africa common stock.
Carson South Africa announced on November 13, 1997 that it had completed the
acquisition of A&J Cosmetics, a toiletries company. A&J Cosmetics manufactures
and owns the Sadie brand of toiletry products, which has been selling in the
ethnic market for over 20 years and competes primarily in the roll-on
deodorant market. Carson South Africa will fund the acquisition with the
issuance of shares of its common stock. The purchase consideration payable for
the acquisition is approximately $10.3 million, with an additional purchase
price contingency of up to $2.4 million based upon the after tax profit of the
business for the year ended December 31, 1998. Approximately $5.9 million of
the purchase price is payable on January 31, 1998, approximately $4.4 million
is payable on or before January 3, 1999 and the remainder (subject to
adjustment) is payable by no later than March 31, 1999.
4. NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") in
February 1997. SFAS No. 128 replaces the presentation of primary earnings per
share with a presentation of basic earnings per share and requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures. SFAS No. 128 is
effective for both interim and annual periods ending after December 15, 1997.
The Company currently has a simple capital structure and therefore expects no
material effect from the adoption of SFAS No. 128.
F-23
<PAGE>
CARSON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). The Company will adopt SFAS No. 130 and 131 in 1998. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. Management expects to report
comprehensive income for the effects of foreign currency translation
adjustments which are currently reported as a change in shareholders' equity.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
Management is currently determining the effect, if any, SFAS No. 131 will have
on the annual and interim consolidated financial statements of the Company.
5. CREDIT FACILITY
On April 30, 1997, the Company entered into an Amended and Restated Credit
Agreement with Banque Indosuez, New York Branch, as agent, and the lenders
named therein. The Amended and Restated Credit Agreement replaced the
Company's existing $40 million senior credit facility with a $100 million
senior credit facility consisting of $25 million in Term A loans maturing in
April 2002, $50 million in Term B loans maturing in April 2004 and $25 million
in revolving loan commitments maturing in April 2002. The proceeds of the new
term loans were used in part to finance the Cutex acquisition. In connection
with this refinancing, the Company incurred debt issuance costs of
approximately $2.6 million, including $520,000 paid to Morningside Capital
Group, L.L.C.
On November 6, 1997, the Company completed a private offering under Rule
144A and Regulation S of the Securities Act of 1933, as amended, of $100
million aggregate principal amount of ten year, fixed rate 10 3/8% senior
subordinated notes. The Company used the net proceeds from the offering, after
initial purchasers' discounts and other offering expenses, to repay in full
outstanding indebtedness and accrued interest under the Existing Credit
Facility and transaction fees and expenses related to a new credit facility.
The balance of the proceeds of the offering ($6.1 million) will be used for
working capital and general corporate purposes. The Company entered into a new
credit facility simultaneously with the closing of the proposed offering. The
new credit facility provides for loans of up to $75 million, $25 million of
which is a revolver for working capital purposes and $50 million of which can
be drawn as term loans to fund acquisitions.
6. CHANGE IN ACCOUNTING METHOD
During the second quarter of 1997, the Company changed its method of valuing
inventories in the United States from the lower of last-in, first-out (LIFO)
cost or market to the lower of first-in, first-out (FIFO) cost or market in
order to provide conformity among subsidiaries due to recent acquisitions. The
effect of this change has been reflected in all periods presented in these
financial statements. This change in valuing inventories was made in order to
provide conformity among all of the Company's subsidiaries as well as to
conform with general industry practices. As a result of this change in
accounting method, cost of goods sold increased and net income decreased for
the three months ended March 31, 1996 by $177,000 and $102,000, respectively.
In addition, inventories as of December 31, 1996 decreased by $177,000,
retained earnings decreased by $102,000 and accrued income taxes decreased by
$75,000. The effect on all other periods presented was not significant.
7. YEAR 2000 COMPUTER PROBLEM
Many computer applications were created with a two digit field for the year
in the date field, and as a result, such applications may fail or create
erroneous results by the year 2000 unless corrective measures are taken. The
Company has evaluated the extent of any problems and corrective measures have
been taken to ensure that the upcoming change of century will not have a
significant impact on future results of operations.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Chesebrough-Pond's USA Co.
We have audited the accompanying statements of net assets sold of the Cutex
brands of Chesebrough-Pond's USA Co. as of December 31, 1996 and 1995, and the
statements of net sales, cost of sales and direct operating expenses for each
of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of Chesebrough-Pond's USA Co.'s management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also 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.
The accompanying financial statements were prepared to present the net
assets sold of the Cutex brands, pursuant to the purchase agreement described
in Note 1, and the net sales, cost of sales and direct operating expenses of
the Cutex brands and are not intended to be a complete presentation of the
Cutex brands' financial position, results of operations and cash flows.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the net assets sold of the Cutex brands, pursuant to
the purchase agreement referred to in Note 1, as of December 31, 1996 and
1995, and the net sales, cost of sales and direct operating expenses for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND LLP
Stamford, Connecticut
July 14, 1997
F-25
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
STATEMENTS OF NET ASSETS SOLD (NOTE 1)
AS OF DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Inventory............................................................ $722 $641
LIABILITIES
Sales returns reserve................................................ 145 162
Commitments and contingencies........................................
---- ----
Total net assets sold.......................................... $577 $479
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
STATEMENTS OF NET SALES, COST OF SALES AND DIRECT OPERATING EXPENSES (NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net product sales.............................................. $18,216 $15,703
Net royalty revenues........................................... 638 1,255
------- -------
Net sales...................................................... 18,854 16,958
Cost of sales.................................................. 9,950 8,423
------- -------
Gross profit................................................... 8,904 8,535
Direct operating expenses...................................... 870 861
------- -------
Excess of net sales over cost of sales and direct operating
expenses...................................................... $ 8,034 $ 7,674
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Chesebrough-Pond's USA Co. ("CPUSA" or the "Company") is a division of
Conopco, Inc., a wholly owned subsidiary of Unilever United States Inc., which
is a wholly owned subsidiary of Unilever N.V.
The accompanying financial statements have been prepared for the purpose of
presenting the net assets sold of the Cutex brands of CPUSA, pursuant to the
Asset Purchase Agreement (the "Agreement") dated as of March 27, 1997 between
CPUSA and Carson, Inc. (the "Buyer") and its net sales, cost of sales and
direct operating expenses for each of the two years in the period ended
December 31, 1996. The transaction was consummated on April 30, 1997 ("Closing
Date"). Pursuant to the Agreement, CPUSA sold to the Buyer certain assets used
with respect to the Cutex brands, including all inventories of finished nail
polish remover products, a license agreement (see Note 6) dated as of May 31,
1994 between CPUSA and Jean Philippe Fragrances, Inc. ("Jean Philippe"), as
amended, intangible rights and other assets directly related to the Cutex
brands, in exchange for consideration totaling approximately $37.5 million
plus the book value of the inventory transferred. The Buyer has assumed all
liabilities related to refunds or exchanges for products returned or charged
back without being returned, after the Closing Date, for all Cutex brand
products, except for claims with respect to damaged or deficient nail polish
remover products. The Cutex brands consisting of nail polish remover, nail
enamel and nail care treatment products, nail care implements and lipstick are
sold and distributed principally in the United States. As a result of the
Agreement, the Buyer is acquiring the Cutex brands in the United States and
Puerto Rico. Foreign affiliates of Unilever N.V. and Unilever P.L.C. outside
the United States and Puerto Rico will continue to sell Cutex brand products
in countries outside the United States and Puerto Rico. Historically,
financial statements have not been prepared for the Cutefrom the historical
accounting records of CPUSA and present the net assets sold of the Cutex
brands, in accordance with the Agreement, as of December 31, 1996 and 1995,
and the statements of net sales, cost of sales and direct operating expenses
for each of the years then ended, and are not intended to be a complete
presentation of the Cutex brands' financial position, results of operations
and cash flows. The historical operating results may not be indicative of the
results after the acquisition by the Buyer.
The statements of net sales, cost of sales and direct operating expenses
include all revenues and expenses directly attributable to the Cutex brands of
the Company. Direct operating expenses consist principally of selling,
marketing and advertising expenses. The statements do not include general and
administrative, research and development, interest, income tax and
amortization of intangible expenses.
CPUSA did not maintain the Cutex brands as a separate business unit and had
never segregated indirect operating cost information relative to these brands.
Accordingly, it is not practical to isolate or allocate indirect operating
costs applicable to the Cutex brands.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Sales of nail polish remover goods are included in income when goods are
shipped to the customer, net of a provision for estimated returns. Royalty
revenues resulting from the Jean Philippe license agreement, which represent
fixed minimum royalty guarantees, are recognized on a straight-line basis over
the period to which they relate. Provisions have been made for amounts not
considered collectible.
Inventories:
Inventories consisting of finished nail polish remover goods are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method. According to the purchase agreement, the Buyer is not acquiring any
raw materials or work-in-process inventory and therefore, these components of
inventory have been excluded from these financial statements.
F-28
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates
relate to sales returns and royalty revenues. Actual results could differ from
those estimates.
Advertising and Promotional Expenses:
Advertising and promotional expenses are charged to expense during the
periods in which they are incurred. Total advertising and promotional expense
was approximately $122 and $182 for the years ended December 31, 1996 and
1995, respectively.
3. COMMITMENTS AND CONTINGENCIES
CPUSA has various purchase commitments for materials, supplies and other
items incidental to the ordinary course of business. In the aggregate, such
commitments are not at prices in excess of current market price. In addition,
CPUSA has commitments, in the normal course of business, with various
distributors relating to Cutex nail polish remover products.
Pursuant to the Agreement, the Buyer did not assume any product or other
liability in connection with any service performed or product manufactured by
CPUSA prior to the Closing Date except for liabilities related to returns or
exchanges of Cutex brand products as further described in Note 1.
4. CONCENTRATION OF NET SALES
One customer accounted for approximately 17% and 13% of net sales for the
years ended December 31, 1996 and 1995, respectively.
5. MANUFACTURING AGREEMENT
On April 30, 1997, CPUSA and the Buyer, entered into a manufacturing
agreement whereby CPUSA agreed to manufacture, sell and deliver to the Buyer,
and the Buyer agreed to purchase from CPUSA all of its requirements for nail
polish remover products for an agreed-upon amount. The manufacturing agreement
is in effect for five years from the consummation date of the Asset Purchase
Agreement. Thereafter, the manufacturing agreement will be extended for an
additional one-year term, unless terminated in accordance with the
manufacturing agreement.
6. AGREEMENT WITH JEAN PHILIPPE
On May 31, 1994, CPUSA and Jean Philippe entered into asset and license
agreements whereby Jean Philippe acquired certain assets used in the
packaging, distributing and selling of nail enamel and nail care treatment
products, nail care implements and lipstick under the Cutex trademark in the
United States and Puerto Rico. Under the asset agreement, Jean Philippe
acquired the exclusive right to use certain tools, dies, molds, inventories,
intangible assets and assumed certain liabilities.
Under the license agreement, effective as of August 1, 1994 and amended
March 28, 1996, Jean Philippe agreed unconditionally to guarantee and pay
CPUSA royalties based on a percentage of its sales, including an amount
representing a minimum guarantee. This agreement can be terminated under
certain conditions, including the failure by Jean Philippe to achieve certain
sales volumes.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Chesebrough-Pond's USA Co.
We have audited the accompanying statement of net assets sold of the Cutex
brands of Chesebrough-Pond's USA Co. as of April 30, 1997, and the statement
of net sales, cost of sales and direct operating expenses for the four-month
period ended April 30, 1997. These financial statements are the responsibility
of Chesebrough-Pond's USA Co.'s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also 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.
The accompanying financial statements were prepared to present the net
assets sold of the Cutex brands, pursuant to the purchase agreement described
in Note 1, and the net sales, cost of sales and direct operating expenses of
the Cutex brands and are not intended to be a complete presentation of the
Cutex brands' financial position, results of operations and cash flows.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the net assets sold of the Cutex brands, pursuant to
the purchase agreement referred to in Note 1, as of April 30, 1997, and the
net sales, cost of sales and direct operating expenses for the four-month
period ended April 30, 1997, in conformity with generally accepted accounting
principles.
Coopers & Lybrand LLP
Stamford, Connecticut
July 17, 1997
F-30
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
STATEMENT OF NET ASSETS SOLD (NOTE 1)
AS OF APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
1997
---------
<S> <C>
ASSETS
Inventory............................................................. $808
LIABILITIES
Sales returns reserve................................................. 160
Commitments and contingencies.........................................
----
Total net assets sold........................................... $648
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
STATEMENT OF NET SALES, COST OF SALES AND DIRECT OPERATING EXPENSES (NOTE 1)
FOR THE FOUR-MONTH PERIOD ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
1997
---------
<S> <C>
Net product sales....... $5,206
Net royalty revenues.... 181
------
Net sales............... 5,387
Cost of sales........... 2,834
------
Gross profit............ 2,553
Direct operating
expenses............... 224
------
Excess of net sales over
cost of sales and
direct operating
expenses............... $2,329
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Chesebrough-Pond's USA Co. ("CPUSA" or the "Company") is a division of
Conopco, Inc., a wholly owned subsidiary of Unilever United States Inc., which
is a wholly owned subsidiary of Unilever N.V.
The accompanying financial statements have been prepared for the purpose of
presenting the net assets sold of the Cutex brands of CPUSA as of April 30,
1997, pursuant to the Asset Purchase Agreement (the "Agreement") dated as of
March 27, 1997 between CPUSA and Carson, Inc. (the "Buyer") and its net sales,
cost of sales and direct operating expenses for the four-month period ended
April 30, 1997. The transaction was consummated on April 30, 1997 ("Closing
Date"). Pursuant to the Agreement, CPUSA sold to the Buyer certain assets used
with respect to the Cutex brands, including all inventories of finished nail
polish remover products, a license agreement (see Note 6) dated as of May 31,
1994 between CPUSA and Jean Philippe Fragrances, Inc. ("Jean Philippe"), as
amended, intangible rights and other assets directly related to the Cutex
brands, in exchange for consideration totaling approximately $37.5 million
plus the book value of the inventory transferred. The Buyer has assumed all
liabilities related to refunds or exchanges for products returned or charged
back without being returned, after the Closing Date, for all Cutex brand
products, except for claims with respect to damaged or deficient nail polish
remover products.
The Cutex brands consisting of nail polish remover, nail enamel and nail
care treatment products, nail care implements and lipstick are sold and
distributed principally in the United States. As a result of the Agreement,
the Buyer is acquiring the Cutex brands in the United States and Puerto Rico.
Foreign affiliates of Unilever N.V. and Unilever P.L.C. outside the United
States and Puerto Rico will continue to sell Cutex brand products in countries
outside the United States and Puerto Rico.
Historically, financial statements have not been prepared for the Cutex
brands. The accompanying financial statements are derived from the historical
accounting records of CPUSA and present the net assets sold of the Cutex
brands, in accordance with the Agreement, as of April 30, 1997, and the
statement of net sales, cost of sales and direct operating expenses for the
four-month period then ended, and are not intended to be a complete
presentation of the Cutex brands' financial position, results of operations
and cash flows. The historical operating results may not be indicative of the
results after the acquisition by the Buyer.
The statement of net sales, cost of sales and direct operating expenses
includes all revenues and expenses directly attributable to the Cutex brands
of the Company. Direct operating expenses consist principally of selling,
marketing and advertising expenses. The statement does not include general and
administrative, research and development, interest, income tax and
amortization of intangible expenses.
CPUSA did not maintain the Cutex brands as a separate business unit and had
never segregated indirect operating cost information relative to these brands.
Accordingly, it is not practical to isolate or allocate indirect operating
costs applicable to the Cutex brands.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition:
Sales of nail polish remover goods are included in income when goods are
shipped to the customer, net of a provision for estimated returns. Royalty
revenues resulting from the Jean Philippe license agreement, which represent
fixed minimum royalty guarantees, are recognized on a straight-line basis over
the period to which they relate. Provisions have been made for amounts not
considered collectible.
Inventories:
Inventories consisting of finished nail polish remover goods are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method. According to the Agreement, the Buyer is not acquiring any
F-33
<PAGE>
THE CUTEX BRANDS OF CHESEBROUGH-POND'S USA CO.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
raw materials or work-in-process inventory and therefore, these components of
inventory have been excluded from these financial statements.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates
relate to sales returns and royalty revenues. Actual results could differ from
those estimates.
Advertising and Promotional Expenses:
Advertising and promotional expenses are charged to expense during the
periods in which they are incurred. Total advertising and promotional expense
was approximately $4 for the four-month period ended April 30, 1997.
3. COMMITMENTS AND CONTINGENCIES
CPUSA has various purchase commitments for materials, supplies and other
items incidental to the ordinary course of business. In the aggregate, such
commitments are not at prices in excess of current market price. In addition,
CPUSA has commitments, in the normal course of business, with various
distributors relating to Cutex nail polish remover products.
Pursuant to the Agreement, the Buyer did not assume any product or other
liability in connection with any service performed or product manufactured by
CPUSA prior to the Closing Date except for liabilities related to returns or
exchanges of Cutex brand products as further described in Note 1.
4. CONCENTRATION OF NET SALES
One customer accounted for approximately 17% of net sales for the four-month
period ended April 30, 1997.
5. MANUFACTURING AGREEMENT
On April 30, 1997, CPUSA and the Buyer, entered into a manufacturing
agreement whereby CPUSA agreed to manufacture, sell and deliver to the Buyer,
and the Buyer agreed to purchase from CPUSA all of its requirements for nail
polish remover products for an agreed-upon amount. The manufacturing agreement
is in effect for five years. Thereafter, the manufacturing agreement will be
extended for an additional one-year term, unless terminated in accordance with
the manufacturing agreement.
6. AGREEMENT WITH JEAN PHILIPPE
On May 31, 1994, CPUSA and Jean Philippe entered into asset and license
agreements whereby Jean Philippe acquired certain assets used in the
packaging, distributing and selling of nail enamel and nail care THE CUTEX
BRANDS OF CHESEBROUGH-POND'S USA CO. treatment products, nail care implements
and lipstick under the Cutex trademark in the United States and Puerto Rico.
Under the asset agreement, Jean Philippe acquired the exclusive right to use
certain tools, dies, molds, inventories, intangible assets and assumed certain
liabilities.
Under the license agreement, effective as of August 1, 1994 and amended
March 28, 1996, Jean Philippe agreed unconditionally to guarantee and pay
CPUSA royalties based on a percentage of its sales, including an amount
representing a minimum guarantee. This agreement can be terminated under
certain conditions, including the failure by Jean Philippe to achieve certain
sales volumes.
F-34
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY, THE GUARANTORS OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANYJURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 12
The Company.............................................................. 21
Use of Proceeds of the Exchange Notes.................................... 22
The Exchange Offer....................................................... 23
Capitalization........................................................... 31
Unaudited Pro Forma Consolidated Financial Data.......................... 32
Selected Consolidated Historical Financial Data.......................... 39
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 41
Business................................................................. 50
Management............................................................... 68
Principal Stockholders and Management Ownership.......................... 75
Certain Relationships and Related Transactions........................... 78
Description of the Exchange Notes........................................ 81
Description of the New Credit Facility................................... 114
Certain Federal Income Tax Considerations Relating to the Exchange Of-
fer..................................................................... 115
Plan of Distribution..................................................... 116
Legal Matters............................................................ 116
Independent Auditors..................................................... 117
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
LOGO
CARSON, INC.
----------------
PROSPECTUS
----------------
OFFER TO EXCHANGE
10 3/8% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
($100,000,000 PRINCIPAL AMOUNT
OUTSTANDING) FOR
10 3/8% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B
($100,000,000 PRINCIPAL AMOUNT)
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without jcer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation provides for
the indemnification of directors and officers of the Company to the fullest
extent permitted by Section 145. In that regard, the Amended and Restated
Certificate of Incorporation provides that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director
or officer of such corporation, or is or was serving at the request of such
corporation as a director, officer or member of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with an action
or suit by or in the right of such corporation to procure a judgment in its
favor is limited to payment of settlement of such an action or suit except
that no such indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the indemnifying
corporation unless and only to the extent that the Court or the court in which
such action or suit was brought shall determine that, despite the adjudication
of liability but in consideration of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
In addition, the by-laws of the Company provide that the Company shall
indemnify to the full extent authorized by law any person made or threatened
to be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator
or intestate is or was a director, officer, employee or agent of the Company
or is or was serving, at the request of the Company, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
II-1
<PAGE>
The Company has purchased an insurance policy covering indemnification of
officers and directors of the Company against certain liabilities arising under
the Securities Act that might be incurred by them in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of Carson, Inc.
*3.2 By-laws of Carson, Inc.
3.3 Restated Certificate of Incorporation of Carson Products Company
3.4 By-laws of Carson Products Company
4.1 Indenture, dated as of November 6, 1997, among Carson, Inc.,
Carson Products Company and Marine Midland Bank, as trustee
4.2 Form of 10 3/8% Senior Subordinated Note due 2007, Series B
(included as Exhibit B to Exhibit 4.1)
4.3 Registration Rights Agreement, dated as of November 6, 1997, among
Carson, Inc., Carson Products Company, Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner
& Smith Incorporated
5.1 Opinion of Milbank, Tweed, Hadley & McCloy
8.1 Opinion of Milbank, Tweed, Hadley & McCloy (included in Exhibit
5.1)
*9 Voting Trust Agreement dated as of August 23, 1995 by and among
Dr. Leroy Keith,
S. Garrett Stonehouse, Harrow-Lewis Corporation and Northwest
Capital, Inc.
*10.1 Employment Agreement dated as of August 23, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dr. Leroy Keith
*10.2 Employment Agreement dated as of July 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and Joyce M. Roche
*10.3 Employment Agreement dated as of June 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dennis E. Smith
*10.4 Employment Agreement dated as of June 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and John P. Brown,
Jr.
*10.5 Employment Agreement dated as of June 22, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dr. Donald
Cowser
*10.6 Employment Agreement dated as of September 1, 1995, as amended as
of July 31, 1996, between Carson Products Company and Arthur P.
Gnann III
*10.7 Employment Agreement dated as of September 1, 1995, as amended as
of July 31, 1996, between Carson Products Company and Allena Lee-
Brown
*10.8 Employment Agreement dated as of March 11, 1996, as amended as of
July 31, 1996, between Carson Products Company and Miriam Muley
10.9 Employment Agreement dated as of May 9, 1997 between Carson
Products Company and Robert W. Pierce
*10.10 Management Assistance Agreement dated as of August 23, 1995
between Carson Products Company and Morningside Capital Group
L.L.C.
10.11 First Amendment dated as of October 18, 1996 to the Management
Assistance Agreement dated as of August 23, 1995 between Carson
Products Company and Morningside Capital Group L.L.C.
10.12 Second Amendment dated as of November 6, 1997 to the Management
Assistance Agreement dated as of August 23, 1995 between Carson
Products Company and Morningside Capital Group L.L.C.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*10.13 Management Agreement dated as of June 26, 1996 between Carson
Products Company and AM Cosmetics, Inc.
10.14 First Amendment dated as of June 1, 1997 to the Management
Agreement dated as of June 26, 1996 between Carson Products
Company and AM Cosmetics, Inc.
10.15 Second Amendment dated as of October 6, 1997 to the Management
Agreement dated as of June 26, 1996 between Carson Products
Company and AM Cosmetics, Inc.
*10.16 Subscription Agreement dated as of June 26, 1996 between Carson
Products Company and Morningside AM Acquisition Corp.
*10.17 Carson, Inc. 1996 Long-term Incentive Plan
*10.18 Carson, Inc. 1996 Non-Employee Directors Equity Incentive Program
*10.19 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc. and Investors set forth in Schedule I
*10.20 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc. and DNL Partners, Limited Partnership
*10.21 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc., Indosuez Carson Partners and Indosuez CM II, Inc.
*10.22 Subscription Agreement dated as of August 15, 1996 by and among
Carson, Inc. and the individuals (outside directors) named therein
*10.23 Subscription Agreement dated as of August 15, 1995 by and among
Carson, Inc. and the individuals (members of senior management)
named therein
*10.24 Licensing Agreement dated April 7, 1994, as amended May 14, 1996,
between Carson Products Company and Carson Products Company S.A.
(Proprietary) Limited
*10.26 Distribution Agreement dated May 14, 1996 between Carson Products
Company and Carson Products Company S.A. (Proprietary) Limited
*10.26 Promissory note between Joyce Roche and Carson, Inc.
*10.27 Promissory note between John P. Brown and Carson, Inc.
*10.28 Promissory note between Dennis Smith and Carson, Inc.
*10.29 Promissory note between Donald Cowser and Carson, Inc.
*10.30 Promissory note between Arthur P. Gnann, III and Carson, Inc.
*10.31 Pledge agreement dated August 13, 1996 between Arthur P. Gnann,
III and Carson, Inc.
*10.32 Pledge agreement dated August 13, 1996 between Dr. Donald Cowser
and Carson, Inc.
*10.33 Pledge agreement dated August 13, 1996 between John P. Brown and
Carson, Inc.
*10.34 Pledge agreement dated August 13, 1996 between Miriam Muley and
Carson, Inc.
*10.35 Pledge agreement dated August 13, 1996 between Joyce Roche and
Carson, Inc.
*10.36 Pledge agreement dated August 13, 1996 between Dennis Smith and
Carson, Inc.
**10.37 Asset Purchase Agreement dated as of March 27, 1997 between Carson
Products Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA
Co.
**10.38 Asset Repurchase Agreement dated as of March 27, 1997 between
Carson Products Company and Jean Philippe Fragrances, Inc.
**10.39 Service Agreement dated as of April 30, 1997 between Carson
Products Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA
Co.
**10.40 Broker Agreement dated as of September 19, 1997 between Carson
Products Company and AM Cosmetics, Inc.
10.41 Manufacturing Agreement dated as of April 30, 1997 between Carson
Products Company and AM Cosmetics, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.42 Credit Agreement dated as of November 6, 1997 among Carson
Products Company, Credit Agricole Indosuez and the lenders named
therein
10.43 Term Loan and Revolving Credit Deed to Secure Debt, Assignment of
Leases and Security Agreement dated as of November 6, 1997 made by
Carson Products Company in favor of Credit Agricole Indosuez
10.44 Borrower General Security Agreement dated as of November 6, 1997
made by Carson Products Company in favor of Credit Agricole
Indosuez
10.45 Borrower Intellectual Property Security Agreement dated as of
November 6, 1997 made by Carson Products Company in favor of
Credit Agricole Indosuez
10.46 Borrower Securities Pledge Agreement dated as of November 6, 1997
made by Carson Products Company in favor of Credit Agricole
Indosuez
10.47 Holdings Securities Pledge Agreement dated as of November 6, 1997
made by Carson, Inc. in favor of Credit Agricole Indosuez
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
*16 Letter regarding Change in Certifying Accountant from Price
Waterhouse LLP
18 Letter re Change in Accounting Principles, dated August 11, 1997
from Deloitte & Touche LLP to Carson, Inc., incorporated herein by
reference to Carson, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, as amended
21.1 Subsidiaries of Carson, Inc.
21.2 Subsidiaries of Carson Products Company
23.1 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit
5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Coopers & Lybrand LLP
23.4 Consent of Price Waterhouse LLP
24.1 Powers of Attorney (included on signature pages of this
Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
of Marine Midland Bank of New York under the Trust Indenture Act
of 1939
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant from Beneficial Owner
</TABLE>
- --------
* Incorporated herein by reference to Carson, Inc.'s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on October
14, 1996 (File No. 333-10191) and the amendments thereto
** Incorporated herein by reference to Carson, Inc.'s Current Report on Form
8-K dated as of May 15, 1997, as amended by Form 8-KA dated July 14, 1997,
July 16, 1997 and October 9, 1997
II-4
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of each
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by each
Registrant of expenses incurred or paid by a director, officer, or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Each undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Carson, Inc. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Savannah, Georgia, on December 16,
1997.
CARSON INC.
/s/ Dr. Leroy Keith
By:
_____________________________________
Dr. Leroy Keith
Chairman of the Board
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dr. Leroy Keith, Robert W. Pierce and
John P. Brown Jr., his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and revocation, for him or her in his or her
name, place and stead in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done 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 or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Dr. Leroy Keith Chairman of the December 16,
- ------------------------------------- Board, Director and 1997
DR. LEROY KEITH Chief Executive
Officer (Principal
Executive Officer)
/s/ Joyce M. Roche Director, President, December 15,
- ------------------------------------- Chief Operating 1997
JOYCE M. ROCHE Officer
/s/ Robert W. Pierce Executive Vice December 15,
- ------------------------------------- President of 1997
ROBERT W. PIERCE Finance and Chief
Financial Officer
(Principal
Financial and
Accounting Officer)
II-6
<PAGE>
SIGNATURES TITLE DATE
/s/ Dennis E. Smith Director, Executive December 15,
- ------------------------------------- Vice President of 1997
DENNIS E. SMITH Sales
/s/ Lawrence E. Bathgate, II Director December 15,
- ------------------------------------- 1997
LAWRENCE E. BATHGATE, II
/s/ Abbey J. Butler Director December 15,
- ------------------------------------- 1997
ABBEY J. BUTLER
/s/ Suzanne DePasse Director December 15,
- ------------------------------------- 1997
SUZANNE DEPASSE
/s/ Melvyn J. Estrin Director December 15,
- ------------------------------------- 1997
MELVYN J. ESTRIN
/s/ James L. Hudson Director December 15,
- ------------------------------------- 1997
JAMES L. HUDSON
Director , 1997
- -------------------------------------
JACK KEMP
Director , 1997
- -------------------------------------
JOHN L. SABRE
/s/ Vincent A. Wasik Director December 15,
- ------------------------------------- 1997
VINCENT A. WASIK
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Carson Products
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Savannah, Georgia, on
December 19, 1997.
CARSON PRODUCTS COMPANY
/s/ Dr. Leroy Keith
By: ___________________________________
Dr. Leroy Keith
Chairman of the Board
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dr. Leroy Keith, Robert W. Pierce and
John P. Brown Jr., his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and revocation, for him or her in his or her
name, place and stead in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done 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 or his
substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ Dr. Leroy Keith Chairman of the December 19,
- ------------------------------------- Board, Director and 1997
DR. LEROY KEITH Chief Executive
Officer (Principal
Executive Officer
/s/ Joyce M. Roche Director, President, December 19,
- ------------------------------------- Chief Operating 1997
JOYCE M. ROCHE Officer
/s/ Robert W. Pierce Executive Vice December 19,
- ------------------------------------- President of Finance 1997
ROBERT W. PIERCE and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
II-8
<PAGE>
NAME TITLE DATE
/s/ Dennis E. Smith Director, Executive December 19,
- ------------------------------------- Vice President of 1997
DENNIS E. SMITH Sales
/s/ Lawrence E. Bathgate, II Director December 19,
- ------------------------------------- 1997
LAWRENCE E. BATHGATE, II
Director , 1997
- -------------------------------------
ABBEY J. BUTLER
Director , 1997
- -------------------------------------
SUZANNE DEPASSE
/s/ Melvyn J. Estrin Director December 19,
- ------------------------------------- 1997
MELVYN J. ESTRIN
Director , 1997
- -------------------------------------
JAMES L. HUDSON
Director , 1997
- -------------------------------------
JACK KEMP
Director , 1997
- -------------------------------------
JOHN L. SABRE
/s/ Vincent A. Wasik Director December 19,
- ------------------------------------- 1997
VINCENT A. WASIK
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of Carson, Inc.
*3.2 By-laws of Carson, Inc.
3.3 Restated Certificate of Incorporation of Carson Products Company
3.4 By-laws of Carson Products Company
4.1 Indenture, dated as of November 6, 1997, among Carson, Inc.,
Carson Products Company and Marine Midland Bank, as trustee
4.2 Form of 10 3/8% Senior Subordinated Note due 2007, Series B
(included as Exhibit B to Exhibit 4.1)
4.3 Registration Rights Agreement, dated as of November 6, 1997, among
Carson, Inc., Carson Products Company, Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner
& Smith Incorporated
5.1 Opinion of Milbank, Tweed, Hadley & McCloy
8.1 Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1)
*9 Voting Trust Agreement dated as of August 23, 1995 by and among
Dr. Leroy Keith, S. Garrett Storehouse, Harrow-Lewis Corporation
and Northwest Capital, Inc.
*10.1 Employment Agreement dated as of August 23, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dr. Leroy
Keith
*10.2 Employment Agreement dated as of July 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and Joyce M. Roche
*10.3 Employment Agreement dated as of June 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dennis E.
Smith
*10.4 Employment Agreement dated as of June 7, 1995, as amended as of
July 31, 1996, between Carson Products Company and John P. Brown,
Jr.
*10.5 Employment Agreement dated as of June 22, 1995, as amended as of
July 31, 1996, between Carson Products Company and Dr. Donald
Cowser
*10.6 Employment Agreement dated as of September 1, 1995, as amended as
of July 31, 1996, between Carson Products Company and Arthur P.
Gnann III
*10.7 Employment Agreement dated as of September 1, 1995, as amended as
of July 31, 1996, between Carson Products Company and Allena Lee-
Brown
*10.8 Employment Agreement dated as of March 11, 1996, as amended as of
July 31, 1996, between Carson Products Company and Miriam Muley
10.9 Employment Agreement dated as of May 9, 1997 between Carson
Products Company and Robert W. Pierce
*10.10 Management Assistance Agreement dated as of August 23, 1995
between Carson Products Company and Morningside Capital Group
L.L.C.
10.11 First Amendment dated as of October 18, 1996 to the Management
Assistance Agreement dated as of August 23, 1995 between Carson
Products Company and Morningside Capital Group L.L.C.
10.12 Second Amendment dated as of November 6, 1997 to the Management
Assistance Agreement dated as of August 23, 1995 between Carson
Products Company and Morningside Capital Group L.L.C.
*10.13 Management Agreement dated as of June 26, 1996 between Carson
Products Company and AM Cosmetics, Inc.
10.14 First Amendment dated as of June 1, 1997 to the Management
Agreement dated as of June 26, 1996 between Carson Products
Company and AM Cosmetics, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.15 Second Amendment dated as of October 6, 1997 to the Management
Agreement dated as of June 26, 1996 between Carson Products
Company and AM Cosmetics, Inc.
*10.16 Subscription Agreement dated as of June 26, 1996 between Carson
Products Company and Morningside AM Acquisition Corp.
*10.17 Carson, Inc. 1996 Long-term Incentive Plan
*10.18 Carson, Inc. 1996 Non-Employee Directors Equity Incentive Program
*10.19 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc. and Investors set forth in Schedule I
*10.20 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc. and DNL Partners, Limited Partnership
*10.21 Subscription Agreement dated as of August 23, 1995 by and among
Carson, Inc., Indosuez Carson Partners and Indosuez CM II, Inc.
*10.22 Subscription Agreement dated as of August 15, 1996 by and among
Carson, Inc. and the individuals (outside directors) named
therein
*10.23 Subscription Agreement dated as of August 15, 1995 by and among
Carson, Inc. and the individuals (members of senior management)
named therein
*10.24 Licensing Agreement dated April 7, 1994, as amended May 14, 1996,
between Carson Products Company and Carson Products Company S.A.
(Proprietary) Limited
*10.26 Distribution Agreement dated May 14, 1996 between Carson Products
Company and Carson Products Company S.A. (Proprietary) Limited
*10.26 Promissory note between Joyce Roche and Carson, Inc.
*10.27 Promissory note between John P. Brown and Carson, Inc.
*10.28 Promissory note between Dennis Smith and Carson, Inc.
*10.29 Promissory note between Donald Cowser and Carson, Inc.
*10.30 Promissory note between Arthur P. Gnann, III and Carson, Inc.
*10.31 Pledge agreement dated August 13, 1996 between Arthur P. Gnann,
III and Carson, Inc.
*10.32 Pledge agreement dated August 13, 1996 between Dr. Donald Cowser
and Carson, Inc.
*10.33 Pledge agreement dated August 13, 1996 between John P. Brown and
Carson, Inc.
*10.34 Pledge agreement dated August 13, 1996 between Miriam Muley and
Carson, Inc.
*10.35 Pledge agreement dated August 13, 1996 between Joyce Roche and
Carson, Inc.
*10.36 Pledge agreement dated August 13, 1996 between Dennis Smith and
Carson, Inc.
**10.37 Asset Purchase Agreement dated as of March 27, 1997 between Carson
Products Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA
Co.
**10.38 Asset Repurchase Agreement dated as of March 27, 1997 between
Carson Products Company and Jean Philippe Fragrances, Inc.
**10.39 Service Agreement dated as of April 30, 1997 between Carson
Products Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA
Co.
**10.40 Broker Agreement dated as of September 19, 1997 between Carson
Products Company and AM Cosmetics, Inc.
10.41 Manufacturing Agreement dated as of April 30, 1997 between Carson
Products Company and AM Cosmetics, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.42 Credit Agreement dated as of November 6, 1997 among Carson
Products Company, Credit Agricole Indosuez and the lenders named
therein
10.43 Term Loan and Revolving Credit Deed to Secure Debt, Assignment of
Leases and Security Agreement dated as of November 6, 1997 made
by Carson Products Company in favor of Credit Agricole Indosuez
10.44 Borrower General Security Agreement dated as of November 6, 1997
made by Carson Products Company in favor of Credit Agricole
Indosuez
10.45 Borrower Intellectual Property Security Agreement dated as of
November 6, 1997 made by Carson Products Company in favor of
Credit Agricole Indosuez
10.46 Borrower Securities Pledge Agreement dated as of November 6, 1997
made by Carson Products Company in favor of Credit Agricole
Indosuez
10.47 Holdings Securities Pledge Agreement dated as of November 6, 1997
made by Carson, Inc. in favor of Credit Agricole Indosuez
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
*16 Letter regarding Change in Certifying Accountant from Price
Waterhouse LLP
18 Letter re Change in Accounting Principles, dated August 11, 1997
from Deloitte & Touche LLP to Carson, Inc., incorporated herein
by reference to Carson, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997
21.1 Subsidiaries of Carson, Inc.
21.2 Subsidiaries of Carson Products Company
23.1 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit
5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Coopers & Lybrand LLP
23.4 Consent of Price Waterhouse LLP
24.1 Powers of Attorney (included on signature pages of this
Registration Statement)
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
of Marine Midland Bank of New York under the Trust Indenture Act
of 1939
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant from Beneficial Owner
</TABLE>
- --------
* Incorporated herein by reference to Carson, Inc.'s Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on October
14, 1996 (File No. 333-10191) and the amendments thereto
** Incorporated herein by reference to Carson, Inc.'s Current Report on Form
8-K dated as of May 15, 1997, as amended by Form 8-KA dated July 14, 1997,
July 16, 1997 and October 9, 1997
<PAGE>
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
Carson Products Company
This Restated Certificate of Incorporation was duly adopted in
accordance with Sections 245 and 242 of the General Corporation Law of the State
of Delaware. The original certificate of incorporation of the corporation was
filed with the Secretary of State of Delaware on March 20, 1990 under the name
"Aminco, Inc." This Restated Certificate of Incorporation restates, integrates
and further amends the Certificate of Incorporation to read in its entirety as
follows:
FIRST: The name of the corporation is Carson Products Company.
SECOND: The address of the corporation's registered office in the
State of Delaware is the Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is one hundred (100) shares, of which one hundred
(100) shares shall all be shares of common stock, the par value of which shall
be one cent (.01) per share.
FIFTH: A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. No repeal or modification of this Article FIFTH shall apply
to or have any effect on the liability or alleged liability or any director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such repeal or modification.
SIXTH: The directors shall have power to make, alter or repeal by-
laws, except as may otherwise be provided in the by-laws.
SEVENTH: Elections of directors need not be by written ballot, except
as may otherwise be provided in the by-laws.
<PAGE>
-2-
IN WITNESS WHEREOF, Carson Products Company has caused this
certificate to be signed by its Executive Vice President, this 23rd day of
August, 1995.
/s/ Bradford Creswell
--------------------------------
Bradford Creswell
Executive Vice President
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
CARSON PRODUCTS COMPANY
Adopted: August 23, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Stockholders............................................... 7
Sec. 1.1 Annual Meeting............................................. 7
Sec. 1.2 Special Meetings........................................... 7
Sec. 1.3 Notice of Meetings......................................... 8
Sec. 1.4 Quorum..................................................... 9
Sec. 1.5 Voting..................................................... 9
Sec. 1.6 Presiding Officer and Secretary............................ 10
Sec. 1.7 Proxies.................................................... 10
Sec. 1.8 List of Stockholders....................................... 11
Sec. 1.9 Written Consent of Stockholders in
Lieu of Meeting............................................ 11
ARTICLE II Directors.................................................. 12
Sec. 2.1 Number of Directors........................................ 13
Sec. 2.2 Election and Term of Directors............................. 13
Sec. 2.3 Vacancies and Newly Created Directorships.................. 13
Sec. 2.4 Resignation................................................ 14
Sec. 2.5 Removal.................................................... 14
Sec. 2.6 Meetings................................................... 14
Sec. 2.7 Quorum and Voting.......................................... 16
Sec. 2.8 Written Consent of Directors in Lieu
of a Meeting............................................. 16
Sec. 2.9 Compensation............................................... 16
Sec. 2.10 Contracts and Transactions Involving
Directors................................................ 17
ARTICLE III Committees of the Board of Directors....................... 18
Sec. 3.1 Appointment and Powers..................................... 18
ARTICLE IV Officers, Agents and Employees............................. 19
Sec. 4.1 Appointment and Term of Office............................. 19
Sec. 4.2 Resignation and Removal.................................... 20
Sec. 4.3 Compensation and Bond...................................... 21
Sec. 4.4 Chairman of the Board...................................... 21
Sec. 4.5 President.................................................. 21
Sec. 4.6 Vice Presidents............................................ 22
Sec. 4.7 Treasurer.................................................. 22
Sec. 4.8 Secretary.................................................. 23
Sec. 4.9 Assistant Treasurers....................................... 23
Sec. 4.10 Assistant Secretaries...................................... 24
Sec. 4.11 Delegation of Duties....................................... 24
Sec. 4.12 Loans to Officers and Employees; Guaranty
of Obligations of Officers and Employees................. 24
ARTICLE V Indemnification............................................ 25
Sec. 5.1 Indemnification of Directors, Officers,
<PAGE>
Employees and Agents....................................... 25
ARTICLE VI Common Stock............................................... 26
Sec. 6.1 Certificates............................................... 26
Sec. 6.2 Transfers of Stock......................................... 27
Sec. 6.3 Lost, Stolen or Destroyed Certificates..................... 28
Sec. 6.4 Stockholder Record Date.................................... 28
ARTICLE VII Seal....................................................... 30
Sec. 7.1 Seal....................................................... 30
ARTICLE VIII Waiver of Notice........................................... 30
Sec. 8.1 Waiver of Notice........................................... 30
ARTICLE IX Checks, Notes, Drafts. Etc................................. 31
Sec. 9.1 Checks, Notes, Drafts, Etc................................. 31
ARTICLE X Amendments................................................. 31
Sec. 10.1 Amendments................................................. 31
ARTICLE XI Emergency By-Laws.......................................... 31
Sec. 11.1 Emergency By-Laws.......................................... 32
<PAGE>
BY-LAWS
OF
CARSON PRODUCTS COMPANY
ARTICLE I
Stockholders
------------
Section 1.1 Annual Meeting. Except as otherwise provided in Section
----------- --------------
1.9 of these By-Laws, an annual meeting of stockholders of the Corporation for
the election of directors and for the transaction of any other proper business
shall be held at such time and date in each year as the Board of Directors, the
Chairman or the President may from time to time determine. The annual meeting
in each year shall be held at such place within or without the State of Delaware
as may be fixed by the Board of Directors.
Section 1.2 Special Meetings. A special meeting of the holders of
----------- ----------------
stock of the Corporation entitled to vote on any business to be considered at
any such meeting may be called by the Chairman of the Board, if any, or the
President or any Vice President, and shall be called by the Chairman of the
Board, if any, or the President or the Secretary when directed to do so by
resolution of the Board of Directors or at the written request of directors
representing a majority of the whole Board of Directors. Any such request shall
state the purpose or purposes of the proposed meeting.
Section 1.3 Notice of Meetings. Whenever stockholders are required
----------- ------------------
or permitted to take any action at a meeting, unless notice is waived in writing
by all stockholders entitled to vote
<PAGE>
2
at the meeting, a written notice of the meeting shall be given which shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed given when deposited in the mail, postage prepaid, directed to
the stockholder at his or her address as it appears on the records of the
Corporation.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If, however, the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 1.4 Quorum. Except as otherwise provided by law or by the
----------- ------
Certificate of Incorporation or by these By-Laws in respect of the vote required
for a specified action, at any meeting of stockholders the holders of a majority
of the
<PAGE>
3
outstanding stock entitled to vote thereat, either present or represented by
proxy, shall constitute a quorum for the transaction of any business, but the
stockholders present, although less than a quorum, may adjourn the meeting to
another time or place and, except as provided in the last paragraph of Section
1.3 of these By-Laws, notice need not be given of the adjourned meeting.
Section 1.5 Voting. Whenever directors are to be elected at a
----------- ------
meeting, they shall be elected by a plurality of the votes cast at the meeting
by the holders of stock entitled to vote. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the Certificate of
Incorporation or by these By-Laws, be authorized by a majority of the votes cast
at the meeting by the holders of stock entitled to vote thereon.
Except as otherwise provided by law, or by the Certificate of
Incorporation, each holder of record of stock of the Corporation entitled to
vote on any matter at any meeting of stockholders shall be entitled to one vote
for each share of such stock standing in the name of such holder on the stock
ledger of the Corporation on the record date for the determination of the
stockholders entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of
<PAGE>
4
voting and the manner in which votes are counted shall be discretionary with the
presiding officer at the meeting.
Section 1.6 Presiding Officer and Secretary. At every meeting of
----------- -------------------------------
stockholders the Chairman of the Board, or in his or her absence (or if there be
none) the President, or in his or her absence a Vice President, or, if none be
present, the appointee of the meeting, shall preside. The Secretary, or in his
or her absence an Assistant Secretary, or if none be present, the appointee of
the presiding officer of the meeting, shall act as secretary of the meeting.
Section 1.7 Proxies. Each stockholder entitled to vote at a meeting
----------- -------
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Every proxy shall be
signed by the stockholder or by his duly authorized attorney.
Section 1.8 List of Stockholders. The officer who has charge of the
----------- --------------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the
<PAGE>
5
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
Section 1.9 Written Consent of Stockholders in Lieu of Meeting. Any
----------- ------------------------------------------ -------
action required by statute to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt written notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not
<PAGE>
6
consented in writing. Any such written consent may be given by one or any number
of substantially concurrent written instruments of substantially similar tenor
signed by such stockholders, in person or by attorney or proxy duly appointed in
writing, and filed with the Secretary or an Assistant Secretary of the
Corporation. Any such written consent shall be effective as of the effective
date thereof as specified therein, provided that such date is not more than
sixty days prior to the date such written consent is filed as aforesaid, or, if
no such date is so specified, on the date such written consent is filed as
aforesaid.
ARTICLE II
Directors
---------
Section 2.1 Number of Directors. The Board of Directors shall
----------- -------------------
consist of three directors until changed as provided in this Section. The
number of directors may be changed at any time and from time to time by vote at
a meeting or by written consent of the holders of stock entitled to vote on the
election of directors, or by a resolution of the Board of Directors passed by a
majority of the whole Board of Directors, except that no decrease shall shorten
the term of any incumbent director unless such director is specifically removed
pursuant to Section 2.5 of these By-Laws at the time of such decrease.
Section 2.2 Election and Term of Directors. Directors shall be
----------- ------------------------------
elected annually, by election at the annual meeting of
<PAGE>
7
stockholders or by written consent of the holders of stock entitled to vote
thereon in lieu of such meeting. If the annual election of directors is not held
on the date designated therefor, the directors shall cause such election to be
held as soon thereafter as convenient. Each director shall hold office from the
time of his or her election and qualification until his successor is elected and
qualified or until his or her earlier resignation, or removal.
Section 2.3 Vacancies and Newly Created Directorships. Vacancies and
----------- -----------------------------------------
newly created directorships resulting from any increase in the authorized number
of directors may be filled by election at a meeting of stockholders or by
written consent of the holders of stock entitled to vote thereon in lieu of a
meeting. Except as otherwise provided by law, vacancies and such newly created
directorships may also be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director.
Section 2.4 Resignation. Any director may resign at any time upon
----------- -----------
written notice to the Corporation. Any such resignation shall take effect at
the time specified therein or, if the time be not specified, upon receipt
thereof, and the acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation effective.
<PAGE>
8
Section 2.5 Removal. Any or all of the directors may be removed at
----------- -------
any time, with or without cause, by vote at a meeting or by written consent of
the holders of stock entitled to vote on the election of directors.
Section 2.6 Meetings. Meetings of the Board of Directors, regular or
----------- --------
special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board,
may participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. An annual
meeting of the Board of Directors shall be held after each annual election of
directors. If such election occurs at an annual meeting of stockholders, the
annual meeting of the Board of Directors shall be held at the same place and
immediately following such meeting of stockholders, and no notice thereof need
be given. If an annual election of directors occurs by written consent in lieu
of the annual meeting of stockholders, the annual meeting of the Board of
Directors shall take place as soon after such written consent is duly filed with
the Corporation as is practicable, either at the next regular meeting of the
Board of Directors or at a special meeting. The Board of Directors may fix
times and places for regular meetings of the Board and no notice of such
meetings need be given. A special meeting of the Board of
<PAGE>
9
Directors shall be held whenever called by the Chairman of the Board, if any, or
by the President or by at least one-third of the directors for the time being in
office, at such time and place as shall be specified in the notice or waiver
thereof. Notice of each special meeting shall be given by the Secretary or by a
person calling the meeting to each director by mailing the same, postage
prepaid, not later than the second day before the meeting, or personally or by
telegraphing or telephoning the same not later than the day before the meeting.
Section 2.7 Quorum and Voting. A majority of the total number of
----------- -----------------
directors shall constitute a quorum for the transaction of business, but, if
there be less than a quorum at any meeting of the Board of Directors, a majority
of the directors present may adjourn the meeting from time to time, and no
further notice thereof need be given other than announcement at the meeting
which shall be so adjourned. Except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 2.8 Written Consent of Directors in Lieu of a Meeting. Any
----------- ----------------------------------------- -------
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and
<PAGE>
10
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9 Compensation. Directors may receive compensation for
----------- ------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
Section 2.10 Contracts and Transactions Involving Directors. No
------------ ------------------------------------ ---------
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his, her
or their votes are counted for such purpose, if: (1) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known
<PAGE>
11
to the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE III
Committees of the Board of Directors
------------------------------------
Section 3.1 Appointment and Powers. The Board of Directors may from
----------- ----------------------
time to time, by resolution passed by majority of the whole Board, designate one
or more committees, each committee to consist of one or more directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The resolution of the Board of
Directors may, in addition or alternatively, provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board
<PAGE>
12
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, except as otherwise provided by law. Unless the
resolution of the Board of Directors expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Any such committee may adopt rules governing the method of
calling and time and place of holding its meetings. Unless otherwise provided by
the Board of Directors, a majority of any such committee (or the member thereof,
if only one) shall constitute a quorum for the transaction of business, and the
vote of a majority of the members of such committee present at a meeting at
which a quorum is present shall be the act of such committee. Each such
committee shall keep a record of its acts and proceedings and shall report
thereon to the Board of Directors whenever requested so to do. Any or all
members of any such committee may be removed, with or without cause, by
resolution of the Board of Directors, passed by a majority of the whole Board.
ARTICLE IV
Officers, Agents and Employees
------------------------------
Section 4.1 Appointment and Term of Office. The officers of the
----------- ------------------------------
Corporation may include a President, a Secretary and a Treasurer, and may also
include a Chairman of the Board, one or more Vice Presidents, one or more
Assistant Secretaries
<PAGE>
13
and one or more Assistant Treasurers. All such officers shall be appointed by
the Board of Directors or by a duly authorized committee thereof. Any number of
such offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Except as may be
prescribed otherwise by the Board of Directors or a committee thereof in a
particular case, all such officers shall hold their offices at the pleasure of
the Board for an unlimited term and need not be reappointed annually or at any
other periodic interval. The Board of Directors may appoint, and may delegate
power to appoint, such other officers, agents and employees as it may deem
necessary or proper, who shall hold their offices or positions for such terms,
have such authority and perform such duties as may from time to time be
determined by or pursuant to authorization of the Board of Directors.
Section 4.2 Resignation and Removal. Any officer may resign at any
----------- -----------------------
time upon written notice to the Corporation. Any officer, agent or employee of
the Corporation may be removed by the Board of Directors, or by a duly
authorized committee thereof, with or without cause at any time. The Board of
Directors or such a committee thereof may delegate such power of removal as to
officers, agents and employees not appointed by the Board of Directors or such a
committee. Such removal shall be without prejudice to a person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
<PAGE>
14
Section 4.3 Compensation and Bond. The compensation of the officers
----------- ---------------------
of the Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in respect of other officers under his or her
control. The Corporation may secure the fidelity of any or all of its officers,
agents or employees by bond or otherwise.
Section 4.4 Chairman of the Board. The Chairman of the Board, if
----------- ---------------------
there be one, shall preside at all meetings of stockholders and of the Board of
Directors, and shall have such other powers and duties as may be delegated to
him or her by the Board of Directors.
Section 4.5 President. The President shall be the chief executive
----------- ---------
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he or she shall preside at all meetings of the stockholders and
of the Board of Directors. He or she shall have general charge of the business
affairs of the Corporation. He or she may employ and discharge employees and
agents of the Corporation, except such as shall be appointed by the Board of
Directors, and he or she may delegate these powers. The President may vote the
stock or other securities of any other domestic or foreign corporation of any
type or kind which may at any time be owned by the Corporation, may execute any
stockholders' or other consents in respect thereof and may in his or her
discretion delegate such powers by executing proxies, or otherwise, on behalf of
the Corporation.
<PAGE>
15
The Board of Directors by resolution from time to time may confer like powers
upon any other person or persons.
Section 4.6 Vice Presidents. Each Vice President shall have such
----------- ---------------
powers and perform such duties as the Board of Directors or the President may
from time to time prescribe. In the absence or inability to act of the
President, unless the Board of Directors shall otherwise provide, the Vice
President who has served in that capacity for the longest time and who shall be
present and able to act, shall perform all the duties and may exercise any of
the powers of the President. The performance of any duty by a Vice President
shall, in respect of any other person dealing with the Corporation, be
conclusive evidence of his or her power to act.
Section 4.7 Treasurer. The Treasurer shall have charge of all funds
----------- ---------
and securities of the Corporation, shall endorse the same for deposit or
collection when necessary and deposit the same to the credit of the Corporation
in such banks or depositaries as the Board of Directors may authorize. He or she
may endorse all commercial documents requiring endorsements for or on behalf of
the Corporation and may sign all receipts and vouchers for payments made to the
Corporation. He or she shall have all such further powers and duties as
generally are incident to the position of Treasurer or as may be assigned to him
or her by the President or the Board of Directors.
<PAGE>
16
Section 4.8 Secretary. The Secretary shall record all the
----------- ---------
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose and shall also record therein all action taken by written
consent of the stockholders or directors in lieu of a meeting. He or she shall
attend to the giving and serving of all notices of the Corporation. He or she
shall have custody of the seal of the Corporation and shall attest the same by
his or her signature whenever required. He or she shall have charge of the
stock ledger and such other books and papers as the Board of Directors may
direct, but he or she may delegate responsibility for maintaining the stock
ledger to any transfer agent appointed by the Board of Directors. He or she
shall have all such further powers and duties as generally are incident to the
position of Secretary or as may be assigned to him or her by the President or
the Board of Directors.
Section 4.9 Assistant Treasurers. In the absence or inability to act
----------- --------------------
of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. The performance of any such duty
shall, in respect of any other person dealing with the Corporation, be
conclusive evidence of his or her power to act. An Assistant Treasurer shall
also perform such other duties as the Treasurer or the Board of Directors may
assign to him or her.
Section 4.10 Assistant Secretaries. In the absence or inability to
------------ ---------------------
act of the Secretary, any Assistant Secretary may
<PAGE>
17
perform all the duties and exercise all the powers of the Secretary. The
performance of any such duty shall, in respect of any other person dealing with
the Corporation, be conclusive evidence of his or her power to act. An Assistant
Secretary shall also perform such other duties as the Secretary or the Board of
Directors may assign to him or her.
Section 4.11 Delegation of Duties. In case of the absence of any
------------ --------------------
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.
Section 4.12 Loans to Officers and Employees; Guaranty of Obligations
------------ --------------------------------------------------------
of Officers and Employees. The Corporation may lend money to, or guarantee any
- -------------------------
obligation of, or otherwise assist any officer or other employee of the
Corporation or any subsidiary, including any officer or employee who is a
director of the Corporation or any subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.
ARTICLE V
<PAGE>
18
Indemnification
---------------
Section 5.1 Indemnification of Directors, Officers, Employees and
----------- -----------------------------------------------------
Agents. Any person who was or is a party or is threatened to be made a party to
- ------
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action or suit by or in
the right of the Corporation to procure a judgment in its favor) by reason of
the fact that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation, if,
as and to the extent authorized by applicable law, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action, suit or proceeding. Expenses incurred by an officer or director
in defending a civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized by statute. Such
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
<PAGE>
19
The indemnification and advancement of expenses provided by, or granted pursuant
to, this By-law or statute in a specific case shall not be deemed exclusive of
any other rights to which any person seeking indemnification or advancement of
expenses may be entitled under any lawful agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a Person.
ARTICLE VI
Common Stock
------------
Section 6.1 Certificates. Certificates for stock of the Corporation
----------- ------------
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman or a Vice Chairman of
the Board, if any, or the President or a Vice President, and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such
certificates may be sealed with the seal of the Corporation or a facsimile
thereof. Any of or all the signatures on a certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with
<PAGE>
20
the same effect as if he or she were such officer, transfer agent or registrar
at the date of issue.
Section 6.2 Transfers of Stock. Transfers of stock shall be made
----------- ------------------
only upon the books of the Corporation by the holder, in person or by duly
authorized attorney, and on the surrender of the certificate or certificates for
such stock properly endorsed. The Board of Directors shall have the power to
make all such rules and regulations, not inconsistent with the Certificate of
Incorporation and these By-Laws and the law, as the Board of Directors may deem
appropriate concerning the issue, transfer and registration of certificates for
stock of the Corporation. The Board may appoint one or more transfer agents or
registrars of transfers, or both, and may require all stock certificates to bear
the signature of either or both.
Section 6.3 Lost, Stolen or Destroyed Certificates. The Corporation
----------- --------------------------------------
may issue a new stock certificate in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate
or his or her legal representative to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. The Board of Directors may require such owner to
satisfy other reasonable requirements.
<PAGE>
21
Section 6.4 Stockholder Record Date. In order that the Corporation
----------- -----------------------
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof, or to give such consent, or to receive payment of such
dividend or other distribution, or to exercise such rights in respect of any
such change, conversion or exchange of stock, or to participate in such action,
as the case may be, notwithstanding any transfer of any stock on the books of
the Corporation after any record date so fixed. If no record date is fixed by
the Board of Directors, (l) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the date on which notice is given,
or, if notice is waived by all stockholders entitled to vote at the meeting, at
the close of business on the day next preceding the day on which the meeting is
held, (2) the
<PAGE>
22
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be at the close of business on the day on which
the first written consent is expressed by the filing thereof with the
Corporation as provided in Section 1.9 of these By-Laws, and (3) the record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the.Board of Directors adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE VII
Seal
----
Section 7.1 Seal. The seal of the Corporation shall be circular in
----------- ----
form and shall bear, in addition to any other emblem or device approved by the
Board of Directors, the name of the Corporation,-the year of its incorporation
and the words "Corporate Seal" and "Delaware". The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VIII
Waiver of Notice
----------------
<PAGE>
23
Section 8.1 Waiver of Notice. Whenever notice is required to be
----------- ----------------
given by statute, or under any provision of the Certificate of Incorporation or
these By-Laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. In the case of a stockholder, such waiver of notice may be
signed by such stockholder's attorney or proxy duly appointed in writing.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be specified
in any written waiver of notice.
ARTICLE IX
Checks, Notes, Drafts. Etc.
---------------------------
Section 9.1 Checks, Notes, Drafts, Etc. Checks, notes, drafts,
----------- ---------------------------
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to time
designate.
<PAGE>
24
ARTICLE X
Amendments
----------
Section 10.1 Amendments. These By-Laws or any of them may be altered
------------ ----------
or repealed, and new By-Laws may be adopted, by the stockholders by vote at a
meeting or by written consent without a meeting. The Board of Directors shall
also have power, by a majority vote of the whole Board of Directors, to alter or
repeal any of these By-Laws, and to adopt new By-Laws.
ARTICLE XI
Emergency By-Laws
-----------------
Section 11.1 Emergency By-Laws. The Emergency By-Laws provided in
------------ -----------------
this Section 11.1 shall be operative during any emergency in the conduct of the
business of the corporation resulting from an attack on the United States or on
a locality in which the corporation conducts its business or customarily holds
meetings of its Board of Directors or its stockholders, or during any nuclear or
atomic disaster, or during the existence of any catastrophe, or other similar
emergency condition, as a result of which a quorum of the Board of Directors or
a standing committee thereof cannot readily be convened for action
notwithstanding any different provision in the preceding By-Laws or in the
Certificate of Incorporation or in the law. To the extent not inconsistent with
the provisions of this Section, the By-Laws of the Corporation shall remain in
effect during any emergency and upon its termination the Emergency By-Laws shall
cease to be operative. Any amendments of these Emergency By-Laws may make
<PAGE>
25
any further or different provision that may be practical and necessary for the
circumstances of the emergency.
During any such emergency: (A) A meeting of the Board of Directors or
a committee thereof may be called by any officer or director of the Corporation.
Notice of the time and place of the meeting shall be given by the person calling
the meeting to such of the directors as it may be feasible to reach by any
available means of communication. Such notice shall be given at such time in
advance of the meeting as circumstances permit in the judgment of the person
calling the meeting; (B) The director or directors in attendance at the meeting
shall constitute a quorum; (C) The officers or other persons designated on a
list approved by the Board of Directors before the emergency, all in such order
of priority and subject to such conditions and for such period of time (not
longer than reasonably necessary after the termination of the emergency) as may
be provided in the resolution approving the list, shall, to the extent required
to provide a quorum at any meeting of the Board of Directors, be deemed
directors for such meeting; (D) The Board of Directors, either before or during
any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such emergency any or all officers or agents
of the corporation shall for any reason be rendered incapable of discharging
their duties; (E) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or designate
several alternative head offices or regional
<PAGE>
26
offices, or authorize the officers so to do; and (F) To the extent required to
constitute a quorum at any meeting of the Board of Directors during such an
emergency, the officers of the corporation who are present shall be deemed, in
order of rank and within the same rank in order of seniority, directors for such
meeting.
No officer, director or employee acting in accordance with any
Emergency By-Laws shall be liable except for willful misconduct.
These Emergency By-Laws shall be subject to repeal or change by
further action of the Board of Directors or by action of the stockholders.
<PAGE>
EXHIBIT 4.1
================================================================================
INDENTURE
DATED AS OF NOVEMBER 6, 1997
AMONG
CARSON, INC., AS ISSUER,
AND
CARSON PRODUCTS COMPANY, AS GUARANTOR,
AND
MARINE MIDLAND BANK, AS TRUSTEE
___________________
$150,000,000
10 3/8% SENIOR SUBORDINATED SECURITIES DUE 2007
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ------------------
(S) 310(a)(1).......................................... 7.10
(a)(2)............................................ 7.10
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(a)(5)............................................ 7.08, 7.10.
(b)............................................... 7.08; 7.10; 13.02
(c)............................................... N.A.
(S) 311(a)............................................. 7.11
(b)............................................... 7.11
(c)............................................... N.A.
(S) 312(a)............................................. 2.05
(b)............................................... 13.03
(c)............................................... 13.03
(S)313(a).............................................. 7.06
(b)(1)............................................ 7.06
(b)(2)............................................ 7.06
(c)............................................... 7.06; 13.02
(d)............................................... 7.06
(S) 314(a)............................................. 4.11; 4.12; 13.02
(b)............................................... N.A.
(c)(1)............................................ 13.04
(c)(2)............................................ 13.04
(c)(3)............................................ N.A.
(d)............................................... N.A.
(e)............................................... 13.05
(f)............................................... N.A.
(S) 315(a)............................................. 7.01(b)
(b)............................................... 7.05; 13.02
(c)............................................... 7.01(a)
(d)............................................... 7.01(c)
(e)............................................... 6.11
(S) 316(a)(last sentence).............................. 2.09
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
(b)............................................... 6.07
(c)............................................... 10.04
(S) 317(a)(1).......................................... 6.08
(a)(2)............................................ 6.09
(b)............................................... 2.04
(S) 318(a)............................................. 13.01
- ---------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions............................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act....... 18
SECTION 1.03. Rules of Construction................................... 18
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating......................................... 19
SECTION 2.02. Execution and Authentication............................ 20
SECTION 2.03. Registrar and Paying Agent.............................. 21
SECTION 2.04. Paying Agent to Hold Assets in Trust.................... 21
SECTION 2.05. Securityholder Lists.................................... 22
SECTION 2.06. Transfer and Exchange................................... 22
SECTION 2.07. Replacement Securities.................................. 22
SECTION 2.08. Outstanding Securities.................................. 23
SECTION 2.09. Treasury Securities..................................... 23
SECTION 2.10. Temporary Securities.................................... 23
SECTION 2.11. Cancellation............................................ 23
SECTION 2.12. Defaulted Interest...................................... 24
SECTION 2.13. CUSIP Number............................................ 24
SECTION 2.14. Deposit of Moneys....................................... 24
SECTION 2.15. Book-Entry Provisions for Global Securities............. 24
SECTION 2.16. Registration of Transfers and Exchanges................. 24
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee...................................... 29
SECTION 3.02. Selection of Securities to Be Redeemed.................. 29
SECTION 3.03. Notice of Redemption.................................... 29
SECTION 3.04. Effect of Notice of Redemption.......................... 30
SECTION 3.05. Deposit of Redemption Price............................. 30
SECTION 3.06. Securities Redeemed in Part............................. 30
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities................................... 31
-i-
<PAGE>
Page
----
SECTION 4.02. Maintenance of Office or Agency......................... 31
SECTION 4.03. Limitation on Transactions with Affiliates.............. 31
SECTION 4.04. Limitation on Incurrence of Indebtedness................ 33
SECTION 4.05. Limitation on Asset Sales............................... 34
SECTION 4.06. Limitation on Restricted Payments....................... 36
SECTION 4.07. Corporate Existence..................................... 39
SECTION 4.08. Payment of Taxes and Other Claims....................... 39
SECTION 4.09. Notice of Defaults...................................... 40
SECTION 4.10. Maintenance of Properties and Insurance................. 40
SECTION 4.11. Compliance Certificate.................................. 40
SECTION 4.12. Provision of Financial Information...................... 41
SECTION 4.13. Waiver of Stay, Extension or Usury Laws................. 41
SECTION 4.14. Change of Control....................................... 41
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.......... 43
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries..................... 43
SECTION 4.17. Designation of Restricted and Non-Restricted Subsidiaries 44
SECTION 4.18. Limitation on Liens..................................... 45
SECTION 4.19. Limitation on Sale and Leaseback Transactions........... 45
SECTION 4.20. Subsidiary Guarantees................................... 45
SECTION 4.21. Limitations as to Unrestricted Subsidiaries............. 46
SECTION 4.22. Payments for Consent.................................... 46
SECTION 4.23. Limitation on Lines of Business......................... 46
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidation and Sale of Assets................. 47
SECTION 5.02. Successor Corporation Substituted......................... 49
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default....................................... 49
SECTION 6.02. Acceleration............................................ 51
SECTION 6.03. Other Remedies.......................................... 51
SECTION 6.04. Waiver of Past Default.................................. 51
SECTION 6.05. Control by Majority..................................... 52
SECTION 6.06. Limitation on Suits..................................... 52
SECTION 6.07. Rights of Holders to Receive Payment.................... 53
SECTION 6.08. Collection Suit by Trustee.............................. 53
SECTION 6.09. Trustee May File Proofs of Claim........................ 53
SECTION 6.10. Priorities.............................................. 53
SECTION 6.11. Undertaking for Costs................................... 54
-ii-
<PAGE>
Page
----
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee....................................... 54
SECTION 7.02. Rights of Trustee....................................... 55
SECTION 7.03. Individual Rights of Trustee............................ 56
SECTION 7.04. Trustee's Disclaimer.................................... 56
SECTION 7.05. Notice of Defaults...................................... 56
SECTION 7.06. Reports by Trustee to Holders........................... 57
SECTION 7.07. Compensation and Indemnity.............................. 57
SECTION 7.08. Replacement of Trustee.................................. 58
SECTION 7.09. Successor Trustee by Merger, etc........................ 59
SECTION 7.10. Eligibility; Disqualification........................... 59
SECTION 7.11. Preferential Collection of Claims Against Company....... 59
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.......... 59
SECTION 8.02. No Payment on Securities in Certain Circumstances....... 60
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.......... 61
SECTION 8.04. Subrogation............................................. 61
SECTION 8.05. Obligations of Company Unconditional.................... 62
SECTION 8.06. Notice to Trustee....................................... 62
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................. 63
SECTION 8.08. Trustee's Relation to Senior Indebtedness............... 63
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness......... 63
SECTION 8.10. Securityholders Authorize Trustee to Effectuate
Subordination of Securities........................... 64
SECTION 8.11. This Article Not to Prevent Events of Default........... 64
SECTION 8.12. Trustee's Compensation Not Prejudiced................... 64
SECTION 8.13. No Waiver of Subordination Provisions................... 64
SECTION 8.14. Subordination Provisions Not Applicable to Collateral
Held in Trust for Securityholders; Payments May Be
Paid Prior to Dissolution.............................. 64
SECTION 8.15. Acceleration of Securities.............................. 65
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture.................................. 65
SECTION 9.02. Legal Defeasance........................................ 65
SECTION 9.03. Covenant Defeasance..................................... 66
SECTION 9.04. Conditions to Legal Defeasance or Covenant Defeasance... 66
SECTION 9.05. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions......... 68
SECTION 9.06. Reinstatement........................................... 68
-iii-
<PAGE>
Page
----
SECTION 9.07. Moneys Held by Paying Agent............................. 68
SECTION 9.08. Moneys Held by Trustee.................................. 69
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders............................. 69
SECTION 10.02. With Consent of Holders................................ 70
SECTION 10.03. Compliance with Trust Indenture Act.................... 71
SECTION 10.04. Revocation and Effect of Consents...................... 71
SECTION 10.05. Notation on or Exchange of Securities.................. 72
SECTION 10.06. Trustee to Sign Amendments, etc........................ 72
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee................................ 72
SECTION 11.02. Severability........................................... 73
SECTION 11.03. Limitation of Guarantor's Liability.................... 73
SECTION 11.04. Subordination of Subrogation and Other Rights.......... 73
SECTION 11.05. Execution and Delivery of Guarantee.................... 73
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness......................................... 74
SECTION 12.02. No Payment on Guarantee in Certain Circumstances....... 74
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc......... 75
SECTION 12.04. Subrogation............................................ 76
SECTION 12.05. Obligations of Guarantor Unconditional................. 76
SECTION 12.06. Notice to Trustee...................................... 77
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................ 77
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness.... 78
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions
of the Guarantor or Holders of Guarantor Senior
Indebtedness......................................... 78
SECTION 12.10. Securityholders Authorize Trustee to Effectuate
Subordination of Guarantee........................... 78
SECTION 12.11. This Article Not to Prevent Events of Default.......... 78
SECTION 12.12. Trustee's Compensation Not Prejudiced.................. 79
SECTION 12.13. No Waiver of Guarantee Subordination Provisions........ 79
SECTION 12.14. Payments May Be Paid Prior to Dissolution.............. 79
-iv-
<PAGE>
Page
----
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls........................... 79
SECTION 13.02. Notices................................................ 80
SECTION 13.03. Communications by Holders with Other Holders........... 81
SECTION 13.04. Certificate and Opinion as to Conditions Precedent..... 81
SECTION 13.05. Statements Required in Certificate or Opinion.......... 81
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.............. 81
SECTION 13.07. Governing Law.......................................... 82
SECTION 13.08. No Recourse Against Others............................. 82
SECTION 13.09. Successors............................................. 82
SECTION 13.10. Counterpart Originals.................................. 82
SECTION 13.11. Severability........................................... 82
SECTION 13.12. No Adverse Interpretation of Other Agreements.......... 82
SECTION 13.13. Legal Holidays......................................... 82
SIGNATURES............................................................... S-1
EXHIBIT A Form of Series A Security
EXHIBIT B Form of Series B Security
EXHIBIT C Form of Legend for Global Securities
EXHIBIT D Certificate to be delivered upon exchange or registration of
transfer of securities
EXHIBIT E Form of certification to be delivered in connection with
Regulation S transfers
_________________
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-v-
<PAGE>
INDENTURE dated as of November 6, 1997, between CARSON, INC., a
Delaware corporation (the "Company"), CARSON PRODUCTS COMPANY, a Delaware
-------
corporation (the "Guarantor"), and MARINE MIDLAND BANK, a New York banking
---------
corporation and trust company, as trustee (the "Trustee").
-------
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acceleration Notice" see Section 6.02.
-------------------
"Affiliate" with respect to any specified person means (i) any person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person, (ii) any spouse, immediate family
member or other relative who has the same principal residence as any person
described in clause (i) above, (iii) any trust in which any such person
described in clause (i) or (ii) above has a beneficial interest, and (iv) any
corporation or other organization of which any such person described above
collectively owns 10% or more of the equity of such entity. For purposes of
this definition, "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities, by agreement or
otherwise, provided that beneficial ownership of 10% or more of the voting
securities of a person shall be deemed to be control.
"Affiliate Transaction" see Section 4.03.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
----
"AM Cosmetics" means AM Cosmetics, Inc., a Delaware
------------
corporation.
"AM Cosmetics Broker Agreement" means the broker agreement dated as of
-----------------------------
September 19, 1997 between Carson Products and AM Cosmetics as in effect on the
Issue Date.
"AM Cosmetics Sales/Marketing Agreement" means the broker agreement
--------------------------------------
and the commission agreement, each dated as of September 19, 1997 between Carson
Products and AM Cosmetics as in effect on the Issue Date.
"AM Manufacturing Agreement" means the manufacturing agreement dated
--------------------------
as of April 30, 1997, between Carson Products and AM Cosmetics as in effect on
the Issue Date.
"Applicable Premium" means, with respect to a Security, the greater of
------------------
(i) 1.0% of the then outstanding principal amount of such Security and (ii) the
excess of (A) the present value of all remaining required interest and principal
payments due on such Security, computed using a discount rate equal to the yield
to
<PAGE>
-2-
maturity at the time of computation of United States Treasury securities with
a constant maturity most nearly equal to the then remaining average life to
stated maturity of the Securities (the "Treasury Rate"), plus 50 basis points,
-------------
over (B) the then outstanding principal amount of such Security. If the average
life to stated maturity of the Securities is not equal to the constant maturity
of a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given. The Treasury Rate shall be
determined by reference to the yields published in the most recent Federal
Reserve Statistical Release H.15(519) which has become publicly available at
least two Business Days prior to the date fixed for purchase of the Securities
following a Disposition pursuant to clause (i)(B) of paragraph (a) of Section
5.01, or if such Statistical Release is no longer published, any publicly
available source of similar market data.
"Asset Sale" means the sale, lease, conveyance or other disposition by
----------
the Company or a Restricted Subsidiary of assets or property whether owned on
the Issue Date or thereafter acquired, in a single transaction or in a series of
related transactions; provided that Asset Sales will not include such sales,
leases, conveyances or dispositions in connection with (i) the surrender or
waiver of contract rights or the settlement, release or surrender of contract,
tort or other claims of any kind, (ii) the sale of inventory in the ordinary
course of business, (iii) a sale-leaseback of assets within one year following
the acquisition of such assets, (iv) the grant of any license of patents,
trademarks, registration therefor and other similar intellectual property, (v) a
transfer of assets by the Company or a Restricted Subsidiary to the Company or a
Restricted Subsidiary, (vi) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary pursuant to Section 4.17, (vii) the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company as permitted by Section 5.01, (viii) the sale or disposition of
obsolete, worn out, damaged or otherwise unsuitable or unnecessary equipment or
other obsolete assets, (ix) Restricted Payments permitted by Section 4.06, (x)
the exchange of assets for other non-cash assets that (a) are useful in the
business of the Company and its Restricted Subsidiaries and (b) have a fair
market value at least equal to the fair market value of the assets being
exchanged (as determined by the Board of Directors or the board of directors
of the Restricted Subsidiary which owns such assets in good faith), (xi) the
sale or disposition of any Restricted Investment or Marketable Securities, (xii)
any Equity Offering by the Company or (xiii) a transaction or series of related
transactions that results in a Change of Control.
"Asset Sale Disposition Date" see Section 4.05.
---------------------------
"Asset Sale Offer " see Section 4.05.
----------------
"Asset Sale Purchase Date" see Section 4.05.
------------------------
"Asset Sale Trigger Date" see Section 4.05.
----------------------
"Attributable Debt" in respect of a sale and leaseback transaction
-----------------
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
--------------
Federal or state law for the relief of debtors.
<PAGE>
-3-
"Board of Directors" means the Company's board of directors or
------------------
any authorized committee of such board of directors.
"Business Day" means a day (other than a Saturday or Sunday) on which
------------
the Depository and banks in New York, and banks in the city in which the
Corporate Trust Office of the Trustee is located, are open for business.
"Capital Stock" means any and all shares, interests, participations or
-------------
other equivalents (however designated) of corporate stock, including any
Preferred Stock.
"Carson-AM Management Agreement" means the management agreement dated
------------------------------
June 26, 1996 between Carson Products and AM Cosmetics as in effect on the Issue
Date.
"Carson Products" means Carson Products Company, a Delaware
---------------
corporation.
"Carson South Africa" means Carson Holdings Limited, a South
-------------------
African company.
"Cash Flow" means, for any given period and person, the sum of,
---------
without duplication, Consolidated Net Income, plus (a) any provision for taxes
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income, plus (b) Consolidated Interest Expense, to
the extent deducted in computing Consolidated Net Income, plus (c) the
amortization of all intangible assets, to the extent such amortization was
deducted in computing Consolidated Net Income (including, but not limited to,
inventory write-ups, goodwill, debt and financing costs), plus (d) all
depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO adjustments
but excluding charges recorded in anticipation of future cash expenditures and
non-cash Incentive Arrangements), to the extent deducted in computing
Consolidated Net Income, plus (e) any interest income, to the extent such income
was not included in computing Consolidated Net Income, plus (f) all dividend
payments on Preferred Stock (whether or not paid in cash) to the extent deducted
in computing Consolidated Net Income, plus (g) any extraordinary or non-
recurring charge or expense arising out of the implementation of SFAS 106 or
SFAS 109 to the extent deducted in computing Consolidated Net Income, plus (h)
any non-capitalized transaction costs incurred in connection with actual or
proposed financings, acquisitions or divestitures; provided, however, that if an
acquisition or sale of a person, business or asset or the issuance or repayment
of Indebtedness occurred during the given period or subsequent to such period
and on or prior to the date of calculation, then such calculation for such
period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the
------------------------
ratio of (i) Cash Flow divided by (ii) Consolidated Interest Expense (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock)) in each case, without duplication; provided, however, that
if an acquisition or sale of a person, business or asset or the issuance or
repayment of Indebtedness occurred during the given period or subsequent to such
period and on or prior to the date of calculation, then such calculation for
such period shall be made on a Pro Forma Basis.
"CEDEL" means Cedel Bank, societe anonyme (or any successor
-----
securities clearing agency).
"Certificated Securities" see Section 2.01.
-----------------------
"Change of Control" means the occurrence of any of the following: (i)
-----------------
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding the Permitted
<PAGE>
-4-
Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the Company; or (ii) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, to any person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or (2) cash, securities and other property
in an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (B) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding the Permitted Holders, is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; or (iii) during any consecutive two-
year period, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
are entitled to vote to elect such new directors and were either directors at
the beginning of such period or persons whose election as directors or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to result
from a Disposition described below in clause (i)(B) of paragraph (a) of Section
5.01.
"Change of Control Offer" see Section 4.14.
-----------------------
"Change of Control Purchase Date" see Section 4.14.
-------------------------------
"Change of Control Trigger Date" see Section 4.14.
------------------------------
"Commission" means the Securities and Exchange Commission.
----------
"Company" means the Person named as the "Company" in the first
-------
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Consolidated Interest Expense" means, for any given period and
-----------------------------
person, the aggregate of (i) the interest expense in respect of all Indebtedness
of such person and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP (including, without
duplication, amortization of original issue discount on any such Indebtedness,
all non-cash interest payments, the interest portion of any deferred payment
obligation, the interest component of capital lease obligations, and
amortization of deferred financing fees) and (ii) the product of (a) all cash
dividend payments (and, in the case of a Person that is a Restricted Subsidiary,
dividends paid or payable in additional shares of Disqualified Stock) on any
series of pre-
<PAGE>
-5-
ferred stock of such Person and its Restricted Subsidiaries payable to a party
other than the Company or a wholly owned Subsidiary, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, on a consolidated basis and in accordance with GAAP;
provided, however, that for the purpose of the Cash Flow Coverage Ratio,
Consolidated Interest Expense shall be calculated on a Pro Forma Basis; provided
further that any premiums, fees and expenses (including the amortization
thereof) payable in connection with the Offering and the application of the net
proceeds therefrom or any other refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
-----------------------
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (i) the Net Income of any person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, (ii) the Net Income of any person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent person, (iii) the Net Income of, or any dividends or other
distributions from, any Unrestricted Subsidiary shall be included only to the
extent of the amount of dividends or distributions paid in cash to the referent
person, (iv) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (v) the cumulative effect of a change in accounting principles
shall be excluded, (vi) income or loss attributable to discontinued operations
shall be excluded; and (vii) all other extraordinary, unusual or nonrecurring
gains and losses shall be excluded; provided, however, that for purposes of
determining the Cash Flow Coverage Ratio, Consolidated Net Income shall be
calculated on a Pro Forma Basis.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Company.
"Covenant Defeasance Option" see Section 9.03.
--------------------------
"Custodian" means any receiver, trustee, assignee, liquidator
---------
or similar official under any Bankruptcy Law.
"Default" means any event that is, or after notice or passage
-------
of time or both would be, an Event of Default.
"defeasance trust" see Section 9.04.
----------------
"Depository" means, with respect to the Securities issued in the form
----------
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Guarantor Senior Indebtedness" means (i) the guarantee by
----------------------------------------
any Guarantor of any Indebtedness outstanding under the New Credit Facility and
(ii) any other Senior Indebtedness of such Guarantor permitted under this
Indenture the principal amount of which is $10,000,000 or more and that has been
designated by such Guarantor as "Designated Guarantor Senior Indebtedness."
<PAGE>
-6-
"Designated Senior Indebtedness" means (i) any Indebtedness
------------------------------
outstanding under the New Credit Facility and (ii) any other Senior Indebtedness
permitted under this Indenture the principal amount of which is $10,000,000 or
more and that has been designated by the Company as "Designated Senior
Indebtedness."
"Disposition" see Section 5.01.
-----------
"Disqualified Stock" with respect to any person means any Capital
------------------
Stock or Equity Interests that by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable other than at the
Company's option), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part on, or prior to, the
maturity date of the Securities other than for Equity Interests (other than
Disqualified Stock).
"Distribution Agreement" means the distribution agreement dated May
----------------------
14, 1996 between Carson Products S.A. and Carson Products as in effect on the
Issue Date.
"Eligible Institution" means a commercial banking institution that has
--------------------
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock or partnership interests or
----------------
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is by its terms convertible
into, or exchangeable for, Capital Stock or partnership interests, and (ii) any
other Indebtedness or Obligation); provided, however, that Equity Interests will
not include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company
---------------
for cash of Capital Stock or other Equity Interests and all warrants, options or
other rights to acquire Capital Stock, other than (i) an offering of
Disqualified Stock or (ii) Incentive Arrangements or obligations or payments
thereunder.
"Euroclear" means the Euroclear Clearance System (or any
---------
successor securities clearing agency).
"Event of Default" see Section 6.01.
----------------
"Excess Proceeds" see Section 4.05.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the Commission thereunder.
"Existing Affiliate Agreement" see Section 4.03.
----------------------------
"Foreign Proceeds" see Section 4.05.
----------------
"Foreign Subsidiary" means a direct or indirect Subsidiary of the
------------------
Company organized outside the United States of America and conducting the
majority of its business in its jurisdiction of organization or in other
jurisdictions outside the United States of America.
<PAGE>
-7-
"GAAP" means generally accepted accounting principles, consistently
----
applied, as in effect from time to time in the United States of America. All
financial and accounting determinations and calculations under the Indenture
will be made in accordance with GAAP.
"Global Security" means a security evidencing all or a portion of the
---------------
Securities issued to the Depository or its nominee in accordance with Section
2.01 and bearing the legend set forth in Exhibit C hereto.
---------
"Government Securities" means direct obligations of, or obligations
---------------------
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged.
"Guarantee" means the guarantee of the Obligations of the Company with
---------
respect to the Securities by the Guarantor pursuant to the terms of Article 11
hereof.
"Guaranteed Obligations" see Section 11.01.
----------------------
"Guarantor" means Carson Products and, pursuant to Section 4.20,
---------
certain other Subsidiaries of the Company in the future.
"Guarantor Blockage Period" see Section 12.02(a).
-------------------------
"Guarantor Payment Blockage Notice" see Section 12.02(a).
---------------------------------
"Hedging Obligations" means, with respect to any person, the
-------------------
Obligations of such persons under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
similar agreements or arrangements, in each case designed solely to protect such
person against fluctuations of exchange rates, currency rates or interest rates;
provided, that the notional amount of any such Hedging Obligation shall not
exceed the principal amount of the underlying Obligation to which such Hedging
Obligation relates.
"Holder," "holder of Securities," "Securityholders" or other similar
------ -------------------- ---------------
terms mean the registered holder of any Security.
"Incentive Arrangements" means any employment agreements, employee
----------------------
stock option agreements, employee equity subscription agreements, non-
competition agreements, stock plans, stock option plans, stock appreciation
rights and other incentive and bonus plans and similar arrangements made in
connection with acquisitions of persons or businesses by the Company or the
Restricted Subsidiaries or the retention of directors or employees by the
Company or the Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, (i) any
------------
indebtedness, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers acceptances
or representing the deferred and unpaid balance of the purchase price of any
property (including pursuant to capital leases), except any such balance that
constitutes an accrued expense or a trade payable, any Hedging Obligations, if
and to the extent such indebtedness (other than a Hedging Obligation) would
appear as a liability upon a balance sheet of such person prepared on a
consolidated basis in accordance with GAAP, and any indebtedness of others of
the type described in this clause (i) secured by a Lien on any asset of such
person (whether or not such indebtedness is assumed by such person) (the amount
of such indebtedness being deemed to be the lesser of the value of such assets
or the indebtedness being so secured) and also includes, to the extent not
otherwise included, the guarantee of items
<PAGE>
-8-
that would be included within this definition; (ii) Disqualified Stock of such
person, valued at the maximum fixed redemption or repurchase price in respect
thereof; or (iii) Preferred Stock issued by a Restricted Subsidiary of such
person; provided, however, that "Indebtedness" shall not include any Incentive
Arrangements or obligations or payments thereunder or the pledge by the Company
of its Equity Interests in an Unrestricted Subsidiary of the Company to secure
Non-Recourse Debt of such Unrestricted Subsidiary.
"Indenture" means this Indenture as amended or supplemented
---------
from time to time.
"Independent Director" means a director who has not and whose
--------------------
Affiliates have not, directly or indirectly, at any time during the twelve
months prior to the taking of any action which, under the terms of the
Indenture, requires the approval of Independent Directors of the Company or a
Restricted Subsidiary, received, or entered into any understanding or agreement
to receive, any compensation, payment or other benefit, of any type or form,
from the Company, any Restricted Subsidiary or any of their respective
Affiliates, other than customary directors fees (including pursuant to Incentive
Arrangements) and reimbursement of out-of-pocket expenses.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
------------------
Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
------------------------------------
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
May 1 and November 1 of each year, commencing May 1, 1998.
"Interest Record Date" for the interest payable on any Interest
--------------------
Payment Date (except a date for payment of defaulted interest) means the April
15 or October 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Investment" means any capital contribution to, or other debt
----------
or equity investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise
-----
become directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued" have
meanings correlative to the foregoing.
"Issue Date" means November 6, 1997.
----------
"Legal Defeasance Option" see Section 9.02.
-----------------------
"License Agreement" means the license agreement dated April 7, 1994
-----------------
between Carson Products S.A. and Carson Products as in effect on the Issue Date.
<PAGE>
-9-
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including, without limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof, any other agreement to sell or give
a security interest).
"Liquidated Damages" has the meaning provided in the
------------------
Registration Rights Agreement.
"Marketable Securities" means (a) Government Securities, (b) any
---------------------
certificate of deposit maturing not more than 270 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution, (c) any
bankers acceptances or money market deposit accounts issued by an Eligible
Institution and (d) securities issued by any fund investing exclusively in
investments of the types described in clauses (a) through (c) above.
"Maturity Date" means November 1, 2007.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Morningside" means Morningside Capital Group, L.L.C., a
-----------
Connecticut limited liability company.
"Morningside Management Agreement" means the management assistance
--------------------------------
agreement dated August 23, 1995 between Carson Products and Morningside as in
effect on the Issue Date.
"Net Income" means, with respect to any person, the net income (loss)
----------
of such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
------------
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either such
case, only as and when so received) received by the Company or any of its
Restricted Subsidiaries in respect of such Asset Sale, net of: (i) the cash
expenses of such Asset Sale (including, without limitation, the payment of
principal of, and premium, if any, and interest on, Indebtedness required to be
paid as a result of such Asset Sale (other than the Securities) and legal,
accounting, management and advisory and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that the Company determines in good faith should be reserved
for post-closing adjustments, it being understood and agreed that on the day
that all such post-closing adjustments have been determined, the amount (if any)
by which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the Company or any of its Restricted
Subsidiaries shall constitute Net Proceeds on such date, (iv) any relocation
expenses and pension, severance and shutdown costs incurred as a result thereof
and (v) any cash amounts actually set aside by the Company or any Restricted
Subsidiary as a reserve in accordance with GAAP against any retained liabilities
associated with the asset disposed of in such transaction, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
<PAGE>
-10-
"New Credit Facility" means the credit agreement to be entered into on
-------------------
the Issue Date among the Company, Carson Products Company and the guarantors
named therein, and Credit Agricole Indosuez as agent and lender, and the other
lenders party thereto, together with all loan documents and instruments
thereunder (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
renewing, refunding, replacing or otherwise restructuring (including, without
limitation, increasing the amount of available borrowings thereunder, and all
Obligations with respect thereto, in each case, to the extent permitted by
Section 4.04 or adding Subsidiaries of the Company as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
-----------------
Company nor any of its Restricted Subsidiaries (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise) and (ii) the explicit terms
of which provide that there is no recourse against any of the assets of the
Company or its Restricted Subsidiaries (other than to Equity Interests in an
Unrestricted Subsidiary pledged by the Company or a Restricted Subsidiary);
provided, however, that the Company or any Restricted Subsidiary may make a loan
to an Unrestricted Subsidiary if such loan is permitted by Section 4.06 at the
time of the issuance of the loan, and such loan shall not constitute
Indebtedness which is not Non-Recourse Debt.
"Obligations" means, with respect to any Indebtedness, all principal,
-----------
interest, premiums, penalties, fees, indemnities, expenses (including legal fees
and expenses), reimbursement obligations and other liabilities payable to the
holder of such Indebtedness under the documentation governing such Indebtedness,
and any other claims of such holder arising in respect of such Indebtedness.
"Officer" means the Chairman, the Vice Chairman, the President, any
-------
Vice President, the Chief Financial Officer, or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers or
---------------------
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Other Company Indebtedness" see Section 4.20.
--------------------------
"Other Permitted Indebtedness" means (i) Indebtedness of the Company
----------------------------
and the Restricted Subsidiaries existing as of the Issue Date and all related
Obligations as in effect on such date; (ii) Indebtedness of the Company and the
Restricted Subsidiaries in respect of bankers acceptances and letters of credit
(including, without limitation, letters of credit in respect of workers'
compensation claims) issued in the ordinary course of business, or other
Indebtedness in respect of reimbursement-type obligations regarding workers'
compensation claims; (iii) Refinancing Indebtedness, provided that: (A) the
principal amount of such Refinancing Indebtedness shall not exceed the
outstanding principal amount of Indebtedness (including unused commitments)
extended, refinanced, renewed, replaced, substituted or refunded plus any
amounts incurred to pay premiums, fees and expenses in connection therewith, (B)
the Refinancing Indebtedness (other than Refinancing Indebtedness with respect
to Senior Indebtedness) shall have a Weighted Average Life to Maturity equal to
or greater than the
<PAGE>
-11-
Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, substituted or refunded; provided, however, that
this limitation in this clause (B) does not apply to Refinancing Indebtedness of
Senior Indebtedness, provided, however, that this limitation in this clause (B)
does not apply to Refinancing Indebtedness of Senior Indebtedness, and (C) in
the case of Refinancing Indebtedness of Subordinated Indebtedness, such
Refinancing Indebtedness shall be subordinated to the Securities at least to the
same extent as the Subordinated Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded; (iv) Intercompany Indebtedness of
and among the Company and the Restricted Subsidiaries (excluding guarantees by
the Company or a Restricted Subsidiary of Indebtedness of the Company or a
Restricted Subsidiary, as the case may be, not issued in compliance with Section
4.20; (v) Indebtedness of the Company and the Restricted Subsidiaries under
Hedging Obligations; (vi) Indebtedness of the Company and its Restricted
Subsidiaries arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business; (vii) guarantees by the Company or any Guarantor of Indebtedness of
the Company or of a Restricted Subsidiary if the Indebtedness so guaranteed is
permitted under the Indenture; (viii) guarantees by any Foreign Subsidiary of
Indebtedness of another Foreign Subsidiary if the Indebtedness so guaranteed is
permitted under the Indenture; (ix) Indebtedness of the Company and its
Restricted Subsidiaries in connection with performance, surety, completion,
statutory, appeal or similar bonds in the ordinary course of business; and (x)
Indebtedness of the Company and any Restricted Subsidiary (other than for
borrowed money) in connection with agreements providing for indemnification,
purchase price adjustments and similar obligations in connection with the sale
or disposition of any of its business, property or assets.
"Paying Agent" see Section 2.03.
------------
"Payment Blockage Notice" see Section 8.02(a).
-----------------------
"Payment Blockage Period" see Section 8.02(a).
-----------------------
"Permitted Holders" means (i) DNL Partners Limited Partnership; (ii)
-----------------
DNL Group, LLC; (iii) Morningside Capital Group, LLC; (iv) Vincent A. Wasik, S.
Garrett Stonehouse and Lawrence E. Bathgate, II or any of their respective
spouses or lineal descendants; (v) any controlled Affiliate of any of the
persons or entities described in clauses (i), (ii), (iii) and (iv); (vi) in the
event of the incompetence or death of any of the individuals described in clause
(iv), such person's estate, executor, administrator, committee or other personal
representative, in each case who at any particular date will beneficially own or
have the right to acquire, directly or indirectly, Capital Stock of the Company;
or (vii) any trusts created for the benefit of each of the persons or entities
described in this definition, including any trust for the benefit of the parents
or siblings of any of the individuals described in clause (iv) or any trust for
the benefit of any such trust.
"Permitted Junior Securities" means Equity Interests in the Company or
---------------------------
subordinated debt securities of the Company that (i) are subordinated to all
Senior Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to at least the same extent as the securities are Subordinated to
Senior Indebtedness pursuant to Article 8 of the Indenture, (ii) have a Weighted
Average Life to Maturity no shorter than the Weighted Average Life to Maturity
of the Securities and (iii) if there are any amounts outstanding under the New
Credit Facility, have a Weighted Average Life to Maturity at least as long as
the sum of (a) the Weighted Average Life to Maturity of the New Credit Facility
or any debt securities issued in exchange therefor (whichever is longer) plus
(b) the positive difference, if any, between the Weighted Average Life to
Maturity of the Securities and the Weighted Average Life to Maturity of the New
Credit Facility, in each case measured immediately prior to the issuance of such
Permitted Junior Securities.
<PAGE>
-12-
"Permitted Liens" means, with respect to the Company and its
---------------
Restricted Subsidiaries, (1) Liens for taxes, assessments, governmental charges
or claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or any of its Subsidiaries
shall have set aside on its books such reserves as may be required pursuant to
GAAP; (2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof; (3) Liens
incurred on deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, governmental contracts, performance, completion
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money) or to secure obligations arising
from statutory, regulatory, contractual or warranty requirements; (4) judgment
Liens not giving rise to a Default or an Event of Default so long as such Lien
is adequately bonded and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expired; (5) easements, rights-of-way, zoning restrictions, minor
defects or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
the Company or any of its Subsidiaries; (6) any interest or title of a lessor
under any capital lease or operating lease; (7) purchase money Liens to finance
the acquisition or construction of property or assets of the Company or any
Subsidiary of the Company acquired or constructed in the ordinary course of
business; provided, however, that (i) the related purchase money Indebtedness
shall not be secured by any property or assets of the Company or any Subsidiary
of the Company other than the property and assets so acquired or constructed and
(ii) the Lien securing such Indebtedness either (x) exists at the time of such
acquisition or construction or (y) shall be created within 100 days of such
acquisition or completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to such Liens; (8) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (9) Liens
securing Indebtedness under Hedging Obligations; (10) Liens arising out of
consignment or similar arrangements for the sale of goods and Liens upon
specific items of inventory or other goods and proceeds of any person securing
such person's obligations in respect of bankers' acceptances issued or created
for the account of such person to facilitate the purchase, shipment or storage
of such inventory or other goods, entered into by the Company or any Restricted
Subsidiary in the ordinary course of business; (11) Liens in favor of the
Company or a Guarantor securing intercompany Indebtedness issued by the Company
or any Restricted Subsidiary to the Company or a Guarantor; (12) Liens on
property or assets of a person acquired by or merged with or into or
consolidated with the Company or any Restricted Subsidiary at the time of such
acquisition, merger or consolidation, provided that such Liens were not incurred
in contemplation of such acquisition, merger or consolidation; (13) Liens on
property or shares of Capital Stock of a person existing at the time such person
becomes a Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such person becoming a Restricted Subsidiary; (14) Liens on
property or assets existing at the time of acquisition, construction or
improvement thereof by the Company or any Restricted Subsidiary, provided that
such Liens were not incurred in contemplation of such acquisition, construction
or improvement; (15) Liens to secure Attributable Debt that is permitted to be
incurred pursuant to Section 4.19; (16) Liens securing industrial revenue bonds,
provided, the Indebtedness represented thereby is permitted under the Indenture;
(17) Liens securing reimbursement obligations with respect to letters of credit
incurred in the ordinary course which encumber documents and other property
relating to such letters of credit and the products and proceeds thereof,
provided, the Indebtedness represented thereby is permitted under the Indenture;
(18) Liens on assets or Capital Stock of Unrestricted Subsidiaries; (19) Liens
to secure Indebtedness permitted to be incurred under clauses (i), (ii) and
(iii) of the second sentence under Section 4.04 provided that such Liens extend
only to the assets of the person directly issuing such
<PAGE>
-13-
Indebtedness; and (20) additional Liens at any one time outstanding in respect
of property or assets of which the aggregate fair market value (determined on
the date such Lien is granted) does not exceed $10.0 million.
"Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" of any person means Capital Stock of such person of
---------------
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such person, to shares of Capital
Stock of any other class of such person.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Securities in the form set forth on Exhibit A hereto.
---------
"Pro Forma Basis" means, for purposes of determining Consolidated Net
---------------
Income in connection with the Cash Flow Coverage Ratio (including in connection
with Sections 4.06, 4.17 and 5.01 and the incurrence of Indebtedness pursuant to
the first sentence of Section 4.04, giving pro forma effect to (x) any
acquisition, by way of merger, consolidation or otherwise, or sale of a person,
business or asset, related incurrence, repayment or refinancing of Indebtedness
or other related transactions, including any Restructuring Charges which would
otherwise be accounted for as an adjustment permitted by Regulation S-X under
the Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the proceeds
therefrom, in each case, which occurred during the relevant period or subsequent
to such period and on or prior to the date of calculation, as if such
acquisition or sale and related transactions, restructurings, consolidations,
cost savings, reductions, incurrence, repayment or refinancing were realized on
the first day of the relevant period permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of a
person, business or asset, the amount of income or earnings relating thereto,
and the amount of Consolidated Interest Expense associated with any Indebtedness
issued in connection therewith, the pro forma calculations will be determined in
good faith by the chief financial officer of the Company as specified in an
officer's certificate of the Company delivered to the Trustee. Furthermore, in
calculating the Cash Flow Coverage Ratio, (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the determination date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the determination date; (2) if interest on any
Indebtedness actually incurred on the determination date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the determination date will be deemed to have been in effect during
the relevant period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to interest rate swaps or similar interest rate
protection Hedging Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Purchase Agreement" means the Purchase Agreement dated October 31,
------------------
1997 between the Company, the Guarantors and the Initial Purchasers.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
<PAGE>
-14-
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
---------
"Refinancing Indebtedness" means Indebtedness of the Company and its
------------------------
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund
Indebtedness Incurred in accordance with Section 4.04 or any Indebtedness issued
to so extend, refinance, renew, replace, substitute or refund such Indebtedness
and any additional Indebtedness issued solely to pay premiums required by the
agreement governing such Indebtedness, and reasonable fees and expenses incurred
by the Company or any Restricted Subsidiary in connection therewith.
"Register" see Section 2.03.
--------
"Registered Exchange Offer" means the offer to exchange the Series B
-------------------------
Securities for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
"Registrar" see Section 2.03.
---------
"Registration" means the registration of the Registered Exchange Offer
------------
by the Company and the Guarantor or other registration of the Securities under
the Securities Act pursuant to and in accordance with the terms of the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of November , 1997 between the Company, the Guarantors and
the Initial Purchasers.
"Registration Statement" means the registration statement(s) as
----------------------
defined and described in the Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" see Section 2.01.
----------------------------
"Restricted Investment" means any Investment in any person; provided
---------------------
that Restricted Investments will not include: (i) Investments in Marketable
Securities and other negotiable instruments permitted by the Indenture; (ii)
Investments in the Company; or (iii) Investments in any Restricted Subsidiary
or in a Person that becomes a Restricted Subsidiary or is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary, in each case as a result of such investment; (iv) the
extension of credit to vendors, suppliers and customers in the ordinary course
of business; (v) faith))Investments which exist on the Issue
Date; (vi) payments made pursuant to Incentive Arrangements (including
repurchases of Equity Interests deemed to occur upon exercise of stock options,
warrants or similar rights if such Equity Interests represent a portion of the
exercise price of such options, warrants or similar rights); (vii) any loan, and
any refinancing of such loan, made to management to enable management to
purchase Equity Interests in the Company; (viii) any Investments made or
received in connection with Hedging Obligations; (ix) Investments made or
received in connection with the sale, transfer or disposition of any business,
properties or assets of the Company or any Restricted Subsidiary of the Company,
provided that if such
<PAGE>
-15-
sale, transfer or disposition constitutes an Asset Sale and the Company complies
with Section 4.05, such Investment shall not count as a Restricted Payment for
purposes of the calculation in paragraph (c) of Section 4.06; (x) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (xi) the payment of cash in lieu
of fractional shares in connection with dividends or distributions permitted by
clause (i) of the first sentence of Section 4.06; (xii) loans or advances to
employees or directors of the Company or any Restricted Subsidiary in the
ordinary course in an aggregate principal amount not to exceed $1.0 million at
any one time outstanding; (xiii) any Investment constituting Permitted Junior
Securities of a person issued in exchange for trade or other claims against such
person in connection with a financial reorganization or restructuring of such
person or as a result of a foreclosure by the Company or any Restricted
Subsidiary with respect to any secured Investment or any other transfer of title
with respect to any secured Investment in default; (xiv) Investments made
pursuant to this clause (xiv) at any time, and from time to time, after the
Issue Date, in one or more contract manufacturers, suppliers, vendors and
distributors that are Affiliates of the Company in connection with the provision
by any such person of manufacturing, research and development, outsourcing,
sales, marketing and/or distribution services to the Company and/or one or more
Restricted Subsidiaries in an aggregate amount at one time outstanding not to
exceed $10.0 million; and (xv) other Investments made pursuant to this clause
(xv) at any time, and from time to time, after the Issue Date, in any person for
a purpose which is reasonably related, ancillary or complementary to the
businesses of the Company and the Restricted Subsidiaries on the date such
investment is made, in an aggregate amount at any one time outstanding not to
exceed $10.0 million.
"Restricted Payments" see Section 4.06.
-------------------
"Restricted Period" means the period of 40 days commencing on the day
-----------------
after the latest of (a) the day on which the Securities are first offered to
persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (b) the Issue Date.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
-------------------
under the Securities Act; provided, that the Trustee shall be entitled to
request and conclusively rely upon an Opinion of Counsel with respect to whether
any Security is a Restricted Security.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
---------------------
Company that is not an Unrestricted Subsidiary.
"Restructuring Charges" means any charges or expenses in respect of
---------------------
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"Securities" means, collectively, the Series A Securities, the Series
----------
B Securities and the Subsequent Series Securities, which should be treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated by the Commission thereunder.
"S&P" means Standard & Poor's Ratings Group.
---
<PAGE>
-16-
"Senior Indebtedness" means, with respect to any person, (i) all
-------------------
Indebtedness of such person outstanding under the New Credit Facility and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
person permitted to be issued under the Indenture, provided, however, that
Senior Indebtedness shall not include any Indebtedness which by the terms of the
instrument creating or evidencing the same is subordinated or junior in right of
payment in any respect to any other Indebtedness of such person or its
Subsidiaries or Affiliates and (iii) all Obligations with respect to the
foregoing, in each case, whether outstanding on the Issue Date or thereafter
issued. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (w) any liability for Federal, state, local,
foreign or other taxes, (x) any Indebtedness of any such person to any of its
Subsidiaries or other Affiliates (other than Indebtedness arising under the New
Credit Facility), (y) any trade payables or liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities) or (z) any Indebtedness that is incurred in
violation of the Indenture.
"Series A Securities" means the 10 3/8% Senior Subordinated Notes due
-------------------
2007 of the Company issued pursuant to this Indenture and sold pursuant to the
Purchase Agreement.
"Series B Securities" means the 10 3/8% Senior Subordinated Notes due
-------------------
2007 of the Company to be issued in exchange for the Series A Securities
pursuant to the Registered Exchange Offer and the Registration Rights Agreement.
"SFAS 106" means Statement of Financial Accounting Standards
--------
No. 106.
"SFAS 109" means Statement of Financial Accounting Standards
--------
No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the
----------------------
Company that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities Act.
"Subordinated Indebtedness" means all Obligations with respect to
-------------------------
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to Senior Indebtedness and to the Securities.
"Subsequent Series Securities" see Section 2.02.
----------------------------
"Subsidiary" of any person means any entity of which the Equity
----------
Interests entitled to cast at least a majority of the votes that may be cast by
all Equity Interests having ordinary voting power for the election of directors
or other governing body of such entity are owned by such person (regardless of
whether such Entity Interests are owned directly by such person or through one
or more Subsidiaries).
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
provided in Section 10.03.
"Trust Officer" means any officer within the corporate trust
-------------
department (or any successor group) of the Trustee including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
<PAGE>
-17-
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
-----------------------
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors as provided below) and (ii) any subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary or a Person becoming a Subsidiary through merger or consolidation or
Investment therein) to be an Unrestricted Subsidiary only if: (a) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property of, any other Subsidiary of the Company which is not a Subsidiary of
the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary; (b)
all the Indebtedness of such Subsidiary shall at the date of designation, and
will at all times thereafter consist of, Non-Recourse Debt; (c) the Company
certifies that such designation complies with Section 4.06; (d) such Subsidiary,
either alone or in the aggregate with all other Unrestricted Subsidiaries, does
not operate, directly or indirectly, all or substantially all of the business of
the Company and its Subsidiaries; (e) such Subsidiary does not directly or
indirectly, own any Indebtedness of or Equity Interest in, and has no
Investments in, the Company or any Restricted Subsidiary; (f) such Subsidiary is
a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (1) to subscribe for
additional Equity Interests or (2) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (g) on the date such Subsidiary is designated an
Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company than those
that might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred as of such date. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
that immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof and the Company could incur the Indebtedness of such Subsidiary pursuant
to Section 4.04 on a Pro Forma Basis taking into account such designation.
"U.S. Global Security" see Section 2.01.
--------------------
"U.S. Government Obligations" means direct non-callable obligations of
---------------------------
the United States of America for the payment of which the full faith and credit
of the United States is pledged.
"Voting Stock" means any class or classes of Capital Stock of any
------------
person pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect the board of directors (or persons performing
similar functions) of such person.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the sum of the
product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other requirement payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
<PAGE>
-18-
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all
----------------------------------
of the Equity Interests of which (other than Equity Interests constituting
directors' qualifying shares or shares required to be held by foreign nations,
in each case to the extent mandated by applicable law) is owned by the Company
or one or more Wholly Owned Restricted Subsidiaries or by the Company and one or
more Wholly Owned Restricted Subsidiaries.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
in effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
<PAGE>
-19-
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication with
respect thereto shall be substantially in the form of Exhibit A or Exhibit B
hereto, as the case may be. The Securities may have notations, legends or
endorsements (including notations relating to the Guarantees) required by law,
stock exchange rule or usage. The Company and the Trustee shall approve the
form of the Securities and any notation, legend or endorsement (including
notations relating to the Guarantees) on them. Each Security shall be dated the
date of its authentication, shall bear interest from the applicable date which
shall be payable on each Interest Payment Date as long as such Security is
outstanding and shall be payable on the Maturity Date.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold in their initial distribution to Qualified
Institutional Buyers in reliance on Rule 144A or in offshore transactions in
reliance on Regulation S may, unless the applicable Holder requests Securities
in the form of physical, certificated Securities in registered form
("Certificated Securities"), which shall be substantially in the form of Exhibit
- -------------------------
A, be initially issued in the form of Global Securities in fully registered form
without interest coupons, substantially in the form of Exhibit A, with such
applicable legends as are provided for in Exhibit A and Exhibit C.
Securities offered and sold in their initial distribution to Qualified
Institutional Buyers in reliance on Rule 144A shall be issued in the form of one
or more Global Securities (the "U.S. Global Security") which shall be registered
--------------------
in the name of the Depository or its nominee and deposited with the Trustee, as
custodian for the Depository, duly executed by the Company and authenticated by
the Trustee as hereinafter provided, for credit by the Depository to the
respective accounts of beneficial owners of the Securities represented thereby
(or such other accounts as they may direct). The aggregate principal amount of
the U.S. Global Security may be increased or decreased from time to time by
adjustments made on the records of the Trustee, as custodian for the Depository,
in connection with a corresponding decrease or increase in the aggregate
principal amount of the Regulation S Global Security, as hereinafter provided in
Section 2.06.
Securities offered and sold in reliance on Regulation S shall
initially be in the form of Global Securities (the "Regulation S Global
-------------------
Security") which shall be registered in the name of the Depository or its
nominee and deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided, for credit by the Depository to the respective accounts of the
beneficial owners of the Securities represented thereby (or such other accounts
as they may direct), provided that upon such deposit all such Securities shall
be credited to or through accounts maintained at the Depository by or on behalf
of Euroclear or CEDEL. The aggregate principal amount of the Regulation S
Global Security may be increased or decreased from time to time by adjustments
made on the records of the Trustee, as custodian for the Depository, as
hereinafter provided in Section 2.06.
The Company shall cause the U.S. Global Security and the
Regulation S Global Security to have separate CUSIP numbers.
<PAGE>
-20-
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless. Each
execution of a Security by the Company shall be accompanied by the execution of
a Guarantee by each Guarantor (and by any Restricted Subsidiary that guarantees
Indebtedness of the Company pursuant to Section 4.20) as hereinafter provided in
Section 11.05.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The aggregate principal amount of Securities issued under this
Indenture shall not exceed $150,000,000, of which $100,000,000 in aggregate
principal amount is being offered on the Issue Date and additional series of
notes (the "Subsequent Series Securities") in an aggregate principal amount not
----------------------------
to exceed $50,000,000 and in aggregate principal amounts of not less than
$25,000,000 per series may be issued subsequent to the Issue Date; provided that
such issuance complies with Section 4.04 and provided, further, that no Default
or Event of Default exists under this Indenture at the time of such issuance or
would result therefrom. The Trustee shall authenticate (i) Series A Securities
for original issue in the aggregate principal amount not to exceed $100,000,000,
(ii) Series B Securities from time to time only in exchange for a like principal
amount of Series A Securities, and (iii) subsequent to the Issue Date,
Subsequent Series Securities, in each case upon a written order of the Company
in the form of an Officers' Certificate. The Officers' Certificate shall
specify the amount of Securities to be authenticated, the series of Securities
and the date on which the Securities are to be authenticated. Upon receipt of a
written order of the Company in the form of an Officers' Certificate, the
Trustee shall authenticate Securities in substitution for Securities originally
issued to reflect any name change of the Company.
All Securities issued on the Issue Date and Subsequent Series
Securities shall be identical in all respects other than issue dates and the
date from which interest accrues and except as provided in this Section 2.02.
In the event that the Company shall issue and the Trustee shall
authenticate any Subsequent Series Securities, the Company shall use its best
efforts to obtain the same "CUSIP" number for such Securities as is printed on
the Securities outstanding at such time; provided, however, that if any series
of Securities issued under this Indenture subsequent to the Issue Date is
determined, pursuant to an Opinion of Counsel of the Company in a form
reasonably satisfactory to the Trustee to be a different class of security than
the Securities outstanding at such time for federal income tax purposes, the
Company may obtain a "CUSIP" number for such Securities that is different than
the "CUSIP" number printed on the Securities then outstanding. Notwithstanding
the foregoing, all Securities issued under this Indenture shall vote and consent
together on all matters as one class and no series of Securities will have the
right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee
<PAGE>
-21-
includes authentication by such agent. An authenticating agent has the same
rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency within the City of New
York where (a) Securities may be presented or surrendered for registration of
transfer or for exchange ("Registrar"), (b) Securities may be presented or
---------
surrendered for payment ("Paying Agent") and (c) notices and demands in respect
------------
of the Securities and this Indenture may be served. The Registrar shall keep a
register (the "Register") of the Securities and of their transfer and exchange.
--------
The Company, upon notice to the Trustee, may appoint one or more co-Registrars
and one or more additional Paying Agents. The term "Registrar" includes any co-
Registrar and the term "Paying Agent" includes any additional Paying Agent.
Except as provided herein, the Company, or any Subsidiary may act as Paying
Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
The Trustee is authorized to enter into a letter of representations
with the Depository in the form provided to the Trustee by the Company and to
act in accordance with such letter.
SECTION 2.04. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Securities, and shall notify the Trustee of any Default by the Company in
making any such payment. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Company to the Paying Agent (if other than the Company),
the Paying Agent shall have no further liability for such assets. If the
Company, any Subsidiary or any of their respective Affiliates acts as Paying
Agent, it shall, on or before each due date of the principal of or interest on
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal or premium, if any, or,
interest or Liquidated Damages, if any, so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
<PAGE>
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SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not
the Registrar, the Company shall cause the Registrar to furnish to the Trustee
before each Interest Record Date and at such other times as the Trustee may
request in writing, a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations of the same
series, the Registrar or co-Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith. The Registrar or co-Registrar shall not be required to register the
transfer or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee, nor any such Agent shall be affected by notice to the contrary.
Any Holder of a Global Security shall, by acceptance of such Global Security,
agree that transfers of beneficial interests in such Global Security may be
effected only through a book-entry system maintained by the Depository (or its
agent), and that ownership of a beneficial interest in a Global Security shall
be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or the Company
or if the Holder of a Security claims that the Security has been lost, destroyed
or wrongfully taken, the Company shall issue and the Trustee shall authenticate
a replacement Security if the Company's and the Trustee's requirements for
replacement of Securities are met. Such Holder must provide an indemnity bond
or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee and any Agent from any loss which
any of them may suffer if a Security is replaced and evidence to their
satisfaction of the apparent loss, destruction or theft of such Security. The
Company may charge such Holder for its reasonable out-of-pocket expenses in
replacing a Security, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
<PAGE>
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SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Security in
accordance with the provisions hereof and those described in this Section 2.08
as not outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Final Maturity Date the Paying Agent
holds money sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company, the Guarantors or, to the knowledge of the Officers
signing such Officers' Certificate, their respective Affiliates.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a Company Order pursuant to Section 2.02 definitive
Securities in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel all Securities surrendered for transfer, exchange,
payment or cancellation and deliver to the Company such canceled Securities for
disposal. Subject to Section 2.07, the Company may not issue new Securities to
replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or the Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
<PAGE>
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SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal of or interest on
the Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate per annum borne by the Securities, to the
extent lawful.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number, and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company
shall promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Redemption Date and the Final Maturity Date, the Company shall deposit with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Redemption Date or Final
Maturity Date, as the case may be, in a timely manner which permits the Paying
Agent to remit payment to the Holders on such Interest Payment Date, Redemption
Date or Final Maturity Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit C hereto.
---------
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Certificated Securities in accordance with the
rules and procedures of the Depository and the provisions of Section 2.16. In
addition, Certificated Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depository (x) notifies the Company that it is unwilling or unable to continue
as Depository for any Global Security and a successor Depository is not
appointed by the Company within 90 days of such notice or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Certificated Notes or (iii) an Event of Default has occurred and is continuing
and the Registrar has received a request from the Depository to issue
Certificated Securities.
<PAGE>
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(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and make available for delivery, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Securities, an equal aggregate principal
amount of Certificated Securities of authorized denominations.
(d) Any Certificated Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold interests
through Participants, to take any action which a Holder is entitled to take
under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Certificated Securities. When
Certificated Securities are presented to the Registrar or co-Registrar with a
request:
(i) to register the transfer of the Certificated Securities; or
(ii) to exchange such Certificated Securities for an equal number
of Certificated Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the
Certificated Securities presented or surrendered for registration of transfer or
exchange:
(I) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Certificated Securities the offer and sale of
which have not been registered under the Securities Act, such Certificated
Securities shall be accompanied, in the sole discretion of the Company, by
the following additional information and documents, as applicable:
(A) if such Certificated Security is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (substantially in the form of Exhibit D hereto); or
---------
(B) if such Certificated Security is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a certification
to that effect (substantially in the form of Exhibit D hereto);
---------
or
(C) if such Certificated Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a transferor
---------
certificate for Regulation S transfers substantially in the form
of Exhibit E
---------
<PAGE>
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hereto and an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act; or
(D) if such Certificated Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and
------- -
an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(E) if such Certificated Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and an opinion of counsel
---------
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Certificated Security for a
Beneficial Interest in a Global Security. A Certificated Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
or co-Registrar of a Certificated Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Registrar or
co-Registrar, together with:
(A) in the case of Certificated Securities, the offer and sale of
which have not been registered under the Securities Act,
certification, substantially in the form of Exhibit D hereto,
---------
that such Certificated Security is being transferred (I) to a
Qualified Institutional Buyer or (II) in an offshore transaction
in reliance on Regulation S; and
(B) written instructions from the Holder thereof directing the
Registrar or co-Registrar to make, or to direct the Depository to
make, an endorsement on the applicable Global Security to reflect
an increase in the aggregate amount of the Securities represented
by the Global Security,
then the Registrar or co-Registrar shall cancel such Certificated Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no Global Security representing
Securities held by Qualified Institutional Buyers or Persons acquiring
Securities in offshore transactions in reliance on Regulation S, as the case may
be, is then outstanding, the Company shall issue and the Trustee shall, upon
receipt of an authentication order in the form of an Officers' Certificate in
accordance with Section 2.02, authenticate such a Global Security in the
appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or co-Registrar of written
instructions, or such other instruction as is customary for the Depository, from
the Depository or its nominee, requesting the registration of transfer of an
interest in a U.S. Global Security or Regulation S Global Security, as the case
may be, to another type of Global Security, together with the applicable Global
Securities (or, if the applicable type of Global Security required to represent
the interest as requested to be transferred is not then outstanding, only the
Global Security representing the interest being transferred), the Registrar or
Co-Registrar shall cancel such Global Securities (or Global Security) and the
Company
<PAGE>
-27-
shall issue and the Trustee shall, upon receipt of an authentication order in
the form of an Officers' Certificate in accordance with Section 2.02,
authenticate new Global Securities of the types so cancelled (or the type so
cancelled and applicable type required to represent the interest as requested to
be transferred) reflecting the applicable increase and decrease of the principal
amount of Securities represented by such types of Global Securities, giving
effect to such transfer. If the applicable type of Global Security required to
represent the interest as requested to be transferred is not outstanding at the
time of such request, the Company shall issue and the Trustee shall, upon
written instructions from the Company in accordance with Section 2.02,
authenticate a new Global Security of such type in principal amount equal to the
principal amount of the interest requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Certificated Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Certificated
Security. Upon receipt by the Registrar or co-Registrar of written
instructions, or such other form of instructions as is customary for the
Depository, from the Depository or its nominee on behalf of any Person
having a beneficial interest in a Global Security and upon receipt by the
Trustee of a written order or such other form of instructions as is
customary for the Depository or the Person designated by the Depository as
having such a beneficial interest containing registration instructions and,
in the case of any such transfer or exchange of a beneficial interest in
Securities the offer and sale of which have not been registered under the
Securities Act, the following additional information and documents:
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a
certification from such Person to that effect (substantially in
the form of Exhibit D hereto); or
---------
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule l44A, a certification
to that effect (substantially in the form of Exhibit D hereto);
---------
or
(C) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a transferor
---------
certificate for Regulation S transfers substantially in the form
of Exhibit E hereto and an Opinion of Counsel reasonably
---------
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(D) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and
---------
an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and an opinion of counsel
---------
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act,
<PAGE>
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then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the
form of an Officers' Certificate in accordance with Section 2.02, the
Trustee will authenticate and deliver to the transferee a Certificated
Security in the appropriate principal amount.
(ii) Certificated Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.16(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Registrar or co-Registrar in
writing. The Registrar or co-Registrar shall deliver such Certificated
Securities to the Persons in whose names such Certificated Securities are
so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act.
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
<PAGE>
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ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to paragraph 6 or
7 of the Securities at the applicable redemption price set forth therein, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed. The Company shall give such notice to the
Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein. Any such notice to the Trustee may be cancelled at any time
up to two Business Days prior to the notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 6 of the Securities, the Trustee shall select the Securities to be
redeemed on a pro rata basis, by lot or by any other method as the Trustee shall
deem fair and appropriate and, if the Securities are listed on a national
securities exchange, by a method in compliance with the requirements of the
national securities exchange. Selection of the Securities to be redeemed
pursuant to paragraph 7 of the Securities shall be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
the procedures of the Depository) based on the aggregate principal amount of
Securities held by each Holder. The Trustee shall make the selection from the
Securities then outstanding, subject to redemption and not previously called for
redemption.
The Trustee may select for redemption pursuant to paragraph 6 or 7 of
the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. The Trustee shall promptly notify the
Company in writing of the Securities selected for redemption and, in the case of
any Security selected for partial redemption, the portion of the principal
amount thereof to be redeemed. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
at such Holder's registered address whose Securities are to be redeemed pursuant
to paragraph 6 or 7 of the Securities.
Each notice of redemption shall identify the Securities to be redeemed
(including, but subject to the provisions of Section 2.13, the CUSIP number
thereon) and shall state:
(i) the paragraph of the Securities pursuant to which the Securities
are to be redeemed;
(ii) the Redemption Date and redemption price;
<PAGE>
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(iii) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(iv) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
is to receive payment of the redemption price upon surrender to the Paying
Agent; and
(vi) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof will
be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price specified in such notice. Upon surrender to the Paying Agent, such
Securities shall be paid at the redemption price, plus accrued interest thereon,
if any, to the Redemption Date, but interest installments whose maturity is on
or prior to such Redemption Date shall be payable to the Holders of record at
the close of business on the relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
No later than 10:00 a.m. New York City time on the Redemption Date,
the Company shall deposit with the Paying Agent (or if the Company is its own
Paying Agent, shall, on or before the Redemption Date, segregate and hold in
trust) money sufficient to pay the redemption price of and accrued interest and
Liquidated Damages, if any, on all Securities to be redeemed on that date other
than Securities or portions thereof called for redemption on that date which
have been delivered by the Company to the Trustee for cancellation. The Paying
Agent shall promptly return to the Company any money deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Securities to be redeemed.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and premium, if any, and
interest and Liquidated Damages, if any, on the Securities in the manner
provided in the Securities and the Registration Rights Agreement. An
installment of principal, premium, interest or Liquidated Damages shall be
considered paid on the date due if the Trustee or Paying Agent (other than the
Company, a Subsidiary or an Affiliate of the Company) holds on that date money
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders of the Securities pursuant to
the terms of this Indenture.
The Company shall pay interest on overdue principal at the same rate
per annum borne by the Securities. The Company shall pay interest on overdue
installments of interest at the same rate per annum borne by the Securities, to
the extent lawful, as provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02
hereof. The Company hereby initially designates the Trustee at its address set
forth in Section 13.02 as its office or agency in the Borough of Manhattan, The
City of New York, for such purposes.
SECTION 4.03. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, enter into any transaction
with an Affiliate, including, without limitation, any loan, advance, guarantee
or capital contribution to, or for the benefit of, or sell, lease, transfer or
dispose of any properties or assets to, or for the benefit of, or purchase or
lease any property or assets from, or enter into or amend any contract,
agreement or understanding with, or for the benefit of, an Affiliate (each such
transaction or series of related transactions with such Affiliate that are part
of a common plan are referred to as an "Affiliate Transaction"), except in good
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faith and on terms that are determined by the Board of Directors, or, if
applicable, a committee comprising the Independent Directors of the Board of
Directors, and, in the case of any Affiliate Transaction involving aggregate
payments or other transfers by the Company and/or its Restricted Subsidiaries in
excess of $1.0 million (including cash and non-cash payments and benefits valued
at their fair market value by the Board of Directors in good faith), set forth
in a resolution adopted by such committee, to be no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction on an arm's length basis from an unrelated
person.
(b) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Affiliate Transaction involving aggregate payments
or other transfers by the Company and/or its Restricted Subsidiaries in excess
of $7,500,000 (including cash and non-cash payments and benefits valued at their
fair market value by the Board of Directors in good faith) unless the Company
delivers to the Trustee:
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(i) a resolution of the Board of Directors, or, if applicable, a
committee comprising the Independent Directors of the Board of Directors,
stating that a majority of such directors has, in good faith, determined
such Affiliate Transaction to be no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in
a comparable transaction on an arm's length basis from an unrelated person
and otherwise complies with the provisions of this Indenture; and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and (B)
above, a written certification from a nationally recognized professional or
firm experienced in evaluating similar types of transactions, in each case,
stating that the terms of such transaction are fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
(c) Notwithstanding paragraphs (a) and (b) of this Section
4.03, this Section 4.03 shall not apply to:
(i) transactions between or among the Company and any Restricted
Subsidiaries;
(ii) transactions permitted by Section 4.06;
(iii) fees and reasonable compensation paid to, and indemnity
provided on behalf of, directors, officers or employees of the Company or
any Subsidiary as determined in good faith by the Board of Directors;
(iv) any issuance, award or grant of securities or payment in cash
or otherwise made as compensation for services rendered pursuant to the
terms of any Incentive Arrangement, as determined in good faith by the
Board of Directors;
(v) loans or advances to employees or directors of the Company or
any Restricted Subsidiary in the ordinary course and in an aggregate amount
not to exceed $1,000,000 at any one time outstanding; or
(vi) any transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not less favorable to the
Company than the terms of the relevant agreement in effect prior to any
such amendment as determined in good faith by the Board of Directors. As
used in this clause (vi), "Existing Affiliate Agreement" means the
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Morningside Management Agreement, the Carson-AM Management Agreement, the
AM Cosmetics Broker Agreement, the AM Manufacturing Agreement, the
Distribution Agreement and the License Agreement.
(d) Notwithstanding paragraphs (a), (b) and (c) of this Section 4.03,
any Affiliate Transaction between the Company and an Affiliate of the Company
relating to the provision to the Company or a Restricted Subsidiary of research
and development, manufacturing, sales and/or distribution services in the
ordinary course of business shall not be subject to clause (ii) of paragraph (b)
of this Section 4.03.
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SECTION 4.04. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, issue any Indebtedness (other than the Indebtedness represented
by the Securities and the Guarantees), except that the Company and any
Restricted Subsidiaries may issue additional Indebtedness if the Company's Cash
Flow Coverage Ratio for its four full fiscal quarters next preceding the date
such additional Indebtedness is issued would have been at least 2.00 to 1 on or
prior to the second anniversary of the Issue Date and 2.25 to 1 thereafter
determined on a Pro Forma Basis ([increasing ratio over time?](including, for
this purpose, any other Indebtedness issued and any acquisition or sale
consummated, since the end of the applicable four-quarter period) as if such
additional Indebtedness and any other Indebtedness issued since the end of such
four-quarter period had been issued at the beginning of such four-quarter
period.
(b) The foregoing limitations shall not apply to the issuance
of:
(i) Indebtedness of the Company and the Restricted Subsidiaries
under the New Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed the greater of (x)
$75,000,000 or (y) the sum of (i) 85% of the book value of the accounts
receivable of the Company and the Restricted Subsidiaries taken as a whole
and (ii) 50% of the book value of the inventory of the Company and the
Restricted Subsidiaries taken as a whole;
(ii) Indebtedness of Foreign Subsidiaries, including Carson South
Africa, in an aggregate principal amount at any one time outstanding not to
exceed the greater of (x) $10,000,000 or (y) an aggregate amount equal to
the sum of, with respect to each Foreign Subsidiary, (A) 85% of the book
value of the accounts receivable of such Foreign Subsidiary and (B) 50% of
the book value of the inventory of such Foreign Subsidiary; provided, that
such indebtedness is issued for working capital purposes;
(iii) Indebtedness of the Company and its Restricted Subsidiaries
issued in connection with capital leases, sale and leaseback transactions,
purchase money obligations or similar financing transactions relating to
its properties, assets and rights as of the date of original issuance of
the Securities up to $10,000,000 in aggregate principal amount at any one
time outstanding;
(iv) additional Indebtedness of the Company and the Restricted
Subsidiaries in an aggregate principal amount up to $ [(all or
any portion of which may be issued as additional Indebtedness under the
Credit Agreement); provided that the aggregate principal amount of
Indebtedness outstanding under this clause (iii) together with the
aggregate principal amount of Indebtedness outstanding under clause (i)
above shall not exceed $ in aggregate principal amount at any
one time outstanding;]of up to $10,000,000 at any one time
outstanding; and
(v) Other Permitted Indebtedness.
(c) Notwithstanding paragraphs (a) and (b) of this Section 4.04, no
Restricted Subsidiary shall under any circumstances issue a guarantee of any
Indebtedness of the Company except for guarantees issued by Restricted
Subsidiaries pursuant to Section 4.20; provided, however, that the foregoing
will not limit or restrict guarantees issued by Guarantors in respect of
Indebtedness of other Guarantors or of the Company.
For purposes of determining compliance with this Section 4.04, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness which the Company and any Restricted Subsidiary are
permitted to issue, the Company and such Restricted Subsidiary, as the case may
be, will have the right, in the Company's sole discretion, to classify such item
of Indebtedness at the time of its issuance and will only be required to include
the amount and type of such Indebtedness under the clause permitting the
Indebtedness as so classified. Neither the accrual of interest nor the issuance
of additional Indebtedness in the
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form of additional promissory notes or otherwise in lieu of the payment of
interest nor the accretion of accreted value will be deemed to be an issuance of
Indebtedness for purposes of this Section 4.04.
SECTION 4.05. Limitation on Asset Sales.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, consummate an Asset Sale
(including the sale of any of the Capital Stock of any Restricted Subsidiary but
excluding the sale of any interests in Unrestricted Subsidiaries) providing for
Net Proceeds in excess of $1,000,000 unless the Net Proceeds from such Asset
Sale are applied (in any manner otherwise permitted by this Indenture) to one or
more of the following purposes in such combination as the Company or the
applicable Restricted Subsidiary, as the case may be, shall elect: (i) an
investment in another asset or business in the same line of business as, or a
line of business similar, ancillary, complementary or reasonably related to that
of, a line of business or businesses of the Company and its Restricted
Subsidiaries at the time of the Asset Sale; provided that such investment occurs
on or prior to the 270th day following the date of such Asset Sale (the "Asset
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Sale Disposition Date"), (ii) the reimbursement of the Company or its Restricted
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Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent that
the Net Proceeds consist of insurance proceeds received on account of such loss,
damage or taking, (iii) the purchase, redemption or other prepayment or
repayment of outstanding Senior Indebtedness of the Company or its
Restricted Subsidiaries on or prior to the 270th day following the Asset
Sale Disposition Date and permanent reduction of the amount of such
Indebtedness, or (iv) the cash collateralization of letters of credit or bankers
acceptances designed to facilitate the purchase of goods and services provided
that any cash collateral released to the Company or its Restricted Subsidiaries
upon the expiration of such letters of credit, bankers acceptances or other
instruments or arrangements shall again be deemed to be Net Proceeds received on
the date of such release. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate an Asset Sale
unless at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash, cash equivalents or Marketable
Securities; provided that, solely for purposes of calculating such 75% of the
consideration, the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet or in the notes thereto,
excluding contingent liabilities and trade payables) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Securities) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are promptly, but in no
event more than 45 days after receipt, converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash and cash equivalents for purposes of this provision. Any Net
Proceeds from any Asset Sale that are not applied or invested as provided in the
first sentence of this paragraph shall constitute "Excess Proceeds."
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(b) When the aggregate amount of Excess Proceeds (net of Foreign
Proceeds, as defined below) exceeds $10,000,000 (such date being an "Asset Sale
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Trigger Date"), the Company shall make an Offer to purchase on a pro rata basis
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the maximum principal amount of the Securities and pari passu Indebtedness of
the Company or any Restricted Subsidiary, if any, that requires, pursuant to its
terms, such an offer, then outstanding that may be purchased out of Excess
Proceeds (an "Asset Sale Offer"), at an offer price in cash in an amount equal
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to 100% of the principal amount thereof plus any accrued and unpaid interest to
the date the Securities tendered are purchased and paid for in accordance with
this Section 4.05 (the "Asset Sale Purchase Date"). Notwithstanding the
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foregoing, to the extent that any or all of the Net Proceeds of an Asset Sale is
prohibited or delayed by applicable local law from being repatriated to the
United States or such repatriation would be expected to result in material tax
liability to the Company or any Restricted Subsidiary, as determined in good
faith by the Board of Directors (such Net Proceeds, the "Foreign Proceeds"), the
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Company shall not be required to make an Asset Sale Offer with respect to such
proceeds. Foreign Proceeds shall be applied, in such combination
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as the Company shall select, in accordance with clause (i), (ii), (iii) or (iv)
of paragraph (a) of this Section 4.05, or, at the option of the Company, may be
retained as cash or Marketable Securities for so long, but only for so long, as
the applicable local law prohibits or delays repatriation to the United States
or would result in material tax liability as described above. Within 30 days
following any Asset Sale Trigger Date, the Company shall mail a notice to each
holder of Securities at such holder's registered address stating:
(i) that an Asset Sale Offer is being made pursuant to this Section
4.05, the length of time the Asset Sale Offer shall remain open and the
maximum principal amount of Securities that will be accepted for payment
pursuant to such Asset Sale Offer;
(ii) the purchase price, the amount of accrued and unpaid interest
as of the Asset Sale Purchase Date and the Asset Sale Purchase Date (which
shall be no earlier than 30 days and no later than 60 days from the date
such notice is mailed);
(iii) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that any Security or portion thereof accepted for payment
pursuant to the Asset Sale Offer shall cease to accrue interest on and
after the Asset Sale Purchase Date;
(v) that Holders electing to have a Security purchased pursuant to
the Asset Sale Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to a Paying Agent at the address specified in the
notice at least three Business Days before the Asset Sale Purchase Date;
(vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day before the Asset Sale Purchase Date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have the Security
purchased;
(vii) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Excess Proceeds, the Trustee shall
select the Securities to be purchased on a pro rata basis, by lot or by any
other method that the Trustee considers fair and appropriate and, if the
Securities are listed on any securities exchange, by a method that complies
with the requirements of such exchange; provided that, if less than all of
a holder's Securities are to be redeemed or accepted for payment, only
principal amounts of $1,000 or integral multiples thereof may be selected
for redemption or accepted for payment;
(viii) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(ix) a brief description of the circumstances and relevant facts
regarding such Asset Sale.
On the Asset Sale Purchase Date, the Company shall, to the extent
required by this Indenture and the Asset Sale Offer, (1) accept for payment the
maximum principal amount of Securities or portions thereof tendered pursuant to
the Asset Sale Offer that can be purchased out of Excess Proceeds, (2) deposit
with the Paying Agent the aggregate purchase price of all Securities or portions
thereof accepted for payment and any
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accrued and unpaid interest on such Securities as of the Asset Sale Purchase
Date, and (3) deliver or cause to be delivered to the Trustee all Securities
tendered pursuant to the Asset Sale Offer. The Paying Agent shall promptly mail
to each holder of Securities or portions thereof accepted for payment an amount
equal to the purchase price for such Securities plus any accrued and unpaid
interest thereon, and the Trustee shall promptly authenticate and mail (or cause
to be transferred by book-entry) to such holder of Securities accepted for
payment in part a new Security equal in principal amount to any unpurchased
portion of the Securities and any Security not accepted for payment in whole or
in part shall be promptly returned to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on or as soon as
practicable after the Asset Sale Purchase Date.
The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an Asset Sale Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Indenture, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Indenture by virtue
thereof.
(c) To the extent that any Excess Proceeds (other than Foreign
Proceeds) remain after completion of an Asset Sale Offer, the Company may use
such remaining amount for general corporate purposes including repayment of
Subordinated Indebtedness. Upon completion of an Asset Sale Offer, the amount
of Excess Proceeds shall be reset at zero plus the amount, if any, of cash or
Marketable Securities attributable to Foreign Proceeds.
SECTION 4.06. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of the Company's or such Restricted Subsidiary's Capital
Stock or other Equity Interests (other than dividends or distributions payable
in Capital Stock or other Equity Interests (other than Disqualified Stock) of
the Company and/or any Restricted Subsidiary and dividends or distributions
payable by a Restricted Subsidiary to a Restricted Subsidiary or to the Company,
and if such Restricted Subsidiary has shareholders other than the Company or
other Restricted Subsidiaries, to the other shareholders of such Restricted
Subsidiary on a pro rata basis or on a basis that results in the receipt by the
Company or other Restricted Subsidiaries of dividends or distributions of equal
or greater value); (ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock or other Equity Interests of the Company or any of its
Restricted Subsidiaries held by persons other than the Company or any Restricted
Subsidiary of the Company; (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value, any
Subordinated Indebtedness of the Company or any Subsidiaries, whether any such
Subordinated Indebtedness is outstanding on, or issued after, the Issue Date,
except a payment, purchase, redemption, defeasance or other acquisition in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition;
(iv) make any payment under the Morningside Management Agreement or any
amendment thereto; or (v) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements, prepayments
and Restricted Investments being collectively referred to as "Restricted
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Payments"), if, at the time of such Restricted Payment:
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(a) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof; or
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(b) immediately after such Restricted Payment and after giving
effect thereto on a Pro Forma Basis, the Company shall not be able to issue
$1.00 of additional Indebtedness pursuant to paragraph (a) of Section 4.04;
or
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made after the Issue Date, without duplication,
exceeds the sum of (1) 50% of the cumulative Consolidated Net Income
(including, for this purpose, gains or losses from Asset Sales and, to the
extent not included in Consolidated Net Income, any gain or loss from a
sale or disposition of a Restricted Investment) of the Company (or, in case
such cumulative Consolidated Net Income is a loss, 100% of such loss) for
the period (taken as one accounting period) from the beginning of the
fiscal quarter commencing October 1, 1997 and ended as of the Company's
most recently ended fiscal quarter at the time of such Restricted Payment;
plus (2) 100% of the aggregate net cash proceeds and the fair market value
of any property or securities (as determined by the Board of Directors in
good faith) received by the Company or any Wholly Owned Restricted
Subsidiary from the issue or sale of Capital Stock or other Equity
Interests of the Company or any Restricted Subsidiary subsequent to the
Issue Date (other than (x) Capital Stock or other Equity Interests issued
or sold to a Restricted Subsidiary and (y) the issuance or sale of
Disqualified Stock); plus (3) the amount by which the principal amount of
and any accrued interest on or the redemption or repurchase price in
respect thereof and accrued dividends on, as the case may be, either (A)
Indebtedness of the Company or (B) any Indebtedness of any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange, pursuant to the terms of such Indebtedness, other
than by a Restricted Subsidiary, subsequent to the Issue Date of any
Indebtedness of the Company or any Restricted Subsidiary (not held by the
Company or any Restricted Subsidiary) for Capital Stock or other Equity
Interests (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair market value of any other property or securities
(as determined by the Board of Directors in good faith), distributed by the
Company or any Restricted Subsidiary (to persons other than the Company or
any other Restricted Subsidiary) upon such scheduled conversion or
exchange); plus (4) to the extent that any Restricted Investment that was
made after the Issue Date is sold or otherwise liquidated or repaid or any
Unrestricted Subsidiary which is designated as an Unrestricted Subsidiary
after the Issue Date is sold or otherwise liquidated, the return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) up to such amount as does not exceed the original amount of such
Restricted Investment; plus (5) any dividends or distributions actually
received in cash by the Company or a Restricted Subsidiary after the Issue
Date from an Unrestricted Subsidiary, to the extent that such dividends or
distributions were not otherwise included in the Consolidated Net Income of
the Company for such period; plus (6) if any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the Restricted
Payment that would result if such Subsidiary were redesignated as an
Unrestricted Subsidiary at such time, as determined in accordance with the
second and third sentences of paragraph (a) of Section 4.17; provided,
however, that for purposes of this clause (6), the value of any
redesignated Unrestricted Subsidiary shall be reduced by the amount that
any such redesignation replenishes or increases the amount of Restricted
Investments permitted to be made pursuant to clause (xv) of the definition
of "Restricted Investment"; plus (7) $5,000,000.
(d) Notwithstanding the foregoing, the Indenture clauses (b) and
(c) shall not prohibit as Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment
would comply with all covenants of this Indenture (including, but not
limited to, this Section 4.06);
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(ii) the repurchase, redemption, retirement or acquisition of
Equity Interests of the Company or a Subsidiary from employees or
directors of the Company or a Subsidiary upon such employees' or
directors' death, retirement or termination of employment or otherwise
in accordance with any employment agreement, employee or director
stock option plan or agreement or employee or director equity
subscription agreement, in an aggregate amount not to exceed
$1,000,000 in any calendar year, plus the aggregate cash proceeds
received by the Company during such calendar year from any issuance of
such Equity Interests to employees or directors of the Company or any
Restricted Subsidiary, plus the portion of such $1,000,000 which
remains unused at the end of the prior calendar year, but in no event
to exceed $2,000,000 in any calendar year, provided, that the
cancellation of Indebtedness owing to the Company or a Restricted
Subsidiary from employees or directors in connection with a repurchase
of Equity Interests of the Company or a Restricted Subsidiary will not
be deemed to constitute a Restricted Payment;
(iii) the redemption, repurchase, retirement or other
acquisition of any Capital Stock or other Equity Interests of the
Company or any Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Capital Stock or other Equity
Interests (other than Disqualified Stock) of the Company or the
redemption, repurchase, retirement or other acquisition of any Capital
Stock or other Equity Interests (other than Disqualified Stock) of any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to the Company or a
Subsidiary of the Company) of other Capital Stock or other Equity
Interests (other than Disqualified Stock) of such Restricted
Subsidiary; provided that, in each case, any net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded
from clauses (c)(1) and (c)(2) of this Section 4.06;
(iv) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the
Company) of Capital Stock or other Equity Interests (other than
Disqualified Stock) of the Company or the redemption, repurchase,
retirement, defeasance or other acquisition of any Subordinated
Indebtedness of any Restricted Subsidiary in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to the
Company or a Subsidiary of the Company) of Capital Stock or other
Equity Interests (other than Disqualified Stock) of such Restricted
Subsidiary; provided that, in each case, any net cash proceeds that
are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clauses (c)(1) and (c)(2) of this
Section 4.06;
(v) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, any
Refinancing Indebtedness relating to such Subordinated Indebtedness;
(vi) the redemption, repurchase or other acquisition of Series A
Securities or Series B Securities; and
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(vii) payments required pursuant to any indenture or agreement
governing Subordinated Indebtedness of the Company or any Restricted
Subsidiary in respect of any Change of Control or Asset Sale, provided
that payment has theretofore been made with respect to all Securities
tendered in response to a Change of Control Offer or Asset Sale Offer,
as applicable; and
(viii) the payment of (a) management, consulting and financial
advisory fees pursuant to the Morningside Management Agreement or any
amendment thereto in an aggregate amount not to exceed (A) $500,000 in
any fiscal year, if the Company's Cash Flow Coverage Ratio for the
four full fiscal quarters next preceding the date such Restricted
Payment is made was less than 3.0 to 1, or (B) $750,000 in any fiscal
year otherwise and (b) expenses and indemnities pursuant to the
Morningside Management Agreement.
(e) The net proceeds from the issuance of shares of Capital Stock
upon conversion of Indebtedness shall be deemed to be an amount equal to
(i) the accreted value of such Indebtedness on the date of such conversion
and (ii) the additional consideration, if any, received by the Company upon
such conversion thereof, less any cash payment on account of fractional
shares. The amount of all Restricted Payments (other than cash) shall be
the fair market value (as determined by and set forth in a resolution of
the Board of Directors in good faith) on the date of the Restricted Payment
of the asset(s) proposed to be transferred by the Company or a Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment.
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company and the Guarantors shall do or
shall cause to be done all things necessary to preserve and keep in full force
and effect their respective corporate existence and the corporate, partnership
or other existence of each Restricted Subsidiary in accordance with the
respective organizational documents of each of them (as the same may be amended
from time to time) and the rights (charter and statutory) and material
franchises of the Company, the Guarantors and the Restricted Subsidiaries;
provided, however, that the Company and the Guarantors shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors or the boards of directors of
the Guarantors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company, the Guarantors and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company and the Guarantors shall pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (1) all material
taxes, assessments and governmental charges levied or imposed upon the Company,
any Guarantor or any Restricted Subsidiary or upon the income, profits or
property of the Company, any Guarantor or any Restricted Subsidiary and (2) all
lawful claims for labor, materials and supplies which, in each case, if unpaid,
might by law become a material liability, or Lien upon the property, of the
Company, any Guarantor or any Restricted Subsidiary; provided, however, that
neither the Company nor the Guarantors shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made.
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SECTION 4.09. Notice of Defaults.
(a) In the event that any Indebtedness of the Company, any Guarantor
or any of their Subsidiaries is declared due and payable before its maturity
because of the occurrence of any default (or any event which, with notice or
lapse of time, or both, would constitute such a default) under such
Indebtedness, the Company or such Guarantor shall promptly give written notice
to the Trustee of such declaration, the status of such default or event and what
action the Company or such Guarantor is taking or proposes to take with respect
thereto.
(b) Upon an officer of the Company becoming aware of any Default or
Event of Default, the Company shall promptly deliver an Officers' Certificate to
the Trustee specifying such Default or Event of Default.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) The Company and the Guarantors shall cause all material
properties owned by or leased to any of them or any Restricted Subsidiary and
used or useful in the conduct of their business or the business of any
Restricted Subsidiary to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company or the Guarantors may be
necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 4.10 shall prevent the Company, any Guarantor or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of any Guarantor or Restricted Subsidiary concerned, or of an officer
(or other agent employed by the Company, any Guarantor or any Restricted
Subsidiary) of the Company, such Guarantor or such Restricted Subsidiary having
managerial responsibility for any such property, desirable in the conduct of the
business of the Company, any Guarantor or any Restricted Subsidiary, and if such
discontinuance or disposal is not adverse in any material respect to the
Holders.
(b) The Company and the Guarantors shall maintain, and shall cause
the Restricted Subsidiaries to maintain, insurance with responsible carriers
against such risks and in such amounts, and with such deductibles, retentions,
self-insured amounts and co-insurance provisions, as are customarily carried by
similar businesses of similar size, including property and casualty loss, and
workers' compensation insurance.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
year. If they do know of such a Default or Event of Default, the certificate
shall describe all such Defaults or Events of Default, their status and the
action the Company is taking or proposes to take with respect thereto.
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SECTION 4.12. Provision of Financial Information.
So long as the Securities are outstanding, whether or not the Company
or the Guarantors are subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company and the Guarantors shall submit for
filing with the Commission (unless the Commission will not accept such filings)
the annual reports, quarterly reports and other documents relating to the
Company and the Guarantors that the Company and the Guarantors would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company and the Guarantors were subject to such reporting
requirements. The Company and the Guarantors shall also provide to all Holders
and file with the Trustee copies of such annual reports, quarterly reports and
other documents required to be furnished to securityholders generally under
Sections 13 and 15(d) of the Exchange Act. In addition, for so long as any
Securities remain outstanding and prior to the latter of the consummation of the
Registered Exchange Offer and the filing of the Shelf Registration Statement (as
defined in the Registration Rights Agreement), if required, the Company shall
furnish to the Holders and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of the Trustee of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and the Guarantors covenant (to the extent that they may
lawfully do so) that they shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
performance of this Indenture; and (to the extent that they may lawfully do so)
each of the Company and the Guarantors hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 4.14. Change of Control.
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Trigger Date"), the Company shall,
------------------------------
within 30 days after the Change of Control Trigger Date, make an offer (the
"Change of Control Offer") to purchase all Securities then outstanding at a
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purchase price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date (the "Change of Control Purchase Date") the Securities tendered are
-------------------------------
purchased and paid for in accordance with this Section 4.14. The Company shall
furnish to the Trustee, at least two Business Days before notice of a Change of
Control Offer is mailed to all holders of Securities, notice that the Change of
Control Offer is being made. Within 30 days following any Change of Control
Trigger Date, the Company shall mail a notice to each holder of Securities at
such Holder's registered address stating:
(i) that a Change of Control Offer is being made pursuant to this
Section 4.14 and setting forth in reasonable detail the events giving rise
to a Change of
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Control, the length of time the Change of Control Offer shall remain open
and that all Securities tendered for payment will be accepted for payment,
and otherwise subject to the terms and conditions set forth therein;
(ii) the purchase price, the amount of accrued and unpaid interest
as of the Change of Control Purchase Date, and the Change of Control
Purchase Date (which shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed);
(iii) that any Security or portion thereof not tendered will
continue to accrue interest;
(iv) that any Security or portion thereof accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest on
and after the Change of Control Purchase Date;
(v) that Holders electing to have a Security purchased pursuant to
the offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to a Paying Agent at the address specified in the
notice at least three Business Days before the purchase date;
(vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Securities delivered for purchase and a statement
that such Holder is withdrawing his election to have such Securities
purchased;
(vii) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(viii) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Purchase Date, the Company shall, to the
extent required by this Indenture and the Change of Control Offer, (1) accept
for payment all Securities or portions thereof (subject to the requirement that
any portion of a Security tendered must be tendered in any integral multiple
$1,000 principal amount) tendered pursuant to the Change of Control Offer; (2)
deposit with the Paying Agent the aggregate purchase price of all Securities or
portions thereof accepted for payment and any accrued and unpaid interest and
Liquidated Damages, if any, on such Securities as of the Change of Control
Purchase Date, and (3) deliver or cause to be delivered to the Trustee all
Securities tendered pursuant to the Change of Control Offer. The Paying Agent
shall promptly mail to each holder of Securities or portions thereof accepted
for payment an amount equal to the purchase price for such Securities plus any
accrued and unpaid interest and Liquidated Damages, if any, thereon, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book-entry) to such holder of Securities accepted for payment in part a new
Security equal in principal amount to any unpurchased portion of the Securities
and any Security not accepted for payment in whole or in part shall be promptly
returned to the holder thereof. The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
The Company will comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Indenture, the
Company shall
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comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Indenture by virtue thereof.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
The Company shall not issue any Indebtedness that is subordinate or
junior in right of payment to any Senior Indebtedness and senior in any respect
in right of payment to the Securities. No Guarantor shall issue any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in any respect in right of payment to the Guarantees.
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to: (a) pay dividends or make any other
distributions on its Capital Stock or any other interest or participation in, or
measured by, its profits, owned by the Company or any Restricted Subsidiary, or
pay any Indebtedness owed to, the Company or any Restricted Subsidiary, (b) make
loans or advances to the Company, or (c) transfer any of its properties or
assets to the Company, except for such encumbrances or restrictions existing
under or by reason of:
(i) applicable law or regulations;
(ii) customary provisions restricting subletting or assignment of
any lease or license of the Company or any Restricted Subsidiary;
(iii) any instrument governing Indebtedness or any other
encumbrance or restriction of a Person affecting such Person or its
property or assets acquired by the Company or any Restricted Subsidiary at
the time of such acquisition (provided that such Indebtedness or other
encumbrance or restriction was not issued in contemplation of the
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(iv) the New Credit Facility;
(v) any other agreement or instrument evidencing Indebtedness of a
Foreign Subsidiary permitted under this Indenture;
(vi) any other agreement or instrument in effect as of or entered
into on the Issue Date or imposed by this Indenture, the Guarantees, the
Series A Securities, the Series B Securities, or the guarantees thereon (or
similar limitations pursuant to other notes issued by the Company or other
indentures relating thereto that are substantially similar to those set
forth in this Indenture);
(vii) any Refinancing Indebtedness permitted under Section 4.04;
provided that the encumbrances and restrictions created in connection with
such Refinancing Indebtedness are no more restrictive in any material
respect with regard to the interests of the holders of Securities than the
encumbrances and restrictions in the refinanced Indebtedness (as determined
by the Board of Directors in good faith);
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(viii) the terms of purchase money obligations, but only to the
extent such purchase money obligations restrict or prohibit the transfer of
the property so acquired;
(ix) any other agreement or instrument evidencing or relating to
secured Indebtedness of the Company or any Restricted Subsidiary otherwise
permitted to be issued pursuant to the provisions of Sections 4.04 and 4.18
that limit the right of the debtor to dispose of the property or assets
securing such Indebtedness;
(x) customary net worth provisions contained in leases and other
agreements entered into in the ordinary course of business;
(xi) the terms of agreements with respect to the sale of assets of
the Company or a Subsidiary of the Company otherwise permitted by this
Indenture, provided that such restriction terminates if such transaction is
not consummated;
(xii) the terms of agreements that have been entered into for the
sale of all or substantially all of the Capital Stock, business, assets or
properties of a Restricted Subsidiary, provided that such restriction
terminates if such transaction is not consummated;
(xiii) with respect to a Restricted Subsidiary that is not a
Restricted Subsidiary on the Issue Date, instruments in existence at the
time such Person becomes a Restricted Subsidiary and not entered into in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary;
(xiv) customary provisions in joint venture agreements and other
similar agreements with respect to dividends and other similar
distributions to the parties to such joint venture, the disposition or
distribution of assets or property of such joint venture, or transactions
between or among the joint venture and the parties to such joint venture;
or
(xv) any Permitted Lien, with respect to restrictions on the sale
or other disposition of the assets or property subject to such Permitted
Lien.
SECTION 4.17. Designation of Restricted and Non-Restricted Subsidiaries.
(a) The Board of Directors of the Company may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would
not cause a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under clause (c) of Section 4.06. All such outstanding
Investments shall be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation. Such
designation shall only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
(b) The designation of a Subsidiary as a Restricted Subsidiary or the
removal of such designation shall be made by a resolution adopted by a majority
of the Board of Directors stating that the Board of Directors has made such
designation in accordance with this Indenture, and the Company shall deliver to
the Trustee such resolution together with an Officers' Certificate certifying
that the designation complies with this
<PAGE>
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Indenture. Such designation will be effective as of the date specified in the
applicable resolution which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
SECTION 4.18. Limitation on Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(x) in the case of Liens securing Subordinated Indebtedness, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (y) in all other cases, the Securities are equally
and ratably secured, except for (a) Liens existing as of the Issue Date and
securing any extensions, refinancings, renewals, replacements, substitutions or
refundings of the Obligations secured thereby, provided such Liens do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing Indebtedness as of the Issue Date; (b) Liens securing
the Series A Securities and the Series B Securities and Liens in favor of the
Trustee and any Lien granted, in respect of amounts owed to such trustee or
similar institution, to any trustee or similar institution under any indenture
for Indebtedness permitted by the terms of this Indenture; (c) Liens on assets
of the Company and its Subsidiaries securing Senior Indebtedness; (d) Liens in
favor of the Company or any Restricted Subsidiary; (e) Liens securing
Indebtedness which is incurred to refinance Indebtedness which has been secured
by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture, provided, however, that such
Liens do not extend to or cover any property or assets of the Company or any of
its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (f)
Permitted Liens.
SECTION 4.19. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and its Restricted Subsidiaries may enter into a sale and leaseback
transaction if:
(i) the Company and its Restricted Subsidiaries could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction pursuant to the Company's Cash Flow
Coverage Ratio test set forth in paragraph (a) of Section 4.04;
(ii) the cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee) of the property that is the subject of such sale and leaseback
transaction; and
(iii) to the extent such sale and leaseback transaction is an
Asset Sale, the proceeds of such transaction are applied in compliance with
Section 4.05.
SECTION 4.20. Subsidiary Guarantees.
The Company's obligations under this Indenture and the Securities
shall be guaranteed on a senior subordinated basis as of the date hereof by
Carson Products and in the future may be jointly and severally guaranteed by
certain other Subsidiaries (other than (i) Foreign Subsidiaries that are not
guarantors under the New Credit Facility and (ii) Unrestricted Subsidiaries) of
the Company.
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If (i) any Restricted Subsidiary shall become a guarantor under the
New Credit Facility, (ii) any Restricted Subsidiary shall become a guarantor
under any Indebtedness ("Other Company Indebtedness") of the Company or a
--------------------------
Restricted Subsidiary, other than the Securities, the New Credit Facility or
Indebtedness of a Foreign Subsidiary or (iii) the Company or any of its
Restricted Subsidiaries shall acquire or create another Subsidiary after the
date of this Indenture, then such Restricted Subsidiary or newly acquired or
created Subsidiary, as the case may be, shall execute a Guarantee in accordance
with Section 11.05 and deliver an Opinion of Counsel; provided, however, that
(A) any guarantee pursuant to clause (ii) of this paragraph shall be limited to
such portion of the aggregate principal amount of outstanding Securities as
equals the principal amount of such Other Company Indebtedness that is
guaranteed by such Restricted Subsidiary, (B) if the Other Company Indebtedness
guaranteed by such Restricted Subsidiary is (1) Senior Indebtedness, the
guarantee for the Securities shall be subordinated in right of payment with the
Other Company Indebtedness guarantee and (2) Subordinated Indebtedness, the
guarantee for the Securities shall be pari passu or senior in right of payment
to the Other Company Indebtedness guarantee and (C) clause (iii) of this Section
4.20 shall not apply (x) to any Subsidiary of the Company during such period as
such Subsidiary is inactive, has assets of less than $50,000 and has less than
$1,000 of outstanding Indebtedness owed to any person other than the Company or
a Restricted Subsidiary or (y) to any newly acquired or created Subsidiary that
is also a Foreign Subsidiary. This Section 4.20 shall not apply to any newly
acquired or created Subsidiary that has been properly designated as an
Unrestricted Subsidiary in accordance with the Indenture for so long as it
continues to be an Unrestricted Subsidiary.
The Company may cause any Foreign Subsidiary not otherwise required to
guarantee the Securities to guarantee the Securities on a senior subordinated
basis, in which case such Foreign Subsidiary shall be a Guarantor for purposes
of this Indenture.
SECTION 4.21. Limitations as to Unrestricted Subsidiaries.
The Company shall not permit any Unrestricted Subsidiary to issue
Indebtedness except Non-Recourse Debt. The Company and its Restricted
Subsidiaries shall not designate, create or purchase any Unrestricted
Subsidiary, unless the Board of Directors shall have made a determination (as
set forth in the resolution approving such designation, creation or purchase)
that the designation, creation and operation of the Unrestricted Subsidiary is
not reasonably expected to materially and adversely affect the financial
condition, business, or operations of the Company and its Restricted
Subsidiaries taken together as a whole (which resolution shall be conclusive
evidence of compliance with this provision).
SECTION 4.22. Payments for Consent.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for
or as an inducement or any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Securities or the Guarantees, unless such
consideration is offered to be paid or agreed to be paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
SECTION 4.23. Limitation on Lines of Business.
The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in or conduct any business other than the manufacture, distribution
and/or sale of health and beauty aids, cosmetics and/or other personal care
products, and businesses ancillary, complementary or reasonably related thereto,
reasonable extensions thereof.
<PAGE>
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ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Consolidation and Sale of Assets.
(a) The Company shall not consolidate or merge with or into, or sell,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any corporation, Person or entity (any such consolidation, merger or sale being
a "Disposition") unless: (i) the successor corporation of such Disposition or
-----------
the Person to which such Disposition shall have been made (A) is a corporation
organized or existing under the laws of the United States of America, any state
thereof or the District of Columbia or (B) is Carson South Africa; (ii) in the
case of clause (i)(B), the Company, prior to any such transaction, shall have
complied with paragraph (b) of this Section 5.01; (iii) the successor
corporation of such Disposition or the corporation to which such Disposition
shall have been made expressly assumes the Obligations of the Company under this
Indenture, the Securities and the Registration Rights Agreement pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee (which
supplemental indenture, in the case of clause (i)(B), shall provide that such
successor shall irrevocably submit to the exclusive jurisdiction of the Supreme
Court of the State of New York, New York County and to the jurisdiction of the
United States District Court for the Southern District of New York for the
purposes of any proceeding relating to the Securities or this Indenture, appoint
an agent in the State of New York and waive foreign sovereign immunity); (iv)
immediately after such Disposition, no Default or Event of Default shall exist;
and (v) the corporation formed by or surviving any such Disposition, or the
corporation to which such Disposition shall have been made, shall be permitted
immediately after the Disposition by the terms of this Indenture to issue at
least $1.00 of additional Indebtedness pursuant to paragraph (a) of Section 4.04
determined on a Pro Forma Basis, and (iii) have a Cash Flow Coverage Ratio, for
the four fiscal quarters immediately preceding the applicable Disposition, and
determined on a Pro Forma Basis, equal to or greater than the actual Cash Flow
Coverage Ratio of the Company for such four quarter period Basis;
provided, however, that a Disposition effected solely for the purpose of
changing the Company's jurisdiction of incorporation pursuant to clause (i)(A)
need not comply with the foregoing clauses (iv) and (v).
Prior to the consummation of any proposed Disposition, the Company
shall deliver to the Trustee an Officers' Certificate to the foregoing effect
and an Opinion of Counsel stating that the proposed Disposition and such
supplemental indenture comply with this Indenture. In connection with any other
actions in accordance with this Section 5.01, the Company shall deliver to the
Trustee, upon request of the Trustee, an Officers' Certificate and Opinion of
Counsel in compliance with Section 13.04.
(b) Prior to any Disposition pursuant to clause (i)(B) of paragraph
(a) of this Section 5.01, the Company shall make on at least 30 but not more
than 60 days' notice, an offer to purchase all of the Securities then
outstanding, at a purchase price in cash equal to the sum of (i) the principal
amount thereof plus (ii) accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase plus (iii) the Applicable Premium. At least 30 but
not more than 60 days prior to the proposed effective date of a Disposition
pursuant to clause (i)(B), the Company shall mail a notice to each Holder at
such Holder's registered address stating:
(i) that the Company intends to effect a Disposition pursuant to
which Carson South Africa will be the successor and that an offer is being
made to purchase all of the Securities then outstanding; the proposed
effective date of the Disposition and the length of time the offer shall
remain open;
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(ii) the purchase price, the amount of accrued and unpaid interest
as of the purchase date, and the purchase date (which shall be no earlier
than 30 days and no later than 60 days from the date such notice is
mailed);
(iii) that any Security or portion thereof not tendered will
continue to accrue interest;
(iv) that any Security or portion thereof accepted for payment
pursuant to the offer shall cease to accrue interest on and after the
purchase date;
(v) that Holders electing to have a Security purchased pursuant to
the offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to a Paying Agent at the address specified in the
notice at least three Business Days before the purchase date;
(vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day before the purchase date, a facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have the Security purchased;
(vii) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(viii) a brief description of the circumstances and relevant facts
regarding the proposed transaction.
On the purchase date (which shall be the effective date of the
Disposition) for any such offer, the Company shall (1) accept for payment all
Securities or portions thereof tendered pursuant to such offer, (2) deposit with
the Paying Agent the aggregate purchase price of all Securities or portions
thereof accepted for payment and any accrued and unpaid interest on such
Securities as of the purchase date, and (3) deliver or cause to be delivered to
the Trustee all Securities tendered pursuant to such offer. The Paying Agent
shall promptly mail to each holder of Securities or portions thereof accepted
for payment an amount equal to the purchase price for such Securities plus any
accrued and unpaid interest thereon, and the Trustee shall promptly authenticate
and mail (or cause to be transferred by book-entry) to any such holder of
Securities accepted for payment in part a new Security equal in principal amount
to any unpurchased portion of the Securities and any Security not accepted for
payment in whole or in part shall be promptly returned to the Holder thereof.
The Company will publicly announce the results of the offer as soon as
practicable after the purchase date.
The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with an offer required to be made by the Company to repurchase the Securities in
contemplation of such Disposition. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Indenture by
virtue thereof.
(c) No Guarantor may consolidate with or merge with or into (whether
or not such Guarantor is the surviving person), another corporation, Person or
entity whether or not affiliated with such Guarantor unless:
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(i) subject to the provisions of paragraph (d) of this Section
5.01, the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Guarantee of such
Guarantor and this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(iii) the Company would be permitted by virtue of the Company's
pro forma Cash Flow Coverage Ratio, immediately after giving effect to such
transaction, to issue at least $1.00 of additional Indebtedness pursuant to
the Cash Flow Coverage Ratio test set forth in paragraph (a) of Section
4.04; provided, however, that the requirements of this clause (iii) will
not apply in the case of a consolidation with or merger with or into the
Company or another Guarantor.
(d) In the event of (i) a sale, exchange, transfer or other
disposition of all or substantially all of the assets of any Guarantor, by way
of merger, consolidation or otherwise, or a sale, exchange, transfer or other
disposition of all of the Capital Stock of any Guarantor, (ii) the designation
by the Company of a Guarantor to be an Unrestricted Subsidiary, or (iii) the
release of the guarantee of any Guarantor with respect to the New Credit
Facility or any Other Company Indebtedness which caused such Guarantor to
deliver a Guarantee of the Securities in accordance with clause (i) or clause
(ii) of Section 4.20, then such Guarantor (in the event of a sale, exchange,
transfer or other disposition, by way of such a merger, consolidation or
otherwise, of all of the Capital Stock of such Guarantor or any such designation
or any such release) or each of the corporations acquiring the property of such
Guarantor and such Guarantor (in the event of a sale, exchange, transfer or
other disposition of all or substantially all of the assets of such Guarantor)
will be automatically released and relieved of any obligations under the
Guarantee of such Guarantor; provided that the Net Proceeds of a sale, exchange,
transfer or other disposition described in clause (i) of this paragraph (d) are
applied in accordance with the requirements of Section 4.05.
SECTION 5.02. Successor Corporation Substituted.
In the event of any Disposition of the Company or any Guarantor in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into which the Company or such Guarantor is merged or to which
such Disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Guarantor under this
Indenture with the same effect as if such successor corporation had been named
as the Company or such Guarantor herein, and thereafter the predecessor
corporation shall be relieved of all Obligations and covenants under this
Indenture and the Securities.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for
----------------
purposes of this Indenture:
(a) a default for 30 days in payment of interest on the
Securities;
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(b) a default in payment when due of principal or premium, if any,
with respect to the Securities;
(c) the failure of the Company to comply with clauses (i), (ii)
and (iii) of the first paragraph of Section 4.06, Section 4.14 or
paragraphs (a) and (b) of Section 5.01;
(d) the failure of the Company to comply with any of its other
agreements or covenants in, or provisions of, this Indenture or the
Securities outstanding hereunder (other than an Event of Default arising
under paragraph (a) or (b) of Section 5.01 which shall be an Event of
Default with the notice but without the passage of time specified in this
paragraph), for 30 days after notice in writing to the Company by the
Trustee, or to the Company and the Trustee by the Holders of at least 25%
in principal amount of the Securities then outstanding specifying such
default;
(e) a default by the Company or any Restricted Subsidiary under
any mortgage, indenture or instrument under which there is issued or by
which there is secured or evidenced any Indebtedness for money borrowed by
the Company or any Restricted Subsidiary (or the payment of which is
guaranteed by the Company or any Restricted Subsidiary), whether such
Indebtedness or guarantee now exists or shall be created hereafter, if (1)
either (A) such default results from the failure to pay principal of or
interest on any such Indebtedness (after giving effect to any extensions
thereof) or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its expressed maturity, and (2)
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or, because of the acceleration of the
maturity thereof, aggregates in excess of $7,500,000;
(f) a failure by the Company or any Restricted Subsidiary to pay
final judgments (not covered by insurance) aggregating in excess of
$7,500,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 60 days after their entry;
(g) the Company or any of its Significant Subsidiaries (i)
commences a voluntary case, (ii) consents to the entry of an order for
relief against it in an involuntary case, (iii) consents to the appointment
of a Custodian of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors, in each
case, pursuant to or within the meaning of the Bankruptcy Law;
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or
any of its Significant Subsidiaries in an involuntary case; (ii) appoints a
Custodian of the Company or any of its Significant Subsidiaries or for all
or substantially all of the property of the Company or any of its
Significant Subsidiaries; or (iii) order the liquidation of the Company or
any of its Significant Subsidiaries; and the order or decree remains
unstayed and in effect for 60 consecutive days; and
(i) the Guarantee of any Guarantor ceases to be in full force and
effect (other than in accordance with the terms of such Guarantee and this
Indenture) or is declared null and void and unenforceable or found to be
invalid or any Guarantor denies its liability under its Guarantee (other
than by reason of a release of such Guarantor from its Guarantee in
accordance with the terms of such Guarantee and this Indenture.
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In the case of any Event of Default pursuant to clause (a) or (b)
above occurring by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the principal intention of avoiding
payment of the premium that the Company would have to pay pursuant to a
redemption of Securities as described under Article Three, an equivalent premium
shall also become and be immediately, due and payable to the extent permitted by
law upon the acceleration of the Securities.
SECTION 6.02. Acceleration.
Upon the occurrence of an Event of Default, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Securities may
declare all Securities to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice") and the same shall become
-------------------
immediately due and payable or, if there are any amounts outstanding under the
New Credit Facility, shall become immediately due and payable upon the first to
occur of acceleration of the New Credit Facility or five Business Days after
receipt by the Company of such Acceleration Notice, but only if such Event of
Default is then continuing. In the case of an Event of Default arising from the
events specified in paragraphs (g) or (h) of Section 6.01 with respect to the
Company or any Significant Subsidiary, the principal of, premium, if any, and
any accrued and unpaid interest on all outstanding Securities shall ipso facto
become immediately due and payable without further action or notice.
The Holders of a majority in principal amount of the Securities then
outstanding under this Indenture, by notice to the Trustee, may rescind any
declaration of acceleration of such Securities and its consequences if all
existing Events of Default (other than the nonpayment of principal of or
interest on such Securities that shall have become due by such declaration)
shall have been cured or waived.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest and Liquidated Damages, if any, on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All available
remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount of the then outstanding Securities by written notice
to the Trustee may on behalf of all Holders waive an existing Default or Event
of Default and its consequences hereunder, except a continuing Default in the
payment of principal of or premium, if any, or interest or Liquidated Damages,
if any, on any Security or a Default in respect of any term or provision of this
Indenture that may not be amended or modified without the consent of each Holder
affected as provided in Section 10.02. The Company shall deliver to the Trustee
an Officers' Certificate stating that the requisite percentage of Holders have
consented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to their
former positions and rights hereunder and under the Securities, respectively.
This paragraph of this Section 6.04 shall be in lieu of (S) 316(a)(1)(B) of the
TIA and
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such (S) 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder, or
that may involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any action or
follows any direction pursuant to this Indenture, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of (S) 316(a)(1)(A) of the TIA, and such (S) 316(a)(1)(A)
of the TIA is hereby expressly excluded from this Indenture and the Securities,
as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue
a remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
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SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of or interest or Liquidated Damages,
if any, on a Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or premium, if any, or
interest or Liquidated Damages, if any, specified in Section 6.01(i) or (ii)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company or the Guarantors or any
other obligor on the Securities for the whole amount of principal and premium,
if any, and accrued interest remaining unpaid, and Liquidated Damages, if any,
together with interest overdue on principal and to the extent that payment of
such interest is lawful, interest on overdue installments of interest, in each
case at the rate per annum borne by the Securities and such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company or
the Guarantors (or any other obligor upon the Securities), any of their
respective creditors or any of their respective property and shall be entitled
and empowered to participate as a member, voting or otherwise, of any official
committee of creditors appointed in such matter and to collect and receive any
monies or other property payable or deliverable on any such claims and to
distribute the same, and any custodian in any such judicial proceedings is
hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, subject to the provisions of Articles Eight and Twelve, it shall pay out
the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities
for principal, premium, if any, or Liquidated Damages, if any, and
interest, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Securities for principal and interest,
respectively; and
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Third: to the Company or, to the extent the Trustee collects any
amount from the Guarantors, to the Guarantors.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal of or interest or premium or
Liquidated Damages, if any, on any Securities on or after the respective due
dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of its own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of
such duties as are specifically set forth herein and in the TIA and no
implied covenants or obligations shall be read into the Indenture against
the Trustee, provided, however to the extent of any conflict between the
duties of the Trustee hereunder and under the TIA, the TIA shall control;
and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions conforming to
the requirements of this Indenture; however, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or investigate the
accuracy of mathematical calculations or other facts stated therein or
otherwise verify the contents thereof).
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
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(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may conclusively rely on any document believed by
it to be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the document.
The Trustee shall receive and retain financial reports and statements of
the Company as provided herein, but it shall have no duty to review or
analyze such reports or statements to determine compliance with covenants
or other obligations of the Company.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and/or an Opinion of Counsel, which shall
conform to the provisions of Section 13.05. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of
any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion
of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
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(f) Any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
request or direction of any Guarantor mentioned herein shall be
sufficiently evidenced if signed by an officer of such Guarantor.
(g) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Securityholders pursuant to this Indenture, unless
such Securityholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, security, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company
or the Guarantor, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof
or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
(j) Permissive rights or powers available to the Trustee hereunder
shall not be assumed to be mandatory duties or obligations.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company or the Guarantors in
this Indenture or any document issued in connection with the sale of Securities
or any statement in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Defaults.
The Company shall deliver to the Trustee annually a statement
regarding compliance with this Indenture and, upon an Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default. If a Default or an Event of Default occurs and is
continuing and the Trustee knows of such Default or Event of Default, the
Trustee shall mail to each Securityholder notice of the Default or Event of
Default within 90 days after the occurrence thereof. Except in the case of a
Default or an
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Event of Default in payment of principal of or premium, if any, or
interest or Liquidated Damages, if any, on any Security or a Default or Event of
Default in complying with Section 5.01 hereof, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to (S) 315(b) of the TIA and
such proviso to (S) 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such May 15 that complies
with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the Commission and each stock exchange, if
any, on which the Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company and the Guarantors jointly and severally shall pay to the
Trustee from time to time such compensation as the Company and the Trustee shall
from time to time agree in writing for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company and the Guarantors shall reimburse the Trustee upon request
for all reasonable disbursements, expenses and advances (including fees,
disbursements and expenses of its agents and counsel) incurred or made by it in
addition to the compensation for its services except any such disbursements,
expenses and advances as may be attributable to the Trustee's negligence or bad
faith. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents, accountants, experts and counsel and any
taxes or other expenses incurred by a trust created pursuant to Section 9.01
hereof.
The Company and the Guarantors jointly and severally shall indemnify
the Trustee for, and hold it harmless against any and all loss, damage, claims,
liability or expense, including taxes (other than franchise taxes imposed on the
Trustee and taxes based upon, measured by or determined by the income of the
Trustee), arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
bad faith. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. However, the failure by
the Trustee to so notify the Company shall not relieve the Company or the
Guarantors of their respective obligations hereunder. The Company and the
Guarantor shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's and the Guarantors' expense;
provided, however, that the Company's and the Guarantors' reimbursement
obligation with respect to counsel employed by the Trustee will be limited to
the reasonable fees and expenses of such counsel.
The Company and the Guarantors need not pay for any settlement made
without their written consent, which consent shall not be unreasonably withheld.
The Company and the Guarantors need not reim-
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burse any expense or indemnify against any loss or liability incurred by the
Trustee attributable to the Trustee's negligence or bad faith.
To secure the Company's and the Guarantors' payment obligations in
this Section 7.07, the Trustee shall have a Lien prior to the Securities against
all money or property held or collected by the Trustee, in its capacity as
Trustee, except money or property held in trust to pay principal of or premium,
if any, or interest or Liquidated Damages, if any, on particular Securities or
the purchase price or redemption price of any Securities to be purchased
pursuant to an Asset Sale Offer, Change of Control Offer or an offer pursuant to
paragraph (b) of Section 5.01.
When the Trustee incurs expenses or renders services after an Event of
Default specified in paragraph (g) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's and the Guarantors'
obligations under this Section 7.07 and any claim arising hereunder shall
survive the resignation or removal of any Trustee, the discharge of the
Company's and the Guarantors' obligations pursuant to Article Nine and any
rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(3) a custodian or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstand-
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ing Securities may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's and the Guarantors' obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall
acquire any "conflicting interest" within the meaning of TIA (S) 310(b), the
Trustee and the Company shall comply with the provisions of TIA (S) 310(b);
provided, however, that there shall be excluded from the operation of TIA (S)
310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.10, the Trustee shall resign
immediately in the manner and with the effect hereinbefore specified in this
Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, that all
Securities shall be issued subject to the provisions of this Article Eight; and
each person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of and premium interest and Liquidated Damages, if any, on the
Securities by the Company or the Guarantor shall, to the extent and in the
manner set forth in this Article Eight, be subordinated in right of payment to
the prior payment in full in cash or
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Marketable Securities of all amounts payable under Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Company of
principal of or interest and Liquidated Damages, if any, on the Securities,
whether pursuant to the terms of the Securities, upon acceleration, pursuant to
an Asset Sale Offer, a Change of Control Offer, an offer pursuant to paragraph
(b) of Section 5.01 or otherwise, shall be made to the Holders of Securities and
instead shall be made to the Holders of Senior Indebtedness (except that Holders
of Securities may receive payments made in Permitted Junior Securities or from
the defeasance trust described under Section 9.04) if (i) a default in the
payment of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
-----------------------
Senior Indebtedness until all Obligations with respect to Senior Indebtedness
are paid in full; payments on the Securities shall be resumed (a) in the case of
a payment default, upon the date on which such default is cured or waived and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received by the Trustee (such period being
referred to herein as the "Payment Blockage Period"), unless the maturity of any
-----------------------
Designated Senior Indebtedness has been accelerated (and written notice of such
acceleration has been received by the Trustee). No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Trustee of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Securities during any period of 360
consecutive days. No new period of payment blockage may be commenced unless and
until all scheduled payments of principal, premium, if any, and interest on the
Securities that have come due have been paid in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Trustee of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held for the benefit of, and shall be
paid over or delivered to, the holders of Designated Senior Indebtedness or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Designated Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or a
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trustee) notify the Trustee in writing of the amounts then due and owing on the
Designated Senior Indebtedness, if any, and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Designated Senior
Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or Marketable Securities of all
Obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the holders of Securities will be entitled to
receive any payment with respect to the Securities, and until all Obligations
with respect to Senior Indebtedness are paid in full in cash or Marketable
Securities, any distribution to which the holders of Securities would be
entitled shall be made to the holders of Senior Indebtedness (except that
holders of Securities may receive Permitted Junior Securities and payments made
from the defeasance trust described under Section 9.04).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any holder of Securities at a
time when such payment or distribution is prohibited by Section 8.03(a) and
before all obligations in respect of Senior Indebtedness are paid in full in
cash or Marketable Securities, or payment provided for, such payment or
distribution shall be received and held for the benefit of, and shall be paid
over or delivered to, the holders of Senior Indebtedness (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders) or their respective representatives, or to the trustee or trustees
or agent or agents under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of Senior Indebtedness remaining unpaid until all
such Senior Indebtedness has been paid in full in cash or Marketable Securities
after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution, winding-
up, liquidation or reorganization for the purposes of this Section 8.03 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full in cash or Marketable Securities of all
Senior Indebtedness, or provision for payment, the holders of the Securities
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the Company
made on such Senior Indebtedness until the principal of and interest and
Liquidated Damages, if any, on the Securities shall be paid in full in cash;
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the holders of the Securities or the Trustee
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on their behalf would be entitled except for the provisions of this Article
Eight, and no payment over pursuant to the provisions of this Article Eight to
the holders of Senior Indebtedness by holders of the Securities or the Trustee
on their behalf shall, as between the Company, its creditors other than holders
of Senior Indebtedness, and the holders of the Securities, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness. It is
understood that the provisions of this Article Eight are and are intended solely
for the purpose of defining the relative rights of the holders of the
Securities, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.
If any payment or distribution to which the holders of the Securities
would otherwise have been entitled but for the provisions of this Article Eight
shall have been applied, pursuant to the provisions of this Article Eight, to
the payment of all amounts payable under Senior Indebtedness, then and in such
case, the holders of the Securities shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, or provision for payment, of such Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Company and
the holders of the Securities, the obligation of the Company, which is absolute
and unconditional, to pay to the holders of the Securities the principal of and
interest and Liquidated Damages, if any, on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the holders of the Securities and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Eight of the holders of the Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness then due
and payable shall first be paid in full before the holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest or Liquidated Damages, if any, on the
Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight. The Trustee shall not be charged with knowledge of the existence
of any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor; and prior to the receipt of
any such written notice, the Trustee shall, subject to Article Seven, be
entitled to assume that no such facts exist; provided that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest or Liquidated Damages, if any, on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from the Company and
to apply the same to the purpose for which they were received, and shall not be
affected by any notice to the con-
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trary which may be received by it on or after such prior date. Nothing contained
in this Section 8.06 shall limit the right of the holders of Senior Indebtedness
to recover payments as contemplated by Section 8.03. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness. The Trustee shall not
be liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article Eight or otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may
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have or otherwise be charged with. The provisions of this Article Eight are
intended to be for the benefit of, and shall be enforceable directly by, the
holders of Senior Indebtedness.
SECTION 8.10. Securityholders Authorize Trustee to Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on its or his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Eight, and appoints the Trustee its or his attorney-in-
fact for such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the filing of a claim for the unpaid balance
of its or his Securities in the form required in those proceedings.
SECTION 8.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of or interest
or Liquidated Damages, if any, on the Securities by reason of any provision of
this Article Eight shall not be construed as preventing the occurrence of an
Event of Default specified in clause (i) or (ii) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture. SECTION 8.13. No Waiver of
Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in
Trust for Securityholders; Payments May Be Paid Prior to
Dissolution.
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
8.02, from making payments of principal of and interest and Liquidated Damages,
if any, on the Securities, or from depositing with the Trustee any moneys for
such payments or from effecting a termination of the Company's and the
Guarantor's obligations under the Secu-
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rities and this Indenture as provided in Article Nine, or (ii) the application
by the Trustee of any moneys deposited with it for the purpose of making such
payments of principal of and interest and Liquidated Damages, if any, on the
Securities, to the Holders entitled thereto unless at least two Business Days
prior to the date upon which such payment becomes due and payable, the Trustee
shall have received the written notice provided for in Section 8.02(b) or in
Section 8.06. The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company.
SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness of
the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture.
The Company and the Guarantors may terminate their Obligations under
the Securities, the Guarantees and this Indenture, except the obligations
referred to in the last paragraph of this Section 9.01, if there shall have been
cancelled by the Trustee or delivered to the Trustee for cancellation all
Securities theretofore authenticated and delivered (other than any Securities
that are asserted to have been destroyed, lost or stolen and that shall have
been replaced as provided in Section 2.07) and the Company has paid all sums
payable by it hereunder or deposited all required sums with the Trustee.
After such delivery or irrevocable deposit and after delivery of an
Officers' Certificate and Opinion of Counsel as described below, the Trustee
upon request shall acknowledge in writing the discharge of the Company's and the
Guarantors' Obligations under the Securities, the Guarantees and this Indenture
except for those surviving obligations specified below.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company and the Guarantor in Sections 7.07, 9.05 and 9.06
shall survive.
SECTION 9.02. Legal Defeasance.
The Company may at its option, by resolution of the Board of
Directors, be discharged from its Obligations with respect to the Securities and
the Guarantors discharged from their Obligations under the Guarantees on the
date the conditions set forth in Section 9.04 below are satisfied (hereinafter,
the "Legal Defeasance Option"). For this purpose, exercise of such Legal
-----------------------
Defeasance Option means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Securities and to have
satisfied all its other Obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall, subject to Section 9.06 hereof, execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
outstanding Securities to receive solely from the trust funds described in
Section 9.04 and as more fully set forth in such Section, payments in respect of
the principal of and premium, if any, and interest and Liquidated Damages, if
any, on such Securities when such payments are due, (B) the Com-
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pany's obligations with respect to such Securities under Sections 2.03, 2.04 and
2.07, (C) the rights, powers, trusts, duties, and immunities of the Trustee
hereunder (including claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof) and (D) this Article Nine. Subject to compliance with this
Article Nine, the Company may exercise its Legal Defeasance Option under this
Section 9.02 with respect to the Securities notwithstanding the prior exercise
of its option under Section 9.03 with respect to the Securities. If the Company
exercises its Legal Defeasance Option, payment of the Securities may not be
accelerated because of an Event of Default with respect thereto.
SECTION 9.03. Covenant Defeasance.
At the option of the Company, pursuant to a resolution of the Board of
Directors, the Company and the Guarantors shall be released from their
respective Obligations under any covenant contained in Article Four (except for
obligations mandated by the TIA), clauses (iv) and (v) of paragraph (a) and
clauses (ii) and (iii) of paragraph (c) of Section 5.01, and paragraphs (c),
(d), (e), (f) and, with respect to Significant Subsidiaries only, (g) and (h) of
Section 6.01, with respect to the outstanding Securities on and after the date
the conditions set forth in Section 9.04 hereof are satisfied (hereinafter,
"Covenant Defeasance Option"). For this purpose, exercise of such Covenant
- ---------------------------
Defeasance Option means that the Company and the Guarantors may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Securities shall be
unaffected thereby. If the Company exercises the Covenant Defeasance Option,
payment of the Securities shall not be accelerated because of an Event of
Default specified in paragraphs (c), (d), (e), (f) or, with respect to
Significant Subsidiaries only, (g) of Section 6.01 or because of the Company's
failure to comply with clauses (iv) and (v) under paragraph (a) of Section 5.01
and clauses (ii) and (iii) under paragraph (c) of Section 5.01.
SECTION 9.04. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of Section 9.02
or Section 9.03 hereof to the outstanding Securities:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Article Nine applicable to it) as funds in trust (the "defeasance trust")
----------------
for the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of the
Securities, (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than the due
date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally-recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the principal
of and premium, if any, and accrued interest and Liquidated Damages, if
any, on the outstanding Securities on the Maturity Date of such principal
of or premium, if any, or interest, or Liquidated Damages, if any, or on
dates for payment and redemption of such principal and premium, if any, and
interest and Liquidated Damages, if any, selected in accordance with the
terms of this Indenture and of the Securities;
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(2) no Event of Default or Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit, or shall
have occurred and be continuing at any time during the period ending on the
91st day after the date of such deposit or, if longer, ending on the day
following the expiration of the longest preference period under any
Bankruptcy Law applicable to the Company in respect of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period);
(3) such Legal Defeasance Option or Covenant Defeasance Option
shall not cause the Trustee to have a conflicting interest for purposes of
the TIA with respect to any securities of the Company;
(4) such Legal Defeasance Option or Covenant Defeasance Option
shall not result in a breach or violation of, or constitute default under
any other agreement or instrument to which the Company is a party or by
which it is bound;
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance Option or
Covenant Defeasance Option, neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company
Act of 1940, as amended;
(6) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that after the 91st day after the date of such deposit (or
such greater period referred to in (2) above), the trust funds will not be
subject to the effect of any applicable Bankruptcy Law;
(7) in the case of an election under Section 9.02 above, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling to the effect that or (ii) there has been
a change in any applicable federal income tax law with the effect that, and
such opinion shall confirm that, the Holders of the outstanding Securities
or Persons in their positions will not recognize income, gain or loss for
federal income tax purposes solely as a result of such deposit in the
defeasance trust or the exercise of the Legal Defeasance Option and will be
subject to federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit in the
defeasance trust or the exercise of the Legal Defeasance Option had not
occurred;
(8) in the case of an election under Section 9.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Securities or Persons in their
positions will not recognize income, gain or loss for federal income tax
purposes solely as a result of such deposit in the defeasance trust or the
exercise of the Covenant Defeasance Option and will be subject to federal
income tax on the same amount, in the same manner and at the same times as
would have been the case if such deposit in the defeasance trust or the
exercise of the Covenant Defeasance Option had not occurred;
(9) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance Option under
Section 9.02 or the Covenant Defeasance Option under Section 9.03 (as the
case may be) have been complied with;
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(10) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Company with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others; and
(11) the Company shall have paid or duly provided for payment under
terms mutually satisfactory to the Company and the Trustee all amounts then
due to the Trustee pursuant to Section 7.07 hereof.
SECTION 9.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect
of the outstanding Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal, premium, if any, accrued interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 9.04 or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Nine to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 9.04 which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance Option or
Covenant Defeasance Option.
SECTION 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.01, 9.02 or 9.03 by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's and the Guarantors' Obligations under this Indenture,
the Securities and the Guarantees shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Nine until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 9.01; provided, however, that if the
Company or any Guarantor has made any payment of principal of, premium, if any,
accrued interest or Liquidated Damages, if any, on any Securities because of the
reinstatement of their Obligations, the Company or any Guarantor, as the case
may be, shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
SECTION 9.07. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the
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Trustee, or if sufficient moneys have been deposited pursuant to Section 9.01
hereof, to the Company (or, if such moneys had been deposited by any Guarantor,
to such Guarantor), and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
SECTION 9.08. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Company or any Guarantor in trust for the payment of the principal of, or
premium, if any, interest or Liquidated Damages, if any, on any Security that
are not applied but remain unclaimed by the Holder of such Security for two
years after the date upon which the principal of, or premium, if any, interest
or Liquidated Damages, if any, on such Security shall have respectively become
due and payable shall be repaid to the Company (or, if appropriate, the
Guarantor) upon Company Request, or if such moneys are then held by the Company
or any Guarantor in trust, such moneys shall be released from such trust; and
the Holder of such Security entitled to receive such payment shall thereafter,
as an unsecured general creditor, look only to the Company and such Guarantor
for the payment thereof, and all liability of the Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided, however, that
the Trustee or any such Paying Agent, before being required to make any such
repayment, may, at the expense of the Company and such Guarantor, either mail to
each Securityholder affected, at the address shown in the Register, or cause to
be published once a week for two successive weeks, in a newspaper published in
the English language, customarily published each Business Day and of general
circulation in The City of New York, New York, a notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing or publication, any unclaimed balance of
such moneys then remaining will be repaid to the Company or such Guarantor.
After payment to the Company or such Guarantor or the release of any money held
in trust by the Company or such Guarantor, as the case may be, Securityholders
entitled to the money must look only to the Company and such Guarantor for
payment as general creditors unless applicable abandoned property law designates
another Person.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of the
Board of Directors and the boards of directors of the Guarantors, and the
Trustee may amend or supplement this Indenture or the Securities without notice
to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Securities in addition to or in
place of Certificated Securities or to alter the provisions of Article Two
(including the related definitions) in a manner that does not materially
adversely affect any Holder;
(iii) to provide for the assumption by a successor Person of the
obligations of the Company to the Holders of Securities under the
Securities, this Indenture and the Registration Rights Agreement in
connection with any transaction complying with Article Five of this
Indenture;
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(iv) to add further Guarantees with respect to the Securities;
(v) to release Guarantors when permitted by the Indenture;
(vi) to secure the Securities;
(vii) to add to the covenants of the Company and any Subsidiary of
the Company for the benefit of the Holders of the Securities or to
surrender any right or power conferred upon the Company or any Subsidiary
of the Company;
(viii) to comply with any requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the TIA; or
(ix) to make any change that does not materially adversely affect
the legal rights of any Holder under this Indenture;
provided, however, that the Company shall deliver to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01. Subject to Section 10.06, upon the request of the
Company, the Trustee shall join with the Company in the execution of any amended
or supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of the Boards of Directors and the boards of
directors of the Guarantors, and the Trustee may amend or supplement this
Indenture or the Securities with the written consent of the Holders of at least
a majority in principal amount of the outstanding Securities. Subject to
Section 6.07, the Holders of a majority in principal amount of the outstanding
Securities may waive compliance by the Company or the Guarantors with any
provision of this Indenture or the Securities and may waive any existing Default
or Event of Default (other than a payment default). However, without the
consent of each Securityholder affected, an amendment, supplement or waiver may
not:
(i) reduce the principal amount of any Securities whose Holders
must consent to an amendment to this Indenture or a waiver under this
Indenture;
(ii) reduce the rate of or change the interest payment time on any
Security or alter the redemption provisions with respect thereto (including
the redemption provisions relating to Sections 4.05, 4.14 and 5.01(b),
other than any alteration to any such Section which would not materially
adversely affect the legal rights of any Holder under this Indenture) or
the price at which the Company is required to offer to purchase the
Securities;
(iii) reduce the principal of or change the fixed maturity of any
Security;
(iv) change currency of payment of the principal of or interest on
any Security;
(v) modify any provision of Section 4.01, 6.04, 6.07 or 8.05;
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(vi) waive any default in the payment of the principal of, premium,
if any, or unpaid interest on, and Liquidated Damages, if any, with respect
to the Securities;
(vii) make any change to Article Eight or Twelve of this Indenture
or paragraph 11 of the Securities in a manner that materially adversely
affects the legal rights of any Holder of the Securities; or
(viii) release any Guarantor from its obligations under any
Guarantee, other than in accordance with this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by written notice to the Trustee or the Company received before the
date on which the waiver, supplement or amendment becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, in
accordance with its terms it shall bind every Securityholder, unless it makes a
change described in any of clauses (i) through (viii) of Section 10.02. In that
case, the amendment, supplement or waiver shall bind each Holder of a Security
who has consented to it and every subsequent Holder of a Security or portion of
a Security that evidences the same debt as the consenting Holder's Security.
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SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Ten if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee,
provided, however, that the Trustee shall be entitled to receive, and (subject
to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article Ten is authorized or permitted by this Indenture.
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby irrevocably and unconditionally guarantees to
each holder of a Security authenticated by the Trustee and to the Trustee and
its successors and assigns that: the principal of and premium, if any, interest
or Liquidated Damages, if any, on the Securities shall be promptly paid in full
when due, subject to any applicable grace period, whether on the Maturity Date,
by acceleration, call for redemption, upon a Change of Control Offer, upon an
Asset Sale Offer, upon an offer pursuant to paragraph (b) of Section 5.01 or
otherwise, and interest on the overdue principal of and interest on any overdue
interest on the Securities and expenses, indemnification or otherwise, and all
other obligations of the Company (all such obligations guaranteed by the
Guarantor being called herein the "Guaranteed Obligations"), to the Holders or
----------------------
the Trustee hereunder or under the Securities will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; subject,
however, to the limitations set forth in Section 11.03. Each Guarantor hereby
agrees that its obligations hereunder shall be unconditional and continuing,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of such Guarantor and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon such Guarantor and its successors, transferees and assigns and (c)
inure to the benefit of and be enforceable by the Trustee, the holders of the
Securities and their successors, transferees and assigns. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that the Guarantees will not be discharged except by complete
performance of the Guaranteed Obligations, and this Guarantee. If any Holder or
the Trustee is required by any court or otherwise to return to the Company, any
Guarantor, or any Custodian, trustee, liquidator or other similar official
acting in relation to the Company or
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such Guarantor, any amount paid by the Company or such Guarantor to the Trustee
or such Holder, the Guarantees, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between such Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Guaranteed Obligations hereby may be
accelerated as provided in Article Six for the purpose of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Guaranteed Obligations, and (y) in the event of
any acceleration of the Guaranteed Obligations as provided in Article Six, such
Guaranteed Obligations (whether or not due and payable) shall forthwith become
due and payable by such Guarantor for the purpose of this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Limitation of Guarantor's Liability.
Each Guarantor and, by its acceptance of a Security issued hereunder,
each Holder and the Trustee hereby confirm that it is the intention of all such
parties that the guarantee by the Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar U.S. federal or state or other applicable law. To effectuate the
foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that the obligations of each Guarantor under the Guarantees shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor, result in the obligations of such Guarantor
under the Guarantees not constituting such fraudulent transfer or conveyance.
SECTION 11.04. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under the Guarantees or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Securities in accordance
with the provisions provided therefor in this Indenture.
SECTION 11.05. Execution and Delivery of Guarantee.
To evidence its Guarantee set forth in this Article Eleven, each
Guarantor hereby agrees to execute the Guarantee in substantially the form
included in Exhibits A and B, which shall be endorsed on each Security ordered
to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees
that its Guarantee set forth in this Article Eleven shall remain in full force
and effect notwithstanding any failure to endorse on each Security a notation of
such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor
by an Officer (who shall have been duly authorized by all requisite corporate
actions), and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may
be by manual or facsimile signature of such Officer and may be imprinted or
otherwise reproduced on the Guarantee, and in case any such Officer who shall
have signed the Guarantee shall cease to be such Officer before the Security on
which such Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the person who signed the
Guarantee had not ceased to be such Officer of the Guarantor.
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ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each holder
of the Securities by its or his acceptance thereof likewise covenants and
agrees, that the Guarantees shall be issued subject to the provisions of this
Article Twelve; and each person holding any Security, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
all payments of the principal of and premium, if any, interest and Liquidated
Damages, if any, on the Securities pursuant to the Guarantees made by or on
behalf of each Guarantor shall, to the extent and in the manner set forth in
this Article Twelve, be subordinated and junior in right of payment to the prior
payment in full in cash or Marketable Securities of all amounts payable under
Senior Indebtedness of each Guarantor.
SECTION 12.02. No Payment on Guarantee in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of any Guarantor of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Securities, whether pursuant to the Guaranteed Obligations, the terms of the
Securities, upon acceleration, pursuant to an Asset Sale Offer, Change of
Control Offer, an offer pursuant to paragraph (b) of Section 5.01 or otherwise,
shall be made to the holders of Securities and instead shall be made to the
holders of Senior Indebtedness of such Guarantor (except that holders of
Securities may receive payments made in Permitted Junior Securities or from the
defeasance trust described under Section 9.04) if (i) a default in the payment
of the principal of or premium, if any, or interest on Senior Indebtedness of
such Guarantor occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Guarantor Senior Indebtedness that permits holders of the Designated Guarantor
Senior Indebtedness as to which such default relates to accelerate its maturity
and the Trustee receives a written notice (with a copy to such Guarantor) of
such other default (a "Guarantor Payment Blockage Notice") from such Guarantor
---------------------------------
or the holders of any Designated Guarantor Senior Indebtedness until all
Obligations with respect to such Designated Guarantor Senior Indebtedness are
paid in full; payments on the Securities shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Guarantor Payment Blockage Notice is received by the Trustee (such
period being referred to herein as the "Guarantor Payment Blockage Period"),
---------------------------------
unless the maturity of any Designated Guarantor Senior Indebtedness has been
accelerated (and written notice of such acceleration has been received by the
Trustee). No nonpayment default that existed or was continuing on the date of
delivery of any Guarantor Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Guarantor Payment Blockage Notice (it being
understood that any subsequent action, or any breach of any covenant for a
period commencing after the date of receipt by the Trustee of such Guarantor
Payment Blockage Notice, that, in either case, would give rise to such a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Guarantor Payment Blockage Period extend beyond 179 days
from the date the Guarantor Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each 360-
day period when no Guarantor Payment Blockage Period is in effect and (z) not
more than one Guarantor Payment Blockage Period may be commenced with respect to
the Guarantor during any period of 360 consecutive days.
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No new period of payment blockage may be commenced unless and until all
scheduled payments of principal, premium, if any, and interest on the Guarantees
that have come due have been paid in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Guarantor Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Guarantor
Payment Blockage Notice (it being understood that any subsequent action, or any
breach of any covenant for a period commencing after the date of receipt by the
Trustee of such Guarantor Payment Blockage Notice, that, in either case, would
give rise to such a default pursuant to any provisions under which a default
previously existed or was continuing shall constitute a new default for this
purpose).
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 12.02(a), such payment shall be held for the benefit of, and shall be
paid over or delivered to, the holders of such Designated Guarantor Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the extent that, upon notice from the Trustee to the holders of such
Designated Guarantor Senior Indebtedness that such prohibited payment has been
made, the holders of such Designated Guarantor Senior Indebtedness (or their
representative or representatives or a trustee) notify the Trustee in writing of
the amounts then due and owing on such Designated Guarantor Senior Indebtedness,
if any, and only the amounts specified in such notice to the Trustee shall be
paid to the holders of such Designated Guarantor Senior Indebtedness.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any distribution to creditors of any Guarantor in a
liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Guarantor or its
property, an assignment for the benefit of creditors or any marshaling of the
Guarantor's assets and liabilities, the holders of Senior Indebtedness of such
Guarantor will be entitled to receive payment in full in cash or Marketable
Securities of all Obligations due in respect of the Senior Indebtedness of such
Guarantor (including interest after the commencement of any such proceeding at
the rate specified in the applicable Senior Indebtedness of such Guarantor)
before the holders of Guarantees will be entitled to receive any payment with
respect to the Guarantees, and until all Obligations with respect to Senior
Indebtedness of such Guarantor are paid in full in cash or Marketable
Securities, any distribution to which the holders of Guarantees would be
entitled shall be made to the holders of Senior Indebtedness of such Guarantor
(except that holders of Guarantees may receive Permitted Junior Securities and
payments made from the defeasance trust).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any holder of
Securities at a time when such payment or distribution is prohibited by Section
12.03(a) and before all Obligations in respect of the Senior Indebtedness of
such Guarantor are paid in full in cash or Marketable Securities, or payment
provided for, such payment or distribution shall be received and held for the
benefit of, and shall be paid over or delivered to, the holders of the Senior
Indebtedness of such Guarantor (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness of such Guarantor held by such
holders) or their respective representatives, or to the trustee or trustees or
agent or agents under any indenture pursuant to which any of Senior Indebtedness
of such Guarantor may have been issued, as their respective interests may
appear, for application to the payment of the Senior Indebtedness of such
Guarantor remaining unpaid until all Senior Indebtedness of such Guarantor has
been paid in full in cash or Marketable Securities after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of Senior Indebtedness of such Guarantor; provided that the
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Trustee shall be entitled to receive from the holders of Senior Indebtedness of
such Guarantor written notice of the amounts owing on the Senior Indebtedness of
such Guarantor.
The consolidation of the Guarantor with, or the merger of the
Guarantor with or into, another corporation or the liquidation or dissolution of
the Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 12.04. Subrogation.
Upon the payment in full in cash or Marketable Securities of all
Senior Indebtedness of any Guarantor, or provision for payment, the holders of
the Guarantees shall be subrogated to the rights of the holders of Senior
Indebtedness of such Guarantor to receive payments or distributions of cash,
property or securities of such Guarantor made on Senior Indebtedness of such
Guarantor until the principal of and premium, if any, and interest and
Liquidated Damages, if any, on the Guarantees shall be paid in full in cash;
and, for the purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of such Guarantor of any cash, property or
securities to which the holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article Twelve, and no
payment over pursuant to the provisions of this Article Twelve to the holders of
the Senior Indebtedness of such Guarantor by holders of the Guarantees or the
Trustee on their behalf shall, as between such Guarantor, its creditors other
than holders of the Senior Indebtedness of such Guarantor, and the holders of
the Securities, be deemed to be a payment by such Guarantor to or on account of
the Senior Indebtedness of such Guarantor. It is understood that the provisions
of this Article Twelve are and are intended solely for the purpose of defining
the relative rights of the holders of the Guarantees, on the one hand, and the
holders of Senior Indebtedness of such Guarantor, on the other hand.
If any payment or distribution to which the holders of the Guarantees
would otherwise have been entitled but for the provisions of this Article Twelve
shall have been applied, pursuant to the provisions of this Article Twelve, to
the payment of all amounts payable under Senior Indebtedness of such Guarantor,
then and in such case, the holders of the Securities shall be entitled to
receive from the holders of Senior Indebtedness of such Guarantor any payments
or distributions received by such holders of Senior Indebtedness of such
Guarantor in excess of the amount required to make payment in full, or provision
for payment, of Senior Indebtedness of such Guarantor.
SECTION 12.05. Obligations of Guarantor Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities or the Guarantees is intended to or shall impair,
as between any Guarantor and the holders of the Securities, the obligation of
such Guarantor, which is absolute and unconditional, to pay to the holders of
the Securities the principal of and premium, if any, or interest and Liquidated
Damages, if any, on the Securities as and when the same shall become due and
payable in accordance with the terms of the Guarantee, or is intended to or
shall affect the relative rights of the holders of the Securities and creditors
of such Guarantor other than the holders of Senior Indebtedness of such
Guarantor, nor shall anything herein or therein prevent the holder of any
Security or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article Twelve of the holders of Senior Indebtedness
of such Guarantor in respect of cash, property or securities of any Guarantor
received upon the exercise of any such remedy.
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Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness of any
Guarantor then due and payable shall first be paid in full before the holders of
the Securities or the Trustee are entitled to receive any direct or indirect
payment from such Guarantor of principal of or premium, if any, or interest or
Liquidated Damages, if any, on the Securities pursuant to such Guarantor's
Guarantee.
SECTION 12.06. Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Company or such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. The Trustee shall not be
charged with knowledge of the existence of any event of default with respect to
any Senior Indebtedness of any Guarantor or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company or such Guarantor, or by a
holder of Senior Indebtedness of any Guarantor or trustee or agent therefor; and
prior to the receipt of any such written notice, the Trustee shall, subject to
Article Seven, be entitled to assume that no such facts exist; provided that if
the Trustee shall not have received the notice provided for in this Section
12.06 at least two Business Days prior to the date upon which by the terms of
this Indenture any moneys shall become payable for any purpose (including,
without limitation, the payment of the principal of or premium, if any, or
interest or Liquidated Damages, if any, on any Security), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from such Guarantor and to apply the same to the purpose
for which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 12.06 shall limit the right of the holders of Senior
Indebtedness of any Guarantor to recover payments as contemplated by Section
12.03. The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of Senior
Indebtedness of any Guarantor (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of Senior Indebtedness of any Guarantor or a trustee or representative
on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness of any Guarantor to participate in any payment or
distribution pursuant to this Article Twelve, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness of any Guarantor held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article Twelve, and if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of any
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of
<PAGE>
-78-
Senior Indebtedness of any Guarantor and other Indebtedness of such Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.08. Trustee's Relation to Senior Indebtedness of Any Guarantor.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to Senior Indebtedness of any
Guarantor which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness of any
Guarantor, and nothing in this Indenture shall deprive the Trustee or any Paying
Agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of any Guarantor,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any
Guarantor. The Trustee shall not be liable to any such holders if the Trustee
shall in good faith mistakenly pay over or distribute to holders of Securities
or to the Company or to any other person cash, property or securities to which
any holders of Senior Indebtedness of any Guarantor shall be entitled by virtue
of this Article Twelve or otherwise.
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantor or Holders of Senior Indebtedness of any Guarantor.
No right of any present or future holders of Senior Indebtedness of
any Guarantor to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by such Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended
to be for the benefit of, and shall be enforceable directly by, the holders of
Senior Indebtedness of any Guarantor.
SECTION 12.10. Securityholders Authorize Trustee to Effectuate Subordination of
Guarantee.
Each holder of Securities by its acceptance of such Securities
authorizes and expressly directs the Trustee on its or his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article Twelve, and appoints the Trustee its or his attorney-
in-fact for such purposes, including, in the event of any dissolution, winding-
up, liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of such Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings.
SECTION 12.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of or premium,
if any, or interest or Liquidated Damages, if any, on the Securities by reason
of any provision of this Article Twelve shall not be construed as preventing the
occurrence of an Event of Default specified in clauses (i) or (ii) of Section
6.01.
<PAGE>
-79-
SECTION 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to
the Trustee pursuant to other sections in this Indenture.
SECTION 12.13. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the
holders of Senior Indebtedness of any Guarantor may, at any time and from time
to time, without the consent of or notice to the Trustee or the holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the holders of the Securities to the
holders of Senior Indebtedness of any Guarantor, do any one or more of the
following: (a) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness of any Guarantor or any
instrument evidencing the same or any agreement under which Senior Indebtedness
of any Guarantor is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness of any Guarantor; (c) release any Person liable in any manner for
the collection of Senior Indebtedness of any Guarantor; and (d) exercise or
refrain from exercising any rights against any Guarantor and any other Person.
SECTION 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and premium, if any, and
interest and Liquidated Damages, if any, on the Securities, or from depositing
with the Trustee any moneys for such payments, or (ii) the application by the
Trustee of any moneys deposited with it for the purpose of making such payments
of principal of and premium, if any, and interest and Liquidated Damages, if
any, on the Securities, to the Holders entitled thereto unless at least two
Business Days prior to the date upon which such payment becomes due and payable,
the Trustee shall have received the written notice provided for in Section
12.02(b) or in Section 12.06. Each Guarantor shall give prompt written notice
to the Trustee of any dissolution, winding-up, liquidation or reorganization of
such Guarantor.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture modifies any
TIA provision that may be so modified, such TIA provision shall be deemed to
apply to this Indenture as so modified. If any provision of this Indenture
excludes any TIA provision that may be so excluded, such TIA provision shall be
excluded from this Indenture.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
<PAGE>
-80-
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
Carson, Inc.
64 Ross Road
P.O. Box 22309
Savannah, Georgia 31403
Attention: Chief Financial Officer
Facsimile: (912) 651-3424
Telephone: (912) 651-3400
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Arnold B. Peinado, III
Facsimile: (212) 530-5219
Telephone: (212) 530-5000
if to the Trustee:
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Carson
Facsimile: (212) 658-6425
Telephone: (212) 658-6433
The Company or the Trustee by written notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA (S) 315(b), shall be mailed to it or him at its
or his address as set forth in the Register and shall be sufficiently given to
it or him if so mailed within the time prescribed. To the extent required by
the TIA, any notice or communication shall also be mailed to any Person
described in TIA (S) 313(c).
<PAGE>
-81-
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or the Guarantors to
the Trustee to take or refrain from taking any action under this Indenture, the
Company or the Guarantors shall furnish to the Trustee at the request of the
Trustee:
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
<PAGE>
-82-
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Securities and the Guarantees without regard to principles of conflicts of law.
SECTION 13.08. No Recourse Against Others.
No past, present or future officer, employee, director, incorporator
or stockholder (or other Person performing similar functions with respect to a
Person who is not a corporation) of the Company or any Subsidiary of the Company
shall have any liability for any Obligations of the Company under the Series A
Securities, the Guarantees, the Series B Securities and the guarantees thereon
or the Indenture, or for any claim based on, in respect of, or by reason of,
such Obligations or the creation of any such Obligation. Each holder of the
Securities by accepting a Security waives and releases all such liability, and
such waiver and release is part of the consideration for issuance of the Series
A Securities, the Guarantees, the Series B Securities and the guarantees
thereon.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Guarantors in this Indenture
and the Guarantees shall bind their respective successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company, any Guarantor or a Subsidiary. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
CARSON, INC.,
as Issuer
By:
-----------------------------------
Name:
Title:
CARSON PRODUCTS COMPANY,
as Guarantor
By:
-----------------------------------
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
[FORM OF SERIES A SECURITY]
[LEGEND FOR RESTRICTED SECURITY]
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB") OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN
THE TIME PERIOD REFERRED TO UNDER RULE 144(K) (TAKING INTO ACCOUNT THE
PROVISIONS OF RULE 144(D) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE
SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING.
A-1
<PAGE>
CARSON, INC.
10 3/8% Senior Subordinated Note
due November 1, 2007, Series A
CUSIP No.:
No. [ ] $[ ]
CARSON, INC., a Delaware corporation (the "Company", which term
-------
includes any successor corporation), for value received promises to pay to [
] or registered assigns, the principal sum of [ ] Dollars, on November
1, 2007.
Interest Payment Dates: May 1 and November 1, commencing on
May 1, 1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
CARSON, INC.
By:
-----------------------------------
Name:
Title:
Attest:
---------------------------
Name:
Title:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 3/8% Senior Subordinated Notes due 2007,
Series A, described in the within-mentioned Indenture.
Dated:
MARINE MIDLAND BANK,
as Trustee
By:
---------------------------------
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
CARSON, INC.
10 3/8% Senior Subordinated Note
due November 1, 2007, Series A
1. Interest.
--------
CARSON, INC., a Delaware corporation (the "Company"), promises to pay
-------
interest on the principal amount of this Security at the rate per annum shown
above. Cash interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from November 6,
1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing May 1, 1998. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities and on overdue installments of
interest (without regard to any applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company shall pay principal
and premium, if any, and interest and Liquidated Damages, if any, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts ("U.S. Legal Tender"). However, the Company may pay
-----------------
principal and premium, if any, and interest and Liquidated Damages, if any, by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date), or
interest by check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, Marine Midland Bank (the "Trustee") will act as Paying
-------
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
November 6, 1997 (the "Indenture"), among the Company, Carson Products Company,
---------
a Delaware corporation (the "Initial Guarantor"), and in the future certain
-----------------
other subsidiaries of the Company (collectively, the "Guarantors"), and the
----------
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Se-
A-4
<PAGE>
curities are general obligations of the Company limited in aggregate principal
amount to $150,000,000 of which $100,000,000 in aggregate principal amount is
being offered hereby.
5. Registration Rights.
-------------------
Pursuant to the Registration Rights Agreement, dated as of November 6,
1997 (the "Registration Rights Agreement"), among the Company, the Guarantors
-----------------------------
and Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as the Initial Purchasers of the Series A
Securities, the Company and the Initial Guarantor will be obligated to
consummate an exchange offer pursuant to which the Holder of this Security shall
have the right to exchange this Security for 10 3/8% Senior Subordinated Notes
due 2007, Series B, of the Company (the "Series B Securities"), which have been
-------------------
registered under the Securities Act, in like principal amount and having
identical terms as the Series A Securities. The Holders of Series A Securities
shall be entitled to receive certain additional payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement. The Series A Securities and the Series B Securities are together
referred to herein as the "Securities."
----------
6. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after November 1, 2002
at the redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Redemption Date if redeemed during the twelve-month period
commencing on November 1 of the years set forth below:
Year Percentage
- ---- ----------
2002 105.188%
2003 103.458%
2004 101.729%
2005 and thereafter 100.000%
7. Optional Redemption upon Certain Equity Issuances.
--------------------------------------------------
At any time, or from time to time, prior to November 1, 2000, the
Company may redeem up to 35% of the originally issued principal amount of
Securities plus the principal amount of any Subsequent Series Securities at a
redemption price equal to 110.375% of the principal amount of the Securities so
redeemed, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Redemption Date, with the net proceeds of one or more Equity
Offerings; provided, however, that at least 65% of the originally issued
principal amount of Securities plus the principal amount of any Subsequent
Series Securities remains outstanding immediately after giving effect to any
such redemption and provided, further, that such redemption will occur within 90
days of the date of the Closing of such Equity Offering.
8. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
A-5
<PAGE>
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
9. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the Change of Control
Purchase Date.
10. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at a purchase price equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the Asset Sale Purchase Date.
11. Subordination.
-------------
The Indebtedness evidenced by the Securities is, to the extent and in
the manner provided in the Indenture, subordinated and subject in right of
payment to the prior payment in full in cash or Marketable Securities of all
Senior Indebtedness as defined in the Indenture, whether outstanding on the date
of the indenture or thereafter incurred, and this Security is issued subject to
such provisions. Each Holder of this Security, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
12. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.
13. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
14. Unclaimed Funds.
---------------
If funds for the payment of principal or premium, if any, or interest
or Liquidated Damages, if any, remain unclaimed for two years, the Trustee and
the Paying Agent will repay the funds to the Company at its written request.
After that, all liability of the Trustee and such Paying Agent with respect to
such funds shall cease.
A-6
<PAGE>
15. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
16. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default (other than a payment default) or
compliance with any provision may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Securities then outstanding.
Without notice to or consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Securities to, among other things, cure
any ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of Certificated Securities provide for the assumption by
a successor corporation of the Company's obligations to the Holders of
Securities in the case of a Disposition, add further Guarantees with respect to
the Securities, release Guarantors when permitted by the Indenture, secure the
Securities, add to the covenants of the Company and any Subsidiary of the
Company for the benefit of the Holders of the Securities or surrender any right
or power conferred upon the Company or any Subsidiary of the Company, comply
with any requirements of the Commission in connection with the qualification of
the Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
Restricted Payments, to incur Indebtedness, to create Liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with Affiliates. The limitations are
subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
18. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
19. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
A-7
<PAGE>
20. No Recourse Against Others.
--------------------------
No past, present or future stockholder (or other person performing
similar functions with respect to a person who is not a corporation), director,
officer, incorporator or employee of the Company or any Subsidiary of the
Company shall have any liability for any Obligations of the Company under the
Securities or the Indenture, or for any claim based on, in respect of, or by
reason of, such Obligations or the creation of any such Obligation. Each Holder
of a Security by accepting a Security waives and releases all such liability and
such waiver and release is part of the consideration for the issuance of the
Securities.
21. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Security and the Guarantees without regard to principles of conflicts of laws.
A-8
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Carson Products Company (the "Initial Guarantor") has unconditionally
-----------------
and irrevocably guaranteed on a senior subordinated basis (such guarantee being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
---------
principal of and interest or premium or Liquidated Damages, if any, on the
Securities, whether on the Maturity Date, by acceleration, call for redemption,
upon a Change of Control Offer, upon an Asset Sale Offer or otherwise, the due
and punctual payment of interest on the overdue principal and interest, if any,
on the Securities and expenses, indemnification or otherwise, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article Eleven and
Article Twelve of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise.
The obligations of the Initial Guarantor to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full of all Guarantor Senior Indebtedness of the Initial Guarantor, to the
extent and in the manner provided, in Article Eleven and Article Twelve of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of the Guarantee therein made.
No past, present or future director, officer, incorporator, employee
or stockholder (or other person performing similar functions with respect to a
person who is not a corporation), as such, of the Initial Guarantor shall have
any liability under the Guarantee by reason of such person's status as director,
officer, incorporator, employee or stockholder (or other person performing
similar functions with respect to a person who is not a corporation). Each
holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Guarantee.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
CARSON PRODUCTS COMPANY
By:
-----------------------------------
Name:
Title:
A-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed: ______________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05, Section 4.14 or Section 5.01 of the Indenture, check
the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 5.01 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05, Section 4.14 or Section 5.01 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:_________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
A-11
<PAGE>
(FORM OF SERIES B SECURITY)
CARSON, INC.
10 3/8% Senior Subordinated Note
due November 1, 2007, Series B
CUSIP No.:
No. [ ] $[ ]
CARSON, INC., a Delaware corporation (the "Company", which term
-------
includes any successor corporation), for value received promises to pay to [
] or registered assigns, the principal sum of [ ] Dollars, on November
1, 2007.
Interest Payment Dates: May 1 and November 1, commencing on
May 1, 1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
CARSON, INC.
By:
________________________________
Name:
Title:
Attest:
---------------------------
Name:
Title:
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 3/8% Senior Subordinated Notes due 2007,
Series B, described in the within-mentioned Indenture.
Dated:
MARINE MIDLAND BANK,
as Trustee
By:
---------------------------
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
CARSON, INC.
10 3/8% Senior Subordinated Note
due November 1, 2007, Series B
1. Interest.
--------
CARSON, INC., a Delaware corporation (the "Company"), promises to pay
-------
interest on the principal amount of this Security at the rate per annum shown
above. Cash interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from November 6,
1997. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing May 1, 1998. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities and on overdue installments of
interest (without regard to any applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company shall pay principal
and premium, if any, and interest and Liquidated Damages, if any, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts ("U.S. Legal Tender"). However, the Company may pay
-----------------
principal and premium, if any, and interest and Liquidated Damages, if any, by
wire transfer of Federal funds (provided that the Paying Agent shall have
received wire instructions on or prior to the relevant Interest Record Date), or
interest by check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, Marine Midland Bank (the "Trustee") will act as Paying
-------
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
November 6, 1997 (the "Indenture"), among the Company, Carson Products Company,
---------
a Delaware corporation (the "Initial Guarantor"), and in the future certain
-----------------
other subsidiaries of the Company (collectively, the "Guarantors"), and the
----------
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Se-
B-3
<PAGE>
curities are general obligations of the Company limited in aggregate principal
amount to $150,000,000 of which $100,000,000 in aggregate principal amount is
being offered hereby.
5. Exchange Offer.
--------------
The Series B Securities were issued pursuant to an exchange offer
pursuant to which 10 3/8% Senior Subordinated Notes due 2007, Series A, of the
Company (the "Series A Securities"), in like principal amount and having
-------------------
substantially identical terms as the Series B Securities, were exchanged for the
Series B Securities. The Series A Securities and the Series B Securities are
together referred to herein as the "Securities."
----------
6. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after November 1, 2002
at the redemption prices (expressed as a percentage of principal amount) set
forth below, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Redemption Date if redeemed during the twelve-month period
commencing on November 1 of the years set forth below:
Year Percentage
- --- ----------
2002 105.188%
2003 103.458%
2004 101.729%
2005 and thereafter 100.000%
7. Optional Redemption upon Certain Equity Issuances.
--------------------------------------------------
At any time, or from time to time, prior to November 1, 2000, the
Company may redeem up to 35% of the originally issued principal amount of
Securities plus the principal amount of any Subsequent Series Securities at a
redemption price equal to 110.375% of the principal amount of the Securities so
redeemed, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the Redemption Date, with the net proceeds of one or more Equity
Offerings; provided, however, that at least 65% of the originally issued
principal amount of Securities plus the principal amount of any Subsequent
Series Securities remains outstanding immediately after giving effect to any
such redemption and provided, further, that such redemption will occur within 90
days of the date of the Closing of such Equity Offering.
8. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select for
redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
9. Change of Control Offer.
-----------------------
B-4
<PAGE>
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the Change of Control
Purchase Date.
10. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at a purchase price equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the Asset Sale Purchase Date.
11. Subordination.
-------------
The Indebtedness evidenced by the Securities is, to the extent and in
the manner provided in the Indenture, subordinated and subject in right of
payment to the prior payment in full in cash or Marketable Securities of all
Senior Indebtedness as defined in the Indenture, whether outstanding on the date
of the indenture or thereafter incurred, and this Security is issued subject to
such provisions. Each Holder of this Security, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose.
12. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.
13. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
14. Unclaimed Funds.
---------------
If funds for the payment of principal or premium, if any, or interest
or Liquidated Damages, if any, remain unclaimed for two years, the Trustee and
the Paying Agent will repay the funds to the Company at its written request.
After that, all liability of the Trustee and such Paying Agent with respect to
such funds shall cease.
15. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantee except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guarantees, in each case upon satisfaction of certain conditions specified in
the Indenture.
16. Amendment; Supplement; Waiver.
-----------------------------
B-5
<PAGE>
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default (other than a payment default) or
compliance with any provision may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Securities then outstanding.
Without notice to or consent of any Holder, the Company and the Trustee may
amend or supplement the Indenture or the Securities to, among other things, cure
any ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of Certificated Securities provide for the assumption by
a successor corporation of the Company's obligations to the Holders of
Securities in the case of a Disposition, add further Guarantees with respect to
the Securities, release Guarantors when permitted by the Indenture, secure the
Securities, add to the covenants of the Company and any Subsidiary of the
Company for the benefit of the Holders of the Securities or surrender any right
or power conferred upon the Company or any Subsidiary of the Company, comply
with any requirements of the Commission in connection with the qualification of
the Indenture under the TIA, or make any other change that does not materially
adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
Restricted Payments, to incur Indebtedness, to create Liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with Affiliates. The limitations are
subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
18. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Securities or the Guarantees except as
provided in the Indenture. The Trustee is not obligated to enforce the
Indenture, the Securities or the Guarantees unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of certain
continuing Defaults or Events of Default if it determines that withholding
notice is in their interest.
19. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
20. No Recourse Against Others.
--------------------------
No past, present or future stockholder (or other person performing
similar functions with respect to a person who is not a corporation), director,
officer, incorporator or employee of the Company or any Subsidiary of the
Company shall have any liability for any Obligations of the Company under the
Securities or the Indenture, or for any claim based on, in respect of, or by
reason of, such Obligations or the creation of any such Obligation. Each Holder
of a Security by accepting a Security waives and releases all such liability and
such waiver and release is part of the consideration for the issuance of the
Securities.
B-6
<PAGE>
21. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Security and the Guarantees without regard to principles of conflicts of laws.
B-7
<PAGE>
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
Carson Products Company (the "Initial Guarantor") has unconditionally
-----------------
and irrevocably guaranteed on a senior subordinated basis (such guarantee being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
---------
principal of and interest or premium or Liquidated Damages, if any, on the
Securities, whether on the Maturity Date, by acceleration, call for redemption,
upon a Change of Control Offer, upon an Asset Sale Offer or otherwise, the due
and punctual payment of interest on the overdue principal and interest, if any,
on the Securities and expenses, indemnification or otherwise, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article Eleven and
Article Twelve of the Indenture and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise.
The obligations of the Initial Guarantor to the Holders and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth and
are expressly subordinated and subject in right of payment to the prior payment
in full of all Guarantor Senior Indebtedness of the Initial Guarantor, to the
extent and in the manner provided, in Article Eleven and Article Twelve of the
Indenture, and reference is hereby made to such Indenture for the precise terms
of the Guarantee therein made.
No past, present or future director, officer, incorporator, employee
or stockholder (or other person performing similar functions with respect to a
person who is not a corporation), as such, of the Initial Guarantor shall have
any liability under the Guarantee by reason of such person's status as director,
officer, incorporator, employee or stockholder (or other person performing
similar functions with respect to a person who is not a corporation). Each
holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Guarantee.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
CARSON PRODUCTS COMPANY
By:___________________________
Name:
Title:
B-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed: ______________________________
(Signed exactly as name
appears on the other side of
this Security)
Signature Guarantee: _________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05, Section 4.14 or Section 5.01 of the Indenture, check
the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 5.01 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05, Section 4.14 or Section 5.01 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:______________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
B-10
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10 3/8% Senior Subordinated Notes due 2007, Series A
and 10 3/8% Senior Subordinated Notes due 2007, Series B
(the "Securities"), of Carson, Inc.
-----------------------------------------------
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Certificated Securities by ______ (the "Transferor").
The Transferor:*
[ ] has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depository a Certificated Security or Certificated Securities in definitive,
registered form of authorized denominations and an aggregate number equal to its
beneficial interest in such Global Security (or the portion thereof indicated
above); or
[ ] has requested that the Registrar by written order to exchange
or register the transfer of a Certificated Security or Certificated Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.07 of such Indenture, and that the
transfer of this Securities does not require registration under the Securities
Act of 1933, as amended (the "Act"), because*:
[ ] Certified Security is being acquired for the Transferor's own
account, without transfer (in satisfaction of Section 2.07 of the Indenture).
[ ] Such Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Act), in reliance on
Rule 144A.
[ ] Such Security is being transferred in reliance on Regulation S
under the Act
[ ] Such Security is being transferred in reliance on Rule 144
under the Act. An opinion of counsel to the effect that such transfer does not
require registration under the Act accompanies this Certificate.
[ ] Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act other
than Rule 144A or Rule 144 or Regulation S under the Act to a person other than
an institutional "accredited investor." An opinion of counsel to the effect
that such transfer does not require registration under the Act accompanies this
Certificate.
______________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
[Authorized Signatory]
Date: _____________
*Check applicable box.
D-1
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
Marine Midland Bank
140 Broadway, 12/th/ Floor
New York, New York 10005
Attention: Corporate Trust Department - Carson
Re: Carson, Inc. (the "Company") 10 3/8%
Senior Subordinated Notes due 2007, Series A, and 10 3/8%
Senior Subordinated Notes due 2007, Series B (the "Securities")
---------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. An opinion of counsel to the effect that
such transfer does not require registration under the Act accompanies this
Certificate. Defined terms used herein without definition have the respective
meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
[Authorized Signatory]
E-1
<PAGE>
EXHIBIT 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of November 6, 1997
by and among
CARSON, INC.,
CARSON PRODUCTS COMPANY
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of November 6, 1997, by and among Carson, Inc., a Delaware
corporation (the "Company"), Carson Products Company, a Delaware corporation
-------
("Carson Products"), and Donaldson, Lufkin & Jenrette Securities Corporation and
- -----------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated (each an "Initial Purchaser"
-----------------
and collectively, the "Initial Purchasers"), each of whom has agreed to purchase
------------------
the Company's 10 3/8% Series A Senior Subordinated Notes due 2007 (the "Series A
--------
Notes") pursuant to the Purchase Agreement (as defined below). The Notes (as
- -----
defined below) will be guaranteed as of the Closing Date by Carson Products.
This Agreement is made pursuant to the Purchase Agreement, dated
October 31, 1997 (the "Purchase Agreement"), by and among the Company, Carson
------------------
Products and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
---
Affiliate: As defined in Rule 144 under the Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange
-------------
Act.
Broker-Dealer Transfer Restricted Securities: Series B Notes that are
--------------------------------------------
acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day in the
------------
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Certificated Securities: As defined in the Indenture.
-----------------------
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
<PAGE>
Consummate: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintaining of such Registration Statement effective and the keeping of the
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 3(b) hereof and (c) the delivery by the Company to the
Registrar under the Indenture of Series B Notes in the same aggregate principal
amount as the aggregate principal amount of Series A Notes tendered by Holders
thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
--------------------
Interest Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The registration by the Company under the Act of the
--------------
Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Series A Notes (i) to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act and (ii) to persons
permitted to purchase the Series A Notes in offshore transactions in reliance on
Regulation S under the Act.
Global Securities: As defined in the Indenture.
-----------------
Holders: As defined in Section 2 hereof.
-------
Indemnified Holder: As defined in Section 8(a) hereof.
------------------
Indenture: The Indenture, dated as of the Closing Date, among the
---------
Company, Carson Products and Marine Midland Bank, as trustee (the "Trustee"),
-------
pursuant to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
---------------------
Liquidated Damages: As defined in Section 5 hereof.
------------------
NASD: National Association of Securities Dealers, Inc.
----
-2-
<PAGE>
Notes: The Series A Notes and the Series B Notes.
-----
Person: An individual, partnership, corporation, trust,
------
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Record Holder: With respect to any Damages Payment Date, each Person
-------------
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registrar: As defined in the Indenture.
---------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company and
----------------------
Carson Products relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) which
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
------------------------
Transfer Restricted Securities.
Series B Notes: The Company's 10 3/8% Series B Senior Subordinated
--------------
Notes due 2007 to be issued pursuant to the Indenture (i) in the Exchange Offer
or (ii) as contemplated in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
---
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
------------------------------
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf
-3-
<PAGE>
Registration Statement, (c) the date on which such Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act or may be sold without restrictions
pursuant to Rule 144(k) under the Act.
Underwritten Registration or Underwritten Offering: A shelf
------------------------- ---------------------
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
------
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law or applicable interpretation of the staff of the Commission (after
the procedures set forth in Section 6(a)(i) below have been complied with), the
Company and Carson Products shall (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 45 days after the Closing Date, (ii)
use their reasonable best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 180 days after the Closing Date, (iii) in connection with the
foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and Carson Products shall use their respective
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective and shall keep the Exchange Offer open for a period of not
less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Company and Carson
-4-
<PAGE>
Products shall cause the Exchange Offer to comply in all material respects with
all applicable federal and state securities laws. No securities other than the
Notes shall be included in the Exchange Offer Registration Statement. The
Company and Carson Products shall use their respective reasonable best efforts
to cause the Exchange Offer to be Consummated on the earliest practicable date
after the Exchange Offer Registration Statement has become effective, but in no
event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Series B Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy, rules or regulations after the date of this Agreement.
The Company and Carson Products shall use their respective reasonable
best efforts to keep the Exchange Offer Registration Statement effective,
supplemented and amended as required by the provisions of Section 6(c) below to
the extent necessary to ensure that it is available for sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers, and to ensure that
such Registration Statement conforms with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of 180 days from the date on which the Exchange
Offer is Consummated or such shorter periods as will terminate when all Transfer
Restricted Securities covered thereby have been sold pursuant thereto.
The Company and Carson Products shall promptly provide sufficient
copies of the latest version of such Prospectus to such Restricted Broker-
Dealers promptly upon request, and in no event later than one Business day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company and Carson Products are
--- ------------------
not required to file an Exchange Offer Registration Statement with respect to
the Series B Notes or not permitted to consummate the Exchange Offer because the
Exchange Offer is not permit-
-5-
<PAGE>
ted by applicable law or Commission policy (after the Company and Carson
Products have complied with the procedures set forth in Section 6(a)(i) below)
or (ii) if any Holder of Transfer Restricted Securities shall notify the Company
within 20 Business Days following the Consummation of the Exchange Offer that
(A) such Holder was prohibited by law or Commission policy from participating in
the Exchange Offer or (B) such Holder may not resell the Series B Notes acquired
by it in the Exchange Offer to the public without delivering a prospectus and
the Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Series A Notes acquired directly from the Company or one
of its Affiliates, then the Company and Carson Products
(x) shall use their reasonable best efforts to cause to be filed on or
prior to 45 days after the date on which the Company determines that it is not
required to file the Exchange Offer Registration Statement or not permitted to
Consummate the Exchange Offer pursuant to clause (i) above or 45 days after the
date on which the Company receives the notice specified in clause (ii) above a
shelf registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"Shelf Registration Statement")), relating to all Transfer Restricted Securities
- -----------------------------
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and
(y) shall use their respective reasonable best efforts to cause such
Shelf Registration Statement to become effective on or prior to 180 days after
the date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no
effect on the requirements of clause (y) above.
The Company and Carson Products shall use their respective reasonable
best efforts to keep the Shelf Registration Statement discussed in this Section
4(a) effective, supplemented and amended as required by and subject to the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i)) following
the date on which such Shelf Registration Statement first becomes effective
under the Act or such shorter period as will terminate when all Transfer
Restricted Securities covered thereby have been sold pursuant thereto.
-6-
<PAGE>
(b) Provision by Holders of Certain Information in Connection with the
--- ------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 15 days after receipt of a request therefor, such
information specified in items 507 and 508 of Regulation S-K under the Act, as
applicable, and such information as the Company may reasonably request for use
in connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to furnish promptly to
the Company all additional information required to be disclosed in order to make
the information previously furnished to the Company by such Holder not
materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable in connection with resales
of Transfer Restricted Securities without being succeeded within 1 day by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective; provided that such Registration Statement
shall not cease to be effective or useable in connection with resales of
Transfer Restricted Securities for more than 1 day in any calendar year (each
such event referred to in clauses (i) through (iv), a "Registration Default"),
--------------------
then the Company and Carson Products hereby jointly and severally agree to pay
liquidated damages (the "Liquidated Damages") to each Holder of Transfer
------------------
Restricted Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities held
by such Holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.50 per week
per $1,000 principal amount of Transfer Restricted Securities; provided that the
Company and Carson Products shall in no event be required to pay Liquidated
Damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement),
-7-
<PAGE>
in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the
case of (iii) above, or (4) upon the filing of a post-effective amendment to the
Registration Statement or an additional Registration Statement that causes the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made usable in the
case of (iv) above, the Liquidated Damages payable with respect to the Transfer
Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as
applicable, shall cease.
All accrued Liquidated Damages shall be paid to Holders of Global
Securities by wire transfer of immediately available funds or by federal funds
check and to Holders of Certificated Securities by mailing checks to their
registered addresses on each Damages Payment Date. All obligations of the
Company and Carson Products set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
Notwithstanding the foregoing, no Holder of Transfer Restricted
Securities shall be entitled to receive any Liquidated Damages with respect to
such Transfer Restricted Securities if a Holder of such Transfer Restricted
Securities was, at any time while the Exchange Offer was pending, eligible to
exchange, and did not validly tender, such Transfer Restricted Securities for
Series B Notes in such Exchange Offer.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
--- -------------------------------------
Exchange Offer, the Company and Carson Products shall comply with all applicable
provisions of Section 6(c) below, shall use their respective reasonable best
efforts to effect such exchange and to permit the sale of Broker-Dealer Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof, and shall comply with all of the following
provisions:
(i) If, following the date hereof there has been published a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and Carson Products hereby agree to
seek a no-action letter or other favorable decision from the Commission
allowing the Company and Carson Products to Consummate an Exchange Offer
for the Transfer Restricted Securities. The Company and Carson Products
hereby agree to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially unreasonable
action to effect a change of Commission policy. In connection with the
foregoing, the Company and Carson Products hereby agree to take all such
other reasonable actions as are requested by the Commission or otherwise
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic
-8-
<PAGE>
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and Carson Products (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution, within the meaning of the Act, of the Series B Notes to be
issued in the Exchange Offer and (C) it is acquiring the Series B Notes in
its ordinary course of business. In addition, all such Holders of Transfer
Restricted Securities shall otherwise reasonably cooperate in the Company's
and Carson Products' preparations for the Exchange Offer. Each Holder
using the Exchange Offer to participate in a distribution of the Series B
Notes hereby acknowledges and agrees that, if the resales are of Series B
Notes obtained by such Holder in exchange for Series A Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.,
---------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), as interpreted in the Commission's letter to Shearman &
----------
Sterling (available July 2, 1993) and similar no-action letters (including,
--------
if applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and Carson Products shall provide a supplemental
letter to the Commission (A) stating that the Company and Carson Products
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
---------------------------
interpreted in the Commission's letter to Sherman & Sterling (available
------------------
July 2, 1993) and, if applicable, any no-action letter obtained pursuant to
clause (i) above, (B) including a representation that neither the Company
nor Carson Products has entered into any arrangement or understanding with
any Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of
-9-
<PAGE>
the Company's and Carson Products's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series B Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
--- ----------------------------
Registration Statement, the Company and Carson Products shall comply with all
the provisions of Section 6(c) below and shall use their respective reasonable
best efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and Carson Products will prepare and file with the Commission a Shelf
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
--- ------------------
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities, the Company and Carson Products shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company and Carson Products shall file promptly (subject to
Section 6(c)(xv) hereof) an appropriate amendment to such Registration
Statement, curing such defect, and if Commission review is required, use
their respective best efforts to cause such amendment to be declared
effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be, cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of
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<PAGE>
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the selling Holders and the underwriter(s), if any,
promptly and, if requested by such Persons, confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable Registration
Statement or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in
the Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time
the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company and Carson Products shall
use their respective reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to the Initial Purchaser(s), each selling Holder named
in any Registration Statement or Prospectus and each of the underwriter(s)
in connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration Statement
or Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such selling Holders and
underwriter(s) in connection with such sale, if any, for a period of at
least five Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders or the
underwriter(s) in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof;
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<PAGE>
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such exchange or sale, if any, make the
Company's and Carson Products's representatives available for discussion of
such document and other customary due diligence matters, and include such
information in such document prior to the filing thereof, in each case as
such selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents of the Company
and Carson Products and cause the Company's and Carson Products's officers,
directors and employees to supply all information reasonably requested by
any such selling Holder, underwriter, attorney or accountant in connection
with such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness; provided
that such Persons shall first agree in writing with the Company and Carson
Products that any information that is reasonably and in good faith
designated by the Company or Carson Products in writing as confidential at
the time of delivery of such information shall be kept confidential, such
Persons, unless (a) disclosure of such information is required by court or
administrative order or is necessary to respond to inquires of regulatory
authorities, (b) disclosure of such information is required by law
(including any disclosure requirements pursuant to federal securities laws
in connection with the filing of such Registration Statement or the use of
any Prospectus), (c) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard such
information by such Person or (d) such information becomes available to
such Person from a source other than the Company and its subsidiaries and
such source is not known, after due inquiry, by such Person to be bound by
a confidentiality agreement; provided, further, that the foregoing
investigation shall be coordinated on behalf of such Persons by one
representative designated by and on behalf of such Persons and any such
confidential information shall be available from such representative to
such Persons so long as any Person agrees to be bound by such
confidentiality agreement;
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such exchange or sale promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and any
other terms of the offering
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<PAGE>
of the Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such exchange or sale, upon request,
without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference); provided that the proviso of
Section 6(vi) shall apply to the extent that the Company or Carson Products
has requested confidential treatment from the Commission with respect to
any such documents;
(ix) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and Carson Products hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) upon the request of any selling Holder, enter into such
agreements (including an underwriting agreement) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Shelf Registration
Statement contemplated by this Agreement as may be reasonably applicable
requested by any Holder of Transfer Restricted Securities or underwriter in
connection with any resale pursuant to any Shelf Registration Statement.
In such connection, whether or not an underwriting agreement is entered
into and whether or not the registration is an Underwritten Registration,
the Company and Carson Products shall:
(A) upon the request of any selling Holder, furnish (or in the case
of paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each selling Holder and each underwriter, if any, upon
the effectiveness of the Shelf Registration Statement:
(1) a certificate, dated such date, signed on behalf of the
Company and Carson Products by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and Carson Products, confirming, as of the date
thereof, the matters set forth in paragraphs (a), (b) and (d) of
Section 9 of the Purchase Agree-
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<PAGE>
ment and such other similar matters as the selling Holders,
underwriter(s) and/or Restricted Broker Dealers may reasonably
request;
(2) an opinion, dated such date, of counsel for the Company and
Carson Products covering matters similar to those set forth in
paragraph (e) of Section 9 of the Purchase Agreement and such
other matter as the selling Holders, underwriters and/or
Restricted Broker Dealers may reasonably request, and in any
event including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and Carson Products,
representatives of the independent public accountants for the
Company and Carson Products and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of the
Company and Carson Products and without independent check or
verifications), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Shelf
Registration Statement, at the time such Shelf Registration
Statement or any post-effective amendment thereto became
effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that
the Prospectus contained in such Shelf Registration Statement as
of its date contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Shelf Registration Statement contemplated by this Agreement or
the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to paragraph (h) of Section 9 of the
Purchase Agreement;
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<PAGE>
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance
with clause (A) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the
Company and Carson Products pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company and Carson Products
contemplated in (A)(1) above cease to be true and correct, the Company and
Carson Products shall so advise the underwriter(s), if any, the selling
Holders promptly and if requested by such Persons, shall confirm such
advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if any,
and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor Carson Products shall be required to register or qualify as a
foreign corporation or a dealer in securities where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;
(xii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Series B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Series B
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Series B Notes, as the case may be; in return, the
Series A Notes held by such selling Holder shall be surrendered to the
Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate
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<PAGE>
with the selling Holders and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and to register such Transfer Restricted Securities in such denominations
and such names as the selling Holders or the underwriter(s), if any, may
request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xiv) use their respective reasonable best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (xi) above;
(xv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Notwithstanding
the foregoing, but without limiting the Company's or Carson Products'
obligations under Section 5 hereof, the Company and Carson Products may
postpone taking action with respect to a supplement or amendment with
respect to a Registration Statement or Prospectus contained therein for a
reasonable period of time after the occurrence of any fact or event
contemplated by Section 6(c)(iii)(D) (not exceeding 90 days) if, in the
good faith opinion of the Board of Directors of the Company or Carson
Products, effecting the registration would adversely affect a material
impending acquisition or disposition of assets or stock, merger or other
similar transaction or would require the Company or Carson Products to make
public disclosure of information which would not otherwise then be required
and which disclosure would have a material adverse effect upon the Company
or Carson Products, provided that the Company and Carson Products shall not
delay such action pursuant to the foregoing more than once in any 12 month
period;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates, if so requested, for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
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<PAGE>
(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use their respective best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities; provided that neither the Company nor Carson
Products shall take any position during review by the NASD that would, in
any manner, create the implication that the offering of the Series A Notes
on the Closing Date by the Company and Carson Products should be or is
subject to the rules and regulations of the NASD;
(xviii) otherwise use their respective reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and
make generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date
of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
--- -----------------------
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension
----------
Notice"), such Holder will forthwith discontinue disposition of Transfer
- ------
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in
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<PAGE>
each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice
-------------------
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Holder's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the Suspension
Notice. The time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
delivery of the Suspension Notice to the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and Carson Products's
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and reasonable
expenses (including filings made by any purchaser or Holder with the NASD (and,
if applicable, the fees and reasonable expenses of any "qualified independent
underwriter") and its counsel that may be required by the rules and regulations
of the NASD); (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates, if applicable, for the Series B Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company,
Carson Products, the trustee under the Indenture, the exchange agent and, if
any, the Holders of Transfer Restricted Securities; (v) fees and expenses of the
trustee under the Indenture and the exchange agent; and (vi) all fees and
disbursements of independent certified public accountants of the Company and
Carson Products (including the expenses of any special audit and comfort letters
required by or incident to such performance). Notwithstanding the foregoing or
anything in this Agreement to the contrary, each Holder of Transfer Restricted
Securities being registered shall pay all commissions, placement agent fees and
underwriting discounts and commissions with respect to any Transfer Restricted
Securities sold by it and the fees and disbursements of any counsel, other than
set forth in clause (iv) above and Section 7(b) hereof.
The Company will, in any event, bear its and Carson Products's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or Carson Products.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Of-
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<PAGE>
fer Registration Statement and the Shelf Registration Statement), the Company
and Carson Products will reimburse the purchasers and the Holders of Transfer
Restricted Securities being tendered in the Exchange Offer and/or resold
pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and Carson Products, jointly and severally, agree to
indemnify and hold harmless each Holder, its directors, its officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), (each, an "Indemnified Holder") from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company or
Carson Products to any holder or any prospective purchaser of Series B Notes, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company or Carson Products by any of the
Holders; provided, further, that with respect to any such untrue statement in or
-------- -------
omission of a material fact from any preliminary Prospectus, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of any
such Indemnified Holder from whom the person asserting any such loss, claim,
damage, liability or judgment purchased Series A Notes and Guarantees if such
person did not receive at or prior to the confirmation of the sale of the Series
A Notes and Guarantees to such person a copy of the final Prospectus in any case
where such delivery is required by the Securities Act and (A) the untrue
statement in or omission of a material fact from the preliminary Prospectus was
corrected in the final Prospectus and (B) the Company had previously complied
with Section 6(c)(ix)..
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and Carson Products,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, or Carson Products to the same extent as the
foregoing indemnity from the Company and Carson Products to each of the
Indemnified Holders, but only with reference to information relating to such
Indemnified Holder furnished in writing to the Company or Carson Products by
such Indemnified Holder expressly for use in any Registration Statement. In no
event shall any Indemnified Holder be liable or responsible for any amount in
excess of the amount by which the total
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<PAGE>
amount received by such Indemnified Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Indemnified Holder for such Transfer Restricted Securities
and (ii) the amount of any damages that such Indemnified Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "indemnifying person") in writing
---------------------
(provided, that the failure to so notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 8(c) except
to the extent that it has been materially prejudiced by such failure) and the
indemnifying party shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to the indemnified party and the
payment of all reasonable fees and expenses of such counsel, as incurred (except
that in the case of any action in respect of which indemnify may be sought
pursuant to both Sections 8(a) and 8(b), an Indemnified Holder shall not be
required to assume the defense of such action pursuant to this Section 8(c), but
may employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of the Indemnified Holder). Any indemnified party shall have the right to emloy
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Indemnified Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than forty-
five days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in any
case where such fees and expenses are at the ex-
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<PAGE>
pense of the indemnifying party) the indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
Carson Products on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and Carson Products, on
the one hand, and of the Indemnified Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and Carson Products, on the
one hand, and of the Indemnified Holder, on the other hand, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or Carson Products,
on the one hand, or by the Indemnified Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, Carson Products and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments
-21-
<PAGE>
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Indemnified Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Securities pursuant to a Registration Statement exceeds the sum of
(A) the amount paid by such Holder for such Transfer Restricted Securities plus
(B) the amount of any damages which such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Series A Notes held by each of
the Holders hereunder and not joint.
SECTION 9. RULE 144A
Each of the Company and Carson Products hereby agrees with each
Holder, for so long as any Transfer Restricted Securities remain outstanding
during any period in which the Company or Carson Products (i) is not subject to
Section 13 or 15(d) of the Exchange Act, to make available, upon request of any
Holder of Transfer Restricted Securities, to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144..
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and
-22-
<PAGE>
managers must be reasonably acceptable to the Company. Such investment bankers
and managers are referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company and Carson Products acknowledge and agree
--- --------
that any failure by the Company and/or Carson Products to comply with their
respective obligations under Sections 3 and 4 hereto may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and Carson Products' obligations under
Sections 3 and 4 hereof. The Company and Carson Products further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Neither the Company nor Carson
--- --------------------------
Products will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
Carson Products's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor Carson
--- -------------------------------
Products will take any action, or voluntarily permit any change to occur, with
respect to the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
--- ----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Exchange Offer.
(e) Third Party Beneficiary. The Holders shall be third party
--- -----------------------
beneficiaries to the agreements made hereunder between the Company and Carson
Products, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such
-23-
<PAGE>
agreements directly to the extent they may deem such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(f) Notices. All notices and other communications provided for or
--- -------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or Carson Products:
By first class mail:
P.O. Box 22309
Savannah, Georgia 31403
By hand-delivery or air courier:
64 Ross Road
Savannah, Georgia 31403
Telecopier No.: (912) 651-3424
Attention: Chief Financial Officer
With a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Telecopier No.: (212) 530-5219
Attention: Arnold B. Peinado, III
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention:
Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York
10172.
-24-
<PAGE>
(g) Successors and Assigns. This Agreement shall inure to the benefit
--- ----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Transfer Restricted Securities in violation of the terms hereof or of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(h) Counterparts. This Agreement may be executed in any number of
--- ------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
--- --------
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--- -------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(k) Severability. In the event that any one or more of the provisions
--- ------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(l) Entire Agreement. This Agreement is intended by the parties as a
--- ----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
CARSON, INC.
By:_____________________________
Name:
Title:
CARSON PRODUCTS COMPANY
By:_____________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_______________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By:_______________________
Name:
Title:
-26-
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention; Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Carson, Inc.
___% Senior Subordinated Notes due 2007
Date: ____________, 1997
For your information only (NO ACTION REQUIRED):
Today, _____________, 1997, we filed [an Exchange Offer
Registration Statement/a Shelf Registration Statement] with the Securities and
Exchange Commission. We currently expect this registration statement to be
declared effective within ___ business days of the date hereof.
A-1
<PAGE>
Exhibit 5.1
December 19, 1997
Carson, Inc.
64 Ross Road
Savannah Industrial Park
Savannah, GA 31405
Re: Offer to Exchange $100,000,000 10 3/8% Senior Subordinated Notes
due 2007, Series A for $100,000,000 10 3/8% Senior Subordinated
Notes Due 2007, Series B
Ladies and Gentlemen:
We are acting as special counsel for Carson, Inc., a Delaware
corporation (the "Company") in connection with the filing by the Company of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission for the purpose of registering the issuance
of up to $100,000,000 aggregate principal amount of the Company's 10 3/8% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") and the guarantee
thereof (the "Guarantee") by the Company's subsidiary, Carson Products Company
("Carson Products") under the Securities Act of 1933, as amended (the "Act").
The Exchange Notes are to be issued in exchange for an equal aggregate principal
amount of the Company's 10 3/8% Senior Subordinated Notes due 2007, Series A
(the "Existing Notes") and the guarantee thereof pursuant to the Registration
Rights Agreement among the Company, Carson Products, Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill, Lynch, Pierce, Fenner & Smith
Incorporated, filed as an exhibit to the Registration Statement. The Exchange
Notes and the Guarantee are to be issued
<PAGE>
pursuant to the terms of the Indenture among the Company, Carson Products and
Marine Midland Bank, as trustee (the "Trustee"), filed as an exhibit to the
Registration Statement. The Indenture is to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"). Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Indenture.
In rendering the opinions expressed below, we have examined originals
such corporate records of the Company and Carson Products and such other
documents as we have deemed necessary as a basis for the opinions expressed
below. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with authentic original documents of all documents submitted to us as
copies. When relevant facts were not independently established, we have relied
upon statements of governmental officials and upon representations by and
statements of appropriate representatives of the Company and Carson Products.
In rendering the opinions expressed below, we have assumed with
respect to all of the documents referred to in this opinion letter, including
the Indenture, that, except as set forth below, (i) such documents have been
duly authorized by, have been duly executed and delivered by, and constitute
legal, valid, binding and enforceable obligations of, all of the parties to such
documents; (ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and validly
existing and have the power and authority (corporate or other) to execute,
deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. The Exchange Notes have been duly authorized by the Company and
when (i) the Registration Statement has been declared effective, (ii) the
Indenture has been duly qualified under the TIA, (iii) the Exchange Notes have
been duly executed by the Company and (iv) the Exchange Notes have been duly
authenticated by the Trustee in accordance with the terms of the Indenture and
issued and delivered against exchange of the Existing Notes in accordance with
the terms set forth in the prospectus included as part of the Registration
Statement, the Exchange Notes will be valid and binding obligations of the
Company, except as (x) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent
transfer and
<PAGE>
similar laws affecting creditors' rights and remedies generally and (y) the
enforceablilty thereof is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b) concepts
of materiality, reasonableness, good faith and fair dealing.
2. The Guarantee has been duly authorized by Carson Products and
when (i) the Registration Statement has been declared effective, (ii) the
Indenture has been duly qualified under the TIA, (iii) the Exchange Notes have
been duly executed by the Company, (iv) the Guarantee has been duly executed and
(v) the Exchange Notes have been duly authenticated by the Trustee in accordance
with the terms of the Indenture and issued and delivered against exchange of the
Existing Notes in accordance with the terms set forth in the prospectus included
as part of the Registration Statement, the Guarantee will be a valid and binding
obligation of Carson Products, except as (x) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer and similar laws affecting creditors' rights and
remedies generally similar laws affecting creditors' rights and remedies
generally and (y) the enforceablilty thereof is subject to the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law), including, without limitation, (a) the possible
unavailability of specific performance, injunctive relief or any other equitable
remedy and (b) concepts of materiality, reasonableness, good faith and fair
dealing.
In our opinion, the discussions under the caption "Certain Federal
Income Tax Considerations" in the prospectus included as part of the
Registration Statement are correct in all material respects.
We express no opinion as to the applicability to the obligations of
Carson Products (or the enforceability of such obligations) of Section 548 of
chapter 11 of Title 11 of the United States Code, as amended, Article 10 of New
York Debtor ande Creditor Law, as amended, or any other provision of law
relating to fraudulent conveyances, transfers or obligations.
This opinion is rendered to the Company in connection with the filing
of the Registration Statement and for no other purpose. We express no opinion
as to the laws of any jurisdiction other than the federal laws of the United
States and the laws of the State of New York.
We hereby consent to the filing of this opinion as Exhibit 5.1 and
Exhibit 8.1 to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus which is included in the Registration
Statement.
Very truly yours,
/s/ Milbank, Tweed, Hadley & McCloy
ABP/DBB/BK
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of May 9, 1997 by and between Carson Products Company,
a Delaware Corporation (the "Company"), and Robert W. Pierce ("Executive").
WITNESSETH:
----------
WHEREAS, the Company wishes to retain the services of Executive from and
after the date of the execution of this Agreement (the "Execution Date"), and
Executive wishes to be employed in the services of the Company from and after
the Execution Date, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Term of Covered Employment. The term of Executive's employment covered
--------------------------
under this Agreement (the "Term of Covered Employment") shall commence on the
Execution Date and shall end on the third anniversary of the Execution Date (the
"Expiration Date"), unless terminated earlier under Section 4.
2. Employment and Duties. Subject to the terms and conditions hereinafter
---------------------
set forth, during the Term of Covered Employment, the Company shall employ
Executive, and Executive shall serve, as Executive Vice President-Finance and
Chief Financial Officer.
In such capacity, Executive shall perform the duties and responsibilities
assigned by the Company, and such performance shall be Executive's principal
activity to which he shall devote substantially all his working hours.
Executive shall report to the Chairman and Chief Executive Officer of the
Company.
3. Compensation and Benefits.
-------------------------
3.1 Compensation. For all services to be rendered during the Term of
------------
Covered Employment, the Company shall pay Executive a salary ("Base Salary") of
$250,000 per annum, payable bi-weekly in arrears. The executive shall also
receive a one-time signing bonus in the amount of $50,000. In addition, the
Executive shall receive stock options to acquire 100,000 shares of Class A
Common Stock of Carson, Inc. at the per share price equal to the closing price
on April 30, 1997, as reported on the consolidated transaction reporting system
for the New York Stock Exchange. Of the 100,000 aforementioned stock options,
the first 50,000 of
<PAGE>
these options shall be granted to the Executive effective upon the execution of
this employment agreement and are immediately exercisable upon the execution of
the option agreement evidencing such grant. Of the remaining 50,000 options,
which shall be granted at the execution of this employment agreement, one-third
(1/3) shall be exercisable on each of the first three anniversaries of May 1,
1997 if Executive is employed by the Company on such dates. In addition, for
each fiscal year of the Company ending within the Term of Covered Employment,
Executive shall receive a (pro-rated for 1997) bonus (the "Bonus") in an amount
equal to (i) thirty percent (30%) of Base Salary if the "base case" objectives
(but not the "anticipated case" objectives) for such fiscal year as specified by
the Board, or a committee thereof are achieved, or (ii) fifty percent (50%) of
Base Salary if the "anticipated case" objectives for such fiscal year as
specified by the Board, or a committee thereof, are met. The objectives utilized
in determining the Bonus shall be net revenue growth, net income, earnings per
share and/or stock price growth, such as defined by the Board (or a committee
thereof) in its sole discretion. A lesser percentage of Base Salary may be paid
hereunder if one or more, but not all, of the targeted objectives are met. The
value of the Bonus, if any, shall be paid seventy-five percent (75%) in a single
lump sum cash payment and twenty-five percent (25%) in shares of restricted
stock of Carson, Inc. If the "anticipated case" objectives are met, the value of
the Bonus, if any, shall be paid fifty percent (50%) in a single lump sum cash
payment and fifty percent (50%) in shares of restricted stock of Carson, Inc.
Such restricted stock shall vest as to one-third (1/3) of the aggregate number
of shares delivered to Executive on each of the first three anniversaries of the
date of payment of the Bonus if Executive is employed by the Company on such
dates. The Bonus shall be paid no later than 120 days after the end of the
fiscal year for which the applicable objectives have been met.
3.2 Pension and Welfare Plans. During the Term of Covered Employment,
-------------------------
Executive shall also be eligible to participate in any pension and welfare plans
maintained by the Company for its employees, except profit-sharing and the
Christmas bonus plan, subject to the requirements of applicable law.
3.3 Fringe Benefits.
---------------
(a) Automobile. Executive shall be entitled to an automobile allowance
from the Company of $500 for each month during the Term of Covered
Employment. In addition, the Company shall pay for all insurance on the
automobile to which the monthly allowance is applied. However, Executive
shall be solely responsible for all maintenance, repair and other expenses
with respect to such automobile.
(b) Relocation Expenses/Allowance. The Company shall reimburse Executive
for all expenses incurred by him in relocating to Savannah, Georgia or its
vicinity. The Company shall reimburse Executive for all travel and
temporary lodging expenses incurred, including spouse-accompanied trips to
Savannah, Georgia to secure his permanent residence in Savannah, Georgia or
its vicinity. In addition, the Company shall pay Executive 100% of final
closing costs associated with purchase of residence in Savannah or its
vicinity, and 100% of moving expenses.
2
<PAGE>
(c) Other Fringe Benefits. During the Term of Covered Employment,
Executive shall receive any other fringe benefits generally provided by the
Company to its employees.
4. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, but subject to the notice provisions contained in this Section 4, the
Company retains the right to terminate Executive's employment, and Executive
retains the right to resign from employment with the Company, at any time and
for any reason.
4.1 Termination for Cause. The Company may terminate
---------------------
Executive's employment with the Company for "Cause" (as hereinafter
defined) in the manner specified in this Section 4.1. In the event that
on or after the Execution Date and prior to the Expiration Date, the
Company terminates Executive's employment with the Company for Cause,
the Term of Covered Employment shall end on the date of such termination
(which shall be the date specified in the notice described in this
Section 4.1) and Executive shall be entitled only to any unpaid amount
of Base Salary for his employment with the Company throughout and
including the date of such termination. In any event, Executive shall
not be entitled to receive any amount of Base Salary with respect to any
period following the date of such termination, or any portion of the
Bonus for the fiscal year of the Company in which such date of
termination occurs.
For purposes of this Agreement, termination for "Cause" means
termination by the Company due to Executive's gross dereliction of his
duties under this Agreement, including, without limitation, his refusal
to follow or gross neglect of the directions of the Chief Executive
Officer of the Company or any other executive of the Company senior to
Executive, or any willful misconduct by Executive that is materially
injurious to the Company, or the indictment of Executive for a felony
involving moral turpitude.
To terminate Executive for Cause, the Company shall give a written
notice of such termination to Executive ("Notice of Termination"), and
shall specify the date of such termination, which shall not be earlier
than the date on which such notice is given to Executive. Such notice
shall be given to Executive no later than 10 days after actual knowledge
of the events or circumstances which purportedly constitute Cause for
such termination, and shall specify the particular act or acts, or
failure to act, or other events or circumstances constituting Cause for
such termination. Executive shall be given the opportunity within 30
days after receiving such notice to explain why Cause for such
termination does not exist. Within 15 days after any such explanation,
Executive will be given the final decision regarding whether Cause
exists. If the final decision is that Cause exists, Executive's
employment with the Company shall be terminated under this Section 4.1
pursuant to the Notice of Termination as of the date of termination
specified in such Notice. If the final decision is that Cause does not
exist, Executive's employment with the Company shall not be terminated
under this Section 4.1.
3
<PAGE>
4.2 Resignation. Executive may resign from employment with the
-----------
Company by giving the Company written notice of such resignation, which
notice shall specify the date of resignation, which shall not be earlier
than 30 days after the date such written notice is given to the Company.
In the event of Executive's resignation on or after the Execution and
prior to the Expiration Date, the Term of Covered Employment shall end
on the date of resignation which shall be the date specified in
Executive's notice of resignation), and Executive shall be entitled only
to any unpaid amount of Base Salary for his employment with the Company
through and including such date of resignation. Executive shall not be
entitled to receive any amount of Base Salary with respect to any period
following such date of resignation, or any portion of the bonus for the
fiscal year of the Company in which such date of resignation occurs.
4.3 Termination Other Than For Cause. The Company may terminate
--------------------------------
Executive's employment with the Company other than for Cause by giving
Executive written notice of such termination, which notice shall specify
the date of such termination, which shall not be earlier than 30 days
after such written notice is given to Executive. In the event that on or
after the Execution Date and prior to the Expiration Date Executive's
employment with the Company is terminated by the Company other than for
Cause, the Term of Covered Employment shall end upon such specified date
of termination and the Company shall pay Executive, within 30 days after
such date of termination, an additional lump sum amount equal to any
unpaid amount of Base Salary for his term of employment with the Company
through and including such date of termination. Executive shall not be
eligible to participate in any of the Company's employee benefit plans
following such date of termination of employment, except as may be
required by applicable law.
4.4 Termination Due to Death or Disability. The Company may
--------------------------------------
terminate Executive's employment with the Company due to "Disability",
as hereinafter defined, by giving Executive written notice of such
termination, which notice shall specify the date of such termination,
which shall not be earlier than 30 days after such written notice is
given to Executive. If on or after the Execution Date and prior to the
Expiration Date Executive's employment with the Company is terminated
due to Disability, or if during such period Executive dies, the Term of
Covered Employment shall end upon such specified date of termination or
date of death, as applicable, and the Company shall pay Executive, or
his beneficiary of estate, as the case may be, within 15 days after such
date of termination or death, an additional lump sum amount equal to
150% of one year's Base Salary.
For purposes of this Agreement, "Disability" means Executive's inability
to perform his duties under this Agreement for a period of at least six
consecutive months because of medically determinable physical or mental
impairment, as determined by a physician mutually agreeable to Executive
and the Company. If Executive and the Company are unable to agree on
such a physician, each shall
4
<PAGE>
appoint one physician and those two physicians shall appoint a third
physician who shall make such a determination.
5. Non-Competition; Non-Solicitation. While Executive is employed by the
---------------------------------
Company (including any period of such employment following the expiration of the
Term of Covered Employment), and during the period in which Executive is
receiving payments of Base Salary from the Company (regardless of whether or not
Executive is then employed by the Company), Executive shall not directly or
indirectly (i) own, manage, operate, represent, promote, consult for, control or
participate in the ownership, operation, acquisition or management of any other
business which manufactures and/or distributes ethnic hair care products or
cosmetics, (ii) solicit (other than on behalf of the Company or any of its
affiliates), divert or take away the business of any customers of the Company or
any of its affiliates, or any prospective customers of the Company or any of its
affiliates whose business the Company or any of its affiliates is actively
soliciting, or has actively solicited, during Executive's employment with the
Company with whom Executive had any material personal contact, or (iii) solicit
or induce any employee of the Company or any of its affiliates to terminate such
employee's employment with the Company or such affiliate. It is expressly
acknowledged that a breach of this covenant may result in irreparable harm to
the Company for which there is no adequate remedy at law and that, therefore, in
the event of such a breach, the Company shall be entitled to obtain injunctive
relief restraining Executive from engaging in activities prohibited by this
Section 5 or any other relief as may be required to specifically enforce this
covenant.
6. Confidentiality. While employed by the Company and at all times
---------------
thereafter, Executive shall maintain the confidentiality of all information of
and relating to, and all material of, the Company and its affiliates that have
not been made available to the public (other than by reason of a breach by
Executive of his obligations under this Section 6) and shall not, without the
Company's prior written permission, disclose to any person outside of the
Company and its affiliates any such information or material. Without limiting
the foregoing sentence, such information and material shall include pricing
plans and price policies, business plans, sales forecasts, research and
development, formulas, procedures and the identity of customers and suppliers
and the terms upon which the Company ar any of its affiliates deals with them.
Upon termination of employment with the Company, Executive shall return to the
Company all property in his possession, whether or not containing confidential
information, including but not limited to originals and copies of any written
documents, drawings and reports, diskettes and other storage media, belonging to
the Company or any of its affiliates or received from the Company or any of its
affiliates. It is expressly acknowledged that a breach of this covenant may
result in irreparable harm to the Company for which there is no adequate remedy
at law and that, therefore, in the event of such a breach, the Company shall be
entitled to obtain injunctive relief restraining Executive from engaging in
activities prohibited by this Section 6 or any other relief as may be required
to specifically enforce this covenant.
7. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by hand delivery to the party receiving
such notice or by certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Executive: Mr. Robert W. Pierce
5
<PAGE>
c/o Carson Products Company
64 Ross Road
Savannah, Georgia 31405
If to the Company: Carson Products Company
64 Ross Road
Savannah, Georgia 31405
Attention: Chairman and Chief Executive Officer
or to such other address as either party shall have furnished to the other party
in writing as the address to send future notices and communications in
accordance herewith. Any notice or communication shall be deemed given when
actually received by the party who is its intended recipient.
8. Severability. If any provision of this Agreement is held to be invalid
------------
under applicable law, such provision shall be ineffective only to the extent of
such invalidity, and the remaining provisions of this Agreement shall be
unimpaired.
9. Waivers. The waiver by either party of a breach of any provision of
-------
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of such provision, or as a waiver of any other provision of this
Agreement.
10. Assignability. The Company may assign its rights and obligations
-------------
hereunder to any of its affiliates, or to any successor of the Company.
Executive may not assign any of his rights, duties, obligations or interests
hereunder to any other person without the prior express written consent of the
Board of Directors of the Company.
11. Entire Agreement. This instrument contains the entire agreement of
----------------
the parties with respect to, and supersedes all prior agreements relating to,
Executive's employment with the Company.
12. Governing Law. This Agreement shall be governed by, and construed and
-------------
enforced under, the laws of the State of Georgia.
6
<PAGE>
13. Effectiveness of Agreement. This Agreement shall be and become
--------------------------
effective as of the Execution Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Carson Products Company
By: /s/ Leroy Keith
------------------------
Leroy Keith
Chairman and CEO
/s/ Robert W. Pierce
- -------------------------
Mr. Robert W. Pierce
7
<PAGE>
EXHIBIT 10.11
AMENDMENT NO. 1 TO MANAGEMENT ASSISTANCE AGREEMENT
AMENDMENT NO. 1 dated as of October 18, 1996 between Carson Products
Company, a Delaware corporation (the "Company") and Morningside Capital Group,
LLC, a Connecticut limited liability company ("Morningside").
The Company and Morningside are parties to a Management Assistance
Agreement dated August 23, 1995 (the "Management Agreement"), providing for the
retention of the services of Morningside and its principal member, Vincent A.
Wasik, in connection with the ongoing business of the Company. The Company and
Morningside wish to amend the Management Agreement in certain respects, and
accordingly, the parties hereto agree as follows:
Section 1. Definitions. Except as otherwise defined in this
-----------
Amendment No. 1, terms defined in the Management Agreement are used herein as
defined therein, and the term "this Agreement" and words such as "herein" and
"hereunder" shall refer to the Management Agreement as amended by this Amendment
No. 1.
Section 2. Amendment. Effective as of the date hereof, (S)19 of the
---------
Management Agreement shall be amended to read in its entirety as follows:
(S)19. SUBORDINATION. The Company, for itself and its successors,
agrees that all of the obligations in respect of this Agreement and all payments
in respect hereof shall be subordinate and junior in right of payment to the
prior payment in full in cash or cash equivalents of all Senior Indebtedness as
set forth in this Section 19. Each holder of Senior Indebtedness shall have
been deemed to have acquired such Senior Indebtedness in reliance upon the
subordination as set forth in this Section 19.
(a) During the continuance of any default beyond applicable grace
periods in the payment of principal, premium, if any, and interest on any
Senior Indebtedness, whether at maturity, upon redemption or pursuant to
acceleration or otherwise (a "Payment Default"), no direct or indirect
payment of any kind shall be made with respect to this Agreement unless and
until such Payment Default shall have been cured or waived or shall have
ceased to exist or such Senior Indebtedness shall have been discharged or
paid in full in cash or cash equivalents, after which, subject to Section
19(d) (if applicable), the Company shall resume making any and all required
payments in respect of this Agreement, including any missed payments.
(b) During the continuance of any event of default on or in respect of
Senior Indebtedness (other than a Payment Default) that entitles the
holders of such Senior
<PAGE>
2
Indebtedness to accelerate the maturity of the obligations outstanding
thereunder (a "Non-payment Default"), no direct or indirect payment of any
kind shall be made with respect to this Agreement and Morningside shall not
accept any such payment, for a period (the "Payment Blockage Period")
beginning on the date on which written notice of such default (a "Blockage
Notice") is given to the Company by the holders of Senior Indebtedness and
ending on the earlier of (x) 179 days after delivery of such Blockage
Notice, or (y) the date on which such Non-payment Default is cured or
waived or shall have ceased to exist, after which period, subject to
Section 19(d) (if applicable), the Company shall immediately make all past
due payments and shall resume all other required payments hereunder,
including any payments omitted pursuant to this Section 19. No single Non-
payment Default may serve as the basis for more than one Blockage Notice
(other than a Non-payment Default that has been cured or waived or
otherwise ceased to exist for a period of 90 consecutive days); no Non-
payment Default in existence on the date of delivery of a Blockage Notice
shall serve as the basis for any subsequent Blockage Notice, whether or not
within a period of 360 consecutive days unless such Non-payment Default
shall have been cured or waived or otherwise ceased to exist for a period
of 90 consecutive days; and during any 360-day period there shall not be
more than one Blockage Notice. The Company agrees to deliver copies of all
Blockage Notices to Morningside immediately upon receipt, although the
failure of the Company to do so shall not affect the rights of holders of
Senior Indebtedness under this Section 19. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice to the Company referred above and there must be a 181 consecutive
day period in any 360 consecutive day period during which no Payment
Blockage Period is in effect pursuant to this Section 19(b).
(c) Until all Senior Indebtedness has been paid in full in cash or
cash equivalents, Morningside shall not, without the prior written consent
of the Required Banks (as defined in the Credit Agreement) commence any
action, suit or proceeding to enforce any claims, rights, demands, causes
of action, liabilities, or suits, of any kind whatsoever, whether known or
unknown, that have been, could have been, or in the future might be
asserted by Morningside based upon, arising out of, or in any way relating
to, this Agreement until the earlier of (i) 10 Business Days after
Morningside shall have given prior written notice to the Agent (as defined
in the Credit Agreement) of its intention to exercise any such remedies or
(ii) if an Event of Default has occurred and is continuing, the holders of
Senior Indebtedness have accelerated the Senior Indebtedness. The 10
Business Day period referenced in the preceding sentence shall run
concurrently with any Payment Blockage Period instituted pursuant to
Sections 19(b) and (c) hereof.
<PAGE>
3
(d) Upon any distribution of assets of the Company or of Holdings of
any kind or character upon any dissolution, winding up, total or partial
liquidation or reorganization of the Company or of Holdings (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment
for the benefit of creditors or otherwise):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in cash or cash equivalents of all
obligations owing in respect thereof before Morningside is entitled to
receive any payment of any amount owing under this Agreement; and
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which
Morningside would be entitled except for the provisions of this
Section 19 shall be paid by the liquidating trustee or agent or other
person making such payment or distribution directly to the holders of
Senior Indebtedness or their representative or representatives under
the agreements pursuant to which the Senior Indebtedness may have been
issued, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
Upon any payment or distribution of assets of the Company referred to
in this Section 19, Morningside shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding-up or similar case or proceeding is pending, for the
purpose of ascertaining the persons entitled to participate in such payment
or distribution, the holders of Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto
or to this Section 19; provided, however, that the foregoing shall apply
-----------------
only if such court has been fully apprised of the provisions of this
Section 19.
(e) If any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, shall be
received by Morningside on account of amounts due under this Agreement
that, because of the provisions of this Section 19, should not have been
made, then such payment or distribution shall be received and held in trust
for, and shall be paid over to, the holders of the Senior Indebtedness
remaining unpaid or unprovided for or their representative or
representatives under the agreements pursuant to which the Senior
Indebtedness may have been issued for application to the payment of such
Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full, after giving effect to any concurrent
<PAGE>
4
payment or distribution to the holders of such Senior Indebtedness.
(f) Upon the payment in full in cash or cash equivalents of all Senior
Indebtedness, Morningside shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments and distributions of cash,
property and securities made to the holders of the Senior Indebtedness to
which Morningside would be entitled except for the provisions of this
Section 19 until the amounts due under this Agreement shall be paid in full
in cash or cash equivalents. For purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which Morningside would be entitled except for
the provisions of this Section 19, and no payments over pursuant to the
provisions of this Section 19 to the holders of Senior Indebtedness by
Morningside shall, as among the Company, its creditors other than holders
of Senior Indebtedness, and Morningside, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
If any payment or distribution to which Morningside would otherwise
have been entitled but for the provisions of this Section 19 shall have
been applied, pursuant to the provisions of this Section 19, to the payment
of all amounts payable under the Senior Indebtedness of the Company, then
and in such case Morningside shall be entitled to receive from the holders
of such Senior Indebtedness at the time outstanding any payments or
distributions received by such holders of such Senior Indebtedness in
excess of the amount sufficient to pay all amounts payable under or in
respect of such Senior Indebtedness in full in cash or cash equivalents.
(g) If, at any time, all or part of any payment with respect to Senior
Indebtedness theretofore made by the Company or any other Person is
rescinded for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company or such other
Person), the subordination provisions set forth herein shall continue to be
effective or be reinstated, as the case may be, all as though such payment
had not been made.
(h) If, while any Senior Indebtedness is outstanding, any Event of
Default occurs, Morningside shall duly and promptly take such action as any
holder of Senior Indebtedness may reasonably request to collect any payment
hereunder to which the holders of Senior Indebtedness may be entitled under
this Agreement, and to file appropriate claims or proofs of claim in
respect of this Agreement. Upon the failure of Morningside to take any
such action, each holder of Senior Indebtedness is hereby irrevocably
authorized and empowered (in its own name or otherwise), but shall have no
obligation, to demand, sue for, collect and
<PAGE>
5
receive every payment or distribution referred to under this Agreement and
to file claims and proofs of claim with respect to this Agreement and
Morningside hereby appoints each holder of Senior Indebtedness or its
representative as attorney-in-fact for Morningside to take any and all
actions permitted by this paragraph to be taken by Morningside.
(i) Morningside agrees and consents that without notice to or assent
by Morningside, and without affecting the liabilities and obligations of
the Company and the rights and benefits of the holders of the Senior
Indebtedness set forth in this Section 19:
(i) the obligations and liabilities of the Company and any other
party or parties for or upon the Senior Indebtedness may, from time to
time, be renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released (but only to
the extent permitted by the definition of "Senior Indebtedness");
(ii) the holders of Senior Indebtedness, and any representative or
representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with
any agreements relating to the Senior Indebtedness; and
(iii) any balance or balances of funds with any holder of Senior
Indebtedness at any time outstanding to the credit of the Company may,
from time to time, in whole or in part, be surrendered or released,
all as the holders of any Senior Indebtedness, or any representative or
representatives acting on behalf thereof, may deem advisable, and all
without impairing, abridging, diminishing, releasing or affecting the
subordination of the obligations under this Agreement to Senior
Indebtedness, provided, however, that in no event shall any such actions
-------- -------
limit the rights of Morningside to take any action to pursue any rights or
remedies under this Agreement or under applicable laws if the taking of
such action does not otherwise violate the terms of this Agreement.
(j) The provisions of this Section 19 are for the benefit of the
holders from time to time of Senior Indebtedness and, so long as any Senior
Indebtedness remains outstanding, may not be modified, rescinded or
canceled in whole or in part, nor shall any grace periods in the definition
of "Event of Default" be reduced, without the prior written consent thereto
of all holders of Senior Indebtedness.
(k) Until all of the Senior Indebtedness has been fully paid,
Morningside hereby undertakes and agrees for the benefit of the holders of
Senior Indebtedness that, upon the
<PAGE>
6
occurrence and during the continuance of any events set forth in clauses
(b) and (c) of this Section 19, Morningside shall take any actions
reasonably requested by any holder of Senior Indebtedness to effectuate the
full benefit of the subordination contained herein.
(l) To the extent permitted by applicable law, Morningside and the
Company hereby waive notice of acceptance hereof by the holders of the
Senior Indebtedness.
(m) The Company and Morningside hereby expressly agree that the
holders of Senior Indebtedness may enforce any and all rights derived
herein by suit, either in equity or at law, for specific performance of any
agreement contained in this Section 19 or for judgment at law and any other
relief whatsoever appropriate to such action or procedure.
(n) The provisions of this Section 19 are and are intended solely for
the purpose of defining the relative rights of Morningside on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Section 19 or elsewhere in this Agreement is intended to
or shall (a) impair, as among the Company, its creditors other than holders
of Senior Indebtedness and Morningside, the obligation of the Company,
which is absolute and unconditional, to pay to Morningside the fees and
reimbursement of expenses set forth in this Agreement as and when the same
shall become due and payable in accordance with the terms thereof; or (b)
affect the relative rights against the Company of Morningside and creditors
of the Company other than the holders of Senior Indebtedness; or (c)
prevent Morningside from exercising all remedies otherwise permitted by
applicable law upon any default or Event of Default under this Agreement,
subject to the rights, if any, under this Section 19 of the holders of
Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation
or other winding up, assignment for the benefit of creditors or other
marshalling of assets and liabilities of the Company referred to in Section
19(d), to receive, pursuant to and in accordance with such Section, cash,
property and securities otherwise payable or deliverable to Morningside, or
(2) under the conditions specified in Section 19(a), to prevent any payment
prohibited by such Section. The failure to make any payment due hereunder
by reason of any provision in this Section 19 shall not be construed as
preventing the occurrence of a default under this Agreement.
Nothing contained in this Section 19 shall limit the right of
Morningside to take any action to pursue any rights or remedies hereunder
or under applicable law, subject to the rights, if any, under this Section
19 of the holders, from time to time, of Senior Indebtedness.
<PAGE>
7
For purposes of this Section 19, the following terms shall have the
meanings set forth below:
"Affiliate" shall mean with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and executive officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be
deemed to control a corporation for the purposes of this definition if such
Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of
directors of such corporation or (ii) to direct or cause the direction of
the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.
"Business Day" means any day other than Saturday, Sunday and a day on
which banks are permitted or required to be closed, or which is a legal
holiday, in New York, New York.
"Credit Agreement" means the Credit Agreement dated as of October 18,
1996 among the Company and Banque Indosuez, New York Branch, as lender and
agent, and any other parties who may become lenders thereunder, as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Event of Default" means if the Company, any of its Significant
Subsidiaries, or Holdings shall commence a voluntary case concerning itself
under Title 11 of the United States Code Entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or
an involuntary case is commenced against the Company, any of its
Significant Subsidiaries, or Holdings and the petition is not contested
within 20 days, or is not dismissed for a period of 60 consecutive days
after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of the Company, any of its Significant Subsidiaries, or
Holdings; or the Company, any of its Significant Subsidiaries, or Holdings
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company, any of its Significant Subsidiaries, or
Holdings; or there is commenced against the Company, any of its Significant
Subsidiaries, or Holdings any such proceeding which remains undismissed for
a period of 60 consecutive days; or the Company, any of its Significant
Subsidiaries, or Holdings is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered and continues
<PAGE>
8
undischarged or unstayed for a period of 60 consecutive days; or the
Company, any of its Significant Subsidiaries, or Holdings suffers any
appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 60
consecutive days; or the Company, any of its Significant Subsidiaries, or
Holdings makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Company, any of its Significant
Subsidiaries, or Holdings for the purpose of effecting any of the
foregoing.
"Holdings" shall mean Carson, Inc., a Delaware corporation.
"Indebtedness" of a Person at a particular date shall mean, without
duplication, (i) all indebtedness of such Person for borrowed money, (ii)
the deferred purchase price of assets or services which in accordance with
generally accepted accounting principles in the United States of America as
in effect from time to time would be shown on the liability side of the
balance sheet of such Person, other than current liabilities in respect of
the foregoing, liabilities for accumulated postretirement benefit
obligations and liabilities for deferred compensation, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn and unpaid thereunder, (iv) all
Indebtedness of a second Person secured by any Lien (as defined in the
Credit Agreement) on any property owned by such first Person, whether or
not such Indebtedness has been assumed by such first Person, (v) all
Capitalized Lease Obligations (as defined in the Credit Agreement) of such
Person, (vi) all obligations of such Person to pay a specified purchase
price for goods or services whether or not delivered or accepted, i.e.,
----
take-or-pay and similar obligations, (vii) all obligations of such Person
under Interest Rate Agreements (as defined in the Credit Agreement) and
(viii) all Contingent Obligations (as defined in the Credit Agreement) of
such Person; provided that Indebtedness shall not include trade payables,
--------
accrued expenses, accrued dividends and accrued income taxes, in each case
arising in the ordinary course of business.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any Governmental
Authority.
"Senior Indebtedness" shall mean all obligations of the Company
incurred pursuant to the Credit Agreement, whether for principal, premium
(if any) or interest (including, without limitation, interest which would
accrue but for the filing of a petition initiating any bankruptcy or
similar proceeding and Indebtedness incurred to pay other fees and expenses
arising therefrom or in connection therewith). Notwithstanding the
foregoing, Senior Indebtedness shall not
<PAGE>
9
include, among others: (i) any Indebtedness of the Company to a Subsidiary
of the Company; (ii) any Indebtedness to any Affiliate, director, officer
or employee of the Company or any Subsidiary (including, without
limitation, amounts owed for compensation); (iii) Indebtedness and other
amounts incurred in connection with obtaining goods, materials or services
owing to trade creditors; (iv) any liability for Federal, state, local or
other taxes owed or owing by the Company; or (v) Indebtedness incurred in
violation of the Credit Agreement.
"Significant Subsidiary" shall mean, at any date of determination, any
Subsidiary of the Company that, together with its Subsidiaries, (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Subsidiary" of any Person shall mean and includes (i) any corporation
more than 50% of whose voting stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (including stock of any class or classes of such
corporation that might have voting power solely by reason of the happening
of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association,
joint venture or other entity in which such Person directly or indirectly
through Subsidiaries has more than a 50% equity interest at the time.
Section 3. Miscellaneous. Except as herein provided, the Management
-------------
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 1 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 1 by signing any such counterpart. This
Amendment No. 1 shall be governed by, and construed and enforced under, the laws
of the State of New York.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed and delivered as of the day and year first written above.
CARSON PRODUCTS COMPANY MORNINGSIDE CAPITAL GROUP, LLC
By_______________________ By_________________________
Title: Title:
<PAGE>
EXHIBIT 10.12
AMENDMENT NO. 2 TO MANAGEMENT ASSISTANCE AGREEMENT
AMENDMENT NO. 2 dated as of November 6, 1997 between Carson Products
Company, a Delaware corporation (the "Company") and Morningside Capital Group,
LLC, a Connecticut limited liability company ("Morningside").
The Company and Morningside are parties to a Management Assistance
Agreement dated August 23, 1995, as amended by Amendment No. 1 to Management
Assistance Agreement dated as of October 18, 1996 (the "Management Agreement"),
providing for the retention of the services of Morningside and its principal
member, Vincent A. Wasik, in connection with the ongoing business of the
Company. The Company and Morningside wish to amend the Management Agreement in
certain respects, and accordingly, the parties hereto agree as follows:
Section 1. Definitions. Except as otherwise defined in this
-----------
Amendment No. 2, terms defined in the Management Agreement are used herein as
defined therein, and the term "this Agreement" and words such as "herein" and
"hereunder" shall refer to the Management Agreement as amended by this Amendment
No. 2.
Section 2. Amendment. Effective as of the date hereof, Sections 1,
---------
2, 3, 6 and 9 of the Management Agreement shall be amended to read in their
entirety as follows:
(S)1. MANAGEMENT ASSISTANCE SERVICES. Morningside shall, during the
Term (as hereinafter defined), from time to time as reasonably requested by the
Company make available to the Company the services of Wasik to provide advice
and assistance to the Company with respect to the following:
(a) the formulation of the strategic direction of the Company;
(b) the formulation of business plans, capital budgets and financial
strategies;
(c) the formulation of the marketing, sales and operational plans of
the Company;
(d) evaluating business investment and acquisition opportunities; and
(e) dealing with banks and other lending institutions;
the services so to be provided being herein called the "Management Assistance
---------------------
Services"; provided, however, the Management Assistance Services shall not
- -------- -------- -------
include any services in connection with arranging for or attempting to arrange
for or consummating or attempting to consummate any business investment,
<PAGE>
acquisition opportunity, offerings of debt or equity securities or other
financings.
(S)2. FEE. In consideration of Morningside's agreement to provide
Management Assistance Services upon the terms and conditions of this Agreement,
the Company shall pay Morningside a fee at the rate, during the Term, of at
least $350,000 per annum but no greater than allowed under (i) the Credit
Agreement among Carson Products Company, Carson, Inc. and Credit Agricole
Indosuez, as Agent, and the Lending Institutions listed therein, dated as of
November 6, 1997, or (ii) the Indenture dated as of November 6, 1997 among
Carson, Inc., as Issuer, Carson Products Company, as Guarantor, and Marine
Midland Bank, as Trustee, in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented, or otherwise
modified from time to time, including any agreement refinancing, renewing,
refunding, extending, replacing or restructuring the obligations thereunder or
any successor or replacement agreement and whether by the same or any other
agent, trustee, lender or group of lenders.
(S)3. REIMBURSEMENT FOR EXPENSES. The fee to be paid to Morningside
as provided in (S)2 does not include, and the Company will promptly reimburse
-
Morningside for, all out-of-pocket expenses reasonably incurred by Morningside
or Wasik in performing the Management Assistance Services, but not including
office and other overhead expenses of Morningside.
(S)6. TERM OF AGREEMENT. The term of this Agreement (the "Term")
----
shall commence on August 23, 1995 (the "Commencement Date") and, subject to the
-----------------
early termination provisions of (S)7, shall continue until August 23, 2003 (the
-
"Specified Termination Date"); provided, however, that unless either party, at
-------------------------- -------- -------
least 30 days prior to the Specified Termination Date, gives the other party
written notice of an election to terminate this Agreement on the Specified
Termination Date, the Term shall continue after the Specified Termination Date
until terminated by not less than 30 days' notice by one party to the other.
(S)9. NON-COMPETITION; NON-SOLICITATION. For the duration of the
Term, Morningside agrees that neither it nor Wasik shall directly or indirectly
(i) own (other than through the ownership of five percent (5%) or less of any
class of securities registered under the Securities Exchange Act of 1934, as
amended), manage, operate, represent, promote, consult for, control or
participate in the ownership, operation, acquisition or management of any
business manufacturing and/or distributing ethnic hair care products or
cosmetics within a 250-mile radius of the Company's headquarters, or (ii)
solicit (other than on behalf of the Company or any of its affiliates), divert
or take away the business of any customers of the Company or any of its
affiliates, or any prospective customers of the Company or any of its
affiliates. It is expressly acknowledged that a breach of this covenant may
result in irreparable harm to the Company for which there is no adequate remedy
at law and that, therefore, in
<PAGE>
the event of such a breach, the Company shall be entitled to obtain injunctive
relief restraining Morningside or Wasik, as the case may be, from engaging in
activities prohibited by this (S)9 or any other relief as may be required to
----
specifically enforce this covenant.
Section 3. Miscellaneous. Except as herein provided, the Management
-------------
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 2 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 2 by signing any such counterpart. This
Amendment No. 2 shall be governed by, and construed and enforced under, the laws
of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
2 to be duly executed and delivered as of the day and year first written above.
CARSON PRODUCTS COMPANY MORNINGSIDE CAPITAL GROUP, LLC
By_______________________ By_________________________
Name: Name: Vincent A. Wasik
Title: Title: Managing Member
<PAGE>
EXHIBIT 10.14
FIRST AMENDMENT TO THE MANAGEMENT AGREEMENT
The First Amendment ("Amendment") is made as of June 1, 1997 between
Carson Products Company, a Delaware corporation ("CPC") and AM Cosmetics, a
Delaware corporation ("AMC"). This Amendment in made with reference to that
certain Management Agreement dated June 26, 1996, between AMC and CPC
("Management Agreement"). All capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Management
Agreement.
WHEREAS, CPC has agreed in the Management Agreement to provide certain
management services for and on behalf of AMC; and
WHEREAS, the compensation to be paid by AMC to CPC for the management
services is to be a percentage of AMC's Net Sales; and
WHEREAS, CPC and AMC desire to amend the definition of Net Sales in
the Management Agreement to include only the product lines of AMC as of June 26,
1996.
NOW, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
1.1 Section 5 "Compensation of CPC" of the Management Agreement in
amended as follows:
(a) The last sentence which reads "Net Sales shall be defined as the
gross sales of AMC minus selling discounts, returns, allowances and
cooperative advertising costs." is deleted in its entirety and
replaced with the following:
"Net Sales shall be defined as only gross sales of AMC for AMC's
product lines as of June 26, 1996 minus selling discounts, returns,
allowances and cooperative advertising costs."
SECTION 2. RATIFICATION OF AGREEMENT
2.1 Except to the extent expressly set forth herein, this Amendment
shall not constitute a release of, consent to or waiver of any other provision,
term or condition of the Management Agreement. Except an herein amended, the
Management Agreement in ratified and confirmed in all respects and shall remain
in full force and effect in accordance with its terms.
<PAGE>
SECTION 3. COUNTERPARTS AND EFFECTIVENESS
This Amendment may be executed in any number of counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument. Signature pages may be detached from counterpart documents and
reassembled to form duplicate executed originals. Signatures may be by
facsimile.
This Amendment shall become effective as of the date hereof upon the
execution of the counterparts hereof by CPC and AMC.
SECTION 4. GOVERNING LAW
This Amendment shall be governed by, and shall be construed and
enforced in accordance with, the laws of the State of New York without regard to
the principles of conflict of law.
Witness the execution hereof by the respective duly authorized
officers of the undersigned as of the date first above written.
CARSON PRODUCTS COMPANY
by: /s/ Dr. Leroy Keith
--------------------------
Name: Dr. Leroy Keith
Title: Chairman and
C.E.O.
AM COSMETICS, INC.
by: /s/ J. M. Lewis
--------------------------
Name: J. M. Lewis
Title: Senior Vice
President
-2-
<PAGE>
EXHIBIT 10.15
SECOND AMENDMENT TO MANAGEMENT AGREEMENT
This Second Amendment ("Amendment") is made as of October 6, 1997 between
Carson Products Company, a Delaware corporation ("CPC") and AM Cosmetics, a
Delaware corporation ("AMC"). This Amendment is made with reference to that
certain Management Agreement dated June 26, 1996, between AMC and CPC
("Management Agreement"), an amended by a First Amendment to Management
Agreement dated as of June 1, 1997. All capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the
Management Agreement.
WHEREAS, CPC has agreed in the Management Agreement to provide certain
management services for and on behalf of AMC; and
WHEREAS, the compensation to be paid by AMC to CPC for the management
services is to be a percentage of AMC's Net Sales; and
WHEREAS, CPC and AMC desire to amend the Management Agreement to provide
the compensation to be paid by AMC to CPC for the management services will be,
as of January 1, 1998, a flat fee instead of a percentage of AMC's Net Sales.
NOW, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree an
follows:
SECTION 1. AMENDMENT
1.1 Section 5 "Compensation of "CPC" of the Management Agreement is
hereby amended as follows:
The following new paragraph is to be inserted at the end of the first
paragraph in Section 5:
"Notwithstanding anything contained in this Section 5 to the contrary,
CPC and AMC agree that commencing January 1, 1998 the compensation to
be paid by AMC to CPC shall changed from a percentage of AMC's Net
Sales to a flat fee of $25O,000 per year payable quarterly in
arrears."
SECTION 2. RATIFICATION OF AGREEMENT
2.1 Except to the extent expressly set forth herein, this Amendment
shall not constitute a release of, consent to or waiver of any other provision,
term or condition of the Management Agreement. Except as herein amended, the
Management Agreement is ratified and confirmed in all respects and shall remain
in full force and effect in accordance with its terms.
<PAGE>
SECTION 3. COUNTERPARTS AND EFFECTIVENESS
This Amendment may be executed in any number of counterparts, and al
such counterparts taken together shall be deemed to constitute one and the same
Instrument. Signature pages may be detached from counterpart documents and
reassembled to form duplicate executed originals. SignatureS may be by
facsimile.
This Amendment shall become effective as of the date hereof upon the
execution of the counterparts hereof by CPC and AMC.
SECTION 4. GOVERNING LAW
This Amendment shall be governed by, and shall be construed and
enforced in accordance with, the laws of the State of New York without regard to
the principles of conflict of law.
Witness the execution hereof by the respective duly authorized officers of
the undersigned as of the date first above written.
CARSON PRODUCTS COMPANY
by: /s/ Dr. Leroy Keith
----------------------
Name: Dr. Leroy Keith
Title: Chairman and
C.E.O.
AM COSMETICS, INC.
by: /s/ J.M. Lewis
----------------------------
Name: J.M. Lewis
Title: Senior Vice President
-2-
<PAGE>
EXHIBIT 10.41
MANUFACTURING AGREEMENT
THIS AGREEMENT made and entered into as of April 30, 1997, by and between
AM Cosmetics Inc., 4014 First Avenue, Brooklyn, New York 11232 ("Seller") and
Carson Products Company, 64 Ross Road, Savannah, Georgia 34105 ("Buyer").
RECITALS
WHEREAS, Buyer desires to purchase from Seller cosmetics products
(hereinafter defined) manufactured by Seller according to Buyer's specifications
for the purpose of resale under Buyer's trade names to retail customers.
WHEREAS, Seller is willing to manufacture and sell to Buyer the Cosmetic
Products on the terms and conditions set forth herein.
THEREFORE, The parties hereto agree as follows:
1. Definitions. The following definitions shall apply for all purposes of
-----------
this Agreement:
(A) "Cosmetics Products" shall mean the products listed on Schedule
A, attached hereto and made a part hereof.
(B) "Manufacturing Specifications" shall mean those manufacturing
specifications established by Buyer and accepted by Seller, more fully set forth
in Schedule B, attached hereto and made a part hereof.
(C) "Price or Prices for the Cosmetics Product" shall be those prices
set forth in Schedule C, attached hereto and made a part hereof, as same may be
amended according to the terms of this Agreement.
(D) "Invoice Date" shall mean the day after the Cosmetics Products
are manufactured and packed in master cartons.
(E) "Proprietary Rights" shall mean all patents, copyrights and trade
secrets owned by Seller that are related to the Cosmetics Products.
2. Term. Unless otherwise terminated or cancelled as provided herein,
----
this Agreement shall be for a period of two (2) years from the date hereof.
3. Price and Payment Terms.
-----------------------
(A) The Price or Prices for the Cosmetics Products, excluding
Cosmetic Products which bear the CUTEX trademark, shall be an amount equal to
the cost per Cosmetics Product
incurred by Seller in manufacturing the Cosmetics Product, including, but not
limited to, material, labor, shipping,
<PAGE>
packaging, related overhead, general and administrative costs plus a profit
margin of twenty-five percent (25%).
(B) The Price or Prices referred to in 3(A) above shall not include
the direct costs incurred by Seller of marketing, research and development
("Marketing and R&D Costs") including, but not limited to: (i) specifically
allocated marketing staff; (ii) market research; (iii) photo shoots; (iv)
brochures and print advertising; (v) displays; (vi) promotional events; (vii)
laboratory formulation time; (viii) consultants and (ix) dermatological testing,
all such Marketing and R&D Costs being more fully described in Schedule D,
attached hereto and made a part hereof. All Marketing and R&D Costs shall not
include the twenty-five percent (25%) profit margin referred to in 3(A) above
and shall be paid by Buyer to Seller upon invoice and no later than July 31,
1997. In the event Seller incurs, at Buyer's request, Marketing and R&D Costs
after July 31, 1997, then and in that event, Buyer agrees to pay to Seller such
Marketing and R&D Costs thirty (30) days from the date of Seller's invoice.
(C) The Price or Prices for Cosmetics Products which bear the CUTEX
trademark shall be as set forth in the schedule attached hereto and made a part
hereof as Schedule E.
(B) The Price or Prices for the Cosmetics Product is based upon Buyer
quantities set forth on the production schedule ("Production Schedule") attached
hereto and made a part hereof as Schedule F. Seller reserves the right to
adjust the Price if Buyer decreases the quantities ordered or extends the
Production Schedule.
(C) Payment terms are net thirty (30) days from Invoice Date. Buyer
may take a one percent (1%) discount on any invoice the payment for which is
received by Seller within ten (10) days from Invoice Date.
4. Manufacturing Specifications.
----------------------------
(A) Seller shall manufacture the Cosmetics Products in strict
accordance with Buyer's specifications, and such revisions, accepted by Seller,
as may be made during the period of this Agreement. The product to be produced
shall be merchantable quality.
(B) If Buyer desires to make changes in the Manufacturing
Specifications, and/or any of the material or services covered herein during the
period of this Agreement, it shall be Buyer's privilege to do so, and any
increase or decrease in price shall be only the mutually agreed upon increased
or decreased cost of material and/or labor involved in furnishing materials or
services under the revised standards and specifications, plus 25% Flat. Seller
agrees to make every reasonable effort to comply with Buyer's revised standards
and
2
<PAGE>
specifications. Each revision or change is considered accepted by Seller if an
exception to it is not received by Buyer within 30 days after Buyer mails it, or
by the time Seller makes shipment against Buyer's purchase order for the
Cosmetics Products involved, whichever occurs sooner. If no exceptions
are received, Seller is responsible for adherence to the new standards or
specifications. If Seller is unable to provide services in accordance with the
new standards established by the Buyer at the time needed by Buyer, and at a
price acceptable to both parties, Buyer shall have the option of terminating its
obligations under the Agreement for the item involved. In the event Buyer shall
terminate its obligations, Buyer shall pay to Seller all costs incurred by
Seller for the Cosmetics Products involved, including cost of materials, labor,
packaging, related
overhead, general and administrative costs.
5. Environmental and Health Matters.
--------------------------------
(A) Seller warrants that all goods comply in all respects with
applicable requirements of the Toxic Substances Control Act and regulations
thereunder. Seller agrees to hold Buyer harmless from all damages and liability
resulting from any breach of this warranty.
(B) Seller assumes sole responsibility for taking all health and
safety precautions and complying with all environmental requirements, including
compliance with all applicable local, state, and federal laws and/or
regulations, in processing material under this agreement. Seller agrees to
indemnify and hold harmless Buyer for all losses, or damage to property or
action by any regulatory agency arising out of, or in any way associated with,
the installation and/or operation of any formulation, packaging or support
equipment (including equipment owned by Seller, Buyer, or third parties) and/or
the production, processing or handling of the material processed hereunder and
the handling of raw materials used in the process, and/or the handling storage,
treatment or disposal of any waste or by-product (including but not limited to
air emissions and waste-water discharges) generated by the Seller in processing
material hereunder, including without limitation, injuries to Seller's employees
involved in these operations caused or contributed to by the negligence of those
employees or other employees. Seller expressly acknowledges that it will
indemnify Buyer for personal injury claims of Seller's employees where Seller is
responsible to those employees for worker's compensation.
6. Cosmetic Product Discontinuance. Should Buyer, by reason of product
-------------------------------
reformulation, market changes, process change or similar reason, deem it
necessary to reduce or discontinue purchases of one or more of the Cosmetics
Products, Buyer shall have the right to reduce or discontinue Seller's shipments
hereunder provided that any such reduction or discontinuance is in the same
proportion as applied by Buyer to other suppliers, if
3
<PAGE>
any, supplying the Cosmetics Products to Buyer, and provided further, that Buyer
has given Seller not less than thirty (30) days notice of such reduction or
discontinuance. Provided, also that Buyer shall be responsible for reimbursing
Seller for all costs and expenses including raw material, components cost, work
in progress and finished goods, for such reduced or discontinued shipments.
Once Seller has received reimbursement for all such costs and expenses, then
Buyer shall be entitled to receive from Seller, F.O.B. Seller's manufacturing
facility, the discontinued Cosmetic Product.
7. Production Schedule.
-------------------
(A) To enable Buyer to maintain inventory control, Seller agrees that
it will not manufacture or ship Cosmetics Product in the absence of the
Production Schedule which Buyer is required to provide to Seller.
(B) Seller shall hold raw materials and packaging in its warehouse
prior to scheduled production for a period of time to assure quality acceptance
as well as meet production needs, such period of time not to exceed sixty (60)
days except on long lead-time items.
8. Inspection and Security. Seller will permit Buyer's representatives
-----------------------
access to any of Seller's facilities having to do with the fulfilling of Buyer's
(facilities) requirements at any time. Should security requirements of other
customers of Seller create conflict with this right, Buyer shall be so informed
and compatible scheduling arranged. Seller agrees to take any reasonable
security precautions requested by Buyer including, but not limited to,
prohibiting visitors in the area during production runs of Buyer's Products.
9. Seller Independent Contractor. Seller shall manufacture the Cosmetics
-----------------------------
Products hereunder as an independent contractor. Seller assumes sole
responsibility for the direction and control of its employees involved in
performing the services and such employees shall for all purposes remain
employees of Seller.
10. Confidential Information. All proprietary experimental, technical,
------------------------
manufacturing and/or other information disclosed by either to the other pursuant
to this Agreement or its extension(s) are considered as being highly
confidential in nature. The parties agree to take all reasonable precautions to
prevent disclosure to third parties. Both parties shall hold in confidence any
technical or business information concerning the other each may learn, observe,
or otherwise obtain. These restrictions upon disclosure shall cease to apply as
to any specific portion of said information which is or becomes available to the
public generally, not due to the fault of either party, or upon receipt of the
written authorization to make such disclosure.
4
<PAGE>
11. Shipping and Packaging.
----------------------
(A) Seller shall select the mode of shipment of the Cosmetics
Products and the cost thereof shall be Seller's then current area destination
charge.
(B) If Buyer desires a different mode of shipment, Buyer shall advise
Seller thereof, and Buyer shall pay to Seller, in addition to the Price, all
costs of such requested mode of shipment in excess of Seller's then current area
destination charge.
(C) The Cosmetics Products shall be packaged according to
specifications established by Seller and approved in writing by Buyer. Buyer
may require Seller to modify Seller's packaging specifications during the Term
of this Agreement. Any such requested modification which causes increased costs
to Seller shall give Seller the right to modify the Price accordingly.
(D) The Cosmetics Products shall be delivered F.O.B. Seller's
manufacturing facility and Buyer assumes all risk of loss therefor.
12. Material Costs.
--------------
(A) If at any time during the period of this Agreement Buyer can
purchase material of like quality at a price which will result in a delivered
cost to Buyer that is lower than the delivered cost of the material purchased
hereunder, Buyer may notify Seller of such delivered cost and Seller shall have
an opportunity of pricing material hereunder on such a basis as to result in the
same delivered cost to Buyer. If Seller fails to do so or cannot legally do so,
Buyer may purchase from the supplier of the lower delivered cost material, and
any purchase so made shall be held to apply on this Agreement, and the
obligation of Buyer and Seller shall be reduced accordingly.
(B) In the event non-availability of raw materials being obtained by
Seller, causes Seller to reduce shipments to Buyer, Seller agrees to give Buyer
the option to provide such raw materials to Seller at a price not to exceed
market price. If Buyer provides such raw materials to Seller at such price,
Seller will increase deliveries of commodity to Buyer by the amount produced
with the raw materials supplied by Buyer up to the quantity specified in the
Agreement.
13. Discounts. On all invoices subject to discount for prompt payment,
---------
the discount period shall be calculated from the Invoice Date as received in
Buyer's office or the date of delivery of material or performance of service
ordered herein, whichever is later.
14. Force Majeure. Fire, flood, strikes, lock-out, epidemic, accident,
-------------
shortage of customarily used transportation
5
<PAGE>
equipment (or suitable substitute), or other causes beyond the reasonable
control of the parties, which prevent Seller from delivering or Buyer from
receiving and/or using the commodity(s) covered by this Agreement, shall operate
to reduce or suspend deliveries during the period required to remove such cause.
In the event of reduced deliveries by Seller under the provisions of this
paragraph, Seller shall allocate its available supply of commodity component raw
materials, and related manufacturing facilities among purchasers and seller's
division, departments and affiliates on such basis that Buyer's percentage
reduction will not be greater than the overall percentage reduction in total
quantity of commodity, component raw materials, and related manufacturing
facilities Seller has available for supply. Any deliveries suspended under this
paragraph shall be cancelled without liability, and the Agreement quantity shall
be reduced by the quantities so omitted.
15. Regulatory Compliance.
---------------------
(A) Whether this Agreement refers to manufacturing items or to work,
Seller warrants and agrees that it has complied, and will comply, with (1) Fair
Labor Standards Act, as amended, and (2) Social Security and Workmen's
Compensation Laws, as amended, if work is done on Buyer's premises, and (3) all
other applicable laws, codes, regulations, rules and orders. Each invoice must
bear the following certification: "Materials or work covered by this invoice
were produced in conformity with the Fair Labor Standards Act as amended."
Seller agrees to indemnify Buyer and save Buyer harmless if Seller fails to
comply with the foregoing, and in the event of such failure Buyer may, in
addition, cancel this Agreement.
(B) If this Agreement relates to the purchase of any food, drug,
cosmetic, or device or substance the intended use of which results or may
reasonably be expected to result, directly or indirectly, in its becoming a
component or otherwise affecting the characteristics of any food (including any
substance intended for use in producing, manufacturing, packing, processing,
preparing, treating, packaging, transporting, or holding food), Seller hereby
guarantees that the article comprising each shipment or other delivery now of
hereafter made by Seller to Buyer, as of the date of such shipment or delivery,
is not adulterated or misbranded within the meaning of the Federal Food, Drug
and Cosmetic Act, as amended, or within the meaning of applicable State laws or
Municipal ordinances in which the definitions of adulteration and misbranding
are substantially the same as those contained in the above Act, and not an
article which may not, under the provisions of Section 404 or 505 of the Act, be
introduced into interstate commerce; and that if any such article is a coal-tar
color or contains coal-tar color, that said color was manufactured by Seller,
and is from a batch certified in accordance with the applicable regulations
promulgated under the Federal Food, Drug and Cosmetic Act, as amended, or that
6
<PAGE>
Seller has in its possession a guarantee to the same effect from the
manufacturer of said color.
(C) Seller guarantees that it will operate its facilities in
compliance with voluntary requirements (if any) of the Food & Drug
Administration for registration, record-keeping and other applicable
requirements. If at any time during the period of this Agreement or its
extension(s) approval is withdrawn by the Food & Drug Administration, Buyer may
at its option, after giving Seller reasonable time to correct those deficiencies
which prevent registration, terminate this agreement without obligation.
(D) Some of the material or services covered by this Agreement is to
be used on a contract with the Federal Government to which the provisions of
Section 202 of Executive Order 11246, Section 402 of The Vietnam Era Veterans
Readjustment Assistance Act of 1974, and Section 503 of the Rehabilitation Act
of 1973 apply, and consequently, the aforementioned sections are incorporated
herein by specific reference. Regulations under the Executive Order, The
Vietnam Era Veterans Readjustment Act and The Rehabilitation Act may require
Seller to develop an Affirmative Action Compliance Program and file an Employee
Information Report EEO-1 or other reports as prescribed.
(E) Seller guarantees that it will operate in strict compliance with
the applicable section of Good Manufacturing Practices (GMP) as detailed in
Title 21, Code of Federal Regulations, part 110, current Good Manufacturing
Practices in Manufacturing, Packaging or holding Human Food, and any revision to
Good Manufacturing Practices that are issued in the future. Buyer may, at its
option, terminate this Agreement without obligation, if Seller fails to operate
in accordance with such GMPs or fails to correct said deficiencies promptly.
(F) Seller guarantees that it will operate its facilities in
compliance with requirements of the Environmental Protection Agency for
registration, record-keeping and other applicable requirements. If, at any time
during the period of this Agreement or its extension(s), approval is withdrawn
by the Environmental Protection Agency, Buyer may, at its option, terminate this
Agreement without obligation.
(G) Seller guarantees that it will operate its facilities in
compliance with all federal, state and local hazardous waste regulations
including, but not limited to the Resource Conservation and Recovery Act and all
Environmental Protection Agency requirements referred to in paragraph 15(F),
above. Seller agrees to notify Buyer promptly of any and all spills and/or
terminate this Agreement without obligation, if Seller fails to correct said
deficiencies promptly.
(H) In the event Seller shall be unable to pay its bills as they
become due in the ordinary course, or if a trustee
7
<PAGE>
or receiver of any of its property shall be appointed, or if Seller shall take
any assignment for the benefit of creditors, or if a petition in bankruptcy
shall be filed by or against Seller, or if Seller shall liquidate its business
for any reason, Buyer shall have the right to terminate this Agreement
immediately without further obligation. Seller will make available for Buyer's
removal any such raw materials, finished product, or other of Buyer's property
then under Seller's control. Seller further agrees not to encumber such
materials, finished product or other property, as through security liens or
pledges, in any way. Buyer's right to remove such material shall have priority
over all other claimants.
(I) In recognition of the confidentiality obligation Seller has
assumed hereunder, Seller agrees not to assign or transfer its rights and
obligations hereunder without the express written consent of the Buyer. If for
any reason Seller decides to sell or transfer the manufacturing operation used
in fulfillment of this Agreement, it will provide Buyer with at least ninety
(90) days advance written notice of its intent to transfer or sell such
operation and will extend to Buyer an option exercisable within ninety (90) days
after the date of such notice to sublease the portions of the facility used in
performance of this Agreement and to lease any and all equipment for the purpose
of conducting the manufacturing operation by or on behalf of Buyer. It is
understood that this option does not in any way limit the other rights and
obligations of the parties set forth in this Agreement. Buyer reserves the
right to reduce or discontinue purchases under this Agreement, or terminate this
Agreement, without obligation if any company which markets products in
competition with Buyer obtains whole or part corporate ownership of Seller.
(J) Seller agrees to comply with all applicable federal, state and
local environmental laws, ordinances, codes, rules, regulations, and permits and
to handle all raw materials, off specification product, excess or scrap
materials, waste, finished products in an environmentally safe manner so as to
prevent any contamination of the structure, soil or ground water, in, on, or
adjacent to the Seller's facility or plant at which Seller performs the work
which is the subject of this Agreement.
(K) Seller agrees to indemnify Buyer, its parent, affiliates,
subsidiaries, successors, assigns and their respective directors, officers,
shareholders and employees (indemnitees) and save and hold each of them harmless
from all liabilities, losses, claims, demands, assessments,
fines, costs or expenses (including, without limitation, reasonable attorneys'
and consultants' fees and expenses of every kind, nature, or description)
arising under Common Law or any
environmental law (including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, The Resource
Conservation and Recovery Act, and similar
8
<PAGE>
federal, state or local laws) resulting from, arising out of or relating to any
conditions or activities at or involving any facility or plant at which Seller
performs the work which is the subject of this Agreement.
16. Termination/Cancellation.
------------------------
(A) Seller may terminate/cancel this Agreement if:
1. Buyer fails to pay Seller the Price;
2. Buyer is in default of any provision of this Agreement and
such default is not cured within twenty (20) days after
Seller gives written notice thereof.
(B) If this Agreement is terminated/cancelled, Seller may:
1. Declare all amounts owed to Seller to be immediately due and
payable;
2. Require Buyer to pay for all raw materials, works in process
and finished goods ordered and manufactured as of the date
of termination; and
3. Cease performance of all Seller's obligations without
liability to Buyer.
(C) The foregoing rights and remedies of Seller shall be cumulative
and in addition to all other rights and remedies available to Seller in law and
in equity.
(D) In the event Seller breaches any of the material terms of this
Agreement or its extension(s), Buyer shall have the option to terminate this
Agreement without further obligation, if Buyer immediately notifies in writing
Seller of the breach and allows Seller to cure said breach within twenty (20)
days of such notice. If said breach is not remedied within such period, Buyer
shall then have the right to terminate this Agreement immediately without
further obligation to Seller. However, upon termination of this Agreement by
Buyer pursuant to any of the terms and provision hereof, Buyer shall still be
obligated to pay for all goods, materials, products and services ordered by
Buyer and manufactured, purchased, delivered and/or performed by Seller as of
the date of termination. Seller will make available for Buyer's removal any
such raw materials, finished product, or other of Buyer's property then under
Seller's control.
17. Defects.
-------
(A) In the event of any failure or defect in product produced
hereunder resulting from Seller's failure to comply with
9
<PAGE>
the terms of this Agreement, including but not limited to Buyer's specification,
Seller agrees (if Buyer so requests) to rework and/or scrap any defective
product, or authorize Buyer to do so, and Seller shall, at Buyer's total cost
(including filling, raw materials, packaging materials and freight) thereof
including, to the extent undertaken by Buyer at Seller's request, the cost of
inspecting, sorting, reworking and scrapping. In addition, Seller shall be
responsible for claims by third parties against Buyer for loss or damage based
on personal injury or destruction of property due to defects in the product due
to failure to comply with specifications. Seller shall be responsible for the
defense, settlement of other final disposition of such claims and agrees to hold
Buyer harmless from any expenses or liability arising out of such claims.
(B) Since Buyer's name or trademark may be identified, Buyer may at
its option and expense retain counsel to assume full responsibility for the
defense settlement or other final disposition of such claims and to look to
Seller for contribution to such defense, settlement, or other disposition, or
retain counsel to participate in the investigation and handling of such claims.
18. Proprietary Rights Indemnity. Buyer acknowledges that Seller is the
----------------------------
owner of all Proprietary Rights related to the Cosmetics Products and agrees to
make no claims thereto. By acceptance of this Agreement and in consideration
thereof, Seller warrants and agrees that it will defend any suit that may arise
against Buyer or any subsidiary or affiliated company thereof, for alleged
infringement of any proprietary rights relating to Cosmetics Products, and that
Seller will indemnify and save harmless Buyer and any subsidiary or affiliated
company thereof, against any fees which may be incurred by the assertion of any
proprietary rights by other persons. Buyer agrees to hold Seller harmless with
respect to liability for infringement of a design patent by reason of making or
furnishing to Buyer hereunder, any article or articles the ornamental appearance
of which was specified by Buyer and not offered by Seller as an option. This
clause shall be considered inapplicable to agreements covering basic raw
materials and basis structural materials which are unpatented and unpatentable.
19. Entire Agreement Modification. This Agreement represents the full,
-----------------------------
entire and integrated agreement of the parties with respect to the subject
matter hereof and supersedes any and all prior agreements or understandings.
This Agreement may not be modified, amended, waived, discharged or terminated
orally, but only by an instrument in writing signed by the parties hereto.
20. Survival of Representations, Warranties and Agreements. All of the
------------------------------------------------------
representations, warranties, covenants, promises and agreements of the parties
contained in this Agreement shall
10
<PAGE>
survive the execution, acknowledgement, sealing and delivery of this Agreement.
21. Assignability. This Agreement shall not be assignable by either party
-------------
hereto without the prior written consent of the other party hereto.
22. Binding Effect; Benefit. This Agreement shall inure to the benefit of
-----------------------
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended
to confer upon any other person or entity any rights, remedies, obligations or
liabilities.
23. Arbitration. Any disputes arising out of or relating to this
-----------
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
24. Headings. The Section headings contained in this Agreement are for
--------
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
25. Governing Law. This Agreement shall be construed and performed in
-------------
accordance with and governed by, the laws of the State of New York.
26. Invalidity of Sections. If any provision of this Agreement is held to
----------------------
be invalid or unenforceable, the remaining provisions shall not be affected, but
shall continue in full force and effect.
27. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
Carson Products Company
"Buyer"
Attest:
By: /s/ S. Garrett Stonehouse By: /s/ Joyce M. Roche
----------------------------- -------------------------
Name: S. Garrett Stonehouse Name: Joyce M. Roche
Title: Vice President Title: President and C.O.O.
11
<PAGE>
AM Cosmetics, Inc.
"Seller"
Attest:
By: /s/ J.M. Lewis By: /s/ Dr. Leroy Keith
------------------------- ------------------------
Name: J. M. Lewis Name: Dr. Leroy Keith
Title: Ass't Secretary Title: Chairman and C.E.O.
12
<PAGE>
EXHIBIT 10.42
Corrected Copy
--------------
================================================================================
CREDIT AGREEMENT
among
CARSON PRODUCTS COMPANY,
CARSON, INC.
and
CREDIT AGRICOLE INDOSUEZ,
AS AGENT,
and
THE LENDING INSTITUTIONS LISTED HEREIN
_________________________
Dated as of November 6, 1997
__________________________
$75,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
SECTION 1. Amount and Terms of Credit....................................... 2
1.01. Commitments...................................................... 2
1.02. Minimum Amount of Each Borrowing; Maximum Number of Borrowings... 3
1.03. Notice of Borrowings............................................. 3
1.04. Disbursement of Funds............................................ 4
1.05. Notes............................................................ 5
1.06. Conversions; Continuations....................................... 6
1.07. Pro Rata Borrowings.............................................. 7
1.08. Interest......................................................... 8
1.09. Interest Periods................................................. 9
1.10. Special Provisions Governing Reserve Adjusted Eurodollar Loans... 10
1.11. Capital Requirements............................................. 14
1.12. Total Loan Commitments; Limitations on Outstanding Loan Amounts.. 15
1.13. Letters of Credit................................................ 16
SECTION 2. Commitments...................................................... 26
2.01. Voluntary Reduction of Commitments............................... 26
2.02. Adjustments; Termination of Commitments, etc..................... 27
2.03. Commitment Commission............................................ 27
SECTION 3. Payments......................................................... 28
3.01. Voluntary Prepayments............................................ 28
3.02. Mandatory Prepayments............................................ 28
3.03. Method and Place of Payment...................................... 32
3.04. Net Payments..................................................... 33
SECTION 4. Conditions Precedent............................................. 36
4.01. Conditions Precedent to Initial Loans............................ 36
4.02. Conditions Precedent to All Loans................................ 46
4.03. Additional Conditions Precedent to Acquisition Term Loans........ 47
4.04. Conditions Precedent to All Letters of Credit.................... 51
</TABLE>
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<S> <C>
SECTION 5. Representations, Warranties and Agreements....................... 52
5.01. Corporate Status................................................. 52
5.02. Corporate Power and Authority; Business.......................... 52
5.03. No Violation..................................................... 53
5.04. Litigation....................................................... 54
5.05. Use of Proceeds.................................................. 54
5.06. Governmental Approvals, etc...................................... 54
5.07. Investment Company Act........................................... 55
5.08. Public Utility Holding Company Act............................... 55
5.09. True and Complete Disclosure..................................... 55
5.10. Consummation of the Offering..................................... 56
5.11. Financial Condition; Financial Statements; Projections........... 56
5.12. Security Interests............................................... 58
5.13. Tax Returns and Payments......................................... 58
5.14. ERISA............................................................ 59
5.15. Subsidiaries..................................................... 60
5.16. Patents, etc..................................................... 60
5.17. Compliance with Laws, etc........................................ 61
5.18. Properties....................................................... 61
5.19. Securities....................................................... 62
5.20. Collective Bargaining Agreements................................. 62
5.21. Indebtedness Outstanding......................................... 62
5.22. Environmental Matters............................................ 62
5.23. Environmental Investigations..................................... 64
5.24. Fine Products Company............................................ 64
SECTION 6. Affirmative Covenants............................................ 65
6.01. Information Covenants............................................ 65
6.02. Books, Records and Inspections................................... 71
6.03. Maintenance of Property; Insurance............................... 71
6.04. Payment of Taxes................................................. 72
6.05. Corporate Franchises............................................. 72
6.06. Compliance with Statutes, etc.................................... 73
6.07. ERISA............................................................ 73
6.08. Performance of Obligations....................................... 74
6.09. End of Fiscal Years; Fiscal Quarters............................. 74
6.10. Use of Proceeds.................................................. 74
6.11. Equal Security for Loans and Notes; No Further Negative Pledges.. 74
6.12. Lender Meeting................................................... 75
6.13. Pledge of Additional Collateral.................................. 75
6.14. Security Interests............................................... 76
6.15. Environmental Events............................................. 76
6.16. New Subsidiaries................................................. 77
</TABLE>
-ii-
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<S> <C>
6.17. Manufacturing Agreements......................................... 78
SECTION 7. Negative Covenants............................................... 78
7.01. Changes in Business.............................................. 78
7.02. Amendments or Waivers of Certain Documents....................... 78
7.03. Liens............................................................ 79
7.04. Indebtedness..................................................... 81
7.05. Advances, Investments and Loans.................................. 83
7.06. Prepayments of Indebtedness; Amendments.......................... 84
7.07. Dividends, etc................................................... 85
7.08. Transactions with Affiliates..................................... 86
7.09. Total Interest Coverage Ratio.................................... 86
7.10. Fixed Charge Coverage Ratio...................................... 87
7.11. Leverage Ratio................................................... 87
7.12. Issuance of Subsidiary Stock..................................... 87
7.13. Disposition of Assets............................................ 88
7.14. Contingent Obligations........................................... 91
7.15. ERISA............................................................ 92
7.16. Merger and Consolidations........................................ 93
7.17. Sale and Lease-Backs............................................. 93
7.18. Sale or Discount of Receivables.................................. 93
7.19. Fine Products Company............................................ 93
SECTION 8. Events of Default................................................ 93
8.01. Payments......................................................... 94
8.02. Representations, etc............................................. 94
8.03. Covenants........................................................ 94
8.04. Default Under Other Agreements................................... 94
8.05. Bankruptcy, etc.................................................. 95
8.06. ERISA............................................................ 95
8.07. Security Documents............................................... 96
8.08. Guarantees....................................................... 96
8.09. Judgments........................................................ 96
8.10. Ownership; Board Composition..................................... 97
8.11. Certain Transactions Involving Carson Holdings Limited........... 98
SECTION 9. Definitions...................................................... 99
SECTION 10. The Agent........................................................ 134
10.01. Appointment...................................................... 134
10.02. Delegation of Duties............................................. 134
</TABLE>
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<S> <C>
10.03. Exculpatory Provisions........................................... 135
10.04. Reliance by the Agent............................................ 135
10.05. Notice of Default................................................ 136
10.06. Non-Reliance on Agent and Other Banks............................ 136
10.07. Indemnification.................................................. 137
10.08. The Agent in Its Individual Capacity............................. 138
10.09. Successor Agent.................................................. 138
10.10. Resignation by Agent............................................. 138
SECTION 11. Miscellaneous.................................................... 139
11.01. Payment of Expenses, etc......................................... 139
11.02. Right of Setoff.................................................. 140
11.03. Notices.......................................................... 140
11.04. Benefit of Agreement............................................. 141
11.05. No Waiver; Remedies Cumulative................................... 144
11.06. Payments Pro Rata................................................ 144
11.07. Calculations; Computations....................................... 145
11.08. Governing Law; Submission to Jurisdiction; Venue................. 145
11.09. Counterparts..................................................... 146
11.10. Effectiveness.................................................... 146
11.11. Headings Descriptive............................................. 146
11.12. Amendment or Waiver.............................................. 146
11.13. Survival......................................................... 147
11.14. Domicile of Loans................................................ 147
11.15. Waiver of Jury Trial............................................. 147
11.16. Independence of Covenants........................................ 147
</TABLE>
-iv-
<PAGE>
ANNEX I - List of Banks
ANNEX II - Bank Addresses
ANNEX III - Schedule of Existing Debt
ANNEX IV - Schedule of Subsidiaries
ANNEX V - Schedule of Collective Bargaining Agreements
ANNEX VI - Summary of Corporate Insurance Policies
ANNEX VII - Schedule of Liens
ANNEX VIII - List of Mortgaged Real Property
ANNEX IX - Schedule of Litigation
ANNEX X - Schedule of Consents
ANNEX XI - Schedule of Restrictions
ANNEX XII - Environmental Matters
ANNEX XIII - Taxes
ANNEX XIV - Schedule of Intellectual Property
ANNEX XV - Schedule of Existing Leases
ANNEX XVI - Compliance with Laws
-v-
<PAGE>
Exhibit A - Form of Revolving Note
Exhibit B - Form of Acquisition Term Note
Exhibit C-1 - Form of Opinion of Milbank, Tweed, Hadley & McCloy
Exhibit C-2 - Form of Opinion of Hunter, Maclean, Exley & Dunn, P.C.
Exhibit C-3 - Form of Local Counsel Opinion
Exhibit D - Form of Mortgage
Exhibit E - Form of Holdings Guarantee
Exhibit F-1 - Form of Borrower Securities Pledge Agreement
Exhibit F-2 - Form of Holdings Securities Pledge Agreement
Exhibit G - Form of Borrower Intellectual Property Security Agreement
Exhibit H - Form of Borrower General Security Agreement
Exhibit I-1 - Form of Notice of Assignment
Exhibit I-2 - Form of Assignment and Assumption Agreement
Exhibit J - Form of Notice of Borrowing
Exhibit K - Form of Notice of Conversion/Continuation
Exhibit L - Form of Officer's Solvency Certificate
Exhibit M - Form of Borrowing Base Certificate
Exhibit N - Form of Officers' Certificate Regarding Environmental Review
Exhibit O - Form of Landlord Lien Assurance Agreement
Exhibit P - Form of Consolidated Financial Plan
Exhibit Q - Form of Non-U.S. Lender Certificate
Exhibit R - Form of Subsidiary Guarantee
Exhibit S - Cutex Manufacturing Agreement
Exhibit T - AM Manufacturing Agreement
-vi-
<PAGE>
CREDIT AGREEMENT, dated as of November 6, 1997 (the "Agreement"),
among CARSON PRODUCTS COMPANY, a Delaware corporation (the "Borrower"), CARSON,
INC., a Delaware corporation ("Holdings"), the lending institutions listed in
Annex I (each a "Bank" and, collectively, the "Banks") and CREDIT AGRICOLE
INDOSUEZ ("Indosuez") as the agent and collateral agent for the Banks (in such
capacity, the "Agent"). Unless otherwise defined herein, all capitalized terms
used herein and defined in Section 9 are used herein as so defined.
W I T N E S S E T H :
-------------------
WHEREAS, Holdings shall consummate on the Closing Date an offering of
its Senior Subordinated Notes (as defined herein) in a private placement of
securities that do not require registration under the Securities Act (the
"Offering");
WHEREAS, the Borrower and certain of its Subsidiaries will guarantee,
on a senior subordinated basis, the obligations of Holdings with respect to the
Senior Subordinated Notes;
WHEREAS, in conjunction with the Offering, the Borrower wishes to
refinance its existing indebtedness (the Offering and the use of proceeds
therefrom, and the Borrowings and the Loans hereunder are, collectively, the
"Recapitalization");
WHEREAS, the Borrower desires (i) to incur the Initial Loans from the
Banks, the proceeds of which may be applied to finance the Recapitalization and
to pay certain fees and expenses related thereto and (ii) to incur further Loans
from the Banks, the proceeds of which will be used (a) to provide working
capital for the Borrower and its Subsidiaries and for general corporate purposes
and (b) with respect to the Acquisition Term Loans (as defined herein), to
provide financing for acquisitions, subject to the conditions set forth herein;
WHEREAS, Holdings will execute a Guarantee and a Securities Pledge
Agreement, secured by a pledge of the shares of capital stock of the Borrower,
guaranteeing the Borrower's obligations hereunder; and
WHEREAS, the Banks are willing to make available the credit
facilities provided for herein.
NOW, THEREFORE, IT IS AGREED:
<PAGE>
-2-
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01. Commitments. Subject to and upon the terms and conditions
-----------
herein set forth, each Bank severally agrees (i) in the case of any Borrowing
under the Revolving Portion, at any time and from time to time on and after the
Closing Date and prior to the Revolving Loan Commitment Termination Date and
(ii) in the case of any Borrowing under the Acquisition Portion after the
Closing Date and prior to the Acquisition Term Loan Commitment Termination Date
in connection with acquisitions, to make a Loan or Loans to the Borrower, which
Loans shall be drawn under the Loan Facility (including the Revolving Portion
and Acquisition Portion thereof), as set forth below.
(a) Loans under the Revolving Portion of the Loan Facility (each a
"Revolving Loan" and, collectively, the "Revolving Loans") (i) shall be
made at any time and from time to time on and after the Closing Date and
prior to the Revolving Loan Commitment Termination Date (including up to
$1,000,000 on the Closing Date for purposes of financing the
Recapitalization and paying related fees and expenses), (ii) except as
hereinafter provided, shall initially be Base Rate Loans and, 60 days after
the Closing Date or such earlier time as the Agent may agree, shall, at the
option of the Borrower, be Base Rate Loans or Reserve Adjusted Eurodollar
Loans; provided that all Revolving Loans made by all Banks pursuant to the
--------
same Borrowing shall, unless otherwise specifically provided herein,
consist entirely of Loans of the same Type, (iii) may be repaid and
reborrowed in accordance with the provisions hereof, (iv) shall not exceed
for any Bank at any time outstanding the Revolving Loan Commitment of such
Bank at such time and (v) shall not be made pursuant to a particular Notice
of Borrowing if the aggregate principal amount of Revolving Loans then
outstanding, after giving effect to the Revolving Loan requested by such
Notice of Borrowing, plus the then outstanding Letters of Credit Usage,
after giving effect to the issuance of all Letters of Credit subject to
outstanding requests for issuance, would exceed the lesser of the
Borrower's Borrowing Base as shown in the Borrowing Base Certificate that
was last required to be delivered pursuant to Section 6.01 or the Total
Revolving Loan Commitment.
(b) Loans under the Acquisition Portion of the Loan Facility (each
an "Acquisition Term Loan") (i) shall be made to the Borrower on or after
the Closing Date and prior to the Acquisition Term Loan Commitment
Termination
<PAGE>
-3-
Date (the date of such Borrowing of an Acquisition Term Loan, the
"Acquisition Term Loan Closing Date") to effect acquisitions, (ii) shall,
at the option of the Borrower, be Base Rate Loans or Reserve Adjusted
Eurodollar Loans; provided that all Acquisition Term Loans made by
--------
all Banks pursuant to the same Borrowing shall, unless otherwise
specifically provided herein, consist entirely of Loans of the same Type,
(iii) shall not exceed for any Bank at any time outstanding the Acquisition
Term Loan Commitment of such Bank at such time, and (iv) shall not be made
pursuant to a particular Notice of Borrowing if the aggregate principal
amount of Acquisition Term Loans then outstanding, after giving effect to
the Acquisition Term Loan requested by such Notice of Borrowing, would
exceed the Total Acquisition Term Loan Commitment.
1.02. Minimum Amount of Each Borrowing; Maximum Number of Borrowings.
--------------------------------------------------------------
The minimum aggregate principal amount of a Borrowing of Acquisition Term Loans
consisting of Reserve Adjusted Eurodollar Loans or Base Rate Loans shall be the
Minimum Borrowing Amount and, if greater, shall be in integral multiples of
$100,000; provided, however, that the Banks' Acquisition Term Loan Commitment
-------- -------
shall terminate, on a pro rata basis, with respect to any portion of the Total
--- ----
Acquisition Term Loan Commitments not utilized by the Borrower on or after the
Closing Date and prior to the Acquisition Term Loan Commitment Termination Date.
The minimum aggregate principal amount of a Borrowing of Revolving Loans
consisting of Reserve Adjusted Eurodollar Loans or Base Rate Loans shall be the
Minimum Borrowing Amount (other than a Borrowing of Base Rate Loans such that
the total amount of Revolving Loans and Letters of Credit Usage to be
outstanding after giving effect to such Borrowing shall be equal to the Total
Revolving Commitment) and, if greater, shall be in integral multiples of
$100,000. More than one Borrowing may be incurred on any date; provided that at
--------
no time shall there be outstanding more than 6 Borrowings of Reserve Adjusted
Eurodollar Loans.
1.03. Notice of Borrowings. Subject to Sections 1.01(a) and (b),
--------------------
whenever the Borrower desires that the Banks make Reserve Adjusted Eurodollar
Loans under the Revolving Portion or the Acquisition Portion of the Loan
Facility it shall give the Agent at the Agent's Office prior to 10:00 A.M. (New
York time) at least three Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each such Borrowing of Reserve Adjusted
Eurodollar Loans. Whenever the Borrower desires that the Banks make Base Rate
Revolving Loans on a same-day basis under either the Revolving Portion or
<PAGE>
-4-
the Acquisition Portion of the Loan Facility it shall give the Agent at the
Agent's office prior to 12:00 P.M. (New York time) written notice (or telephonic
notice promptly confirmed in writing) of each such Borrowing of Base Rate Loans.
Each such notice, which shall be substantially in the form of Exhibit J (each a
"Notice of Borrowing"), shall be irrevocable, shall be deemed a representation
by the Borrower that all conditions precedent to such Borrowing set forth in
Section 4.02 and, in the case of a Loan under the Acquisition Portion that all
additional conditions set forth in Section 4.03, have been satisfied and shall
specify (i) the aggregate principal amount in U.S. dollars of the Loans to be
made pursuant to such Borrowing, all of which shall be specified in such manner
as is necessary to comply with all limitations on Revolving Loans or Acquisition
Term Loans, as the case may be, outstanding hereunder, including without
limitation, in the case of the Revolving Loans, availability under the Borrowing
Base, (ii) the date of Borrowing (which shall be a Business Day) and (iii)
whether the respective Borrowing shall consist of Base Rate Loans or Reserve
Adjusted Eurodollar Loans and, if Reserve Adjusted Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Agent shall as promptly
as practicable give each Bank written notice (or telephonic notice promptly
confirmed in writing) of each proposed Borrowing, of such Bank's proportionate
share thereof and of the other matters covered by the Notice of Borrowing.
1.04. Disbursement of Funds. (a) No later than 1:00 P.M. (New York
---------------------
time) on the date specified in each Notice of Borrowing, each Bank will make
available to the Agent in New York its pro rata portion of each Borrowing
--------
requested to be made on such date in the manner provided below.
(b) Each Bank shall make available all amounts it is to fund under
any Borrowing on or after the Closing Date in immediately available funds to the
Agent to the account specified therefor by the Agent or if no account is so
specified at the Agent's Office and the Agent will make such funds available to
the Borrower, no later than 4:00 P.M. (New York time) on the date specified in
each Notice of Borrowing, by depositing to the account specified therefor by the
Borrower or if no account is so specified to its account at the Agent's Office
the aggregate of the amounts so made available in the type of funds received.
Unless the Agent shall have been notified by any Bank prior to the date of any
such Borrowing that such Bank does not intend to make available to the Agent its
portion of the Borrowing or Borrowings to be made on such date, the Agent may
assume that such Bank has made such amount available to the Agent
<PAGE>
-5-
on such date of Borrowing, and the Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Bank and the Agent has made available same
to the Borrower, the Agent shall be entitled to recover such corresponding
amount from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify the
Borrower, and the Borrower shall upon the Agent's request immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
from such Bank or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to (x)
--- -----
if paid by such Bank, the Federal Funds Rate or (y) if paid by the Borrower
(and/or one or more other Credit Parties), the then applicable rate of interest,
calculated in accordance with Section 1.08, for the respective Loans. The Agent
shall also be entitled to recover from any Bank an amount equal to any other
losses incurred by the Agent as a result of the failure of such Bank to provide
such amount as provided in this Agreement.
(c) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its Commitments hereunder or to prejudice any rights which
the Borrower or any other Credit Party may have against any Bank as a result of
any default by such Bank hereunder.
1.05. Notes. (a) The Borrower's obligation to pay the principal of
-----
and interest on all the Loans made to it by each Bank shall be evidenced (i) if
Revolving Loans, by a promissory note (each, a "Revolving Note" and,
collectively, the "Revolving Notes") duly executed and delivered by the Borrower
substantially in the form of Exhibit A hereto, with blanks appropriately
completed in conformity herewith and (ii) if Acquisition Term Loans, by a
promissory note (each, an "Acquisition Term Note" and, collectively, the
"Acquisition Term Notes") duly executed and delivered by the Borrower,
substantially in the form of Exhibit B hereto, each with blanks appropriately
completed in conformity herewith.
(b) The Revolving Note of the Borrower issued to each Bank shall (i)
be executed by the Borrower, (ii) be payable to the order of such Bank and be
dated the Closing Date, (iii) be in a stated principal amount equal to the
Revolving
<PAGE>
-6-
Loan Commitment of such Bank and be payable in the aggregate principal amount of
the outstanding Revolving Loans evidenced thereby, (iv) mature, with respect to
each Loan evidenced thereby, on the Final Revolving Loan Maturity Date, (v) be
subject to mandatory prepayment as provided in Section 3.02, (vi) bear interest
as provided in the appropriate clause of Section 1.08 in respect of the Base
Rate Loans and Reserve Adjusted Eurodollar Loans, as the case may be, evidenced
thereby and (vii) be entitled to the benefits of this Agreement and the other
applicable Credit Documents.
(c) The Acquisition Term Note of the Borrower issued to each Bank
shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank
and be dated the Closing Date, (iii) be in a stated principal amount equal to
the Acquisition Term Loan Commitment of such Bank and be payable in the
aggregate principal amount of the Acquisition Term Loan evidenced thereby, (iv)
mature, with respect to each Loan evidenced thereby, on the Final Acquisition
Term Loan Maturity Date, (v) be subject to mandatory prepayment as provided in
Section 3.02, (vi) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Reserve Adjusted Eurodollar
Loans, as the case may be, evidenced thereby and (vii) be entitled to the
benefits of this Agreement and the other applicable Credit Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation shall not affect the Borrower's or any Credit Party's obligations
hereunder or under the other applicable Credit Documents in respect of such
Loans.
1.06. Conversions; Continuations. The Borrower shall have the option
--------------------------
to convert on any Business Day commencing on the earlier of receipt of the
Agent's approval or 60 days after the Closing Date all or a portion (which
portion shall not be less than the Minimum Borrowing Amount) of the outstanding
principal amount of the Loans owing by the Borrower pursuant to a single Portion
of the Loan Facility into a Borrowing or Borrowings pursuant to such Portion of
another Type of Loan, or to continue all or a portion of such Borrowings as the
same Type of Loan; provided that (i) except as otherwise provided in Section
--------
1.10(b), Reserve Adjusted Eurodollar Loans may be converted into Base Rate Loans
or continued as Reserve Adjusted Eurodollar Loans only on the last day of an
Interest Period ap-
<PAGE>
-7-
plicable to such Reserve Adjusted Eurodollar Loans, (ii) no such partial
conversion of Reserve Adjusted Eurodollar Loans shall reduce the outstanding
principal amount of Reserve Adjusted Eurodollar Loans under the Loan Facility
(or Portion thereof) made pursuant to a single Borrowing to less than the
Minimum Borrowing Amount, (iii) one Type of Loan may only be continued as or
converted into Reserve Adjusted Eurodollar Loans if no Default or Event of
Default is in existence on the date of the conversion, (iv) Borrowings resulting
from conversions or continuations pursuant to this Section 1.06 shall be limited
in amount and number as provided in Section 1.02 and (v) all or a portion of the
outstanding principal amount of Base Rate Loans may not be converted into
Reserve Adjusted Eurodollar Loans if such Base Rate Loans or portions thereof
will mature within 30 days of such proposed conversion. Each such conversion (or
continuation) shall be effected by the Borrower by giving the Agent at the
Agent's Office prior to 10:00 A.M. (New York time) at least three Business Days'
(or one Business Day in the case of a conversion into Base Rate Loans) prior
written notice (or telephonic notice promptly confirmed in writing) (each a
"Notice of Conversion/Continuation") specifying the Loans to be so converted or
continued, the Type of Loans to be converted into or continued and, if to be
converted into or continued as Reserve Adjusted Eurodollar Loans, the Interest
Period to be initially applicable thereto. The Agent shall give each Bank notice
as promptly as practicable of any such proposed conversion or continuation
affecting any of its Loans. Notwithstanding the foregoing or the provisions of
Section 1.09, if a Default or Event of Default is in existence on the last day
of any Interest Period in respect of any Borrowing of Reserve Adjusted
Eurodollar Loans, such Loans may not be continued as Reserve Adjusted Eurodollar
Loans but instead shall be automatically converted on the last day of such
Interest Period into Base Rate Loans. If no Notice of Conversion/Continuation
has been duly delivered with respect to a Reserve Adjusted Eurodollar Loan on or
before the third Business Day prior to the last day of the Interest Period
applicable thereto, such Reserve Adjusted Eurodollar Loan shall be automatically
converted into a Base Rate Loan.
1.07. Pro Rata Borrowings. All Borrowings under this Agreement shall
-------------------
be loaned by the Banks pro rata on the basis of their Revolving Loan Commitment
--------
or Acquisition Term Loan Commitment, as the case may be. No Bank shall be
responsible for any default by any other Bank in its obligation to make Loans
hereunder and each Bank shall be obligated to make the Loans provided to be made
by it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
<PAGE>
-8-
1.08. Interest. (a) The unpaid principal amount of each Base Rate
--------
Loan shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration or otherwise) (or unless sooner converted into a
Reserve Adjusted Eurodollar Loan) at a rate per annum equal to the sum of (i)
---------
the Base Rate in effect from time to time and (ii) the applicable Interest
Margin.
(b) The unpaid principal amount of each Reserve Adjusted Eurodollar
Loan shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration or otherwise) (or unless sooner converted to a Base
Rate Loan) at a rate per annum equal to the sum of (i) the relevant Eurodollar
---------
Rate and (ii) the applicable Interest Margin.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum equal
---------
to the sum of (i) the rate of interest applicable to such Loan and (ii) 2%, such
amount payable upon demand upon the occurrence, and during the continuation, of
any payment default (after the lapse of any applicable grace periods); provided
--------
that the amount of the overdue principal of each Reserve Adjusted Eurodollar
Loan shall bear interest at the rate of interest applicable thereto plus 2% for
the balance of the then current Interest Period.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each December, March, June and September beginning December
1997; (ii) in respect of each Reserve Adjusted Eurodollar Loan, in arrears on
the last day of each Interest Period applicable thereto and, in the case of an
Interest Period in excess of three months, on each date occurring at three-month
intervals after the first date of such Interest Period; and (iii) in respect of
each Loan, on any prepayment (on the amount prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 11.07(b).
(f) The Agent, upon determining the interest rate for any Borrowing
of Reserve Adjusted Eurodollar Loans for any Interest Period, shall promptly
notify the Borrower and the Banks thereof. Such determination shall, absent
manifest error, be final, conclusive and binding upon all parties hereto.
<PAGE>
-9-
1.09. Interest Periods. At the time the Borrower gives a Notice of
----------------
Borrowing or Notice of Conversion/Continuation in respect of the making of, or
conversion into or continuation of, a Borrowing of Reserve Adjusted Eurodollar
Loans, it shall have the right to elect, by giving the Agent written notice (or
telephonic notice promptly confirmed in writing), the Interest Period applicable
to such Borrowing, which Interest Period shall, at the option of such Borrower,
be a one, two, three or six month period. Notwithstanding anything to the
contrary contained above:
(a) the initial Interest Period for any Borrowing of Reserve
Adjusted Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate Loans)
and each Interest Period occurring thereafter in respect of such Borrowing
shall commence on the date on which the next preceding Interest Period
expires;
(b) if any Interest Period relating to a Borrowing of Reserve
Adjusted Eurodollar Loans begins on a date for which there is no
numerically corresponding date in the calendar month in which such Interest
Period ends, such Interest Period shall end on the last Business Day of
such calendar month;
(c) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that if any Interest Period in respect of
--------
a Reserve Adjusted Eurodollar Loan would otherwise expire on a day which is
not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the
next preceding Business Day;
(d) no Interest Period shall extend beyond, as applicable, the
Final Revolving Loan Maturity Date (in the case of Revolving Loans) or the
Final Acquisition Term Loan Maturity Date (in the case of Acquisition Term
Loans); and
(e) no Interest Period with respect to any Borrowing of Reserve
Adjusted Eurodollar Loans shall extend beyond any date upon which the
Borrower thereof is required to make a scheduled payment of principal with
respect to the Acquisition Term Loans if, after giving effect to the
selection of such Interest Period, the aggregate principal
<PAGE>
-10-
amount of Acquisition Term Loans maintained as Reserve Adjusted Eurodollar
Loans with Interest Periods ending after such date of scheduled payment of
principal would exceed the amount of Acquisition Term Loans permitted to be
outstanding after such scheduled payment of principal.
1.10. Special Provisions Governing Reserve Adjusted Eurodollar Loans.
--------------------------------------------------------------
Notwithstanding any other provisions of this Agreement, the following provisions
shall govern with respect to Reserve Adjusted Eurodollar Loans as to the matters
covered:
(a) On an Interest Rate Determination Date, the Agent shall
determine (which determination shall, absent demonstrable error, be final,
conclusive and binding upon all parties hereto) the interest rate which
shall apply to the Reserve Adjusted Eurodollar Loans for which an interest
rate is then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in
writing) to the Borrower thereof and to each Bank.
(b) In the event that (x) in the case of clause (i) below, the
Agent or (y) in the case of clause (ii) or (iii) below, any Bank shall have
determined (which determination shall, absent demonstrable error, be final,
conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising on or after the
Effective Date affecting the interbank eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate;
(ii) at any time that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Reserve Adjusted Eurodollar Loans or its obligation to
make Reserve Adjusted Eurodollar Loans because of (x) any change since
the Effective Date (including changes proposed or published prior to
the Effective Date) in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or
administration thereof and including the introduction of any new law
or governmental rule, regulation, guideline or order) (such as, for
example, but not limited to, a change in official reserve
require-
<PAGE>
-11-
ments, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the
Eurodollar Rate), including a change in the basis of taxation of
payments to any Bank of the principal of or interest on the Loans or
any other amounts payable hereunder (except for changes in the rate of
tax on, or determined by reference to, the net income or profits of
such Bank pursuant to the laws of the jurisdiction in which it is
organized or in which its principal office or applicable lending
office is located or any subdivision thereof or therein) and/or (y)
other circumstances affecting such Bank, the interbank eurodollar
market, or the position of such Bank in such market; or
(iii) at any time that the making or continuance of any Reserve
Adjusted Eurodollar Loan has become unlawful by compliance by such
Bank in good faith with any law, governmental rule, regulation,
guideline or order (or would conflict with any such governmental rule,
regulation, guideline or order not having the force of law even though
the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the
Effective Date which materially and adversely affects the interbank
eurodollar market;
then, and in any such event, the Agent in the case of clause (i) above or
such Bank in the case of clause (ii) or (iii) above shall promptly give
notice (by telephone confirmed in writing) in accordance with Section
1.10(h) hereof to the Borrower of the Loan affected and, in the case of
clause (ii) or (iii) to the Agent, of such determination (which notice the
Agent shall promptly transmit to each of the other Banks). Thereafter (x)
in the case of clause (i) above, Reserve Adjusted Eurodollar Loans shall no
longer be available until such time as the Agent notifies the Borrower and
the Banks that the circumstances giving rise to such notice by the Agent no
longer exist, and any Notice of Borrowing or Notice of
Conversion/Continuation given by the Borrower with respect to the borrowing
of or conversion into (or continuation of) Reserve Adjusted Eurodollar
Loans which have not yet been incurred shall be deemed rescinded by the
Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, within 10 Business Days after a written demand therefor, such
additional amounts (in the form of an increased rate of, or a different
method of calculating, in-
<PAGE>
-12-
terest or otherwise as such Bank in its reasonable discretion shall
determine) as shall be required to compensate such Bank for such increased
costs or reductions in amounts receivable hereunder (a written notice
pursuant to Section 1.10(h) hereof as to the additional amounts owed to
such Bank, setting forth in reasonable detail the basis for the calculation
thereof, submitted to the Borrower shall, absent demonstrable error, be
final, conclusive and binding upon all parties hereto) and (z) in the case
of clause (iii) above, the Borrower shall take one of the actions specified
in Section 1.10(c) as promptly as possible and, in any event, within the
time period required by law.
(c) At any time that any Reserve Adjusted Eurodollar Loan is
affected by the circumstances described in Section 1.10(b)(ii) or (iii),
the Borrower may (and in the case of a Reserve Adjusted Eurodollar Loan
affected pursuant to Section 1.10(b)(iii) shall) either (i) if a Notice of
Borrowing or Notice of Conversion/Continuation has been given with respect
to the affected Reserve Adjusted Eurodollar Loan, cancel said Notice of
Borrowing or Notice of Conversion/Continuation by giving the Agent
telephonic notice (confirmed promptly in writing) thereof on the same date
(if the Borrower has been notified by not later than 3:00 P.M., New York
time, or the next Business Day if otherwise) that the Borrower was notified
by a Bank pursuant to Section 1.10(b)(ii) or (iii), or (ii) if the affected
Reserve Adjusted Eurodollar Loan is then outstanding, upon at least three
Business Days' notice to the Agent, require the affected Bank to convert
each such Reserve Adjusted Eurodollar Loan into a Base Rate Loan, or prepay
such Reserve Adjusted Eurodollar Loan; provided that if more than one Bank
--------
is affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(c); and provided, further, that the Borrower
-------- -------
shall compensate any such affected Banks as set forth in Section 1.10(f).
(d) Anything herein to the contrary notwithstanding, if on any
Interest Rate Determination Date no Eurodollar Rate is available by reason
of the inability of the Agent to determine such interest rate in accordance
with the definition thereof, the Agent shall give the Borrower and each
Bank prompt notice thereof and the Loans requested to be made as Reserve
Adjusted Eurodollar Loans shall, subject to the applicable notice
requirements, be made as Base Rate Loans.
<PAGE>
-13-
(e) Each Bank agrees that, as promptly as practicable after it
becomes aware of the occurrence of any event or the existence of a
condition that would cause it to be an affected Bank under Section 1.10(b)
(ii) or (iii), it will, to the extent not inconsistent with such Bank's
internal policies or any legal or regulatory restrictions, use reasonable
efforts to make, fund or maintain the affected Reserve Adjusted Eurodollar
Loans of such Bank through another lending office of such Bank if as a
result thereof the additional moneys which would otherwise be required to
be paid in respect of such Loans pursuant to Section 1.10(b)(ii) would be
materially reduced or the illegality or other adverse circumstances which
would otherwise require conversion or prepayment of such Loans pursuant to
Section 1.10(b)(iii) would cease to exist, and if, as determined by such
Bank, in its reasonable discretion, the making, funding or maintaining of
such Loans through such other lending office would not otherwise materially
adversely affect such Loans or such Bank. The Borrower hereby agrees to
pay all reasonable expenses incurred by any Bank in utilizing another
lending office of such Bank pursuant to this Section 1.10(e).
(f) The Borrower shall compensate each Bank, within 10 Business
Days after a written request by that Bank (which request shall be
accompanied by a written notice pursuant to Section 1.10(h) setting forth
in reasonable detail the basis for the calculation of such amounts), for
all reasonable losses, expenses and liabilities (including, without
limitation, such factors as any interest paid by that Bank to lenders of
funds borrowed by it to make or carry its Reserve Adjusted Eurodollar Loans
and any loss sustained by that Bank in connection with re-employment of
such funds (based upon the difference between the amount earned in
connection with re-employment of such funds and the amount payable by the
Borrower if such funds had been borrowed or remained outstanding)) which
that Bank may sustain with respect to the Borrower's Reserve Adjusted
Eurodollar Loans: (i) if for any reason (other than a default or error by
that Bank) a Borrowing of any such Reserve Adjusted Eurodollar Loan does
not occur on a date specified therefor in a Notice of Borrowing or a Notice
of Conversion/Continuation or in a telephonic request for borrowing or
conversion or continuation, or a successive Interest Period in respect of
any such Reserve Adjusted Eurodollar Loan does not commence after notice
therefor is given pursuant to Section 1.06, (ii) if any prepayment or
conversion (as required by Sections 3.01 and 3.02, by ac-
<PAGE>
-14-
celeration or otherwise) of any of such Bank's Reserve Adjusted Eurodollar
Loans to the Borrower occurs on a date which is not the last day of the
Interest Period applicable to that Loan, (iii) if any prepayment of any
such Bank's Reserve Adjusted Eurodollar Loans to the Borrower is not made
on any date specified in a notice of prepayment given by the Borrower, or
(iv) as a consequence of any other failure by the Borrower to repay such
Bank's Reserve Adjusted Eurodollar Loans to the Borrower when required by
the terms of this Agreement.
(g) Any Bank claiming any additional amounts payable pursuant to
this Section 1.10 agrees to use reasonable efforts (consistent with such
Bank's internal policies, legal and regulatory restrictions and commercial
considerations) to designate a different lending office if the making of
such a designation would avoid the need for, or reduce the amount of, any
such additional amounts and would not, in the reasonable judgment of such
Bank, be in any way otherwise disadvantageous to such Bank.
(h) Each Bank shall notify the Borrower of any event occurring
after the date hereof entitling such Bank to compensation under the
foregoing paragraphs of this Section 1.10 as promptly as practicable, but
in any event within 90 days, after such Bank obtains actual knowledge
thereof; provided that if any Bank fails to give such notice within 90 days
after it obtains actual knowledge of such an event, such Bank shall, with
respect to compensation payable pursuant to this Section 1.10 in respect of
any costs or other amounts resulting from or relating to such event, only
be entitled to payment under this Section 1.10 for such costs or other
amounts from and after the date 90 days prior to the date that such Bank
does give such notice. Each Bank will furnish to the Borrower a
certificate setting forth in reasonable detail the basis and amount of each
request by such Bank for compensation under this Section 1.10.
Determinations by any Bank for purposes of this Section 1.10, including of
the effect of any regulatory change pursuant to Section 1.10(b)(ii) on its
costs of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans, and of the amounts required to
compensate such Bank under this Section 1.10, shall be made on a reasonable
basis.
1.11. Capital Requirements. If any Bank shall have determined that
--------------------
the adoption or effectiveness after the Effective Date of any applicable law,
rule or regulation regarding
<PAGE>
-15-
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Bank or such Bank's parent with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency (including in each case any such change
proposed or published prior to the date hereof), has or would have the effect of
reducing the rate of return on such Bank's or such Bank's parent's capital or
assets as a consequence of such Bank's obligations hereunder to a level below
that which such Bank or such Bank's parent could have achieved but for such
adoption, effectiveness or change or as a consequence of an increase in the
amount of capital required to be maintained by such Bank as a consequence of
such Bank's obligations hereunder (including in each case, without limitation,
with respect to any Bank's Commitment or any Loan), then from time to time,
within 15 Business Days after demand by such Bank (with a copy to the Agent),
the Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank or such Bank's parent, as the case may be, for such
reduction. Each Bank, upon determining in good faith that any additional amounts
will be payable pursuant to this Section 1.11, will give prompt written notice
thereof to the Borrower, which notice shall set forth in reasonable detail the
basis of the calculation of such additional amounts, although any delay in
giving any notice shall not release or diminish any of the Borrower's
obligations to pay additional amounts pursuant to this Section 1.11.
1.12. Total Loan Commitments; Limitations on Outstanding Loan
-------------------------------------------------------
Amounts. The original amount of the (i) Total Commitments is $75,000,000, (ii)
Total Acquisition Term Loan Commitments is up to $50,000,000 and (iii) Total
Revolving Loan Commitments is $25,000,000, including up to $5,000,000 of Letters
of Credit. Anything contained in this Agreement to the contrary
notwithstanding, (a) in no event shall the sum of the aggregate principal amount
of all outstanding Acquisition Term Loans and Revolving Loans of any Bank at any
time exceed such Bank's portion of the Total Commitments, (b) in no event shall
the sum of the aggregate principal amount of all Revolving Loans and Acquisition
Term Loans from all Banks at any time exceed the Total Commitments, (c) in no
event shall the Total Utilization of Revolving Loan Commitment and Letters of
Credit Usage exceed the Total Revolving Loan Commitments and (d) in no event
shall the Total Utilization of the Acquisition Term Loan Commitment exceed the
Total Acquisition Term Loan Commitment.
<PAGE>
-16-
1.13. Letters of Credit.
-----------------
(A) Letters of Credit. Subject to the terms and conditions of this
-----------------
Agreement and in reliance upon the representations and warranties of the
Borrower set forth herein and in the other Credit Documents, in addition to
requesting that the Banks make Revolving Loans pursuant to Section 1.03, the
Borrower may request, in accordance with the provisions of this Section 1.13,
that one or more Issuing Banks issue Letters of Credit for the account of the
Borrower; provided that (i) the Borrower shall not request that any Bank issue
--------
any Letter of Credit and a Bank shall not be required to issue any Letter of
Credit, if after giving effect to such issuance the sum of (a) the Letters of
Credit Usage on the date of such issuance, after giving effect to the issuance
of all Letters of Credit subject to outstanding requests for issuance of a
Letter of Credit, plus (b) the aggregate principal amount of Revolving Loans
then outstanding, after giving effect to the making of all Revolving Loans then
requested by all outstanding but unfunded Notices of Borrowing, would exceed the
lesser of the Borrower's Borrowing Base as would be shown in the Borrowing Base
Certificate that was last required to be delivered pursuant to Section 6.01 or
the Total Revolving Loan Commitment then in effect, (ii) in no event shall any
Issuing Bank issue (w) any Letter of Credit having an expiration date later than
ten (10) Business Days prior to the Final Revolving Loan Maturity Date, after
giving effect to any possible renewal of such Letter of Credit pursuant to the
proviso to the following clause (ii)(x), (x) subject to the foregoing clause
(ii)(w), any Letter of Credit having an expiration date more than one year after
its date of issuance; provided that, subject to the foregoing clause (ii)(w),
--------
this clause (x) shall not prevent any Issuing Bank from issuing a Letter of
Credit containing a provision to the effect that such Letter of Credit will
automatically be renewed annually for a period not to exceed one year, so long
as such renewable Letter of Credit provides that it shall not at any time be
renewed for an additional year if (I) the Borrower notifies the Issuing Bank in
writing one Business Day prior to the applicable renewal date that the Borrower
elects to allow the Letter of Credit to expire without being renewed, or (II)
the Issuing Bank or the Required Banks notify the Borrower in writing, prior to
-----
the date set forth in such Letter of Credit as the date by which the beneficiary
thereof is to be notified whether such Letter of Credit is to be renewed, that
such Letter of Credit shall not be so renewed, in which case such Letter of
Credit shall not be so renewed, (y) any Letter of Credit, the initial stated
amount of which is less than $5,000, or (z) any Letter of Credit (I) which is
gov-
<PAGE>
-17-
erned by laws other than the laws of the State of New York, without regard to
the principles of conflicts of laws, or (II) as to which the beneficiary is not
required, by acceptance of the Letter of Credit, to be subject to the exclusive
jurisdiction of any competent state or federal court in the State of New York
with regard to such Letter of Credit and (iii) the Borrower shall not request
that any Issuing Bank issue and no Issuing Bank shall issue any Letter of Credit
if, after giving effect to such issuance and the issuance of all other requested
Letters of Credit, the then outstanding Letters of Credit Usage in respect of
all Letters of Credit would exceed $5,000,000. The issuance of any Letter of
Credit in accordance with the provisions of this Section 1.13 shall be given
effect in the calculation of the aggregate principal amount of Revolving Loans
outstanding and the Letters of Credit Usage and shall require the satisfaction
of each condition set forth in Sections 4.02 and 4.04.
Immediately upon the issuance of each Letter of Credit, each Bank
other than the Issuing Bank or Banks shall be deemed to, and hereby agrees to,
be irrevocably obligated to reimburse the Issuing Bank (such reimbursement
obligation of each Bank in each Letter of Credit being hereinafter referred to
as its "Letter of Credit Participation") under such Letter of Credit and each
drawing thereunder in an amount equal to such Bank's pro rata share (determined
--------
on the basis of such Bank's Revolving Loan Commitment) of the maximum amount
which is or at any time may become available to be drawn thereunder.
Each Letter of Credit may provide that the Issuing Bank may (but shall
not be required to) pay the beneficiary thereof upon the occurrence of an Event
of Default and the acceleration of the maturity of the Revolving Loans or, if
payment is not then due to the beneficiary, provide for the deposit of funds in
an account to secure payment to the beneficiary and that any funds so deposited
shall be paid to the beneficiary of the Letter of Credit if conditions to such
payment are satisfied or returned to the Issuing Bank for distribution to the
Banks (or, if all Obligations shall have been indefeasibly paid in full, to the
Borrower) if no payment to the beneficiary has been made and the final date
available for drawings under the Letter of Credit has passed. Each payment or
deposit of funds by an Issuing Bank as provided in this paragraph shall be
treated for all purposes of this Agreement as a drawing duly honored by such
Issuing Bank under the related Letter of Credit.
<PAGE>
-18-
(B) Request for Issuance. Whenever the Borrower desires the issuance
--------------------
of a Letter of Credit, it shall deliver to the Agent a request for issuance of a
Letter of Credit no later than 1:00 P.M. (New York time) at least three Business
Days, or such shorter period as may be agreed to by any Issuing Bank in any
particular instance, in advance of the proposed date of issuance. The request
for issuance with respect to any Letter of Credit shall specify (i) the proposed
date of issuance (which shall be a business day under the laws of the
jurisdiction of the Issuing Bank) of such Letter of Credit, (ii) the face amount
of such Letter of Credit, (iii) the expiration date of such Letter of Credit and
(iv) the name and address of the beneficiary of such Letter of Credit. As soon
as practicable after delivery of such request for issuance of a Letter of
Credit, the Issuing Bank for such Letter of Credit shall be determined as
provided in Section 1.13(C). Prior to the date of issuance, the Borrower shall
specify a precise description of the documents and the verbatim text of any
certificate to be presented by the beneficiary of such Letter of Credit which,
if presented by such beneficiary prior to the expiration date of the Letter of
Credit, would require the Issuing Bank to make payment under the Letter of
Credit; provided that the Issuing Bank, in its sole judgment, may require
--------
changes in any such documents and certificates; and provided, further, that no
-------- -------
Letter of Credit shall require payment against a conforming draft to be made
thereunder earlier than 1:00 P.M. in the time zone of the Issuing Bank on the
Business Day (which shall be a business day under the laws of the jurisdiction
of the Issuing Bank) next succeeding the Business Day (which shall be a business
day under the laws of the jurisdiction of the Issuing Bank) that such draft is
presented. In determining whether to pay under any Letter of Credit, the
Issuing Bank shall be responsible only to determine that the documents and
certificates required to be delivered under that Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Letter of Credit. Promptly after receipt of a request for issuance of a Letter
of Credit and the determination of the Issuing Bank thereof, the Agent shall
notify each Bank of the proposed issuance, the identity of the Issuing Bank and
the amount of each other Bank's respective participation therein, determined in
accordance with Section 1.13(A).
(C) Determination of Issuing Bank.
-----------------------------
(1) Upon receipt by the Agent of a request for issuance pursuant to
Section 1.13(B) with respect to a Letter of Credit, in the event the Agent
elects to issue such Letter of Credit, the Agent shall so notify the Borrower,
and the Agent
<PAGE>
-19-
shall be the Issuing Bank with respect thereto. In the event that the Agent, in
its sole discretion, elects not to issue such Letter of Credit, the Agent shall
promptly so notify the Borrower, and the Borrower may request any other Bank to
issue such Letter of Credit. Each such Bank so requested to issue such Letter of
Credit shall promptly notify the Borrower and the Agent whether or not, in its
sole discretion, it has elected to issue such Letter of Credit, and any such
Bank that so elects to issue such Letter of Credit shall be the Issuing Bank
with respect thereto. In the event that all other Banks shall have declined to
issue such Letter of Credit, notwithstanding the prior election of the Agent not
to issue such Letter of Credit, the Agent shall be obligated to issue the Letter
of Credit requested by the Borrower and shall be the Issuing Bank with respect
to such Letter of Credit. In no event shall any Bank be an Issuing Bank if such
Bank would incur increased costs pursuant to Section 1.13(H) as a result of
being the Issuing Bank, unless consented to by the Borrower. No Issuing Bank
shall issue any Letter of Credit denominated in a currency other than Dollars.
(2) Each Issuing Bank that elects to issue a Letter of Credit shall
promptly give written notice to the Agent and each other Bank of the information
required under Sections 1.13(B)(i)-(iv) relating to the Letter of Credit.
(D) Payments of Amounts Drawn Under Letters of Credit. In the event
-------------------------------------------------
of any request for drawing under any Letter of Credit by the beneficiary
thereof, the Issuing Bank shall notify the Borrower and the Agent on or before
the date on which such Issuing Bank intends to honor such drawing, and the
Borrower shall reimburse such Issuing Bank on the day on which such drawing is
honored in an amount in same day funds equal to the amount of such drawing;
provided that, anything contained in this Agreement to the contrary
- --------
notwithstanding, (i) unless the Borrower shall have notified the Agent and such
Issuing Bank prior to 10:00 A.M. (New York time) on the Business Day of the date
of such drawing that the Borrower intends to reimburse such Issuing Bank for the
amount of such drawing with funds other than the proceeds of Revolving Loans,
the Borrower shall be deemed to have timely given a Notice of Borrowing to the
Agent requesting the Banks to make Revolving Loans that are Base Rate Loans on
the date on which such drawing is honored in an amount equal to the amount of
such drawing, and (ii) subject to satisfaction or waiver of the conditions
specified in Section 4.02, the Banks shall, on the date of such drawing, make
Revolving Loans that are Base Rate Loans in the amount of such drawing, the
proceeds of which shall be applied
<PAGE>
-20-
directly by the Agent to reimburse such Issuing Bank for the amount of such
drawing; and provided further that if, for any reason, proceeds of Revolving
-------- -------
Loans are not received by such Issuing Bank on such date in an amount equal to
the amount of such drawing, the Borrower shall reimburse such Issuing Bank, on
the Business Day (which shall be a business day under the laws of the
jurisdiction of such Issuing Bank) immediately following the date of such
drawing, in an amount in same day funds equal to the excess of the amount of
such drawing over the amount of such Revolving Loans, if any, that are so
received, plus accrued interest on such amount at the rate set forth in Section
1.13(F)(1)(i).
(E) Payment by Banks. In the event that the Borrower shall fail to
----------------
reimburse an Issuing Bank as provided in Section 1.13(D) in an amount equal to
the amount of any drawing honored by such Issuing Bank under a Letter of Credit
issued by it, such Issuing Bank shall promptly notify each Bank of the
unreimbursed amount of such drawing and of such Bank's respective participation
therein. Each Bank shall make available to such Issuing Bank an amount equal to
its respective participation in same day funds, at the office of such Issuing
Bank specified in such notice, not later than 1:00 P.M. (New York time) on the
Business Day (which shall be a business day under the laws of the jurisdiction
of such Issuing Bank) after the date notified by such Issuing Bank. In the
event that any Bank fails to make available to such Issuing Bank the amount of
such Bank's participation in such Letter of Credit as provided in this Section
1.13(E), such Issuing Bank shall be entitled to recover such amount on demand
from such Bank together with interest at the customary rate set by the Agent for
the correction of errors among banks for three Business Days and thereafter at
the Base Rate. Each Issuing Bank shall distribute to each other Bank which has
paid all amounts payable by it under this Section 1.13(E) with respect to any
Letter of Credit issued by such Issuing Bank such other Bank's pro rata share of
--------
all payments received by such Issuing Bank from the Borrower in reimbursement of
drawings honored by such Issuing Bank under such Letter of Credit when such
payments are received. Nothing in this Section 1.13(E) shall be deemed to
relieve any Bank from its obligation to pay all amounts payable by it under this
Section 1.13(E) with respect to any Letter of Credit issued by an Issuing Bank
or to prejudice any rights that the Borrower or any other Bank may have against
a Bank as a result of any default by such Bank hereunder and no Bank shall be
responsible for the failure of any other Bank to pay its pro rata share payable
--------
under this Section 1.13(E).
<PAGE>
-21-
(F) Compensation.
------------
(1) The Borrower agrees to pay the following amount with respect to
all Letters of Credit:
(i) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by such Issuing Bank in
respect of each such drawing from and including the date of the drawing
through the date such amount is reimbursed by the Borrower (including any
such reimbursement out of the proceeds of Revolving Loans pursuant to
Section 1.13(D)) at a rate which is equal to the interest rate then
applicable to Base Rate Loans for the period from the date of such drawing
to and including the first Business Day after the date of such drawing and
thereafter at a rate equal to 2% per annum in excess of the rate of
--- -----
interest otherwise payable under this Agreement for Base Rate Loans during
such period; provided that if the Banks make a Revolving Loan on any day
--------
the proceeds of which are to be applied to payment of the amount paid by
such Issuing Bank, the Borrower shall not be obligated to pay interest on
such amount for such day pursuant to this clause (i); and
(ii) with respect to the amendment or transfer of each Letter of
Credit and each drawing made thereunder, documentary and processing charges
in accordance with such Issuing Bank's standard schedule for such charges
in effect at the time of such amendment, transfer or drawing, as the case
may be.
(2) The Borrower agrees to pay to the Agent for distribution to each
Bank in respect of all Letters of Credit outstanding such Bank's pro rata share
--------
of a commission equal to 2% per annum of the maximum amount available from time
---------
to time to be drawn under such outstanding Letters of Credit, payable in arrears
on and through the last day of each fiscal quarter of the Borrower and
calculated on the basis of a 365-day year and the actual number of days elapsed.
Upon the happening and during the continuance of an Event of Default described
in Section 8.01, the commission referred to in the preceding sentence shall be
4% per annum.
---------
(3) The Borrower agrees to pay to each Issuing Bank in respect of each
Letter of Credit issued by each such Issuing Bank on the date of issuance an
amount equal to the greater of (A) 1/4% of the maximum amount available at any
time to be drawn under such Letter of Credit or (B) $1,500.
<PAGE>
-22-
Amounts payable under clauses (1)(i) and (2) of this Section 1.13(F)
shall be paid to the Agent on behalf of the Banks. The Agent shall promptly
distribute to each Bank its pro rata share of such amount. Amounts payable
--------
under clauses (1)(ii) and (3) of this Section 1.13(F) shall be paid directly to
the Issuing Bank.
(G) Obligations Absolute. The obligation of the Borrower to reimburse
--------------------
each Issuing Bank for drawings made under the Letters of Credit issued by it and
the obligations of the Banks under Section 1.13(E) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including, without limitation, the following
circumstances:
(1) any lack of validity or enforceability of any Letter of Credit;
(2) the existence of any claim, setoff, defense or other right that
the Borrower or any Affiliate of the Borrower or any other Person may have
at any time against a beneficiary or any transferee of any Letter of Credit
(or any persons or entities for whom any such beneficiary or transferee may
be acting), such Issuing Bank, any Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction;
(3) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, if not apparent from the documents presented;
(4) payment by such Issuing Bank under any Letter of Credit against
presentation of a demand, draft or certificate or other document that does
not comply with the terms of such Letter of Credit unless such Issuing Bank
shall have acted in bad faith or with willful misconduct or gross
negligence in issuing such payment;
(5) any other circumstance or happening whatsoever that is similar to
any of the foregoing; or
(6) the fact that a Default or Event of Default shall have occurred
and be continuing.
<PAGE>
-23-
(H) Additional Payments. If by reason of (a) any change after the
-------------------
Effective Date in applicable law, regulation, rule, decree or regulatory
requirement or any change in the interpretation or application by any judicial
or regulatory authority of any law, regulation, rule, decree or regulatory
requirement or (b) compliance by any Issuing Bank or any Bank with any
direction, request or requirement (whether or not having the force of law) of
any governmental or monetary authority including, without limitation, Regulation
D:
(i) such Issuing Bank or any Bank shall be subject to any tax,
levy, charge or withholding of any nature or to any variation thereof or to
any penalty with respect to the maintenance or fulfillment of its
obligations under this Section 1.13, whether directly or by such being
imposed on or suffered by such Issuing Bank or any Bank; provided, however,
-------- -------
that no payment shall be required to be made by the Borrower pursuant to
this clause (i) with respect to changes in the rate of any tax on or
measured by the net income of a Bank (including any franchise or similar
tax so measured) pursuant to the income tax laws of the United States or of
the jurisdiction in which it is incorporated or organized or the
jurisdiction where such Bank's lending office is located;
(ii) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit issued
by such Issuing Bank or participations therein purchased by any Bank; or
(iii) there shall be imposed on such Issuing Bank or any Bank any
other condition regarding this Section 1.13, any Letter of Credit or any
participation therein;
and the result of the foregoing is to directly or indirectly increase the cost
to such Issuing Bank or any Bank of issuing, making or maintaining any Letter of
Credit or of purchasing or maintaining any participation therein, or to reduce
the amount receivable in respect thereof by such Issuing Bank or any Bank, then
and in any such case such Issuing Bank or such Bank shall, after the additional
cost is incurred or the amount received is reduced, notify the Borrower and the
Borrower shall pay within 10 Business Days after demand such amounts as such
Issuing Bank or such Bank may specify to be necessary to compensate such Issuing
Bank or such Bank for such additional cost or reduced receipt, together with
interest on such amount from the date demanded until payment in full thereof at
a rate per annum equal at all times to the rate applicable to Base Rate Loans
---------
then in
<PAGE>
-24-
effect; provided that if any Bank fails to give such notice within 90 days
--------
after it obtains actual knowledge of such an event, such Bank shall, with
respect to compensation payable pursuant to this Section 1.13(H) in respect of
any costs or other amounts resulting from or relating to such event, only be
entitled to payment under this Section 1.13(H) for such costs or other amounts
from and after the date 90 days prior to the date that such Bank does give such
notice; and provided, further, that each Bank agrees that, as promptly as
-------- -------
practicable after it becomes aware of the existence of the foregoing conditions,
it will, to the extent not inconsistent with such Bank's internal policies or
any legal or regulatory restrictions, use reasonable efforts to issue, make or
maintain the affected Letter of Credit or purchase or maintain any participation
therein through another lending office of such Bank if as a result thereof the
additional moneys which would otherwise be required to be paid to compensate for
such additional cost or reduced receipt with respect to such Letter of Credit
pursuant to this Section 1.13(H) would be reduced and if, as determined by such
Bank, in its reasonable discretion, the issuance, making or maintaining of such
Letter of Credit or the purchasing or maintaining of any participation therein
through such other lending office would not otherwise materially adversely
affect such Letter of Credit or such Bank. Each Bank will furnish to the
Borrower a certificate setting forth in reasonable detail the basis and amount
of each request by such Bank for compensation under this Section 1.13(H).
Determinations by any Bank for purposes of this Section 1.13(H), including of
the effect of any regulatory change pursuant to this Section 1.13(H) on its
costs of making or maintaining Letters of Credit (or purchasing or maintaining
participations therein), or on amounts receivable by it in respect of Letters of
Credit, and of the amounts required to compensate such Bank under this Section
1.13(H), shall be made on a reasonable basis. A certificate in reasonable
detail as to the amount of such increased cost or reduced receipt, submitted to
the Borrower and the Agent by that Issuing Bank or any Bank, as the case may be,
shall, except for demonstrable error, be final, conclusive and binding for all
purposes.
If any Bank shall be entitled to payments under this Section 1.13,
such Bank, within a reasonable time after becoming entitled to such payments,
shall (unless otherwise required by a governmental authority or as a result of
any law, rule, regulation, order or similar directive applicable to such Bank)
designate a different lending office from that initially selected by such Bank
to which payments are to be made under this Agreement or under any Credit
Document, if such designation
<PAGE>
-25-
would avoid the need for (or materially reduce the amount of) such payments and
would not, in the reasonable opinion of the Bank, be otherwise disadvantageous
to such Bank.
(I) Indemnification; Nature of Issuing Bank's Duties. In addition to
------------------------------------------------
amounts payable as elsewhere provided in this Section 1.13, without duplication,
the Borrower hereby agrees to protect, indemnify, pay and save each Issuing Bank
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees and
allocated costs of internal counsel) which such Issuing Bank may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of the
Letters of Credit or (ii) the failure of such Issuing Bank to honor a drawing
under any Letter of Credit, in each case as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
------- --------
government or Governmental Authority (all such acts or omissions herein called
"Government Acts").
As between the Borrower and each Issuing Bank, the Borrower assumes
all risks of the acts and omissions of, or misuse of the Letters of Credit
issued by such Issuing Bank by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the foregoing, such Issuing
Bank shall not be responsible: (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effects of any document submitted by any party in
connection with the application for and issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any such Letter of Credit to comply fully with conditions required in order to
draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they are in cipher; (v) for errors in
interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; and (viii) for any consequences
arising from causes beyond the control of such Is-
<PAGE>
-26-
suing Bank, including, without limitation, any Government Acts. None of the
above shall affect, impair, or prevent the vesting of any of such Issuing Bank's
rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank in connection with the Letters of Credit issued by it or the related
certificates, if taken or omitted in good faith, shall not put such Issuing Bank
under any resulting liability to the Borrower.
Notwithstanding anything to the contrary contained in this Section
1.13(I), the Borrower shall have no obligation to indemnify any Issuing Bank or
any Bank in respect of any liability incurred by such Issuing Bank or such Bank
arising solely out of the gross negligence, bad faith or willful misconduct of
such Issuing Bank or such Bank or out of the wrongful dishonor by such Issuing
Bank or such Bank of a proper demand for payment under the Letters of Credit
issued by it.
SECTION 2. Commitments.
-----------
2.01. Voluntary Reduction of Commitments. Upon at least one Business
----------------------------------
Day's prior written notice (or telephonic notice promptly confirmed in writing)
to the Agent at the Agent's Office (which notice the Agent shall promptly
transmit to each of the Banks), the Borrower shall have the right, without
premium or penalty, to terminate the unutilized portion of either or both of (i)
the Total Revolving Loan Commitments and (ii) the Total Acquisition Term Loan
Commitments, in each case, in part or in whole; provided that (x) any such
--------
termination shall apply to proportionately and permanently reduce the Revolving
Loan Commitment or Acquisition Term Loan Commitment, as applicable, of each of
the Banks and (y) any partial reduction of the Total Revolving Loan Commitments
or the Total Acquisition Term Loan Commitments pursuant to this Section 2.01
shall, in each case, be in the amount of at least $100,000 and integral
multiples of $100,000 in excess of that amount; provided, further, that (A) the
-------- -------
Total Revolving Loan Commitments shall not be reduced to an amount less than the
aggregate Revolving Loans and Letters of Credit Usage then outstanding and (B)
the Total Acquisition Term Loan Commitments shall not be reduced to an amount
less than the aggregate Acquisition Term Loans then outstanding.
<PAGE>
-27-
2.02. Adjustments; Termination of Commitments, etc.
--------------------------------------------
(a) The Total Revolving Loan Commitments shall terminate on the
earlier of (i) the Revolving Loan Commitment Termination Date and (ii) the
voluntary reduction by the Borrower pursuant to Section 2.01 of the Revolving
Loan Commitment to zero.
(b) The Total Acquisition Term Loan Commitments shall terminate on
the earlier of (i) the Acquisition Term Loan Commitment Termination Date and
(ii) the voluntary reduction by the Borrower pursuant to Section 2.01 of the
Acquisition Term Loan Commitment to zero and any amounts not borrowed with
respect to the Acquisition Term Loans on or before such date shall cease to be
available.
(c) The Total Acquisition Term Loan Commitments shall be reduced on
the date on which any payments of principal on the Acquisition Term Loans are
made (other than pursuant to Section 3.02(A)(a)) in an aggregate amount equal to
such payments.
(d) Each reduction to the Total Acquisition Term Loan Commitments or
termination of the Total Revolving Loan Commitments pursuant to this Section
2.02 shall apply proportionately to the Acquisition Term Loan Commitment or the
Revolving Loan Commitment, as the case may be, of each Bank.
(e) The Total Revolving Loan Commitments shall be permanently reduced
in the amount and at the time of any payment on the Loans required to be applied
to the Revolving Loans or the Revolving Loan Commitment pursuant to Section
3.02(B)(a).
2.03. Commitment Commission. The Borrower agrees to pay the Agent a
---------------------
commitment commission ("Commitment Commission") for the account of each Bank for
the period from and including the Closing Date to but not including each of the
dates on which the Total Revolving Loan Commitments and the Total Acquisition
Term Loan Commitments, respectively, have been terminated, computed at a rate
equal to 1/4% per annum on the daily average Unutilized Commitment of such Bank.
---------
Accrued Commitment Commission shall be due and payable in arrears on the last
Business Day of each December, March, June and September commencing December
1997 and on the earlier of (i) the Revolving Loan Commitment Termination Date
and (ii) the date on which both the Total Revolving Loan Commitments and the
Total Acquisition Term Loan Commitments have been terminated pursuant to
<PAGE>
-28-
the terms of this Agreement, in each case, based on the actual number of days
elapsed over a year of 360 days.
SECTION 3. Payments.
--------
3.01. Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay Acquisition Term Loans and Revolving Loans in whole or in part from time
to time, without premium or penalty (except for Reserve Adjusted Eurodollar
Loans breakage costs, if any), on the following terms and conditions: (i) the
Borrower shall give the Agent at the Agent's Office written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay the
Loans, the amount of such prepayment and, in the case of Reserve Adjusted
Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made,
which notice shall be given by the Borrower at least one Business Day prior to
the date of such prepayment and which notice shall promptly be transmitted by
the Agent to each of the Banks; (ii) each partial prepayment of any Borrowing
shall be in an aggregate principal amount of at least $500,000 and integral
multiples of $100,000 in excess of that amount; provided that no partial
--------
prepayment of Reserve Adjusted Eurodollar Loans made pursuant to a single
Borrowing under the Loan Facility (or Portion thereof) shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount; and (iii) Reserve Adjusted Eurodollar Loans may only
be prepaid pursuant to this Section 3.01 on the last day of an Interest Period
applicable thereto. Voluntary prepayments of Loans pursuant to this Section
3.01 shall be applied as follows: (A) first, to the Scheduled Acquisition Term
Loan Principal Payments, in inverse order of maturity; and (B) second, to repay
Revolving Loans; provided, however, that any voluntary prepayments of Loans
-------- -------
pursuant to this Section 3.01 made on or before the Acquisition Term Loan
Commitment Termination Date shall permanently reduce and terminate the
Acquisition Term Loan Commitment of each of the Banks in a proportionate amount
equal to such prepayment.
3.02. Mandatory Prepayments.
---------------------
(A) Requirements:
------------
(a) The Borrower shall prepay the outstanding principal amount of
the Revolving Loans or the Acquisition Term Loans, as the case may be, on
any date on which the aggregate outstanding principal amount of such Loans
(after giving effect to any other repayments or prepayments on such day
together with, in the case of Revolving Loans,
<PAGE>
-29-
the outstanding principal amount of Letters of Credit Usage) exceeds the
Total Revolving Loan Commitments or the Total Acquisition Term Loan
Commitments, respectively, in the amount of such excess.
(b) If the aggregate principal amount of outstanding Revolving
Loans and Letters of Credit Usage exceeds the Borrowing Base as set forth
in the Borrower's most recent Borrowing Base Certificate required to be
delivered pursuant to Section 6.01 of this Agreement (such amount is
hereinafter referred to as the "Excess"), then the Borrower shall prepay
its Revolving Loans in a principal amount equal to such Excess no later
than two Business Days after the Borrower has delivered, or was required to
deliver, such Borrowing Base Certificate to the Agent and the Banks.
(c) The Borrower shall cause to be paid each Scheduled Acquisition
Term Loans Principal Payment on the Acquisition Term Loans until the
Acquisition Term Loans are paid in full in the amounts and at the times
specified in the definition of Scheduled Acquisition Term Loan Principal
Payments to the extent that prepayments have not previously been applied to
such Scheduled Acquisition Term Loan Principal Payments (and such Scheduled
Acquisition Term Loan Principal Payments have not otherwise been reduced)
pursuant to the terms hereof.
(d) As promptly as practicable, but in any event within 5 Business
Days of the date of receipt by Holdings, the Borrower and/or any of the
Borrower's Subsidiaries, as the case may be, of Net Cash Proceeds or Net
Financing Proceeds, an amount equal to 100% of such Net Cash Proceeds or
Net Financing Proceeds shall be applied as provided in Section 3.02(B)(a);
provided that with respect to any Net Cash Proceeds of the sale of equity
securities of Holdings, the Borrower or any of its Subsidiaries, clause (f)
of this Section 3.02(A) will govern and that with respect to any Net Cash
Proceeds from any Destruction or Taking, clause (h) of this Section 3.02(A)
will govern.
(e) As promptly as practicable, but in any event within 90 days
after the last day of each fiscal year of the Borrower, commencing with
fiscal year 1997, an amount equal to 50% of Excess Cash Flow for such
fiscal year shall be applied as provided in Section 3.02(B)(a).
<PAGE>
-30-
(f) As promptly as practicable, but in any event within 5 Business
Days of the date of the receipt thereof by Holdings, the Borrower and/or
any of its Subsidiaries, an amount equal to 100% of the proceeds received
by the Borrower or Holdings (including capital contributions, other than
those referred to in clauses (i) and (ii) of this paragraph (f), received
by the Borrower or any of its Subsidiaries) or such Subsidiary (net of
underwriting discounts and commissions and other costs and expenses
directly associated therewith) of the sale after the Closing Date of equity
securities (other than proceeds from the issuance of capital stock (i) of
Holdings, the Borrower or any of its Subsidiaries pursuant to any pension,
stock option, profit sharing or other employee benefit plan or agreement of
Holdings, the Borrower or any of its Subsidiaries in the ordinary course of
business or (ii) by a Subsidiary to another Subsidiary or to the Borrower)
shall be applied as provided in Section 3.02(B)(a).
(g) As promptly as practicable, but in any event within five
Business Days of the date of the receipt thereof by the Borrower or any of
its Subsidiaries, an amount equal to 100% of any surplus net assets of any
Pension Plan returned to the Borrower or any of its Subsidiaries shall be
applied as provided in Section 3.02(B)(a).
(h) At the Agent's discretion, on the date of receipt thereof by
Holdings, the Borrower and/or any of its Subsidiaries, an amount equal to
100% of any proceeds received due to loss, damage, destruction or
condemnation of or to Assets (collectively, "Loss Proceeds"), less any
portion of such proceeds not in excess of $500,000, in the aggregate, per
fiscal year to be used for rebuilding, repairing or replacing productive
assets of a kind then used or usable in the business of the Borrower and
its Subsidiaries (in each case to the extent permitted by the Mortgages and
the Security Documents) within 180 days of receipt of such Loss Proceeds
(or such longer periods as may be consented to by the Agent, which consent
shall not be unreasonably withheld) shall be delivered by Holdings, the
Borrower and/or its Subsidiaries to the Agent to be held by the Agent in a
cash collateral account bearing interest payable to the Borrower at a rate
per annum (meaning 360 days) equal to the Federal Funds Rate. Upon the
Borrower's request, Agent shall release such proceeds to the Borrower for
reinvestment, rebuilding, repair or replacement as described above. To the
extent the Borrower fails to use any or all of such released proceeds for
such re-
<PAGE>
-31-
building, repair or replacement of assets within 180 days (or such longer
periods as may be consented to by the Agent, which consent shall not be
unreasonably withheld) of such release, the Borrower shall, at the Agent's
discretion, return the unused portion of such released funds to the Agent
and authorize and direct the Agent to apply such proceeds as provided in
Section 3.02(B)(a).
(i) As promptly as practicable, but in any event within 5 Business
Days of the date of receipt by Holdings, the Borrower and/or its
Subsidiaries of any tax refund, an amount equal to 100% of such refund paid
to Holdings, the Borrower and/or any of its Subsidiaries shall be applied
as provided in Section 3.02(B)(a); provided that such refund or refunds are
--------
not promptly applied by Holdings, the Borrower and/or any of its
Subsidiaries to the payment of future tax liabilities.
(j) As promptly as practicable, but in any event within 5 Business
Days of the date of receipt by Holdings, the Borrower and/or its
Subsidiaries of any funds received pursuant to any post-closing purchase
price adjustments (unless such funds have been applied as an adjustment to
working capital) or indemnification payments in excess of out-of-pocket
losses under either of stock or asset purchase agreements and agreements
related thereto pertaining to an acquisition, an amount equal to 100% of
such funds paid to Holdings, the Borrower and/or any of its Subsidiaries
shall be applied as provided in Section 3.02(B)(a).
(B) Application:
-----------
(a) Prepayments to be applied pursuant to this Section 3.02(B)(a)
shall be applied without penalty or premium (other than Reserve Adjusted
Eurodollar Rate breakage costs, if any) as follows: (i) first, to the
Scheduled Acquisition Term Loan Principal Payments, in inverse order of
maturity; and (ii) second, to repay Revolving Loans; provided, however,
-------- -------
that, prior to the Acquisition Term Loan Commitment Termination Date, in
lieu of any mandatory prepayments of Loans pursuant to this Section
3.02(B)(a), any undrawn amount of the Acquisition Term Loan Commitment
shall permanently be reduced and shall terminate with respect to each of
the Banks in a proportionate amount equal to such prepayment and, after
effecting such reductions, amounts in excess of the amount used to effect
such reductions shall be applied as provided in clause (i) of this Section
3.02(B)(a); provided, further, that prepayments
-------- -------
<PAGE>
-32-
required by Section 3.02(A)(b) hereof shall be applied first to repay
Revolving Loans.
(b) With respect to each prepayment of Loans required by Section
3.02(A), the Borrower shall give the Agent two Business Days notice and may
designate the Types of Loans and the specific Borrowing or Borrowings which
are to be prepaid; provided that (x) Reserve Adjusted Eurodollar Loans may
--------
be designated for prepayment pursuant to this Section 3.02 only on the last
day of an Interest Period applicable thereto unless all Reserve Adjusted
Eurodollar Loans with Interest Periods ending on such date of required
prepayment and all Base Rate Loans have been or are concurrently being paid
in full and (y) if any prepayment of Reserve Adjusted Eurodollar Loans made
pursuant to a single Borrowing shall reduce the outstanding Loans made
pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount, such Borrowing shall immediately be converted into Base Rate Loans.
In the absence of a designation by the Borrower, the Agent shall, subject
to the above, make such designation in its sole discretion. All
prepayments shall include payment of accrued interest on the principal
amount so prepaid, shall be applied to the payment of interest before
application to principal and shall include amounts payable, if any, under
Section 1.10(f).
3.03. Method and Place of Payment. (a) Except as otherwise
---------------------------
specifically provided herein, all payments under this Agreement shall be made to
the Agent, for the ratable account of the Banks entitled thereto, not later than
1:00 P.M. (New York time) on the date when due and shall be made in immediately
available funds in lawful money of the United States of America to the account
specified therefor by the Agent or if no account has been so specified at the
Agent's Office, it being understood that written notice by the Borrower to the
Agent to make a payment from the funds in the Borrower's account at the Agent's
Office shall constitute the making of such payment to the extent of such funds
held in such account. The Agent will thereafter cause to be distributed on the
same day (if payment is actually received by the Agent in New York prior to 1:00
P.M. (New York time) on such day) funds relating to the payment of principal or
interest or fees ratably to the Banks entitled to receive any such payment in
accordance with the terms of this Agreement. If and to the extent that any such
distribution shall not be so made by the Agent in full on the same day (if
payment is actually received by the Agent prior to 1:00 P.M. (New York time) on
such day), the Agent shall pay to each
<PAGE>
-33-
Bank its ratable amount thereof and each such Bank shall be entitled to receive
from the Agent, upon demand, interest on such amount at the Federal Funds Rate
for each day from the date such amount is paid to the Agent until the date the
Agent pays such amount to such Bank.
(b) Any payments under this Agreement which are made by the Borrower
later than 1:00 P.M. (New York time) shall be deemed to have been made on the
next succeeding Business Day. Whenever any payment to be made hereunder shall
be stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension, except that with
respect to Reserve Adjusted Eurodollar Loans, if such next succeeding applicable
Business Day is not in the same month as the date on which such payment would
otherwise be due hereunder or under any Note, the due date with respect thereto
shall be the next preceding applicable Business Day.
3.04. Net Payments. (a) Except as provided in Section 3.04(d)
------------
hereof, all payments by the Borrower under this Agreement or under any Credit
Document shall be made without set-off or counterclaim and in such amounts as
may be necessary in order that all such payments (after deduction or withholding
for or on account of any present or future taxes, levies, imposts, duties or
other charges of whatsoever nature imposed by any government or any political
subdivision or taxing authority thereof, other than any tax on or measured by
the net income of a Bank (including without limitation franchise taxes and
branch profits taxes) pursuant to the laws of the United States or any political
subdivision thereof or of the jurisdiction in which it is incorporated or the
jurisdiction where such Bank's lending office is located or in which it has any
other contacts or connection that would subject it to taxation therein
(collectively, "Taxes")) shall not be less than the amounts otherwise specified
to be paid under this Agreement and/or any Credit Document. A certificate as to
the calculation of any additional amounts payable to a Bank under this Section
3.04 submitted to the Borrower by such Bank shall, absent demonstrable error, be
final, conclusive and binding for all purposes upon all parties hereto. With
respect to each deduction or withholding for or on account of any Taxes, the
Borrower shall within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing authority furnish to each Bank
such certificates, receipts and other documents as
<PAGE>
-34-
may be required (in the reasonable judgment of such Bank) to establish any tax
credit to which such Bank may be entitled.
(b) Without prejudice to the provisions of clause (a) of this Section
3.04, and except as provided in Section 3.04(d) hereof, if any Bank, or the
Agent on its behalf, is required by law to make any payment on account of Taxes
on or in relation to any sum received or receivable under this Agreement and/or
the other Credit Documents by such Bank, or the Agent on its behalf, or any
liability for Tax in respect of any such payment is imposed, levied or assessed
against any Bank, or the Agent on its behalf, the Borrower will promptly
indemnify such person against such Tax payment or liability, together with any
interest, penalties and reasonable expenses (including counsel fees and
expenses) payable or incurred in connection therewith, including any Taxes of
any Bank arising by virtue of payments under this clause (b), computed in a
manner consistent with clause (a) of this Section 3.04. A certificate by such
Bank, or the Agent on its behalf, as to the calculation and amount of such
payments shall, absent demonstrable error, be final, conclusive and binding upon
all parties hereto for all purposes.
(c) (i) Each Bank that is organized under the laws of any
jurisdiction other than the United States or any State thereof (including the
District of Columbia) (a "Foreign Bank") agrees to furnish to the Borrower and
the Agent, prior to the date it receives any payment under this Agreement or
other Credit Documents, two signed copies of either U.S. Internal Revenue
Service Form 4224 or U.S. Internal Revenue Service Form 1001 or any successor
form thereto (wherein such Foreign Bank claims entitlement to a complete
exemption from U.S. federal withholding tax on interest paid by the Borrower
hereunder). Each Foreign Bank that is not a bank described in Section
881(c)(3)(A) of the Code and cannot deliver U.S. Internal Revenue Service Form
1001 entitling it to a complete exemption from withholding tax or U.S. Internal
Revenue Service Form 4224 pursuant to this Section 3.04(c)(i) agrees to furnish
to the Borrower and the Agent (x) a certificate substantially in the form of
Exhibit Q hereto and (y) two copies of U.S. Internal Revenue Service Form W-8,
or successor form (wherein such Foreign Bank makes the certifications necessary
to entitle it to a complete exemption from United States withholding tax on
interest paid by the Borrower hereunder).
(ii) In addition, each Foreign Bank that delivers forms pursuant to
Section 3.04(c)(i) hereof agrees to provide subsequently to the Borrower and the
Agent additional signed
<PAGE>
-35-
copies of such forms, or any successor forms thereto (wherein such Bank claims
entitlement to a complete exemption from or reduced rate of U.S. federal
withholding tax on interest paid by the Borrower hereunder), as may be
reasonably requested in writing by the Borrower or the Agent. A Foreign Bank
shall be required to furnish a form under this Section 3.04(c)(ii) only if it is
entitled to claim an exemption from or a reduced rate of withholding tax under
applicable law. A Bank that is not entitled to claim an exemption from or a
reduced rate of withholding under applicable law at the time that a request to
provide forms is received from the Borrower or the Agent, shall so inform the
Borrower and the Agent in writing.
(d) The Borrower shall not be required to pay any increased amount on
account of Taxes pursuant to Section 3.04(a) or (b) to any Bank or Agent (i) to
the extent that such Taxes would not have been payable if the Bank had furnished
a form (properly and accurately completed in all material respects) which it was
otherwise required to furnish in accordance with Section 3.04(c) hereof, (ii) if
the Bank was not able to furnish a form (properly and accurately completed in
all material respects) which it was required to furnish in accordance with
Section 3.04(c)(i) hereof, or (iii) if the Bank failed to comply with applicable
certification, information, documentation or other reporting requirements
concerning the nationality, residence, identity or connections with the United
States of such Bank if such compliance is required by statute or regulation of
the United States as a precondition to relief or exemption from such Taxes.
(e) With respect to any Taxes imposed on a Bank which are paid or
reimbursed by the Borrower in accordance with the provisions of this Section
3.04, each Bank receiving the benefit of such payments of Taxes hereby agrees to
pay to the Borrower any amounts refunded to such Bank (including any interest
thereon) which such Bank reasonably determines to be a refund in respect of such
Taxes.
(f) If any Bank shall be entitled to payments under this Section
3.04, such Bank, within a reasonable time after becoming entitled to such
payments, shall (unless otherwise required by a governmental authority or as a
result of any law, rule, regulation, order or similar directive applicable to
such Bank) designate a different lending office from that initially selected by
such Bank to which payments are to be made under this Agreement or under any
Credit Document, if such designation would avoid the need for (or materially
reduce the amount
<PAGE>
-36-
of) such payments and would not, in the reasonable opinion of such Bank, be
otherwise disadvantageous to such Bank.
SECTION 4. Conditions Precedent.
--------------------
4.01. Conditions Precedent to Initial Loans. The obligations of the
-------------------------------------
Banks to make the Initial Loans to the Borrower hereunder are subject, at the
time of the making of each such Initial Loan (except as otherwise hereinafter
indicated), to the satisfaction of the following conditions:
(A) Credit Agreement. The Borrower and Holdings shall have duly
----------------
executed and delivered this Agreement.
(B) Officer's Certificates. On the Closing Date, the Agent shall
----------------------
have received (i) a certificate dated such date signed by an appropriate
officer of each of Holdings and the Borrower stating that all of the
applicable conditions set forth in Sections 4.01(D), (E), (F), (I), (K),
(L), (N), (P), (Q), (R), (S), (T), (U) and (X) (in each case disregarding
any reference therein that such condition be deemed satisfactory by the
Agent and/or the Required Banks) have been satisfied in all material
respects (without giving effect to any materiality or similar exceptions
contained therein) or waived as of such date and (ii) a certificate with
respect to environmental matters, substantially in the form set forth on
Exhibit N hereto.
(C) Opinions of Counsel. On the Closing Date, the Agent shall have
-------------------
received an opinion or opinions addressed to each of the Banks and dated
the Closing Date, each in form and substance satisfactory to the Agent,
from (i) Milbank, Tweed, Hadley & McCloy, counsel to the Borrower and
Holdings, which opinion shall address the matters contained in Exhibit C-1
hereto, (ii) Hunter, Maclean, Exley & Dunn, P.C., special Georgia counsel
to the Borrower and Holdings, which opinion shall address the matters
contained in Exhibit C-2 hereto, and (iii) local counsel to the Borrower
and Holdings in each jurisdiction in which Mortgaged Real Property is
located, which opinions shall address the matters contained in Exhibit C-3
hereto.
(D) Corporate Proceedings. All corporate and legal proceedings and
---------------------
all instruments and agreements in connection with the transactions
contemplated by the Credit Documents shall be satisfactory in form and
substance to the Agent, and the Agent shall have received all information
and copies of all certificates, documents and papers,
<PAGE>
-37-
including records of corporate proceedings and governmental approvals, if
any, which the Agent reasonably may have requested from Holdings, the
Borrower and any Affiliate of any thereof in connection therewith, such
documents and papers where appropriate to be certified by proper corporate
or governmental authorities. Without limiting the foregoing, the Agent
shall have received (i) evidence satisfactory to it that the Board of
Directors of each of Holdings and the Borrower shall have approved and
recommended the Recapitalization, (ii) resolutions of the Board of
Directors of Holdings, the Borrower or any Affiliate thereof approving and
authorizing such documents and actions as are contemplated hereby in form
and substance satisfactory to the Agent including without limitation the
execution and delivery of all Credit Documents, certified by its corporate
secretary or an assistant secretary as being in full force and effect
without modification or amendment, and (iii) signature and incumbency
certificates of officers of Holdings, the Borrower or any Affiliate thereof
executing instruments, documents or agreements required to be executed in
connection with the Recapitalization.
(E) Consummation of the Offering. On the Closing Date, the
----------------------------
Offering shall be consummated concurrently with the closing hereunder;
Holdings shall have contributed to the Borrower an amount of not less than
$94,000,000 which shall be used by the Borrower to refinance existing
indebtedness.
(F) Manufacturing Agreements. Each of the Manufacturing Agreements
------------------------
remains in full force and effect, and executed copies of the AM
Manufacturing Agreement shall have been provided to the Agent on or prior
to the Closing Date.
(G) Organizational Documentation, etc. On or prior to the Closing
---------------------------------
Date, the Agent shall have received copies of a true and complete certified
copy of the following documents of each of Holdings and the Borrower, the
provisions of which shall be reasonably satisfactory to the Agent:
(1) Its respective Certificate of Incorporation, which shall be
certified and be accompanied by a good standing certificate from the
Secretary of State of the State of Delaware or its respective
jurisdiction of incorporation and good standing cer-
<PAGE>
-38-
tificates from the jurisdictions in which it is qualified to do
business as a foreign corporation, each to be dated a recent date
prior to the Closing Date;
(2) Its respective By-laws, certified as of the Closing Date by its
corporate secretary.
(H) Solvency. On the Closing Date, the Banks shall have received
--------
an Officers' Solvency Certificate, substantially in the form of Exhibit L
annexed hereto, in form and substance satisfactory to the Agent, supporting
the conclusions that, after giving effect to the Recapitalization and the
contemplated borrowings in connection herewith, Holdings, the Borrower and
its Subsidiaries will not be insolvent, will not be rendered insolvent by
the indebtedness incurred in connection herewith, will not be left with
unreasonably small capital with which to engage in their respective
businesses and will not have incurred debts, including Contingent
Obligations, beyond their respective abilities to pay such debts as they
mature.
(I) Options and Warrants. There shall be no outstanding capital
--------------------
stock (or right, option, warrant or other arrangement to acquire such
capital stock) of the Borrower, other than that owned by Holdings.
(J) Notes. There shall have been delivered to the Agent for the
-----
account of each of the Banks the Acquisition Term Notes and the Revolving
Notes executed by the Borrower in the amount and maturity and as otherwise
provided herein.
(K) Certain Fees. All reasonable costs, fees and expenses
------------
(including, without limitation, reasonable legal fees and expenses) payable
to Indosuez by the Borrower pursuant to the letter agreement between the
Borrower and Indosuez dated September 2, 1997 shall have been paid in full
and the Borrower shall have paid or have caused to be paid the commitment
and other fees and expenses (including, without limitation, reasonable
legal fees and expenses) contemplated hereby and/or in connection with the
other Credit Documents; provided that the aggregate costs, fees and
--------
expenses shall not exceed $3,000,000.
(L) Conditions Relating to Mortgaged Real Property and Real
-------------------------------------------------------
Property. On or prior to the Closing Date, Holdings or the Borrower shall
--------
have caused to be delivered to
<PAGE>
-39-
the Agent, on behalf of the Banks, the following documents and instruments:
(i) a Mortgage encumbering each Mortgaged Real Property in
favor of the Agent, as Collateral Agent for the benefit of the Banks,
duly executed and acknowledged by the Credit Party that is the owner
of or holder of an interest in such Mortgaged Real Property, and
otherwise in form for recording in the recording office of each
political subdivision where each such Mortgaged Real Property is
situated, together with such certificates, affidavits, questionnaires
or returns as shall be required in connection with the recording or
filing thereof to create a lien under applicable law, and such UCC-1
financing statements and other similar statements as are contemplated
by the counsel opinions described in Section 4.01(C)(iii) in respect
of such Mortgage, all of which shall be in form and substance
reasonably satisfactory to the Agent, and any other instruments
necessary to grant a mortgage lien under the laws of any applicable
jurisdiction, which Mortgage and financing statements and other
instruments shall be effective to create a first priority Lien on such
Mortgaged Real Property subject to no Liens other than Prior Liens;
(ii) with respect to each Mortgaged Real Property, such
consents, approvals, amendments, supplements, estoppels, tenant
subordination agreements or other instruments as necessary or required
to consummate the transactions contemplated hereby or as shall
reasonably be deemed necessary by the Agent in order for the owner or
holder of the fee or leasehold interest constituting such Mortgaged
Real Property to grant the Lien contemplated by the Mortgage with
respect to such Mortgaged Real Property;
(iii) with respect to each Mortgage, a policy (or commitment to
issue a policy) of title insurance insuring (or committing to insure)
the Lien of such Mortgage as a valid first mortgage Lien on the real
property described therein in an amount not less than 115% of the fair
market value thereof as determined by appraisal reports, which
policies (or commitment) shall (a) be issued by the Title Company, (b)
include such reinsurance arrangements (with provisions for direct
access) as shall be reasonably acceptable to
<PAGE>
-40-
the Agent, (c) contain a "tie-in" or "cluster" endorsement (if
applicable and if available under applicable law) (i.e., policies
---
which insure against losses regardless of location or allocated value
of the insured property up to a stated maximum coverage amount) and
have been supplemented by such endorsements (or where such
endorsements are not available, opinions of special counsel reasonably
acceptable to the Agent to the extent that such opinions can be
obtained at a cost which is reasonable with respect to the value of
the Real Property subject to such Mortgage) as shall be reasonably
requested by the Agent (including, without limitation, endorsements on
matters relating to usury, first loss, last dollar, contiguity (as
applicable), revolving credit, doing business, zoning, variable rate
and so-called comprehensive coverage over covenants and restrictions)
and (d) contain only such exceptions to title as shall be Prior Liens
or are otherwise agreed to by the Agent on or prior to the Closing
Date with respect to such Mortgaged Real Property;
(iv) with respect to each Mortgaged Real Property, a Survey;
(v) with respect to each Mortgaged Real Property, policies or
certificates of insurance as required by the Mortgage relating
thereto, which policies or certificates shall comply with the
insurance requirements contained in such Mortgage;
(vi) with respect to each Mortgaged Real Property, UCC, judgment
and tax lien searches confirming that the personal property comprising
a part of such Mortgaged Real Property is subject to no Liens other
than Prior Liens;
(vii) with respect to each Mortgaged Real Property, such
affidavits, certificates, information (including financial data) and
instruments of indemnification (including, without limitation, a so-
called "gap" indemnification) as shall be required to induce the Title
Company to issue the policy or policies (or commitment) and
endorsements contemplated in subparagraph (iii) above;
(viii) evidence reasonably acceptable to the Agent of payment by
Holdings or the Borrower of all title
<PAGE>
-41-
insurance premiums, search and examination charges, survey costs and
related charges, mortgage recording taxes, fees, charges, costs and
expenses required for the recording of the Mortgages and issuance of
the title insurance policies referred to in subparagraph (iii) above;
(ix) with respect to each Real Property or Mortgaged Real
Property, copies of all Leases in which a Credit Party holds the
landlord's, tenant's or other interest and any other agreements
relating to possessory interests in such Real Property or Mortgaged
Real Property. To the extent any of the foregoing affect any Mortgaged
Real Property, such Leases shall be reasonably acceptable to the
Agent; and
(x) with respect to each Mortgaged Real Property, an Officers'
Certificate or other evidence reasonably satisfactory to the Agent
that as of the date thereof, to the best of such officer's knowledge,
there (a) have been issued and are in effect valid and proper
certificates of occupancy or other local equivalents for the use then
being made of such Mortgaged Real Property to the extent currently
required by law in the jurisdiction in which such Mortgaged Real
Property is located which certificates if not obtained or maintained
would have a material adverse effect upon the value of the Mortgaged
Real Property and that there is not outstanding any citation,
violation or similar notice indicating that such Mortgaged Real
Property contains conditions which are not in compliance in all
material respects with local codes or ordinances relating to building
or fire safety or structural soundness, (b) has not occurred any
Taking or Destruction of any Mortgaged Real Property that has not been
repaired or restored except as set forth therein and (c) is no
litigation regarding boundary lines, encroachment or possession of any
Mortgaged Real Property and no state of facts known to any Credit
Party which could give rise to any such claim, except as set forth
therein.
(M) Financial Statements, etc. Prior to the Closing Date, the
-------------------------
Agent shall have received (A) audited financial statements including a
balance sheet and statements of income and shareholders' equity and cash
flows of Holdings and its consolidated Subsidiaries for the fiscal period
ended December 31, 1996, which audited financial state-
<PAGE>
-42-
ments shall reflect no material changes from the unaudited financial
statements previously delivered to the Agent and (B) financial statements
including a balance sheet and statements of income and shareholders' equity
and cash flows of Holdings and its consolidated Subsidiaries for each of
the four annual periods immediately prior to December 31, 1996. Holdings
shall have delivered to the Agent pro forma financial statements for
--- -----
Holdings and its consolidated Subsidiaries reflecting the financial
condition, income and expenses of Holdings and its consolidated
Subsidiaries (including tax assumptions) for the fiscal period ended
December 31, 1996, after giving effect to the Recapitalization, and interim
financial statements for Holdings and its consolidated Subsidiaries through
August 31, 1997; provided that with respect to the pro forma estimated
-------- ---------
opening balance sheet of Holdings as of December 31, 1996, the Agent shall
have received a copy of the comfort letters delivered by Deloitte & Touche
LLP in connection with the Offering. Holdings shall have delivered to the
Agent financial projections with respect to Holdings for the fiscal years
ending December 31, 1997 through December 31, 2002, inclusive, accompanied
by a statement by Holdings that such projections are based on estimates and
assumptions believed by Holdings in good faith to be reasonable in light of
the conditions which existed at the time of their preparation as to the
future financial performance of Holdings, reasonably satisfactory to the
Agent; provided, however, that in addition to the financial projections
-------- -------
referred to above, Holdings shall also have delivered to the Agent
financial projections (i) on a monthly basis for each of the monthly
periods from the Closing Date through December 31, 1997 and (ii) on a
quarterly basis for each of the quarterly periods for the fiscal year
ending December 31, 1998. Since the time of the preparation of such
financial projections, no fact or facts have come to the attention of
Holdings or the Borrower to cause Holdings or the Borrower to believe that
any of the estimates and assumptions on which such projections are based
are not reasonable.
(N) Insurance. Set forth on Annex VI is a summary of all insurance
---------
policies maintained by Holdings and its Subsidiaries, and the insurance
coverage provided for Holdings and its Subsidiaries by such insurance
policies shall be reasonably satisfactory to the Agent.
(O) Performance Bonds. On the Closing Date, the Agent shall be
-----------------
reasonably satisfied that Holdings and the
<PAGE>
-43-
Borrower will be able to service and maintain any performance bonds that
may be required in the ordinary course of business on reasonable terms and
conditions.
(P) Indebtedness, etc. On or prior to the Closing Date and except
-----------------
as set forth on Annex X, Holdings, the Borrower and its Subsidiaries shall
have received all necessary consents or waivers or amended, supplemented or
otherwise modified, repaid or defeased their outstanding Indebtedness in a
manner and on terms reasonably satisfactory to the Agent such that there
exists no default or potential default with respect to such Indebtedness or
under any note, evidence of indebtedness, mortgage, deed of trust, security
document or other agreement relating to such Indebtedness and such
indentures, notes, evidences of indebtedness, mortgages, deeds of trust or
other agreements relating to such Indebtedness shall not, other than as set
forth on Annex XI, contain any restriction on the ability of Holdings, the
Borrower or any of its Subsidiaries to enter into the Mortgages, Pledge
Agreements or the granting of any Lien in favor of the Banks in connection
therewith, or contain any financial covenants, agreements or tests
applicable to Holdings, the Borrower or any of its Subsidiaries. Annex VII
sets forth a true list of all Liens other than Permitted Encumbrances on
the property of Holdings, the Borrower and its Subsidiaries as of the
Closing Date.
(Q) Management Agreement and Employment Agreements. Each of the
----------------------------------------------
Management Agreement and the Employment Agreements shall remain in full
force and effect and shall be reasonably satisfactory to the Agent.
(R) Security Documents and Guarantees. The applicable Security
---------------------------------
Documents and Guarantees shall have been duly executed and delivered by the
respective parties thereto and there shall have been delivered to the Agent
(i) certificates representing all Pledged Securities, together with
executed and undated stock powers and/or assignments in blank, (ii)
evidence of the filing and due execution of appropriate financing
statements under the provisions of the UCC, applicable domestic or local
laws, rules or regulations in each of the offices where such filing is
necessary or appropriate to grant to the Agent a perfected first priority
Lien in the Collateral superior to and prior to the rights of all third
persons and subject to no other Liens other than Prior Liens, (iii)
certified copies of Requests for Information (Form
<PAGE>
-44-
UCC-11 or the equivalent), or equivalent reports or lien search reports
listing all effective financing statements which name any Credit Party
under such Security Documents as debtor and which are filed in those
jurisdictions in which any of the Collateral is located and the
jurisdictions in which each Credit Party's principal place of business is
located, none of which, except as set forth in the applicable Security
Documents, shall encumber the Collateral covered or intended or purported
to be covered by the Security Documents, and (iv) evidence that
arrangements have been made for the prompt completion of all recordings and
filings of each Security Document related to Mortgaged Real Property and
delivery to the Agent of such other security and other documents as may be
necessary or, in the reasonable opinion of Agent, desirable to perfect the
Liens created, or purported or intended to be created, by the Security
Documents.
(S) Consents, Etc. All material governmental and third party
-------------
approvals and consents (including, without limitation, all material
approvals and consents required in connection with any environmental
statutes, rules or regulations), if any, in connection with the
transactions contemplated by the Credit Documents and otherwise referred to
herein or therein to be completed on or before the Closing Date shall have
been obtained and remain in effect, and all applicable waiting periods
shall have expired without any action being taken by any competent
authority which restrains, prevents or imposes, in the judgment of the
Agent or the Required Banks, materially adverse conditions upon the
consummation of the Recapitalization. There shall not exist any adverse
judgment, order, injunction or other restraint issued or filed with respect
to the making of the Loans hereunder or the consummation of the
Recapitalization and Holdings and the Borrower shall be in compliance with
all material applicable federal, state, local and foreign laws and
regulations, both before and after giving effect to the Recapitalization.
(T) Borrowing Base Certificate. Prior to the initial Revolving
--------------------------
Loan, the Agent and the Banks shall have received and the Agent and the
Required Banks shall be satisfied (both as to form and substance) with a
pro forma Borrowing Base Certificate which shall be prepared as of a date
--- -----
prior to the Closing Date and which shall indicate that the Borrowing Base
on the Closing Date will exceed
<PAGE>
-45-
the initial Borrowings under the Revolving Portion by not less than
$5,000,000.
(U) Leases. All Capital Leases and Operating Leases of Holdings
------
and its Subsidiaries outstanding immediately prior to the Recapitalization
shall remain outstanding after giving effect to the Recapitalization, on
terms satisfactory to the Agent.
(V) Recapitalization Documents, Etc. The Agent shall be reasonably
-------------------------------
satisfied with the final terms and conditions of, and the documentation
relating to, the Recapitalization (including all representations,
warranties and indemnities contained in documentation relating to the
Offering) and, except as set forth in Annex XVI hereto, there shall be no
litigation by any Person pending, or to Holdings' or the Borrower's
knowledge threatened, with respect to the Recapitalization documents that,
in the Agent's good faith judgment, could reasonably be expected to have a
Material Adverse Effect after giving effect to the Recapitalization, and
the Agent shall be reasonably satisfied with the capital, organizational
and management structure of Holdings and the Borrower and each of its
Subsidiaries.
(W) Environmental Review. The Agent shall be reasonably satisfied
--------------------
with its environmental risk assessment of the property of Holdings and its
Subsidiaries (including any potential levels of environmental liability),
such assessment to be based upon any information provided to the Agent by
or on behalf of Holdings or the Borrower and upon environmental disclosure
contained in documentation relating to the Offering. Unless otherwise
required pursuant to the Offering, the Borrower need not update its
environmental review previously supplied to the Agent and the Banks in
connection with the acquisition of assets of a division of CONOPCO,
consummated on April 30, 1997.
(X) No Material Adverse Change. From December 31, 1996 to and
--------------------------
including the Closing Date, there shall have been no material adverse
change in the business, assets, properties, condition (financial or
otherwise) or prospects of Holdings or the Borrower or in the industries in
which they compete, and each Bank shall have completed its due diligence
review and shall be satisfied, in its sole discretion, that the condition
of Holdings and the Borrower is as represented in the information
distributed to each Bank by, or on behalf of, Holdings and the Borrower.
<PAGE>
-46-
The acceptance of the proceeds of each Borrowing of Initial Loans
shall constitute a representation and warranty by each Credit Party to each of
the Banks that all of the applicable conditions specified above (in each case
disregarding any reference therein that such condition be deemed satisfactory by
the Agent and/or the Required Banks) have been satisfied or waived as of that
time.
All of the certificates, legal opinions and other documents and papers
referred to in this Section 4.01, unless otherwise specified, shall be delivered
to the Agent at the Agent's Office (or such other location as may be specified
by the Agent) for the account of each of the Banks and in sufficient
counterparts for each of the Banks and shall be reasonably satisfactory in form
and substance to the Agent.
4.02. Conditions Precedent to All Loans. The obligation of the Banks
---------------------------------
to make all Loans (which term shall not include a conversion or continuation of
a Loan) is subject, at the time of each such Loan, to the satisfaction of the
following conditions:
(A) Effectiveness. This Agreement shall have become effective as
-------------
provided in Section 11.10.
(B) No Default; Representations and Warranties. At the time of the
------------------------------------------
making of each Loan and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties made by any Credit Party contained herein or in the other Credit
Documents in effect at such time shall be true and correct in all material
respects with the same effect as though such representations and warranties
had been made on and as of the date of the making of such Loan, unless such
representation and warranty expressly indicates that it is being made as of
any other specific date in which case on and as of such other date.
(C) Documentation and Opinions of Counsel. The Agent shall have
-------------------------------------
received such documentation and opinion or opinions, addressed to each of
the Banks, from counsel to each Credit Party as may be reasonably required,
with reasonable notice under the circumstances, by, and shall be reasonably
satisfactory to the Agent, from (i) such counsel to each Credit Party as
reasonably requested by the Agent and (ii) appropriate local counsel, which
opinions shall cover such matters as reasonably requested by,
<PAGE>
-47-
and be in form and substance reasonably satisfactory to, the Agent.
(D) Margin Rules. On the date of each Borrowing of Loans, neither
------------
the making of any Loan nor the use of the proceeds thereof will violate the
provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
(E) Borrowing Base Certificate. The Agent and the Required Banks
--------------------------
shall have received and shall be reasonably satisfied (both as to form and
substance) with the Borrowing Base Certificate last delivered to the Banks.
The acceptance of the proceeds of each Borrowing of Loans shall
constitute a representation and warranty by each Credit Party to each of the
Banks that all of the applicable conditions specified in this Section 4.02 (in
each case disregarding any reference therein that such condition be deemed
satisfactory by the Agent and/or the Required Banks) have been satisfied or
waived.
All of the certificates, legal opinions and other documents and papers
referred to in this Section 4.02, unless otherwise specified, shall be delivered
to the Agent at the Agent's Office (or such other location as may be specified
by the Agent) for the account of each of the Banks and in sufficient
counterparts for each of the Banks and shall be satisfactory in form and
substance to the Agent.
4.03. Additional Conditions Precedent to Acquisition Term Loans. The
---------------------------------------------------------
obligations of the Banks to make the Acquisition Term Loans (which shall not
include a conversion or continuation of any such Loan), including any
Acquisition Term Loan made on the Closing Date, are subject to the satisfaction
of the following additional conditions:
(a) Each Acquisition Term Loan shall be made solely to effect a
Designated Acquisition;
(b) No later than 15 Business Days prior to the Acquisition Term
Loan Closing Date (except to the extent the Agent agrees to a shorter
period), the Agent shall have received (with sufficient copies for each
Bank) each of the following with respect to the consummation of the
Designated Acquisition to be financed with the proceeds of such Acquisition
Term Loan:
<PAGE>
-48-
(i) (A) audited financial statements, prepared in accordance with
GAAP, including a balance sheet and statements of income and cash
flows of the entity listed as the Designated Acquisition for the most
recent full fiscal year or years that would be required to be included
in any filing made with the SEC; provided that if such audited
--------
financial statements are not available, then a detailed accounting
review similar to those undertaken and completed in transactions
previously consummated by Holdings and the Borrower shall be performed
by a nationally recognized accounting firm and (B) unaudited financial
statements, prepared in accordance with GAAP, including a balance
sheet and statements of income and cash flows of the entity listed as
the Designated Acquisition for each of the interim periods subsequent
to the audited financial statements referred to in clause (A) above;
(ii) a pro forma Borrowing Base Certificate and a pro forma balance
--------- --- -----
sheet and pro forma consolidated statements of income and cash flows
--- -----
of Holdings and its Subsidiaries, after giving effect to the
consummation of the Designated Acquisition, as at the end of the most
recent month;
(iii) pro forma covenant compliance by Holdings, after giving
---------
effect to the Designated Acquisition, as at the end of the most recent
month, at levels not to exceed or fall below, as the case may be, the
dollar amount or ratio set forth opposite such covenant below:
<PAGE>
-49-
Dollar
Covenant/1/ Amount/Ratio
-------- ------------
Minimum EBITDA On or prior to
March 31, 1998,
$23,000,000; and
thereafter,
$25,000,000
EBITDA to Consolidated Interest 2.15 to 1.00
Expense
EBITDA to Senior Interest Expense 5.75 to 1.00
Consolidated Indebtedness to EBITDA 5.50 to 1.00
Senior Indebtedness to EBITDA 2.00 to 1.00
(iv) a certificate of the president or chief financial officer of
Holdings with respect to the Designated Acquisition,
(x) certifying to the preparation of the pro forma financial
---------
statements referenced in subclause (ii) and certifying that, both
before and after giving effect to such Designated Acquisition, no
Default or Event of Default shall exist, and that, on a pro forma
---------
basis, Holdings and its Subsidiaries (including any direct or
indirect Subsidiary of Holdings to be acquired
- --------------------
/1/ For the purposes of this Section 4.03(b)(iii), the Consolidated EBITDA for
the calculations shall be pro forma based upon the last twelve months'
--- -----
actual financial results for the Designated Acquisition entity and
Holdings, assuming a full year of results from the CONOPCO and New Image
acquisitions, except that the pro forma calculations for the Minimum EBITDA
--- -----
convenant above shall be pro forma based upon the last twelve months'
--- -----
actual financial results for Holdings, assuming a full year of results from
the CONOPCO and New Image acquisitions.
<PAGE>
-50-
in the contemplated Designated Acquisition) will be in compliance
with the pro forma covenants set forth in Section 4.03(b)(iii),
--- -----
as of the end of the calendar quarter in which such Designated
Acquisition is to be consummated and setting forth the
calculations required to establish such pro forma compliance;
---------
(y) certifying that from the Closing Date to and including the
Acquisition Term Loan Closing Date, there shall have been no
material adverse change in the business, assets, properties,
condition (financial or otherwise) or prospects of Holdings or
the Borrower or in the industries in which they compete;
(z) certifying that the conditions set forth in each of
Sections 4.02 and 4.03 (other than the completion of filings and
recordings to be performed upon the Acquisition Term Loan Closing
Date) have been satisfied with respect to such proposed
Acquisition Term Loan Borrowing;
(v) final terms and conditions of, and documentation relating to,
the Designated Acquisition, all of which shall be satisfactory to the
Agent (including, without limitation, all representations, warranties
and indemnities contained in such documentation), and the Agent and
the Required Banks' continuing satisfaction with the capital,
organizational and management structure of Holdings, the Borrower and
its Subsidiaries (including the ownership and corporate structure of
each Subsidiary);
(c) On or before the applicable Acquisition Term Loan Closing
Date, Holdings and the Borrower shall have complied, in all material
respects, with the provisions of Sections 6.14, 6.15 (including a complete
environmental review of the Designated Acquisition entity from an
environmental assessment firm of national standing, in a form satisfactory
to the Agent) and 6.16 as to any property acquired or to be acquired in
connection with such Designated Acquisition, except for any such provisions
with which compliance is waived by the Agent in its sole discretion,
including, without limitation, that Holdings, the Borrower and its
Subsidiaries (including any Subsidiary so acquired) shall execute and
deliver to the Agent any addi-
<PAGE>
-51-
tional Security Documents (or Subsidiary Guarantees) required to provide
the Agent for the benefit of the Banks with a valid, perfected security
interest in any Collateral to be acquired in such Designated Acquisition;
(d) There shall be delivered to the Agent (in each case, with
sufficient copies for each Bank) upon consummation of the Designated
Acquisition, a complete set of the documents effecting such acquisition,
together with all schedules and exhibits (including, without limitation the
acquisition agreement);
(e) Any fees or expenses of the Agent or the Banks which are then
due and payable, whether due in connection with such Acquisition Term Loan
Borrowing or otherwise, shall have been paid in full prior to, or
simultaneously with, the Acquisition Term Loan Closing; and
(f) From December 31, 1996 to and including the date of the
Acquisition Term Loan Borrowing, there shall have been no material adverse
change in the business, assets, properties, condition (financial or
otherwise) or prospects of Holdings, the Borrower or the Designated
Acquisition Entity, or in the industries in which they compete.
4.04. Conditions Precedent to All Letters of Credit. The right of
---------------------------------------------
the Borrower to obtain the issuance of any Letter of Credit that the relevant
Issuing Bank determines to issue in its sole discretion hereunder is subject to
prior or concurrent satisfaction of all of the following conditions:
(A) Required Documentation. On or prior to the date of issuance of
----------------------
a Letter of Credit, the Agent shall have received, in accordance with the
provisions of Section 1.13(B), a request for issuance with respect to such
Letter of Credit (the furnishing by the Borrower of each such request for
issuance shall be deemed to constitute a representation and warranty of
Holdings and the Borrower to the effect that the conditions set forth in
Section 4.02 (in each case disregarding any reference therein that such
condition be deemed satisfactory by the Agent and/or the Required Banks)
are satisfied as of the date of delivery and will be satisfied on the
relevant date of issuance), all other information specified in Section
1.13(B), and such other documents as the Issuing Bank may reasonably
require in connection with the issuance of such Letter of Credit.
<PAGE>
-52-
(B) Conditions. On the date of issuance of each such Letter of
----------
Credit, all conditions precedent described in Section 4.02 shall be
satisfied to the same extent as though the issuance of such Letter of
Credit were the making of a Revolving Loan.
SECTION 5. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Banks to enter into this Agreement and to make the Loans provided for
herein, each of Holdings and the Borrower makes the following representations
and warranties to, and agreements with, the Banks, all of which shall survive
the execution and delivery of this Agreement and the making of the Loans (with
the execution and delivery of this Agreement and the making of each Loan
thereafter being deemed to constitute a representation and warranty that the
matters specified in this Section 5 are true and correct in all material
respects both before and after giving effect to the Recapitalization and the
related transactions and as of the date of each such Loan unless such
representation and warranty expressly indicates that it is being made as of any
specific date):
5.01. Corporate Status. Each Credit Party (i) is a duly organized
----------------
and validly existing corporation in good standing under the laws of the
jurisdiction of its organization; (ii) has the corporate or other organizational
power and authority and, other than as set forth on Annex X, has obtained all
requisite governmental licenses, authorizations, consents and approvals to own
and operate its property and assets and to transact the business in which it is
engaged and presently proposes to engage including, without limitation, those in
compliance with or required by the Environmental Laws except as described in
Annex XII hereto and except for those governmental licenses, authorizations,
consents or approvals the failure of which to be so obtained would not have a
Materially Adverse Effect and (iii) is duly qualified and is authorized to do
business and is in good standing in all jurisdictions where it is required to be
so qualified and where the failure to be so qualified would have a Materially
Adverse Effect.
5.02. Corporate Power and Authority; Business. (a) Each Credit
---------------------------------------
Party has the corporate power and authority to execute, deliver and carry out
the terms and provisions of the Credit Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. Each Credit Party
has duly executed and delivered each Credit Document to which it is a party and
each such Credit Document
<PAGE>
-53-
constitutes the legal, valid and binding obligation of such Person enforceable
against such Person in accordance with its terms except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally and except as such enforceability may
be limited by the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(b) Holdings was incorporated on May 10, 1995 and consummated an
initial public offering of its common stock on October 18, 1996; and the
Borrower was incorporated as Aminco, Inc. in Delaware on March 20, 1990. Prior
to the Closing Date, Holdings will not have engaged in any business or incurred
any liabilities except for activities, expenses and liabilities incident to its
organization or its initial public offering and to the carrying out of the
transactions contemplated by the Credit Documents and the Recapitalization,
including, without limitation, the Offering.
5.03. No Violation. Neither the execution, delivery or performance
------------
by any Credit Party of the Credit Documents to which it is a party nor
compliance with the terms and provisions thereof, nor the consummation of the
transactions contemplated therein (i) will contravene any applicable provision
of any law, statute, rule, regulation, order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or (other than pursuant to the
Security Documents) result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of any Credit
Party or its Subsidiaries pursuant to the terms of any indenture, mortgage, deed
of trust, material agreement or other material instrument to which any Credit
Party or its Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it may be subject or (iii) will violate any
provision of the charter or by-laws of any Credit Party or its Subsidiaries,
except, in each such case, where such contravention, conflict, inconsistency,
breach, default, creation, imposition, obligation or violation does not have a
Materially Adverse Effect. The consummation of the Recapitalization and the
terms of the financing in connection therewith will not conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents)
<PAGE>
-54-
upon any of the property or assets of Holdings or the Borrower or any of their
respective Subsidiaries pursuant to the terms of, any indenture, mortgage, deed
of trust, material instrument or material agreement relating to Indebtedness for
borrowed money or the equivalent thereof or other material agreement to which
Holdings or the Borrower or any of their respective Subsidiaries is a party or
by which it or any of its property or assets is bound or to which it may be
subject, except, in each such case, where such conflict, inconsistency, breach,
default, creation, imposition or obligation does not have a Materially Adverse
Effect.
5.04. Litigation. Except as set forth on Annex IX, there are no
----------
actions, judgments, suits or proceedings pending or, to Holdings' or the
Borrower's knowledge, threatened in any court of competent jurisdiction with
respect to any Credit Party or its Subsidiaries that are, individually or in the
aggregate, likely to have a Materially Adverse Effect.
5.05. Use of Proceeds. (a) All the proceeds of each of the
---------------
Acquisition Term Loans to be made hereunder shall be utilized to provide the
financing required to consummate Designated Acquisitions and to pay related fees
and expenses.
(b) Up to $1,000,000 of the proceeds of Revolving Loans made on the
Closing Date may be used by Holdings and the Borrower on the Closing Date to
provide a portion of the financing required to consummate the Recapitalization
and to pay related fees and expenses and the remaining proceeds of Revolving
Loans may be utilized to finance the ongoing working capital requirements of the
Borrower and its Subsidiaries and for general corporate purposes.
(c) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
5.06. Governmental Approvals, etc. No order, consent, approval,
---------------------------
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any third party or any foreign or domestic Governmental
Authority (other than those orders, consents, approvals, licenses,
authorizations or validations which, if not obtained or made, would not have a
Materially Adverse Effect or which have previously been obtained or made and
except for filings to perfect security interests granted pursuant to the
Security Documents) is required to authorize or is required in connection with
<PAGE>
-55-
(i) the execution, delivery and performance of any Credit Document or the
transactions contemplated therein or (ii) the legality, validity, binding effect
or enforceability of any Credit Document. At the time of the making of the
Loans, there does not exist any judgment, order, injunction or other restraint
issued or filed with respect to the making of Loans or the performance by the
Credit Parties of their obligations under the Credit Documents.
5.07. Investment Company Act. None of Holdings, the Borrower or
----------------------
their respective Subsidiaries is, or will be after giving effect to the
transactions contemplated hereby, an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
5.08. Public Utility Holding Company Act. None of Holdings, the
----------------------------------
Borrower or their respective Subsidiaries is, or will be after giving effect to
the transactions contemplated hereby, a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.09. True and Complete Disclosure. All factual information (taken
----------------------------
as a whole) heretofore or contemporaneously furnished by or on behalf of
Holdings, the Borrower or any of their Subsidiaries in writing to any Bank
(including, without limitation, all information contained in the Credit
Documents) for purposes of or in connection with this Agreement or any
transaction contemplated herein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any such Person in
writing to any Bank will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information not
misleading at such time in light of the circumstances under which such
information was provided. The projections and pro forma financial information
---------
contained in such materials are based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made. There is no fact
known to any Credit Party which has a Materially Adverse Effect which has not
been disclosed herein or in such other documents, certificates and written
statements furnished to the Banks for use in connection with the transactions
contemplated hereby.
<PAGE>
-56-
5.10. Consummation of the Offering. On the Closing Date, the
----------------------------
Offering shall concurrently be consummated, and not less than $94,000,000 of the
net proceeds therefrom shall be used to effect the Recapitalization.
5.11. Financial Condition; Financial Statements; Projections. (a)
------------------------------------------------------
No Credit Party is entering into the arrangements contemplated hereby and by the
other Credit Documents, or intends to make any transfer or incur any obligations
hereunder or thereunder with actual intent to hinder, delay or defraud either
present or future creditors. On and as of the Closing Date, on a pro forma
---------
basis after giving effect to the Recapitalization and to all Indebtedness
incurred and Liens and Guarantees created, or to be created, by each Credit
Party in connection with the Recapitalization, (w) Holdings and the Borrower do
not expect that final judgments against any Credit Party in actions for money
damages with respect to pending or threatened litigation will be rendered at a
time when, or in an amount such that, such Credit Party will be unable to
satisfy any such judgments promptly in accordance with their terms (taking into
account the maximum reasonable amount of such judgments in any such actions and
the earliest reasonable time at which such judgments might be rendered and the
cash available to each Credit Party, after taking into account all other
anticipated uses of the cash of such Credit Party (including the payments on or
in respect of debts (including their Contingent Obligations))); (x) no Credit
Party will have incurred or intends to, or believes that it will, incur debts
beyond its ability to pay such debts as such debts mature (taking into account
the timing and amounts of cash to be received by such Credit Party from any
source, and amounts to be payable on or in respect of debts of such Credit Party
and the amounts referred to in the preceding clause (w)); (y) each Credit Party,
after taking into account all other anticipated uses of the cash of such Credit
Party, anticipates being able to pay all amounts on or in respect of debts of
such Credit Party when such amounts are required to be paid; and (z) each Credit
Party will have sufficient capital with which to conduct its present and
proposed business and the property of such Credit Party does not constitute
unreasonably small capital with which to conduct its present or proposed
business. For purposes of this Section 5.11, "debt" means any liability on a
claim, and "claim" means a (i) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is
<PAGE>
-57-
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured. On the date of each Borrowing (and after
giving effect to all Borrowings as of such date), the representations set forth
in this Section 5.11(a) shall be true and correct with respect to each Credit
Party on such date.
(b) Holdings or the Borrower has heretofore delivered to the Banks
the consolidated audited financial statements including a balance sheet as at
December 31, 1996 and statements of income and shareholders' equity and cash
flows of Holdings and its consolidated Subsidiaries for the fiscal period ended
December 31, 1996. All the financial statements referred to in the preceding
sentence were prepared in accordance with GAAP consistently applied. Such
financial statements present fairly, in all material respects, the consolidated
financial position of Holdings, the Borrower and its consolidated Subsidiaries
for each of the periods covered thereby. There has also been delivered the pro
---
forma (after giving effect to the Recapitalization) consolidated balance sheet
- -----
of Holdings and its consolidated Subsidiaries as at December 31, 1996, which
presents a good faith estimate of the consolidated pro forma financial condition
---------
of Holdings, the Borrower and its consolidated Subsidiaries at the date thereof,
and interim financial statements for Holdings and its consolidated Subsidiaries
through August 31, 1997. Except as contemplated hereby, since December 31, 1996
(on a pro forma basis after giving effect to the Recapitalization), no event or
---------
events have occurred that are likely to have a Materially Adverse Effect.
(c) There have heretofore been delivered to the Banks pro forma
--- -----
consolidated income projections for Holdings and its Subsidiaries, pro forma
--- -----
consolidated balance sheet projections for Holdings and its Subsidiaries and pro
---
forma consolidated cash flow projections for Holdings and its Subsidiaries, all
- -----
for the fiscal years ending December 31, 1997 through December 31, 2002,
inclusive, as well as such financial projections on a monthly basis for each of
the monthly periods from the Closing Date through December 31, 1997 and on a
quarterly basis for each of the quarterly periods for the fiscal year ending
December 31, 1998 (the "Projected Financial Statements"), which give effect to
the Recapitalization and all Indebtedness and Liens incurred or created in
connection with the Recapitalization. The Projected Financial Statements are
based on estimates and assumptions which are believed by Holdings and the
Borrower in good faith to be reasonable in light of the conditions which existed
at the time of their preparation as to the future financial performance of
Holdings and the Borrower.
<PAGE>
-58-
(d) As of the Closing Date, except as adequately reflected or
reserved against in the financial statements and the notes thereto described in
Section 5.11(b) or as set forth in Annexes IX, XII and XVI, there were no
liabilities or obligations with respect to Holdings, the Borrower or any of
their respective Subsidiaries of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether or not due) which, either
individually or in the aggregate, would be material to Holdings, the Borrower or
any of their respective Subsidiaries, except as incurred by any Credit Party in
connection with the Recapitalization. As of the Closing Date, Holdings and the
Borrower know of no basis for the assertion against Holdings, the Borrower or
any of their respective Subsidiaries of any liability or obligation of any
nature whatsoever that is not adequately reflected in the financial statements
described in Section 5.11(b) or (c) or otherwise disclosed herein which, either
individually or in the aggregate, could reasonably be expected to be material to
Holdings, the Borrower or any of their respective Subsidiaries.
5.12. Security Interests. At all times after the execution of the
------------------
Security Documents, the Security Documents create, in favor of the Collateral
Agent for the benefit of the Banks, as security for the obligations purported to
be secured thereby, a valid and enforceable perfected first priority security
interest in and Lien upon all of the Collateral, superior to and prior to the
rights of all third persons and subject to no Liens, except Prior Liens
applicable to such Collateral. The mortgagor under each Mortgage has good and
marketable title to the Mortgaged Real Property free and clear of all Liens
other than Prior Liens and Liens expressly permitted by the applicable Mortgage.
The respective pledgor or assignor, as the case may be, has (or on and after the
time it executes the respective Security Document, will have) good and
marketable title to all items of Collateral (other than the Mortgaged Real
Property) covered by such Security Document free and clear of all Liens except
Prior Liens and Liens expressly permitted by the applicable Security Document.
No filings or recordings are required in order to perfect or confirm the
perfection of the security interests created under any Security Document except
for filings or recordings required in connection with any such Security Document
which shall have been made prior to or contemporaneously with the execution and
delivery thereof.
5.13. Tax Returns and Payments. Except as set forth on Annex XIII
------------------------
hereto, each Credit Party has filed all material tax returns required to be
filed by it and has paid all material taxes and assessments payable by it which
have become due,
<PAGE>
-59-
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. Except as set forth on
Annex XIII hereto, each Credit Party has paid, or has provided adequate reserves
(in accordance with GAAP) for the payment of, all material federal, state, local
and foreign income taxes (including, without limitation, franchise taxes based
upon income) applicable for all prior fiscal years and for the current fiscal
year to the date hereof. Holdings knows of no proposed tax assessment against
Holdings or any of its Subsidiaries that could reasonably be expected to have a
Materially Adverse Effect which is not being actively contested in good faith by
such Person to the extent affected thereby in good faith and by appropriate
proceedings; provided that such reserves or other appropriate provisions, if
--------
any, as shall be required in conformity with GAAP shall have been made or
provided therefor.
5.14. ERISA. (A) Each Credit Party and its ERISA Affiliates are in
-----
compliance with all applicable provisions of ERISA and the Code and the
regulations and published interpretations thereunder with respect to all
employee benefit plans, Pension Plans and Multiemployer Plans except for any
failures to comply which, individually or in the aggregate, would not have a
Materially Adverse Effect.
(B) No Termination Event has occurred or is reasonably expected to
occur with respect to any Pension Plan which resulted or would result in a
liability to any Credit Party or any ERISA Affiliate.
(C) The sum of the amount of unfunded benefit liabilities (determined
in accordance with Statement of Financial Accounting Standards No. 87) under all
Title IV Plans (excluding each Title IV Plan with an amount of unfunded benefit
liabilities of zero or less) is not more than $2,500,000. As of the Closing
Date, there are no unfunded benefit liabilities (within the meaning of Section
4001(a)(18) of ERISA) under any Title IV Plans.
(D) As of the Closing Date, no Credit Party nor any ERISA Affiliate
has any obligation to contribute to or any liability or potential liability
(including, but not limited to, actual or potential withdrawal liability) with
respect to any employee benefit plan of the type described in Sections 4063 and
4064 of ERISA or in Section 413(c) of the Code. Each Credit Party and its ERISA
Affiliates have complied in all material respects with the requirements of ERISA
Section 515 with respect to each Multiemployer Plan. The aggregate potential
<PAGE>
-60-
withdrawal payments, as determined in accordance with Title IV of ERISA, of each
Credit Party and its ERISA Affiliates with respect to all Multiemployer Plans
does not exceed $2,500,000. No Credit Party nor any ERISA Affiliate has
incurred or reasonably expects to incur any withdrawal liability under Section
4201 et seq. of ERISA to any Multiemployer Plan or any employee benefit plan of
-- ---
the type described in Sections 4063 and 4064 of ERISA or in Section 413(c) of
the Code.
(E) No Credit Party nor any ERISA Affiliate has incurred any
accumulated funding deficiency (whether or not waived) with respect to any
Pension Plan.
(F) No Credit Party nor any ERISA Affiliate has or reasonably expects
to become subject to a Lien in favor of any Pension Plan under Section 302(f) or
307 of ERISA or Section 401(a)(29) or 412(n) of the Code.
(G) Assuming that no portion of the Loans to be advanced hereunder is
attributable, directly or indirectly, to the assets of any employee benefit
plan, the execution, performance and delivery of the Credit Documents by any
party thereto will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code for which an exemption
therefrom is not available.
As used in this Section 5.14, the term "accumulated funding
deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of
the Code, and the term "employee benefit plan" has the meaning specified in
Section 3(3) of ERISA.
5.15. Subsidiaries. Annex IV hereto lists each direct and indirect
------------
Subsidiary of Holdings existing on the Closing Date.
5.16. Patents, etc. Each Credit Party owns or possesses adequate
------------
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, servicemarks, servicemark applications, trade names,
copyrights, trade secrets and know how (collectively, the "Intellectual
Property") that are necessary for the operation of their respective businesses
as presently conducted and as proposed to be conducted. No claim is pending or,
to the best of Holdings' or the Borrower's knowledge, threatened to the effect
that Holdings or any of its Subsidiaries infringes upon the asserted rights of
any other person under any Intellectual Property, and to the best of Holdings'
or the Borrower's knowledge there is no basis for any such claim (whether or not
pending or
<PAGE>
-61-
threatened), in each case where such claim could reasonably be expected to have
a Materially Adverse Effect. No claim is pending or, to the best of Holdings' or
the Borrower's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by Holdings or any of its Subsidiaries or which
Holdings or the Borrower or any of its Subsidiaries otherwise has the right to
use is invalid or unenforceable by Holdings, the Borrower or such Subsidiary,
and, to the best of Holdings' or the Borrower's knowledge, there is no basis for
any such claim (whether or not pending or threatened), in each case where such
claim could reasonably be expected to have a Materially Adverse Effect.
5.17. Compliance with Laws, etc. Except as set forth in Annex XVI
-------------------------
hereto, each Credit Party is in material compliance with all material laws and
regulations, including without limitation those relating to equal employment
opportunity and employee safety but excluding Environmental Laws (as to which
Section 5.22 is applicable), in all jurisdictions in which it is presently doing
business, and each Credit Party will comply and cause each of its Subsidiaries
to comply with all such laws and regulations which may be imposed in the future
in jurisdictions in which it or such Subsidiary may then be doing business in
each such case other than those the non-compliance with which would not have a
Materially Adverse Effect.
5.18. Properties. Holdings and each of its Subsidiaries have good
----------
and marketable title to and beneficial ownership of all their respective
properties owned by them, including after the Closing Date all property
reflected in the most recent balance sheet referred to in Section 5.11(b) and
except as sold or otherwise disposed of since the date of such balance sheet in
the ordinary course of business, free and clear of all Liens, other than Prior
Liens and Permitted Encumbrances. Holdings and each Subsidiary thereof hold all
material licenses, certificates of occupancy or operation and similar
certificates and clearances of municipal and other authorities necessary to own
and operate the Mortgaged Real Property in the manner and for the purposes
currently operated by such party which if not obtained or maintained would have
a material adverse effect upon the value of the Mortgaged Real Property. There
are no actual defaults or defaults alleged in writing or, to the best knowledge
of Holdings or the Borrower, threatened defaults, in each case of a material
nature with respect to any leases of real property under which Holdings or any
of its Subsidiaries is lessor or lessee.
<PAGE>
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5.19. Securities. On the Closing Date, the common stock of the
----------
Borrower and of each Subsidiary whose stock is being pledged as of the Closing
Date will be duly authorized, issued and delivered and will be fully paid,
nonassessable and free of preemptive rights. There are not, as of the Closing
Date and thereafter, any existing options, warrants, calls, subscriptions,
convertible or exchangeable securities, rights, agreements, commitments or
arrangements for any person to acquire any capital stock of the Borrower or any
other securities convertible into, exchangeable for or evidencing the right to
subscribe for any such capital stock.
5.20. Collective Bargaining Agreements. Set forth on Annex V hereto
--------------------------------
is a list and description (including dates of termination) of all collective
bargaining or similar agreements between or applicable to Holdings and its
Subsidiaries as of the date hereof and any union, labor organization or other
bargaining agent in respect of the employees of Holdings and its Subsidiaries on
the date indicated in Annex V hereto.
5.21. Indebtedness Outstanding. Set forth on Annex III hereto is a
------------------------
complete list and description of all Indebtedness of Holdings, the Borrower and
their Subsidiaries (other than the Loans) that will be outstanding immediately
after the Closing Date and set forth on Annex III hereto is a complete list and
description of all Indebtedness of Holdings, the Borrower and their Subsidiaries
that will be repaid, defeased, transferred or otherwise terminated on or prior
to the Closing Date.
5.22. Environmental Matters. (A) Except as set forth in Annex XII
---------------------
hereto, each of Holdings and its Subsidiaries and the properties and assets used
in its businesses (including the Real Properties) is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes, without limitation, the possession of all material licenses, permits,
registrations and other governmental authorizations (collectively,
"Environmental Authorizations") required under applicable Environmental Laws,
and compliance in all material respects with the terms and conditions thereof
except as could not reasonably be expected to result in the incurrence of costs
in excess of $100,000, and there are no circumstances of a nature which may
materially prevent or interfere with such compliance in the future. Except as
set forth in Annex XII hereto, neither Holdings nor any of its Subsidiaries has
been notified by any Governmental Authority, or has any basis to believe, that
any such Environmental Authorizations will be modified, suspended or revoked or
cannot be renewed or
<PAGE>
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otherwise maintained in the ordinary course of business. Except as set forth in
Annex XII hereto, in the last five years, neither Holdings nor any of its
Subsidiaries has received any communication, whether from a Governmental
Authority, citizen group, employee or otherwise, that alleges that Holdings or
any of its Subsidiaries or any of the properties or assets used in their
respective businesses (including the Real Properties) is not in compliance with
Environmental Laws.
(B) Except as set forth in Annex XII hereto, there is no Environmental
Notice that (i) is pending or, to the best knowledge of Holdings or the Borrower
or any of its Subsidiaries, threatened against Holdings or any of its
Subsidiaries or (ii) is pending or, to the best knowledge of Holdings or the
Borrower or any of its Subsidiaries, threatened against any Person whose
liability for such Environmental Notice may have been retained or assumed by or
could reasonably be imputed or attributed by law or contract to Holdings, the
Borrower or any of its Subsidiaries.
(C) Except as set forth in Annex XII hereto, to the best knowledge of
Holdings, the Borrower and its Subsidiaries, there are no past or present
actions, activities, circumstances, conditions, events or incidents arising out
of, based upon, resulting from or relating to the operation, ownership or use of
any properties or assets (including the Real Properties) currently or formerly
owned, operated, leased or used by Holdings or any of its Subsidiaries (or any
predecessor in interest of any of them), including, without limitation, the
emission, discharge, disposal or other release of any Hazardous Materials in or
into the Environment, that (i) could reasonably be expected to result in the
incurrence of costs in excess of $100,000, individually, under Environmental
Laws or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to Holdings or any of its Subsidiaries, or
against any person or entity whose liability for any Environmental Notice may
have been retained or assumed by or could be imputed or attributed by law or
contract to Holdings or any of its Subsidiaries, which Notice could reasonably
be expected to result in the incurrence of costs in excess of $100,000.
(D) Except as set forth in Annex XII hereto, without in any way
limiting the generality of the foregoing, (i) there are, and to the best
knowledge of Holdings, the Borrower and its Subsidiaries, have been, no
underground storage tanks, or related piping, located on, at or under property
(including the Real Properties) owned, operated, leased or used by Holdings or
<PAGE>
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any of its Subsidiaries (or any predecessor in interest of any of them), (ii)
there are, and, to the best knowledge of Holdings, the Borrower and its
Subsidiaries, have been, no polychlorinated biphenyls used or stored by Holdings
or any of its Subsidiaries, located on, at or under property (including the Real
Properties) owned, operated, leased or used by Holdings or any of its
Subsidiaries, (iii) there are and have been no properties (including the Real
Properties) currently or formerly owned, operated, managed, leased or used by
Holdings or any of its Subsidiaries (or any predecessor in interest of any of
them) at which Hazardous Materials generated, used, owned, managed, stored or
controlled by Holdings or any of its Subsidiaries (or any predecessor in
interest of any of them) may have been disposed of or otherwise released into
the Environment except such disposals or other releases which were both (a) in
compliance with Environmental Laws and Environmental Authorizations and (b)
could not result in costs in excess of $100,000, individually, under
Environmental Laws and (iv) there is no friable asbestos contained in or forming
part of any building, building component, structure or office space owned,
operated, leased or used by Holdings or any of its Subsidiaries.
(E) Prior to the Closing Date, Holdings and each of its Subsidiaries
shall have made all notifications, registrations and filings in accordance with
all applicable State and Local Real Property Disclosure Requirements, including,
without limitation, the use of forms provided by state or local agencies, where
such forms exist, whether to the Agent or to, or with, the state or local
agency, provided, that where such notification, registration or filing was made
to, or with, a state or local agency, a copy of such notification, registration
or filing shall be provided to the Agent prior to the Closing Date.
5.23. Environmental Investigations. All material environmental
----------------------------
investigations, studies, audits, assessments or reviews conducted of which
Holdings or the Borrower is in possession in relation to the current or prior
business of Holdings, the Borrower or any Subsidiary or any Real Property or
facility now or previously owned, operated, leased, used or controlled by
Holdings or any of its Subsidiaries, including, without limitation, those
relating to compliance with or liability under any Environmental Law, have been
delivered to the Agent through its attorneys, Cahill Gordon & Reindel.
5.24. Fine Products Company. As of the date of this Agreement and as
---------------------
of the Closing Date, Fine Products Company, a Georgia corporation ("Fine
Products"), has capital of $145,000
<PAGE>
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and has no other assets or, to the best of the Borrower's knowledge, liabilities
of any kind (other than its rights and obligations under the purchase agreement
dated as of February 1, 1994 between Fine Products, Aminco Delaware and Gilliam
Candy Co., Inc., and certain tax attributes). There are no actions, claims,
judgments, suits or proceedings pending or, to Holdings' or the Borrower's
knowledge, threatened in any court of competent jurisdiction with respect to
Fine Products and Holdings or the Borrower is not aware of any facts or
circumstances which would provide the basis for the assertion against Fine
Products of any such actions, claims, suits or proceedings.
SECTION 6. Affirmative Covenants. Holdings and the Borrower covenant
---------------------
and agree that on the Closing Date and thereafter for so long as this Agreement
is in effect and until the Commitments have terminated and the Loans together
with interest, fees and all other Obligations incurred hereunder are paid in
full (except as otherwise agreed or consented to or waived, in writing, by the
Required Banks):
6.01. Information Covenants. Holdings will furnish or cause to be
---------------------
furnished to the Agent, who will distribute copies to each Bank:
(a) As soon as available and in any event within 90 days after the
close of each fiscal year of Holdings, the consolidated balance sheet of
Holdings and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income, of shareholders' equity and of
cash flows for such fiscal year, setting forth comparative consolidated
figures for the preceding fiscal year and a report on such consolidated
balance sheets and financial statements by independent certified public
accountants of recognized national standing, which report shall not be
qualified as to the scope of audit or as to the status of Holdings and its
Subsidiaries as a going concern and shall state that such consolidated
financial statements present fairly, in all material respects, the
consolidated financial position of Holdings and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except for such changes with which the
independent certified public accountants concur) and the examination by
such accountants was conducted in accordance with generally accepted
auditing standards.
<PAGE>
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(b) As soon as available and in any event within 45 days after the
close of each of the first three quarterly accounting periods in each
fiscal year of Holdings, the consolidated balance sheet of Holdings and its
Subsidiaries as at the end of such quarterly accounting period and the
related consolidated statements of income, of shareholders' equity and of
cash flows for such quarterly accounting period and for the elapsed portion
of the fiscal year ended with the last day of such quarterly accounting
period, setting forth in comparative form the same information for the
corresponding periods of the prior fiscal year.
(c) As soon as practicable and in any event within 30 days after
the end of the month of October, 1997 and each month thereafter, (i) the
consolidated balance sheet of Holdings and its Subsidiaries as at the end
of such period and (ii) the related consolidated statements of income and
cash flows of Holdings each in the form customarily prepared by management,
in each case for such fiscal month and for the period from the beginning of
the then current fiscal year to the end of such fiscal month, setting forth
in comparative form the same information for the corresponding periods of
the prior fiscal year (including a comparison of such monthly financial
results against the budgets required to be submitted pursuant to subsection
(e) hereof, together with a brief narrative discussion and analysis
prepared by management describing Holdings' results of operations for such
fiscal month.
(d) Together with each delivery of financial statements of
Holdings and its Subsidiaries pursuant to subsection (a) above, a written
statement by the independent public accountants giving the report thereon
(i) stating that their audit examination has included a review of the terms
of Sections 7.04, 7.05, 7.07 and 7.09 through 7.11 (inclusive) of this
Agreement as they relate to accounting matters but without having conducted
any special auditing procedures in connection therewith, (ii) stating
whether, in connection with their audit examination, any condition or event
which constitutes a Default or Event of Default has come to their
attention, and if such a condition or event has come to their attention,
specifying the nature and period of existence thereof; provided that such
--------
accountants shall not be liable by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be
disclosed in the course of their audit examination, and (iii) stating that
based on their audit
<PAGE>
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examination nothing has come to their attention which causes them to
believe that as of the end of such fiscal year of Holdings there existed a
Default or an Event of Default related to the breach of any covenant set
forth in Sections 7.04, 7.05, 7.07 and 7.09 through 7.11 (inclusive), as
they relate to accounting matters, and if such a condition or event has
come to their attention, specifying the nature and period of existence
thereof and what action Holdings has taken, is taking and proposes to take
with respect thereto.
(e) Within 30 days after the commencement of each fiscal year,
annual budgets of Holdings and its Subsidiaries, substantially in the form
of Exhibit P hereto, in reasonable detail for each month of such fiscal
year, as customarily prepared by management for its internal use, setting
forth, with appropriate discussion, the principal assumptions upon which
such budgets are based, and including (i) forecasted consolidated balance
sheets, consolidated statements of operations, of stockholders' equity and
of cash flows of Holdings and its Subsidiaries on a consolidated basis for
such periods, (ii) the amount of forecasted capital expenditures for such
fiscal periods, and (iii) forecasted compliance with Sections 7.09-7.11;
provided that if any such forecast indicates that Holdings may not be in
--------
compliance with any provision of this Agreement at some future date, such
forecast shall not constitute a Default or an Event of Default or
anticipatory or other breach thereof. Together with each delivery of
financial statements pursuant to Section 6.01(c), a comparison of the
current year to date financial results against the budgets required to be
submitted pursuant to this subsection (e) shall be presented.
(f) At the time of the delivery of the financial statements
provided for in Sections 6.01(a), (b) and (c), a certificate of the chief
executive officer, chief financial officer, controller, chief accounting
officer or other Authorized Officer of Holdings to the effect that such
financial statements are true and complete in all material respects and
that no Default or Event of Default exists, or, if any Default or Event of
Default does exist, specifying the nature and extent thereof, which
certificate shall, with respect to the financial statements provided for in
Section 6.01(c), at the time of delivery of such statements for the months
ended September 30, December 31, March 31 and June 30, beginning with the
month ended December 31, 1997, be accompanied by a Compliance
<PAGE>
-68-
Certificate in a form reasonably acceptable to the Agent setting forth the
calculations required to establish whether Holdings and its Subsidiaries
were in compliance with the covenants in this Agreement (including without
limitation the covenants set forth in Sections 7.09 through 7.11
(inclusive)) as at the end of such fiscal period or year, as the case may
be.
(g) Promptly upon receipt thereof, a copy of each annual
"management letter" submitted to Holdings by its independent accountants in
connection with any annual audit made by them of the books of Holdings or
any of its Subsidiaries.
(h) Promptly upon their becoming available, copies of all
consolidated financial statements, reports, notices and proxy statements
sent or made available generally by Holdings or any Subsidiary of Holdings
to its security holders (other than to Holdings, the Borrower or another
Subsidiary), of all regular and periodic reports and all registration
statements and prospectuses, if any, filed by Holdings or any of its
Subsidiaries with any securities exchange or with the SEC and of all press
releases and other statements made available generally by Holdings or any
Subsidiary of Holdings to the public concerning material developments in
the business of Holdings and its Subsidiaries.
(i) Promptly upon any Senior Officer obtaining knowledge (w) of
any condition or event which constitutes a Default or Event of Default, or
becoming aware that any Bank has given any written notice or taken any
other action with respect to a claimed Default or Event of Default under
this Agreement, (x) that any Person has given any written notice to
Holdings, the Borrower or any Subsidiary of the Borrower or taken any other
action with respect to a claimed default or event or condition of the type
referred to in Section 8.04, or (y) of a material adverse change in the
business, operations, properties, assets, nature of assets, condition
(financial or otherwise) or prospects of Holdings, the Borrower and its
Subsidiaries taken as a whole, an Officers' Certificate specifying the
nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and
the nature of such claimed Default, Event of Default, event or condition,
or material adverse change, and what action Holdings has taken, is taking
and proposes to take with respect thereto.
<PAGE>
-69-
(j) (i) Promptly upon any Senior Officer obtaining knowledge of
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting Holdings,
the Borrower or any of its Subsidiaries or any property of Holdings, the
Borrower or any of its Subsidiaries not previously disclosed to the Banks,
which action, suit, proceeding, governmental investigation or arbitration
seeks (or in the case of multiple actions, suits, proceedings, governmental
investigations or arbitrations arising out of the same general allegations
or circumstances which seek) recovery from Holdings, the Borrower or any of
its Subsidiaries aggregating $500,000 or more (exclusive of claims covered
by insurance policies of Holdings, the Borrower or any of its Subsidiaries
unless the insurers of such claims have disclaimed coverage or reserved the
right to disclaim coverage on such claims), Holdings shall give notice
thereof to the Banks and provide such other information as may be
reasonably available to enable the Banks and their counsel to evaluate such
matters; (ii) as soon as practicable and in any event within 45 days after
the end of each fiscal quarter, Holdings shall provide a report to the
Banks covering any institution of, or written threat of, any action, suit,
proceeding, governmental investigation or arbitration (not previously
reported) against or affecting Holdings, the Borrower or any of its
Subsidiaries or any property of Holdings, the Borrower or any of its
Subsidiaries not previously disclosed to the Banks, which action, suit,
proceeding, governmental investigation or arbitration seeks (or in the case
of multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances
which seek) recovery from Holdings, the Borrower or any of its Subsidiaries
aggregating $250,000 or more (exclusive of claims covered by insurance
policies of Holdings, the Borrower or any of its Subsidiaries unless the
insurers of such claims have disclaimed coverage or reserved the right to
disclaim coverage on such claims), and shall provide such other information
at such time as may be reasonably available to enable the Banks and their
counsel to evaluate such matters; (iii) in addition to the requirements set
forth in clauses (i) and (ii) of this Section 6.01(j), Holdings upon
request shall promptly give notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered to the Banks pursuant to clause (i) or (ii) above to the Banks
and provide such other information as may be reasonably available to it to
enable the Banks and
<PAGE>
-70-
their counsel to evaluate such matters and (iv) promptly upon any Senior
Officer obtaining knowledge of any material dispute in respect of or the
institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration in respect of any material
contract of Holdings, the Borrower or any of its Subsidiaries, Holdings
shall give notice thereof to the Banks and shall provide such other
information as may be reasonably available to enable the Banks and their
counsel to evaluate such matters.
(k) Within 90 days of the last day of each fiscal year of
Holdings, a summary report, substantially in the form of Annex VI hereto,
outlining all material insurance coverage maintained as of the date of such
report by Holdings, the Borrower and its Subsidiaries and outlining all
material insurance coverage planned to be maintained by Holdings, the
Borrower and its Subsidiaries in the subsequent fiscal year.
(l) To the extent reasonably requested by the Agent, as soon as
practicable and in any event within 10 Business Days of the later of such
request and the making of any such amendment or waiver, copies of
amendments or waivers with respect to Indebtedness of Holdings, the
Borrower or any of its Subsidiaries.
(m) Within 15 days after the last Business Day of each month,
Holdings or the Borrower shall deliver to the Agent for distribution to
each Bank a borrowing base certificate in the form of Exhibit M hereto (the
"Borrowing Base Certificate") detailing the Borrower's Eligible Accounts
Receivable and Eligible Inventory as of the last day of such month,
certified as complete and correct on behalf of Holdings and the Borrower by
a Senior Officer or any other Authorized Officer. In addition, each
Borrowing Base Certificate shall have attached to it such additional
schedules and/or other information as the Agent may reasonably request. If
Holdings or the Borrower fails to deliver any such Borrowing Base
Certificate within 25 days after the end of any such month, then the
Borrower's Borrowing Base shall be deemed to be $0 until such time as
Holdings or the Borrower shall deliver such required Borrowing Base
Certificate.
(n) (i) On or prior to the Closing Date and within 90 days after
the commencement of each fiscal year, a complete and accurate list of the
officers and directors of
<PAGE>
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each of Holdings and the Borrower and (ii) within 30 days of any change in
personnel affecting the accuracy of such lists, a notice specifying such
change in personnel.
(o) With reasonable promptness, such other information and data
with respect to Holdings, the Borrower or any of its Subsidiaries or any
other similar entity in which Holdings, the Borrower or any Subsidiary has
an investment, as from time to time may be reasonably requested by any Bank
and may be reasonably available to Holdings or the Borrower.
(p) Holdings shall deliver to the Agent, within 15 days after
filing with the SEC, copies of Holdings' annual report and of the
information, documents and other reports (or copies of such portions of any
of the foregoing as the SEC may by rules and regulations prescribe) which
is filed by Holdings with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act within the time periods prescribed under such rules and
regulations. In addition, Holdings shall file with the Agent Holdings'
annual reports to shareholders and any quarterly or other financial reports
furnished by Holdings to shareholders generally.
6.02. Books, Records and Inspections. Holdings will, and will cause
------------------------------
each of its Subsidiaries to, keep true books of records and accounts in which
full and correct entries will be made of all their business transactions, and
will reflect in its financial statements adequate accruals and appropriations to
reserves, all in accordance with GAAP. Holdings will, and will cause each of
its Subsidiaries to, permit, upon reasonable prior notice to the chief financial
officer, controller, chief accounting officer or any other Authorized Officer of
either of Holdings or the Borrower, officers and designated representatives of
the Agent or any Bank to visit and inspect any of the properties or assets of
Holdings, the Borrower and any of its Subsidiaries in whomsoever's possession,
and to examine the books of account of Holdings, the Borrower and any of its
Subsidiaries and discuss the affairs, finances and accounts of Holdings, the
Borrower and any of its Subsidiaries with, and be advised as to the same by, its
and their officers and independent accountants (in the presence of such
officers), all at such reasonable times during regular business hours and
intervals and to such reasonable extent as the Agent or any Bank may reasonably
request.
6.03. Maintenance of Property; Insurance. (a) Holdings will, and
----------------------------------
will cause each of its Subsidiaries to,
<PAGE>
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exercise commercially reasonable efforts to maintain or cause to be maintained
in good repair, working order and condition (subject to normal wear and tear)
all properties used in its businesses and from time to time will make or cause
to be made all repairs, renewals and replacements thereof which Holdings and the
Borrower deem appropriate in their commercially reasonable judgment and will
maintain and renew as necessary all licenses, permits and other clearances
necessary in their commercially reasonable judgment to use and occupy such
properties of Holdings, the Borrower and each Subsidiary, as the case may be.
(b) Holdings will, and will cause each of its Subsidiaries to,
maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations to the extent that such types and such
amounts of insurance are available at commercially reasonable rates. Holdings
will, and will cause each of its Subsidiaries to, furnish to each Bank, upon
reasonable request, information as to the insurance carried, and will not cancel
any such insurance without the consent of the Required Banks.
(c) Without limiting subsection 6.03(b) above, Holdings will, and
will cause each of its Subsidiaries to, maintain in full force the insurance
coverages specified in the Mortgages and the other Security Documents.
6.04. Payment of Taxes. Holdings will pay and discharge, and will
----------------
cause each of its Subsidiaries to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all lawful claims which, if unpaid,
might become a Lien or charge upon any properties of Holdings, the Borrower or
any of its Subsidiaries or cause a failure or forfeiture of title thereto;
provided that neither Holdings, the Borrower nor any Subsidiary shall be
- --------
required to pay any such tax, assessment, charge, levy or claim that is being
contested in good faith and by proper proceedings timely instituted and
diligently conducted if it has maintained adequate reserves with respect thereto
in accordance with GAAP.
6.05. Corporate Franchises. Holdings will do, and will cause each
--------------------
Subsidiary to do, or cause to be done, all
<PAGE>
-73-
things necessary to preserve and keep in full force and effect its existence,
rights and authority, except where such failure to keep in full force and effect
such rights and authority would not have a Materially Adverse Effect.
6.06. Compliance with Statutes, etc. Holdings will, and will cause
-----------------------------
each Subsidiary to, comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all Governmental Authorities, in
respect of the conduct of its business and the ownership of its property, other
than non-compliance which would not have a Materially Adverse Effect; provided
--------
that with respect to non-compliance with Environmental Laws which is disclosed
in Annex XII hereto, Holdings will, and will cause each Subsidiary to, comply
with such Environmental Laws as soon as practicable.
6.07. ERISA. Holdings or the Borrower, as the case may be, will
-----
furnish to the Agent, who will distribute to each of the Banks:
(a) promptly upon Holdings' or the Borrower's knowing or having
reason to know of the occurrence of any (i) Termination Event, or (ii)
"prohibited transaction," within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Pension Plan or any trust
created thereunder, which in the case of all such events described in
clause (i) or (ii) results or could reasonably be expected to result in a
liability of a Credit Party or its ERISA Affiliates in the aggregate in
excess of $200,000 or the imposition of a Lien other than a Permitted
Encumbrance on the assets of a Credit Party, a written notice specifying
the nature thereof, what action the Credit Party or its ERISA Affiliates
have taken, are taking or propose to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue Service,
Department of Labor, PBGC or Multiemployer Plan with respect thereto.
(b) with reasonable promptness, copies of (i) all notices received
by a Credit Party or any of its ERISA Affiliates of PBGC's intent to
terminate any Title IV Plan or to have a trustee appointed to administer
any Title IV Plan, the notice of which event is required pursuant to the
preceding paragraph (a); (ii) upon the request of the Agent each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by a
Credit Party or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan for which Sched-
<PAGE>
-74-
ule B is required; (iii) upon the request of the Agent, the most recent
actuarial valuation report for each Title IV Plan; and (iv) all notices
received by the Credit Parties or any of their ERISA Affiliates from a
Multiemployer Plan concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, the notice of which event is
required pursuant to the preceding paragraph (a).
6.08. Performance of Obligations. Holdings will, and will cause each
--------------------------
of its Subsidiaries to, perform in all material respects all of its obligations
under the terms of each mortgage, indenture, security agreement, other debt
instrument and material contract by which it is bound or to which it is a party,
except where such nonperformance would not have a Materially Adverse Effect.
6.09. End of Fiscal Years; Fiscal Quarters. Holdings will, for
------------------------------------
financial reporting purposes, and will cause each of its Subsidiaries to, have
its (i) fiscal years end on December 31, and (ii) fiscal quarters end on or
about March 31, June 30, September 30 and December 31.
6.10. Use of Proceeds. All proceeds of the Acquisition Term Loans
---------------
and Revolving Loans shall be used as provided in Section 5.05.
6.11. Equal Security for Loans and Notes; No Further Negative
-------------------------------------------------------
Pledges. (a) If Holdings or any of its Subsidiaries shall create or assume any
Lien upon any of its property or assets, whether now owned or hereafter acquired
and whether or not such property or assets constitutes Collateral, other than
Permitted Encumbrances (unless prior written consent to the creation or
assumption thereof shall have been obtained from the Agent and the Required
Banks), it shall make or cause to be made effective provisions whereby the
Obligations will be secured by such Lien equally and ratably with any and all
other Indebtedness thereby secured as long as any such Indebtedness shall be
secured; provided that this covenant shall not be construed as consent by the
--------
Agent and the Required Banks to any violation by Holdings or the Borrower of the
provisions of Section 7.03.
(b) Except with respect to prohibitions against other encumbrances on
specific property encumbered to secure payment of particular Indebtedness
permitted hereunder (which Indebtedness relates solely to the acquisition or
improvement of such specific property) neither Holdings nor any of its
Sub-
<PAGE>
-75-
sidiaries shall enter into any agreement prohibiting the creation or assumption
of any Lien upon its properties or assets, whether now owned or hereafter
acquired.
6.12. Lender Meeting. Holdings and the Borrower will participate in
--------------
a meeting of the Banks once during each fiscal year to be held at a location and
a time selected by Holdings and the Borrower and reasonably acceptable to the
Agent unless the Required Banks determine in their sole discretion that such
meeting is unnecessary and so inform Holdings.
6.13. Pledge of Additional Collateral. Concurrently with the
-------------------------------
execution and delivery by any Subsidiary of a Subsidiary Guarantee, and/or in
the event that Holdings acquires any assets that would constitute Pledged
Collateral or Mortgaged Real Property, Holdings will, or will cause such
Subsidiary to, take all necessary action to grant the Collateral Agent a
perfected first Lien in all of the real and personal property of Holdings or
such Subsidiary (to the extent permitted by applicable law) to secure the
payment and performance of the Obligations, Holdings' obligations and
liabilities under its Guarantee and such Subsidiary's obligations and
liabilities under its Subsidiary Guarantee; and promptly, and in any event
within 30 days after the acquisition of assets of a type that, but for the fact
that such assets shall have been acquired after the Closing Date, would have
constituted Collateral, Holdings will, and will cause each of its Subsidiaries
to, take all necessary action to grant the Collateral Agent a perfected first
Lien in such newly acquired assets (such personal property and assets of a
Subsidiary executing a Subsidiary Guarantee and such newly acquired assets of
Holdings or any of its Subsidiaries are referred to herein collectively as the
"Additional Collateral"). Such action to be taken by Holdings and the
Subsidiaries shall include, without limitation, the execution and delivery of
security agreements, and/or supplements thereto, and other instruments and
documents, all in form and substance reasonably satisfactory to the Collateral
Agent, the filing of appropriate financing statements under the provisions of
the UCC, applicable domestic or local laws, rules or regulations in each of the
offices where such filing is necessary or appropriate, and the delivery of such
opinions of counsel with respect to the foregoing as the Collateral Agent shall
reasonably require; provided this Section 6.13 shall not apply to any assets
--------
subject to Liens permitted under Section 7.03(i). Furthermore, promptly, and in
any event within 30 days, after the acquisition of an interest in Real Property
within the United States not held as of the Closing Date (the "Additional Real
Property"), Holdings will, and will cause such of its Subsidiaries
<PAGE>
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acquiring such an interest to, take such actions and execute such documents as
the Agent shall reasonably require to confirm the Lien of a Mortgage (including,
without limitation, satisfaction of the conditions set forth in Sections
4.01(C)(iii) and (L)), or execute a new Mortgage, with respect to such
Additional Real Property. All costs and expenses arising from any action taken
by the Agent or any Bank in connection with the pledge of Additional Collateral
or Additional Real Property pursuant to this Section 6.13, including, without
limitation, reasonable costs of counsel for the Agent, shall be payable by
Holdings or the Borrower to the Agent or the Bank incurring such cost or expense
within 10 Business Days after demand therefor. All agreements, instruments and
documents executed or delivered pursuant to or in furtherance of this Section
6.13, and all amendments, modifications and supplements thereto from time to
time entered into, are and shall be within the definition of "Security
Documents."
6.14. Security Interests. Holdings will, and will cause each of its
------------------
Subsidiaries to, perform any and all acts and execute any and all documents
(including, without limitation, the execution, amendment or supplementation of
any financing statement and continuation statement) for filing in any
appropriate jurisdiction under the provisions of the UCC, local law or any
statute, rule or regulation of any applicable domestic jurisdiction which are
necessary in order to maintain or confirm in favor of the Collateral Agent for
the benefit of the Banks a valid and perfected Lien on the Collateral and any
Additional Collateral as collateral security for the payment and performance of
the Obligations, subject to no Liens except for Prior Liens and Liens permitted
by the applicable Security Documents. Holdings or the Borrower shall, as
promptly as practicable after the filing of any financing statements, deliver to
the Agent acknowledgment copies of, or copies of lien search reports confirming
the filing of, financing statements duly filed under the UCC of all
jurisdictions as may be necessary or, in the reasonable judgment of the Agent,
desirable to perfect the Lien created, or purported or intended to be created,
by each Security Document.
6.15. Environmental Events. (i) Holdings will, and will cause each
--------------------
of its Subsidiaries to, comply with any and all Environmental Laws, other than
non-compliance which could not reasonably be expected to result in liability
under any Environmental Laws in excess of $250,000 individually or in the
aggregate with any other liability under any Environmental Laws; provided that,
--------
with respect to non-compliance with Environmental Laws which is disclosed in
Annex XII hereto, Holdings
<PAGE>
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will, and will cause each of its Subsidiaries to, comply with such Environmental
Laws as soon as practicable.
(ii) Holdings will, and will cause each of its Subsidiaries to,
promptly give notice to the Agent upon determining the existence of (a) any
violation of any Environmental Laws, (b) any Environmental Notice or (c) any
release or threatened release of Hazardous Materials at, on, upon, under or from
any of the Real Properties or any facility or equipment thereat in excess of a
reportable quantity or allowable standard or level under any Environmental Laws,
or in a manner and/or amount which could reasonably be expected to result in
liability under any Environmental Laws, in each case in excess of $250,000
individually or in the aggregate with any other liability under any
Environmental Laws (other than any such events disclosed in Annex XII).
(iii) In the event of the presence of Hazardous Materials on any
of the Real Properties which is in violation of, or which could reasonably be
expected to result in liability under, any Environmental Laws, in each case in
excess of $250,000 individually or in the aggregate with any other liability
under any Environmental Laws, Holdings or any of its Subsidiaries, upon
discovery thereof, shall take appropriate steps to initiate and expeditiously
complete all response, corrective and other action required under any
Environmental Laws to mitigate and eliminate any such violation or liability.
(iv) Accompanying each quarterly Compliance Certificate required
under Section 6.01(f) hereof, Holdings shall include a statement of the status
of the wastewater treatment system and related notices of violation identified
in Annex XII and each matter for which notice has been given under Section
6.15(ii) hereof indicating the action that has been taken, additional action
required, and, to the extent practicable, an estimate of the completion date and
future cost for each matter until each matter has been completely addressed.
6.16. New Subsidiaries. In addition to its obligations with respect
----------------
to Section 6.13, if, after the date hereof, Holdings, the Borrower or any
Subsidiary shall create or acquire any (A) domestic Subsidiary, Holdings shall,
concurrently with the creation or acquisition of such Subsidiary, (i) cause such
Subsidiary to execute and deliver to the Agent a Subsidiary Guarantee,
substantially in the form of Exhibit R annexed hereto, guaranteeing the
Borrower's Obligations hereunder and (ii) take all necessary actions and execute
such agreements, instruments and documents, including, without limitation, stock
<PAGE>
-78-
powers executed in blank, and deliver such opinions of counsel with respect
thereto, as the Agent may reasonably require to cause all of the capital stock
of such Subsidiary owned or controlled by Holdings, the Borrower or any
Subsidiary to be pledged to the Collateral Agent to secure the Borrower's
Obligations hereunder such that the Collateral Agent has a valid and perfected
first-priority security interest in such pledged capital stock or (B) foreign
Subsidiary whose direct parent is any of Holdings, the Borrower or a Guarantor,
Holdings shall, concurrently with the creation or acquisition of such foreign
Subsidiary, (i) comply with the requirements of clause (A)(i) above if permitted
by applicable foreign law and if such compliance would not cause such Subsidiary
to hold or be deemed to hold an obligation of a United States person or other
"United States property" for purposes of Section 956(a)(1)(A) of the Code and
Treas. Reg. (S) 1.956-2 and (ii) comply with the requirements of clause (A)(ii)
above, but only to the extent of 65% of the capital stock of such foreign
Subsidiary.
6.17. Manufacturing Agreements. The Borrower has entered into the
------------------------
Cutex Manufacturing Agreement, substantially in the form of Exhibit S hereto,
and such agreement remains in full force and effect unless terminated in
accordance with its terms. The Borrower has entered into the AM Manufacturing
Agreement, substantially in the form of Exhibit T hereto, and such agreement
remains in full force and effect unless terminated in accordance with its terms.
SECTION 7. Negative Covenants. Holdings and the Borrower hereby
------------------
covenant and agree that as of the Closing Date and thereafter for so long as
this Agreement is in effect and until the Commitments have terminated and the
Loans together with interest, fees and all other Obligations incurred hereunder
are paid in full (except as otherwise agreed or consented to or waived, in
writing, by the Required Banks):
7.01. Changes in Business. Other than asset dispositions permitted
-------------------
under Section 7.13, Holdings will not, and will not permit any of its
Subsidiaries to, materially alter its businesses from that conducted by Holdings
or such Subsidiary at the Closing Date and the business generally described in
Holdings' offering memorandum in connection with the Offering, and lines of
business reasonably related thereto.
7.02. Amendments or Waivers of Certain Documents. Holdings will not,
------------------------------------------
and will not permit any of its Subsidiaries to, amend or otherwise change the
terms of any Existing Debt, including, without limitation, the interest rate,
time of pay-
<PAGE>
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ment of interest, with respect to security (if any) and the scheduled maturity
of, the Senior Subordinated Notes.
7.03. Liens. Holdings will not, and will not permit any Subsidiary
-----
to, directly or indirectly, create, incur, assume or permit or suffer to exist
any Lien upon or with respect to any item constituting Collateral, whether now
owned or hereafter acquired, except for the Lien of the Security Document
relating thereto, Prior Liens applicable thereto and other Liens expressly
permitted by such Security Document. Holdings will not, and will not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
or with respect to any property or assets of Holdings or any Subsidiary which
does not constitute Collateral whether now owned or hereafter acquired, or sell
any such property or assets subject to an understanding or agreement, contingent
or otherwise, to repurchase such property or assets or assign any right to
receive income, or file or permit the filing of any financing statement under
the UCC or any other similar notice of Lien under any similar recording or
notice statute, except the following, which are herein collectively referred to
as "Permitted Encumbrances":
(a) Liens for taxes, assessments or governmental charges or claims
not yet delinquent or Liens for taxes, assessments or governmental charges
or claims being contested in good faith and by appropriate proceedings for
which adequate reserves, as may be required by GAAP, have been established;
(b) Liens in respect of property or assets of Holdings or any of
its Subsidiaries imposed by law (i) which were incurred in the ordinary
course of business, such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business, and (x)
which do not in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of
the business of Holdings or any of its Subsidiaries or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or asset
subject to such Lien or (ii) which do not relate to material liabilities of
Holdings and its Subsidiaries and do not in the aggregate materially
detract from the value of the property and assets of Holdings and its
Subsidiaries taken as a whole;
<PAGE>
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(c) Liens in connection with any attachment or judgment (including
judgment or appeal bonds) for amounts of less than $500,000 individually or
less than $1,000,000 in the aggregate (exclusive of any amount adequately
covered by insurance as to which the insurance company has acknowledged
coverage) unless the judgment it secures shall, within 60 days after the
entry thereof, not have been discharged or execution thereof not been
stayed pending appeal, or shall not have been discharged within 30 days
after the expiration of any such stay;
(d) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance
and return-of-money bonds and other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of the
payment for borrowed money or the equivalent);
(e) subject to the provisions of Section 7.17 and, with respect to
any Mortgaged Real Property, to the provisions of any applicable Mortgage,
(i) Leases with respect to the assets or properties of Holdings or the
Borrower entered into in the ordinary course of Holdings' or the Borrower's
business and subordinate in all respects to the Liens granted and evidenced
by the Security Documents, (ii) foreign Leases and (iii) Existing Leases
and any extensions, renewals or replacements thereof;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title not interfering in any material respect with the
business of Holdings or any of its Subsidiaries, in each case incurred in
the ordinary course of business and which do not materially impair for its
intended purposes the Real Property to which it relates;
(g) zoning and building by-laws and ordinances, municipal bylaws
and regulations, and restrictive covenants, which do not materially
interfere with the use of the subject property by Holdings or any of its
Subsidiaries as such property is used as of the Closing Date;
(h) Liens securing Indebtedness of a Subsidiary owing to Holdings
or a Wholly Owned Subsidiary of Holdings;
<PAGE>
-81-
(i) Liens upon real or tangible or intangible personal property
acquired or constructed by Holdings or its Subsidiaries after the date
hereof or on such property or equity securities of a Person at the time
such Person becomes a Subsidiary of Holdings or any of its Subsidiaries;
provided that (i) any such Lien is created solely for the purpose of
--------
securing Indebtedness representing, or incurred to finance, the cost of the
item of property subject thereto or such Liens existed on the date such
property or securities were acquired and were not incurred as a result of
or in anticipation of such acquisition, (ii) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of the fair value
(as determined in good faith by the board of directors of Holdings or the
Borrower, as the case may be) of the respective property at the time it was
so acquired or constructed, (iii) the Indebtedness secured by the Lien is
not created more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or commencement
of full operation of the property subject to the Lien, (iv) such Lien does
not extend to or cover any other property other than such item of property
and (v) the incurrence of such Indebtedness secured by such Lien is
permitted by Section 7.04;
(j) Liens on any property existing as of the date hereof securing
Existing Debt and any refinancing, extension, renewal or rearrangement
thereof provided that such Lien does not extend to or cover any other
property other than items of property encumbered as of the date hereof; and
(k) Liens on inventory and receivables in connection with the
South African Credit Agreement.
7.04. Indebtedness. Holdings will not, and will not permit any of
------------
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to the Credit Documents;
(b) Existing Debt and any refinancing, extension, renewal,
rearrangement or replacement thereof; provided that any such refinancing,
--------
extension, renewal, rearrangement or replacement of Existing Debt shall be
on terms which, both taken as a whole and specifically as such terms relate
to the identity of the obligors, repayments
<PAGE>
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of principal, covenants, events of default and security in property of the
debtor, are in each event no less favorable to Holdings or the Borrower
than the correlative terms of the Existing Debt;
(c) Interest Rate Agreements, if any;
(d) $1,000,000 of Indebtedness outstanding at any time to finance
the cost of the acquisition or construction of real or personal tangible or
intangible property (including Capital Leases), and any refinancing,
extension, renewal, rearrangement or replacement thereof; provided that
--------
such Indebtedness (or the refinancing thereof) shall not exceed 100% of the
fair value of such property; and provided, further, that such Indebtedness
-------- -------
(or the refinancing thereof) is not secured by any Lien other than a Lien
referred to in clause (i) of Section 7.03;
(e) other unsecured Indebtedness not exceeding $1,000,000 in the
aggregate at any time outstanding;
(f) Indebtedness owed to Morningside under the Management
Agreement;
(g) Indebtedness of Holdings to any of its Wholly Owned
Subsidiaries or of any Subsidiary to Holdings or another Wholly Owned
Subsidiary of Holdings (but only so long as such Indebtedness is held by
Holdings or its Wholly Owned Subsidiary);
(h) Indebtedness in respect of performance bonds, return-of-money
bonds, surety and appeal bonds and other similar obligations incurred by
Holdings or any of its Subsidiaries in the ordinary course of business,
provided such Indebtedness does not exceed $100,000 at any time
--------
outstanding;
(i) Indebtedness of any Subsidiary incurred pursuant to the
issuance of a Guarantee by such Subsidiary as required by Section 6.16 of
this Agreement;
(j) Indebtedness of Carson Holdings Limited pursuant to the South
African Credit Agreement in an amount not exceeding the equivalent of
US$2,000,000 in the aggregate at any time outstanding; provided that such
--------
Indebtedness is not secured by any Lien other than a Lien referred to in
Section 7.03(k); and
<PAGE>
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(k) Indebtedness of any Credit Party (including pursuant to the
issuance of any guarantees) incurred pursuant to the Senior Subordinated
Notes.
7.05. Advances, Investments and Loans. Holdings will not, and will
-------------------------------
not permit any of its Subsidiaries to, lend money or credit or make advances to
any Person, or purchase or acquire any stock, obligations or securities of, or
any other interest in, or make any capital contribution to any Person, except:
(a) investments in Cash and Cash Equivalents;
(b) receivables owing to them and advances to customers and
suppliers, in each case if created, acquired or made in the ordinary course
of business and payable or dischargeable in accordance with customary trade
terms;
(c) investments (including debt obligations) received in
connection with the bankruptcy or reorganization of suppliers and customers
and in settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(d) investments in and advances to Credit Parties;
(e) investments in any Wholly Owned Subsidiary of Holdings or
another Subsidiary, or any Person which, as a result of such investment,
becomes a Wholly Owned Subsidiary of Holdings or another Subsidiary;
provided that such Wholly Owned Subsidiary is engaged in a business related
--------
to that of Holdings and its Subsidiaries in compliance with Section 7.01;
(f) transactions between Holdings and any of its Wholly Owned
Subsidiaries and between Wholly Owned Subsidiaries permitted under Sections
7.04(g) and 7.08(i);
(g) loans or advances made by Holdings to its officers, directors
and employees in the ordinary course of business not to exceed $500,000 in
the aggregate outstanding at any time;
(h) investments made as a result of the receipt of non-cash
proceeds from any Asset Sale made pursuant to and in compliance with
Section 7.13;
<PAGE>
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(i) investments in Interest Rate Agreements permitted under
Section 7.04(c);
(j) other investments, loans or advances not to exceed $500,000 in
the aggregate outstanding at any time;
(k) loans, advances and/or investments (in each case evidenced by
notes that shall constitute Pledged Collateral) by Holdings or the Borrower
in Carson Holdings Limited in an amount not to exceed the equivalent of
US$5,000,000 in the aggregate at any one time outstanding; and
(l) investments in one or more contract manufacturers, suppliers,
vendors and distributors that are Affiliates of Holdings in connection with
the provision by any such person of manufacturing, research and
development, outsourcing, sales, marketing and/or distribution services to
Holdings and/or one or more of its Subsidiaries in an aggregate amount at
one time outstanding not to exceed US$4,000,000.
7.06. Prepayments of Indebtedness; Amendments. (A) Other than in
---------------------------------------
accordance with Section 3.01, Holdings will not, and will not permit any of its
Subsidiaries to make (or give any notice in respect of) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
Indebtedness (including, without limitation, by way of depositing with any
trustee with respect thereto money or securities before such Indebtedness is due
for the purpose of paying such Indebtedness when due) or exchange of any such
Indebtedness or preferred stock, as the case may be, or (B) other than in
accordance with Section 3.02, Holdings will not, and will not permit any of its
Subsidiaries to, make (or give any notice in respect of) any mandatory
prepayment or redemption or acquisition for value of Indebtedness (including,
without limitation, by way of depositing with any trustee with respect thereto
money or securities for such purposes) or exchange of any such Indebtedness or
preferred stock, as the case may be, in each case of clauses (A) and (B), until
all Obligations under this Agreement have been satisfied in full; provided that
--------
Holdings and any of its Subsidiaries may make such a payment, prepayment,
redemption, acquisition or exchange using the proceeds of Indebtedness permitted
to be incurred by Section 7.04 to refinance or replace such Indebtedness.
(C) Holdings will not, and will not permit any of its Subsidiaries to:
amend, modify or change any of the Man-
<PAGE>
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agement Agreement, Employment Agreements, Manufacturing Agreements, the
Certificate of Incorporation (including, without limitation, by the filing of
any certificate of designation) or By-laws of Holdings or the Borrower, or any
agreement entered into by Holdings or the Borrower with respect to its capital
stock, or enter into any new agreement with respect to the capital stock of
Holdings or the Borrower, in each case without the prior consent of the Agent.
7.07. Dividends, etc. Holdings will not, and will not permit any of
--------------
its Subsidiaries to, declare or pay any dividends (other than dividends or
distributions payable in shares of capital stock of Holdings or any of its
Subsidiaries, other than redeemable stock) or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for any consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any warrants for
or options or stock appreciation rights in respect of any of such shares), or
make any loans or advances to Affiliates, or set aside any funds for any of the
foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of
Holdings or any other Subsidiary, as the case may be, now or hereafter
outstanding (or any options or warrants or stock appreciation rights issued by
such Person with respect to its capital stock) (all of the foregoing,
"Dividends"), except that (i) any direct or indirect Subsidiary of Holdings may
pay Dividends to its parent corporation if such parent corporation is Holdings
or a Wholly Owned Subsidiary of Holdings, (ii) the Borrower or any other
Subsidiary of Holdings may pay to Holdings any amounts required for the payment
of (I) interest when due on the Senior Subordinated Notes (provided no Default
or Event of Default exists under this Agreement) and (II) any taxes payable (A)
by Holdings or (B) by Holdings, the Borrower and/or its Subsidiaries on a
consolidated, combined or unitary basis, (iii) Holdings or any of its
Subsidiaries may purchase capital stock held by employees of Holdings or any of
its Subsidiaries pursuant to any employee stock option or other benefit plan
thereof upon the termination, retirement or death of any such employee in
accordance with the provisions of any such plan in an amount not greater than
$250,000 in any calendar year; provided that the Borrower may purchase capital
--------
stock pursuant to the Employment Agreement with Dr. Leroy Keith without regard
to such limitation; and (iv) Holdings or any of its Subsidiaries may make
payments to Affiliates pursuant to and in compliance with Section 7.08 hereof.
<PAGE>
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7.08. Transactions with Affiliates. Holdings will not, and will not
----------------------------
permit any Subsidiary to, enter into any transaction or series of transactions,
whether or not in the ordinary course of business, with any holder of 5% or more
of any class of equity securities of Holdings or with any Affiliate of Holdings
other than on terms and conditions substantially as favorable to Holdings or
such Subsidiary as would be obtainable by Holdings or such Subsidiary at the
time in a comparable arm's-length transaction with a Person other than a holder
of 5% or more of any class of equity securities of Holdings or an Affiliate;
provided that the foregoing restrictions shall not apply to (i) transactions
- --------
between Holdings and any of its Wholly Owned Subsidiaries and between Wholly
Owned Subsidiaries, (ii) payments to Morningside pursuant to the Management
Agreement for management services not to exceed $500,000, or above such amount
up to an aggregate of $750,000 with approval of the board of directors of
Holdings, in any fiscal year, plus reimbursement of reasonable out-of-pocket
expenses, (iii) the payment of reasonable fees to Indosuez and its Affiliates
for financial services, such fees not to exceed the usual and customary fees for
similar services, (iv) loans and other advances made by the Borrower to its
officers, directors and employees permitted under Section 7.05(g), (v) the
payment of customary outside directors' fees, customary indemnification
arrangements and customary director and officer liability insurance, (vi) the
issuance of capital stock of Holdings or any of its Subsidiaries, pursuant to
any pension, stock option, profit sharing or other employee benefit plan or
agreement of Holdings or any of its Subsidiaries in the ordinary course of
business and (vii) investments made pursuant to Section 7.05(l) hereof.
7.09. Total Interest Coverage Ratio. Holdings will not permit the
-----------------------------
ratio of (i) Consolidated EBITDA of Holdings (for the 12 month period ending at
the end of the most recent fiscal quarter of Holdings, on a pro forma basis
--- -----
assuming that the closing of each of the CONOPCO and New Image acquisitions had
occurred on January 1, 1997) to (ii) annualized Consolidated Interest Expense
for the Test Period (which, for purposes of this Section 7.09 only, shall
include only Cash interest expense) of Holdings for any Test Period ending
during any period listed below to be less than the ratio set forth opposite such
period below:
<PAGE>
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Period Ratio
------ -----
December 31, 1997 through and
including September 30, 1998......... 2.00 to 1.00
October 1, 1998 through and
including September 30, 1999......... 2.15 to 1.00
October 1, 1999 and thereafter........ 2.25 to 1.00
7.10. Fixed Charge Coverage Ratio. Holdings will not permit the
---------------------------
ratio of (i) Consolidated EBITDAC of Holdings, on a pro forma basis assuming
--- -----
that the closing of each of the CONOPCO and New Image acquisitions had occurred
on January 1, 1997, minus cash taxes paid by Holdings to (ii) the sum of (A)
Consolidated Interest Expense (which, for purposes of this Section 7.10 only,
shall include only Cash interest expense) of Holdings and (B) the amount of
scheduled mandatory payments on account of principal of Indebtedness made by
Holdings for any Test Period ending on or after the following dates (based on
results beginning July 1, 1997) to be less than the ratio set forth opposite
such dates below:
Period Ratio
------ -----
December 31, 1997 through and
including September 30, 1998.......... 1.00 to 1.00
October 1, 1998 and thereafter......... 1.15 to 1.00
7.11. Leverage Ratio. Holdings will not permit the ratio of (i)
--------------
Indebtedness of Holdings and its Subsidiaries to (ii) Consolidated EBITDA of
Holdings (for the 12 month period ending at the end of the most recent fiscal
quarter of Holdings, assuming that the closing of each of the CONOPCO and New
Image acquisitions had occurred on January 1, 1997) for any date ending during
any period listed below to be more than the ratio set forth opposite such period
below:
Period Ratio
------ -----
December 31, 1997 through and
including September 30, 1998......... 5.50 to 1.00
October 1, 1998 through and including
September 30, 1999................... 5.25 to 1.00
October 1, 1999 through and including
September 30, 2000................... 5.00 to 1.00
October 1, 2000 and thereafter........ 4.50 to 1.00
7.12. Issuance of Subsidiary Stock. Holdings will not and will not
----------------------------
permit any of its Subsidiaries directly or in-
<PAGE>
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directly to issue, sell, assign, pledge or otherwise encumber or dispose of any
shares of such Subsidiaries' capital stock or other equity securities (or
warrants, rights or options to acquire capital stock or convertible securities
or other equity securities) of such Subsidiary, except to Holdings or any other
Wholly Owned Subsidiary of Holdings (in each case other than directors' or
nominees' qualifying shares or shares of capital stock required to be owned by
foreign nationals under applicable law); provided, however, that nothing
-------- -------
contained in this Section 7.12 shall prohibit the issuance of capital stock of
Carson Holdings Limited in accordance with the terms of the Carson Holdings
Limited Share Incentive Trust, as in effect on the date hereof.
7.13. Disposition of Assets. (A) Holdings will not, and will not
---------------------
permit any of its Subsidiaries to, dispose of all or any part of its interest in
any asset, except that Holdings and its Subsidiaries may sell or otherwise
dispose of assets so long as either (i) such sales are approved by the Required
Banks (subject to the provisions of Section 11.12 hereof); (ii) such sales are
for at least the fair market value of such assets and the aggregate amount of
such asset sales is less than $500,000 in any 12-month period and, in any such
case, Holdings or such Subsidiary complies with the mandatory prepayment and
Commitment reduction provisions herein and, in the case of Collateral, so long
as the conditions to the release of Collateral described herein and in the
applicable Security Documents are met; (iii) such sales are of inventory and in
the ordinary course of business; (iv) such sales or other dispositions are (A)
of equipment that has become worn out, obsolete or damaged or otherwise
unsuitable or no longer needed for use in connection with the business of
Holdings or any of its Subsidiaries or should be replaced, as the case may be,
in each case as determined in good faith by the board of directors of Holdings
or its Subsidiary, as the case may be, (B) for at least the fair market value of
such equipment, (C) not in excess of $100,000 individually or $250,000 per year
in the aggregate for sales of such equipment and (D) the proceeds of the sales
of such equipment are used within 90 days of such sales to (1) purchase
equipment used in substantially similar lines of business or (2) repay
Indebtedness under this Credit Agreement pursuant to Sections 3.01 or 3.02; (v)
such sales or other dispositions do not exceed $50,000 individually and are for
at least the fair market value of such assets or as to such other dispositions,
the likely amount of net sales proceeds that would be realized upon a sale of
such assets is such that a sale of such assets is not, in the reasonable
judgment of Holdings or the Borrower, economically practicable but such other
<PAGE>
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disposition is otherwise of commercial value to Holdings or the Borrower;
provided that in no case shall sales pursuant to this clause (v) exceed an
- --------
aggregate of $100,000 in any fiscal year, and in the case of Collateral, so long
as the conditions to the release of Collateral described herein and in the
applicable Security Documents are met; (vi) such sales consist of the licensing
or sublicensing of Holdings' or any of its Subsidiaries' Intellectual Property
in the ordinary course of business; or (vii) such sales are of equity securities
under any stock option or other benefit plan available to the employees or
directors of Holdings or any of its Subsidiaries.
The consideration received by Holdings and its Subsidiaries from each
sale of assets permitted by subsections (i) and (ii) above, other than with
respect to such sales involving consideration of not more than $100,000 in the
aggregate in any fiscal year, shall be payable by the purchaser in whole within
15 days of such sale and at least 70% of the consideration from each sale shall
consist of Cash or Cash Equivalents. Any non-cash proceeds received from the
sale of assets constituting Collateral shall be pledged pursuant to and in
accordance with the applicable Security Documents and shall constitute
Collateral.
(B) Upon compliance with the conditions in subsection (A) of this
Section 7.13, the Release Conditions and the Partial Release Conditions (each as
hereinafter defined), Holdings or its Subsidiaries shall be entitled to receive
from the Collateral Agent an instrument in form and substance reasonably
satisfactory to Holdings or such Subsidiary (each, a "Release"), releasing the
Lien of the Mortgage with respect to all or any portion of a Mortgaged Real
Property (each, a "Released Real Property"). Holdings or its Subsidiaries shall
exercise their rights under this Section by delivering to Collateral Agent a
notice (each, a "Release Notice"), which shall refer to this Section, describe
with particularity the proposed Released Real Property and be accompanied by (i)
four counterparts of the Release fully executed and acknowledged by all
necessary parties other than Collateral Agent, (ii) executed counterparts of UCC
termination statements necessary to terminate the Lien of the applicable
Mortgage and (iii) an Officer's Certificate certifying that no Default or Event
of Default shall have occurred and the parties executing any and all documents
in connection with the Release (other than Collateral Agent) were duly
authorized to do so (collectively, the "Release Conditions"). In the event the
proposed Released Property consists of less than all of the Mortgaged Real
Property subject to a single Mortgage, the Partial Release Conditions must be
satis-
<PAGE>
-90-
fied in order for Holdings or its Subsidiaries to receive the Release.
(C) Collateral Agent's obligation to deliver a Release in respect of
less than all of the Mortgaged Real Property subject to a single Mortgage shall
be contingent upon the satisfaction of the conditions in subsection (A) of this
Section 7.13 and the Release Conditions as well as the following conditions
(collectively, the "Partial Release Conditions"):
(i) following the sale, transfer or other disposition of and
release of the Lien of the applicable Mortgage with respect to the proposed
Released Real Property, the remaining Mortgaged Real Property shall have
utility services and access to public roads, rail spurs and other
transportation structures sufficient and necessary in the reasonable
opinion of Holdings or the Borrower for the continued use of such Mortgaged
Real Property in the manner utilized prior to the Release;
(ii) following the sale, transfer or other disposition of the
proposed Released Real Property, the remaining Mortgaged Real Property
shall comply in all material respects with applicable laws, rules,
regulations and ordinances relating to environmental protection, zoning,
land use, configuration and building and workplace safety (except for such
non-compliance which has been previously consented to by the Collateral
Agent);
(iii) following the sale, transfer or other disposition of the
proposed Released Real Property, the value of the remaining Mortgaged Real
Property shall not be less than the value of such remaining Mortgaged Real
Property prior to the Release due to such sale, transfer or other
disposition;
(iv) the Title Company shall be prepared to issue an endorsement to
the Banks' title insurance policy relating to the Mortgaged Real Property
confirming that after the proposed release, the Lien of the applicable
Mortgage continues unimpaired as a first priority Lien upon the remaining
Mortgaged Real Property subject only to Prior Liens, those Liens permitted
by the Mortgage or previously consented to by the Collateral Agent;
(v) Holdings shall cause to have been delivered to Collateral Agent
a Survey reasonably acceptable to the
<PAGE>
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Agent of the Mortgaged Real Property remaining after the proposed Released
Real Property has been released; and
(vi) Holdings or its Subsidiaries shall cause to have been
delivered to Collateral Agent an Officer's Certificate certifying that the
conditions set forth in subsections (i) through (v) have been satisfied.
(D) Collateral Agent shall execute, acknowledge (if applicable) and
deliver to Holdings or the Borrower counterparts of the documents described in
subsections (B)(i) and (ii) of this Section 7.13 within 10 Business Days after
receipt by Collateral Agent of a Release Notice provided that the Release
Conditions and the Partial Release Conditions (if applicable) have been
satisfied. Holdings or the Borrower shall (i) execute, deliver, obtain and
record such instruments as Collateral Agent may require, including, without
limitation, amendments to the Security Documents or this Agreement and, (ii)
deliver to Collateral Agent such evidence of the satisfaction of the Release
Conditions and the Partial Release Conditions as Collateral Agent may require
and (iii) cause the Title Company to issue the endorsement referred to in
subsection (C)(iv) of this Section 7.13. Holdings or the Borrower shall
reimburse Collateral Agent, Agent and the Banks upon demand for all reasonable
costs or expenses incurred in connection with any actions taken pursuant to this
Section 7.13.
7.14. Contingent Obligations. Holdings will not, and will not permit
----------------------
any of its Subsidiaries to, directly or indirectly, create or become or be
liable with respect to any Contingent Obligation except:
(i) guarantees resulting from endorsement of instruments for
deposit or collection in the ordinary course of business;
(ii) Interest Rate Agreements, if any;
(iii) obligations arising as a direct consequence of the
Recapitalization or pursuant to the Cutex Manufacturing Agreement;
(iv) obligations with respect to the Indebtedness permitted to
be incurred under Section 7.04;
(v) guarantees on a subordinated basis by the Borrower and any
of the Subsidiaries of Holdings of the obli-
<PAGE>
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gations of Holdings pursuant to the terms of the indenture governing the
Senior Subordinated Notes; and
(vi) other Contingent Obligations not to exceed $250,000
outstanding at any one time.
7.15. ERISA. The Credit Parties will not, and will not
-----
permit any of their ERISA Affiliates to:
(i) engage in any transaction in connection with which the
Borrower or any of its ERISA Affiliates could be subject to either a tax
imposed by Section 4975(a) of the Code or the corresponding civil penalty
assessed pursuant to Section 502(i) of ERISA, which penalties and taxes for
all such transactions could reasonably be expected to be in an aggregate
amount in excess of $500,000;
(ii) permit to exist any accumulated funding deficiency, for
which a waiver has not been obtained from the Internal Revenue Service,
with respect to any Pension Plan;
(iii) permit to exist any failure to make contributions or any
unfunded benefits liability which creates, or with the passage of time
would create, a statutory lien or requirement to provide security under
ERISA or the Code in favor of the PBGC or any Pension Plan, Multiemployer
Plan or other entity;
(iv) permit the sum of the amount of unfunded benefit
liabilities (determined in accordance with Statement of Financial
Accounting Standards No. 87) under all Title IV Plans (excluding each Title
IV Plan with an amount of unfunded benefit liabilities of zero or less) to
exceed $2,500,000 for a period in excess of twelve months; or
(v) fail to make any payment to any Multiemployer Plan that it
or any of its ERISA Affiliates may be required to make under such
Multiemployer Plan, any agreement relating to such Multiemployer Plan, or
any law pertaining thereto.
As used in this Section 7.15, the term "accumulated funding
deficiency" has the meaning specified in Section 302 of ERISA and Section 412 of
the Code, and the term "amount of unfunded benefit liabilities" has the meaning
specified in Section 4001(a)(18) of ERISA.
<PAGE>
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7.16. Merger and Consolidations. No Credit Party will merge or
-------------------------
consolidate with or into any other entity; provided that any Subsidiary of
--------
Holdings may be merged or consolidated with or into (i) Holdings, if Holdings is
the continuing or surviving corporation or (ii) any other such Subsidiary, if
the continuing or surviving corporation is a Wholly Owned Subsidiary of
Holdings.
7.17. Sale and Lease-Backs. Holdings will not, and will not permit
--------------------
any of its Subsidiaries to, directly or indirectly, become or thereafter remain
liable as lessee or as guarantor or other surety with respect to the lessee's
obligations under any lease, whether an Operating Lease or a Capital Lease, of
any property (whether real or personal or mixed) whether now owned or hereafter
acquired, (i) which Holdings or any of its Subsidiaries has sold or transferred
or is to sell or transfer to any other Person or (ii) which Holdings or any such
Subsidiary intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Holdings or any such
Subsidiary to any Person in connection with such lease, if in the case of clause
(i) or (ii) above, such sale and such lease are part of the same transaction or
a series of related transactions or such sale and such lease occur with one year
of each other or are with the same other Person.
7.18. Sale or Discount of Receivables. Holdings will not, nor will
-------------------------------
it permit any of its Subsidiaries to, sell, with or without recourse, or
discount (other than in connection with trade discounts or arrangements
necessitated by the creditworthiness of the other party, in each case in the
ordinary course of business consistent with past practice) or otherwise sell for
less than the face value thereof, notes receivable or accounts receivable owed
to it by its third party customers or suppliers.
7.19. Fine Products Company. Holdings will not, and will not permit
---------------------
any Subsidiary to, transfer any cash or other property to Fine Products, other
than transfers of cash in amounts needed to enable Fine Products to pay amounts
not to exceed $25,000 in the aggregate then required to be paid by Fine Products
to Persons that are not Affiliates of Holdings. Holdings will not permit Fine
Products to engage in any business activity.
SECTION 8. Events of Default. Upon the occurrence and during the
-----------------
continuance of any of the following specified events (each an "Event of
Default"):
<PAGE>
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8.01. Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of the Loans, (ii) default, and such default shall continue
for two or more Business Days, in the payment when due of any interest on the
Loans or under any other Credit Document or (iii) fail to pay any other amounts
owing hereunder for five Business Days after receiving notice thereof; or
8.02. Representations, etc. Any representation, warranty or
--------------------
statement made or deemed made by operation of Sections 4.01, 4.02, 4.03 or 4.04
by any Credit Party herein or in any other Credit Document or in any written
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove to be untrue in any material respect on the date as of
which made or deemed made by operation of Sections 4.01, 4.02, 4.03 or 4.04; or
8.03. Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 6.11, 6.13, 6.14, 6.16 or Section 7 hereof or Section 1.1 of any
Mortgage or (b) default in the due performance or observance by it of any other
term, covenant or agreement contained in this Agreement or any Security Document
and such default shall continue unremedied for a period of at least 30 days (or,
in the case of Section 6.15(iii), 5 Business Days) after the date of such
default; or
8.04. Default Under Other Agreements. (a) Any Credit Party shall (i)
------------------------------
default in any payment with respect to any Indebtedness (other than Obligations)
having a principal amount of $500,000 or more individually or $1,000,000 or more
in the aggregate, for all Credit Parties and their Subsidiaries, beyond the
period of grace, if any, provided in the instrument or agreement under which
such Indebtedness was created or (ii) default in the observance or performance
of any agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause any such Indebtedness to become due prior to its stated maturity; or (b)
any such Indebtedness of any Credit Party or any of its respective Subsidiaries
shall be declared to be due and payable, or required to be prepaid other than by
a regularly scheduled required prepayment, prior to the stated maturity thereof;
or
<PAGE>
-95-
8.05. Bankruptcy, etc. Any Credit Party shall commence a voluntary
---------------
case concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against any Credit Party
or any of its Subsidiaries and the petition is not controverted within 20 days,
or is not dismissed for a period of 60 consecutive days, after commencement of
the case; or a custodian (as defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or substantially all of the property of any Credit Party
or any of its Subsidiaries; or any Credit Party or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to any
Credit Party or any of its Subsidiaries; or there is commenced against any
Credit Party or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 consecutive days; or any Credit Party or any of
its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered and continues
unstayed for a period of 60 consecutive days; or any Credit Party or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 consecutive days; or any Credit Party or any of its Subsidiaries
makes a general assignment for the benefit of creditors; or any corporate action
is taken by any Credit Party or any of its Subsidiaries for the purpose of
effecting any of the foregoing; or
8.06. ERISA. (i) Any "reportable event" as described in Section
-----
4043 of ERISA or the regulations thereunder (excluding those events for which
the requirement for notice has been waived by regulation by the PBGC), or any
other event or condition, which the Required Banks determine constitutes
reasonable grounds under Section 4042 of ERISA for the termination of any Title
IV Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer or liquidate any Title IV Plan shall
have occurred; or
(ii) A trustee shall be appointed by a United States District
Court to administer any Title IV Plan; or
(iii) The PBGC shall institute proceedings to terminate any Title
IV Plan or to appoint a trustee to administer any Title IV Plan; or
<PAGE>
-96-
(iv) A Credit Party or any of its ERISA Affiliates shall become
liable to the PBGC or any other party under Section 4062, 4063, 4064 or 4069 of
ERISA with respect to any Title IV Plan; or
(v) A Credit Party or any of its ERISA Affiliates shall become
liable to any Multiemployer Plan under Section 4201 et seq. of ERISA;
-- ---
if the sum of each of such Credit Party's and its ERISA Affiliates' various
liabilities (such liabilities to include, without limitation, any liability to
the PBGC or to any other party under Section 4062, 4063, 4064 or 4069 of ERISA
with respect to any Title IV Plan, or to any Multiemployer Plan under Section
4201 et seq. of ERISA) which the Required Banks determine could reasonably be
------
expected to be incurred as a result of such events listed in subclauses (i)
through (v) above exceeds $1,000,000; or
8.07. Security Documents. Any Security Document shall cease to be in
------------------
full force and effect, or shall cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby, in favor of the
Collateral Agent, superior to and prior to the rights of all third Persons and
subject to no Liens other than Prior Liens and Liens expressly permitted by the
applicable Security Document or any judgment creditor having a Lien against any
item of Collateral shall commence legal action to foreclose such Lien or
otherwise exercise its remedies against any item of Collateral; or
8.08. Guarantees. Any Guarantee or any provisions thereof shall
----------
cease to be in full force or effect in all material respects, or the Guarantor
thereunder or Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under such Guarantee or the Guarantor
shall default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to such Guarantee; or
8.09. Judgments. One or more judgments or decrees shall be entered
---------
against any Credit Party or any of its Subsidiaries involving a liability of
$500,000 or more in the case of any one such judgment or decree or $1,000,000 or
more in the aggregate for all such judgments and decrees for all Credit Parties
and their Subsidiaries (in either case in excess of the amount covered by
insurance as to which the insurance company has acknowledged coverage) and any
such judgments or decrees
<PAGE>
-97-
shall not have been vacated, discharged, stayed or bonded pending appeal for a
period of 60 consecutive days from the entry thereof; or
8.10. Ownership; Board Composition. (i) Holdings shall own less
----------------------------
than 100% (on a fully diluted basis) of the issued and outstanding capital stock
of the Borrower, other than securities issued in the ordinary course of business
under any stock option or other benefit plan available to the employees or
directors of the Borrower or any of its Subsidiaries (each of clauses (i), (ii)
and (iii) of this Section 8.10 a "Change of Control"); or
(ii) (x) DNL Partners, Limited Partnership, together with the DNL
Affiliates, in the aggregate, cease to own or control at least more than 50% of
the Total Voting Power of Holdings, or (y) in the event that DNL Partners,
Limited Partnership distributes to its partners (pursuant to the terms of its
partnership agreement) all of the capital stock of Holdings owned by DNL
Partners, Limited Partnership, if, following such distribution, DNL Partners,
Limited Partnership, together with the DNL Affiliates, in the aggregate, cease
to own or control at least 33-1/3% of the Total Voting Power of Holdings;
provided that, for purposes of the calculations made pursuant to this paragraph
- --------
(ii) (I) in the event any shares of Class B Common Stock of Holdings are
converted into either shares of Class A Common Stock or Class C Common Stock of
Holdings (in any combination), then all such shares of Class A Common Stock
and/or Class C Common Stock issued upon such conversion shall be excluded and
(II) in the event shares of capital stock of Holdings are issued by Holdings as
consideration in whole or in part for the acquisition, directly or indirectly,
of another entity and the Aggregate Market Value of such shares of stock so
issued is more than $25,000,000, then all shares of capital stock of Holdings
issued in connection with such acquisition shall be excluded. For purposes of
the foregoing proviso the term "Aggregate Market Value" means (a) the average
closing price per share of the relevant class of Holdings capital stock during
the 10 consecutive trading day period preceding the tenth trading day
immediately preceding the closing date of the acquisition transaction with
respect to which such shares are to be issued, times (b) the number of shares of
such class of capital stock issued by Holdings in such acquisition transaction.
The closing price for any day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in each case (1) on The
New York Stock Exchange as reported on the NYSE composite tape as
<PAGE>
-98-
reported in The Wall Street Journal or another newspaper of general circulation
-----------------------
in the Borough of Manhattan, City of New York, New York customarily published on
each business day or (2) if the relevant shares of capital stock are not listed
on The New York Stock Exchange, on the principal national securities exchange on
which the relevant shares of capital stock of Holdings are listed or to which
such shares are admitted to trading or (3) if the relevant shares of capital
stock are not listed or admitted to trading on a national securities exchange,
in the over-the-counter market as reported by NASDAQ or any comparable system or
(4) if the relevant shares of capital stock are not listed on NASDAQ or a
comparable system, or if for any other reason the current market price per share
cannot be determined pursuant to the foregoing provisions of this paragraph, the
current market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of Holdings; or
(iii) during any consecutive two-year period, individuals who at the
beginning of such period constituted the board of directors of Holdings
(together with any new directors whose election by such board of directors or
whose nomination for election by the stockholders of Holdings was approved by a
vote of a majority of the directors then still in office who are entitled to
vote to elect such new directors and were either directors at the beginning of
such period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
board of directors of Holdings then in office; or
8.11. Certain Transactions Involving Carson Holdings Limited.
------------------------------------------------------
Holdings shall consolidate with or merge into, or sell, lease, convey or
otherwise dispose of all or substantially all of its assets to, Carson Holdings
Limited;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent shall, upon the written request of the
Required Banks, by written notice to Holdings and the Borrower, take any or all
of the following actions, without prejudice to the rights of the Agent or any
Bank to enforce its claims against Holdings or the Borrower, except as otherwise
specifically provided for in this Agreement (provided that if an Event of
--------
Default specified in Section 8.05 shall occur, with respect to any Credit Party,
the result which would occur upon the giving of written notice by the Agent as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitments terminated,
whereupon the
<PAGE>
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Commitment of each Bank shall forthwith terminate immediately and any accrued
and unpaid Commitment Commission shall forthwith become due and payable without
any other notice of any kind; (ii) declare the principal of and accrued interest
in respect of all Loans and all Obligations owing hereunder and thereunder to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Credit Party; and/or (iii) enforce, as Collateral Agent
(or direct the Collateral Agent to enforce), any or all of the remedies created
pursuant to the Security Documents. If an Event of Default is cured or waived in
accordance with the terms of the Agreement, it ceases (or is waived, pursuant to
the terms, and to the extent, of such waiver).
SECTION 9. Definitions. As used herein, the following terms shall
-----------
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Account" means all of the "accounts" of Holdings and its Subsidiaries
-------
(as that term is defined in Section 9-106 of the Uniform Commercial Code as in
effect in the State of New York) whether or not such Account has been earned by
performance, whether now existing or existing in the future, including, without
limitation, all (i) accounts receivable, including, without limitation, all
accounts created by or arising from all of Holdings' and its Subsidiaries' sales
of goods or rendition of services or licensing or subleasing of any of Holdings'
and its Subsidiaries' Intellectual Property; (ii) unpaid seller's rights
(including rescission, replevin, reclamation and stopping in transit) relating
to the foregoing or arising therefrom; (iii) rights to any goods represented by
any of the foregoing, including returned or repossessed goods; (iv) reserves and
credit balances held by Holdings' and its Subsidiaries with respect to any such
accounts receivable or any account debtor; (v) guarantees or collateral for any
of the foregoing; and (vi) insurance policies or rights relating to any of the
foregoing.
"Acquisition Portion" means, at any time, the portion of the Loan
-------------------
Facility evidenced by the Total Acquisition Term Loan Commitment.
"Acquisition Term Loan" has the meaning provided in Section
---------------------
1.01(b).
<PAGE>
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"Acquisition Term Loan Closing Date" has the meaning provided
----------------------------------
in Section 1.01(b).
"Acquisition Term Loan Commitment" means, with respect to each Bank,
--------------------------------
the amount set forth below such Bank's name on the signature pages hereto beside
the column entitled "Acquisition Term Loan Commitment", as same may be reduced
from time to time pursuant to Sections 2.01, 3.02 and/or 8.
"Acquisition Term Loan Commitment Termination Date" means
-------------------------------------------------
November 6, 1998.
"Acquisition Term Note" has the meaning provided in Section
---------------------
1.05(a)(ii).
"Additional Collateral" has the meaning provided in Section 6.13.
---------------------
"Additional Real Property" has the meaning provided in Section 6.13.
------------------------
"Affiliate" means with respect to any Person, any other Person
---------
directly or indirectly controlling (including but not limited to all directors
and executive officers of such Person), controlled by, or under direct or
indirect common control with such Person; provided that neither Indosuez nor any
--------
Affiliate of Indosuez shall be deemed to be an Affiliate of any Credit Party. A
Person shall be deemed to control a corporation for the purposes of this
definition if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agent" means Indosuez, or any successor thereto appointed in
-----
accordance herewith, in its capacity as agent and collateral agent for the
Banks.
"Agent's Office" means the office of the Agent located at 1211 Avenue
--------------
of the Americas, 7th Floor, New York, New York 10036, or such other office in
New York as the Agent may hereafter designate in writing as such to the other
parties hereto.
<PAGE>
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"Agreement" means this Credit Agreement, as the same may after its
---------
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"AM Manufacturing Agreement" means the manufacturing agreement dated
--------------------------
as of April 30, 1997, between the Borrower and AM Cosmetics, Inc., relating to
the manufacturing by AM Cosmetics, Inc. of certain products for the Borrower.
"Asset Sale" means the sale, transfer or other disposition, to the
----------
extent consummated after the Closing Date, (x) by Holdings of the Securities of
the Borrower held by it to any Person or (y) by Holdings or any Subsidiary of
Holdings to any Person other than Holdings or any Wholly Owned Subsidiary of
Holdings of any asset of Holdings or such Subsidiary (other than, in each such
case, (i) transactions included in the definition of Net Financing Proceeds,
(ii) the issuance of equity securities under any stock option or other benefit
plan available to the employees or directors of the Borrower or any of its
Subsidiaries, (iii) sales, transfers or other dispositions of inventory in the
ordinary course of business and/or of equipment that has become worn out,
obsolete or damaged or otherwise unsuitable or no longer needed for use in
connection with the business of Holdings or any of its Subsidiaries or should be
replaced, as the case may be, in each case as determined in good faith by the
board of directors of Holdings or its Subsidiary, as the case may be, effected
in compliance with Section 7.13(A)(iv) or (v), and (iv) sales or other
dispositions pursuant to Section 7.13(A)(v), (vi) or (vii)).
"Authorized Officer" means any senior officer of the Borrower or
------------------
Holdings, as the case may be, designated as such in writing to the Agent by the
Borrower or Holdings, as the case may be, to the extent reasonably acceptable to
the Agent.
"Bank" has the meaning provided in the first paragraph of this
----
Agreement and in Section 11.04.
"Bankruptcy Code" has the meaning provided in Section 8.05.
---------------
"Base Rate" means the higher of (x) 1/2% per annum in excess of the
--------- ---------
Federal Funds Rate and (y) the rate which the Agent announces from time to time
as its prime lending rate, as in effect from time to time. The rate the Agent
announces as its prime lending rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. The Agent
may make commercial loans or other
<PAGE>
-102-
loans at rates of interest at, above or below the rate it announces as its prime
lending rate.
"Base Rate Loan" means each Loan bearing interest based on the
--------------
Base Rate as provided in Section 1.08(a).
"Borrower" means Carson Products Company, a Delaware corporation.
--------
"Borrower General Security Agreement" means the Borrower General
-----------------------------------
Security Agreement substantially in the form of Exhibit H hereto, except for
such changes therein as shall have been approved by the Agent and the Required
Banks, as the same may after its execution be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.
"Borrower Intellectual Property Security Agreement" means the Borrower
-------------------------------------------------
Intellectual Property Security Agreement substantially in the form of Exhibit G
hereto, except for such changes therein as shall have been approved by the Agent
and the Required Banks, as the same may after its execution be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"Borrower Pledge Agreement" means the Borrower Securities Pledge
-------------------------
Agreement substantially in the form of Exhibit F-1 hereto, except for such
changes therein as shall have been approved by the Agent and the Required Banks,
as the same may after its execution be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.
"Borrowing" means the incurrence pursuant to a Notice of Borrowing and
---------
the Loan Facility of one Type of Loan by a Borrower from all of the Banks on a
pro rata basis on a given date (or resulting from conversions on a given date),
- --------
having in the case of Reserve Adjusted Eurodollar Loans the same Interest
Periods.
"Borrowing Base" means an amount equal to the sum of (i) 85% of the
--------------
Eligible Accounts Receivable and (ii) 50% of the Eligible Inventory.
"Borrowing Base Certificate" has the meaning provided in
--------------------------
Section 6.01.
<PAGE>
-103-
"Business Day" means (i) for all purposes other than as covered by
------------
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in The City of New York or Savannah, Georgia a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Reserve Adjusted Eurodollar
Loans, any day which is a Business Day described in clause (i) and which is also
a day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Lease" of any Person means any lease of any property (whether
-------------
real, personal or mixed) by that Person as lessee which, in conformity with
GAAP, is, or is required to be, accounted for as a capital lease on the balance
sheet of that Person, together with any renewals of such leases (or entry into
new leases) on substantially similar terms.
"Capitalized Lease Obligations" of any Person means all obligations
-----------------------------
under Capital Leases of such Person or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Carson Holdings Limited" means a South African majority owned
-----------------------
subsidiary of the Borrower.
"Carson Holdings Limited Share Incentive Trust" means the trust
---------------------------------------------
pursuant to which certain additional shares of common stock of Carson Holdings
Limited may be issued from time to time.
"Cash" means money, currency or a credit balance in a Deposit
----
Account.
"Cash Equivalents" means (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
--------
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) marketable direct obligations
issued by any State of the United States of America or any local government or
other political subdivision thereof rated (at the time of acquisition of such
security) at least AA by Standard & Poor's Ratings Group ("S&P") or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's") having
maturities of not more than one year from the date of acquisition, (iii) U.S.
dollar denominated time deposits, certificates
<PAGE>
-104-
of deposit and bankers' acceptances of (x) any Bank, (y) any domestic commercial
bank of recognized standing having capital and surplus in excess of $250,000,000
or (z) any bank whose short-term commercial paper rating (at the time of
acquisition of such security) by S&P is at least A-1 or the equivalent thereof
or by Moody's is at least P-1 or the equivalent thereof (any such bank, an
"Approved Bank"), in each case with maturities of not more than six months from
the date of acquisition, (iv) commercial paper and variable or fixed rate notes
issued by any Bank or Approved Bank or by the parent company of any Bank or
Approved Bank and commercial paper and variable rate notes issued by, or
guaranteed by, any industrial or financial company with a short-term commercial
paper rating (at the time of acquisition of such security) of at least A-1 or
the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long-term unsecured debt
rating (at the time of acquisition of such security) of at least AA or the
equivalent thereof by S&P or the equivalent thereof by Moody's and in each case
maturing within one year after the date of acquisition, (v) repurchase
agreements with any Bank or any primary dealer in U.S. government securities
maturing within one year from the date of acquisition that are fully
collateralized by investment instruments that would otherwise be Cash
Equivalents; provided that the terms of such repurchase agreements comply with
--------
the guidelines set forth in the Federal Financial Institutions Examination
Council Supervisory Policy -- Repurchase Agreements of Depository Institutions
With Securities Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985, and (vi) investments in money market mutual funds,
all of the assets of which are invested in securities and instruments of the
types set forth in clauses (i) through (iv) above.
"Certificate of Incorporation" means the respective certificates
----------------------------
of incorporation of Holdings or the Borrower.
"Change of Control" has the meaning provided in Section 8.10.
-----------------
"Closing Date" means the date on or before November 6, 1997 on which
------------
this Agreement is signed and the consummation of the Offering occurs.
"Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
"Collateral" means all of the Pledged Collateral, Pledged Securities
----------
and Mortgaged Real Property and all Addi-
<PAGE>
-105-
tional Collateral and Additional Real Property to the extent not otherwise
included in any of the foregoing.
"Collateral Agent" means Indosuez in its capacity as collateral
----------------
agent for the Banks.
"Collective Bargaining Agreement" means the Collective Bargaining
-------------------------------
Agreement set forth in Annex V.
"Commercial Letter of Credit" means any letter of credit or similar
---------------------------
instrument issued for the account of the Borrower for the purpose of providing
the primary payment mechanism in connection with the purchase of any materials,
goods or services by the Borrower or any of its Subsidiaries in the ordinary
course of business of the Borrower or such Subsidiaries.
"Commitment" means, with respect to each Bank, such Bank's Acquisition
----------
Term Loan Commitment and Revolving Loan Commitment.
"Commitment Commission" has the meaning provided in Section
---------------------
2.03.
"Compliance Certificate" means a certificate issued pursuant to
----------------------
Section 6.01(f) signed by a chief financial officer, controller, chief
accounting officer or other Authorized Officer of Holdings or the Borrower.
"CONOPCO" means CONOPCO, Inc. d/b/a Chesebrough-Ponds USA Co.,
-------
a subsidiary of Unilever plc.
"Consolidated Amortization Expense" for any Person means, for any
---------------------------------
period, the consolidated amortization expense of such Person for such period
(including amortization of any step-up in value of Inventory or other assets as
may be required by purchase accounting), determined on a consolidated basis for
such Person and its Subsidiaries in conformity with GAAP.
"Consolidated Capital Expenditures" of any Person means, for any
---------------------------------
period, the aggregate gross increase during that period, in the property, plant
or equipment reflected in the consolidated balance sheet of such Person and its
consolidated Subsidiaries, in conformity with GAAP, but excluding expenditures
made in connection with the replacement, substitution or restoration of assets
(i) to the extent financed from insurance proceeds paid on account of the loss
of or damage to the assets being replaced or restored, (ii) with awards of
compensation
<PAGE>
-106-
arising from the taking by eminent domain or condemnation of the assets being
replaced or (iii) with regard to equipment that is purchased simultaneously with
the trade-in of existing equipment, fixed assets or improvements, the credit
granted by the seller of such equipment for the trade-in of such equipment,
fixed assets or improvements; provided that Consolidated Capital Expenditures
--------
shall in any event include the purchase price paid in connection with the
acquisition of any other Person (including through the purchase of all of the
capital stock or other ownership interests of such Person or through merger or
consolidation) to the extent allocable to property, plant and equipment.
"Consolidated Compensation Expense" for any Person means, for any
---------------------------------
period, the consolidated compensation expense incurred by such Person during
such period (x) in connection with long-term incentive compensation arrangements
entered into by such Person or any of its consolidated Subsidiaries with
officers and employees of such Person or any consolidated Subsidiary of such
Person prior to the consummation of the Holdings IPO and (y) in connection with
issuances of shares of the capital stock of such Person or any of its
consolidated Subsidiaries to directors, officers and/or employees of such Person
or any of its consolidated Subsidiaries prior to the consummation of the
Holdings IPO, in each such case determined on a consolidated basis for such
Person and its consolidated Subsidiaries in conformity with GAAP.
"Consolidated Current Assets" means, with respect to any Person as at
---------------------------
any date of determination, the total assets of such Person and its consolidated
Subsidiaries which may properly be classified as current assets on a
consolidated balance sheet of such Person and its Subsidiaries (provided that
--------
with respect to the Borrower, there shall be added to such amount the amount of
LIFO reserve as reflected in the then most recent consolidated financial
statements of Holdings delivered by Holdings pursuant to Section 6.01(a), (b)
and (c)), all as determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP.
"Consolidated Current Liabilities" means, with respect to any Person
--------------------------------
as at any date of determination, the total liabilities of such Person and its
consolidated Subsidiaries which may properly be classified as current
liabilities (other than the current portion of any Loans and of any Existing
Indebtedness) on a consolidated balance sheet of such Person and its
consolidated Subsidiaries in accordance with GAAP.
<PAGE>
-107-
"Consolidated Depreciation Expense" for any Person means, for any
---------------------------------
period, the consolidated depreciation expense of such Person for such period,
determined on a consolidated basis for such Person and its consolidated
Subsidiaries in conformity with GAAP.
"Consolidated EBITDA" for any Person means, for any period, the
-------------------
difference between (A) the sum of the amounts for such period of (i)
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) Consolidated
Tax Expense, (iv) Consolidated Depreciation Expense, (v) Consolidated
Compensation Expense and (vi) Consolidated Amortization Expense less (B) the sum
----
of the amounts for such period of (i) interest income, (ii) net gains on sales
of assets to the extent included in Consolidated Net Income, whether or not
extraordinary (excluding sales in the ordinary course of business) and other
extraordinary gains, as adjusted for the impact of the application of the last-
in, first-out (LIFO) method of valuing inventory (to the extent such adjustments
are non-Cash), which adjustment is made by (x) adding to the sum in clause (A)
above the amount of LIFO provision for such period, if any, which had the effect
of decreasing the Consolidated Net Income of the Borrower and its Subsidiaries
for such period or (y) adding to the sum in clause (B) above the amount of LIFO
recovery for such period, if any, which had the effect of increasing the
Consolidated Net Income of the Borrower and its Subsidiaries for such period,
and (iii) for the Borrower only, non-cash compensation expense related to and in
connection with the chief executive officer's Employment Agreement, all as
determined on a consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP.
"Consolidated EBITDAC" for any Person means, for any period,
--------------------
Consolidated EBITDA for such period minus Consolidated Capital Expenditures for
-----
such period.
"Consolidated Indebtedness" for any Person means, at any date, the
-------------------------
aggregate amount of Indebtedness of such Person and its Subsidiaries as of such
date determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" for any Person means, for any period,
-----------------------------
the sum of (x) total interest expense (including that attributable to Capital
Leases in accordance with GAAP) and (y) total cash dividends paid on any
preferred stock, in each case of such Person and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness and preferred
stock of such Person and its Subsidiaries, including,
<PAGE>
-108-
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, but
excluding, however, any amortization of deferred financing costs, all as
determined on a consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP. For purposes of clause (y) above, dividend
requirements shall be increased to an amount representing the pretax earnings
that would be required to cover such dividend requirements; accordingly, the
increased amount shall be equal to such dividend requirements multiplied by a
fraction, the numerator of which is such dividend requirement and the
denominator of which is 1 minus the applicable actual combined Federal, state,
local and foreign income tax rate of such Person and its subsidiaries (expressed
as a decimal), on a consolidated basis, for the fiscal year immediately
preceding the date of the transaction giving rise to the need to calculate
Consolidated Interest Expense.
"Consolidated Net Income" for any Person means, for any period, the
-----------------------
net income (or loss) of such Person and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period determined on a consolidated
basis for such Person and its consolidated Subsidiaries in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any other
- --------
Person (other than consolidated Subsidiaries of such Person) in which any third
Person (other than such Person or any of its consolidated Subsidiaries) has a
joint interest, except to the extent of the amount of dividends or other
distributions actually paid to such Person or any of its Subsidiaries by such
other Person during such period, (ii) the income (or loss) of any other Person
accrued prior to the date it becomes a consolidated Subsidiary of such Person or
is merged into or consolidated with such Person or any of its consolidated
Subsidiaries or such other Person's assets are acquired by such Person or any of
its consolidated Subsidiaries, and (iii) the income of any consolidated
Subsidiary of such Person to the extent that the declaration or payment of
dividends or similar distributions by that consolidated Subsidiary of that
income is not at the time permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that consolidated Subsidiary.
"Consolidated Tax Expense" for any Person means, for any period, the
------------------------
consolidated tax expense of such Person for such period, determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
conformity with GAAP.
<PAGE>
-109-
"Contingent Obligations" means, as to any Person, without duplication,
----------------------
any obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
- -------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business and amounts that are permitted by Section 7.14. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the maximum
amount that such Person may be obligated to expend pursuant to the terms of such
Contingent Obligation or, if such Contingent Obligation is not so limited, the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Credit Documents" means (i) this Agreement, (ii) each Note, (iii)
----------------
each Guarantee and (iv) each Security Document.
"Credit Party" means at all times Holdings and the Borrower and each
------------
Subsidiary of Holdings that pledges any stock, grants any Lien or issues any
Guarantee pursuant to any Credit Document.
"Cutex Manufacturing Agreement" means the manufacturing agreement
-----------------------------
dated as of April 30, 1997 between the Borrower and CONOPCO relating to the
manufacture by CONOPCO of certain products for the Borrower.
"Default" means any event, act or condition which with notice or lapse
-------
of time, or both, would constitute an Event of Default.
<PAGE>
-110-
"Designated Acquisition" means such acquisition as shall be effected
----------------------
by the Borrower with the proceeds of an Acquisition Term Loan; provided that the
--------
Designated Acquisition entity engages in the manufacture, distribution and/or
sale of health and beauty aids, cosmetics and/or other personal care products,
and businesses ancillary, complementary or reasonably related thereto, and
reasonable extensions thereof.
"Destruction" has the meaning assigned to that term in each Mortgage.
-----------
"Dividends" has the meaning provided in Section 7.07.
---------
"DNL Affiliates" means Vincent A. Wasik, S. Garrett Stonehouse,
--------------
Lawrence E. Bathgate, II and Morningside, in each case together with Affiliates
thereof, any member of the immediate family of any of the foregoing, or any
trust or foundation for the benefit of any of the foregoing.
"Dollars" means United States Dollars.
-------
"Effective Date" has the meaning provided in Section 11.10.
--------------
"Eligible Accounts Receivable" means, as at any applicable date of
----------------------------
determination, the aggregate face amount of the Borrower's and its Subsidiaries'
Accounts included in clause (i) of the definition of Account hereunder
(excluding any Accounts set forth in clauses (ii) through (vi) of such
definition), without duplication, in each case less (without duplication) the
aggregate amount of all reserves, limits and deductions with respect to such
Accounts set forth below and less the aggregate amount of all returns,
discounts, claims, rebates, offsets, credits, charges (including warehouseman's
charges) and allowances of any nature with respect to such Accounts (whether
issued, owing, granted or outstanding). Unless otherwise approved in writing by
the Agent in its sole discretion, no individual Account shall be deemed to be an
Eligible Account Receivable if:
(a) the Borrower or its Subsidiary does not have legal and valid
title to the Account; or
(b) the Account is not the valid, binding and legally enforceable
obligation of the account debtor subject, as to enforceability, only to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws at the time in effect affecting the enforceability of
<PAGE>
-111-
creditors' rights generally and (ii) judicial discretion in connection with
the remedy of specific performance and other equitable remedies; or
(c) the Account arises out of a sale made by the Borrower to an
Affiliate of the Borrower; or
(d) the Account or any portion thereof is unpaid more than 90 days
after the original invoice date, with respect to Accounts the invoice for
which provides that payment is due in 60 days or less from the date of such
invoice; or
(e) the Account is unpaid more than 30 days after the original
payment due date, with respect to Accounts the invoice for which provides
that payment is due more than 60 days from the date of such invoice;
provided, however, that the aggregate amount of all invoices providing for
-------- -------
payment more than 60 days from the date of the invoice that may constitute
Eligible Accounts Receivable shall not exceed 7 1/2% in face value of all
Accounts of the Borrower and its Subsidiaries then outstanding at any one
time; or
(f) such Account, when aggregated with all other Accounts of the
same account debtor (or any Affiliate thereof), exceeds 20% in face value
of all Accounts of the Borrower and its Subsidiaries then outstanding, to
the extent of such excess; or
(g) (i) the account debtor for such Account is also a creditor of
the Borrower, to the extent of the amount owed by the Borrower to the
account debtor, (ii) the Account is subject to any claim on the part of the
account debtor disputing liability under such Account in whole or in part,
to the extent of the amount of such dispute or (iii) the Account otherwise
is or is reasonably likely to become subject to any right of setoff or any
counterclaim, claim or defense by the account debtor, to the extent of the
amount of such setoff or counterclaim, claim or defense; or
(h) the account debtor for such Account has commenced a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors or if a decree
or order for relief has been entered by a court having jurisdiction in the
premises in respect of the account debtor in an involuntary case under the
federal bankruptcy laws,
<PAGE>
-112-
as now constituted or hereafter amended, or if any other petition or other
application for relief under the federal bankruptcy laws has been filed by
or against the account debtor, or if the account debtor has failed,
suspended business, ceased to be solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or for
all or a significant portion of its assets or affairs; or
(i) the Agent does not have a valid and perfected first priority
security interest in such Account (subject only to a tax lien being
contested in good faith and by appropriate proceedings and permitted by
Section 7.03(a)); or
(j) the sale to the account debtor for such Account is on a
consignment, sale on approval, guaranteed sale or sale-and-return basis or
pursuant to any written agreement requiring repurchase or return (other
than return arrangements in the ordinary course of business consistent with
the past business practices of the Borrower); or
(k) such Account is from an account debtor (or any Affiliate
thereof) and 50% or more, in face amount, of other Accounts from either
such account debtor or any Affiliate thereof are due or unpaid for more
than 90 days after the original invoice date; or
(l) 50% or more, in face amount, of other Accounts from the same
account debtor for such Account are not deemed Eligible Accounts Receivable
hereunder; or
(m) the account debtor for such Account is a foreign Governmental
Authority; or
(n) such Account is an Account a security interest in which would
be subject to the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. (S) 3727 et seq.), unless (i) such Account, together with all other
-- ---
Eligible Accounts a security interest in which would be subject to such
Act, does not exceed 7 1/2% in face value of all Eligible Accounts of the
Borrower and its Subsidiaries then outstanding, or (ii) the Borrower has
assigned the Account to the Agent in compliance with the provisions of such
Act; or
(o) the account debtor for such Account is outside the United
States or Canada or incorporated in or conduct-
<PAGE>
-113-
ing substantially all of its business in any jurisdiction located outside
the United States, unless the sale is (i) on letter of credit or sight
draft, guaranty or acceptance terms, consistent with past business
practices of the Borrower, not to exceed 5% in face value of all Eligible
Accounts of the Borrower and its Subsidiaries then outstanding or (ii) such
Account is otherwise approved by and reasonably acceptable to the Agent; or
(p) the Agent determines in good faith in accordance with its
internal credit policies that such Account may not be paid by reason of the
account debtor's financial inability to pay; provided, however, that any
-------- -------
Account referred to in this clause (p) shall not become ineligible until
the Agent shall have given the Borrower five Business Days' advance notice
of such determination; or
(q) the goods giving rise to such Account have not been shipped or
the services giving rise to such Account have not been performed by the
Borrower or the Account otherwise does not represent a final sale; or
(r) such Account does not comply in all material respects with all
applicable legal requirements, including, where applicable, the Federal
Consumer Credit Protection Act, the Federal Truth in Lending Act and
Regulation Z of the Board of Governors of the Federal Reserve System, in
each case as amended.
In addition to the foregoing, Eligible Accounts Receivable includes
such Accounts as the Borrower requests and that the Agent approves in advance,
in writing and in its sole discretion (or if the aggregate face amount to be
approved exceeds $750,000 at any one time, the approval of the Required Banks
has been obtained in writing).
"Eligible Assignee" means (i) a commercial bank organized under the
-----------------
laws of the United States, or any State thereof, and having total assets in
excess of $500,000,000; (ii) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and having
total assets in excess of $250,000,000; (iii) a finance company, insurance
company or other financial institution organized under the laws of the United
States, or any State thereof, that is engaged in purchasing or otherwise
investing in commercial loans in the ordinary course of business, having total
assets in excess of $100,000,000; or (iv) an entity managed by a Bank or
Affiliate of a Bank; provided that the Com-
--------
<PAGE>
-114-
mitment held by such entity is less than $20,000,000; and, in each such case,
which is otherwise reasonably acceptable to the Borrower.
"Eligible Inventory" means (A) the gross amount of Inventory of the
------------------
Borrower and its Subsidiaries, valued at the lower of cost (on a FIFO basis) or
market, which (i) is owned solely by the Borrower or its Subsidiary and with
respect to which the Borrower or its Subsidiary has good, valid and marketable
title; (ii) is stored on property that is either (a) owned or leased by the
Borrower or its Subsidiary or (b) owned or leased by a warehouseman that has
contracted with the Borrower or its Subsidiary to store Inventory on such
warehouseman's property (provided that, with respect to Inventory contracted to
--------
be stored on property leased by the Borrower or its Subsidiary, the Borrower or
its Subsidiary shall deliver to the Agent immediately following the execution of
such storage contract a Landlord Lien Assurance and, with respect to the
Inventory stored on property owned or leased by a warehouseman, the Borrower or
its Subsidiary shall deliver to the Agent acknowledgment agreements executed by
such warehouseman); (iii) is subject to a valid, enforceable and first priority
Lien in favor of the Agent (subject to a tax lien being contested in good faith
and by appropriate proceedings and permitted by Section 7.03(a), and except with
respect to Eligible Inventory stored at sites described in clause (ii)(b) above,
for Liens for normal and customary warehouseman charges); (iv) is located in the
United States; and (v) is not, in the reasonable judgment of the Agent, obsolete
or slow moving in relation to customary industry practice, and which otherwise
conforms to the requirements for eligibility contained in clauses (i) - (iv)
hereof; (B) less the amount of any goods returned or rejected by the Borrower's
----
or its Subsidiaries' customers and goods in transit to third parties (other than
to the Borrower's or its Subsidiaries' agents or warehousemen that comply with
clause (A)(ii)(b) above); and (C) less the amount of any reserves for special
----
order goods and market value declines in accordance with GAAP. In addition to
the foregoing, Eligible Inventory shall include such items of the Borrower's and
its Subsidiaries' Inventory as the Borrower shall request and that the Agent
approves in advance, in writing and in its sole discretion (or if the aggregate
amount to be approved exceeds $500,000 at any one time, the approval of the
Required Banks has been obtained).
"Employment Agreements" means the employment agreements between the
---------------------
Borrower and (i) Joyce Roche, dated as of June 7, 1995, as amended, (ii) Dennis
E. Smith, dated as of
<PAGE>
-115-
June 7, 1995, as amended, and (iii) Dr. Leroy Keith dated as of August 23, 1995,
as amended.
"Environment" shall mean any surface water, ground water, drinking
-----------
water supply, land surface or subsurface strata or ambient air and includes,
without limitation, any indoor location.
"Environmental Authorizations" has the meaning provided in
----------------------------
Section 5.22.
"Environmental Laws" shall mean all federal, state, local and foreign
------------------
laws, codes, regulations, ordinances, requirements, directives, orders, common
law, and administrative or judicial interpretations thereof that may be enforced
by any Governmental Authority or court, relating to pollution, the protection of
human health, the protection of the Environment, or the emission, discharge,
disposal or other release or threatened release of Hazardous Materials in or
into the Environment.
"Environmental Notice" shall mean any written notice or claim by any
--------------------
Governmental Authority or other third party alleging liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, compliance costs or harm, injuries or damages to any person,
property or natural resources, or any fines or penalties) arising out of, based
upon, resulting from or relating to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" means any entity, whether or not incorporated, which
---------------
is under common control or would be considered a single employer with a Credit
Party within the meaning of Section 414(b), (c) or (m) of the Code and
regulations promulgated under those sections or within the meaning of section
4001(b) of ERISA and regulations promulgated under that section.
"Eurodollar Rate" means with respect to each Interest Period for a
---------------
Reserve Adjusted Eurodollar Loan, (i) the arithmetic average (rounded to the
nearest 1/100 of 1%) of the offered quotation to leading banks in the interbank
Eurodollar market
<PAGE>
-116-
by each of the Reference Banks for dollar deposits in such Reference Bank of
amounts in same day funds comparable to the outstanding principal amount of the
Reserve Adjusted Eurodollar Loan for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date
which is two Business Days prior to the commencement of such Interest Period
divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D);
provided that if any Reference Bank fails to provide the Agent with its
- --------
aforesaid rate, then the Eurodollar Rate shall be determined based on the rate
or rates provided to the Agent by a bank designated by the Required Banks and
reasonably approved by the Borrower.
"Event of Default" has the meaning provided in Section 8.
----------------
"Excess Cash Flow" means, without duplication, for any Person for any
----------------
period for which such amount is being determined, (i) Consolidated Net Income,
minus (ii) any amount which is both (x) included in Consolidated Net Income and
- -----
(y) required to be applied to the prepayment of the Loans pursuant to Section
3.02(A), plus (minus) (iii) the amount of depreciation, depletion, amortization
----
of intangibles, deferred taxes and other non-cash expenses (revenues) which,
pursuant to GAAP, were deducted (added) in determining such Consolidated Net
Income of such Person minus (plus) (iv) additions (reductions) to working
-----
capital for such period (i.e., the increase or decrease in Consolidated Current
---
Assets (excluding Cash or Cash Equivalents which are either Net Cash Proceeds or
Net Financing Proceeds required to be applied to the prepayment of the Loans
pursuant to Section 3.02(A)(e) of such Person from the beginning to the end of
such period) of such Person minus the increase or decrease in Consolidated
Current Liabilities) minus (v) the amount of Consolidated Capital Expenditures
-----
that are paid other than from the proceeds of borrowings in such period minus
-----
(vi) Scheduled Acquisition Term Loan Principal Payments and voluntary
prepayments of Loans not subject to reborrowing made during such period. For
purposes of the foregoing and without duplication, Consolidated Net Income will
exclude (x) all net losses on the sale of capital assets or out of the
<PAGE>
-117-
ordinary course of business and (y) all write-downs of capital assets.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Debt" means the Indebtedness of Holdings and its
-------------
Subsidiaries set forth on Annex III.
"Existing Leases" means the Leases of Holdings and its
---------------
Subsidiaries set forth on Annex XV.
"Federal Funds Rate" means on any one day the weighted average of the
------------------
rate on overnight Federal funds transactions with members of the Federal Reserve
System only arranged by Federal funds brokers as published as of such day by the
Federal Reserve Bank of New York, or if not so published, the rate then used by
leading banks in extending overnight loans to other leading banks.
"Final Acquisition Term Loan Maturity Date" means the last Business
-----------------------------------------
Day of October, 2005.
"Final Revolving Loan Maturity Date" means the last Business Day of
----------------------------------
October, 2003.
"Financing Proceeds" means the cash (other than Net Cash Proceeds or
------------------
proceeds of any sale, transfer or other disposition of assets excluded from the
definition of "Asset Sale" by the exceptions contained therein) received by
Holdings (except for proceeds of the Senior Subordinated Notes which shall be
applied as set forth in Section 4.01(E)), the Borrower and/or any of its
Subsidiaries, directly or indirectly, from any financing transaction of whatever
kind or nature, including without limitation from any incurrence of
Indebtedness, any mortgage or pledge of an asset or interest therein (including
a transaction which is the substantial equivalent of a mortgage or pledge), from
the sale of tax benefits, from a lease to a third party and a pledge of the
lease payments due thereunder to secure Indebtedness, from a joint venture
arrangement, from an exchange of assets and a sale of the assets received in
such exchange, or any other similar arrangement or technique whereby Holdings or
any of its Subsidiaries obtains Cash in respect of an asset, net of direct costs
associated therewith. Financing Proceeds shall not include any amounts with
respect to (i) the incurrence or refinancing of the Total Revolving Loan
Commitment, (ii) the incurrence or refinancing of Indebtedness permitted by
Sections 7.04(a), (b), (c) and (d) effected in accor-
<PAGE>
-118-
dance with the applicable provisions of such Sections, or (iii) transactions
between any of the Borrower, Holdings and any Wholly Owned Subsidiaries of
Holdings.
"Fine Products" has the meaning provided in Section 5.24.
-------------
"FIRREA" means the Financial Institutions Reform, Recovery &
------
Enforcement Act of 1989, as amended from time to time, and any successor
statute.
"Foreign Bank" has the meaning provided in Section 3.04(c).
------------
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect on the Effective Date, it being understood and
agreed that determinations in accordance with GAAP for purposes of Sections 5,
6, 7 and 8 and all defined terms as used in this Agreement, are subject (to the
extent provided therein) to Section 11.07(a).
"General Security Agreements" means and includes the Borrower General
---------------------------
Security Agreement and any other general security agreements delivered pursuant
to Section 6.13 or 6.14.
"Government Acts" has the meaning provided in Section 1.13(I).
---------------
"Governmental Authority" means any federal, state, local, foreign or
----------------------
other governmental or administrative (including self-regulatory) body,
instrumentality, department or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body including, without limitation, those governing the regulation and
protection of the Environment, whether now or hereafter in existence, or any
officer or official thereof.
"Guarantee" means and includes, once executed and delivered, each of
---------
the Holdings Guarantee and each Subsidiary Guarantee.
"Guarantor" for purposes of this Agreement means, individually, each
---------
of Holdings and each Subsidiary which executes a Subsidiary Guarantee.
"Hazardous Materials" means all pollutants, contaminants, or chemical,
-------------------
industrial, hazardous or toxic materials, substances, constituents or wastes,
including, without limita-
<PAGE>
-119-
tion, asbestos or asbestos-containing materials, polychlorinated biphenyls and
petroleum, oil, or petroleum or oil products, derivatives or constituents,
including, without limitation, crude oil or any fraction thereof.
"Holdings" means Carson, Inc., a Delaware corporation.
--------
"Holdings Guarantee" means the Holdings Guarantee substantially in the
------------------
form of Exhibit E hereto, except for such changes as shall have been approved by
the Agent and the Required Banks, as the same may after its execution be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof and hereof.
"Holdings IPO" means the initial public offering of common
------------
stock of Holdings, consummated on October 18, 1996.
"Holdings Pledge Agreement" means the Holdings Securities Pledge
-------------------------
Agreement substantially in the form of Exhibit F-2 hereto, except for such
changes therein as shall have been approved by the Agent and the Required Banks,
as the same may after its execution be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.
"Indebtedness" of any Person means, without duplication, (i) all
------------
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, other than current
liabilities in respect of the foregoing, liabilities for accumulated
postretirement benefit obligations and liabilities for deferred compensation,
(iii) the face amount of all letters of credit issued for the account of such
Person and, without duplication, all drafts drawn and unpaid thereunder, (iv)
all Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed by such
first Person, (v) all Capitalized Lease Obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, i.e., take-or-pay and similar
---
obligations, (vii) all obligations of such Person under Interest Rate Agreements
and (viii) all Contingent Obligations of such Person; provided that Indebtedness
--------
shall not include trade payables, accrued expenses, accrued dividends and
accrued income taxes, in each case arising in the ordinary course of business.
<PAGE>
-120-
"Indosuez" means Credit Aqricole Indosuez.
--------
"Initial Bank" means a Bank that was an original signatory to
------------
this Agreement.
"Initial Loans" means the initial loans made under this Agreement.
-------------
"Intellectual Property" has the meaning provided in Section 5.16.
---------------------
"Intellectual Property Security Agreements" means and includes the
-----------------------------------------
Borrower Intellectual Property Security Agreement and any other intellectual
property security agreements delivered pursuant to Section 6.13 or 6.14.
"Interest Margin" means, in respect of (i) Base Rate Loans that are
---------------
(a) Acquisition Term Loans, 1.00%, and (b) Revolving Loans, 0.50%; and (ii)
Reserve Adjusted Eurodollar Loans that are (a) Acquisition Term Loans, 2.50%,
and (b) Revolving Loans, 2.00%.
"Interest Period" means, with respect to any Reserve Adjusted
---------------
Eurodollar Loan, the interest period applicable thereto, as determined pursuant
to Section 1.09.
"Interest Rate Agreement" means any interest rate swap agreement,
-----------------------
interest rate cap agreement, interest rate collar agreement, interest rate
futures contract, interest rate option contract or other similar agreement or
arrangement to which the Borrower is a party, designed to protect the Borrower
or any of its Subsidiaries against fluctuations in interest rates.
"Interest Rate Determination Date" means each date for calculating the
--------------------------------
Eurodollar Rate for purposes of determining the interest rate in respect of an
Interest Period. The Interest Rate Determination Date shall be the second
Business Day prior to the first day of the related Interest Period for a Reserve
Adjusted Eurodollar Loan.
"Inventory" means all of the inventory of the Borrower and its
---------
Subsidiaries (on a consolidated basis) including without limitation: (i) all
raw materials, work in process, parts, components, assemblies, supplies and
materials used or consumed in the business of the Borrower and its Subsidiaries;
(ii) all goods, wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be fur-
<PAGE>
-121-
nished under contracts of service; and (iii) all goods returned or repossessed
by the Borrower or any of its Subsidiaries.
"Issuing Bank" means the Bank that agrees or is otherwise obligated to
------------
issue a Letter of Credit, determined as provided in Section 1.13(C).
"Landlord Lien Assurance" means, with respect to any Real Property
-----------------------
leased by Holdings or any of its Subsidiaries for use as a retail facility or
for the storage of Inventory, either (i) an agreement executed by the landlord
of such Real Property substantially in the form of Exhibit O hereto or (ii) a
legal opinion or other evidence, in each case reasonably satisfactory to the
Agent, that the laws of the jurisdiction or jurisdictions applicable to the
lease and the retail or storage facility do not give rise to any Lien in favor
of the landlord with respect to Inventory located at such facility.
"Lease" means any lease, sublease, franchise agreement, license,
-----
occupancy or concession agreement.
"Letter of Credit" or "Letters of Credit" means (i) Standby Letter or
---------------- -----------------
Letters of Credit and (ii) Commercial Letter or Letters of Credit, in each case,
issued or to be issued by Issuing Banks for the account of the Borrower pursuant
to Section 1.13.
"Letter of Credit Participation" has the meaning provided in
------------------------------
Section 1.13(A).
"Letters of Credit Usage" means, as at any date of determination, the
-----------------------
sum of (i) the maximum aggregate amount that is or at any time thereafter may
become available under all Letters of Credit then issued and outstanding plus
----
(ii) the aggregate amount of all drawings under Letters of Credit honored by all
Issuing Banks and not theretofore reimbursed by the Borrower; provided, however,
-------- -------
the Letters of Credit Usage of an Issuing Bank shall be deemed to be only such
portion of the Letters of Credit Usage of such Issuing Bank which other Banks
have not bought by participation pursuant to Section 1.13(A).
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien, claim, hypothecation, assignment for security or charge of any kind
(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement or any lease in the nature thereof).
<PAGE>
-122-
"Loan" means each and every Acquisition Term Loan or Revolving Loan.
----
"Loan Facility" means the credit facility evidenced by the Total
-------------
Acquisition Term Loan Commitments and the Total Revolving Loan Commitments.
"Loss Proceeds" has the meaning provided in Section 3.02(A)(h).
-------------
"Management Agreement" means the management assistance agreement
--------------------
between Morningside and the Borrower dated as of August 23, 1995, as amended.
"Manufacturing Agreements" means, collectively, the Cutex
------------------------
Manufacturing Agreement and the AM Manufacturing Agreement.
"Materially Adverse Effect" means, (i) with respect to Holdings and
-------------------------
the Borrower and its Subsidiaries, any materially adverse effect (both before
and after giving effect to the Recapitalization and the financing thereof and
the other transactions contemplated hereby) with respect to the operations,
business, properties, assets, liabilities (contingent or otherwise) or financial
condition or prospects of Holdings and the Borrower and its Subsidiaries, taken
as a whole, or (ii) any fact or circumstance (whether or not the result thereof
would be covered by insurance) as to which singly or in the aggregate there is a
reasonable likelihood of (w) a materially adverse change described in clause (i)
with respect to Holdings and the Borrower and its Subsidiaries, taken as a
whole, (x) the inability of any Credit Party to perform in any material respect
its Obligations hereunder or the inability of the Banks to enforce in any
material respect their rights purported to be granted hereunder or the
Obligations (including realizing on the Collateral), or (y) a materially adverse
effect on the ability to effect (including hindering or unduly delaying) the
Recapitalization and the other transactions contemplated hereby on the terms
contemplated hereby and thereby.
"Minimum Borrowing Amount" means, respectively, $100,000 for Revolving
------------------------
Loans and $5,000,000 for Acquisition Term Loans.
"Morningside" means Morningside Capital Group, L.L.C., a Connecticut
-----------
limited liability company.
<PAGE>
-123-
"Mortgage" means a term loan and revolving credit mortgage (or deed of
--------
trust or deed to secure debt, as the case may be), assignment of rents, security
agreement and fixture filing creating and evidencing a Lien on a Mortgaged Real
Property, which shall be substantially in the form of Exhibit D hereto,
containing such schedules and including such additional provisions and other
deviations from such Exhibit as shall be necessary to conform such document to
applicable or local law or as shall be customary under applicable or local law
and which shall be dated the date of delivery thereof and made by the owner (fee
or leasehold, as the case may be) of the Mortgaged Real Property described
therein for the benefit of the Collateral Agent, as mortgagee (or beneficiary,
as the case may be), assignee and secured party, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"Mortgaged Real Property" means each Real Property designated
-----------------------
on Annex VIII which shall be subject to a Mortgage.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA with respect to which any Credit Party or any of
their respective ERISA Affiliates is or has been required to contribute or
otherwise may have liability.
"Net Award" has the meaning assigned to that term in each Mortgage.
---------
"Net Cash Proceeds" means:
-----------------
(a) with respect to any Asset Sale, the aggregate cash payments
received by Holdings, the Borrower and/or any of the Borrower's
Subsidiaries, as the case may be, from such Asset Sale, net of direct
expenses of sale, net of taxes (including income taxes and transfer taxes)
and net of repayment of Indebtedness or Capitalized Leases in each case
secured by a Lien on the asset subject to such Asset Sale; provided that,
--------
with respect to taxes, expenses shall only include taxes to the extent that
taxes are payable in cash in the current year or in the next succeeding
year with respect to the current year as a result of such Asset Sale; and
(b) with respect to any Taking or Destruction, the Net Award or
Net Proceeds, as applicable, resulting therefrom, to be applied as Net Cash
Proceeds under this Agree-
<PAGE>
-124-
ment pursuant to the provisions of Sections 1.13.3 and 1.13.4 of the
Mortgages;
provided, further, that Net Cash Proceeds shall not include any amounts or items
- -------- -------
included in the definition of Financing Proceeds or Net Financing Proceeds
(including in any proviso appearing therein).
"Net Financing Proceeds" means Financing Proceeds, net of direct
----------------------
expenses of the transaction and net of taxes (including income taxes) currently
paid or payable in cash as a result thereof in the current year or in the next
succeeding year with respect to the current year as a result of the transaction
generating Net Financing Proceeds.
"Net Proceeds" has the meaning assigned to that term in each Mortgage.
------------
"New Image" means New Image Laboratories, Inc., a California
---------
corporation.
"Note" means any Revolving Note or Acquisition Term Note.
----
"Notice of Borrowing" has the meaning provided in Section 1.03.
-------------------
"Notice of Conversion/Continuation" has the meaning provided
---------------------------------
in Section 1.06.
"Obligations" means all amounts, direct or indirect, contingent or
-----------
absolute, of every type or description, and at any time existing, owing to the
Agent or any Bank pursuant to the terms of this Agreement or any other Credit
Document or secured by any of the Security Documents.
"Offering" has the meaning set forth in the recitals hereto.
--------
"Officers' Certificate" means, as applied to any corporation, a
---------------------
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its President or one of its Vice Presidents and by its Chief
Financial Officer or its Treasurer or any Assistant Treasurer; provided that
--------
every Officers' Certificate with respect to compliance with a condition
precedent to the making of any Loan hereunder shall include (i) a statement that
the officers making or giving such Officers' Certificate have read such
condition and any defini-
<PAGE>
-125-
tions or other provisions contained in this Agreement relating thereto, (ii) a
statement that, in the opinion of the signers, they have made or have caused to
be made such examination or investigation as is necessary to enable them to
express an informed opinion as to whether or not such condition has been
complied with, and (iii) a statement as to whether, in the opinion of the
signers, such condition has been complied with.
"Officers' Solvency Certificate" means the Officers' Solvency
------------------------------
Certificate in the form set forth as Exhibit L hereto.
"Operating Lease" of any Person, shall mean any lease (including,
---------------
without limitation, leases which may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) by such Person as Lessee which is
not a Capital Lease.
"Partial Release Conditions" has the meaning provided in
--------------------------
Section 7.13(C).
"PBGC" means the Pension Benefit Guaranty Corporation established
----
pursuant to Section 4002 of ERISA, or any successor thereto.
"Pension Plan" means any pension plan as defined in Section 3(2) of
------------
ERISA (other than a Multiemployer Plan) which is or has been maintained by or to
which contributions are or have been made by any Credit Party or their
respective ERISA Affiliates or as to which any Credit Party or their respective
ERISA Affiliates may have liability.
"Permitted Encumbrances" has the meaning provided in Section 7.03.
----------------------
"Person" means any individual, partnership, joint venture, firm,
------
corporation, association, trust or other enterprise or any Governmental
Authority.
"Pledge Agreements" means and includes the Holdings Pledge Agreement,
-----------------
the Borrower Pledge Agreement, and any securities pledge agreements (including,
without limitation, any supplements or amendments to any of the foregoing)
delivered pursuant to Section 6.13, 6.14 or 6.16.
"Pledged Collateral" means all the Pledged Collateral as defined in
------------------
each of the General Security Agreements and in the Intellectual Property
Security Agreements.
<PAGE>
-126-
"Pledged Securities" means all the securities and other collateral in
------------------
which a security interest is purported to be granted to the Agent for the
benefit of the Banks by each of the Pledge Agreements, including, without
limitation, all Pledged Collateral as defined therein.
"Portion" means the Acquisition Term Portion or the Revolving Portion.
-------
"Prior Liens" means Liens which, pursuant to the provisions of any
-----------
Security Document, are or may be superior to the Lien of such Security Document.
"Projected Financial Statements" has the meaning provided in
------------------------------
Section 5.11(c).
"Real Property" means all right, title and interest of Holdings or any
-------------
of its Subsidiaries (including, without limitation, any leasehold estate) in and
to a parcel of real property owned, leased or operated by Holdings or any of its
Subsidiaries together with, in each case, all of Holdings' or such Subsidiaries'
right, title and interest in and to all improvements and appurtenant fixtures,
equipment, personal property, easements and other property and rights incidental
to the ownership, lease or operation thereof.
"Recapitalization" has the meaning set forth in the recitals hereto.
----------------
"Release" has the meaning provided in Section 7.13(B).
-------
"Release Conditions" has the meaning provided in Section 7.13(B).
------------------
"Release Notice" has the meaning provided in Section 7.13(B).
--------------
"Released Real Property" has the meaning provided in Section 7.13(B).
----------------------
"Reference Banks" means Indosuez, Chase Bank and Citibank, N.A.
---------------
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
<PAGE>
-127-
"Regulation G" means Regulation G of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation T" means Regulation T of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation X" means Regulation X of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Required Banks" means at any time (i) Banks holding at least 51% of
--------------
the Total Commitments held by Banks (or, if the Total Commitments shall have
been terminated, Banks holding at least 51% of the outstanding Loans) or (ii)
two Banks if there are only two Banks holding 100% of the Total Commitments and
at least one of such Banks holds an aggregate Commitment of at least $5,000,000;
provided that for the purposes of Section 4, the requirement that any document,
- --------
agreement, certificate or other writing is to be satisfactory to the Required
Banks shall be satisfied if (x) such document, agreement, certificate or other
writing was delivered in its final form to the Banks prior to the Effective Date
(or if amended or modified thereafter, the Agent has reasonably determined such
amendment or modification not to be material), (y) such document, agreement,
certificate or other writing is satisfactory to the Agent and (z) Banks holding
more than 33-1/3% of the Total Commitments held by Banks have not objected in
writing to such document, agreement, certificate or other writing to the Agent
prior to the Closing Date.
"Reserve Adjusted Eurodollar Loan" means each Loan bearing interest
--------------------------------
based on the Eurodollar Rate as provided in Section 1.08(b).
"Restoration" has the meaning assigned to that term in each Mortgage.
-----------
<PAGE>
-128-
"Revolving Loan Commitment" means, with respect to each Bank, the
-------------------------
amount set opposite such Bank's name on Annex I hereto directly below the column
entitled "Commitments -- Revolver," as the same may be reduced from time to time
pursuant to Sections 2.01, 3.02 and/or 8.
"Revolving Loan Commitment Termination Date" means the Business Day
------------------------------------------
immediately preceding the Final Revolving Loan Maturity Date.
"Revolving Loans" has the meaning provided in Section 1.01(a).
---------------
"Revolving Note" has the meaning provided in Section 1.05(a).
--------------
"Revolving Portion" means, at any time, the portion of the Loan
-----------------
Facility evidenced by the Total Revolving Loan Commitments.
"Scheduled Acquisition Term Loan Principal Payments" means, with
--------------------------------------------------
respect to the principal payments on the Acquisition Term Loan to be made on the
last Business Day of each month specified in the table below, in each case, for
each such date, in the Dollar amount which is the product of (x) the total
outstanding principal amount of the Acquisition Term Loan as of the close of
business on the Acquisition Term Loan Commitment Termination Date (after giving
effect to any Borrowings of the Acquisition Term Loan on such date) and (y) the
percentage for the applicable assumed outstanding principal amount specified
opposite such date in such table:
Percentage to Obtain
Acquisition Term Loan
Period Principal Payment
------ ---------------------
A B
- -
March 1999 1.250% 2.500%
June 1999 1.250% 2.500%
September 1999 1.250% 2.500%
December 1999 1.250% 2.500%
March 2000 1.250% 2.500%
June 2000 1.250% 2.500%
September 2000 1.250% 2.500%
December 2000 1.250% 2.500%
<PAGE>
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March 2001 1.250% 2.500%
June 2001 1.250% 2.500%
September 2001 1.250% 2.500%
December 2001 1.250% 2.500%
March 2002 1.250% 2.500%
June 2002 1.250% 2.500%
September 2002 1.250% 2.500%
December 2002 1.250% 2.500%
March 2003 1.250% 2.500%
June 2003 1.250% 2.500%
September 2003 1.250% 2.500%
December 2003 1.250% 2.500%
March 2004 9.375% 6.250%
June 2004 9.375% 6.250%
September 2004 9.375% 6.250%
December 2004 9.375% 6.250%
March 2005 9.375% 6.250%
June 2005 9.375% 6.250%
September 2005 9.375% 6.250%
December 2005 9.375% 6.250%
; provided that the percentages to apply with respect to Acquisition Term Loan
--------
Principal Payments for actual outstanding principal amounts of the Acquisition
Term Loan shall be as set forth in column A above, opposite the applicable
period, except that (i) in the event of changes, on or immediately prior to the
Acquisition Term Loan Commitment Termination Date, in (A) market conditions
generally or (B) the then-prevailing syndication market or (ii) depending upon
the aggregate amount of outstanding Acquisition Term Loans, such percentages may
be adjusted by the Agent to those set forth under column B above (or percentages
between those in column A and column B) as the Agent deems appropriate in light
of such factors; the applicable percentages shall be determined by the Agent
within 10 Business Days after the Acquisition Term Loan Commitment Termination
Date and written notice thereof shall be given to the Borrower by the Agent.
"SEC" means the Securities and Exchange Commission or any
---
successor thereto.
"SEC Regulation D" means Regulation D as promulgated under the
----------------
Securities Act, as the same may be in effect from time to time.
<PAGE>
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"Securities" means any stock, shares, voting trust certificates,
----------
bonds, debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Security Documents" means each of the Mortgage, the Pledge
------------------
Agreements, the Borrower General Security Agreement, the Intellectual Property
Security Agreement and any other documents utilized to pledge as Collateral for
the Obligations any property or assets of whatever kind or nature.
"Senior Indebtedness" means indebtedness incurred by any
-------------------
Credit Party pursuant to the Credit Documents.
"Senior Interest Expense" means interest expense incurred by
-----------------------
any Credit Party pursuant to the Credit Documents.
"Senior Officer" means any of the chief executive officer, chief
--------------
financial officer, controller, chief accounting officer, chief operating
officer, treasurer or any executive vice president of Holdings or the Borrower.
"Senior Subordinated Notes" means the 10-3/8% Senior Subordinated
-------------------------
Notes due 2007 of Holdings in an aggregate principal amount of $100,000,000
issued in the Offering (and any notes issued in exchange therefor pursuant to an
effective exchange offer registration statement under the Securities Act), and
shall include for all purposes of this Credit Agreement an additional aggregate
principal amount of up to $50,000,000 that may be issued under the indenture
governing the terms of the Senior Subordinated Notes.
"South African Credit Agreement" means a South African inventory and
------------------------------
receivables facility between Carson Holdings Limited and a South African bank of
up to the equivalent of US$2,000,000 dollars, which shall be nonrecourse to
Holdings and its Subsidiaries other than Carson Holdings Limited and Carson
Products (Proprietary) Limited and which shall be reasonably acceptable to the
Agent.
<PAGE>
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"Standby Letter of Credit" means any standby letter of credit or
------------------------
similar instrument issued for the purpose of supporting (i) workers'
compensation liabilities of the Borrower or any of its Subsidiaries, (ii) the
obligations of third-party insurers of the Borrower or any of its Subsidiaries
arising by virtue of the laws of any jurisdiction requiring third-party insurers
to obtain such letters of credit, or (iii) performance, payment, deposit or
surety obligations of the Borrower or any of its Subsidiaries if required by law
or governmental rule or regulation or in accordance with custom and practice in
the industry.
"State and Local Real Property Disclosure Requirements" means any
-----------------------------------------------------
state or local laws requiring notification of the buyer of real property, or
notification, registration, or filing to or with any state or local agency,
prior to, concurrent with or following the sale of any real property or transfer
of control of an establishment, of the actual or threatened presence or release
into the environment, or the use, disposal, or handling of Hazardous Materials
on, at, under, or near the real property to be sold or the establishment for
which control is to be transferred.
"Subsidiary" of any Person means and includes (i) any corporation more
----------
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at the time.
"Subsidiary Guarantee" means each guarantee substantially in the form
--------------------
of Exhibit R hereto, executed and delivered by a Subsidiary in accordance with
the terms hereof, except for such changes as shall have been approved by the
Agent, as the same may after its execution be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof and thereof;
provided, however, that (subject to change if applicable law is modified from
- -------- -------
that in effect on the Closing Date), Carson Holdings Limited and its
subsidiaries shall not be required to execute a Subsidiary Guarantee.
<PAGE>
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"Survey" means a survey of any Mortgaged Real Property (and all
------
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the state where such Mortgaged Real Property is located, (ii)
dated (or redated) not earlier than six months prior to the date of delivery
thereof unless there shall have occurred within six months prior to such date of
delivery any exterior construction on the site of such Mortgaged Real Property,
in which event such survey shall be dated (or redated) after the completion of
such construction or if such construction shall not have been completed as of
such date of delivery, not earlier than 20 days prior to such date of delivery,
(iii) certified by the surveyor (in a manner reasonably acceptable to the Agent)
to the Agent and the Title Company and (iv) complying in all respects with the
minimum detail requirements of the American Land Title Association as such
requirements are in effect on the date of preparation of such survey.
"Taking" has the meaning assigned to that term in each Mortgage.
------
"Target Inventory Amount" means $600,000.
-----------------------
"Taxes" has the meaning provided in Section 3.04.
-----
"Termination Event" means (i) a "reportable event" described in
-----------------
Section 4043 of ERISA or in the regulations thereunder (excluding events for
which the requirement for notice of such reportable event has been waived by the
PBGC) with respect to a Title IV Plan, or (ii) the withdrawal of any Credit
Party or any of their respective ERISA Affiliates from a Title IV Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a Title IV Plan amendment as a termination
under Section 4041 of ERISA, or (iv) the institution of proceedings by the PBGC
to terminate a Title IV Plan or to appoint a trustee to administer a Title IV
Plan, or (v) any other event or condition which might constitute reasonable
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Title IV Plan, or (vi) the complete or partial
withdrawal (within the meaning of Sections 4203 and 4205, respectively, of
ERISA) of any Credit Party or any of their respective ERISA Affiliates from a
Multiemployer Plan, or (vii) the insolvency or reorganization (within the
meaning of Sections 4245 and 4241, respectively, of ERISA) or termination of any
Multiemployer Plan, or (viii) the failure to make any payment or contribution to
any Pension Plan
<PAGE>
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or Multiemployer Plan or the making of any amendment to any Pension Plan which
could result in the imposition of a lien or the posting of a bond or other
security.
"Test Period" means the shorter of (i) the four consecutive complete
-----------
fiscal quarters of Holdings then last ended or (ii) the period of all complete
fiscal quarters of Holdings since the Closing Date.
"Title Company" means Ticor Title Insurance or such other title
-------------
insurance or abstract company as shall be selected by Holdings or the Borrower
and reasonably acceptable to the Required Banks.
"Title IV Plan" means any Pension Plan described in Section 4021(a) of
-------------
ERISA, and not excluded under Section 4021(b) of ERISA.
"Total Acquisition Term Loan Commitments" means the sum of the
---------------------------------------
Acquisition Term Loan Commitment of each of the Banks.
"Total Commitments" means the sum of the Total Acquisition Term Loan
-----------------
Commitments and the Total Revolving Loan Commitments.
"Total Revolving Loan Commitments" means the sum of the
--------------------------------
Revolving Loan Commitment of each of the Banks.
"Total Utilization" means, at any date of determination, the sum of
-----------------
the aggregate principal amount of all Revolving Loans and Acquisition Term Loans
then outstanding.
"Total Voting Power" means the total combined voting power in the
------------------
election of directors of all shares of capital stock then outstanding.
"Type" of Loan means either a Base Rate Loan or a Reserve
----
Adjusted Eurodollar Loan.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
New York or any other applicable jurisdiction in the United States.
"Unutilized Commitment" for any Bank at any time means, on and after
---------------------
the Closing Date, the sum of the unutilized Revolving Loan Commitment of such
Bank (after taking into ef-
<PAGE>
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fect the Letters of Credit Usage) and the unutilized Acquisition Term Loan
Commitment of such Bank.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
-----------------------
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares or shares
of capital stock required to be owned by foreign nationals under applicable law,
is owned directly or indirectly by such Person.
"Written" or "in writing" means any form of written communication or a
------- ----------
communication by means of telex, telecopier device, telegraph or cable.
SECTION 10. The Agent.
---------
10.01. Appointment. Each Bank hereby irrevocably designates and
-----------
appoints Indosuez as Agent (such term to include the Agent acting as Collateral
Agent or in any other representative capacity under any other Credit Document)
of such Bank to act as specified herein and in the other Credit Documents and
each such Bank hereby irrevocably authorizes the Agent to take such action on
its behalf under the provisions of this Agreement and the other Credit Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Agent by the terms of this Agreement and the other Credit Documents,
together with such other powers as are reasonably incidental thereto. The Agent
agrees to act as such upon the express conditions contained in this Section 10.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein or in the other Credit Documents, or any fiduciary relationship
with any Bank, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Agent. The provisions of this Section 10 are solely for the benefit
of the Agent and the Banks, and no Credit Party shall have any rights as a third
party beneficiary of any of the provisions hereof. In performing its functions
and duties under this Agreement, the Agent shall act solely as agent of the
Banks and does not assume and shall not be deemed to have assumed any obligation
or relationship of agency or trust with or for any Credit Party.
10.02. Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining
<PAGE>
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to such duties. The Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care except to the extent otherwise required by Section 10.03.
10.03. Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement (except for its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Banks for any recitals, statements, representations or
warranties by Holdings, any Subsidiary of Holdings or any of their respective
officers contained in this Agreement, any other Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Document
or for any failure of Holdings or any Subsidiary of Holdings or any of their
respective officers to perform its obligations hereunder or thereunder. The
Agent shall not be under any obligation to any Bank to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
Holdings or any Subsidiary of Holdings. The Agent shall not be responsible to
any Bank for the effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement or any Credit Document or for
any representations, warranties, recitals or statements made herein or therein
or made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Agent to the Banks or
by or on behalf of Holdings or the Borrower to the Agent or any Bank or be
required to ascertain or inquire as to the performance or observance of any of
the terms, conditions, provisions, covenants or agreements contained herein or
therein or as to the use of the proceeds of the Loans or of the existence or
possible existence of any Default or Event of Default.
10.04. Reliance by the Agent. The Agent shall be entitled to rely,
---------------------
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation,
<PAGE>
-136-
counsel to the Credit Parties), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Credit Document unless it
shall first receive such advice or concurrence of the Required Banks as it deems
appropriate or it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Credit Documents in accordance with a request of the Required
Banks (or to the extent specifically provided in Section 11.12, all the Banks),
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Banks.
10.05. Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge of the occurrence of any Default or Event of Default, other than a
default in the payment of principal or interest on the Loans hereunder unless it
has received notice from a Bank or the Borrower or any other Credit Party
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default." In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the Banks.
The Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Banks; provided that,
--------
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks.
10.06. Non-Reliance on Agent and Other Banks. Each Bank expressly
-------------------------------------
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates have made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of Holdings or any Subsidiary of Holdings, shall be
deemed to constitute any representation or warranty by the Agent to any Bank.
Each Bank represents to the Agent that it has, independently and without
reliance upon the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of Holdings and its
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement
<PAGE>
-137-
and the other agreements contemplated hereby. Each Bank also represents that it
will, independently and without reliance upon the Agent or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such investigation
as it deems necessary to inform itself as to the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of
Holdings and its Subsidiaries. Except for notices, reports and other documents
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, operations, assets,
property, financial and other conditions, prospects or creditworthiness of
Holdings or any of its Subsidiaries which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
10.07. Indemnification. The Banks agree to indemnify the Agent in
---------------
its capacity as such or in any other representative capacity under any other
Credit Document ratably according to their aggregate Commitments, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against the Agent in its capacity as such in any way relating to or
arising out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Agent under or in connection with
any of the foregoing, but only to the extent that any of the foregoing is not
paid by the Borrower or any of its Subsidiaries or any Guarantor; provided that
--------
no Bank shall be liable to the Agent for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful misconduct. If any indemnity furnished to the Agent for
any purpose shall, in the opinion of the Agent, be insufficient or become
impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 10.07 shall survive the payment of
all Obligations.
<PAGE>
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10.08. The Agent in Its Individual Capacity. The Agent and its
------------------------------------
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with Holdings, its Subsidiaries and other Affiliates of
Holdings as though the Agent were not the Agent hereunder. With respect to the
Loans made by it and all Obligations owing to it, the Agent shall have the same
rights and powers under this Agreement as any Bank and may exercise the same as
though it were not the Agent, and the terms "Bank" and "Banks" shall include the
Agent in its individual capacity.
10.09. Successor Agent. Upon the acceptance of any appointment as
---------------
Agent hereunder by a successor Agent, the term "Agent" shall include such
successor agent effective upon its appointment, and the resigning Agent's
rights, powers and duties as Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the retiring Agent's resignation hereunder as Agent, the
provisions of this Section 10 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
10.10. Resignation by Agent. (A) The Agent may resign from the
--------------------
performance of all its functions and duties hereunder at any time by giving 30
Business Days' prior written notice to Holdings, the Borrower and the Banks.
Such resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to subsections B and C below or as otherwise provided
below.
(B) Upon any such notice of resignation of the Agent, the Required
Banks shall appoint a successor Agent acceptable to the Borrower and which shall
be an incorporated bank or trust company or other qualified financial
institution with operations in the United States and total assets of at least $1
billion.
(C) If a successor Agent shall not have been so appointed within said
30 Business Day period, the resigning Agent with the consent of the Borrower
shall then appoint a successor Agent (which shall be an incorporated bank or
trust company or other qualified financial institution with operations in the
United States and total assets of at least $1 billion) who shall serve as Agent
until such time, if any, as the Required Banks appoint a successor Agent as
provided above.
(D) If no successor Agent has been appointed pursuant to subsection B
or C by the 30th Business Day after the
<PAGE>
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date such notice of resignation was given by the resigning Agent, such Agent's
resignation shall become effective and the Required Banks shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Required Banks appoint a successor Agent as provided above.
SECTION 11. Miscellaneous.
-------------
11.01. Payment of Expenses, etc. Holdings and the Borrower agree to:
-------------------------
(i) whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agent in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein (subject to the terms of the
letter agreement dated September 2, 1997) and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees and
disbursements of Cahill Gordon & Reindel and other counsel issuing opinions
pursuant to Section 4.01(C)) with prior notice to Holdings and the Borrower of
the engagement of any counsel and of each of the Banks in connection with the
enforcement of the Credit Documents and the documents and instruments referred
to therein (including, without limitation, the reasonable fees and disbursements
of counsel for each of the Banks) with prior notice to Holdings and the Borrower
of the engagement of any counsel; (ii) pay and hold each of the Banks harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and save each of the Banks harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (iii) indemnify Agent, Collateral Agent and each Bank, its officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all losses, liabilities, claims, damages or expenses
(including, without limitation, any and all losses, liabilities, claims, damages
or expenses arising under Environmental Laws except with regard to any losses,
costs, damages or expenses under Environmental Laws arising from or relating to
acts or omissions occurring after the Agent or any Bank takes possession of,
uses, operates, manages, controls or sells the Mortgaged Property provided,
however, that such exception shall apply only to the extent such losses, costs,
damages or expenses arise solely from the gross negligence, bad faith or willful
misconduct of the Agent or any Bank or of the agents of the Agent or any Bank)
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding (whether
or not any Bank
<PAGE>
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is a party thereto) related to the entering into and/or performance of any
Credit Document or the use of the proceeds of any Loans hereunder or the
Recapitalization or the consummation of any other transactions contemplated in
any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence, bad faith or willful misconduct of the Person to be indemnified).
11.02. Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of any Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of such Credit Party purchased by such
Bank pursuant to Section 11.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder.
11.03. Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to Holdings or the
Borrower at 64 Ross Road, Savannah Industrial Park, Savannah, GA 31405,
Attention: Chief Financial Officer, with a copy to Morningside Capital Group,
L.L.C., 1 Morningside Drive, North, Suite 200, Westport, CT 06880, Attention:
President, or if to another Credit Party, to its address specified in the other
relevant Credit Documents, as the case may be; if to the Agent or any Bank, at
its address specified for the Agent or such Bank on Annex II hereto; or, at such
other address as shall be designated by any party in a written notice to the
other parties hereto. All such notices and communications shall, when
<PAGE>
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mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective two days after being deposited in the mails, when
delivered to the telegraph company, cable company or overnight courier, as the
case may be, or when sent by telex or telecopier, except that notices and
communications to the Agent shall not be effective until received by the Agent.
11.04. Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the parties hereto, all
future holders of the Notes evidencing the Loans, and their respective
successors and assigns; provided that no Credit Party may assign or transfer any
--------
of its interests hereunder without the prior written consent of the Banks; and
provided, further, that the rights of each Bank to transfer, assign or grant
- -------- -------
participations in its rights and/or obligations hereunder shall be limited as
set forth below in this Section 11.04; provided that nothing in this Section
--------
11.04 shall prevent or prohibit any Bank from (i) pledging its Loans hereunder
to a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank and (ii) granting participations in or assignments of such
Bank's Loans, Notes evidencing the Loans and/or Commitments hereunder to its
parent company and/or to any Affiliate of such Bank that is at least 50% owned
by such Bank or its parent company; provided, however, that any such assignment
-------- -------
or participation shall not result in the Borrower paying additional amounts as
of the time of such assignment pursuant to Section 1.10(e), 1.11, 1.13 or 3.04.
(b) Each Bank shall have the right to transfer, assign or grant
participations in all or any part of its remaining Loans, Notes evidencing the
Loans and/or Commitments hereunder on the basis set forth below in this clause
(b). Subject to Section 11.04(c) hereof, each Bank may furnish any information
concerning the Borrower in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants).
(A) Assignments. Each Bank, with the written consent of the Agent
-----------
and the Borrower, which consent shall not be unreasonably withheld, which
shall be evidenced on the notice in the form of Exhibit I-1 hereto, may
assign pursuant to an Assignment Agreement substantially in the form of
Exhibit I-2 hereto all or a portion of its Loans, Notes evidencing the
Loans and/or Commitments hereunder pursuant to this clause (b)(A) to one or
more Eligible Assignees; provided that any such assignment pursuant to
--------
<PAGE>
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this clause (b)(A) shall not result in the Borrower paying additional
amounts as of the time of such assignment pursuant to Section 1.10(e),
1.11, 1.13 or 3.04. Any assignment pursuant to this clause (b)(A) will
become effective five Business Days after the Agent's receipt of (i) a
written notice in the form of Exhibit I-1 hereto from the assigning Bank
and the Eligible Assignee and (ii) a processing and recordation fee of
$2,500 from the assigning Bank in connection with the Agent's recording of
such sale, assignment, transfer or negotiation; provided that such fee
--------
shall only be payable if the assignment is between a Bank and an Eligible
Assignee that is not a Bank prior to the assignment. The Borrower shall
issue new Notes evidencing the Loans to the Eligible Assignee in conformity
with Section 1.05 and the assignor shall return the old Notes to the
Borrower. Upon the effectiveness of any assignment in accordance with this
clause (b)(A), the Eligible Assignee will become a "Bank" for all purposes
of this Agreement and the other Credit Documents and, to the extent of such
assignment, the assigning Bank shall be relieved of its obligations
hereunder with respect to the Commitments being assigned. The Agent shall
maintain at its address specified in Annex II hereto a copy of each
Assignment Agreement delivered to and accepted by it and a register in
which it shall record the names and addresses of the Banks and the
Commitment of, and principal amount of the Loans owning to, each Bank from
time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent demonstrable error, and the
Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower,
the Agent or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(B) Participations. Each Bank may transfer, grant or assign
--------------
participations in all or any part of such Bank's Loans, Notes evidencing
the Loans and/or Commitments hereunder pursuant to this clause (b)(B) to
any Person; provided that (i) such Bank shall remain a "Bank" for all
--------
purposes of this Agreement and the transferee of such participation shall
not constitute a Bank hereunder and (ii) no participant under any such
participation shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such
amendment or waiver would (x) change the scheduled final maturity date of
any of the Loans, Notes evi-
<PAGE>
-143-
dencing the Loans or Commitments in which such participant is participating
or (y) reduce the principal amount, interest rate or fees applicable to any
of the Loans, Notes evidencing the Loans or Commitments in which such
participant is participating or postpone the payment of any interest or
fees or (z) release all or substantially all of the Collateral; and
provided, further that any participation pursuant to this Section
-------- -------
11.04(b)(B) shall not result in the Borrower paying additional amounts as
of the time of such participation pursuant to Section 1.10(e), 1.11, 1.13
or 3.04. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents
(the participant's rights against the granting Bank in respect of such
participation to be those set forth in the agreement with such Bank
creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such
participation; provided that such participant shall be considered to be a
--------
"Bank" for purposes of Sections 11.02 and 11.06(b).
(c) The Agent and the Banks agree to keep confidential (and to cause
their respective officers, directors, employees, agents and representatives to
keep confidential) all information, materials and documents furnished to the
Agent or any Bank (the "Information"). Notwithstanding the foregoing, the Agent
and each Bank shall be permitted to disclose Information (i) to such of its
officers, directors, employees, agents and representatives as need to know such
Information in connection with its participation in any of the transactions
contemplated hereby or the administration of this Agreement; (ii) to the extent
required by applicable laws and regulations or by any subpoena or similar legal
process, or requested by any governmental agency or authority; (iii) to the
extent such Information (A) becomes publicly available other than as a result of
a breach of this Agreement or any other confidentiality agreement with respect
thereto, (B) becomes available to the Agent or such Bank on a non-confidential
basis from a source other than Holdings, the Borrower, or any of their
respective subsidiaries, officers, directors, employees, agents or
representatives or (C) was available to the Agent or such Bank on a non-
confidential basis prior to its disclosure to the Agent or such Bank by the
Borrower, Holdings or any of their respective subsidiaries; (iv) to the extent
the Borrower, Holdings or any of their respective subsidiaries shall have
consented to such disclosure in writing; (v) in connection with the sale of any
Collateral pursuant to the provisions of any of the Security Documents; or (vi)
pursuant to Section 11.04(b) hereof; pro-
---
<PAGE>
-144-
vided that prior to any such disclosure under Section 11.04(b), each
- -----
prospective Eligible Assignee or participant shall enter into a written
agreement with the assigning or selling Bank to preserve the confidentiality of
any Information to the extent set forth in this Section 11.04(c).
11.05. No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and the Agent or any Bank shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power, or privilege
hereunder or under any other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Agent or any
Bank would otherwise have. No notice to or demand on any Credit Party in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the Agent
or the Banks to any other or further action in any circumstances without notice
or demand.
11.06. Payments Pro Rata. (a) The Agent agrees that promptly after
-----------------
its receipt of each payment from or on behalf of any Credit Party in respect of
any Obligations of such Credit Party, it shall distribute such payment to the
Banks pro rata based upon their respective shares, if any, of the Obligations
--- ----
with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, of a sum which with respect to the related sum or sums received
by other Banks is in a greater proportion than the total of such Obligations
then owed and due to such Bank bears to the total of such Obligations then owed
and due to all of the Banks immediately prior to such receipt, then such Bank
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Banks an interest in the Obligations of the respective
Credit Party to such Banks in such amount as shall result in a proportional
participation by all of the Banks in such amount; provided that if all or any
--------
portion of such excess amount is thereafter re-
<PAGE>
-145-
covered from such Bank, such purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest.
11.07. Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Holdings to the Banks); provided that, except as otherwise specifically
--------
provided herein, all computations determining compliance with Sections 5, 6, 7
and 8 and all definitions used in this Agreement for any purpose shall utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the historical financial
statements delivered to the Banks pursuant to Section 4.01(M).
(b) All computations of interest and fees hereunder shall be made on
the actual number of days elapsed over a year of 365 days; provided, however,
-------- -------
that all computations of interest on Reserve Adjusted Eurodollar Loans and
Commitment Commission shall be made on the actual number of days elapsed over a
year of 360 days.
11.08. Governing Law; Submission to Jurisdiction; Venue. (a) This
------------------------------------------------
Agreement and the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with and be governed by the laws of the
State of New York applicable to contracts made and to be performed wholly
therein. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, each Credit Party hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the non-
exclusive jurisdiction of the aforesaid courts. Each Credit Party further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the respective Credit Party at
its address for notices pursuant to Section 11.03, such service to become
effective 15 days after such mailing. Each Credit Party hereby irrevocably
appoints the Borrower and such other persons as may hereafter be selected by the
Borrower irrevocably agreeing in writing to serve as its agent for service of
process in respect of any such action or proceeding. Nothing herein shall
affect the right of
<PAGE>
-146-
the Agent or any Bank to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against any Credit Party in
any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement or
any other Credit Document brought in the courts referred to in clause (a) above
and hereby further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
11.09. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Holdings, the Borrower
and the Agent.
11.10. Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which Holdings, the Borrower and each of the
Banks shall have signed a copy hereof (whether the same or different copies) and
shall have delivered the same to the Agent at the Agent's Office or, in the case
of the Banks, shall have given to the Agent telephonic (confirmed in writing),
written, telex or telecopy notice (actually received) at such office that the
same has been signed and mailed to it. The Agent will give Holdings, the
Borrower and each Bank prompt written notice of the occurrence of the Effective
Date.
11.11. Headings Descriptive. The headings of the several sections
--------------------
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
11.12. Amendment or Waiver. Neither this Agreement nor any other
-------------------
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by Holdings, the Borrower and the Required Banks; provided
--------
that no such change, waiver, discharge or termination shall, without the consent
of each affected Bank and the Agent, (i) extend the scheduled final maturity
date of any Loan, or any portion thereof, or reduce the rate or extend the time
of payment of
<PAGE>
-147-
interest thereon or fees or reduce the principal amount thereof, or increase the
Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment shall not constitute a change in the terms of
any Commitment of any Bank), (ii) release all or a substantial portion of the
Collateral or Guarantees (except as expressly permitted by the Credit
Documents), (iii) amend, modify or waive any provision of this Section, or
Section 1.10, 1.11, 3.04, Section 8, 10.07, 11.01, 11.02, 11.04, 11.06, 11.07(b)
or 11.12, (iv) reduce any percentage specified in, or otherwise modify, the
definition of Required Banks or (v) consent to the assignment or transfer by any
Credit Party of any of its rights and obligations under this Agreement. No
provision of Section 10 may be amended without the consent of the Agent.
11.13. Survival. All indemnities set forth herein including, without
--------
limitation, in Section 1.11, 3.04, 10.07 or 11.01 shall survive the execution
and delivery of this Agreement and the making of the Loans, the repayment of the
Obligations and the termination of the Total Commitments.
11.14. Domicile of Loans. Each Bank may transfer and carry its Loans
-----------------
at, to or for the account of any branch office, subsidiary or affiliate of such
Bank; provided, however, that any such transfer shall not result in the Borrower
-------- -------
paying additional amounts as of the time of such transfer pursuant to Section
1.10(e), 1.11, 1.13 or 3.04.
11.15. Waiver of Jury Trial. Each of the parties to this Agreement
--------------------
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement, the Credit
Documents or the transactions contemplated hereby or thereby.
11.16. Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitation of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
<PAGE>
-148-
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
CARSON PRODUCTS COMPANY
By:___________________________
Name:
Title:
CARSON, INC.
By:___________________________
Name:
Title:
<PAGE>
-149-
Credit Agreement among Carson Products Company, Carson, Inc.,
Credit Agricole Indosuez and the Banks listed herein.
CREDIT AGRICOLE INDOSUEZ,
as Agent and Collateral Agent
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
<PAGE>
ANNEX I
List of Banks Commitments
- ------------- -----------
Revolver Acquisition Term
-------- ----------------
Credit Agricole Indosuez $25,000,000 $50,000,000
Assignment Banks Commitments
- ---------------- -----------
<PAGE>
ANNEX II
Agent and Bank Addresses
------------------------
Credit Agricole Indosuez
1211 Avenue of the Americas
7th Floor
New York, New York 10036
<PAGE>
-2-
Assignment Banks
----------------
<PAGE>
ANNEX III
Existing Debt
-------------
Debt Repaid on or prior to Closing Date
---------------------------------------
<PAGE>
ANNEX IV
Subsidiaries
------------
<PAGE>
ANNEX V
Collective Bargaining Agreements
--------------------------------
<PAGE>
ANNEX VI
INSURANCE
---------
<PAGE>
ANNEX VII
Liens
-----
<PAGE>
ANNEX VIII
Mortgaged Real Property
-----------------------
<PAGE>
ANNEX IX
Litigation
----------
<PAGE>
ANNEX X
Consents
--------
<PAGE>
ANNEX XI
Restrictions
------------
<PAGE>
ANNEX XII
Environmental Matters
---------------------
<PAGE>
ANNEX XIII
Taxes
-----
<PAGE>
ANNEX XIV
Schedule of Intellectual Property
---------------------------------
<PAGE>
EXHIBIT 10.43
This instrument prepared by and,
after recording, please return to:
Jonathan I. Mark, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
================================================================================
TERM LOAN AND REVOLVING CREDIT DEED TO SECURE DEBT,
ASSIGNMENT OF LEASES AND SECURITY AGREEMENT
BY
CARSON PRODUCTS COMPANY,
Grantor,
TO
CREDIT AGRICOLE INDOSUEZ,
as Collateral Agent,
Beneficiary
Relating to Premises in:
Savannah, Chatham County, Georgia
$75,000,000
Dated as of: November 6, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION............................................................................. 1
RECITALS................................................................................. 1
GRANTING CLAUSES......................................................................... 2
COVENANTS................................................................................ 5
ARTICLE I
WARRANTIES, REPRESENTATIONS AND COVENANTS OF GRANTOR..................................... 5
SECTION 1.1. Payment.................................................................. 5
SECTION 1.2. Authority and Validity................................................... 5
SECTION 1.3. Good Title............................................................... 6
SECTION 1.4. Recording Documentation To Assure
Security Interest; Fees and
Expenses.............................................................. 7
SECTION 1.5. Payment of Taxes, Insurance
Premiums, Assessments; Compliance
with Law and Insurance
Requirements.......................................................... 8
SECTION 1.6. Certain Tax Law Changes.................................................. 12
SECTION 1.7. Required Insurance Policies.............................................. 12
SECTION 1.8. Failure To Make Certain Payments......................................... 15
SECTION 1.9. Inspection............................................................... 16
SECTION 1.10. Grantor To Maintain Improvements......................................... 16
SECTION 1.11. Grantor's Obligations with Respect to Leases............................. 17
SECTION 1.12. Transfer Restrictions and Liens.......................................... 20
SECTION 1.13. Destruction; Condemnation................................................ 21
SECTION 1.14. Alterations.............................................................. 26
SECTION 1.15. Hazardous Material....................................................... 26
SECTION 1.16. Asbestos................................................................. 27
SECTION 1.17. Books and Records; Other Information..................................... 28
SECTION 1.18. No Claims Against Beneficiary............................................ 29
SECTION 1.19. Utility Services......................................................... 29
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
ARTICLE II
ASSIGNMENT OF LEASES; SECURITY AGREEMENT;
ASSIGNMENT AGREEMENT................................................................... 30
SECTION 2.1. Assignment of Leases, Rents, Issues and Profits.......................... 30
SECTION 2.2. Security Interest in Fixtures............................................ 32
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES........................................................... 33
SECTION 3.1. Events of Default........................................................ 33
SECTION 3.2. Remedies in Case of an Event of Default.................................. 33
SECTION 3.3. Sale of Mortgaged Property if Event
of Default Occurs; Proceeds of Sale................................... 35
SECTION 3.4. Additional Remedies in Case of an Event of Default....................... 38
SECTION 3.5. Legal Proceedings After an Event of Default.............................. 39
SECTION 3.6. Remedies Not Exclusive................................................... 41
ARTICLE IV
CERTAIN DEFINITIONS...................................................................... 41
ARTICLE V
MISCELLANEOUS............................................................................ 42
SECTION 5.1. Severability of Provisions............................................... 42
SECTION 5.2. Notices.................................................................. 42
SECTION 5.3. Covenants To Run with the Land........................................... 43
SECTION 5.4. Headings................................................................. 43
SECTION 5.5. Limitation on Interest Payable........................................... 43
SECTION 5.6. Governing Law; Submission to Jurisdiction; Venue......................... 44
SECTION 5.7. No Merger................................................................ 44
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C>
SECTION 5.8. Modification in Writing.................................................. 44
SECTION 5.9. No Credit for Payment of Taxes or Impositions............................ 45
SECTION 5.10. Stamp and Other Taxes.................................................... 45
SECTION 5.11. Estoppel Certificates.................................................... 45
SECTION 5.12. Additional Security...................................................... 45
SECTION 5.13. Release.................................................................. 46
SECTION 5.14. Certain Expenses of Beneficiary.......................................... 46
SECTION 5.15. Expenses of Collection................................................... 47
SECTION 5.16. Business Days............................................................ 47
SECTION 5.17. Relationship............................................................. 47
SECTION 5.18. Reconveyance Upon Payment of Secured Obligations......................... 47
SECTION 5.19. Concerning Beneficiary................................................... 48
SECTION 5.20. Future Advances.......................................................... 49
SECTION 5.21. Waiver of Stay........................................................... 49
SECTION 5.22. Continuing Security Interest; Assignment................................. 50
SECTION 5.23. Obligations Absolute..................................................... 50
SECTION 5.24. Beneficiary's Right to Sever Indebtedness................................ 51
</TABLE>
SIGNATURES
SCHEDULE A LEGAL DESCRIPTION
SCHEDULE B PRIOR LIENS
<PAGE>
TERM LOAN AND REVOLVING CREDIT DEED TO SECURE DEBT,
ASSIGNMENT OF LEASES AND SECURITY AGREEMENT
---------------------------------------------------
TERM LOAN AND REVOLVING CREDIT DEED TO SECURE DEBT, ASSIGNMENT OF
LEASES AND SECURITY AGREEMENT ("Deed to Secure Debt"), dated as of November 6,
1997, made by CARSON PRODUCTS COMPANY, a Delaware corporation, having an office
at 64 Ross Road, Savannah, Georgia 31405, as grantor, assignor and debtor (in
such capacities and together with any successors in such capacities, "Grantor"),
to CREDIT AGRICOLE INDOSUEZ, having an office at 1211 Avenue of the Americas,
7th Floor, New York, New York 10036, as beneficiary, assignee and secured party
(in such capacities and together with any successors in such capacities,
"Beneficiary") as agent and collateral agent for the lending institutions (the
"Banks") from time to time party to the Credit Agreement (as hereinafter
defined).
R E C I T A L S :
----------------
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented, or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement), among
Carson, Inc., a Delaware corporation, Grantor, the Banks and Credit Agricole
Indosuez, as Agent and Collateral Agent for the Banks, the Banks have agreed (i)
to make to or for the account of Grantor certain Acquisition Term Loans up to an
aggregate principal amount of $50,000,000 that mature on the last Business Day
of October, 2005 and certain Revolving Loans up to an aggregate principal amount
of $25,000,000 that mature on the last Business Day of October, 2003 and (ii) to
issue certain Letters of Credit for the account of Grantor.
B. It is contemplated that Grantor may enter into one or more
agreements with one or more of the Banks ("Interest Rate Agreements") fixing the
interest rates with respect to Loans under the Credit Agreement (all obligations
of Grantor now existing or hereafter arising under such Interest Rate
Agreements, collectively, the "Interest Rate Obligations").
C. Grantor is the owner of the Mortgaged Property (as hereinafter
defined).
<PAGE>
-2-
D. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters of
Credit under the Credit Agreement or entering into the Interest Rate Agreements
that Grantor execute and deliver the applicable Credit Documents, including this
Deed to Secure Debt.
E. This Deed to Secure Debt is given by Grantor in favor of
Beneficiary for its benefit and the benefit of the Banks and Collateral Agent
(collectively, the "Secured Parties") to secure the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. (S) 362(a)), of (i) all Obligations of Grantor now existing or
hereafter arising under the Credit Agreement and all Interest Rate Obligations
of Grantor now existing or hereafter arising under any Interest Rate Agreement
(including, without limitation, Grantor's obligation provided for therein to pay
principal, interest and all other charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments related to or in
respect of the Obligations contained in the Credit Agreement and the obligations
contained in any Interest Rate Agreement) and (ii) without duplication of the
amounts described in clause (i), all Obligations of Grantor now existing or
hereafter arising under this Deed to Secure Debt or any other Security Document,
including, without limitation, with respect to all charges, fees, expenses,
commissions, reimbursements, premiums, indemnities and other payments that
Grantor is obligated to pay under this Deed to Secure Debt or any other Security
Document (the obligations described in clauses (i) and (ii), collectively, the
"Secured Obligations").
G R A N T I N G C L A U S E S :
-------------------------------
For and in consideration of the sum of Ten Dollars ($10.00) and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantor does hereby pledge, give, grant, sell, convey and transfer
to Beneficiary, its successors and assigns, with powers of sale, for the use and
benefit of Beneficiary, all Grantor's right, title and interest in and to the
following property, whether now owned or
<PAGE>
-3-
held or hereafter acquired (collectively, the "Mortgaged Property"):
A. Any and all present estates or interest of Grantor in the land
described in Schedule A, together with all Grantor's reversionary rights in and
----------
to any and all easements, rights-of-way, sidewalks, strips and gores of land,
drives, roads, curbs, streets, ways, alleys, passages, passageways, sewer
rights, waters, water courses, water rights, and all power, air, light and other
rights, estates, titles, interests, privileges, liberties, servitudes, licenses,
tenements, hereditaments and appurtenances whatsoever, in any way belonging,
relating or appertaining thereto, or any part thereof, or which hereafter shall
in any way belong, relate or be appurtenant thereto (collectively, the "Land");
B. Any and all estates or interests of Grantor in the buildings,
structures and other improvements and any and all Alterations (as hereinafter
defined) now or hereafter located or erected on the Land, including, without
limitation, attachments, walks and ways (collectively, the "Improvements";
together with the Land, the "Premises");
C. Any and all permits, certificates, approvals and authorizations,
however characterized, issued or in any way furnished in connection with the
Premises to the extent assignable, whether necessary or not for the operation
and use of the Premises, including, without limitation, building permits,
certificates of occupancy, environmental certificates, industrial permits or
licenses and certificates of operation;
D. Any and all interest of Grantor in all machinery, apparatus,
equipment, fittings, fixtures, improvements and articles of personal property of
every kind and nature whatsoever now or hereafter attached or affixed to the
Premises or used in connection with the use and enjoyment of the Premises or the
maintenance or preservation thereof, including, without limitation, all utility
systems, fire sprinkler and alarm systems, HVAC equipment, boilers, electronic
data processing, telecommunications or computer equipment, refrigeration,
electronic monitoring, water or lighting systems, power, sanitation, waste
removal, elevators, maintenance or other systems or equipment, and all other
articles used or useful in connection with the use or operation of any part of
the Premises, all to the extent the same constitute "fixtures" as such term is
de-
<PAGE>
-4-
fined in the UCC as in effect in the State of Georgia (collectively, the
"Equipment");
E. All Grantor's right, title and interest as landlord, licensor or
grantor, in all leases and subleases of space, licenses, occupancy or
concession agreements now existing or hereafter entered into relating in any
manner to the Premises or the Equipment and any and all amendments,
modifications, supplements and renewals of any thereof (each such lease, license
or agreement, together with any such amendment, modification, supplement or
renewal, a "Lease"), whether now in effect or hereafter coming into effect,
including, without limitation, all rents, additional rents, cash, guaranties,
letters of credit, bonds, sureties or securities deposited thereunder to secure
performance of the lessee's, licensee's or obligee's obligations thereunder,
revenues, earnings, profits and income, advance rental payments, payments
incident to assignment, sublease or surrender of a Lease, claims for forfeited
deposits and claims for damages, now due or hereafter to become due, with
respect to any Lease, any indemnification against, or reimbursement for, sums
paid and costs and expenses incurred by Grantor under any Lease or otherwise,
and any award in the event of the bankruptcy of any tenant under or guarantor of
a Lease (collectively, the "Rents");
F. All general intangibles and contract rights relating to the
Premises and the Equipment and all reserves, deferred payments, deposits,
refunds and claims of every kind or character relating thereto (collectively,
the "Contract Rights");
G. All drawings, plans, specifications, file materials, operating and
maintenance records, catalogues, tenant lists, correspondence, advertising
materials, operating manuals, warranties, guaranties, appraisals, studies and
data relating to the Premises or the Equipment or the construction of any
Alteration or the maintenance of any Permit (as hereinafter defined); and
H. All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation or other awards or payments and refunds
of real estate taxes and assessments, including interest thereon (collectively,
"Proceeds");
<PAGE>
-5-
TO HAVE AND TO HOLD the Mortgaged Property together with the rights,
privileges and appurtenances thereto belonging unto Beneficiary, for the benefit
of Beneficiary and Beneficiary's successors and assigns forever, for the purpose
of securing payment and performance by Grantor of the Secured Obligations, and
Grantor hereby binds itself and its successors and assigns to warrant and
forever defend the Mortgaged Property unto Beneficiary, its substitutes,
successors and assigns, as the case may be, against the claim or claims of all
persons claiming or to claim the same or any part thereof. This Deed to Secure
Debt is a deed passing legal title pursuant to the laws of the State of Georgia
governing loan or security deeds and security agreements and is not a mortgage
as such term is defined under such laws.
C O V E N A N T S :
------------------
Grantor warrants, represents and covenants to and for the benefit of
Beneficiary as follows:
ARTICLE I
WARRANTIES, REPRESENTATIONS AND
COVENANTS OF GRANTOR
-------------------------------
SECTION 1.1. Payment. Grantor shall pay as and when the same shall
-------
become due, whether at its stated maturity, by acceleration or otherwise, each
and every amount payable by Grantor under the Credit Documents and the
Interest Rate Agreements.
SECTION 1.2. Authority and Validity. Grantor represents, warrants and
----------------------
covenants that (i) Grantor is duly authorized to execute and deliver this Deed
to Secure Debt, and all corporate and governmental consents, authorizations and
approvals necessary or required therefor have been duly and effectively taken or
obtained, (ii) this Deed to Secure Debt is a legal, valid, binding and
enforceable obligation of Grantor, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and except as such enforceability may be limited by
the application of general principles of equity (regardless of whether such
enforceability is considered
<PAGE>
-6-
in a proceeding in equity or at law) and (iii) Grantor has full corporate power
and lawful authority to execute and deliver this Deed to Secure Debt and to
convey and grant a security interest in the Mortgaged Property as contemplated
herein.
SECTION 1.3. Good Title.
----------
1.3.1 Grantor represents, warrants and covenants that (i) Grantor has
good and marketable fee simple title to the Premises and the landlord's interest
and estate under or in respect of the Leases and good title to the interest it
purports to own in and to each of the Permits, the Equipment and the Contract
Rights, in each case subject to no deed of trust, mortgage, deed to secure debt,
pledge, security interest, encumbrance, lien, lease, license, easement,
assignment, collateral assignment or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute or any
subordination arrangement in favor of any party other than Grantor
(collectively, "Liens"; each, a "Lien"), except for those Liens identified on
Schedule B hereto (collectively, the "Prior Liens"), (ii) Grantor will keep in
- ----------
effect all rights and appurtenances to or that constitute a part of the
Mortgaged Property the failure to maintain which would have a material adverse
effect upon the interests of Beneficiary under this Deed to Secure Debt or upon
the value of the Mortgaged Property (a "Material Adverse Effect"), (iii) Grantor
will protect, preserve and defend its interest in the Mortgaged Property and
title thereto, provided that the failure to preserve such interest would have a
--------
Material Adverse Effect, (iv) Grantor will comply with each of the terms,
conditions and provisions of any obligation of Grantor which is secured by the
Mortgaged Property, the noncompliance with which might reasonably be expected to
result in the imposition of a Lien on the Mortgaged Property, which Lien is not
permitted pursuant to the terms hereof, (v) Grantor will appear and defend the
Lien and security interests created and evidenced hereby and the validity and
priority of this Deed to Secure Debt (subject to Prior Liens) in any action or
proceeding affecting or purporting to affect the Mortgaged Property or any of
the rights of Beneficiary hereunder, (vi) this Deed to Secure Debt creates and
constitutes a valid and enforceable first Lien on the Mortgaged Property, which
first Lien is and will be subject only to (a) Prior Liens (but not to
extensions, amend-
<PAGE>
-7-
ments, supplements or replacements of Prior Liens unless consented to by
Beneficiary) and (b) Liens hereafter created and which, pursuant to the
provisions of Section 1.12, are superior to the Lien and security interests
created and evidenced hereby, and Grantor does now and will forever warrant and
defend to Beneficiary and all its successors and assigns such title and the
validity and priority of the Lien and security interests created and evidenced
hereby against the claims of all persons and parties whomsoever and (vii) there
has been issued and there remain in effect each and every certificate of
occupancy or use or other Permit currently required for the existing use and
occupancy by Grantor which if not obtained or maintained would have a Material
Adverse Effect.
1.3.2 Grantor, immediately upon obtaining actual knowledge of the
pendency of any proceedings for the eviction of Grantor from the Mortgaged
Property or any part thereof by paramount title or otherwise questioning
Grantor's title to the Mortgaged Property as warranted in this Deed to Secure
Debt, or of any condition that might reasonably be expected to give rise to any
such proceedings, shall notify Beneficiary thereof. Beneficiary may participate
in such proceedings, and Grantor will deliver or cause to be delivered to
Beneficiary all instruments reasonably requested by Beneficiary to permit such
participation. In any such proceedings Beneficiary may be represented by
counsel reasonably satisfactory to Beneficiary at the reasonable expense of
Grantor. If, upon the resolution of such proceedings, Grantor shall suffer a
loss of the Mortgaged Property or any part thereof or interest therein and title
insurance proceeds shall be payable in connection therewith, such proceeds are
hereby assigned to and shall be paid to Beneficiary to be applied to the payment
of the Secured Obligations in accordance with the provisions of Section
3.02(B)(a) of the Credit Agreement.
SECTION 1.4. Recording Documentation To Assure Security Interest;
----------------------------------------------------
Fees and Expenses.
- -----------------
1.4.1 Grantor shall, forthwith after the execution and delivery of
this Deed to Secure Debt and thereafter, from time to time, cause this Deed to
Secure Debt and any financing statement, continuation statement or similar
instrument relating to any thereof or to any property intended to be subject to
the Lien of this Deed to Secure Debt to be filed, registered and recorded in
such manner and in such places as may be re-
<PAGE>
-8-
quired by any present or future law in order to publish notice of and fully to
protect the validity and priority thereof or the Lien hereof purported to be
created upon the Mortgaged Property and the interest and rights of Beneficiary
therein. Grantor shall pay or cause to be paid all taxes and fees incident to
such filing, registration and recording, and all reasonable expenses incident to
the preparation, execution and acknowledgment thereof, and of any instrument of
further assurance, and all Federal or state stamp taxes or other taxes, duties
and charges arising out of or in connection with the execution and delivery of
such instruments.
1.4.2 Grantor shall, at the sole cost and expense of Grantor, do,
execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, transfers, financing
statements, continuation statements and assurances as Beneficiary shall from
time to time reasonably request, which may be necessary in the reasonable
judgment of Beneficiary from time to time to assure, perfect, convey, assign,
mortgage, transfer and confirm unto Beneficiary, the property and rights hereby
conveyed or assigned or which Grantor may be or may hereafter become bound to
convey or assign to Beneficiary or for carrying out the intention or
facilitating the performance of the terms of this Deed to Secure Debt or the
filing, registering or recording of this Deed to Secure Debt. In the event
Grantor shall fail after demand to execute any instrument reasonably requested
to be executed by Grantor under this subsection 1.4.2, Beneficiary may execute
the same as the attorney-in-fact for Grantor, such power of attorney being
coupled with an interest and irrevocable.
SECTION 1.5. Payment of Taxes, Insurance Premiums, Assessments;
--------------------------------------------------
Compliance with Law and Insurance Requirements.
- ----------------------------------------------
1.5.1 Unless and to the extent contested by Grantor in accordance
with the provisions of subsection 1.5.5 hereof, Grantor shall pay and discharge,
or cause to be paid and discharged, from time to time prior to the date on which
material penalties attach thereto, all real estate and other material taxes,
special assessments, levies, permits, inspection and license fees, all premiums
for insurance, all water and sewer rents and charges and all other public
charges imposed upon or assessed against or in respect of the Mortgaged Property
or any part thereof or upon the Rents. Grantor shall, upon Benefici-
<PAGE>
-9-
ary's reasonable request, deliver to Beneficiary, receipts evidencing the
payment of all such taxes, assessments, levies, fees, rents and other public
charges imposed upon or assessed against the Mortgaged Property or any part
thereof or the Rents.
1.5.2 From and after the occurrence and during the continuance of an
Event of Default (as hereinafter defined), at the option and upon the request of
Beneficiary, Grantor shall deposit with Beneficiary, on the first day of each
month, an amount estimated by Beneficiary to be equal to one-twelfth of the
annual taxes, assessments and other items required to be discharged by Grantor
under subsection 1.5.1. Such amounts shall be held by Beneficiary without
interest to Grantor and applied to the payment of the obligations in respect of
which such amounts were deposited, in such priority as Beneficiary shall
determine, on or before the respective dates on which such obligations or any
part thereof would become delinquent. Nothing contained in this Section 1.5
shall (i) affect any right or remedy of Beneficiary under any provision of this
Deed to Secure Debt or of any statute or rule of law following an Event of
Default to pay any such amount as provided above from its own funds and to add
the amount so paid, together with interest at a rate per annum (the "Default
Rate") equal to the highest rate then payable under the Credit Agreement during
such time that any amount remains outstanding, to the Secured Obligations or
(ii) relieve Grantor of its obligations to make or provide for the payment of
the annual taxes, assessments and other charges required to be discharged by
Grantor under subsection 1.5.1. Grantor hereby grants to Beneficiary a security
interest in all sums held pursuant to this subsection 1.5.2 to secure payment
and performance of the Secured Obligations. During the continuance of any Event
of Default, Beneficiary may, at its option, apply all or any part of the sums
held pursuant to this subsection 1.5.2 to payment and performance of the Secured
Obligations. Grantor shall redeposit with Beneficiary an amount equal to all
amounts so applied as a condition to the cure, if any, of such Event of Default
in addition to fulfillment of any other required conditions.
1.5.3 Unless and to the extent contested by Grantor in accordance
with the provisions of subsection 1.5.5, Grantor shall timely pay, or cause to
be paid, all lawful claims and demands of mechanics, materialmen, laborers,
government agencies administering worker's compensation insurance, old age
<PAGE>
-10-
pensions and social security benefits and all other claims, judgments, demands
or amounts of any nature which, if unpaid, might reasonably be expected to
result in, or permit the creation of, a Lien on the Mortgaged Property or any
part thereof, or on the Rents (other than Liens permitted pursuant to the terms
hereof) or which might reasonably be expected to result in forfeiture of all or
any part of the Mortgaged Property.
1.5.4 Grantor shall maintain, or cause to be maintained, in full
force and effect all permits, certificates, authorizations, consents, approvals,
licenses, franchises or other instruments now or hereafter required by any
Governmental Authority to operate or use and occupy the Premises and the
Equipment in the manner and for the purposes operated by Grantor, or which
Grantor otherwise deems necessary or appropriate in its commercially reasonable
judgment (collectively, "Permits"; each, a "Permit"), except where the failure
to maintain such Permit would not reasonably be expected to have a Material
Adverse Effect. Unless and to the extent contested by Grantor in accordance
with the provisions of subsection 1.5.5 hereof, Grantor shall comply with all
material requirements set forth in the Permits and all requirements of any law,
ordinance, rule, regulation or similar statute or case law (collectively,
"Requirements of Law") of any Governmental Authority applicable to all or any
part of the Mortgaged Property or the condition, use or occupancy of all or any
part thereof or any recorded deed of restriction, declaration, covenant running
with the land or otherwise, now or hereafter in force, except where the failure
to comply with such Requirements of Law would not reasonably be expected to have
a Material Adverse Effect. Grantor shall not initiate, join in, or consent to
any change in the zoning or any other permitted use classification of the
Premises without the prior written consent of Beneficiary, which consent will
not be unreasonably withheld or delayed.
1.5.5 Grantor may at its own expense contest the amount or
applicability of any of the obligations described in subsections 1.5.1, 1.5.3 or
1.5.4 by appropriate legal proceedings, prosecution of which operates to prevent
the collection or enforcement thereof and the sale or forfeiture of the
Mortgaged Property or any part thereof to satisfy such obligations; provided,
--------
however, that in connection with such contest, Grantor shall have made provision
- -------
for the payment or performance of such contested obligation on Grantor's books
if and to the ex-
<PAGE>
-11-
tent required by GAAP. Notwithstanding the foregoing provisions of this
subsection 1.5.5, (i) no contest of any such obligations may be pursued by
Grantor if such contest would expose Beneficiary or any Bank to any possible
criminal liability or, unless Grantor shall have furnished a bond or other
security therefor reasonably satisfactory to Beneficiary or such Bank, as the
case may be, any additional civil liability for failure to comply with such
obligations and (ii) if at any time payment or performance of any obligation
contested by Grantor pursuant to this subsection 1.5.5 shall become necessary to
prevent the delivery of a tax or similar deed conveying the Mortgaged Property
or any portion thereof because of nonpayment or nonperformance, Grantor shall
pay or perform the same, in sufficient time to prevent the delivery of such tax
or similar deed or such termination or forfeiture.
1.5.6 Grantor shall not take any action that could be the basis for
termination, revocation or denial of any insurance coverage required to be
maintained under this Deed to Secure Debt or that could be the basis for a
defense to any claim under any insurance policy maintained in respect of the
Premises or the Equipment and Grantor shall otherwise comply in all respects
with the requirements of any insurer that issues a policy of insurance in
respect of the Premises or the Equipment; provided, however, that Grantor may,
-------- -------
at its own expense and after notice to Beneficiary, (i) contest the
applicability or enforceability of any such requirements by appropriate legal
proceedings, prosecution of which does not constitute a basis for cancellation
or revocation of any insurance coverage required under Section 1.7 hereof or
(ii) cause the insurance policy containing any such requirement to be replaced
by a new policy complying with the provisions of Section 1.7.
1.5.7 Grantor shall, promptly upon receipt of any written notice
regarding any failure by Grantor to pay or discharge any of the obligations
described in subsection 1.5.1, 1.5.3, 1.5.4 or 1.5.6, furnish a copy of such
notice to Beneficiary.
1.5.8 In the event that the proceeds of any tax claim are paid after
Beneficiary has exercised its right to foreclose the Lien of this Deed to Secure
Debt, such proceeds shall be paid to Beneficiary to satisfy any deficiency
remaining after such foreclosure. Beneficiary shall retain its interest in the
proceeds of any tax claim during any redemption
<PAGE>
-12-
period. The amount of any such proceeds in excess of any deficiency claim of
Beneficiary shall reasonably promptly be released to Grantor.
SECTION 1.6. Certain Tax Law Changes. In the event of the passage
-----------------------
after the date of this Deed to Secure Debt of any law deducting from the value
of real property, for the purpose of taxation, amounts in respect of any Lien
thereon or changing in any way the laws for the taxation of mortgages or debts
secured by mortgages for state or local purposes or the manner of the collection
of any such taxes (excluding therefrom taxes on income), and imposing a tax,
either directly or indirectly, on this Deed to Secure Debt, any Interest Rate
Agreement or any other Credit Document that is payable by Beneficiary, Grantor
shall promptly pay to Beneficiary such amount or amounts as may be necessary
from time to time to pay such tax.
SECTION 1.7. Required Insurance Policies.
---------------------------
1.7.1 Grantor shall maintain in respect of the Premises and the
Equipment the following insurance coverages:
(i) Physical hazard insurance on an "all risk" basis covering,
without limitation, hazards commonly covered by fire and extended coverage,
lightning, windstorm, civil commotion, hail, riot, strike, water damage,
sprinkler leakage, collapse and malicious mischief, in an amount equal to
the full replacement cost of the Improvements and all Equipment, with such
deductibles as Beneficiary may from time to time reasonably require, and,
if Beneficiary shall not have imposed any such requirements, with such
deductibles as would be maintained by a prudent operator of property
similar in use and configuration to the Premises and located in the
locality where the Premises are located. "Full replacement cost" means the
Cost of Construction (as hereinafter defined) to replace the Improvements
and the Equipment, exclusive of depreciation, excavation, foundation and
footings, as determined from time to time (but not less frequently than
once every twelve (12) months) by a Person selected by Grantor and
reasonably acceptable to Beneficiary, such determination to be based upon
the appraisals delivered to Beneficiary pursuant to Section 4.01(L)(iii) of
the Credit Agreement, with appropriate updates for capitalized additions,
deletions, industry trends and other factors;
<PAGE>
-13-
(ii) Comprehensive general liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Premises and any adjoining streets, sidewalks and passageways, and covering
any and all claims, including, without limitation, all legal liability to
the extent insurable imposed upon Beneficiary and all court costs and
attorneys' fees, arising out of or connected with the possession, use,
leasing, operation or condition of the Premises with policy limits and
deductibles in such amounts as Beneficiary may from time to time reasonably
require, and, if Beneficiary shall not have imposed any such requirements,
in such amounts as from time to time would be maintained by a prudent
operator of property similar in use and configuration to the Premises and
located in the locality where the Premises are located;
(iii) Worker's compensation insurance as required by the laws of
the state where the Premises are located to protect Grantor against claims
for injuries sustained in the course of employment at the Premises;
(iv) Explosion insurance in respect of any boilers and similar
apparatus located on the Premises or comprising any Equipment, with policy
limits and deductibles in such amounts as Beneficiary may from time to time
reasonably require, and, if Beneficiary shall not have imposed any such
requirements, in such amounts as would be maintained by a prudent operator
of property similar in use and configuration to the Premises and the
Equipment and located in the locality where the Premises and Equipment are
located;
(v) Business interruption insurance and/or "loss of rents"
insurance covering one year of loss, the term "loss of rents" to mean the
total estimated gross rental income from tenant occupation of the
Improvements as furnished and equipped under Leases;
(vi) If the Premises are located in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards
pursuant to the National Flood Insurance Act of 1968 or the Flood Disaster
Protection Act of 1973, each as amended pursuant to the National Flood
Insurance Reform Act of 1994 or otherwise, or any successor laws, flood
insurance with policy limits and de-
<PAGE>
-14-
ductibles in such amounts as Beneficiary may from time to time reasonably
require, and, if Beneficiary shall not have imposed any such requirements,
in such amounts as would be maintained by a prudent operator of property
similar in use and configuration to the Premises and located in the
locality where the Premises are located; and
(vii) Such other insurance, against such risks and with policy
limits and deductibles in such amounts as Beneficiary may from time to time
reasonably require, and, if no such requirements shall have been imposed,
in such amounts as would be maintained by a prudent operator of property
similar in use and configuration to the Premises and located in the
locality where the Premises are located.
1.7.2 All insurance policies required by this Section 1.7 shall be in
form reasonably satisfactory to Beneficiary. All insurance policies in respect
of the coverages required by subsections 1.7.1(i), 1.7.1(iv), 1.7.1(v),
1.7.1(vi) and, if applicable, 1.7.1(vii), shall be in amounts at least
sufficient to prevent coinsurance liability, and all losses thereunder shall be
payable to Beneficiary, as loss payee, pursuant to a standard non-contributory
New York mortgagee endorsement. All insurance policies in respect of the
coverages required by subsections 1.7.1(ii) and, if applicable, 1.7.1(vii) shall
name Beneficiary as an additional insured. Each policy of insurance required
under this Section 1.7 shall provide that it may not be modified, reduced,
cancelled or otherwise terminated without at least thirty (30) days' prior
written notice to Beneficiary and shall permit Beneficiary to pay any premium
therefor within thirty (30) days after receipt of any notice stating that such
premium has not been paid when due. All insurance policies required hereunder
shall provide that all losses thereunder shall be payable notwithstanding any
act or negligence of Grantor or its agents or employees which otherwise might
have resulted in a forfeiture of all or a part of such insurance payments. The
policy or policies of such insurance or certificates of insurance evidencing the
required coverages, and all renewals or extensions thereof, shall be delivered
to Beneficiary on the Closing Date. Settlement of any claim under any of the
insurance policies referred to in this Section 1.7, if such claim involves (in
the reasonable judgment of Beneficiary) loss in excess of $500,000 or more,
shall require the prior written approval of Beneficiary, which approval
<PAGE>
-15-
shall not be unreasonably withheld or delayed, and Grantor shall use reasonable
efforts to cause each such policy to contain a provision to such effect.
1.7.3 At least ten (10) days prior to the expiration of any insurance
policy required by this Section 1.7, a policy or policies renewing or extending
such expiring policy or renewal or extension certificates or other reasonable
evidence of renewal or extension and reasonable evidence that the applicable
policies are in full force and effect shall be delivered to Beneficiary.
1.7.4 Grantor shall not purchase separate insurance policies
concurrent in form or contributing in the event of loss with those policies
required to be maintained under this Section 1.7, unless (to the extent such
coverage may be obtained under applicable law) Beneficiary is included thereon
as a named insured and, if applicable, with loss payable to Beneficiary under an
endorsement containing the provisions described in subsection 1.7.2. Grantor
shall immediately notify Beneficiary whenever any such separate insurance policy
is obtained and shall promptly deliver to Beneficiary the policy or certificate
evidencing such insurance.
1.7.5 Grantor shall, immediately upon receipt of any written notice
of any failure by Grantor to pay any insurance premium in respect of any
insurance policy required to be maintained under this Section 1.7, furnish a
copy of such notice to Beneficiary.
1.7.6 In the event that the proceeds of any insurance claim are paid
after Beneficiary has exercised its right to foreclose the Lien of this Deed to
Secure Debt, such proceeds shall be paid to Beneficiary to satisfy any
deficiency remaining after such foreclosure. Beneficiary shall retain its
interest in the policies of insurance required to be maintained pursuant to this
Deed to Secure Debt during any redemption period. The amount of any such
proceeds in excess of any deficiency claim of Beneficiary shall reasonably
promptly be released to Grantor.
SECTION 1.8. Failure To Make Certain Payments. If Grantor shall
--------------------------------
fail to perform any of the covenants contained in this Deed to Secure Debt,
including, without limitation, Grantor's covenants to (i) pay the premiums in
respect of all required insurance coverages, (ii) pay taxes and assessments,
<PAGE>
-16-
(iii) make repairs, (iv) discharge liens and encumbrances or (v) pay or perform
any obligations of Grantor under the Leases, Beneficiary may, following five (5)
Business Days' prior written notice by Beneficiary to Grantor of its intent to
do so during which time Grantor shall not have remedied such failure, but shall
not be obligated to, make advances to perform such covenant on Grantor's behalf,
and all sums so advanced shall be included in the Secured Obligations and, to
the extent permitted by applicable law, shall be secured hereby. Grantor shall
repay on demand all sums so advanced by Beneficiary on behalf of Grantor, with
interest at the Default Rate from the date of payment by Beneficiary to the date
of reimbursement. Neither the provisions of this Section 1.8 nor any action
taken by Beneficiary pursuant to the provisions of this Section 1.8 shall
prevent any such failure to observe any covenant contained in this Deed to
Secure Debt from constituting an Event of Default. Beneficiary shall not be
bound to inquire into the validity of any tax, lien or imposition which Grantor
fails to pay as and when required hereby and which Grantor does not contest in
accordance with the terms hereof.
SECTION 1.9. Inspection. Grantor shall, upon reasonable prior
----------
notice by Beneficiary to the chief financial officer, controller or any other
Authorized Officer of Grantor, permit Beneficiary, by its agents, accountants
and attorneys, to visit and inspect the Premises at such reasonable times during
regular business hours and intervals and to such reasonable extent as may be
reasonably requested by Beneficiary.
SECTION 1.10. Grantor To Maintain Improvements. Grantor shall not
--------------------------------
commit or suffer any waste on the Premises or with respect to any Equipment.
Grantor represents and warrants that (i) the Premises are served by all
utilities required or necessary for the current use thereof and (ii) Grantor has
access to the Premises from public roads sufficient to allow Grantor and its
tenants and invitees to conduct its and their businesses at the Premises in
accordance with sound commercial practices. Grantor shall, at all times,
exercise commercially reasonable efforts to maintain the Premises and Equipment
in good repair, working order and insurable condition (subject to normal wear
and tear) and shall make all repairs, structural or nonstructural, which Grantor
deems appropriate in its commercially reasonable judgment, when necessary.
Grantor shall (a) not alter the occupancy or use of all or any part of the
Premises on which Grantor is conducting its business without
<PAGE>
-17-
the prior written consent of Beneficiary, which consent shall not be
unreasonably withheld or delayed, and (b) do all other reasonable acts which
from the character or use of the Premises and Equipment may, in the commercially
reasonable opinion of Grantor, be necessary or appropriate to maintain and
preserve their value. Grantor shall not remove, demolish or alter the structural
character of any Improvement now or hereafter erected upon all or any part of
the Premises, or permit any such removal, demolition or alteration, without the
prior written consent of Beneficiary, which consent shall not be unreasonably
withheld or delayed, except that items constituting Equipment may be removed if
such removal is temporary and for the purpose of making repairs or such items
are immediately replaced with similar items of Equipment having a value and
utility for their intended purposes that is not less than the value and such
utility of the Equipment so removed or if in the commercially reasonable opinion
of Grantor such Equipment is not necessary for the use or operation of the
Premises, and except as permitted pursuant to Section 7.13 of the Credit
Agreement.
SECTION 1.11. Grantor's Obligations with Respect to Leases.
--------------------------------------------
1.11.1 Subject to the provisions of subsection 1.11.2 herein, Grantor
will manage and operate the Mortgaged Property in a reasonably prudent manner
and will not without the prior written consent of Beneficiary, which consent
shall not be unreasonably withheld or delayed, enter into any Lease of all or
any part of the Premises, other than a Lease to an Affiliate of Grantor (which
will not require the consent of Beneficiary), which (i) interferes with the
operation of Grantor's business on the Premises, (ii) might reasonably be
expected to have a Material Adverse Effect on the value of the Premises or (iii)
is for space in excess of 10,000 square feet (each, a "Material Lease").
1.11.2 Grantor shall not:
(i) receive or collect, or permit the receipt or collection of, any
rental or other payments under any Material Lease more than one month in
advance of the respective period in respect of which they are to accrue,
except that (a) in connection with the execution and delivery of any Lease
or of any amendment to any Lease, rental payments thereunder may be
collected and received in advance
<PAGE>
-18-
in an amount not in excess of one month's rent and/or a reasonable security
deposit may be required thereunder and (b) Grantor may receive and collect
escalation and other charges in accordance with the terms of each Lease;
(ii) assign, transfer or hypothecate (other than to Beneficiary
hereunder) any rental or other payment under any Lease whether then due or
to accrue in the future, the interest of Grantor as lessor under any Lease
or the rents, issues, revenues, profits or other income of the Mortgaged
Property;
(iii) enter into any Lease after the date hereof that does not
contain terms to the effect as follows:
(a) such Lease and the rights of the tenant thereunder
(including, without limitation, any options to purchase or rights of
first offer or refusal) shall be subject and subordinate to the rights
of Beneficiary under and the Lien of this Deed to Secure Debt;
(b) such Lease has been assigned as collateral security by
Grantor as landlord thereunder to Beneficiary under this Deed to
Secure Debt;
(c) in the case of any foreclosure hereunder, the rights and
remedies of the tenant in respect of any obligations of any successor
landlord thereunder shall be limited to the equity interest of such
successor landlord in the Premises and any successor landlord shall
not (1) be liable for any act, omission or default of any prior
landlord under the Lease, (2) be required to make or complete any
tenant improvements or capital improvements or repair, restore,
rebuild or replace the demised premises or any part thereof in the
event of damage, casualty or condemnation or (3) be required to pay
any amounts to tenant arising under the Lease prior to such successor
landlord taking possession;
(d) the tenant's obligation to pay rent and any additional
rent shall not be subject to any abatement, deduction, counterclaim or
setoff as against any mortgagee or purchaser upon the foreclosure of
any of the Premises or the giving or granting of a
<PAGE>
-19-
deed in lieu thereof by reason of a landlord default occurring prior
to such foreclosure and such mortgagee or purchaser will not be bound
by any advance payments of rent in excess of one month or any security
deposits unless such security was actually received (or in the case of
a letter of credit, was properly transferred in negotiable form);
(e) the tenant agrees to attorn, at the option of Beneficiary
or any purchaser of the Premises, upon a foreclosure of the Premises
or the giving or granting of a deed in lieu thereof; and
(f) the tenant agrees to give notice to Beneficiary of any
default by landlord under the Lease and Beneficiary shall have a
reasonable time to cure, should Beneficiary so elect, any default of
landlord prior to tenant exercising any rights of tenant to terminate
or cancel such Lease.
(iv) enter into any amendment or modification of any Material Lease
which would change the unexpired term thereof or decrease the amount of the
rents or other amounts payable thereunder or materially impair the value
or utility of the Mortgaged Property or impair the security provided by
this Deed to Secure Debt;
(v) enter into any further lease or sublease of the property
subject to any Material Lease without the prior written consent of
Beneficiary, which consent shall not be unreasonably withheld or delayed,
unless such Material Lease is not amended in any material respect and the
primary obligor under such Material Lease is not released in any material
respect from its material responsibilities and liabilities under such
Material Lease as a result of such lease or sublease;
(vi) terminate (whether by exercising any contractual right of
Grantor to recapture leased space or otherwise) or permit the termination
of any Material Lease or accept surrender of all or any portion of the
space demised under any Material Lease prior to the end of the term thereof
or accept assignment of any Material Lease to Grantor unless:
<PAGE>
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(a) the tenant under such Lease has not paid the equivalent of
two (2) months' rent and Grantor has made reasonable efforts to
collect such rent; or
(b) Grantor shall deliver to Beneficiary an Officer's
Certificate to the effect that Grantor has entered into a new Lease
(or Leases) for the space covered by the terminated or assigned Lease
with a term (or terms) which expire(s) no earlier than the date on
which the terminated or assigned Lease was to expire (excluding
renewal options), and with a tenant (or tenants) having a
creditworthiness (as reasonably determined by Grantor) sufficient to
pay the rent and other charges due under the new Lease (or Leases),
and the tenant(s) shall have commenced paying rent, including all
operating expenses and other amounts payable under the new Lease (or
Leases) without any abatement or concession; or
(vii) waive, excuse, condone or in any manner discharge or release
any tenants of or from the material obligations of such tenants under their
respective Leases or guarantors of tenants from material obligations under
any guarantees of the Leases except in the ordinary and prudent course of
business with due regard for the security afforded Beneficiary thereby.
1.11.3 Grantor shall timely perform and observe all the material
terms, covenants and conditions required to be performed and observed by Grantor
under each Lease and shall at all times do all things reasonably necessary to
require performance by the lessee, franchisee, licensee or grantee under each
Lease of all obligations, covenants and agreements by such party to be performed
thereunder. Grantor shall promptly notify Beneficiary of the receipt of any
notice from any lessee under any Lease claiming that Grantor is in default in
the performance or observance of any of the terms, covenants or conditions
thereof to be performed or observed by Grantor and will cause a copy of each
such notice to be promptly delivered to Beneficiary.
SECTION 1.12. Transfer Restrictions and Liens. Except as provided
-------------------------------
in Section 1.11 and as permitted pursuant to Section 7.13 of the Credit
Agreement, Grantor may not, without the prior written consent of Beneficiary,
further mortgage, en-
<PAGE>
-21-
cumber, hypothecate, sell, convey or assign all or any part of the Mortgaged
Property or suffer any of the foregoing to occur by operation of law or
otherwise. Notwithstanding the provisions of the foregoing sentence, so long as
no Event of Default shall have occurred and be continuing, Grantor shall have
the right to suffer, in respect of the Mortgaged Property, (i) the Liens in
respect of amounts payable or obligations to be performed by Grantor pursuant to
subsections 1.5.1, 1.5.3 and 1.5.4, provided, however, that such amounts are not
yet delinquent or are being contested in accordance with the provisions of
subsection 1.5.5 and (ii) Liens of the type described in paragraphs (c), (e),
(f), (g) and (i) of the definition of Permitted Encumbrances. Each of the Liens
and other transfers permitted by this Section 1.12 shall in all respects be
subject and subordinate in priority to the Lien and security interests created
and evidenced hereby except to the extent the law or regulation creating or
authorizing such Lien provides that such Lien must be superior to the Lien and
security interest created and evidenced hereby.
SECTION 1.13. Destruction; Condemnation.
-------------------------
1.13.1 Destruction; Insurance Proceeds. If there shall occur any
-------------------------------
damage to, or loss or destruction of, the Improvements, Equipment, or any part
of any thereof (each, a "Destruction"), Grantor shall promptly send to
Beneficiary a notice setting forth the nature and extent of such Destruction.
The proceeds of any insurance payable in respect of such Destruction are hereby
assigned and shall be paid to Beneficiary, provided that Grantor shall be
--------
entitled to retain the proceeds of any insurance payable in respect of a
Destruction to the extent that the aggregate amount of any such insurance
proceeds received by Grantor in such fiscal year when added to the aggregate of
any award or payment in respect of any Taking (as hereinafter defined) received
by Grantor in such fiscal year does not exceed $500,000. All such proceeds,
together with any interest earned thereon, less the amount of any expenses
incurred in litigating, arbitrating, compromising or settling any claim arising
out of such Destruction (the "Net Proceeds"), shall be applied in accordance
with the provisions of subsections 1.13.3, 1.13.4 and 1.13.5.
1.13.2 Condemnation; Assignment of Award. If there shall occur any
---------------------------------
taking of the Mortgaged Property or any part thereof, in or by condemnation or
other eminent domain proceed-
<PAGE>
-22-
ings pursuant to any law, general or special, or by reason of the temporary
requisition of the use or occupancy of the Mortgaged Property or any part
thereof, by any Governmental Authority, civil or military (each, a "Taking"),
Grantor shall promptly notify Beneficiary upon receiving notice of such Taking
or commencement of proceedings therefor. Beneficiary may participate in any
proceedings or negotiations which might result in any Taking, and Grantor shall
deliver or cause to be delivered to Beneficiary all instruments requested by it
to permit such participation. Beneficiary may be represented by counsel
reasonably satisfactory to it at the reasonable expense of Grantor in connection
with any such participation. Grantor shall pay all reasonable fees, costs and
expenses incurred by Beneficiary in connection with any Taking and in seeking
and obtaining any award or payment on account thereof. Any proceeds, award or
payment in respect of any Taking are hereby assigned and shall be paid to
Beneficiary, provided that Grantor shall be entitled to the award or payment
--------
payable in respect of a Taking to the extent that the aggregate amount of any
such award received by Grantor in such fiscal year when added to the aggregate
of any insurance proceeds in respect of any Destruction received by Grantor in
such fiscal year does not exceed $500,000. Grantor shall take all steps
necessary to notify the condemning authority of such assignment. Such proceeds,
award or payment, together with any interest earned thereon, less the amount of
any expenses incurred in litigating, arbitrating, compromising or settling any
claim arising out of such Taking (the "Net Award"), shall be applied in
accordance with the provisions of subsections 1.13.3, 1.13.4 and 1.13.5.
1.13.3 Restoration. So long as no Event of Default shall have
-----------
occurred and be continuing, in the event there shall be a Net Award or Net
Proceeds in an amount less than or equal to $1,000,000, Grantor shall have the
right, at Grantor's option, to apply such Net Award or Net Proceeds as Net Cash
Proceeds in accordance with the provisions of Section 3.02(B)(a) of the Credit
Agreement or to perform a restoration (each, a "Restoration") of the Premises
and Equipment. In the event Grantor elects to perform any Restoration
contemplated by this subsection 1.13.3, Beneficiary shall release such Net Award
or Net Proceeds to Grantor as soon as practicable. Grantor shall promptly
following the date of its receipt of any proceeds in respect of a Destruction or
Taking, as the case may be, commence and diligently continue to perform the
Restoration in accordance with Section 3.02(A)(h) of the Credit Agreement
<PAGE>
-23-
(subject to extensions for delays caused by reason of force majeure) of that
portion or portions of the Improvements and Equipment subject to such
Destruction or affected by such Taking so that, upon the completion of the
Restoration, the Premises and Equipment will be in substantially the same
condition and shall be as near as practicable to the value and utility as the
Premises and Equipment was immediately prior to such Destruction or Taking.
Grantor shall so complete such Restoration with its own funds to the extent that
the amount of any Net Award or Net Proceeds is insufficient for such purpose.
1.13.4 Major Restoration. In the event there shall be a Net Award or
-----------------
Net Proceeds other than as described in subsection 1.13.3, Grantor shall have
the option to apply such Net Award or Net Proceeds, as the case may be, as Net
Cash Proceeds in accordance with the provisions of Section 3.02(B)(a) of the
Credit Agreement or to require a Restoration of the Mortgaged Property. In the
event a Restoration is to be performed under this subsection 1.13.4, Beneficiary
shall not release any part of the Net Award or the Net Proceeds except in
accordance with the provisions of subsection 1.13.5, and Grantor shall, prior to
commencing any work to effect a Restoration of the Premises and Equipment,
promptly (but in no event later than ninety (90) days following any Destruction
or Taking) furnish to Beneficiary:
(i) complete plans and specifications (the "Plans and
Specifications") for the Restoration;
(ii) a certificate (an "Architect's Certificate") of an
independent, reputable architect or engineer reasonably acceptable to
Beneficiary and licensed in the state where the Premises is located (a)
listing all permits and approvals required by law in connection with the
Restoration, (b) stating that all permits and approvals required by law to
commence work in connection with the Restoration have been obtained, (c)
stating that the Plans and Specifications have been reviewed and approved
by the signatory thereto, (d) stating such signatory's estimate (an
"Estimate") of the costs of completing the Restoration and (e) stating that
upon completion of such Restoration in accordance with the Plans and
Specifications, the value and utility of the Premises and the Equipment
will be approximately equal to or greater than the value and utility
<PAGE>
-24-
thereof immediately prior to the Destruction or Taking relating to such
Restoration; and
(iii) if the Estimate exceeds the Net Proceeds or Net Award, as
the case may be, a surety bond for, guarantee of, or irrevocable letter of
credit (a "Letter of Credit") or other irrevocable and unconditional
commitment to provide funds (each, a "Commitment") for the payment of the
excess cost of such Restoration, payable to or in favor of Beneficiary, as
Collateral Agent, which bond, guaranty, Letter of Credit or Commitment (A)
shall be signed by a surety or sureties or guarantor(s), as the case may
be, reasonably acceptable to Beneficiary and, in the case of a Letter of
Credit or Commitment, shall be provided by a bank or other financial
institution having capital and surplus in excess of $250 million as shown
in its most recent available statement of financial condition and (B) shall
be in an amount not less than the excess of the amount of the Estimate over
the amount of the Net Award or Net Proceeds, as the case may be, then held
by Beneficiary for application toward the cost of such Restoration.
Beneficiary shall have the right to review and approve the Plans and
Specifications as to structural matters only, such review and approval not to be
unreasonably withheld or delayed. Promptly upon any approval of the Plans and
Specifications by Beneficiary, Grantor shall commence and diligently continue to
perform the Restoration in accordance with such approved Plans and
Specifications. Grantor shall so complete such Restoration with its own funds
to the extent that the amount of any Net Award or Net Proceeds is insufficient
for such purpose.
1.13.5 Restoration Advances Following Destruction or Taking of
-------------------------------------------------------
Mortgaged Property. In the event Grantor shall elect to perform a Restoration
- ------------------
of the Premises and Equipment as provided in subsection 1.13.4, Beneficiary
shall apply any Net Proceeds or the Net Award held by Beneficiary on account of
the applicable Destruction or Taking to the payment of the cost of performing
such Restoration and shall pay portions of the same, from time to time, to
Grantor or, at Beneficiary's option, exercised from time to time, directly to
the contractors, subcontractors, materialmen, laborers, engineers, architects,
and other persons rendering services or material for such Restoration, subject
to the following conditions:
<PAGE>
-25-
(i) Each request for payment shall be made on at least ten (10)
days' prior notice to Beneficiary and shall be accompanied by an
Architect's Certificate stating (a) that all the Restoration work then
completed has been done in compliance with the Plans and Specifications, as
approved by Beneficiary, and in accordance with all provisions of law, (b)
the sums requested are required to reimburse Grantor for payments by
Grantor to, or are due to, the contractors, subcontractors, materialmen,
laborers, engineers, architects, or other persons rendering services or
materials for the Restoration, and that, when added to the sums, if any,
previously paid out by Beneficiary, such sums do not exceed the cost of the
Restoration to the date of such Architect's Certificate, (c) whether or not
the Estimate continues to be accurate, and if not, what the entire cost of
such Restoration is then estimated to be and (d) that the amount of the Net
Proceeds or Net Award, as the case may be, remaining after giving effect to
such payment will be sufficient on completion of the Restoration to pay for
the same in full (including, in detail, an estimate by trade of the
remaining costs of completion);
(ii) Each request for payment shall be accompanied by an opinion of
counsel to Grantor (which counsel shall be independent and reasonably
acceptable to Beneficiary) or a title insurance policy, binder or
endorsement in form and substance reasonably satisfactory to Beneficiary
confirming that (a) all Liens (other than Prior Liens and Liens otherwise
permitted hereunder) covering that part of the Restoration previously paid
for, if any, have been waived and (b) there has not been filed with respect
to all or any part of the Premises any Lien (other than Prior Liens and
Liens otherwise permitted hereunder) which is not discharged of record and
which could have priority over the Lien of this Deed to Secure Debt in
respect of any part of the Secured Obligations; and
(iii) The final request for any payment after the Restoration has
been completed shall be accompanied by an Architect's Certificate listing
all certificates, permits, licenses, waivers, other documents, or any
combination of the foregoing required by law in connection with or as a
result of such Restoration and stating that all of the same have been
obtained, or if not obtained, the failure
<PAGE>
-26-
to obtain such certificate, permit, license or waiver will not have a
Material Adverse Effect.
In the event that there shall be any surplus after application of the
Net Award or the Net Proceeds to Restoration of the Improvements and the
Equipment, such surplus shall be applied as Net Cash Proceeds in accordance with
Section 3.02(B)(a) of the Credit Agreement or, at the option of Beneficiary,
shall be held by Beneficiary as additional collateral to secure the performance
by Grantor of the Secured Obligations.
SECTION 1.14. Alterations. Grantor shall not, without the prior
-----------
written consent of Beneficiary, which consent shall not be unreasonably withheld
or delayed, make any addition, modification or change which is structural in
nature (each, an "Alteration") to the Premises that costs more to effect than
$250,000. Whether or not Beneficiary has consented to the making of any
Alteration, Grantor shall (i) complete each Alteration promptly, in a good and
workmanlike manner and in compliance with all applicable material local laws,
ordinances and requirements (subject to extensions for delays caused by reason
of force majeure) and (ii) pay when due all claims for labor performed and
materials furnished in connection with such Alteration, unless contested in
accordance with the provisions of subsection 1.5.5.
SECTION 1.15. Hazardous Material.
------------------
1.15.1 Each of the provisions of Section 5.27 of the Credit Agreement
is restated herein in its entirety (including all defined terms referenced
therein) mutatis mutandis. Grantor shall comply with the provisions of such
------- --------
section as if such grantor were the "Borrower and its Subsidiaries" as
referenced therein.
1.15.2 Each of the provisions of Sections 6.15 of the Credit
Agreement is restated herein in its entirety (including all defined terms
referenced therein) mutatis mutandis. Grantor shall comply with the provisions
----------------
of such section as if such Grantor were the "Borrower and its Subsidiaries" as
referenced therein. In the event Grantor fails to comply with the referenced
covenants, Beneficiary may, in addition to any other remedies set forth herein,
as agent for and at Grantor's sole cost and expense, cause any necessary
remediation, removal or response action required by Environmental Laws relating
to
<PAGE>
-27-
Hazardous Materials to be taken and Grantor shall provide to Beneficiary and its
agents and employees reasonable access to the Mortgaged Property for such
purpose. Any reasonable costs or expenses incurred by Beneficiary for such
purpose shall be payable by Grantor immediately upon demand therefor and shall
bear interest at the Default Rate. Beneficiary shall have the right at any time
that the Secured Obligations are outstanding, at the sole cost and expense of
Grantor, to conduct an environmental audit of the Mortgaged Property where
Beneficiary believes that cause exists, including in the event any change in any
applicable Environmental Law would either require the conduct of an
environmental audit or make such an audit prudent, by such persons or firms
appointed by Beneficiary, and Grantor shall cooperate in all reasonable respects
in the conduct of such environmental audit, including, without limitation, by
providing reasonable access to the Mortgaged Property and to all relevant
records relating thereto. To the extent that any such environmental audit
identifies conditions which violate, or could be expected to give rise to
material liability or obligations under Environmental Laws, Grantor agrees to
expeditiously correct any such violation or respond to conditions giving rise to
such liability or obligations in a manner which complies with Environmental
Laws. Grantor shall indemnify and hold Beneficiary and each Bank harmless from
and against all loss, cost, damage (including, without limitation, consequential
damages) and expense (including, without limitation, attorneys' and consultants'
fees and disbursements and the allocated costs of staff counsel) that
Beneficiary or such Bank may sustain by reason of the assertion against
Beneficiary or such Bank by any party of any claim relating to such Hazardous
Materials on, under or from the Mortgaged Property or actions taken with respect
thereto as authorized hereunder. The foregoing indemnification shall survive
repayment of all Secured Obligations and any release or assignment of this Deed
to Secure Debt except with regard to any loss, cost, damage or expense arising
from or relating to acts or omissions occurring after Beneficiary or any Bank
takes possession of, uses, operates, manages, controls or sells the Mortgaged
Property provided, however, that such exception shall apply only to the extent
such loss, cost, damage or expense arises solely from the gross negligence, bad
faith or willful misconduct of Beneficiary or any Bank or of the agents of
Beneficiary or any Bank.
SECTION 1.16. Asbestos. Grantor shall not install nor permit to be
--------
installed in or removed from the Mortgaged
<PAGE>
-28-
Property, asbestos or any asbestos-containing material (collectively, "ACM")
except in compliance with all applicable Environmental Laws, and with respect to
any ACM currently present in the Mortgaged Property, Grantor shall promptly
either (i) remove or encapsulate any ACM which such Environmental Laws require
to be removed or (ii) otherwise comply with such Environmental Laws with respect
to such ACM, all at Grantor's sole cost and expense. If Grantor shall fail to so
remove or encapsulate any ACM or otherwise comply with such Environmental Laws,
Beneficiary may, in addition to any other remedies set forth herein, take
whatever steps it deems necessary or appropriate to remove or encapsulate any
ACM from the Mortgaged Property or otherwise comply with applicable
Environmental Laws, and Grantor shall provide to Beneficiary and its agents and
employees reasonable access to the Mortgaged Property for such purpose. Any
reasonable costs or expenses incurred by Beneficiary for such purpose shall be
payable by Grantor immediately upon demand therefor and shall bear interest at
the Default Rate. Grantor shall indemnify and hold Beneficiary and each Bank
harmless from and against all loss, cost, damage (including, without limitation,
consequential damages) and expense (including, without limitation, attorneys'
and consultants' fees and disbursements and the allocated costs of staff
counsel) that Beneficiary or such Bank may sustain as a result of the presence
of any ACM and any removal thereof or compliance with Environmental Laws. The
foregoing indemnification shall survive repayment of all Secured Obligations and
any release or assignment of this Deed to Secure Debt except with regard to any
loss, cost, damage or expense arising from or relating to acts or omissions
occurring after Beneficiary or any Bank takes possession of, uses, operates,
manages, controls or sells the Mortgaged Property provided, however, that such
exception shall apply only to the extent such loss, cost, damage or expense
arises solely from the gross negligence, bad faith or willful misconduct of
Beneficiary or any Bank or of the agents of Beneficiary or any Bank.
SECTION 1.17. Books and Records; Other Information.
------------------------------------
1.17.1 Grantor shall keep proper books of record and account in which
full, true and correct entries shall be made of all dealings or transactions of
or in relation to the Mortgaged Property and the business and affairs of Grantor
relating to the Mortgaged Property. Upon reasonable notice by Beneficiary to
the chief financial officer, controller or any other
<PAGE>
-29-
Authorized Officer of Grantor, Beneficiary and its authorized representatives
shall have the right at reasonable times during regular business hours and
intervals and to such reasonable extent as may be reasonably requested by
Beneficiary to examine the books and records of Grantor relating to the
operation of the Mortgaged Property.
1.17.2 Grantor shall, at any and all times, within a reasonable time
after written request by Beneficiary, furnish or cause to be furnished to
Beneficiary, in such manner and in such detail as may be reasonably requested by
Beneficiary, additional information with respect to the Mortgaged Property.
SECTION 1.18. No Claims Against Beneficiary. Nothing contained in
-----------------------------
this Deed to Secure Debt shall constitute any consent or request by Beneficiary,
express or implied, for the performance of any labor or services or the
furnishing of any materials or other property in respect of the Premises or any
part thereof, nor as giving Grantor any right, power or authority to contract
for or permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of any
claim against Beneficiary in respect thereof or any claim that any Lien based on
the performance of such labor or services or the furnishing of any such
materials or other property is prior to the Lien of this Deed to Secure Debt.
SECTION 1.19. Utility Services. Grantor shall pay, or cause to be
----------------
paid, when due all charges for all public or private utility services, all
public or private rail and highway services, all public or private communication
services, all sprinkler systems, and all protective services and any other
services of whatever kind or nature at any time rendered to or in connection
with the Premises or any part thereof, shall comply with all contracts relating
to any such services, and shall do all other things required for the maintenance
and continuance of all such services to the extent required to fulfill the
obligations set forth in Section 1.10.
<PAGE>
-30-
ARTICLE II
ASSIGNMENT OF LEASES; SECURITY AGREEMENT;
ASSIGNMENT AGREEMENT
------------------------------------------
SECTION 2.1. Assignment of Leases, Rents, Issues and Profits.
-----------------------------------------------
2.1.1 Grantor absolutely, presently and irrevocably assigns,
transfers and sets over to Beneficiary, and grants to Beneficiary subject to the
terms and conditions hereof, all Grantor's estate, right, title, interest, claim
and demand as landlord to collect rent and other sums due under all existing
Leases and any other Leases, including, without limitation, all extensions of
the terms of the Leases (such assigned rights, "Grantor's Interest"), as
follows:
(i) the immediate and continuing right to receive and collect
Rents payable by all tenants or other parties pursuant to the Leases;
(ii) all claims, rights, powers, privileges and remedies of
Grantor, whether provided for in any Lease or arising by statute or at law
or in equity or otherwise, consequent on any failure on the part of any
tenant to perform or comply with any term of any Lease;
(iii) all rights to take all actions upon the happening of a
default under any Lease as shall be permitted by such Lease or by law,
including, without limitation, the commencement, conduct and consummation
of proceedings at law or in equity; and
(iv) the full power and authority, in the name of Grantor or
otherwise, to enforce, collect, receive and receipt for any and all of the
foregoing and to do any and all other acts and things whatsoever which
Grantor or any landlord is or may be entitled to do under the Leases.
2.1.2 Any Rents receivable by Beneficiary hereunder, after payment of
all proper costs and charges, shall be applied to all amounts due and owing
under and as provided in this Deed to Secure Debt and the Credit Agreement.
Beneficiary shall be accountable to Grantor only for Rents actually received by
Beneficiary pursuant to this assignment. The collection of
<PAGE>
-31-
such Rents and the application thereof shall not cure or waive any Event or
Default or waive, modify or affect notice of Event of Default or invalidate any
act done pursuant to such notice.
2.1.3 So long as no Event of Default shall have occurred and be
continuing, Grantor shall have a license to collect and apply the Rents and to
enforce the obligations of tenants under the Leases. Immediately upon the
occurrence and during the continuance of any Event of Default, the license
granted in the immediately preceding sentence shall cease and terminate, with or
without any notice, action or proceeding or the intervention of a receiver
appointed by a court. Upon such Event of Default and during the continuance
thereof, Beneficiary may, to the fullest extent permitted by the Leases, (i)
exercise any of Grantor's rights under the Leases, (ii) enforce the Leases,
(iii) demand, collect, sue for, attach, levy, recover, receive, compromise and
adjust, and make, execute and deliver receipts and releases for all Rents or
other payments that may then be or may thereafter become due, owing or payable
with respect to the Leases and (iv) generally, do, execute and perform any other
act, deed, matter or thing whatsoever that ought to be done, executed and
performed in and about or with respect to the Leases, as fully as allowed or
authorized by Grantor's Interest.
2.1.4 Upon the occurrence and during the continuance of an Event of
Default, Grantor shall, at the direction of Beneficiary, further authorize and
direct the tenant under each Lease to pay directly to, or as directed by,
Beneficiary all Rents accruing or due under its Lease without proof to the
tenant of the occurrence and continuance of such Event of Default. Grantor
hereby authorizes the tenant under each Lease to rely upon and comply with any
notice or demand from Beneficiary for payment of Rents to Beneficiary and
Grantor shall have no claim against any tenant for Rents paid by such tenant to
Beneficiary pursuant to such notice or demand.
2.1.5 Grantor at its sole cost and expense shall use commercially
reasonable efforts to enforce the material terms of the Leases in accordance
with their terms. Neither this Deed to Secure Debt nor any action or inaction
on the part of Beneficiary shall release any tenant under any Lease, any
guarantor of any Lease or Grantor from any of their respective obligations under
the Leases or constitute an assumption of any such obligation on the part of
Beneficiary. No action or fail-
<PAGE>
-32-
ure to act on the part of Grantor shall adversely affect or limit the rights of
Beneficiary under this Deed to Secure Debt or, through this Deed to Secure Debt,
under the Leases.
2.1.6 All rights, powers and privileges of Beneficiary herein set
forth are coupled with an interest and are irrevocable, subject to the terms and
conditions hereof, and Grantor shall not take any action under the Leases or
otherwise which is inconsistent with this Deed to Secure Debt or any of the
terms hereof and any such action inconsistent herewith or therewith shall be
void. Grantor shall, from time to time, upon reasonable request of Beneficiary,
execute all instruments and further assurances and all supplemental instruments
and take all such action as Beneficiary from time to time may reasonably request
in order to perfect, preserve and protect the interests intended to be assigned
to Beneficiary hereby.
2.1.7 Grantor shall not, unilaterally or by agreement, subordinate,
amend, modify, extend, discharge, terminate, surrender, waive or otherwise
change any material term of any of the Material Leases in any manner which would
violate this Deed to Secure Debt. If the Leases shall be amended as permitted
hereby, they shall continue to be subject to the provisions hereof without the
necessity of any further act by any of the parties hereto.
2.1.8 Nothing contained herein shall operate or be construed to (i)
obligate Beneficiary to perform any of the terms, covenants or conditions
contained in the Leases or otherwise to impose any obligation upon Beneficiary
with respect to the Leases (including, without limitation, any obligation
arising out of any covenant of quiet enjoyment contained in the Leases in the
event that any tenant under a Lease shall have been joined as a party defendant
in any action by which the estate of such tenant shall be terminated) or (ii)
place upon Beneficiary any responsibility for the operation, control, care,
management or repair of the Premises.
SECTION 2.2. Security Interest in Fixtures.
-----------------------------
2.2.1 This Deed to Secure Debt shall constitute a security agreement
and shall create and evidence a security interest in all the Equipment and in
all the other items of Mortgaged Property to the extent the same constitute
"fixtures" under the UCC as in effect in Georgia in which a security inter-
<PAGE>
-33-
est may be granted pursuant to the UCC as in effect in the State of Georgia
(collectively, "Fixtures").
2.2.2 Upon the occurrence of any Event of Default, in addition to the
remedies set forth in Article III, Beneficiary shall have the power to sell the
Fixtures in accordance with the Uniform Commercial Code as enacted in the state
in which the Premises are located or under other applicable law. It shall not
be necessary that any Fixtures offered be physically present at any such sale or
constructively in the possession of Beneficiary or the person conducting the
sale.
2.2.3 Upon the occurrence and during the continuance of any Event of
Default, Beneficiary may sell the Fixtures or any part thereof at public or
private sale with notice to Grantor as hereinafter provided. The proceeds of
any such sale, after deducting all expenses of Beneficiary in taking, storing,
repairing and selling the Fixtures (including, without limitation, attorneys'
fees and legal expenses) shall be applied in the manner set forth in subsection
3.3.3. At any sale, public or private, of the Fixtures or any part thereof,
Beneficiary may purchase any or all of the Fixtures offered at such sale.
2.2.4 Beneficiary shall give Grantor reasonable notice of any sale of
any of the Fixtures pursuant to the provisions of this Section 2.2.
Notwithstanding the provisions of Section 5.2, any such notice shall
conclusively be deemed to be reasonable and effective if such notice is mailed
at least five (5) days prior to any sale, by first class or certified mail,
postage prepaid, to Grantor at its address determined in accordance with the
provisions of Section 5.2.
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES
------------------------------
SECTION 3.1. Events of Default. It shall be an Event of Default
-----------------
hereunder if there shall have occurred and be continuing an Event of Default
under the Credit Agreement.
SECTION 3.2. Remedies in Case of an Event of Default. If any Event
---------------------------------------
of Default shall have occurred and be continuing, Beneficiary may at
Beneficiary's option, in addition to any other action permitted under this Deed
to Secure Debt or
<PAGE>
-34-
the Credit Agreement or by law, statute or in equity, take one or more of the
following actions:
3.2.1 by written notice to Grantor, declare in accordance with and
pursuant to the terms of the Credit Agreement the entire unpaid amount of the
Secured Obligations to be due and payable immediately;
3.2.2 personally, or by its agents or attorneys, (i) enter into and
upon and take possession of all or any part of the Premises together with the
books, records and accounts of Grantor relating thereto and, exclude Grantor,
its agents and servants wholly therefrom, (ii) use, operate, manage and control
the Premises and the Equipment and conduct the business thereof, (iii) maintain
and restore the Premises and the Equipment, (iv) make all necessary or proper
repairs, renewals and replacements and such useful Alterations thereto and
thereon as Beneficiary may deem advisable, (v) manage, lease and operate the
Premises and carry on the business thereof and exercise all rights and powers of
Grantor with respect thereto either in the name of Grantor or otherwise or (vi)
collect and receive all earnings, revenues, rents, issues, profits and income of
the Mortgaged Property and every part thereof. Beneficiary shall be under no
liability for or by reason of any such taking of possession, entry, removal or
holding, operation or management except that any amounts so received by
Beneficiary shall be applied as follows:
FIRST: to pay costs and expenses (including, without limitation,
attorneys' fees and expenses) of so entering upon, taking possession of,
holding, operating and managing the Mortgaged Property or any part thereof,
and any taxes, assessments or other charges which Beneficiary may consider
necessary or desirable to pay, and any other amounts due to Beneficiary;
SECOND: to the payment in full in cash of Secured Obligations
consisting of interest and all amounts other than principal under the
Credit Agreement at any time and from time to time owing by Grantor under
or in connection with the Credit Agreement, ratably according to the unpaid
amounts thereof, in the manner and priority set forth in the Credit
Agreement, together with interest on each such amount in the manner and to
the extent set forth in the
<PAGE>
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Credit Agreement from and after the date such amount is due, owing or
unpaid until paid in full;
THIRD: to the pro rata payment in full in cash of Secured Obligations
--- ----
consisting of (i) principal at any time and from time to time owing by
Grantor under or in connection with the Credit Agreement, ratably according
to the unpaid amounts thereof, in the manner and priority set forth in the
Credit Agreement and (ii) the amount of Grantor's obligations then due and
payable under any Interest Rate Agreement, including any early termination
payments then due (exclusive of expenses or similar liabilities to any Bank
under the applicable Interest Rate Agreement(s)), together with interest on
each such amount in the manner and to the extent set forth in the Credit
Agreement from and after the date such amount is due, owing or unpaid until
paid in full; and
FOURTH: the balance, if any, to the Person lawfully entitled thereto
(including Grantor or its successors or assigns), if all conditions to the
release of this Deed to Secure Debt shall have been fulfilled, but if any
such condition shall not have been fulfilled, to be held by Beneficiary and
thereafter applied to any future payments required to be made in accordance
with clauses FIRST, SECOND and THIRD above.
3.2.3 with or without entry, personally or by its agents or
attorneys, (i) sell the Mortgaged Property and all estate, right, title and
interest, claim and demand therein at one or more sales in one or more parcels,
in accordance with the provisions of Section 3.3 or (ii) institute and prosecute
proceedings for the complete or partial foreclosure of the Lien and security
interests created and evidenced hereby; or
3.2.4 take such steps to protect and enforce its rights whether by
action, suit or proceeding at law or in equity for the specific performance of
any covenant, condition or agreement in the Credit Agreement and the other
Credit Documents, or in aid of the execution of any power granted in this Deed
to Secure Debt, or for any foreclosure hereunder, or for the enforcement of any
other appropriate legal or equitable remedy or otherwise as Beneficiary shall
elect.
SECTION 3.3. Sale of Mortgaged Property if Event of Default Occurs;
------------------------------------------------------
Proceeds of Sale.
- ----------------
<PAGE>
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3.3.1 Upon acceleration of the Loans and all Obligations owing under
the Credit Agreement as provided in subsection 3.2.1 hereof, Beneficiary may
institute an action to foreclose this Deed to Secure Debt or take such other
action as may be permitted and available to Beneficiary at law or in equity for
the enforcement of the Credit Agreement and realization on the Mortgaged
Property and proceeds thereon through power of sale or to final judgment and
execution thereof for the Secured Obligations, and in furtherance thereof
Beneficiary may sell the Mortgaged Property at one or more sales, as an entirety
or in parcels, at such time and place, upon such terms and after such notice
thereof as may be required or permitted by law or statute or in equity.
Beneficiary may execute and deliver to the purchaser at such sale a conveyance
of the Mortgaged Property in fee simple and an assignment or conveyance of all
Grantor's Interest in the Leases and the Mortgaged Property, each of which
conveyances and assignments shall contain recitals as to the Event of Default
upon which the execution of the power of sale herein granted depends, and
Grantor hereby constitutes and appoints Beneficiary the true and lawful attorney
in fact of Grantor to make any such recitals, sale, assignment and conveyance,
and all of the acts of Beneficiary as such attorney in fact are hereby ratified
and confirmed. Grantor agrees that such recitals shall be binding and
conclusive upon Grantor and that any assignment or conveyance to be made by
Beneficiary shall divest Grantor of all right, title, interest, equity and right
of redemption, including any statutory redemption, in and to the Mortgaged
Property. The power and agency hereby granted are coupled with an interest and
are irrevocable by death or dissolution, or otherwise, and are in addition to
any and all other remedies which Beneficiary may have hereunder, at law or in
equity. So long as the Secured Obligations, or any part thereof, remain unpaid,
Grantor agrees that possession of the Mortgaged Property by Grantor, or any
person claiming under Grantor, shall be as tenant, and, in case of a sale under
power or upon foreclosure as provided in this Deed to Secure Debt, Grantor and
any person in possession under Grantor, as to whose interest such sale was not
made subject, shall, at the option of the purchaser at such sale, then become
and be tenants holding over, and shall forthwith deliver possession to such
purchaser, or be summarily dispossessed in accordance with the laws applicable
to tenants holding over. In case of any sale under this Deed to Secure Debt by
virtue of the exercise of the powers herein granted, or pursuant to any order in
any judicial proceeding or otherwise, the Mortgaged Property may be sold as
<PAGE>
-37-
an entirety or in separate parcels in such manner or order as Beneficiary in its
discretion may elect. One or more exercises of powers herein granted shall not
extinguish or exhaust such powers, until the entire Mortgaged Property is sold
or all amounts secured hereby are paid in full.
3.3.2 In the event of any sale made under or by virtue of this
Article III, the entire principal of, and interest in respect of the Secured
Obligations, if not previously due and payable, shall, at the option of
Beneficiary, immediately become due and payable, anything in this Deed to Secure
Debt to the contrary notwithstanding.
3.3.3 The proceeds of any sale made under or by virtue of this
Article III, together with any other sums which then may be held by Beneficiary
under this Deed to Secure Debt, whether under the provisions of this Article III
or otherwise, shall be applied as follows:
FIRST: to pay the costs and expenses incurred by Beneficiary in
enforcing its remedies under this Deed to Secure Debt;
SECOND: to pay the costs and expenses of the sale and of any receiver
of the Mortgaged Property or any part thereof appointed pursuant to
subsection 3.5.2;
THIRD: to the payment in full in cash of Secured Obligations
consisting of interest and all amounts other than principal under the
Credit Agreement at any time and from time to time owing by Grantor under
or in connection with the Credit Agreement, ratably according to the unpaid
amounts thereof, in the manner and priority set forth in the Credit
Agreement, together with interest on each such amount in the manner and to
the extent set forth in the Credit Agreement from and after the date such
amount is due, owing or unpaid until paid in full;
FOURTH: to the pro rata payment in full in cash of Secured
--- ----
Obligations consisting of (i) principal at any time and from time to time
owing by Grantor under or in connection with the Credit Agreement, ratably
according to the unpaid amounts thereof, in the manner and priority set
forth in the Credit Agreement and (ii) the amount of Grantor's obligations
then due and payable under any Interest Rate Agreement, including any early
termination payments
<PAGE>
-38-
then due (exclusive of expenses or similar liabilities to any Bank under
the applicable Interest Rate Agreement(s)), together with interest on each
such amount in the manner and to the extent set forth in the Credit
Agreement from and after the date such amount is due, owing or unpaid until
paid in full; and
FIFTH: the balance, if any, to the Person lawfully entitled thereto
(including Grantor or its successors or assigns).
3.3.4 Beneficiary (on behalf of any Bank or on its own behalf) or any
Bank or any of their respective Affiliates may bid for and acquire the Mortgaged
Property or any part thereof at any sale made under or by virtue of this
Article III and, in lieu of paying cash therefor, may make settlement for the
purchase price by crediting against the purchase price the unpaid amounts
(whether or not then due) owing to Beneficiary, or such Bank in respect of the
Secured Obligations, after deducting from the sales price the expense of the
sale and the reasonable costs of the action or proceedings and any other sums
that Beneficiary or such Bank is authorized to deduct under this Deed to Secure
Debt.
3.3.5 Beneficiary may adjourn from time to time any sale by it to be
made under or by virtue of this Deed to Secure Debt by announcement at the time
and place appointed for such sale or for such adjourned sale or sales, and,
Beneficiary, without further notice or publication, may make such sale at the
time and place to which the same shall be so adjourned.
3.3.6 If the Premises is comprised of more than one parcel of land,
Beneficiary may take any of the actions authorized by this Section 3.3 in
respect of any or a number of individual parcels.
SECTION 3.4. Additional Remedies in Case of an Event of Default.
--------------------------------------------------
3.4.1 Beneficiary shall be entitled to recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of the provisions of this Deed to Secure Debt, and the right of
Beneficiary to recover such judgment shall not be affected by any entry or sale
hereunder, or by the exercise of any other right, power or remedy for the
enforcement of the provisions of this Deed to Se-
<PAGE>
-39-
cure Debt, or the foreclosure of, or absolute conveyance pursuant to, this Deed
to Secure Debt. In case of proceedings against Grantor in insolvency or
bankruptcy or any proceedings for its reorganization or involving the
liquidation of its assets, Beneficiary shall be entitled to prove the whole
amount of principal and interest and other payments, charges and costs due in
respect of the Secured Obligations to the full amount thereof without deducting
therefrom any proceeds obtained from the sale of the whole or any part of the
Mortgaged Property; provided, however, that in no case shall Beneficiary
-------- -------
receive a greater amount than the aggregate of such principal, interest and such
other payments, charges and costs (with interest at the Default Rate) from the
proceeds of the sale of the Mortgaged Property and the distribution from the
estate of Grantor.
3.4.2 Any recovery of any judgment by Beneficiary and any levy of any
execution under any judgment upon the Mortgaged Property shall not affect in any
manner or to any extent the Lien and security interests created and evidenced
hereby upon the Mortgaged Property or any part thereof, or any conveyances,
powers, rights and remedies of Beneficiary hereunder, but such conveyances,
powers, rights and remedies shall continue unimpaired as before.
3.4.3 Any moneys collected by Beneficiary under this Section 3.4
shall be applied in accordance with the provisions of subsection 3.3.3.
SECTION 3.5. Legal Proceedings After an Event of Default.
-------------------------------------------
3.5.1 After the occurrence of any Event of Default and immediately
upon the commencement of any action, suit or legal proceedings to obtain
judgment for the Secured Obligations or any part thereof, or of any proceedings
to foreclose the Lien and security interest created and evidenced hereby or
otherwise enforce the provisions of this Deed to Secure Debt or of any other
proceedings in aid of the enforcement of this Deed to Secure Debt, Grantor shall
enter its voluntary appearance in such action, suit or proceeding.
3.5.2 Upon the occurrence and during the continuance of an Event of
Default, Beneficiary shall be entitled forthwith as a matter of right,
concurrently or independently of any other right or remedy hereunder either
before or after declaring the Secured Obligations or any part thereof to be due
and
<PAGE>
-40-
payable, to the appointment of a receiver without giving notice to any party and
without regard to the adequacy or inadequacy of any security for the Secured
Obligations or the solvency or insolvency of any person or entity then legally
or equitably liable for the Secured Obligations or any portion thereof. Grantor
hereby consents to the appointment of such receiver. Notwithstanding the
appointment of any receiver, Beneficiary shall be entitled as pledgee to the
possession and control of any cash, deposits or instruments at the time held by
or payable or deliverable under the terms of the Credit Agreement to
Beneficiary.
3.5.3 Grantor shall not (i) at any time insist upon, or plead, or in
any manner whatsoever claim or take any benefit or advantage of any stay or
extension or moratorium law, any exemption from execution or sale of the
Mortgaged Property or any part thereof, wherever enacted, now or at any time
hereafter in force, which may affect the covenants and terms of performance of
this Deed to Secure Debt, (ii) claim, take or insist on any benefit or advantage
of any law now or hereafter in force providing for the valuation or appraisal of
the Mortgaged Property, or any part thereof, prior to any sale or sales of the
Mortgaged Property which may be made pursuant to this Deed to Secure Debt, or
pursuant to any decree, judgment or order of any court of competent jurisdiction
or (iii) after any such sale or sales, claim or exercise any right under any
statute heretofore or hereafter enacted to redeem the property so sold or any
part thereof. To the extent permitted by applicable law, Grantor hereby
expressly (i) waives all benefit or advantage of any such law or laws,
including, without limitation, any statute of limitations applicable to this
Deed to Secure Debt, (ii) waives any and all rights to trial by jury in any
action or proceeding relating to the enforcement of this Deed to Secure Debt,
(iii) waives any objection which it may now or hereafter have to the laying of
venue of any action, suit or proceeding brought in connection with this Deed to
Secure Debt and further waives and agrees not to plead that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum and (iv) covenants not to hinder, delay or impede the execution of any
power granted or delegated to Beneficiary by this Deed to Secure Debt but to
suffer and permit the execution of every such power as though no such law or
laws had been made or enacted. Beneficiary shall not be liable for any
incorrect or improper payment made
<PAGE>
-41-
pursuant to this Article III in the absence of gross negligence or willful
misconduct.
SECTION 3.6. Remedies Not Exclusive. No remedy conferred upon or
----------------------
reserved to Beneficiary by this Deed to Secure Debt is intended to be exclusive
of any other remedy or remedies, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this Deed
to Secure Debt or now or hereafter existing at law or in equity. Any delay or
omission of Beneficiary to exercise any right or power accruing on any Event of
Default shall not impair any such right or power and shall not be construed to
be a waiver of or acquiescence in any such Event of Default. Every power and
remedy given by this Deed to Secure Debt may be exercised from time to time
concurrently or independently, when and as often as may be deemed expedient by
Beneficiary in such order and manner as Beneficiary, in its sole discretion, may
elect. If Beneficiary accepts any moneys required to be paid by Grantor under
this Deed to Secure Debt after the same become due, such acceptance shall not
constitute a waiver of the right either to require prompt payment, when due, of
all other sums secured by this Deed to Secure Debt or to declare an Event of
Default with regard to subsequent defaults. If Beneficiary accepts any moneys
required to be paid by Grantor under this Deed to Secure Debt in an amount less
than the sum then due, such acceptance shall be deemed an acceptance on account
only and on the condition that it shall not constitute a waiver of the
obligation of Grantor to pay the entire sum then due, and Grantor's failure to
pay the entire sum then due shall be and continue to be a default hereunder
notwithstanding acceptance of such amount on account.
ARTICLE IV
CERTAIN DEFINITIONS
-------------------
The following terms shall have the following respective meanings:
"Cost of Construction" means the sum, so far as it relates to the
--------------------
reconstructing, renewing, restoring or replacing of the Improvements, of (i)
obligations incurred or assumed by Grantor or undertaken by tenants pursuant to
the terms of the Leases for labor, materials and other expenses and to
contrac-
<PAGE>
-42-
tors, builders and materialmen; (ii) the cost of contract bonds and of insurance
of all kinds that may reasonably be deemed by Grantor to be desirable or
necessary during the course of construction; (iii) the expenses incurred or
assumed by Grantor for test borings, surveys, estimates, any Plans and
Specifications and preliminary investigations therefor, and for supervising
construction, as well as for the performance of all other duties required by or
reasonably necessary for proper construction; (iv) ad valorem property taxes
levied upon the Premises during performance of any Restoration; and (v) any
costs or other charges in connection with obtaining title insurance and counsel
opinions that may be required or necessary in connection with a Restoration.
"Governmental Authority" shall mean any federal, state, local or
----------------------
foreign court, agency, authority, board, bureau, commission, department, office
or instrumentality of any nature whatsoever or any governmental or quasi-
governmental unit, whether now or hereafter in existence, or any officer or
official thereof, having jurisdiction over Grantor or the Mortgaged Property.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 5.1. Severability of Provisions. Any provision of this
--------------------------
Deed to Secure Debt which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 5.2. Notices. Unless otherwise provided herein or in the
-------
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, if
to Grantor or Beneficiary, addressed to it at the address set forth in the
Credit Agreement, or as to either party at such other address as shall be
designated by such party in a written notice to the other parties complying as
to delivery with the terms of this Section 5.2; provided, however, that notices
-------- -------
to Beneficiary shall not be effective until received by Beneficiary.
<PAGE>
-43-
SECTION 5.3. Covenants To Run with the Land. All of the grants,
------------------------------
covenants, terms, provisions and conditions in this Deed to Secure Debt shall
run with the Land and shall apply to, and bind the successors and assigns of,
Grantor. If there shall be more than one grantor, the covenants and warranties
hereof shall be joint and several.
SECTION 5.4. Headings. The Section headings used in this Deed to
--------
Secure Debt are for convenience of reference only and shall not affect the
construction of this Deed to Secure Debt.
SECTION 5.5. Limitation on Interest Payable. It is the intention
------------------------------
of the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Deed to Secure Debt is a
part. All agreements between Grantor and Beneficiary whether now existing or
hereafter arising and whether oral or written, are hereby expressly limited so
that in no contingency or event whatsoever shall the amount paid or agreed to be
paid by Grantor for the use, forbearance or detention of the money to be loaned
under the Credit Agreement or any related document, or for the payment or
performance of any covenant or obligation contained herein or in the Credit
Agreement or any related document, exceed the maximum amount permissible under
applicable federal or state usury laws. If under any circumstances whatsoever
fulfillment of any such provision, at the time performance of such provision
shall be due, shall involve exceeding the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced to the limit of such
validity. If under any circumstances Grantor shall have paid an amount deemed
interest by applicable law, which would exceed the highest lawful rate, such
amount that would be excessive interest under applicable usury laws shall be
applied to the reduction of the principal amount owing in respect of the Secured
Obligations and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal and any other amounts due hereunder, the
excess shall be refunded to Grantor. All sums paid or agreed to be paid for the
use, forbearance or detention of the principal under any extension of credit by
Beneficiary shall, to the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed by law, be
amortized, prorated, allocated and spread from the date of this Deed to Secure
Debt until payment in full of the Secured Obligations so that the actual rate of
interest
<PAGE>
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on account of such principal amounts is uniform throughout the term hereof.
SECTION 5.6. Governing Law; Submission to Jurisdiction; Venue. (a)
------------------------------------------------
This Deed to Secure Debt and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with and be governed by the laws
of the State in which the Premises are located. Grantor hereby irrevocably
appoints CT Corporation System, having an address at 1633 Broadway, New York,
New York 10019 and such other persons as may hereafter be selected by Grantor
irrevocably agreeing in writing to serve as its agent for service of process in
respect of any such action or proceeding. Nothing herein shall affect the right
of Beneficiary to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against Grantor in any other
jurisdiction.
(b) Grantor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Deed to Secure Debt and
hereby further irrevocably waives and agrees not to plead or claim in any court
that any such action or proceeding brought in any court has been brought in an
inconvenient forum.
SECTION 5.7. No Merger. The rights and estate created by this Deed
---------
to Secure Debt shall not, under any circumstances, be held to have merged into
any other estate or interest now owned or hereafter acquired by Beneficiary
unless Beneficiary shall have consented to such merger in writing.
SECTION 5.8. Modification in Writing. No amendment, modification,
-----------------------
supplement, termination or waiver of or to any provision of this Deed to Secure
Debt, nor consent to any departure by Grantor therefrom shall be effective
unless the same shall be done in accordance with the terms of the Credit
Agreement and unless in writing and signed by Beneficiary. Any amendment,
modification or supplement of or to any provision of this Deed to Secure Debt,
any waiver of any provision of this Deed to Secure Debt, and any consent to any
departure by Grantor from the terms of any provision of this Deed to Secure Debt
shall be effective only in the specific instance and for the specific purpose
for which made or given. Except where notice is specifically required by this
Deed to Secure Debt or any other Credit Document, no notice to or demand on
Grantor in any
<PAGE>
-45-
case shall entitle Grantor to any other or further notice or demand in similar
or other circumstances.
SECTION 5.9. No Credit for Payment of Taxes or Impositions.
---------------------------------------------
Grantor shall not be entitled to any credit against the principal, premium, if
any, or interest payable under the Credit Agreement, and Grantor shall not be
entitled to any credit against any other sums which may become payable under the
terms thereof or hereof, by reason of the payment of any tax or other
impositions on the Mortgaged Property or any part thereof.
SECTION 5.10. Stamp and Other Taxes. Subject to the provisions of
---------------------
subsection 1.5.5 relating to permitted contests, Grantor shall pay any mortgage
recording taxes, with interest and fines and penalties, that may hereafter be
levied, imposed or assessed under or upon or by reason of this Deed to Secure
Debt or the Secured Obligations or any instrument or transaction affecting or
relating to either thereof and in default thereof Beneficiary may advance the
same and the amount so advanced shall be payable by Grantor to Beneficiary
within ten (10) days after demand therefor, together with interest thereon at
the Default Rate.
SECTION 5.11. Estoppel Certificates. Grantor and Beneficiary shall,
---------------------
from time to time, upon thirty (30) days' prior written request of the other
party, execute, acknowledge and deliver to the other party a certificate signed
by an authorized officer or officers stating that this Deed to Secure Debt, the
Credit Agreement and the other Credit Documents are unmodified and in full force
and effect (or, if there have been modifications, that this Deed to Secure Debt,
the Credit Agreement or such Credit Document, as applicable, is in full force
and effect as modified and setting forth such modifications) and stating the
date to which principal and interest have been paid on the Loans.
SECTION 5.12. Additional Security. Without notice to or consent of
-------------------
Grantor and without impairment of the Lien and rights created by this Deed to
Secure Debt, Beneficiary may accept (but Grantor shall not be obligated to
furnish) from Grantor or from any other Person or Persons, additional security
for the Secured Obligations. Neither the giving of this Deed to Secure Debt nor
the acceptance of any such additional security shall prevent Beneficiary from
resorting, first, to such
<PAGE>
-46-
additional security, and, second, to the security created by this Deed to Secure
Debt without affecting Beneficiary's Lien and rights under this Deed to Secure
Debt.
SECTION 5.13. Release. The Mortgaged Property shall be released
-------
from the Lien of this Deed to Secure Debt in accordance with the provisions of
the Credit Agreement or at such time as all Secured Obligations have been paid
in full and the Commitments of the Banks to make any Loan or issue any Letter of
Credit under the Credit Agreement shall have expired or been sooner terminated.
Beneficiary, on the written request and at the expense of Grantor, will execute
and deliver such proper instruments of release and satisfaction or assignment as
may reasonably be requested to evidence such release or assignment, and any such
instrument, when duly executed by Beneficiary and duly recorded by Grantor in
the places where this Deed to Secure Debt is recorded, shall conclusively
evidence the release or assignment of this Deed to Secure Debt.
SECTION 5.14. Certain Expenses of Beneficiary. If any action, suit
-------------------------------
or other proceeding affecting the Mortgaged Property or any part thereof be
commenced, in which action, suit or proceeding Beneficiary is made a party or
participates or in which the right to use the Mortgaged Property or any part
thereof is threatened, or in which it becomes necessary in the judgment of
Beneficiary to defend or uphold the Lien of this Deed to Secure Debt (including,
without limitation, any action, suit or proceeding to establish or uphold the
compliance of the Improvements with any Requirements of Law), then all amounts
reasonably paid or incurred by Beneficiary for the expense of any such action,
suit or other proceeding or to protect its rights therein (whether or not it is
made or becomes a party thereto) or otherwise to enforce or defend the rights
and Lien created by this Deed to Secure Debt, shall be paid by Grantor upon
demand together with interest at the Default Rate from the date of the payment
or incurring thereof to the date of repayment, and any such amount and the
interest thereon shall be a Lien on the Mortgaged Property, prior to any right,
or right to, interest in, or claim upon the Mortgaged Property attaching or
accruing subsequent to or otherwise subordinate to the Lien of this Deed to
Secure Debt, and the same shall be deemed to be secured hereby. All other
amounts reasonably paid, advanced or incurred by Beneficiary in order to secure
and protect the Lien of this Deed to Secure Debt or other security provided
hereunder shall be a like Lien on the Mortgaged Property and be
<PAGE>
-47-
deemed to be secured hereby.
SECTION 5.15. Expenses of Collection. Grantor will upon demand pay
----------------------
to Beneficiary the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and the reasonable fees and expenses
of any experts and agents, which Beneficiary may incur in connection with (i)
the collection of the Secured Obligations, (ii) the enforcement and
administration of this Deed to Secure Debt, (iii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Mortgaged Property, (iv) the exercise or enforcement of any of the rights of
Beneficiary or any Secured Party hereunder or (v) the failure by Grantor to
perform or observe any of the provisions hereof. All amounts payable by Grantor
under this Section 5.16 shall be due upon demand and shall be part of the
Secured Obligations. Grantor's obligations under this Section shall survive the
termination of this Deed to Secure Debt and the discharge of Grantor's other
obligations hereunder.
SECTION 5.16. Business Days. In the event any time period or any
-------------
date provided in this Deed to Secure Debt ends or falls on a day other than a
Business Day, then such time period shall be deemed to end and such date shall
be deemed to fall on the next succeeding Business Day, and performance herein
may be made on such Business Day, with the same force and effect as if made on
such other day.
SECTION 5.17. Relationship. The relationship of Beneficiary to
------------
Grantor hereunder is strictly and solely that of lender and borrower and grantor
and beneficiary and nothing contained in the Credit Agreement, this Deed to
Secure Debt or any other document or instrument now existing and delivered in
connection therewith or otherwise in connection with the Secured Obligations is
intended to create, or shall in any event or under any circumstance be construed
as creating a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between Beneficiary and Grantor
other than as lender and borrower and grantor and beneficiary.
SECTION 5.18. Reconveyance Upon Payment of Secured Obligations. In
------------------------------------------------
the event that Grantor shall cause to be paid and performed in full all of the
Secured Obligations, Beneficiary shall release the Mortgaged Property from the
Lien of this
<PAGE>
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Deed to Secure Debt and reconvey (without warranty by or recourse against
Beneficiary or any Bank) the Mortgaged Property to Grantor.
SECTION 5.19. Concerning Beneficiary.
----------------------
5.19.1 Beneficiary shall be entitled to rely upon any written notice,
statement, certificate, order or other document or any telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person, and, with respect to all matters pertaining to this Deed
to Secure Debt and its duties hereunder, upon advice of counsel selected by it.
5.19.2 With respect to any of its rights and obligations as a Bank,
Beneficiary shall have and may exercise the same rights and powers hereunder.
The term "Banks," "Bank" or any similar terms shall, unless the context clearly
otherwise indicates, include Beneficiary in its individual capacity as a Bank.
Beneficiary may accept deposits from, lend money to, and generally engage in any
kind of banking, trust or other business with Grantor or any entity related to
or affiliated with Grantor to the same extent as if Beneficiary were not acting
as collateral agent.
5.19.3 If any item of Mortgaged Property also constitutes collateral
granted to Beneficiary under any other deed of trust, mortgage, deed to secure
debt, security agreement, pledge or instrument of any type, in the event of any
conflict between the provisions of this Deed to Secure Debt and the provisions
of such other deed of trust, mortgage, security agreement, pledge or instrument
of any type in respect of such collateral, Beneficiary, in its sole discretion,
shall select which provision or provisions shall control.
5.19.4 Beneficiary has been appointed as collateral agent pursuant to
the Credit Agreement. The actions of Beneficiary hereunder are subject to the
provisions of the Credit Agreement. Beneficiary shall have the right hereunder
to make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking action (including, without
limitation, the release or substitution of Mortgaged Property), in accordance
with this Deed to Secure Debt and the Credit Agreement. Beneficiary may resign
and a successor Beneficiary may be appointed in the manner provided in the
Credit Agreement. Upon the acceptance of any appoint-
<PAGE>
-49-
ment as Beneficiary by a successor Beneficiary, that successor Beneficiary shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Beneficiary under this Deed to Secure Debt, and the
retiring Beneficiary shall thereupon be discharged from its duties and
obligations under this Deed to Secure Debt. After any retiring Beneficiary's
resignation, the provisions of this Deed to Secure Debt shall inure to its
benefit as to any actions taken or omitted to be taken by it under this Deed to
Secure Debt while it was Beneficiary.
SECTION 5.20. Future Advances. This Deed to Secure Debt may secure
---------------
future advances. The maximum aggregate amount of all advances of principal under
the Credit Agreement that may be outstanding hereunder at any time is
$75,000,000.
SECTION 5.21. Waiver of Stay.
--------------
5.21.1 Grantor agrees that in the event that Grantor or any property
or assets of Grantor shall hereafter become the subject of a voluntary or
involuntary proceeding under the Bankruptcy Code or Grantor shall otherwise be a
party to any federal or state bankruptcy, insolvency, moratorium or similar
proceeding to which the provisions relating to the automatic stay under Section
362 of the Bankruptcy Code or any similar provision in any such law is
applicable, then, in any such case, whether or not Beneficiary has commenced
foreclosure proceedings under this Deed to Secure Debt, Beneficiary shall be
entitled to relief from any such automatic stay as it relates to the exercise of
any of the rights and remedies (including, without limitation, any foreclosure
proceedings) available to Beneficiary as provided in this Deed to Secure Debt or
in any other Security Document.
5.21.2 Beneficiary shall have the right to petition or move any court
having jurisdiction over any proceeding described in subsection 5.21.1 for the
purposes provided therein, and Grantor agrees (i) not to oppose any such
petition or motion and (ii) at Grantor's sole cost and expense, to assist and
cooperate with Beneficiary, as may be requested by Beneficiary from time to
time, in obtaining any relief requested by Beneficiary, including, without
limitation, by filing any such petitions, supplemental petitions, requests for
relief, documents, instruments or other items from time to time requested by
Beneficiary or any such court.
<PAGE>
-50-
SECTION 5.22. Continuing Security Interest; Assignment. This Deed
----------------------------------------
to Secure Debt shall create a continuing security interest in the Mortgaged
Property and shall (i) be binding upon Grantor, its successors and assigns and
(ii) inure, together with the rights and remedies of Beneficiary hereunder, to
the benefit of Beneficiary and the other Secured Parties and each of their
respective successors, transferees and assigns; no other Persons (including,
without limitation, any other creditor of Grantor) shall have any interest
herein or any right or benefit with respect hereto. Without limiting the
generality of the foregoing clause (ii), any Bank may assign or otherwise
transfer any indebtedness held by it secured by this Deed to Secure Debt to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Bank, herein or otherwise, subject
however, to the provisions of the Credit Agreement and any applicable Interest
Rate Agreement.
SECTION 5.23. Obligations Absolute. All obligations of Grantor
--------------------
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Grantor or any other
Credit Party;
(ii) any lack of validity or enforceability of the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit, any other
Credit Document, or any other agreement or instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit, any other
Credit Document, or any other agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect
<PAGE>
-51-
of this Deed to Secure Debt, any Interest Rate Agreement or any other
Credit Document except as specifically set forth in a waiver granted
pursuant to the provisions of Section 5.8 hereof; or
(vi) any other circumstance or happening whatsoever that is
similar to any of the foregoing.
SECTION 5.24. Beneficiary's Right to Sever Indebtedness.
-----------------------------------------
5.24.1 Grantor acknowledges that (a) the Mortgaged Property does not
constitute the sole source of security for the payment and performance of the
Secured Obligations and that the Secured Obligations are also secured by
property of Grantor in other jurisdictions (all such property, collectively, the
"Collateral"), (b) the number of such jurisdictions and the nature of the
transaction of which this instrument is a part are such that it would have been
impracticable for the parties to allocate to each item of Collateral a specific
loan amount and to execute in respect of such item a separate credit agreement
or interest rate agreement and (c) Grantor intends that Beneficiary have the
same rights with respect to the Mortgaged Property, in foreclosure or otherwise,
that Beneficiary would have had if each item of Collateral had been secured,
mortgaged or pledged pursuant to a separate credit agreement or interest rate
agreement, mortgage or security document. In furtherance of such intent,
Grantor agrees that Beneficiary may at any time by notice (an "Allocation
Notice") to Grantor allocate a portion (the "Allocated Indebtedness") of the
Secured Obligations to the Mortgaged Property and sever from the remaining
Secured Obligations the Allocated Indebtedness. From and after the giving of an
Allocation Notice with respect to the Mortgaged Property, the Secured
Obligations hereunder shall be limited to the extent set forth in the Allocation
Notice and (as so limited) shall, for all purposes, be construed as a separate
loan obligation of Grantor unrelated to the other transactions contemplated by
the Credit Agreement, any Interest Rate Agreement, any other Credit Document or
any document related to any thereof. To the extent that the proceeds on any
foreclosure of the Mortgaged Property shall exceed the Allocated Indebtedness,
such proceeds shall belong to Grantor and shall not be available hereunder to
satisfy any Secured Obligations of Grantor other than the Allocated
Indebtedness. In any action or proceeding to foreclose the Lien of this Deed to
Secure Debt or in
<PAGE>
-52-
connection with any power of sale foreclosure or other remedy exercised under
this Deed to Secure Debt commenced after the giving by Beneficiary of an
Allocation Notice, the Allocation Notice shall be conclusive proof of the limits
of the Secured Obligations hereby secured, and Grantor may introduce, by way of
defense or counterclaim, evidence thereof in any such action or proceeding.
Notwithstanding any provision of this Section 5.24, the proceeds received by
Beneficiary pursuant to this Deed to Secure Debt shall be applied by Beneficiary
in accordance with the provisions of subsection 3.3.3 hereof.
5.24.2 Grantor hereby waives to the greatest extent permitted under
law the right to a discharge of any of the Secured Obligations under any statute
or rule of law now or hereafter in effect which provides that foreclosure of the
Lien of this Deed to Secure Debt or other remedy exercised under this Deed to
Secure Debt constitutes the exclusive means for satisfaction of the Secured
Obligations or which makes unavailable a deficiency judgment or any subsequent
remedy because Beneficiary elected to proceed with a power of sale foreclosure
or such other remedy or because of any failure by Beneficiary to comply with
laws that prescribe conditions to the entitlement to a deficiency judgment. In
the event that, notwithstanding the foregoing waiver, any court shall for any
reason hold that Beneficiary is not entitled to a deficiency judgment, Grantor
shall not (a) introduce in any other jurisdiction such judgment as a defense to
enforcement against Grantor of any remedy in the Credit Agreement, any Interest
Rate Agreement or any other Credit Document or (b) seek to have such judgment
recognized or entered in any other jurisdiction, and any such judgment shall in
all events be limited in application only to the state or jurisdiction where
rendered.
5.24.3 In the event any instrument in addition to the Allocation
Notice is necessary to effectuate the provisions of this Section 5.24,
including, without limitation, any amendment to this Deed to Secure Debt, any
substitute promissory note or affidavit or certificate of any kind, Beneficiary
may execute, deliver or record such instrument as the attorney-in-fact of
Grantor. Such power of attorney is coupled with an interest and is irrevocable.
5.24.4 Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 5.24 shall be effective only to the maximum extent
permitted by law.
<PAGE>
IN WITNESS WHEREOF, Grantor has caused this Deed to Secure Debt to be
duly executed and delivered under seal the day and year first above written.
CARSON PRODUCTS COMPANY,
Grantor
By:
---------------------------------
Name:
Title:
Attest:
-----------------------------
Name:
Title:
Signed, sealed and delivered
in the presence of:
Witness
______________________________
Name:
_____________________________
Notary Public
[Notary Seal]
<PAGE>
Schedule A
----------
[Legal Description]
[To come from Title Policy]
<PAGE>
Schedule B
----------
[Prior Liens]
[To come from Title Policy]
<PAGE>
EXHIBIT 10.44
BORROWER GENERAL SECURITY AGREEMENT
BORROWER GENERAL SECURITY AGREEMENT (the "Agreement"), dated as of
November 6, 1997, made by CARSON PRODUCTS COMPANY, a Delaware corporation having
an office at 64 Ross Road, Savannah, Georgia 31405 ("Pledgor"), in favor of
CREDIT AGRICOLE INDOSUEZ, having an office at 1211 Avenue of the Americas, 7th
Floor, New York, New York 10036, as pledgee, assignee and secured party, in its
capacity as agent and collateral agent (in such capacities and together with any
successors in such capacities, "Collateral Agent") for the lending institutions
(the "Banks") from time to time party to the Credit Agreement (as hereinafter
defined).
R E C I T A L S :
- - - - - - - -
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement), among
Carson, Inc., a Delaware corporation, Pledgor, the Banks and Credit Agricole
Indosuez, as Agent and Collateral Agent for the Banks, the Banks have agreed (i)
to make to or for the account of Pledgor certain Acquisition Term Loans up to an
aggregate principal amount of $50,000,000 and certain Revolving Loans up to an
aggregate principal amount of $25,000,000 and (ii) to issue certain Letters of
Credit for the account of Pledgor.
B. It is contemplated that Pledgor may enter into one or more
agreements with one or more of the Banks ("Interest Rate Agreements") fixing the
interest rates with respect to Loans under the Credit Agreement (all obligations
of Pledgor now existing or hereafter arising under such Interest Rate
Agreements, collectively, the "Interest Rate Obligations").
C. Pledgor is the legal and beneficial owner of the Pledged
Collateral (as hereinafter defined).
<PAGE>
-2-
D. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters of
Credit under the Credit Agreement or entering into the Interest Rate Agreements
that Pledgor execute and deliver the applicable Credit Documents, including this
Agreement.
E. This Agreement is given by Pledgor in favor of Collateral Agent
for its benefit and the benefit of the Banks and Agent (collectively, the
"Secured Parties") to secure the payment and performance of all of the Secured
Obligations (as defined in Section 2).
A G R E E M E N T :
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Collateral Agent hereby agree as follows:
SECTION 1. Pledge. As collateral security for the payment and
------
performance when due of all the Secured Obligations, Pledgor hereby pledges,
assigns, transfers and grants to Collateral Agent for its benefit and the
benefit of the Secured Parties, a continuing first priority security interest
(except as set forth on Schedule A hereto) in and to all of the right, title and
----------
interest of Pledgor in, to and under the following property whether now existing
or hereafter acquired (collectively, the "Pledged Collateral"):
(a) each and every Receivable (as hereinafter defined);
(b) all Inventory (as hereinafter defined);
(c) all books, records, ledgers, print-outs, file materials and other
papers containing information relating to Receivables and any account
debtors in respect thereof, together with all Contracts (as hereinafter
defined) (except where such pledge, assignment, transfer or grant would
violate the provisions of any such Contracts);
(d) all Equipment (as hereinafter defined);
<PAGE>
-3-
(e) all Intangibles (as hereinafter defined);
(f) all Insurance Policies (as hereinafter defined);
(g) all Pension Plan Reversions (as hereinafter defined);
(h) any and all property of every name and nature (excluding any
property constituting Pledged Collateral under the Borrower Intellectual
Property Security Agreement) which from time to time after the date hereof,
by delivery or by writing of any kind for the purposes hereof, shall have
been conveyed, mortgaged, pledged, assigned or transferred by Pledgor or by
anyone on Pledgor's behalf or with its consent to Collateral Agent for the
benefit of the Secured Parties, which is hereby authorized to receive at
any and all times any such property, as and for additional security for the
payment of the Secured Obligations and to hold and apply such property
subject to and in accordance with this Agreement; including, without
limitation, all monies due and to become due to Pledgor in connection with
any of the foregoing and all rights, remedies, powers, privileges and
claims of Pledgor under or in connection therewith;
(i) all Documents (as hereinafter defined);
(j) all Instruments (as hereinafter defined); and
(k) all Proceeds (as hereinafter defined) of any and all of the
foregoing.
SECTION 2. Secured Obligations. This Agreement secures, and the
-------------------
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. (S) 362(a)), of (i) all Obligations of Pledgor now existing or
hereafter arising under the Credit Agreement and all Interest Rate Obligations
of Pledgor now existing or hereafter arising under any Interest Rate Agreement
(including, without limitation, the obligations of Pledgor provided for therein
to pay principal, interest and
<PAGE>
-4-
all other charges, fees, expenses, commissions, reimbursements, premiums,
indemnities and other payments related to or in respect of the Obligations
contained in the Credit Agreement and the obligations contained in any Interest
Rate Agreement) and (ii) without duplication of the amounts described in clause
(i), all obligations of Pledgor now existing or hereafter arising under this
Agreement or any other Security Document, including, without limitation, all
charges, fees, expenses, commissions, reimbursements, premiums, indemnities and
other payments that Pledgor is obligated to pay under this Agreement or any
other Security Document (the obligations described clauses (i) and (ii),
collectively, the "Secured Obligations").
SECTION 3. No Release. Nothing set forth in this Agreement shall
----------
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on
Collateral Agent or any Secured Party to perform or observe any such term,
covenant, condition or agreement on Pledgor's part to be so performed or
observed or shall impose any liability on Collateral Agent or any Secured Party
for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement, any Interest Rate Agreement or any other Credit Document, or
under or in respect of the Pledged Collateral or made in connection herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations under this Agreement, any Interest Rate Agreement and the other
Credit Documents.
SECTION 4. Supplements by Collateral Agent. Pledgor hereby
-------------------------------
authorizes Collateral Agent, without relieving Pledgor of any obligations
hereunder, to file financing statements, continuation statements, amendments
thereto and other documents relative to all or any part thereof, without the
signature of Pledgor where permitted by law, and Pledgor agrees to do such
further acts and things, and to execute and deliver to Collateral Agent such
additional assignments, agreements, powers and instruments, as Collateral Agent
may reasonably deem necessary or appropriate, wherever required or permitted by
law
<PAGE>
-5-
in order to perfect and preserve the rights and interests granted to Collateral
Agent hereunder or to carry into effect the purposes of this Agreement or better
to assure and confirm unto Collateral Agent its respective rights, powers and
remedies hereunder. All of the foregoing shall be at the sole cost and expense
of Pledgor.
SECTION 5. Representations, Warranties and Covenants. Pledgor
-----------------------------------------
represents, warrants and covenants as follows:
(a) Necessary Filings. Upon the filing of financing statements and
-----------------
acceptance thereof in the appropriate offices under the UCC, the security
interest granted to Collateral Agent for the benefit of the Secured Parties
pursuant to this Agreement in and to the Pledged Collateral will constitute a
perfected security interest therein, superior and prior to the rights of all
other Persons therein and subject to no Liens other than the Liens identified on
Schedule A hereto relating to the items of Pledged Collateral identified on such
- ----------
schedule (collectively, "Prior Liens").
(b) No Liens. Pledgor is as of the date hereof, and, as to Pledged
--------
Collateral acquired by it from time to time after the date hereof, Pledgor will
be, the owner of all Pledged Collateral free from any Lien or other right, title
or interest of any Person other than (i) Prior Liens, (ii) the Lien and security
interest created by this Agreement, and (iii) Liens of the type described in
paragraphs (a), (b), (c), (d), (e), (h), (i) and (j) of the definition of
Permitted Encumbrances (collectively, "Permitted Liens"), and Pledgor shall take
all reasonable steps to defend the Pledged Collateral against all claims and
demands of all Persons at any time claiming any interest therein adverse to
Collateral Agent or any Secured Party.
(c) Other Financing Statements. There is no financing statement (or
--------------------------
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Pledged Collateral other than financing statements relating to (i) Prior Liens,
(ii) this Agreement and (iii) Permitted Liens, and so long as any of the Secured
Obligations remain unpaid or the Commitments of the Banks to make any Loan or to
issue any Letter of Credit shall not have expired or been sooner terminated,
Pledgor shall
<PAGE>
-6-
not execute, authorize or permit to be filed in any public office any financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Pledged Collateral, except, in
each case, financing statements filed or to be filed in respect of and covering
the security interests granted by Pledgor pursuant to this Agreement and
financing statements relating to Prior Liens and Permitted Liens.
(d) Chief Executive Office; Records. The chief executive office of
-------------------------------
Pledgor is located at 64 Ross Road, Savannah, Georgia 31405. Pledgor shall not
move its chief executive office except to such new location as Pledgor may
establish in accordance with the last sentence of this Section 5(d). All
tangible evidence of all Receivables, Pension Plan Reversions, Contracts,
Intangibles and Insurance Policies of Pledgor and the only original books of
account and records of Pledgor relating thereto are, and will continue to be,
kept at such chief executive office, or at such new location for such chief
executive office as Pledgor may establish in accordance with the last sentence
of this Section 5(d). All Receivables, Pension Plan Reversions, Contracts,
Intangibles and Insurance Policies of Pledgor are, and will continue to be,
controlled and monitored (including, without limitation, for general accounting
purposes) from such chief executive office location shown above, or such new
location as Pledgor may establish in accordance with the last sentence of this
Section 5(d). Pledgor shall not establish a new location for its chief
executive office nor shall it change its name until (i) it shall have given
Collateral Agent not less than 30 days' prior written notice of its intention so
to do, clearly describing such new location or name and providing such other
information in connection therewith as Collateral Agent or any Secured Party may
request, and (ii) with respect to such new location or name, Pledgor shall have
taken all action reasonably satisfactory to Collateral Agent to maintain the
perfection and priority of the security interest of Collateral Agent for the
benefit of the Secured Parties in the Pledged Collateral intended to be granted
hereby, including, without limitation, obtaining waivers of landlord's or
warehouseman's liens with respect to such new location, if applicable.
(e) Location of Inventory. All Inventory held on the date hereof by
---------------------
Pledgor is located at one of the locations
<PAGE>
-7-
shown on Schedule B hereto, except for Inventory in transit in the ordinary
----------
course of business to or from one or more of such locations. All Inventory now
held or subsequently acquired shall be kept at one of the locations shown on
Schedule B hereto, except for Inventory in transit in the ordinary course of
- ----------
business to or from one or more of such locations, or at such new location as
Pledgor may establish if (i) it shall have given to Collateral Agent at least 30
days' prior written notice of its intention so to do, clearly describing such
new location and providing such other information in connection therewith as
Collateral Agent or any Secured Party may request, and (ii) with respect to such
new location, Pledgor shall have taken all action reasonably satisfactory to
Collateral Agent to maintain the perfection and priority of the security
interest in the Pledged Collateral intended to be granted hereby, including,
without limitation, obtaining waivers of landlord's or warehouseman's liens with
respect to such new location, if applicable.
(f) Location of Equipment. All Equipment held on the date hereof by
---------------------
Pledgor is located at one of the locations shown on Schedule C hereto. All
----------
Equipment now held or subsequently acquired by Pledgor shall be kept at one of
the locations shown on Schedule C hereto, or such new location as Pledgor may
----------
establish if (i) it shall have given to Collateral Agent at least 30 days' prior
written notice of its intention so to do, clearly describing such new location
and providing such other information in connection therewith as Collateral Agent
or any Secured Party may request, and (ii) with respect to such new location,
Pledgor shall have taken all action reasonably satisfactory to Collateral Agent
to maintain the perfection and priority of the security interest of Collateral
Agent for the benefit of the Secured Parties in the Pledged Collateral intended
to be granted hereby, including, without limitation, obtaining waivers of
landlord's or warehouseman's liens with respect to such new location, if
applicable.
(g) Authorization, Enforceability. Pledgor has the requisite
-----------------------------
corporate power, authority and legal right to pledge and grant a security
interest in all the Pledged Collateral pursuant to this Agreement, and this
Agreement constitutes the legal, valid and binding obligation of Pledgor,
enforceable against Pledgor in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium
<PAGE>
-8-
or similar laws relating to or affecting creditors' rights generally and except
as such enforceability may be limited by the application of general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(h) No Consents, etc. No consent of any party (including, without
----------------
limitation, stockholders or creditors of Pledgor or any account debtor under a
Receivable) and no consent, authorization, approval, license or other action by,
and no notice to or filing with, any Governmental Authority or regulatory body
or other Person is required for (x) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Pledgor, or (y) the exercise by Collateral
Agent of the rights provided for in this Agreement, or (z) the exercise by
Collateral Agent of the remedies in respect of the Pledged Collateral pursuant
to this Agreement (other than those consents, authorizations, approvals,
licenses, actions, notices or filings which, if not obtained or made, would not
have a material adverse effect upon the interests of Collateral Agent under this
Agreement).
(i) Pledged Collateral. All information set forth herein, including
------------------
the Schedules annexed hereto, and all information contained in any documents,
schedules and lists heretofore delivered to any Secured Party in connection with
this Agreement, in each case, relating to the Pledged Collateral is accurate and
complete in all material respects.
SECTION 6. Special Provisions Concerning Receivables.
-----------------------------------------
(a) Special Representations and Warranties. As of the time when each
--------------------------------------
of its Receivables arises, Pledgor shall be deemed to have represented and
warranted that such Receivable and all records, papers and documents relating
thereto (i) are genuine and correct and in all material respects what they
purport to be, (ii) represent the legal, valid and binding obligation of the
account debtor, evidencing indebtedness unpaid and owed by such account debtor,
arising out of the performance of labor or services or the sale or lease and
delivery of the merchandise listed therein or out of an advance or a loan, (iii)
will, in the case of a Receivable, except for the original or duplicate original
invoice sent to a purchaser evidenc-
<PAGE>
-9-
ing such purchaser's account, be the only original writings evidencing and
embodying such obligation of the account debtor named therein, (iv) constitute
and evidence true and valid obligations, enforceable in accordance with their
respective terms, not subject to the fulfillment of any contract or condition
whatsoever or to any defenses, set-offs or counterclaims except with respect to
refunds, returns and allowances in the ordinary course of business, or stamp or
other taxes, and (v) are in compliance and conform in all material respects with
all applicable Federal, state and local laws and applicable laws of any relevant
foreign jurisdiction.
(b) Maintenance of Records. Pledgor shall keep and maintain at its
----------------------
own cost and expense complete records of each Receivable, in a manner consistent
with prudent business practice, including, without limitation, records of all
payments received, all credits granted thereon, all merchandise returned and all
other documentation relating thereto, and Pledgor shall make the same available
to Collateral Agent or any Secured Party for inspection upon reasonable prior
notice to any Authorized Officer of Pledgor, at such reasonable times during
regular business hours and intervals and to such reasonable extent as Collateral
Agent or any Secured Party may reasonably request. Pledgor shall, at Pledgor's
sole cost and expense, upon Collateral Agent's demand made at any time after the
occurrence of an Event of Default, deliver all tangible evidence of Receivables,
including, without limitation, all documents evidencing Receivables and any
books and records relating thereto to Collateral Agent or to its representatives
(copies of which evidence and books and records may be retained by Pledgor).
Upon the occurrence and during the continuance of an Event of Default,
Collateral Agent may transfer a full and complete copy of Pledgor's books,
records, credit information, reports, memoranda and all other writings relating
to the Receivables to and for the use by any Person that has acquired or is
contemplating acquisition of an interest in the Receivables or Collateral
Agent's security interest therein without the consent of Pledgor.
(c) Legend. Pledgor shall legend, at the request of Collateral Agent
------
made at any time after the occurrence of an Event of Default and in form and
manner reasonably satisfactory to Collateral Agent, the Receivables and other
books, records and documents of Pledgor evidencing or pertaining to the
Re-
<PAGE>
-10-
ceivables with an appropriate reference to the fact that the Receivables have
been assigned to Collateral Agent for the benefit of the Secured Parties and
that Collateral Agent has a security interest therein.
(d) Modification of Terms, etc. Pledgor shall not rescind or cancel
--------------------------
any indebtedness evidenced by any Receivable or modify any material term thereof
or make any material adjustment with respect thereto except in the ordinary
course of business consistent with prudent business practice, or extend or renew
any such indebtedness except in the ordinary course of business consistent with
prudent business practice or compromise or settle any dispute, claim, suit or
legal proceeding relating thereto except in the ordinary course of business
consistent with prudent business practice or sell any Receivable or interest
therein without the prior written consent of Collateral Agent (such consent not
to be unreasonably withheld or delayed). Pledgor shall timely fulfill all
obligations on its part to be fulfilled under or in connection with the
Receivables (except for such obligations the failure to fulfill which would not
have in the aggregate, a material adverse effect upon the interests of
Collateral Agent under this Agreement).
(e) Collection. Pledgor shall use reasonable efforts to cause to be
----------
collected from the account debtor of each of the Receivables, as and when due
(including, without limitation, Receivables that are delinquent, such
Receivables to be collected in accordance with generally accepted commercial
collection procedures), any and all amounts owing under or on account of such
Receivable, and apply forthwith upon receipt thereof all such amounts as are so
collected to the outstanding balance of such Receivable, except that Pledgor
may, with respect to a Receivable, allow in the ordinary course of business (i)
a refund or credit due as a result of returned or damaged or defective
merchandise and (ii) such extensions of time to pay amounts due in respect of
Receivables and such other modifications of payment terms or settlements in
respect of Receivables as shall be commercially reasonable in the circumstances,
all in accordance with Pledgor's ordinary course of business consistent with its
collection practices as in effect from time to time. The reasonable costs and
expenses (including, without limitation, attorneys' fees) of collection, in any
case, whether incurred by Pledgor, Collateral Agent or any Secured Party, shall
be paid by Pledgor.
<PAGE>
-11-
(f) Instruments. Pledgor shall deliver to Collateral Agent, within
-----------
five days after receipt thereof by Pledgor, any Instrument evidencing
Receivables which is in the principal amount of $500,000 or more. Any
Instrument delivered to Collateral Agent pursuant to this Section 6(f) shall be
appropriately endorsed (if applicable) to the order of Collateral Agent, as
agent for the Secured Parties, and shall be held by Collateral Agent as further
security hereunder; provided, that, so long as no Default or Event of Default
--------
shall have occurred and be continuing, Pledgor may retain for collection in the
ordinary course any Instruments received by Pledgor in the ordinary course of
business and Collateral Agent shall, promptly upon request of Pledgor, make
appropriate arrangements for making any Instrument pledged by Pledgor available
to Pledgor for purposes of presentation, collection or renewal (any such
arrangement to be effected, to the extent deemed appropriate by Collateral
Agent, against trust receipt or like document).
(g) Cash Collateral. Upon the occurrence and during the continuance
---------------
of an Event of Default, if Collateral Agent so directs, Pledgor shall cause all
payments on account of the Receivables to be held by Collateral Agent as cash
collateral, upon acceleration or otherwise. Without notice to or assent by
Pledgor, Collateral Agent may apply any or all amounts then or thereafter held
as cash collateral in the manner provided in Section 11. The reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees) of
collection, whether incurred by Collateral Agent or any Secured Party, shall be
paid by Pledgor.
SECTION 7. Provisions Concerning All Pledged Collateral.
--------------------------------------------
(a) Protection of Collateral Agent's Security. Pledgor shall not
-----------------------------------------
take any action that impairs the rights of Collateral Agent or any Secured Party
in the Pledged Collateral. Pledgor shall at all times keep the Inventory and
Equipment insured, at Pledgor's own expense, to Collateral Agent's reasonable
satisfaction against fire, theft and all other risks of the kind customarily
insured against, in such amounts and with such deductibles as would customarily
be maintained under similar circumstances by operators of businesses similar to
the business of Pledgor to the extent available at commercially reasonable
rates. Each policy or certificate with respect to
<PAGE>
-12-
such insurance shall be endorsed to Collateral Agent's reasonable satisfaction
for the benefit of Collateral Agent (including, without limitation, by naming
Collateral Agent as an additional named insured and sole loss payee as
Collateral Agent may request) and such policy or certificate shall be delivered
to Collateral Agent. Each such policy shall state that it cannot be cancelled
without 30 days' prior written notice to Collateral Agent. At least 30 days
prior to the expiration of any such policy of insurance, Pledgor shall deliver
to Collateral Agent an extension or renewal policy or an insurance certificate
evidencing renewal or extension of such policy. If Pledgor shall fail to insure
such Pledged Collateral to Collateral Agent's reasonable satisfaction,
Collateral Agent shall have the right (but shall be under no obligation),
following five (5) Business Days' prior written notice to Pledgor of its
intention to do so, to advance funds to procure or renew or extend such
insurance and Pledgor agrees to reimburse Collateral Agent for all reasonable
costs and expenses thereof, with interest on all such funds from the date
advanced until paid in full at the highest rate then in effect under the Credit
Agreement.
(b) Insurance Proceeds. So long as no Event of Default shall have
------------------
occurred and be continuing, Pledgor shall have the option as provided in Section
3.02(A)(h) of the Credit Agreement (i) to apply any proceeds of property
insurance (less any portion of such proceeds not in excess of $500,000) received
by it as Net Cash Proceeds in accordance with Section 3.02(B)(a) of the Credit
Agreement or (ii) to apply the proceeds of such insurance to the repair or
replacement of the item or items of Pledged Collateral in respect of which such
proceeds were received. In the event that Pledgor elects to apply such proceeds
to the repair or replacement of any item of Pledged Collateral pursuant to
clause (ii) of the preceding sentence, Pledgor shall upon its receipt of such
proceeds from Collateral Agent as promptly as practicable commence and
diligently continue to perform such repair or as promptly as practicable effect
such replacement. Upon the occurrence and during the continuance of an Event of
Default, Collateral Agent shall have the option to apply any proceeds of
insurance received by Pledgor in respect of the Pledged Collateral toward the
payment of the Secured Obligations in accordance with Section 11 hereof or to
continue to hold such proceeds as addi-
<PAGE>
-13-
tional collateral to secure the performance by Pledgor of the Secured
Obligations.
(c) Maintenance of Equipment. Pledgor shall exercise commercially
------------------------
reasonable efforts to cause the Equipment to be maintained and preserved in good
repair, working order and condition, ordinary wear and tear excepted, and to the
extent consistent with current business practice in accordance with any
manufacturer's manual, and shall, in the case of any loss or damage which
(individually or in the aggregate) exceeds $100,000 to any of the Equipment (of
which prompt notice shall be given to Collateral Agent) as quickly as
commercially practicable after the occurrence thereof, make or cause to be made
all repairs, replacements and other improvements in connection therewith which
are necessary or desirable in the conduct of Pledgor's business in Pledgor's
commercially reasonable judgment.
(d) Payment of Taxes; Claims. Pledgor shall pay, prior to the date
------------------------
on which material penalties attach thereto, all property and other material
taxes, assessments and governmental charges or levies imposed upon, and all
lawful claims (including claims for labor, materials and supplies) against, the
Pledged Collateral which, if unpaid might become a Lien upon the Pledged
Collateral. Notwithstanding the foregoing, Pledgor may at its own expense
contest the amount or applicability of any of the obligations described in the
preceding sentence as permitted under the Credit Agreement.
(e) Further Actions. Pledgor shall, at its sole cost and expense,
---------------
make, execute, endorse, acknowledge, file or refile and/or deliver to Collateral
Agent from time to time such lists, descriptions and designations of the Pledged
Collateral, copies of warehouse receipts, receipts in the nature of warehouse
receipts, bills of lading, documents of title, vouchers, invoices, schedules,
confirmatory assignments, supplements, additional security agreements,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such further
steps relating to the Pledged Collateral and other property or rights covered by
the security interest hereby granted, which Collateral Agent reasonably deems
appropriate or advisable to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral and to perfect,
<PAGE>
-14-
preserve or protect the security interest in the Pledged Collateral created and
granted by this Agreement.
(f) Financing Statements. Pledgor shall sign and deliver to
--------------------
Collateral Agent such financing and continuation statements, in form reasonably
acceptable to Collateral Agent, as may from time to time be required to
continue and maintain a valid, enforceable, first priority security interest in
the Pledged Collateral as provided herein and the other rights, as against third
parties, provided hereby, all in accordance with the UCC or any other relevant
law. Pledgor shall pay any applicable filing fees and other expenses related to
the filing of such financing and continuation statements. Pledgor authorizes
Collateral Agent to file any such financing or continuation statements without
the signature of Pledgor where permitted by law.
(g) Warehouse Receipts Non-Negotiable. If any warehouse receipt or
---------------------------------
receipt in the nature of a warehouse receipt is issued with respect to any of
the Inventory, Pledgor shall not permit such warehouse receipt or receipt in the
nature thereof to be "negotiable" (as such term is used in Section 7-104 of the
UCC or under other relevant law).
SECTION 8. Transfers and Other Liens. Pledgor shall not (a) sell,
-------------------------
convey, assign or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral except as permitted by the Credit Agreement or (b)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral other than (i) Prior Liens, (ii) the Lien and security interest
granted to Collateral Agent pursuant to this Agreement, and (iii) Permitted
Liens.
Upon any sale or other disposition of any assets of Pledgor which is
in compliance with the Credit Agreement and the proceeds of which sale or other
disposition are used to make a mandatory prepayment of the Loans pursuant to
Section 3.02(A) of the Credit Agreement, such assets constituting Pledged
Collateral shall be released from the Lien of this Agreement in accordance with
Section 17 of this Agreement.
SECTION 9. Reasonable Care. Collateral Agent shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially
<PAGE>
-15-
equivalent to that which Collateral Agent, in its individual capacity, accords
its own property, it being understood that Collateral Agent shall not have
responsibility for taking any necessary steps to preserve rights against any
Person with respect to any Pledged Collateral.
SECTION 10. Remedies Upon Default; Obtaining the Pledged Collateral
-------------------------------------------------------
Upon Event of Default. (a) If an Event of Default shall have occurred and be
- ---------------------
continuing, and the Secured Obligations have been declared due and payable in
accordance with the Credit Agreement, then and in every such case, Collateral
Agent may:
(i) Personally, or by agents or attorneys, immediately take
possession of the Pledged Collateral or any part thereof, from Pledgor or
any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
Pledgor's premises where any of the Pledged Collateral is located and
remove such Pledged Collateral and use in connection with such removal any
and all services, supplies, aids and other facilities of Pledgor.
(ii) Instruct the obligor or obligors on any agreement, instrument
or other obligation (including, without limitation, the Receivables and
Contracts) constituting the Pledged Collateral to make any payment required
by the terms of such instrument or agreement directly to Collateral Agent;
provided, however, that in the event that any such payments are made
-------- -------
directly to Pledgor, prior to receipt by any such obligor of such
instruction, Pledgor shall segregate all amounts received pursuant thereto
in a separate account and pay the same as promptly as practicable to
Collateral Agent.
(iii) Sell, assign or otherwise liquidate, or direct Pledgor to
sell, assign or otherwise liquidate, any or all investments made in whole
or in part with the Pledged Collateral or any part thereof, and take
possession of the proceeds of any such sale, assignment or liquidation.
(iv) Take possession of the Pledged Collateral or any part thereof,
by directing Pledgor in writing to deliver the same to Collateral Agent at
any place or places so designated by Collateral Agent, in which event
Pledgor
<PAGE>
-16-
shall at its own expense: (A) forthwith cause the same to be moved to the
place or places designated by Collateral Agent and there delivered to
Collateral Agent; (B) store and keep any Pledged Collateral so delivered to
Collateral Agent at such place or places pending further action by
Collateral Agent; and (C) while the Pledged Collateral shall be so stored
and kept, provide such security and maintenance services as shall be
reasonably necessary to protect the same and to preserve and maintain them
in good condition. Pledgor's obligation to deliver the Pledged Collateral
is of the essence of this Agreement. Upon application to a court of equity
having jurisdiction, Collateral Agent shall be entitled to a decree
requiring specific performance by Pledgor of such obligation.
(b) Remedies; Disposition of the Pledged Collateral.
-----------------------------------------------
(i) Upon the occurrence and during the continuance of an Event of
Default, Collateral Agent may from time to time exercise in respect of the
Pledged Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the UCC, and Collateral Agent may also in
its sole discretion, without notice except as specified below, sell the
Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of Collateral
Agent's offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Collateral Agent
may deem commercially reasonable. Collateral Agent or any other Secured
Party or any of their respective Affiliates may be the purchaser of any or
all of the Pledged Collateral at any such sale and shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Pledged Collateral sold at such sale,
to use and apply any of the Secured Obligations owed to such Person as a
credit on account of the purchase price of any Pledged Collateral payable
by such Person at such sale. Each purchaser at any such sale shall acquire
the property sold absolutely free from any claim or right on the part of
Pledgor. Collateral Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given.
Col-
<PAGE>
-17-
lateral Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Pledgor hereby waives, to the fullest extent permitted by law,
any claims against Collateral Agent arising by reason of the fact that the
price at which any Pledged Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public
sale, even if Collateral Agent accepts the first offer received and does
not offer such Pledged Collateral to more than one offeree.
(ii) Pledgor acknowledges and agrees that, to the extent notice of
sale shall be required by law, ten days' notice to Pledgor of the time and
place of any public sale or of the time after which any private sale or
other intended disposition is to take place shall be commercially
reasonable notification of such matters. No notification need be given to
Pledgor if it has signed, after the occurrence of an Event of Default, a
statement renouncing or modifying any right to notification of sale or
other intended disposition.
(c) Waiver of Notice and Claims. Pledgor hereby waives, to the
---------------------------
fullest extent permitted by applicable law, notice or judicial hearing in
connection with Collateral Agent's taking possession or Collateral Agent's
disposition of any of the Pledged Collateral, including, without limitation, any
and all prior notice and hearing for any prejudgment remedy or remedies and any
such right which Pledgor would otherwise have under law, and Pledgor hereby
further waives, to the fullest extent permitted by applicable law: (i) all
damages occasioned by such taking of possession; (ii) all other requirements as
to the time, place and terms of sale or other requirements with respect to the
enforcement of Collateral Agent's rights hereunder; and (iii) all rights of
redemption, appraisal, valuation, stay, extension or moratorium now or hereafter
in force under any applicable law. Collateral Agent shall not be liable for any
incorrect or improper payment made pursuant to this Section 10 in the absence of
gross negligence or willful misconduct. Any sale of, or the grant of options to
purchase, or any other realization upon, any Pledged Collateral shall operate to
divest all right, title, interest, claim and demand, either at
<PAGE>
-18-
law or in equity, of Pledgor therein and thereto, and shall be a perpetual bar
both at law and in equity against Pledgor and against any and all Persons
claiming or attempting to claim the Pledged Collateral so sold, optioned or
realized upon, or any part thereof, from, through or under Pledgor.
(d) Certain Sales of Pledged Collateral. Pledgor recognizes that, by
-----------------------------------
reason of certain prohibitions contained in law, rules, regulations or orders of
any foreign Governmental Authority, Collateral Agent may be compelled, with
respect to any sale of all or any part of the Pledged Collateral, to limit
purchasers to those who meet the requirements of such foreign Governmental
Authority. Pledgor acknowledges that any such sales may be at prices and on
terms less favorable to Collateral Agent than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such restricted sale shall be deemed to have been made in a
commercially reasonable manner.
SECTION 11. Application of Proceeds. The proceeds received by
-----------------------
Collateral Agent in respect of any sale of, collection from or other realization
upon all or any part of the Pledged Collateral pursuant to the exercise by
Collateral Agent of its remedies as a secured creditor as provided in Section 10
hereof shall be applied, together with any other sums then held by Collateral
Agent pursuant to this Agreement, promptly by Collateral Agent as follows:
First, to the payment of all costs and expenses, fees, commissions and
-----
taxes of such sale, collection or other realization, including, without
limitation, reasonable out of pocket costs and expenses of Collateral Agent
and its agents and counsel, and all expenses, liabilities and advances made
or incurred by Collateral Agent in connection therewith;
Second, to the payment of all other costs and expenses of such sale,
------
collection or other realization, including, without limitation,
compensation to the Banks and their agents and counsel and all costs,
liabilities and advances made or incurred by the Banks in connection
therewith;
Third, to the payment in full in cash of Secured Obligations
-----
consisting of interest and all amounts other
<PAGE>
-19-
than principal under the Credit Agreement at any time and from time to time
owing by Pledgor under or in connection with the Credit Agreement, ratably
according to the unpaid amounts thereof, in the manner and priority set
forth in the Credit Agreement, together with interest on each such amount
in the manner and to the extent set forth in the Credit Agreement from and
after the date such amount is due, owing or unpaid until paid in full;
Fourth, to the pro rata payment in full in cash of Secured Obligations
------ --- ----
consisting of (i) principal at any time and from time to time owing by
Pledgor under or in connection with the Credit Agreement, ratably according
to the unpaid amounts thereof, in the manner and priority set forth in the
Credit Agreement and (ii) the amount of Pledgor's obligations then due and
payable under any Interest Rate Agreement, including any early termination
payments then due (exclusive of expenses or similar liabilities to any Bank
under the applicable Interest Rate Agreement(s)), together with interest on
each such amount in the manner and to the extent set forth in the Credit
Agreement from and after the date such amount is due, owing or unpaid until
paid in full; and
Fifth, the balance, if any, to the Person lawfully entitled thereto
-----
(including Pledgor or its successors or assigns).
SECTION 12. Expenses. Pledgor will upon demand pay to Collateral
--------
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and the reasonable fees and expenses of any
experts and agents which Collateral Agent may incur in connection with (i) the
collection of the Secured Obligations, (ii) the enforcement and administration
of this Agreement, (iii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Pledged Collateral, (iv)
the exercise or enforcement of any of the rights of Collateral Agent or any
Secured Party hereunder or (v) the failure by Pledgor to perform or observe any
of the provisions hereof. All amounts payable by Pledgor under this Section 12
shall be due within ten Business Days after demand and shall be part of the
Secured Obligations. Pledgor's obligations under this
<PAGE>
-20-
Section 12 shall survive the termination of this Agreement and the discharge of
Pledgor's other obligations hereunder.
SECTION 13. No Waiver; Cumulative Remedies. (a) No failure on the
------------------------------
part of Collateral Agent to exercise, no course of dealing with respect to, and
no delay on the part of Collateral Agent in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined
adversely to Collateral Agent, then and in every such case, Pledgor, Collateral
Agent and each Secured Party shall be restored to their respective former
positions and rights hereunder with respect to the Pledged Collateral, and all
rights, remedies and powers of Collateral Agent and the Secured Parties shall
continue as if no such proceeding had been instituted.
SECTION 14. Collateral Agent. Collateral Agent has been appointed as
----------------
collateral agent pursuant to the Credit Agreement. The actions of Collateral
Agent hereunder are subject to the provisions of the Credit Agreement.
Collateral Agent shall have the right hereunder to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking action (including, without limitation, the release or
substitution of Pledged Collateral), in accordance with this Agreement and the
Credit Agreement. Collateral Agent may resign and a successor Collateral Agent
may be appointed in the manner provided in the Credit Agreement. Upon the
acceptance of any appointment as Collateral Agent by a successor Collateral
Agent, that successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent under this Agreement, and the retiring Collateral Agent shall
thereupon be discharged from its duties and obligations under this Agreement.
After
<PAGE>
-21-
any retiring Collateral Agent's resignation, the provisions of this Agreement
shall inure to its benefit as to any actions taken or omitted to be taken by it
under this Agreement while it was Collateral Agent.
SECTION 15. Collateral Agent May Perform; Collateral Agent Appointed
--------------------------------------------------------
Attorney-in-Fact. If Pledgor shall fail to do any act or thing that it has
- ----------------
covenanted to do hereunder or if any warranty on the part of Pledgor contained
herein shall be breached, Collateral Agent or any Secured Party may (but shall
not be obligated to) do the same or cause it to be done or remedy any such
breach, and may, following five Business Days' prior written notice to Pledgor
of its intention to do so, expend funds for such purpose. Any and all amounts
so expended by Collateral Agent or such Secured Party shall be paid by Pledgor
within ten Business Days after demand therefor, with interest at the highest
rate then in effect under the Credit Agreement during the period from and
including the date on which such funds were so expended to the date of
repayment. Pledgor's obligations under this Section 15 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
under this Agreement, the Credit Agreement, any Interest Rate Agreement and the
other Credit Documents. Pledgor hereby appoints Collateral Agent its attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, or otherwise, from time to time in Collateral Agent's reasonable
discretion to take any action and to execute any instrument consistent with the
terms of this Agreement and the other Credit Documents which Collateral Agent
may deem reasonably necessary or advisable to accomplish the purposes of this
Agreement. The foregoing grant of authority is a power of attorney coupled with
an interest and such appointment shall be irrevocable for the term of this
Agreement. Pledgor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
SECTION 16. Modification in Writing. No amendment, modification,
-----------------------
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be made in accordance with the terms of the Credit Agreement and
unless in writing and signed by Collateral Agent. Any amendment, modification
or supplement of or to any provision of this Agreement, any waiver of any
provision of this Agreement
<PAGE>
-22-
and any consent to any departure by Pledgor from the terms of any provision of
this Agreement shall be effective only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement or any other Credit Document, no notice to or demand
on Pledgor in any case shall entitle Pledgor to any other or further notice or
demand in similar or other circumstances.
SECTION 17. Termination; Release. When all the Secured Obligations
--------------------
have been paid in full and the Commitments of the Banks to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, Collateral Agent shall, upon the request and at the
sole cost and expense of Pledgor, forthwith assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by Collateral
Agent, such of the Pledged Collateral to be released (in the case of a release)
as may be in possession of Collateral Agent and as shall not have been sold or
otherwise applied pursuant to the terms hereof, and, with respect to any other
Pledged Collateral, proper instruments (including UCC termination statements on
Form UCC-3) acknowledging the termination of this Agreement or the release of
such Pledged Collateral, as the case may be.
SECTION 18. Definitions. The following terms shall have the
-----------
following meanings. All such definitions shall be equally applicable to the
singular and plural forms of the terms defined.
"Contracts" shall mean all right, title and interest of Pledgor in, to
and under, or derived from, any and all sale, service, performance and equipment
lease contracts, agreements and grants (whether written or oral), and any other
contract (whether written or oral) between Pledgor and third parties.
"Documents" shall have the meaning assigned to that term under the
UCC.
"Equipment" shall mean "equipment", as such term is defined in the
UCC.
<PAGE>
-23-
"Instrument" shall have the meaning assigned that term under the UCC.
"Intangibles" shall mean "general intangibles", as such term is
defined in the UCC.
"Insurance Policies" shall mean all insurance policies held by Pledgor
or naming Pledgor as insured, additional insured or loss payee (including,
without limitation, casualty insurance, liability insurance, property insurance
and business interruption insurance) and all such insurance policies entered
into after the date hereof other than insurance policies (or certificates of
insurance evidencing such insurance policies) relating to health and welfare
insurance and life insurance policies in which Pledgor is not named as
beneficiary (i.e., insurance policies that are not "Key Man" insurance
---
policies).
"Inventory" shall mean, all "inventory", as such term is defined in
the UCC.
"Pension Plan Reversions" shall mean Pledgor's right to receive the
surplus funds, if any, which are payable to Pledgor following the termination of
any employee pension plan and the satisfaction of all liabilities of
participants and beneficiaries under such plan in accordance with applicable
law.
"Proceeds" shall mean all "proceeds", as such term is defined in the
UCC or under other relevant law.
"Receivables" shall mean all of Pledgor's rights to payment for goods
sold or leased or services performed by Pledgor or any other party, whether now
in existence or arising from time to time hereafter, including any "account", as
such term is defined in the UCC, and all rights evidenced by an account,
contract, security agreement, chattel paper, or other evidence of indebtedness
or security together with (i) all security pledged, assigned, hypothecated or
granted to or held by Pledgor to secure the foregoing, (ii) general intangibles
arising out of Pledgor's rights in any goods, the sale of which gave rise
thereto, (iii) all guarantees, endorsements and indemnifications on, or of, any
of the foregoing, (iv) all powers of attorney for the execution of any evidence
of indebtedness or security or other writing in connection therewith, and (v)
all evidences of the filing of financing statements and
<PAGE>
-24-
other statements and the registration of other instruments in connection
therewith and amendments thereto, notices to other creditors or secured parties,
and certificates from filing or other registration officers.
SECTION 19. Notices. Unless otherwise provided herein or in the
-------
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, as
to either party, addressed to it at the address set forth in the Credit
Agreement or at such other address as shall be designated by such party in a
written notice to the other party complying as to delivery with the terms of
this Section 19; provided that notices to Collateral Agent shall not be
effective until received by Collateral Agent.
SECTION 20. Continuing Security Interest; Assignment. This Agreement
----------------------------------------
shall create a continuing security interest in the Pledged Collateral and shall
(i) be binding upon Pledgor, its successors and assigns and (ii) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and the other Secured Parties and each of their respective
successors, transferees and assigns; no other Persons (including, without
limitation, any other creditor of Pledgor) shall have any interest herein or any
right or benefit with respect hereto. Without limiting the generality of the
foregoing clause (ii), any Bank may assign or otherwise transfer any
indebtedness held by it secured by this Agreement to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank, herein or otherwise, subject however, to the
provisions of the Credit Agreement and any applicable Interest Rate Agreement.
SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>
-25-
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. (a) Any
----------------------------------------------
legal action or proceeding with respect to this Agreement may be brought in the
courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, Pledgor
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.
Pledgor further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Pledgor at its
address for notices pursuant to the Credit Agreement, such service to become
effective 30 days after such mailing. Pledgor hereby irrevocably appoints CT
Corporation System having an address at 1633 Broadway, New York, New York 10019
and such other persons as may hereafter be selected by Borrower irrevocably
agreeing in writing to serve as its agent for service of process in respect of
any such action or proceeding. Nothing herein shall affect the right of
Collateral Agent to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against Pledgor in any other
jurisdiction.
(b) Pledgor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 23. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 24. Execution in Counterparts. This Agreement and any
-------------------------
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of
<PAGE>
-26-
which when so executed and delivered shall be deemed to be an original, but all
such counterparts together shall constitute one and the same agreement.
SECTION 25. Headings. The Section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction of
this Agreement.
SECTION 26. Obligations Absolute. All obligations of Pledgor
--------------------
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of either of Pledgor or
any other Credit Party;
(ii) any lack of validity or enforceability of the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit or any other
Credit Document, or any other agreement or instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit or any other
Credit Document, or any other agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Agreement, any
Interest Rate Agreement or any other Credit Document except as specifically
set forth in a waiver granted pursuant to the provisions of Section 16
hereof; or
(vi) any other circumstance or happening whatsoever that is
similar to any of the foregoing.
<PAGE>
-27-
SECTION 27. Collateral Agent's Right to Sever Indebtedness. (a)
----------------------------------------------
Pledgor acknowledges that (i) the Pledged Collateral does not constitute the
sole source of security for the payment and performance of the Secured
Obligations and that the Secured Obligations are also secured by other types of
property of Pledgor and its Affiliates in other jurisdictions (all such
property, collectively, the "Collateral"), (ii) the number of such jurisdictions
and the nature of the transaction of which this instrument is a part are such
that it would have been impracticable for the parties to allocate to each item
of Collateral a specific loan amount and to execute in respect of such item a
separate credit agreement, and (iii) Pledgor intends that Collateral Agent have
the same rights with respect to the Pledged Collateral, in any judicial
proceeding relating to the exercise of any right or remedy hereunder or
otherwise, that Collateral Agent would have had if each item of Collateral had
been pledged or encumbered pursuant to a separate credit agreement and security
instrument. In furtherance of such intent, Pledgor agrees to the greatest
extent permitted by law that Collateral Agent may at any time by notice (an
"Allocation Notice") to Pledgor allocate a portion of the Secured Obligations
(the "Allocated Indebtedness") to all or a specified portion of the Pledged
Collateral and sever from the remaining Secured Obligations the Allocated
Indebtedness. From and after the giving of an Allocation Notice with respect to
any of the Pledged Collateral, the Secured Obligations hereunder shall be
limited to the extent set forth in the Allocation Notice and (as so limited)
shall, for all purposes, be construed as a separate credit obligation of Pledgor
unrelated to the other transactions contemplated by the Credit Agreement, any
Interest Rate Agreement, any other Credit Document or any document related to
any thereof. To the extent that the proceeds of any judicial proceeding
relating to the exercise of any right or remedy hereunder of the Pledged
Collateral shall exceed the Allocated Indebtedness, such proceeds shall belong
to Pledgor and shall not be available hereunder to satisfy any Secured
Obligations of Pledgor other than the Allocated Indebtedness. In any action or
proceeding to exercise any right or remedy under this Agreement which is
commenced after the giving by Collateral Agent of an Allocation Notice, the
Allocation Notice shall be conclusive proof of the limits of the Secured
Obligations hereby secured, and Pledgor may introduce, by way of defense or
counterclaim, evidence thereof in any such action or proceeding.
Notwithstanding any
<PAGE>
-28-
provision of this Section 27, the proceeds received by Collateral Agent pursuant
to this Agreement shall be applied by Collateral Agent in accordance with the
provisions of Section 11 hereof.
(b) Pledgor hereby waives to the greatest extent permitted under law
the right to a discharge of any of the Secured Obligations under any statute or
rule of law now or hereafter in effect which provides that the exercise of any
particular right or remedy as provided for herein (by judicial proceedings or
otherwise) constitutes the exclusive means for satisfaction of the Secured
Obligations or which makes unavailable any further judgment or any other right
or remedy provided for herein because Collateral Agent elected to proceed with
the exercise of such initial right or remedy or because of any failure by
Collateral Agent to comply with laws that prescribe conditions to the
entitlement to such subsequent judgment or the availability of such subsequent
right or remedy. In the event that, notwithstanding the foregoing waiver, any
court shall for any reason hold that such subsequent judgment or action is not
available to Collateral Agent, Pledgor shall not (i) introduce in any other
jurisdiction any judgment so holding as a defense to enforcement against Pledgor
of any remedy in the Credit Agreement, any Interest Rate Agreement or any other
Credit Document or (ii) seek to have such judgment recognized or entered in any
other jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered and only with
respect to the collateral referred to in such judgment.
(c) In the event any instrument in addition to the Allocation Notice
is necessary to effectuate the provisions of this Section 27, including, without
limitation, any amendment to this Agreement, any substitute promissory note or
affidavit or certificate of any kind, Collateral Agent may execute and deliver
such instrument as the attorney-in-fact of Pledgor. Such power of attorney is
coupled with an interest and is irrevocable.
(d) Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 27 shall be effective only to the maximum extent
permitted by law.
<PAGE>
-29-
SECTION 28. Future Advances. This Agreement shall secure the payment
---------------
of any amounts advanced from time to time pursuant to the Credit Agreement.
SECTION 29. Borrower Intellectual Property Security Agreement. To
-------------------------------------------------
the extent that the terms and provisions of this Agreement conflict with the
terms and provisions of the Borrower Intellectual Property Security Agreement
with respect to any Pledged Collateral (as such term is defined in the Borrower
Intellectual Property Security Agreement), the terms and provisions of the
Borrower Intellectual Property Security Agreement shall govern.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their duly authorized officers as
of the date first above written.
CARSON PRODUCTS COMPANY,
as Pledgor
By:
--------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ,
as Collateral Agent
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
Schedule A
----------
PRIOR LIENS
-----------
Secured Party Location Date Number Comment
- ------------- -------- ---- ------ -------
<PAGE>
Schedule B
----------
LOCATION OF INVENTORY
---------------------
<PAGE>
Schedule C
----------
LOCATION OF EQUIPMENT
---------------------
<PAGE>
EXHIBIT 10.45
BORROWER INTELLECTUAL PROPERTY SECURITY AGREEMENT
BORROWER INTELLECTUAL PROPERTY SECURITY AGREEMENT (the "Agreement"),
dated as of November 6, 1997, made by CARSON PRODUCTS COMPANY, a Delaware
corporation having an office at 64 Ross Road, Savannah, Georgia 31405
("Pledgor"), in favor of CREDIT AGRICOLE INDOSUEZ, having an office at 1211
Avenue of the Americas, 7th Floor, New York, New York 10036, as pledgee,
assignee and secured party, in its capacity as agent and collateral agent (in
such capacities and together with any successors in such capacities, "Collateral
Agent") for the lending institutions (the "Banks") from time to time party to
the Credit Agreement (as hereinafter defined).
R E C I T A L S :
----------------
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement) by and
among Carson, Inc., a Delaware corporation, Pledgor, the Banks and Credit
Agricole Indosuez, as Agent and Collateral Agent for the Banks, the Banks have
agreed (i) to make to or for the account of Pledgor certain Acquisition Term
Loans up to an aggregate principal amount of $50,000,000 and certain Revolving
Loans up to an aggregate principal amount of $25,000,000 and (ii) to issue
certain Letters of Credit for the account of Pledgor.
B. It is contemplated that Pledgor may enter into one or more
agreements with one or more of the Banks ("Interest Rate Agreements") fixing the
interest rates with respect to Loans under the Credit Agreement (all obligations
of Pledgor now existing or hereafter arising under such Interest Rate
Agreements, collectively, the "Interest Rate Obligations").
C. Pledgor is the owner of the Pledged Collateral (as hereinafter
defined).
D. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters of
Credit under the Credit Agreement or entering into the Interest Rate
Agreements that
<PAGE>
-2-
Pledgor execute and deliver the applicable Credit Documents, including this
Agreement.
E. This Agreement is given by Pledgor in favor of Collateral Agent
for its benefit and the benefit of the Banks and Agent (collectively, the
"Secured Parties") to secure the payment and performance of all of the Secured
Obligations (as defined in Section 2).
A G R E E M E N T :
------------------
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Collateral Agent hereby agree as follows:
Section 1. Pledge. As collateral security for the payment and
------
performance when due of all the Secured Obligations, Pledgor hereby pledges,
assigns, transfers and grants to Collateral Agent for its benefit and the
benefit of the Secured Parties, a continuing first priority security interest in
and to all of the right, title and interest of Pledgor in, to and under the
following property, whether now existing or hereafter acquired (collectively,
the "Pledged Collateral"):
(a) Patents issued or assigned to and all patent applications made by
Pledgor, including, without limitation, the patents and patent applications
listed on Schedule A hereto, along with any and all (i) inventions and
----------
improvements described and claimed therein, (ii) reissues, divisions,
continuations, extensions and continuations-in-part thereof, (iii) income,
royalties, damages, claims and payments now and hereafter due and/or
payable under and with respect thereto, including, without limitation,
damages and payments for past or future infringements thereof, and (iv)
rights to sue for past, present and future infringements thereof
(collectively, the "Patents");
(b) Trademarks (including service marks), federal and state trademark
registrations and applications made by Pledgor, common law trademarks and
trade names owned by or assigned to Pledgor and all registrations and
applications for the foregoing, including, without limitation, the
registrations and applications listed on Schedule B hereto, along with any
----------
and all (i) renewals thereof, (ii) income, royalties, damages and payments
now and hereafter due
<PAGE>
-3-
and/or payable with respect thereto, including, without limitation,
damages, claims and payments for past or future infringements thereof, and
(iii) rights to sue for past, present and future infringements thereof
(collectively, the "Trademarks");
(c) Copyrights owned by or assigned to Pledgor, including, without
limitation, the registrations and applications listed on Schedule C hereto,
----------
along with any and all (i) renewals and extensions thereof, (ii) income,
royalties, damages, claims and payments now and hereafter due and/or
payable with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, and (iii)
rights to sue for past, present and future infringements thereof
(collectively, the "Copyrights");
(d) License agreements and covenants not to sue with any other party
with respect to any Patent, Trademark, or Copyright listed on Schedule D
----------
hereto, along with any and all (i) renewals, extensions, supplements and
continuations thereof, (ii) income, royalties, damages, claims and payments
now and hereafter due and/or payable to Pledgor with respect thereto,
including, without limitation, damages and payments for past, present or
future breaches thereof, (iii) rights to sue for past, present and future
breaches thereof, and (iv) any other rights to use, exploit or practice any
or all of the Patents, Trademarks or Copyrights (collectively, the
"Licenses");
(e) the entire goodwill of Pledgor's business and other general
intangibles, including, without limitation, know-how, trade secrets,
customer lists, proprietary information, inventions, methods, procedures
and formulae connected with the use of and symbolized by the Trademarks of
Pledgor; and
(f) all "proceeds" (as such term is defined in the UCC or under other
relevant law) of any of the foregoing.
Section 2. Secured Obligations. This Agreement secures, and the
-------------------
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in
<PAGE>
-4-
bankruptcy or the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. (S) 362(a)), of (i) all Obligations of Pledgor now
existing or hereafter arising under the Credit Agreement and all Interest Rate
Obligations of Pledgor now existing or hereafter arising under any Interest Rate
Agreement (including, without limitation, Pledgor's obligation provided for
therein to pay principal, interest and all other charges, fees, expenses,
commissions, reimbursements, premiums, indemnities and other payments related to
or in respect of the Obligations contained in the Credit Agreement and the
obligations contained in any Interest Rate Agreement and (ii) without
duplication of the amounts described in clause (i), all Obligations of Pledgor
now existing or hereafter arising under this Agreement or any other Security
Document, including, without limitation, all charges, fees, expenses,
commissions, reimbursements, premiums, indemnities and other payments that
Pledgor is obligated to pay under this Agreement or in any other Security
Document (the obligations described in clauses (i) and (ii), collectively, the
"Secured Obligations").
Section 3. No Release. Nothing set forth in this Agreement shall
----------
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on
Collateral Agent or any Secured Party to perform or observe any such term,
covenant, condition or agreement on Pledgor's part to be so performed or
observed or shall impose any liability on Collateral Agent or any Secured Party
for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement, any Interest Rate Agreement or any other Credit Document, or
under or in respect of the Pledged Collateral or made in connection herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations under this Agreement, any Interest Rate Agreement and the other
Credit Documents.
Section 4. Use and Pledge of Pledged Collateral. Unless an Event of
------------------------------------
Default shall have occurred and be continuing, Collateral Agent shall from time
to time execute and deliver, upon written request of Pledgor and at Pledgor's
sole
<PAGE>
-5-
cost and expense, any and all instruments, certificates or other documents, in
the form so requested, necessary or appropriate in the reasonable judgment of
Pledgor to enable Pledgor to continue to exploit, license, use, enjoy and
protect the Pledged Collateral throughout the world. Pledgor and Collateral
Agent acknowledge that this Agreement is intended to grant to Collateral Agent
for the benefit of the Secured Parties a security interest in and Lien upon the
Pledged Collateral and shall not constitute or create a present assignment of
the Pledged Collateral.
Section 5. Supplements; Further Assurances.
-------------------------------
(a) Pledgor agrees that at any time and from time to time, it will
execute and, at its sole cost and expense, file and refile, or permit Collateral
Agent to file and refile, such financing statements, continuation statements and
other documents (including, without limitation, this Agreement), in such offices
(including, without limitation, the United States Patent and Trademark Office
and the United States Copyright Office) as Collateral Agent may reasonably deem
necessary or appropriate, wherever required or permitted by law in order to
perfect and preserve the rights and interests granted to Collateral Agent
hereunder.
(b) Pledgor hereby authorizes Collateral Agent, without relieving
Pledgor of any obligations hereunder, to file financing statements, continuation
statements, amendments thereto and other documents, relative to all or any part
thereof, without the signature of Pledgor where permitted by law, and Pledgor
agrees to do such further acts and things, and to execute and deliver to
Collateral Agent such additional assignments, agreements, powers and
instruments, as Collateral Agent may reasonably deem necessary or appropriate,
wherever required or permitted by law in order to perfect and preserve the
rights and interests granted to Collateral Agent hereunder or to carry into
effect the purposes of this Agreement or better to assure and confirm unto
Collateral Agent its respective rights, powers and remedies hereunder. All of
the foregoing shall be at the sole cost and expense of Pledgor.
Section 6. Representations, Warranties and Covenants. Pledgor hereby
-----------------------------------------
represents, warrants and covenants as follows:
<PAGE>
-6-
(a) Necessary Filings. Upon the filing of financing statements and
-----------------
the acceptance thereof in the appropriate offices under the UCC and the filing
of this Agreement and the acceptance thereof in the United States Patent and
Trademark Office and the United States Copyright Office, the security interest
granted to Collateral Agent for the benefit of the Secured Parties pursuant to
this Agreement in and to the Pledged Collateral constitutes and hereafter will
constitute a valid and duly perfected first priority security interest in the
Pledged Collateral superior and prior to the rights of all other Persons therein
and subject to no other Liens.
(b) No Liens. Pledgor is as of the date hereof, and as to Pledged
--------
Collateral acquired by it from time to time after the date hereof, Pledgor will
be, the sole and exclusive owner or, as applicable, licensee of the Pledged
Collateral free from any Lien or other right, title or interest of any Person
other than the Lien and security interest created by this Agreement and Liens of
the type described in paragraph (a) of the definition of Permitted Encumbrances.
Pledgor shall take all reasonable steps to defend the Pledged Collateral against
all claims and demands of all Persons at any time claiming any interest therein
adverse to Collateral Agent or any Secured Party.
(c) Other Financing Statements. There is no financing statement (or
--------------------------
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Pledged Collateral and, so long as the Secured Obligations remain unpaid or the
Commitments of the Banks to make any Loan or to issue any Letter of Credit shall
not have expired or been sooner terminated, Pledgor shall not execute or
authorize to be filed in any public office any financing statement (or similar
statement or instrument of registration under the law of any jurisdiction) or
statements relating to the Pledged Collateral, except, in each case, financing
statements filed or to be filed in respect of and covering the security
interests granted by Pledgor pursuant to this Agreement.
(d) Authorization; Enforceability. Pledgor has the requisite
-----------------------------
corporate power, authority and legal right to pledge and grant a security
interest in all the Pledged Collateral pursuant to this Agreement, and this
Agreement constitutes the legal, valid and binding obligation of Pledgor,
enforceable against Pledgor in accordance with its terms, except as may be
<PAGE>
-7-
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and except as such
enforceability may be limited by the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(e) No Consents, etc. No consent of any party (including, without
----------------
limitation, stockholders or creditors of Pledgor) and no consent, authorization,
approval, license, or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body or other Person is required for (x)
the execution, delivery or performance of this Agreement by Pledgor, (y) the
assignment of, and the grant of a Lien (including the priority thereof) on and
security interest in, the Pledged Collateral by Pledgor in the manner and for
the purpose contemplated by this Agreement or (z) the exercise by Collateral
Agent of the remedies in respect of the Pledged Collateral pursuant to this
Agreement (other than those consents, authorizations, approvals, licenses,
actions, notices or filings which, if not obtained or made, would not have a
material adverse effect upon the interests of Collateral Agent under this
Agreement).
(f) No Claims. Pledgor owns or has rights to use all the Pledged
---------
Collateral and all rights with respect to any of the foregoing used in,
necessary for or material to Pledgor's business as currently conducted and as
contemplated to be conducted pursuant to the Credit Documents. To the best of
Pledgor's knowledge, the use by Pledgor of such Pledged Collateral and all such
rights with respect to the foregoing does not infringe on the rights of any
Person. To the best of Pledgor's knowledge, no claim has been made and remains
outstanding that Pledgor's use of the Pledged Collateral does or may violate the
rights of any third person.
(g) Pledged Collateral. Schedules A, B, C and D hereto,
------------------ -----------------------
respectively, are true, accurate and complete lists as of the date hereof of all
issued, registered or applied for Patents, Trademarks, Copyrights and Licenses
owned by Pledgor.
Section 7. Covenants Concerning Pledged Collateral.
---------------------------------------
(a) Protection of Collateral Agent's Security. On a continuing
-----------------------------------------
basis, Pledgor shall, at its sole cost and expense, make, execute, acknowledge
and deliver, and file and record in
<PAGE>
-8-
the proper filing and recording offices, all such instruments or documents,
including, without limitation, appropriate financing and continuation statements
and collateral agreements, and take all such action as may reasonably be deemed
necessary by Collateral Agent to carry out the intent and purposes of this
Agreement, to assure and confirm to Collateral Agent the grant or perfection of
a first priority security interest in the Pledged Collateral for the benefit of
the Secured Parties, and to enable Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral. Without
limiting the generality of the foregoing, Pledgor (i) will not enter into any
agreement that would impair or conflict with Pledgor's obligations hereunder;
(ii) will, from time to time, upon Collateral Agent's reasonable request, cause
its books and records to be marked with such legends or segregated in such
manner as Collateral Agent may reasonably specify and take or cause to be taken
such other action and adopt such procedures as Collateral Agent may reasonably
specify to give notice to or to perfect the security interest in the Pledged
Collateral intended to be conveyed hereby; (iii) will, promptly following its
becoming aware thereof, notify Collateral Agent of (A) any adverse determination
in any proceeding in the United States Patent and Trademark Office or the United
States Copyright Office with respect to any Patent, Trademark or Copyright, or
(B) the institution of any proceeding or any adverse determination in any
Federal, state or local court or administrative body regarding Pledgor's claim
of ownership in or right to use any of the Pledged Collateral, its right to
register the Pledged Collateral, or its right to keep and maintain such
registration in full force and effect; (iv) will maintain and protect the
Pledged Collateral necessary for the operation of Pledgor's business; (v) will
not permit to lapse or become abandoned any Pledged Collateral necessary for the
operation of Pledgor's business, and will not settle or compromise any pending
or future litigation or administrative proceeding with respect to the Pledged
Collateral necessary for the operation of Pledgor's business, in each case,
without the consent of Collateral Agent (such consent not to be unreasonably
withheld or delayed); (vi) upon Pledgor obtaining knowledge thereof, will
promptly notify Collateral Agent in writing of any event which may reasonably be
expected to adversely affect the value or utility of the Pledged Collateral or
any portion thereof necessary for the operation of Pledgor's business, the
ability of Pledgor or Collateral Agent to dispose of the Pledged Collateral or
any portion thereof or the rights and
<PAGE>
-9-
remedies of Collateral Agent in relation thereto, including, without limitation,
a levy or threat of levy or any legal process against the Pledged Collateral or
any portion thereof; (vii) will not license the Pledged Collateral other than
licenses entered into by Pledgor in, or incidental to, the ordinary course of
business, or amend or permit the amendment of any of the licenses in a manner
that materially adversely affects the right to receive payments thereunder, in
any manner that would materially impair the value of the Pledged Collateral or
the Lien on the Pledged Collateral intended to be granted to Collateral Agent
for the benefit of Secured Parties without the consent of Collateral Agent;
(viii) until Collateral Agent exercises its rights to make collection, will
diligently keep adequate records respecting the Pledged Collateral; (ix) will
furnish to Collateral Agent from time to time statements and amended schedules
further identifying and describing the Pledged Collateral and such other
materials evidencing or reports pertaining to the Pledged Collateral as
Collateral Agent may from time to time reasonably request, all in reasonable
detail; (x) will pay when due any and all material taxes, levies, maintenance
fees, charges, assessments, license fees and similar taxes or impositions
payable in respect of each item of Pledged Collateral; and (xi) will comply with
all material laws, rules and regulations applicable to the Pledged Collateral
the failure to comply with which would have a material adverse effect on the
value or use of the Pledged Collateral or a material adverse effect on the Lien
on the Pledged Collateral granted to the Collateral Agent hereunder.
(b) After-Acquired Property. If Pledgor shall, at any time before
-----------------------
the Secured Obligations have been paid or the Commitments of the Banks to make
any Loan or to issue any Letter of Credit have expired or been sooner terminated
(i) obtain any rights to any additional Pledged Collateral or (ii) become
entitled to the benefit of any additional Pledged Collateral or any renewal or
extension thereof, including any reissue, division, continuation, or
continuation-in-part of any Patent, or any improvement on any Patent, the
provisions of this Agreement shall automatically apply thereto and any such item
enumerated in clause (i) or (ii) with respect to Pledgor shall automatically
constitute Pledged Collateral if such would have constituted Pledged Collateral
at the time of execution of this Agreement, and be subject to the Lien created
by this Agreement without further action by any party other than actions
required to perfect such Lien. Pledgor shall promptly provide to Col-
<PAGE>
-10-
lateral Agent written notice of any of the foregoing. Pledgor agrees, promptly
following a request by Collateral Agent, to confirm the attachment of the Lien
created by this Agreement to any rights described in clauses (i) and (ii) above
if such would have constituted Pledged Collateral at the time of execution of
this Agreement by execution of an instrument in form reasonably acceptable to
Collateral Agent.
(c) Modifications. Pledgor agrees to modify this Agreement by
-------------
amending Schedules A, B, C and D hereto to include any future Pledged Collateral
-----------------------
of Pledgor, including, without limitation, any of the items listed in Section
7(b).
(d) Applications. Pledgor shall file and prosecute diligently all
------------
applications for the Patents, the Trademarks or the Copyrights now or hereafter
pending that would be necessary to the business of Pledgor to which any such
applications pertain, and shall do all acts necessary to preserve and maintain
all rights in the Pledged Collateral necessary for the operation of Pledgor's
business. Any and all costs and expenses incurred in connection with any such
actions shall be borne by Pledgor. Pledgor shall not abandon any right to file
a Patent, Trademark or Copyright application, or any pending Patent, Trademark
or Copyright application or any Patent, Trademark or Copyright necessary for the
operation of Pledgor's business without the consent of Collateral Agent (such
consent not to be unreasonably withheld or delayed).
Section 8. Transfers and Other Liens. Pledgor shall not (i) sell,
-------------------------
convey, assign or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral other than licenses entered into by Pledgor in, or
incidental to, the ordinary course of business or with any Affiliate of Pledgor
or (ii) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, other than the Lien granted to Collateral Agent pursuant to
this Agreement and Liens of the type described in paragraph (a) of the
definition of Permitted Encumbrances.
Section 9. Reasonable Care. Collateral Agent shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equivalent to that which Collateral Agent, in its individual
capacity, accords its own property, it being understood that
<PAGE>
-11-
neither Collateral Agent nor any of the Secured Parties shall have
responsibility for taking any necessary steps to preserve rights against any
Person with respect to any Pledged Collateral.
Section 10. Remedies Upon Default.
---------------------
(a) Remedies; Disposition of Collateral. If any Event of Default
-----------------------------------
shall have occurred and be continuing, and the Secured Obligations have been
declared due and payable in accordance with the Credit Agreement, then and in
every such case, Collateral Agent may:
(i) to the full extent permitted by law, and without advertisement,
hearing or process of law of any kind, (A) exercise any and all rights as
beneficial and legal owner of the Pledged Collateral, including, without
limitation, perfecting assignment of any and all consensual rights and
powers with respect to the Pledged Collateral and (B) sell or assign or
grant a license to use, or cause to be sold or assigned or a license
granted to use any or all of the Pledged Collateral (in the case of
Trademarks, along with the goodwill associated therewith) or any part
thereof, in each case, free of all rights and claims of Pledgor therein and
thereto. In that connection, Collateral Agent shall have the right to
cause any or all of the Pledged Collateral to be transferred of record into
the name of Collateral Agent or its nominee and the right to impose (1)
such limitations and restrictions on the sale or assignment of the Pledged
Collateral as Collateral Agent may deem to be necessary or appropriate to
comply with any law, rule or regulation (federal, state or local) having
applicability to the sale or assignment, and (2) any necessary or
appropriate requirements for any required governmental approvals or
consents;
(ii) exercise in respect of the Pledged Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the UCC to
the extent permitted by applicable law and whether or not the UCC is
applicable thereto. Pledgor acknowledges and agrees that, to the extent
notice of sale shall be required by law, ten days' notice to Pledgor of the
time and place of any public sale or of the time after which any
<PAGE>
-12-
private sale or other intended disposition is to take place shall
constitute commercially reasonable notification of such matters. No
notification need be given to Pledgor if it has signed, after the
occurrence of an Event of Default, a statement renouncing or modifying any
right to notification of sale or other intended disposition;
(iii) may be the purchaser (as may be any other Secured Party or
any of their respective Affiliates) of any or all of the Pledged
Collateral at any public or private sale and shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Pledged Collateral sold at such sale, to use
and apply any of the Secured Obligations owed to such Person as a credit on
account of the purchase price of such item of Collateral payable by such
Person at such sale. Each purchaser at any such sale shall acquire the
property sold absolutely free from any claim or right on the part of
Pledgor, and Pledgor hereby waives, to the fullest extent permitted by law,
all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing
or hereafter enacted. Collateral Agent shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been given.
Collateral Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Pledgor hereby waives, to the fullest extent permitted by
applicable law, any claims against Collateral Agent arising by reason of
the fact that the price at which any Pledged Collateral may have been sold
at such a private sale was less than the price which might have been
obtained at a public sale, even if Collateral Agent accepts the first offer
received and does not offer such Pledged Collateral to more than one
offeree.
(b) Waiver of Notice and Claims.
---------------------------
(i) Pledgor hereby waives, to the fullest extent permitted by
applicable law, any and all notices, advertisements, hearings or process of
law in connection with the exercise by Collateral Agent of any of its
rights and remedies hereunder. Collateral Agent shall not be liable
<PAGE>
-13-
to any Person for any incorrect or improper payment made pursuant to this
Section 10 in the absence of gross negligence or willful misconduct.
(ii) Pledgor hereby waives, to the fullest extent permitted by
applicable law, notice or judicial hearing in connection with Collateral
Agent's taking possession or Collateral Agent's disposition of any of the
Pledged Collateral, including, without limitation, any and all prior notice
and hearing for any prejudgment remedy or remedies and any such right which
Pledgor would otherwise have under law, and Pledgor hereby further waives
to the extent permitted by applicable law: (A) all damages occasioned by
such taking of possession; (B) all other requirements as to the time, place
and terms of sale or other requirements with respect to the enforcement of
Collateral Agent's rights hereunder; and (C) all rights of redemption,
appraisal, valuation, stay, extension or moratorium now or hereafter in
force under any applicable law. Any sale of, or the grant of options to
purchase, or any other realization upon, any Pledged Collateral shall
operate to divest all right, title, interest, claim and demand, either at
law or in equity, of Pledgor therein and thereto, and shall be a perpetual
bar both at law and in equity against Pledgor and against any and all
Persons claiming or attempting to claim the Pledged Collateral so sold,
optioned or realized upon, or any part thereof, from, through or under
Pledgor.
Section 11. Application of Proceeds. The proceeds received by
-----------------------
Collateral Agent in respect of any sale of, collection from or other realization
upon all or any part of the Pledged Collateral pursuant to the exercise by
Collateral Agent of its remedies as a secured creditor as provided in Section 10
hereof shall be applied, together with any other sums then held by Collateral
Agent pursuant to this Agreement, promptly by Collateral Agent as follows:
First, to the payment of all costs and expenses, fees, commissions and
-----
taxes of such sale, collection or other realization, including, without
limitation, reasonable out-of-pocket costs and expenses of Collateral Agent
and its agents and counsel, and all expenses, liabilities and advances made
or incurred by Collateral Agent in connection therewith;
<PAGE>
-14-
Second, to the payment of all other costs and expenses of such sale,
------
collection or other realization, including, without limitation, reasonable
out-of-pocket costs and expenses of the Banks and their agents and counsel
and all costs, liabilities and advances made or incurred by the Banks in
connection therewith;
Third, to the payment in full in cash of Secured Obligations
-----
consisting of interest and all amounts other than principal under the
Credit Agreement at any time and from time to time owing by Pledgor under
or in connection with the Credit Agreement, ratably according to the unpaid
amounts thereof, in the manner and priority set forth in the Credit
Agreement, together with interest on each such amount in the manner and to
the extent set forth in the Credit Agreement from and after the date such
amount is due, owing or unpaid until paid in full;
Fourth, to the pro rata payment in full in cash of Secured Obligations
------ ---------
consisting of (i) principal at any time and from time to time owing by
Pledgor under or in connection with the Credit Agreement, ratably according
to the unpaid amounts thereof, in the manner and priority set forth in the
Credit Agreement and (ii) the amount of Pledgor's obligations then due and
payable under any Interest Rate Agreement, including any early termination
payments then due (exclusive of expenses or similar liabilities to any Bank
under the applicable Interest Rate Agreement(s)), together with interest on
each such amount in the manner and to the extent set forth in the Credit
Agreement from and after the date such amount is due, owing or unpaid until
paid in full; and
Fifth, the balance, if any, to the Person lawfully entitled thereto
-----
(including Pledgor or its successors or assigns).
Section 12. Expenses. Pledgor will upon demand pay to Collateral
--------
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and the reasonable fees and expenses of any
experts and agents, which Collateral Agent may incur in connection with (i) the
collection of the Secured Obligations, (ii) the enforcement and administration
of this Agreement, (iii) the custody or preservation of, or the sale of,
collection from, or other re-
<PAGE>
-15-
alization upon, any of the Pledged Collateral, (iv) the exercise or enforcement
of any of the rights of Collateral Agent or any Secured Party hereunder or (v)
the failure by Pledgor to perform or observe any of the provisions hereof. All
amounts payable by Pledgor under this Section 12 shall be due within ten
Business Days after demand and shall be part of the Secured Obligations.
Pledgor's obligations under this Section 12 shall survive the termination of
this Agreement and the discharge of Pledgor's other obligations hereunder.
Section 13. No Waiver; Cumulative Remedies.
------------------------------
(a) No failure on the part of Collateral Agent to exercise, no course
of dealing with respect to, and no delay on the part of Collateral Agent in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law.
(b) In the event Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this instrument by
foreclosure, sale or otherwise, and such proceeding shall have been discontinued
or abandoned for any reason or shall have been determined adversely to
Collateral Agent, then and in every such case, Pledgor, Collateral Agent and
each Secured Party shall be restored to their respective former positions and
rights hereunder with respect to the Pledged Collateral, and all rights,
remedies and powers of Collateral Agent and the Secured Parties shall continue
as if no such proceeding had been instituted.
Section 14. Collateral Agent. Collateral Agent has been appointed as
----------------
collateral agent pursuant to the Credit Agreement. The actions of Collateral
Agent hereunder are subject to the provisions of the Credit Agreement.
Collateral Agent shall have the right hereunder to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking action (including, without limitation, the release or
substitution of Pledged Collateral), in accordance with this Agreement and the
Credit Agreement. Collateral Agent may resign and a successor Collateral Agent
may be appointed in the manner provided in the Credit Agreement.
<PAGE>
-16-
Upon the acceptance of any appointment as Collateral Agent by a successor
Collateral Agent, that successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent under this Agreement, and the retiring Collateral Agent shall
thereupon be discharged from its duties and obligations under this Agreement.
After any retiring Collateral Agent's resignation, the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Agreement while it was Collateral Agent.
Section 15. Collateral Agent May Perform; Collateral Agent Appointed
--------------------------------------------------------
Attorney-in-Fact. If Pledgor shall fail to do any act or thing that it has
- ----------------
covenanted to do hereunder or any warranty on the part of Pledgor contained
herein shall be breached, Collateral Agent or any Secured Party may (but shall
not be obligated to) do the same or cause it to be done or remedy any such
breach, and may, following five Business Days' written notice to Pledgor of its
intention to do so, expend funds for such purpose. Any and all amounts so
expended by Collateral Agent or such Secured Party shall be paid by Pledgor
within ten Business Days after demand therefor, with interest at the highest
rate then in effect under the Credit Agreement during the period from and
including the date on which such funds were so expended to the date of
repayment. Pledgor's obligations under this Section 15 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
under this Agreement, the Credit Agreement, any Interest Rate Agreement and the
other Credit Documents. Pledgor hereby appoints Collateral Agent its attorney-
in-fact with an interest, with full authority in the place and stead of Pledgor
and in the name of Pledgor, or otherwise, from time to time in Collateral
Agent's reasonable discretion to take any action and to execute any instrument
consistent with the terms of this Agreement and the other Credit Documents which
Collateral Agent may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement. The foregoing grant of authority is a power of
attorney coupled with an interest and such appointment shall be irrevocable for
the term of this Agreement. Pledgor hereby ratifies all that such attorney
shall lawfully do or cause to be done by virtue hereof.
<PAGE>
-17-
Section 16. Litigation.
----------
(a) Unless there shall occur an Event of Default, Pledgor shall have
the right to commence and prosecute in its own name, as real party in interest,
for its own benefit and at its sole cost and expense, such applications for
protection of the Pledged Collateral, suits, proceedings or other actions for
infringement, counterfeiting, unfair competition, dilution or other damage as
are in its reasonable business judgment necessary to protect the Pledged
Collateral. Pledgor shall promptly notify Collateral Agent in writing as to the
commencement and prosecution of any such actions, or threat thereof relating to
the Pledged Collateral and shall provide to Collateral Agent such information
with respect thereto as may be reasonably requested by Collateral Agent.
Pledgor shall indemnify and hold harmless each Secured Party for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
expenses or disbursements (including reasonable attorneys' fees and expenses) of
any kind whatsoever which may be imposed on, incurred by or asserted against
such Secured Party in connection with or in any way arising out of such suits,
proceedings or other actions.
(b) Upon the occurrence and during the continuance of an Event of
Default, Collateral Agent shall have the right but shall in no way be obligated
to file applications for protection of the Pledged Collateral and/or bring suit
in the name of Pledgor, Collateral Agent or the Secured Parties to enforce the
Pledged Collateral and any license thereunder; in the event of such suit,
Pledgor shall, at the request of Collateral Agent, do any and all lawful acts
and execute any and all documents requested by Collateral Agent in aid of such
enforcement and Pledgor shall promptly, upon demand, reimburse and indemnify
Collateral Agent, as the case may be, for all costs and expenses (including
reasonable fees and expenses of counsel) incurred by Collateral Agent in the
exercise of its rights under this Section 16. In the event that Collateral
Agent shall elect not to bring suit to enforce the Pledged Collateral, Pledgor
agrees, at the request of Collateral Agent, to use all reasonable measures,
whether by action, suit, proceeding or otherwise, to prevent the infringement,
counterfeiting or other diminution in value of any of the Pledged Collateral by
others and for that purpose agrees to diligently maintain any action, suit or
proceeding against any person so infringing necessary to prevent such
infringement unless Pledgor has determined that
<PAGE>
-18-
the Pledged Collateral that is the subject of any pending or contemplated
infringement or enforcement action or proceeding does not contain or represent
any value or utility (other than of an immaterial nature), consistent with
prudent business practice.
Section 17. Modification in Writing. No amendment, modification,
-----------------------
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be done in accordance with the terms of the Credit Agreement and
unless in writing and signed by Collateral Agent. Any amendment, modification
or supplement of or to any provision of this Agreement, any waiver of any
provision of this Agreement and any consent to any departure by Pledgor from the
terms of any provision of this Agreement shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement or any other Credit Document,
no notice to or demand on Pledgor in any case shall entitle Pledgor to any other
or further notice or demand in similar or other circumstances.
Section 18. Termination; Release. When all the Secured Obligations
--------------------
have been paid in full and the Commitments of the Banks to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, Collateral Agent shall, upon the request and at the
sole cost and expense of Pledgor, forthwith assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by Collateral
Agent, such of the Pledged Collateral to be released (in the case of a release)
as shall not have been sold or otherwise applied pursuant to the terms hereof,
and with respect to any other Pledged Collateral, proper instruments (including
UCC termination statements on Form UCC-3 and documents suitable for recordation
in the United States Patent and Trademark Office, the United States Copyright
Office or similar domestic or foreign authority) acknowledging the termination
of this Agreement or the release of such Pledged Collateral, as the case may be.
Section 19. Notices. Unless otherwise provided herein or in the
-------
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given
<PAGE>
-19-
in the manner set forth in the Credit Agreement, as to either party, addressed
to it at the address set forth in the Credit Agreement or at such other address
as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 19; provided that
--------
notices to Collateral Agent shall not be effective until received by Collateral
Agent.
Section 20. Continuing Security Interest; Assignment. This Agreement
----------------------------------------
shall create a continuing security interest in the Pledged Collateral and shall
(i) be binding upon Pledgor, its successors and assigns and (ii) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and the other Secured Parties and each of their respective
successors, transferees and assigns; no other Persons (including, without
limitation, any other creditor of Pledgor) shall have any interest herein or any
right or benefit with respect hereto. Without limiting the generality of the
foregoing clause (ii), any Bank may assign or otherwise transfer any
indebtedness held by it secured by this Agreement to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank, herein or otherwise, subject however, to the
provisions of the Credit Agreement and any applicable Interest Rate Agreement.
Section 21. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE
<PAGE>
-20-
JURISDICTION OF THE AFORESAID COURTS. PLEDGOR FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO PLEDGOR AT ITS ADDRESS FOR NOTICES PURSUANT TO THE
CREDIT AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
PLEDGOR HEREBY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM HAVING AN ADDRESS AT
1633 BROADWAY, NEW YORK, NEW YORK 10019 AND SUCH OTHER PERSONS AS MAY HEREAFTER
BE SELECTED BY BORROWER IRREVOCABLY AGREEING IN WRITING TO SERVE AS ITS AGENT
FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF COLLATERAL AGENT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST PLEDGOR IN ANY OTHER JURISDICTION.
(b) PLEDGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 23. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 24. Execution in Counterparts. This Agreement and any
-------------------------
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
Section 25. Headings. The Section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction of
this Agreement.
<PAGE>
-21-
Section 26. Obligations Absolute. All obligations of Pledgor
--------------------
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of either Pledgor or any
other Credit Party;
(ii) any lack of validity or enforceability of the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit or any other
Credit Document, or any other agreement or instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit or any other
Credit Document, or any other agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Agreement any
Interest Rate Agreement, or any other Credit Document except as
specifically set forth in a waiver granted pursuant to the provisions of
Section 18 hereof; or
(vi) any other circumstance or happening whatsoever that is
similar to any of the foregoing.
Section 27. Collateral Agent's Right to Sever Indebtedness.
----------------------------------------------
(a) Pledgor acknowledges that (i) the Pledged Collateral does not
constitute the sole source of security for the payment and performance of the
Secured Obligations and that the Secured Obligations are also secured by other
types of property of Pledgor and its Affiliates in other jurisdictions (all such
property, collectively, the "Collateral"), (ii) the number of such jurisdictions
and the nature of the transaction of which
<PAGE>
-22-
this instrument is a part are such that it would have been impracticable for the
parties to allocate to each item of Collateral a specific loan amount and to
execute in respect of such item a separate credit agreement, and (iii) Pledgor
intends that Collateral Agent have the same rights with respect to the Pledged
Collateral, in any judicial proceeding relating to the exercise of any right or
remedy hereunder or otherwise, that Collateral Agent would have had if each item
of Collateral had been pledged or encumbered pursuant to a separate credit
agreement and security instrument. In furtherance of such intent, Pledgor agrees
to the greatest extent permitted by law that Collateral Agent may at any time by
notice (an "Allocation Notice") to Pledgor allocate a portion of the Secured
Obligations (the "Allocated Indebtedness") to all or a specified portion of the
Pledged Collateral and sever from the remaining Secured Obligations the
Allocated Indebtedness. From and after the giving of an Allocation Notice with
respect to any of the Pledged Collateral, the Secured Obligations hereunder
shall be limited to the extent set forth in the Allocation Notice and (as so
limited) shall, for all purposes, be construed as a separate credit obligation
of Pledgor unrelated to the other transactions contemplated by the Credit
Agreement, any Interest Rate Agreement, any other Credit Document or any
document related to any thereof. To the extent that the proceeds of any judicial
proceeding relating to the exercise of any right or remedy hereunder of the
Pledged Collateral shall exceed the Allocated Indebtedness, such proceeds shall
belong to Pledgor and shall not be available hereunder to satisfy any Secured
Obligations of Pledgor other than the Allocated Indebtedness. In any action or
proceeding to exercise any right or remedy under this Agreement which is
commenced after the giving by Collateral Agent of an Allocation Notice, the
Allocation Notice shall be conclusive proof of the limits of the Secured
Obligations hereby secured, and Pledgor may introduce, by way of defense or
counterclaim, evidence thereof in any such action or proceeding. Notwithstanding
any provision of this Section 27, the proceeds received by Collateral Agent
pursuant to this Agreement shall be applied by Collateral Agent in accordance
with the provisions of Section 11 hereof.
(b) Pledgor hereby waives to the greatest extent permitted under law
the right to a discharge of any of the Secured Obligations under any statute or
rule of law now or hereafter in effect which provides that the exercise of any
particular right or remedy as provided for herein (by judicial
<PAGE>
-23-
proceedings or otherwise) constitutes the exclusive means for satisfaction of
the Secured Obligations or which makes unavailable any further judgment or any
other right or remedy provided for herein because Collateral Agent elected to
proceed with the exercise of such initial right or remedy or because of any
failure by Collateral Agent to comply with laws that prescribe conditions to the
entitlement to such subsequent judgment or the availability of such subsequent
right or remedy. In the event that, notwithstanding the foregoing waiver, any
court shall for any reason hold that such subsequent judgment or action is not
available to Collateral Agent, Pledgor shall not (i) introduce in any other
jurisdiction any judgment so holding as a defense to enforcement against Pledgor
of any remedy in the Credit Agreement, any Interest Rate Agreement or any other
Credit Document or (ii) seek to have such judgment recognized or entered in any
other jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered and only with
respect to the collateral referred to in such judgment.
(c) In the event any instrument in addition to the Allocation Notice
is necessary to effectuate the provisions of this Section 27, including, without
limitation, any amendment to this Agreement, any substitute promissory note or
affidavit or certificate of any kind, Collateral Agent may execute and deliver
such instrument as the attorney-in-fact of Pledgor. Such power of attorney is
coupled with an interest and is irrevocable.
(d) Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 27 shall be effective only to the maximum extent
permitted by law.
Section 28. Future Advances. This Agreement shall secure the payment
---------------
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their duly authorized officers as
of the date first above written.
CARSON PRODUCTS COMPANY,
as Pledgor
By:___________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ,
as Collateral Agent
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
<PAGE>
Schedule A
----------
1. U.S. Patent Registrations:
2. Pending Applications for U.S. Patents:
3. Pending Applications for U.S. Patents in which Pledgor has a partial legal
interest:
<PAGE>
Schedule B
----------
1. U.S. Trademark Registrations:
Trademark U.S. Registration No. Registration Date
- ----------------- -------------------------- ----------------------
<PAGE>
Schedule C
----------
U.S. Copyright Registrations:
<PAGE>
Schedule D
----------
Proprietary Rights for which Pledgor has a license from a third party:
<PAGE>
EXHIBIT 10.46
BORROWER SECURITIES PLEDGE AGREEMENT
BORROWER SECURITIES PLEDGE AGREEMENT (the "Agreement"), dated as of
November 6, 1997, made by CARSON PRODUCTS COMPANY, a Delaware corporation having
an office at 64 Ross Road, Savannah, Georgia 31405 ("Pledgor"), in favor of
CREDIT AGRICOLE INDOSUEZ, having an office at 1211 Avenue of the Americas, 7th
Floor, New York, New York 10036, as pledgee, assignee and secured party, in its
capacity as agent and collateral agent (in such capacities and together with any
successors in such capacities, "Collateral Agent") for the lending institutions
(the "Banks") from time to time party to the Credit Agreement (as hereinafter
defined).
R E C I T A L S :
- - - - - - - -
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement), among
Carson, Inc., a Delaware corporation, Pledgor, the Banks and Credit Agricole
Indosuez, as Agent and Collateral Agent for the Banks, the Banks have agreed (i)
to make to or for the account of Pledgor certain Acquisition Term Loans up to an
aggregate principal amount of $50,000,000 and certain Revolving Loans up to an
aggregate principal amount of $25,000,000 and (ii) to issue certain Letters of
Credit for the account of Pledgor.
B. It is contemplated that Pledgor may enter into one or more
agreements with one or more of the banks ("Interest Rate Agreements") fixing the
interest rates with respect to Loans under the Credit Agreement (all obligations
of Pledgor now existing or hereafter arising under such Interest Rate
Agreements, collectively, the "Interest Rate Obligations").
C. Pledgor is the legal and beneficial owner of the Pledged
Collateral (as hereinafter defined).
<PAGE>
-2-
D. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters of
Credit under the Credit Agreement or entering into the Interest Rate Agreements
that Pledgor execute and deliver the applicable Credit Documents, including this
Agreement.
E. This agreement is given by Pledgor in favor of Collateral Agent
for its benefit and the benefit of the Banks and Agent (collectively, the
"Secured Parties") to secure the payment and performance of all of the Secured
Obligations (as defined in Section 2).
A G R E E M E N T :
-----------------
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Collateral Agent hereby agree as follows:
SECTION 1. Pledge. As collateral security for the payment and
------
performance when due of all the Secured Obligations, Pledgor hereby pledges,
assigns, transfers and grants to Collateral Agent for its benefit and the
benefit of the Secured Parties, a continuing first priority security interest in
and to all of the right, title and interest of Pledgor in, to and under the
following property, whether now existing or hereafter acquired (collectively,
the "Pledged Collateral"):
(a) issued and outstanding shares of capital stock of each Person
described in Schedule I hereto (the "Pledged Shares") (which are and shall
----------
remain at all times until this Agreement terminates, certificated shares),
including the certificates representing the Pledged Shares and any interest
of Pledgor in the entries on the books of any financial intermediary
pertaining to the Pledged Shares;
(b) all additional shares of capital stock of any issuer of the
Pledged Shares from time to time acquired by Pledgor in any manner (which
are and shall remain at all times until this Agreement terminates,
certificated shares) (which shares shall be deemed to be part of the
Pledged Shares), including the certificates representing such additional
shares and any interest of Pledgor in the
<PAGE>
-3-
entries on the books of any financial intermediary pertaining to such
additional shares;
(c) all intercompany notes described on Schedule II hereto (the
-----------
"Intercompany Notes") now owned or held by Pledgor and from time to time
acquired by Pledgor in any way, and all certificates or instruments
evidencing such Intercompany Notes and all proceeds thereof, all accessions
thereto and substitutions therefor;
(d) all dividends, cash, options, warrants, rights, instruments,
distributions, returns of capital, income, profits and other property,
interests or proceeds from time to time received, receivable or otherwise
distributed to Pledgor in respect of or in exchange for any or all of the
Pledged Shares or Intercompany Notes (collectively, "Distributions"); and
(e) all "proceeds" (as such term is defined in the UCC or under other
relevant law) of any of the foregoing.
SECTION 2. Secured Obligations. This Agreement secures, and the
-------------------
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. (S) 362(a)) of (i) all Obligations of Pledgor now existing or
hereafter arising under the Credit Agreement and all Interest Rate Obligations
of Pledgor now existing or hereafter arising under any Interest Rate Agreement
(including, without limitation, Pledgor's obligation provided for therein to pay
principal, interest and all other charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments related to or in
respect of the Obligations contained in the Credit Agreement and the obligations
contained in any Interest Rate Agreement), and (ii) without duplication of the
amounts described in clause (i), all obligations of Pledgor now existing or
hereafter arising under this Agreement or any other Security Document,
including, without limitation, with respect to all charges, fees, expenses,
commissions, reimbursements, premiums, indemnities and other payments that
Pledgor is obligated to pay under this Agreement or any other Security Document
(the obligations de-
<PAGE>
-4-
scribed in clauses (i) and (ii), collectively, the "Secured Obligations").
SECTION 3. No Release. Nothing set forth in this Agreement shall
----------
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on
Collateral Agent or any Secured Party to perform or observe any such term,
covenant, condition or agreement on Pledgor's part to be so performed or
observed or shall impose any liability on Collateral Agent or any Secured Party
for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement, any Interest Rate Agreement or any other Credit Document or
under or in respect of the Pledged Collateral or made in connection herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations under this Agreement, any Interest Rate Agreement and the other
Credit Documents.
SECTION 4. Delivery of Pledged Collateral.
------------------------------
(a) All certificates, agreements or instruments representing or
evidencing the Pledged Collateral, to the extent not previously delivered to
Collateral Agent, shall immediately upon receipt thereof by Pledgor be delivered
to and held by or on behalf of Collateral Agent pursuant hereto. All Pledged
Collateral shall be in suitable form for transfer by delivery or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Collateral Agent. Collateral
Agent shall have the right, at any time upon the occurrence of an Event of
Default and without notice to Pledgor, to endorse, assign or otherwise transfer
to or to register in the name of Collateral Agent or any of its nominees any or
all of the Pledged Collateral. In addition, Collateral Agent shall have the
right at any time to exchange certificates representing or evidencing Pledged
Collateral for certificates of smaller or larger denominations.
(b) If the issuer of Pledged Shares is incorporated in a jurisdiction
which does not permit the use of certificates
<PAGE>
-5-
to evidence equity ownership, then Pledgor shall, to the extent permitted by
applicable law, record such pledge on the stock register of the issuer, execute
any customary stock pledge forms or other documents necessary or appropriate to
complete the pledge and give Collateral Agent the right to transfer such Pledged
Shares under the terms hereof and provide to Collateral Agent an opinion of
counsel, in form and substance reasonably satisfactory to Collateral Agent,
confirming such pledge.
SECTION 5. Supplements, Further Assurances.
-------------------------------
(a) Pledgor agrees that at any time and from time to time, at the
sole cost and expense of Pledgor, Pledgor shall promptly execute and deliver all
further instruments and documents, including, without limitation, supplemental
or additional UCC-1 financing statements, and take all further action that may
be necessary or that Collateral Agent may reasonably request, in order to
perfect and protect the pledge, security interest and Lien granted or purported
to be granted hereby or to enable Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral.
(b) Pledgor shall, upon obtaining any Pledged Shares or Intercompany
Notes of any Person, promptly (and in any event within five Business Days)
deliver to Collateral Agent a pledge amendment, duly executed by Pledgor, in
substantially the form of Exhibit 1 hereto (each, a "Pledge Amendment"), in
---------
respect of the additional Pledged Shares or Intercompany Notes which are to be
pledged pursuant to this Agreement, and confirming the attachment of the Lien
hereby created on and in respect of such additional shares. Pledgor hereby
authorizes Collateral Agent to attach each Pledge Amendment to this Agreement
and agrees that all Pledged Shares or Intercompany Notes listed on any Pledge
Amendment delivered to Collateral Agent shall for all purposes hereunder be
considered Pledged Collateral.
SECTION 6. Representations, Warranties and Covenants. Pledgor
-----------------------------------------
represents, warrants and covenants as follows:
(a) No Liens. Pledgor is as of the date hereof, and at the time of
--------
any delivery of any Pledged Collateral to Collateral Agent pursuant to Section 4
of this Agreement, Pledgor will be, the sole legal and beneficial owner of the
Pledged Collateral. All Pledged Collateral is on the date hereof, and will be,
so owned by Pledgor free and clear of any Lien except for the Lien created by
this Agreement and Liens of the type
<PAGE>
-6-
described in paragraph (a) of the definition of Permitted Encumbrances.
(b) Authorization, Enforceability. Pledgor has the requisite
-----------------------------
corporate power, authority and legal right to pledge and grant a security
interest in all the Pledged Collateral pursuant to this Agreement, and this
Agreement constitutes the legal, valid and binding obligation of Pledgor,
enforceable against Pledgor in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and except as such
enforceability may be limited by the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) No Consents, etc. No consent of any party (including, without
----------------
limitation, stockholders or creditors of Pledgor) and no consent, authorization,
approval, license or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body or other Person is required for (x)
the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by Pledgor, (y) the
exercise by Collateral Agent of the voting or other rights provided for in this
Agreement, or (z) the exercise by Collateral Agent of the remedies in respect of
the Pledged Collateral pursuant to this Agreement (other than those consents,
authorizations, approvals, actions, notices or filings which, if not obtained or
made, would not have a material adverse effect upon the interests of Collateral
Agent under this Agreement).
(d) Due Authorization and Issuance. All of the Pledged Shares have
------------------------------
been, and to the extent hereafter issued will be upon such pledge, duly
authorized and validly issued and fully paid and nonassessable.
(e) Chief Executive Office. Pledgor's chief executive office is
----------------------
located at 64 Ross Road, Savannah, Georgia 31405. Pledgor shall not move its
chief executive office except to such new location as Pledgor may establish in
accordance with the last sentence of this Section 6(e). Pledgor shall not
establish a new location for its chief executive office nor shall it change its
name until (i) it shall have given Collateral Agent not less than 45 days' prior
written notice of
<PAGE>
-7-
its intention so to do, clearly describing such new location or name and
providing such other information in connection therewith as Collateral Agent or
any Secured Party may request, and (ii) with respect to such new location or
name, Pledgor shall have taken all action satisfactory to Collateral Agent and
the Secured Parties to maintain the perfection and priority of the security
interest of Collateral Agent for the benefit of the Secured Parties in the
Pledged Collateral intended to be granted hereby.
(f) Delivery of Pledged Collateral; Filings. Pledgor has delivered
---------------------------------------
to Collateral Agent all certificates representing the Pledged Shares and
Intercompany Notes and has delivered to Collateral Agent appropriate UCC-1
financing statements to be filed with the Secretary of State of the States of
New York and Georgia, the State in which the chief executive office of Pledgor
is located, evidencing the Lien created by this Agreement, and such delivery,
filing and pledge of the Pledged Collateral pursuant to this Agreement will
create a valid and perfected first priority security interest in the Pledged
Collateral securing the payment of the Secured Obligations pursuant to the UCC
in effect in each applicable jurisdiction, including, without limitation, the
States of New York and Georgia.
(g) Pledged Collateral. All information set forth herein, including
------------------
the Schedules annexed hereto, and all information contained in any documents,
schedules and lists heretofore delivered to any Secured Party in connection with
this Agreement, in each case, relating to the Pledged Collateral is accurate and
complete in all material respects.
(h) No Violations, etc. The pledge of the Pledged Collateral
------------------
pursuant to this Agreement does not violate Regulation G, T, U or X of the
Federal Reserve Board.
(i) Ownership of Pledged Collateral. Except as otherwise permitted
-------------------------------
by the Credit Agreement, Pledgor at all times will be the sole beneficial owner
of the Pledged Collateral.
(j) No Options, Warrants, etc. There are no options, warrants,
-------------------------
calls, rights, commitments or agreements of any character to which Pledgor is a
party or by which it is bound obligating Pledgor to deliver or sell or cause to
be issued, delivered or sold, additional Pledged Shares or obligating Pledgor to
grant, extend or enter into any such option,
<PAGE>
-8-
warrant, call, right, commitment or agreement. There are no voting trusts or
other agreements or understandings to which Pledgor is a party with respect to
the voting of the capital stock of any issuer of the Pledged Shares.
SECTION 7. Voting Rights; Distributions; etc.
---------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Shares or any part
thereof for any purpose not inconsistent with the terms or purpose of this
Agreement or any other Credit Document; provided, however, that Pledgor
-------- -------
shall not in any event exercise such rights in any manner which may have a
material adverse effect on the value of the Pledged Collateral or the
security intended to be provided by this Agreement.
(ii) Subject to the terms of the Credit Agreement, Pledgor shall be
entitled to receive and retain, and to utilize free and clear of the Lien
of this Agreement, any and all Distributions, but only if and to the extent
made in accordance with the provisions of the Credit Agreement; provided,
--------
however, that any and all such Distributions consisting of rights or
-------
interests in the form of securities shall be, and shall be forthwith
delivered to Collateral Agent to hold as Pledged Collateral and shall, if
received by Pledgor, be received in trust for the benefit of Collateral
Agent, be segregated from the other property or funds of Pledgor, and be
forthwith delivered to Collateral Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement).
(iii) Collateral Agent shall be deemed without further action or
formality to have granted to Pledgor all necessary consents relating to
voting rights and shall, if necessary, upon written request of Pledgor and
at Pledgor's sole cost and expense, from time to time execute and deliver
(or cause to be executed and delivered) to Pledgor all such instruments as
Pledgor may reasonably request in order to permit Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to
Section 7(a)(i) hereof and to receive the Distributions
<PAGE>
-9-
which it is authorized to receive and retain pursuant to Section 7(a)(ii)
hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of Pledgor to exercise the voting and other
consensual rights it would otherwise be entitled to exercise pursuant to
Section 7(a)(i) hereof without any action or the giving of any notice shall
cease, and all such rights shall thereupon become vested in Collateral
Agent, which shall thereupon have the sole right to exercise such voting
and other consensual rights.
(ii) All rights of Pledgor to receive Distributions which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(ii)
hereof shall cease and all such rights shall thereupon become vested in
Collateral Agent, which shall thereupon have the sole right to receive and
hold as Pledged Collateral such Distributions; provided, that if such Event
--------
of Default is cured, any such Distributions theretofore paid to Collateral
Agent shall, upon the request of Pledgor (except to the extent theretofore
applied to the Secured Obligations), be returned by Collateral Agent to
Pledgor.
(c) Pledgor shall, at its sole cost and expense, from time to time
execute and deliver to Collateral Agent appropriate instruments as Collateral
Agent may reasonably request in order to permit Collateral Agent to exercise the
voting and other rights which it may be entitled to exercise pursuant to Section
7(b)(i) hereof and to receive all Distributions which it may be entitled to
receive under Section 7(b)(ii) hereof.
(d) All Distributions which are received by Pledgor contrary to the
provisions of Section 7(b)(ii) hereof shall be received in trust for the benefit
of Collateral Agent, shall be segregated from other funds of Pledgor and shall
immediately be paid over to Collateral Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement).
SECTION 8. Transfers and Other Liens; Additional Shares; Principal
-------------------------------------------------------
Office.
- ------
<PAGE>
-10-
(a) Pledgor shall not (i) sell, convey, assign or otherwise dispose
of, or grant any option, right or warrant with respect to, any of the Pledged
Collateral except as permitted by the Credit Agreement, (ii) create or permit to
exist any Lien upon or with respect to any Pledged Collateral other than the
Lien and security interest granted to Collateral Agent pursuant to this
Agreement and Liens of the type described in paragraph (a) of the definition of
Permitted Encumbrances, or (iii) permit any issuer of the Pledged Shares to
merge, consolidate or change its legal form, except as permitted by the Credit
Agreement unless all of the outstanding capital stock of the surviving or
resulting corporation is, upon such merger or consolidation, pledged hereunder
and no cash, securities or other property is distributed in respect of the
outstanding shares of any other constituent corporation. The preceding sentence
shall not apply to any sale or other disposition of all of the stock of the
issuer of Pledged Shares which is in compliance with the Credit Agreement and
the proceeds of which sale or other disposition are used to make a mandatory
prepayment of the Loans pursuant to Section 3.02(A) of the Credit Agreement.
Upon such sale or other disposition, such Pledged Shares shall be released from
the Lien of this Agreement in accordance with Section 17 of this Agreement.
(b) Pledgor shall (i) cause each issuer of the Pledged Shares not to
issue any stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to Pledgor, unless required by
applicable law, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of capital stock
or other equity securities of the issuer of the Pledged Shares which are
required to be pledged hereunder.
SECTION 9. Reasonable Care. Collateral Agent shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equivalent to that which Collateral Agent, in its individual
capacity, accords its own property consisting of similar instruments or
interests, it being understood that neither Collateral Agent nor any of the
Secured Parties shall have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Pledged Collateral, whether or not Col-
<PAGE>
-11-
lateral Agent or any other Secured Party has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
Person with respect to any Pledged Collateral.
SECTION 10. Remedies Upon Default; Decisions Relating to Exercise of
--------------------------------------------------------
Remedies.
- --------
(a) If an Event of Default shall have occurred and be continuing, and
the Secured Obligations have been declared due and payable in accordance with
the Credit Agreement, Collateral Agent shall have the right, in addition to
other rights and remedies provided for herein or otherwise available to it to be
exercised from time to time, (i) to retain and apply the Distributions to the
Secured Obligations as provided in Section 11 hereof, and (ii) to exercise all
the rights and remedies of a secured party on default under the UCC in effect in
the State of New York at that time, and Collateral Agent may also in its sole
discretion, without notice except as specified below, sell the Pledged
Collateral or any part thereof (including, without limitation, any partial
interest in the Pledged Shares) in one or more parcels at public or private
sale, at any exchange, broker's board or at any of Collateral Agent's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Collateral Agent may deem commercially
reasonable, irrespective of the impact of any such sales on the market price of
the Pledged Collateral. Collateral Agent or any other Secured Party or any of
their respective Affiliates may be the purchaser of any or all of the Pledged
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Pledged Collateral sold at such sale, to use and apply any of the Secured
Obligations owed to such Person as a credit on account of the purchase price of
any Pledged Collateral payable by such Person at such sale. Each purchaser at
any such sale shall acquire the property sold absolutely free from any claim or
right on the part of Pledgor, and Pledgor hereby waives, to the fullest extent
permitted by law, all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor acknowledges and agrees that, to the
extent notice of sale shall be required by law, ten days notice to Pledgor of
the time and place of any public sale or the time after which any private
<PAGE>
-12-
sale or other intended disposition is to take place shall constitute reasonable
notification of such matters. No notification need be given to Pledgor if it has
signed, after the occurrence of an Event of Default, a statement renouncing or
modifying any right to notification of sale or other intended disposition.
Collateral Agent shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Pledgor hereby waives, to the fullest
extent permitted by law, any claims against Collateral Agent arising by reason
of the fact that the price at which any Pledged Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Pledged Collateral to more than one offeree. Collateral Agent
shall not be liable for any incorrect or improper payment made pursuant to this
Section 10 in the absence of gross negligence or willful misconduct.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Collateral Agent may be compelled, with
respect to any sale of all or any part of the Pledged Collateral, to limit
purchasers to Persons who will agree, among other things, to acquire the Pledged
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable to Collateral Agent than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act), and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that Collateral Agent shall have no obligation to engage
in public sales and no obligation to delay the sale of any Pledged Collateral
for the period of time necessary to permit the issuer thereof to register it for
a form of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would agree to do so.
<PAGE>
-13-
(c) If Collateral Agent determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, Pledgor shall from time
to time furnish to Collateral Agent all such information as Collateral Agent may
request in order to determine the number of securities included in the Pledged
Collateral which may be sold by Collateral Agent as exempt transactions under
the Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(d) Pledgor recognizes that, by reason of certain prohibitions
contained in laws, rules, regulations or orders of any foreign Governmental
Authority, Collateral Agent may be compelled, with respect to any sale of all or
any part of the Pledged Collateral, to limit purchasers to those who meet the
requirements of such foreign Governmental Authority. Pledgor acknowledges that
any such sales may be at prices and on terms less favorable to Collateral Agent
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such restricted sale shall
be deemed to have been made in a commercially reasonable manner and that, except
as may be required by applicable law, Collateral Agent shall have no obligation
to engage in public sales.
(e) In addition to any of the other rights and remedies hereunder,
Collateral Agent shall have the right to institute a proceeding seeking specific
performance in connection with any of the agreements or obligations hereunder.
SECTION 11. Application of Proceeds. All Distributions held from
-----------------------
time to time by Collateral Agent and all proceeds received by Collateral Agent
in respect of any sale of, collection from, or other realization upon all or any
part of the Pledged Collateral pursuant to the exercise by Collateral Agent of
its remedies as a secured creditor as provided in Section 10 hereof shall be
applied, together with any other sums then held by Collateral Agent pursuant to
this Agreement, promptly by Collateral Agent as follows:
First, to the payment of all costs and expenses, fees, commissions and
-----
taxes of such sale, collection or other realization, including, without
limitation, reasonable out-of-pocket costs and expenses of Collateral Agent
and its agents and counsel, and all expenses, liabilities
<PAGE>
-14-
and advances made or incurred by Collateral Agent in connection therewith;
Second, to the payment of all other costs and expenses of such sale,
------
collection or other realization, including reasonable out-of-pocket costs
and expenses of the Banks and their agents and counsel and all costs,
liabilities and advances made or incurred by the Banks in connection
therewith;
Third, to the payment in full in cash of Secured Obligations
-----
consisting of interest and all amounts other than principal under the
Credit Agreement at any time and from time to time owing by Pledgor under
or in connection with the Credit Agreement, ratably according to the unpaid
amounts thereof, in the manner and priority set forth in the Credit
Agreement, together with interest on each such amount in the manner and to
the extent set forth in the Credit Agreement from and after the date such
amount is due, owing or unpaid until paid in full;
Fourth, to the pro rata payment in full in cash of Secured Obligations
------ --------
consisting of (i) principal at any time and from time to time owing by
Pledgor under or in connection with the Credit Agreement, ratably according
to the unpaid amounts thereof, in the manner and priority set forth in the
Credit Agreement and (ii) the amount of Pledgor's obligations then due and
payable under any Interest Rate Agreement, including any early termination
payments then due (exclusive of expenses or similar liabilities to any Bank
under the applicable Interest Rate Agreement(s)), together with interest on
each such amount in the manner and to the extent set forth in the Credit
Agreement from and after the date such amount is due, owing or unpaid until
paid in full; and
Fifth, the balance, if any, to the Person lawfully entitled thereto
-----
(including Pledgor or its successors or assigns).
SECTION 12. Expenses. Pledgor will upon demand pay to Collateral
--------
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and the reasonable fees and expenses of any
experts and agents, which Collateral Agent may incur in connection with (i) the
collection of the Secured Obligations, (ii) the en-
<PAGE>
-15-
forcement and administration of this Agreement, (iii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Pledged Collateral, (iv) the exercise or enforcement of any of the rights
of Collateral Agent or any Secured Party hereunder or (v) the failure by Pledgor
to perform or observe any of the provisions hereof. All amounts payable by
Pledgor under this Section 12 shall be due within ten Business Days after demand
and shall be part of the Secured Obligations. Pledgor's obligations under this
Section 12 shall survive the termination of this Agreement and the discharge of
Pledgor's other obligations hereunder.
SECTION 13. No Waiver; Cumulative Remedies. (a) No failure on the
------------------------------
part of Collateral Agent to exercise, no course of dealing with respect to, and
no delay on the part of Collateral Agent in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to Collateral Agent, then and in every such case, Pledgor, Collateral Agent and
each Secured Party shall be restored to their respective former positions and
rights hereunder with respect to the Pledged Collateral, and all rights,
remedies and powers of Collateral Agent and the Secured Parties shall continue
as if no such proceeding had been instituted.
SECTION 14. Collateral Agent. Collateral Agent has been appointed as
----------------
collateral agent pursuant to the Credit Agreement. The actions of Collateral
Agent hereunder are subject to the provisions of the Credit Agreement.
Collateral Agent shall have the right hereunder to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking action (including, without limitation, the release or
substitution of Pledged Collateral), in accordance with this Agreement and the
Credit Agreement. Collateral Agent may resign and a successor Collateral Agent
may
<PAGE>
-16-
be appointed in the manner provided in the Credit Agreement. Upon the acceptance
of any appointment as Collateral Agent by a successor Collateral Agent, that
successor Collateral Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Collateral Agent under
this Agreement, and the retiring Collateral Agent shall thereupon be discharged
from its duties and obligations under this Agreement. After any retiring
Collateral Agent's resignation, the provisions of this Agreement shall inure to
its benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was Collateral Agent.
SECTION 15. Collateral Agent May Perform; Collateral Agent Appointed
--------------------------------------------------------
Attorney-in-Fact. If Pledgor shall fail to do any act or thing that it has
- ----------------
covenanted to do hereunder or any warranty on the part of Pledgor contained
herein shall be breached, Collateral Agent or any Secured Party may (but shall
not be obligated to) do the same or cause it to be done or remedy any such
breach, and may, following five Business Days' prior written notice to Pledgor
of its intention to do so, expend funds for such purpose. Any and all amounts
so expended by Collateral Agent or such Secured Party shall be paid by Pledgor
within ten Business Days after demand therefor, with interest at the highest
rate then in effect under the Credit Agreement during the period from and
including the date on which such funds were so expended to the date of
repayment. Pledgor's obligations under this Section 15 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
under this Agreement, the Credit Agreement, any Interest Rate Agreement and the
other Credit Documents. Pledgor hereby appoints Collateral Agent its attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, or otherwise, from time to time in Collateral Agent's reasonable
discretion to take any action and to execute any instrument consistent with the
terms of this Agreement and the other Credit Documents which Collateral Agent
may deem reasonably necessary or advisable to accomplish the purposes of this
Agreement. The foregoing grant of authority is a power of attorney coupled with
an interest and such appointment shall be irrevocable for the term of this
Agreement. Pledgor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
SECTION 16. Modification in Writing. No amendment, modification,
-----------------------
supplement, termination or waiver of or to any
<PAGE>
-17-
provision of this Agreement, nor consent to any departure by Pledgor therefrom,
shall be effective unless the same shall be done in accordance with the terms of
the Credit Agreement and unless in writing and signed by Collateral Agent. Any
amendment, modification or supplement of or to any provision of this Agreement,
any waiver of any provision of this Agreement and any consent to any departure
by Pledgor from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement or any
other Credit Document, no notice to or demand on Pledgor in any case shall
entitle Pledgor to any other or further notice or demand in similar or other
circumstances.
SECTION 17. Termination; Release. When all the Secured Obligations
--------------------
have been paid in full and the Commitments of the Banks to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, Collateral Agent shall, upon the request and at the
sole cost and expense of Pledgor, forthwith assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by Collateral
Agent, such of the Pledged Collateral to be released (in the case of a release)
as may be in the possession of Collateral Agent and as shall not have been sold
or otherwise applied pursuant to the terms hereof, and, with respect to any
other Pledged Collateral, proper instruments (including UCC termination
statements on Form UCC-3) acknowledging the termination of this Agreement or the
release of such Pledged Collateral, as the case may be.
SECTION 18. Notices. Unless otherwise provided herein or in the
-------
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, as
to either party addressed to it at the address set forth in the Credit Agreement
or at such other address as shall be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section 18; provided that notices to Collateral Agent shall not be effective
--------
until received by Collateral Agent.
<PAGE>
-18-
SECTION 19. Continuing Security Interest; Assignment. This Agreement
----------------------------------------
shall create a continuing security interest in the Pledged Collateral and shall
(i) be binding upon Pledgor, its successors and assigns and (ii) inure, together
with the rights and remedies of Collateral Agent hereunder, to the benefit of
Collateral Agent and the other Secured Parties and each of their respective
successors, transferees and assigns; no other Persons (including, without
limitation, any other creditor of Pledgor) shall have any interest herein or any
right or benefit with respect hereto. Without limiting the generality of the
foregoing clause (ii), any Bank may assign or otherwise transfer any
indebtedness held by it secured by this Agreement to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank, herein or otherwise, subject however, to the
provisions of the Credit Agreement and any applicable Interest Rate Agreement.
SECTION 20. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. (a) Any
----------------------------------------------
legal action or proceeding with respect to this Agreement may be brought in the
courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, Pledgor
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.
Pledgor further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Pledgor at its
address for notices pursuant to the Credit Agreement, such service to become
effective 30 days after such mailing. Pledgor hereby irrevocably appoints CT
Corporation System having an address at 1633 Broadway, New York, New York 10019
and such other persons as may hereafter be selected by Borrower irrevocably
agreeing in writing to serve as
<PAGE>
-19-
its agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of Collateral Agent to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against Pledgor in any other jurisdiction.
(b) Pledgor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 22. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 23. Execution in Counterparts. This Agreement and any
-------------------------
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
SECTION 24. Headings. The Section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction of
this Agreement.
SECTION 25. Obligations Absolute. All obligations of Pledgor
--------------------
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Pledgor or any other
Credit Party;
(ii) any lack of validity or enforceability of the Credit
Agreement, any Interest Rate Agreement, any Letter
<PAGE>
-20-
of Credit, any other Credit Document, or any other agreement or instrument
relating thereto;
(iii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit, any other
Credit Document, or any other agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Agreement any
Interest Rate Agreement, or any other Credit Document except as
specifically set forth in a waiver granted pursuant to the provisions of
Section 17 hereof; or
(vi) any other circumstance or happening whatsoever that is similar
to any of the foregoing.
SECTION 26. Collateral Agent's Right to Sever Indebtedness. (a)
----------------------------------------------
Pledgor acknowledges that (i) the Pledged Collateral does not constitute the
sole source of security for the payment and performance of the Secured
Obligations and that the Secured Obligations are also secured by other types of
property of Pledgor and its Affiliates in other jurisdictions (all such
property, collectively, the "Collateral"), (ii) the number of such jurisdictions
and the nature of the transaction of which this instrument is a part are such
that it would have been impracticable for the parties to allocate to each item
of Collateral a specific loan amount and to execute in respect of such item a
separate credit agreement, and (iii) Pledgor intends that Collateral Agent have
the same rights with respect to the Pledged Collateral, in any judicial
proceeding relating to the exercise of any right or remedy hereunder or
otherwise, that Collateral Agent would have had if each item of Collateral had
been pledged or encumbered pursuant to a separate credit agreement and security
instrument. In furtherance of such intent, Pledgor agrees to the greatest
extent permitted by law that Collateral Agent may at any time by notice (an
"Allocation
<PAGE>
-21-
Notice") to Pledgor allocate a portion of the Secured Obligations (the
"Allocated Indebtedness") to the Pledged Collateral and sever from the remaining
Secured Obligations the Allocated Indebtedness. From and after the giving of an
Allocation Notice with respect to the Pledged Collateral, the Secured
Obligations hereunder shall be limited to the extent set forth in the Allocation
Notice and (as so limited) shall, for all purposes, be construed as a separate
credit obligation of Pledgor unrelated to the other transactions contemplated by
the Credit Agreement, any Interest Rate Agreement, any other Credit Document or
any document related to any thereof. To the extent that the proceeds of any
judicial proceeding relating to the exercise of any right or remedy hereunder of
the Pledged Collateral shall exceed the Allocated Indebtedness, such proceeds
shall belong to Pledgor and shall not be available hereunder to satisfy any
Secured Obligations of Pledgor other than the Allocated Indebtedness. In any
action or proceeding to exercise any right or remedy under this Agreement which
is commenced after the giving by Collateral Agent of an Allocation Notice, the
Allocation Notice shall be conclusive proof of the limits of the Secured
Obligations hereby secured, and Pledgor may introduce, by way of defense or
counterclaim, evidence thereof in any such action or proceeding. Notwithstanding
any provision of this Section 26, the proceeds received by Collateral Agent
pursuant to this Agreement shall be applied by Collateral Agent in accordance
with the provisions of Section 11 hereof.
(b) Pledgor hereby waives to the greatest extent permitted under law
the right to a discharge of any of the Secured Obligations under any statute or
rule of law now or hereafter in effect which provides that the exercise of any
particular right or remedy as provided for herein (by judicial proceedings or
otherwise) constitutes the exclusive means for satisfaction of the Secured
Obligations or which makes unavailable any further judgment or any other right
or remedy provided for herein because Collateral Agent elected to proceed with
the exercise of such initial right or remedy or because of any failure by
Collateral Agent to comply with laws that prescribe conditions to the
entitlement to such subsequent judgment or the availability of such subsequent
right or remedy. In the event that, notwithstanding the foregoing waiver, any
court shall for any reason hold that such subsequent judgment or action is not
available to Collateral Agent, Pledgor shall not (i) introduce in any other
jurisdiction any judgment so holding as a defense to enforcement against Pledgor
of any remedy in
<PAGE>
-22-
the Credit Agreement, any Interest Rate Agreement or any other Credit Document
or (ii) seek to have such judgment recognized or entered in any other
jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered and only with
respect to the collateral referred to in such judgment.
(c) In the event any instrument in addition to the Allocation Notice
is necessary to effectuate the provisions of this Section 26, including, without
limitation, any amendment to this Agreement, any substitute promissory note or
affidavit or certificate of any kind, Collateral Agent may execute and deliver
such instrument as the attorney-in-fact of Pledgor. Such power of attorney is
coupled with an interest and is irrevocable.
(d) Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 26 shall be effective only to the maximum extent
permitted by law.
SECTION 27. Future Advances. This Agreement shall secure the payment
---------------
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their duly authorized officers as
of the date first above written.
CARSON PRODUCTS COMPANY,
as Pledgor
By:
--------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ,
as Collateral Agent
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
----------
Pledged Shares
--------------
<TABLE>
<CAPTION>
PERCENTAGE OF
ALL CAPITAL OR
CERTIFI- NUMBER OTHER EQUITY
CLASS PAR CATE OF INTERESTS
ISSUER OF STOCK VALUE NO(S). SHARES OF ISSUER
- ------------------------ ----------- ----------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Fine Products Capital None 4 2,000,000 100.0%
Company
Carson Holdings Common R1.00 2969 26,325,000/1/ 65.0%
Limited
Carson Botswana Common P1 3 99 99.0%
(Proprietary) Limited
</TABLE>
- ---------------
/1/ Evidenced by a certificate for 29,250,000 shares.
<PAGE>
SCHEDULE II
-----------
Intercompany Notes
------------------
PRINCIPAL DATE OF INTEREST MATURITY
ISSUER AMOUNT ISSUANCE RATE DATE
- ------ --------- -------- -------- --------
NONE
<PAGE>
EXHIBIT 1
---------
PLEDGE AMENDMENT
This Pledge Amendment, dated ______________, is delivered pursuant to
Section 5 of the Agreement referred to below. The undersigned hereby agrees
that this Pledge Amendment may be attached to the Borrower Securities Pledge
Agreement, dated as of November 6, 1997, between the undersigned and Credit
Agricole Indosuez, as Collateral Agent (the "Agreement"; capitalized terms used
herein and not defined shall have the meanings assigned to them in the
Agreement) and that the Pledged Shares and/or Intercompany Notes listed on this
Pledge Amendment shall be deemed to be and shall become part of the Pledged
Collateral and shall secure all Secured Obligations.
CARSON PRODUCTS COMPANY,
as Pledgor
By:
----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
----------
Pledged Shares
--------------
<TABLE>
<CAPTION>
PERCENTAGE OF
ALL CAPITAL OR
CERTIFI- NUMBER OTHER EQUITY
CLASS PAR CATE OF INTERESTS
ISSUER OF STOCK VALUE NO(S). SHARES OF ISSUER
- --------------------------- ------------- ------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 10.47
HOLDINGS SECURITIES PLEDGE AGREEMENT
HOLDINGS SECURITIES PLEDGE AGREEMENT (the "Agreement"), dated as of
November 6, 1997, made by CARSON, INC., a Delaware corporation having an office
at 64 Ross Road, Savannah, Georgia 31405 ("Pledgor"), in favor of CREDIT
AGRICOLE INDOSUEZ, having an office at 1211 Avenue of the Americas, 7th Floor,
New York, New York 10036, as pledgee, assignee and secured party, in its
capacity as agent and collateral agent (in such capacities and together with any
successors in such capacities, "Collateral Agent") for the lending institutions
(the "Banks") from time to time party to the Credit Agreement (as hereinafter
defined).
R E C I T A L S :
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement), among
Pledgor, Carson Products Company (the "Borrower"), the Banks and Credit Agricole
Indosuez, as Agent and Collateral Agent for the Banks, the Banks have agreed (i)
to make to or for the account of the Borrower certain Acquisition Term Loans up
to an aggregate principal amount of $50,000,000 and certain Revolving Loans up
to an aggregate principal amount of $25,000,000 and (ii) to issue certain
Letters of Credit for the account of the Borrower.
B. It is contemplated that the Borrower may enter into one or more
agreements with one or more of the Banks ("Interest Rate Agreements") fixing the
interest rates with respect to Loans under the Credit Agreement (all obligations
of the Borrower now existing or hereafter arising under such Interest Rate
Agreements, collectively, the "Interest Rate Obligations").
C. Pledgor is the legal and beneficial owner of the Pledged
Collateral (as hereinafter defined).
<PAGE>
-2-
D. Pledgor has executed and delivered to Collateral Agent a certain
guarantee instrument (the "Guarantee") pursuant to which, among other things,
Pledgor has guaranteed the obligations of the Borrower under the Credit
Agreement and under any Interest Rate Agreements, and Pledgor desires that such
Guarantee be secured hereunder.
E. It is a condition to the obligations of the Banks to make the
Loans under the Credit Agreement and a condition to any Bank issuing Letters of
Credit under the Credit Agreement or entering into the Interest Rate Agreements
that Pledgor execute and deliver the applicable Credit Documents, including this
Agreement.
F. This Agreement is given by Pledgor in favor of Collateral Agent
for its benefit and the benefit of the Banks and Agent (collectively, the
"Secured Parties") to secure the payment and performance of all of the Secured
Obligations (as defined in Section 2).
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Collateral Agent hereby agree as follows:
Section 1. Pledge. As collateral security for the payment and
---------- ------
performance when due of all the Secured Obligations, Pledgor hereby pledges,
assigns, transfers and grants to Collateral Agent for its benefit and the
benefit of the Secured Parties, a continuing first priority security interest in
and to all of the right, title and interest of Pledgor in, to and under the
following property, whether now existing or hereafter acquired (collectively,
the "Pledged Collateral"):
(a) issued and outstanding shares of capital stock of each Person
described in Schedule I hereto (the "Pledged Shares") (which are and shall
----------
remain at all times until this Agreement terminates, certificated shares),
including the certificates representing the Pledged Shares and any interest of
Pledgor in the entries on the books of any financial intermediary pertaining to
the Pledged Shares;
<PAGE>
-3-
(b) all additional shares of capital stock of any issuer of the
Pledged Shares from time to time acquired by Pledgor in any manner (which are
and shall remain at all times until this Agreement terminates, certificated
shares) (which shares shall be deemed to be part of the Pledged Shares),
including the certificates representing such additional shares and any interest
of Pledgor in the entries on the books of any financial intermediary pertaining
to such additional shares;
(c) all dividends, cash, options, warrants, rights, instruments,
distributions, returns of capital, income, profits and other property, interests
or proceeds from time to time received, receivable or otherwise distributed to
Pledgor in respect of or in exchange for any or all of the Pledged Shares
(collectively, "Distributions"); and
(d) all "proceeds" (as such term is defined in the UCC or under other
relevant law) of any of the foregoing.
Section 2. Secured Obligations. This Agreement secures, and the
---------- -------------------
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. (S) 362(a)) of (i) all Obligations of Pledgor under the Guarantee
(including, without limitation, Pledgor's obligation provided for therein to pay
principal, interest and all other charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments related to or in
respect of the Obligations contained in the Guarantee, (ii) all Obligations of
the Borrower now existing or hereafter arising under the Credit Agreement and
all Interest Rate Obligations of the Borrower now existing or hereafter arising
under any Interest Rate Agreement (including, without limitation, Pledgor's
obligation provided for therein to pay principal, interest and all other
charges, fees, expenses, commissions, reimbursements, premiums, indemnities and
other payments related to or in respect of the Obligations contained in the
Credit Agreement and the obligations contained in any Interest Rate Agreement),
and (iii) without duplication of the amounts described in clauses (i) and (ii),
all obligations of Pledgor now existing or hereafter arising under this
Agreement or any other Security Document, including,
<PAGE>
-4-
without limitation, with respect to all charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments that Pledgor is
obligated to pay under this Agreement or any other Security Document (the
obligations described in clauses (i), (ii) and (iii), collectively, the "Secured
Obligations").
Section 3. No Release. Nothing set forth in this Agreement shall
---------- ----------
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on
Collateral Agent or any Secured Party to perform or observe any such term,
covenant, condition or agreement on Pledgor's part to be so performed or
observed or shall impose any liability on Collateral Agent or any Secured Party
for any act or omission on the part of Pledgor relating thereto or for any
breach of any representation or warranty on the part of Pledgor contained in
this Agreement, any Interest Rate Agreement or any other Credit Document or
under or in respect of the Pledged Collateral or made in connection herewith or
therewith. The obligations of Pledgor contained in this Section 3 shall survive
the termination of this Agreement and the discharge of Pledgor's other
obligations under this Agreement, any Interest Rate Agreement and the other
Credit Documents.
Section 4. Delivery of Pledged Collateral.
---------- ------------------------------
(a) All certificates, agreements or instruments representing or
evidencing the Pledged Collateral, to the extent not previously delivered to
Collateral Agent, shall immediately upon receipt thereof by Pledgor be delivered
to and held by or on behalf of Collateral Agent pursuant hereto. All Pledged
Collateral shall be in suitable form for transfer by delivery or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Collateral Agent. Collateral
Agent shall have the right, at any time upon the occurrence of an Event of
Default and without notice to Pledgor, to endorse, assign or otherwise transfer
to or to register in the name of Collateral Agent or any of its nominees any or
all of the Pledged Collateral. In addition, Collateral Agent shall have the
right at any time to exchange certificates representing or evidencing
<PAGE>
-5-
Pledged Collateral for certificates of smaller or larger denominations.
(b) If the issuer of Pledged Shares is incorporated in a jurisdiction
which does not permit the use of certificates to evidence equity ownership, then
Pledgor shall, to the extent permitted by applicable law, record such pledge on
the stock register of the issuer, execute any customary stock pledge forms or
other documents necessary or appropriate to complete the pledge and give
Collateral Agent the right to transfer such Pledged Shares under the terms
hereof and provide to Collateral Agent an opinion of counsel, in form and
substance reasonably satisfactory to Collateral Agent, confirming such pledge.
Section 5. Supplements, Further Assurances.
---------- -------------------------------
(a) Pledgor agrees that at any time and from time to time, at the sole
cost and expense of Pledgor, Pledgor shall promptly execute and deliver all
further instruments and documents, including, without limitation, supplemental
or additional UCC-1 financing statements, and take all further action that may
be necessary or that Collateral Agent may reasonably request, in order to
perfect and protect the pledge, security interest and Lien granted or purported
to be granted hereby or to enable Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral.
(b) Pledgor shall, upon obtaining any Pledged Shares of any Person,
promptly (and in any event within five Business Days) deliver to Collateral
Agent a pledge amendment, duly executed by Pledgor, in substantially the form of
Exhibit 1 hereto (each, a "Pledge Amendment"), in respect of the additional
- ---------
Pledged Shares which are to be pledged pursuant to this Agreement, and
confirming the attachment of the Lien hereby created on and in respect of such
additional shares. Pledgor hereby authorizes Collateral Agent to attach each
Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on
any Pledge Amendment delivered to Collateral Agent shall for all purposes
hereunder be considered Pledged Collateral.
Section 6. Representations, Warranties and Covenants. Pledgor
---------- -----------------------------------------
represents, warrants and covenants as follows:
(a) No Liens. Pledgor is as of the date hereof, and at the time of
--------
any delivery of any Pledged Collateral to Collateral Agent pursuant to Section 4
of this Agreement, Pledgor
<PAGE>
-6-
will be, the sole legal and beneficial owner of the Pledged Collateral. All
Pledged Collateral is on the date hereof, and will be, so owned by Pledgor free
and clear of any Lien except for the Lien created by this Agreement and Liens of
the type described in paragraph (a) of the definition of Permitted Encumbrances.
(b) Authorization, Enforceability. Pledgor has the requisite
-----------------------------
corporate power, authority and legal right to pledge and grant a security
interest in all the Pledged Collateral pursuant to this Agreement, and this
Agreement constitutes the legal, valid and binding obligation of Pledgor,
enforceable against Pledgor in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally and except as such
enforceability may be limited by the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(c) No Consents, etc. No consent of any party (including, without
----------------
limitation, stockholders or creditors of Pledgor) and no consent, authorization,
approval, license or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body or other Person is required for (x)
the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by Pledgor, (y) the
exercise by Collateral Agent of the voting or other rights provided for in this
Agreement, or (z) the exercise by Collateral Agent of the remedies in respect of
the Pledged Collateral pursuant to this Agreement (other than those consents,
authorizations, approvals, actions, notices or filings which, if not obtained or
made, would not have a material adverse effect upon the interests of Collateral
Agent under this Agreement).
(d) Due Authorization and Issuance. All of the Pledged Shares have
------------------------------
been, and to the extent hereafter issued will be upon such pledge, duly
authorized and validly issued and fully paid and nonassessable.
(e) Chief Executive Office. Pledgor's chief executive office is
----------------------
located at 64 Ross Road, Savannah, Georgia 31405. Pledgor shall not move its
chief executive office except to such new location as Pledgor may establish in
accor-
<PAGE>
-7-
dance with the last sentence of this Section 6(e). Pledgor shall not
establish a new location for its chief executive office nor shall it change its
name until (i) it shall have given Collateral Agent not less than 45 days' prior
written notice of its intention so to do, clearly describing such new location
or name and providing such other information in connection therewith as
Collateral Agent or any Secured Party may request, and (ii) with respect to such
new location or name, Pledgor shall have taken all action satisfactory to
Collateral Agent and the Secured Parties to maintain the perfection and priority
of the security interest of Collateral Agent for the benefit of the Secured
Parties in the Pledged Collateral intended to be granted hereby.
(f) Delivery of Pledged Collateral; Filings. Pledgor has delivered to
---------------------------------------
Collateral Agent all certificates representing the Pledged Shares and has
delivered to Collateral Agent appropriate UCC-1 financing statements to be filed
with the Secretary of State of the States of New York and Georgia, the State in
which the chief executive office of Pledgor is located, evidencing the Lien
created by this Agreement, and such delivery, filing and pledge of the Pledged
Collateral pursuant to this Agreement will create a valid and perfected first
priority security interest in the Pledged Collateral securing the payment of the
Secured Obligations pursuant to the UCC in effect in each applicable
jurisdiction, including, without limitation, the States of New York and Georgia.
(g) Pledged Collateral. All information set forth herein, including
------------------
the Schedules annexed hereto, and all information contained in any documents,
schedules and lists heretofore delivered to any Secured Party in connection with
this Agreement, in each case, relating to the Pledged Collateral is accurate and
complete in all material respects.
(h) No Violations, etc. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation G, T, U or X of the Federal
Reserve Board.
(i) Ownership of Pledged Collateral. Except as otherwise permitted by
-------------------------------
the Credit Agreement, Pledgor at all times will be the sole beneficial owner of
the Pledged Collateral.
(j) No Options, Warrants, etc. There are no options, warrants, calls,
-------------------------
rights, commitments or agreements of any character to which Pledgor is a party
or by which it is
<PAGE>
-8-
bound obligating Pledgor to deliver or sell or cause to be issued, delivered or
sold, additional Pledged Shares or obligating Pledgor to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no voting trusts or other agreements or understandings to which Pledgor is a
party with respect to the voting of the capital stock of any issuer of the
Pledged Shares.
Section 7. Voting Rights; Distributions; etc.
---------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Shares or any part thereof for
any purpose not inconsistent with the terms or purpose of this Agreement or
any other Credit Document; provided, however, that Pledgor shall not in any
-------- -------
event exercise such rights in any manner which may have a material adverse
effect on the value of the Pledged Collateral or the security intended to
be provided by this Agreement.
(ii) Subject to the terms of the Credit Agreement, Pledgor shall be
entitled to receive and retain, and to utilize free and clear of the Lien
of this Agreement, any and all Distributions, but only if and to the extent
made in accordance with the provisions of the Credit Agreement; provided,
--------
however, that any and all such Distributions consisting of rights or
-------
interests in the form of securities shall be, and shall be forthwith
delivered to Collateral Agent to hold as Pledged Collateral and shall, if
received by Pledgor, be received in trust for the benefit of Collateral
Agent, be segregated from the other property or funds of Pledgor, and be
forthwith delivered to Collateral Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement).
(iii) Collateral Agent shall be deemed without further action or
formality to have granted to Pledgor all necessary consents relating to
voting rights and shall, if necessary, upon written request of Pledgor and
at Pledgor's sole cost and expense, from time to time execute and deliver
(or cause to be executed and delivered) to Pledgor all such instruments as
Pledgor may reasonably request in order to permit Pledgor to exercise the
voting
<PAGE>
-9-
and other rights which it is entitled to exercise pursuant to Section
7(a)(i) hereof and to receive the Distributions which it is authorized to
receive and retain pursuant to Section 7(a)(ii) hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of Pledgor to exercise the voting and other consensual
rights it would otherwise be entitled to exercise pursuant to Section
7(a)(i) hereof without any action or the giving of any notice shall cease,
and all such rights shall thereupon become vested in Collateral Agent,
which shall thereupon have the sole right to exercise such voting and other
consensual rights.
(ii) All rights of Pledgor to receive Distributions which it would
otherwise be authorized to receive and retain pursuant to Section 7(a)(ii)
hereof shall cease and all such rights shall thereupon become vested in
Collateral Agent, which shall thereupon have the sole right to receive and
hold as Pledged Collateral such Distributions; provided, that if such Event
--------
of Default is cured, any such Distributions theretofore paid to Collateral
Agent shall, upon the request of Pledgor (except to the extent theretofore
applied to the Secured Obligations), be returned by Collateral Agent to
Pledgor.
(c) Pledgor shall, at its sole cost and expense, from time to time
execute and deliver to Collateral Agent appropriate instruments as Collateral
Agent may reasonably request in order to permit Collateral Agent to exercise the
voting and other rights which it may be entitled to exercise pursuant to Section
7(b)(i) hereof and to receive all Distributions which it may be entitled to
receive under Section 7(b)(ii) hereof.
(d) All Distributions which are received by Pledgor contrary to the
provisions of Section 7(b)(ii) hereof shall be received in trust for the benefit
of Collateral Agent, shall be segregated from other funds of Pledgor and shall
immediately be paid over to Collateral Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement).
Section 8. Transfers and Other Liens; Additional Shares; Principal
-------------------------------------------------------
Office.
- ------
<PAGE>
-10-
(a) Pledgor shall not (i) sell, convey, assign or otherwise dispose
of, or grant any option, right or warrant with respect to, any of the Pledged
Collateral except as permitted by the Credit Agreement, (ii) create or permit to
exist any Lien upon or with respect to any Pledged Collateral other than the
Lien and security interest granted to Collateral Agent pursuant to this
Agreement and Liens of the type described in paragraph (a) of the definition of
Permitted Encumbrances, or (iii) permit any issuer of the Pledged Shares to
merge, consolidate or change its legal form, except as permitted by the Credit
Agreement unless all of the outstanding capital stock of the surviving or
resulting corporation is, upon such merger or consolidation, pledged hereunder
and no cash, securities or other property is distributed in respect of the
outstanding shares of any other constituent corporation. The preceding sentence
shall not apply to any sale or other disposition of all of the stock of the
issuer of Pledged Shares which is in compliance with the Credit Agreement and
the proceeds of which sale or other disposition are used to make a mandatory
prepayment of the Loans pursuant to Section 3.02(A) of the Credit Agreement.
Upon such sale or other disposition, such Pledged Shares shall be released from
the Lien of this Agreement in accordance with Section 17 of this Agreement.
(b) Pledgor shall (i) cause each issuer of the Pledged Shares not to
issue any stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to Pledgor, unless required by
applicable law, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of capital stock
or other equity securities of the issuer of the Pledged Shares which are
required to be pledged hereunder.
Section 9. Reasonable Care. Collateral Agent shall be deemed to have
---------------
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equivalent to that which Collateral Agent, in its individual
capacity, accords its own property consisting of similar instruments or
interests, it being understood that neither Collateral Agent nor any of the
Secured Parties shall have responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Pledged Collateral, whether or not Col-
<PAGE>
-11-
ateral Agent or any other Secured Party has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
Person with respect to any Pledged Collateral.
Section 10. Remedies Upon Default; Decisions Relating to Exercise
-----------------------------------------------------
of Remedies.
- -----------
(a) If an Event of Default shall have occurred and be continuing, and
the Secured Obligations have been declared due and payable in accordance with
the Credit Agreement, Collateral Agent shall have the right, in addition to
other rights and remedies provided for herein or otherwise available to it to be
exercised from time to time, (i) to retain and apply the Distributions to the
Secured Obligations as provided in Section 11 hereof, and (ii) to exercise all
the rights and remedies of a secured party on default under the UCC in effect in
the State of New York at that time, and Collateral Agent may also in its sole
discretion, without notice except as specified below, sell the Pledged
Collateral or any part thereof (including, without limitation, any partial
interest in the Pledged Shares) in one or more parcels at public or private
sale, at any exchange, broker's board or at any of Collateral Agent's offices or
elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Collateral Agent may deem commercially
reasonable, irrespective of the impact of any such sales on the market price of
the Pledged Collateral. Collateral Agent or any other Secured Party or any of
their respective Affiliates may be the purchaser of any or all of the Pledged
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Pledged Collateral sold at such sale, to use and apply any of the Secured
Obligations owed to such Person as a credit on account of the purchase price of
any Pledged Collateral payable by such Person at such sale. Each purchaser at
any such sale shall acquire the property sold absolutely free from any claim or
right on the part of Pledgor, and Pledgor hereby waives, to the fullest extent
permitted by law, all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor acknowledges and agrees that, to the
extent notice of sale shall be required by law, ten days notice to Pledgor of
the time and place of any public sale or the time after which any private
<PAGE>
-12-
sale or other intended disposition is to take place shall constitute reasonable
notification of such matters. No notification need be given to Pledgor if it has
signed, after the occurrence of an Event of Default, a statement renouncing or
modifying any right to notification of sale or other intended disposition.
Collateral Agent shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Pledgor hereby waives, to the fullest
extent permitted by law, any claims against Collateral Agent arising by reason
of the fact that the price at which any Pledged Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Pledged Collateral to more than one offeree. Collateral Agent
shall not be liable for any incorrect or improper payment made pursuant to this
Section 10 in the absence of gross negligence or willful misconduct.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Collateral Agent may be compelled, with
respect to any sale of all or any part of the Pledged Collateral, to limit
purchasers to Persons who will agree, among other things, to acquire the Pledged
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable to Collateral Agent than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act), and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that Collateral Agent shall have no obligation to engage
in public sales and no obligation to delay the sale of any Pledged Collateral
for the period of time necessary to permit the issuer thereof to register it for
a form of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would agree to do so.
<PAGE>
-13-
(c) If Collateral Agent determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, Pledgor shall from time
to time furnish to Collateral Agent all such information as Collateral Agent
may request in order to determine the number of securities included in the
Pledged Collateral which may be sold by Collateral Agent as exempt transactions
under the Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(d) Pledgor recognizes that, by reason of certain prohibitions
contained in laws, rules, regulations or orders of any foreign Governmental
Authority, Collateral Agent may be compelled, with respect to any sale of all or
any part of the Pledged Collateral, to limit purchasers to those who meet the
requirements of such foreign Governmental Authority. Pledgor acknowledges that
any such sales may be at prices and on terms less favorable to Collateral Agent
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such restricted sale shall
be deemed to have been made in a commercially reasonable manner and that, except
as may be required by applicable law, Collateral Agent shall have no obligation
to engage in public sales.
(e) In addition to any of the other rights and remedies hereunder,
Collateral Agent shall have the right to institute a proceeding seeking specific
performance in connection with any of the agreements or obligations hereunder.
Section 11. Application of Proceeds. All Distributions held from
-----------------------
time to time by Collateral Agent and all proceeds received by Collateral Agent
in respect of any sale of, collection from, or other realization upon all or any
part of the Pledged Collateral pursuant to the exercise by Collateral Agent of
its remedies as a secured creditor as provided in Section 10 hereof shall be
applied, together with any other sums then held by Collateral Agent pursuant to
this Agreement, promptly by Collateral Agent as follows:
First, to the payment of all costs and expenses, fees, commissions and
-----
taxes of such sale, collection or other realization, including, without
limitation, reasonable out-of-pocket costs and expenses of Collateral Agent
and its agents and counsel, and all expenses, liabilities
<PAGE>
-14-
and advances made or incurred by Collateral Agent in connection therewith;
Second, to the payment of all other costs and expenses of such sale,
------
collection or other realization, including reasonable out-of-pocket costs
and expenses of the Banks and their agents and counsel and all costs,
liabilities and advances made or incurred by the Banks in connection
therewith;
Third, to the payment in full in cash of Secured Obligations
-----
consisting of interest and all amounts other than principal under the
Credit Agreement at any time and from time to time owing by Pledgor or the
Borrower under or in connection with the Credit Agreement, ratably
according to the unpaid amounts thereof, in the manner and priority set
forth in the Credit Agreement, together with interest on each such amount
in the manner and to the extent set forth in the Credit Agreement from and
after the date such amount is due, owing or unpaid until paid in full;
Fourth, to the pro rata payment in full in cash of Secured Obligations
------ --------
consisting of (i) principal at any time and from time to time owing by
Pledgor or the Borrower under or in connection with the Credit Agreement,
ratably according to the unpaid amounts thereof, in the manner and priority
set forth in the Credit Agreement and (ii) the amount of the Borrower's
obligations then due and payable under any Interest Rate Agreement,
including any early termination payments then due (exclusive of expenses or
similar liabilities to any Bank under the applicable Interest Rate
Agreement(s)), together with interest on each such amount in the manner and
to the extent set forth in the Credit Agreement from and after the date
such amount is due, owing or unpaid until paid in full; and
Fifth, the balance, if any, to the Person lawfully entitled thereto
-----
(including Pledgor or its successors or assigns).
Section 12. Expenses. Pledgor will upon demand pay to Collateral
--------
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and the reasonable fees and expenses of any
experts and agents, which Collateral Agent may incur in connection with
<PAGE>
-15-
(i) the collection of the Secured Obligations, (ii) the enforcement and
administration of this Agreement, (iii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (iv) the exercise or enforcement of any of the rights of Collateral
Agent or any Secured Party hereunder or (v) the failure by Pledgor to perform or
observe any of the provisions hereof. All amounts payable by Pledgor under this
Section 12 shall be due within ten Business Days after demand and shall be part
of the Secured Obligations. Pledgor's obligations under this Section 12 shall
survive the termination of this Agreement and the discharge of Pledgor's other
obligations hereunder.
Section 13. No Waiver; Cumulative Remedies. (a) No failure on the
------------------------------
part of Collateral Agent to exercise, no course of dealing with respect to, and
no delay on the part of Collateral Agent in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event Collateral Agent shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to Collateral Agent, then and in every such case, Pledgor, Collateral Agent and
each Secured Party shall be restored to their respective former positions and
rights hereunder with respect to the Pledged Collateral, and all rights,
remedies and powers of Collateral Agent and the Secured Parties shall continue
as if no such proceeding had been instituted.
Section 14. Collateral Agent. Collateral Agent has been appointed
----------------
as collateral agent pursuant to the Credit Agreement. The actions of Collateral
Agent hereunder are subject to the provisions of the Credit Agreement.
Collateral Agent shall have the right hereunder to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking action (including, without limitation, the release or
substitution of Pledged Collateral), in accordance with this Agreement and the
Credit Agreement. Col-
<PAGE>
-16-
ateral Agent may resign and a successor Collateral Agent may be appointed in the
manner provided in the Credit Agreement. Upon the acceptance of any appointment
as Collateral Agent by a successor Collateral Agent, that successor Collateral
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent under this Agreement, and
the retiring Collateral Agent shall thereupon be discharged from its duties and
obligations under this Agreement. After any retiring Collateral Agent's
resignation, the provisions of this Agreement shall inure to its benefit as to
any actions taken or omitted to be taken by it under this Agreement while it was
Collateral Agent.
Section 15. Collateral Agent May Perform; Collateral Agent
----------- ----------------------------------------------
Appointed Attorney-in-Fact. If Pledgor shall fail to do any act or thing that
- --------------------------
it has covenanted to do hereunder or any warranty on the part of Pledgor
contained herein shall be breached, Collateral Agent or any Secured Party may
(but shall not be obligated to) do the same or cause it to be done or remedy any
such breach, and may, following five Business Days' prior written notice to
Pledgor of its intention to do so, expend funds for such purpose. Any and all
amounts so expended by Collateral Agent or such Secured Party shall be paid by
Pledgor within ten Business Days after demand therefor, with interest at the
highest rate then in effect under the Credit Agreement during the period from
and including the date on which such funds were so expended to the date of
repayment. Pledgor's obligations under this Section 15 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
under this Agreement, the Credit Agreement, any Interest Rate Agreement and the
other Credit Documents. Pledgor hereby appoints Collateral Agent its attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, or otherwise, from time to time in Collateral Agent's reasonable
discretion to take any action and to execute any instrument consistent with the
terms of this Agreement and the other Credit Documents which Collateral Agent
may deem reasonably necessary or advisable to accomplish the purposes of this
Agreement. The foregoing grant of authority is a power of attorney coupled with
an interest and such appointment shall be irrevocable for the term of this
Agreement. Pledgor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
<PAGE>
-17-
Section 16. Modification in Writing. No amendment, modification,
-----------------------
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be done in accordance with the terms of the Credit Agreement and
unless in writing and signed by Collateral Agent. Any amendment, modification
or supplement of or to any provision of this Agreement, any waiver of any
provision of this Agreement and any consent to any departure by Pledgor from the
terms of any provision of this Agreement shall be effective only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement or any other Credit
Document, no notice to or demand on Pledgor in any case shall entitle Pledgor to
any other or further notice or demand in similar or other circumstances.
Section 17. Termination; Release. When all the Secured Obligations
--------------------
have been paid in full and the Commitments of the Banks to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, Collateral Agent shall, upon the request and at the
sole cost and expense of Pledgor, forthwith assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by Collateral
Agent, such of the Pledged Collateral to be released (in the case of a release)
as may be in the possession of Collateral Agent and as shall not have been sold
or otherwise applied pursuant to the terms hereof, and, with respect to any
other Pledged Collateral, proper instruments (including UCC termination
statements on Form UCC-3) acknowledging the termination of this Agreement or the
release of such Pledged Collateral, as the case may be.
Section 18. Notices. Unless otherwise provided herein or in the
-------
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, as
to either party addressed to it at the address set forth in the Credit Agreement
or at such other address as shall be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section 18; provided that notices to Collateral Agent shall not be effective
--------
until received by Collateral Agent.
<PAGE>
-18-
Section 19. Continuing Security Interest; Assignment. This
----------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) be binding upon Pledgor, its successors and assigns and (ii)
inure, together with the rights and remedies of Collateral Agent hereunder, to
the benefit of Collateral Agent and the other Secured Parties and each of their
respective successors, transferees and assigns; no other Persons (including,
without limitation, any other creditor of Pledgor) shall have any interest
herein or any right or benefit with respect hereto. Without limiting the
generality of the foregoing clause (ii), any Bank may assign or otherwise
transfer any indebtedness held by it secured by this Agreement to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Bank, herein or otherwise, subject
however, to the provisions of the Credit Agreement and any applicable Interest
Rate Agreement.
Section 20. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS
--------------------
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. (a)
----------------------------------------------
Any legal action or proceeding with respect to this Agreement may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, Pledgor
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts.
Pledgor further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Pledgor at its
address for notices pursuant to the Credit Agreement, such service to become
effective 30 days after such mailing. Pledgor hereby irrevocably appoints CT
Corporation System having an address at 1633 Broadway, New York, New York 10019
and such other persons as may hereafter be selected by Borrower irrevocably
agreeing in writing to serve as
<PAGE>
-19-
its agent for service of process in respect of any such action or proceeding.
Nothing herein shall affect the right of Collateral Agent to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against Pledgor in any other jurisdiction.
(b) Pledgor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 22. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 23. Execution in Counterparts. This Agreement and any
-------------------------
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
Section 24. Headings. The Section headings used in this Agreement
--------
are for convenience of reference only and shall not affect the construction of
this Agreement.
Section 25. Obligations Absolute. All obligations of Pledgor
--------------------
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Pledgor or any other
Credit Party;
(ii) any lack of validity or enforceability of the Credit Agreement,
any Interest Rate Agreement, any Letter
<PAGE>
-20-
of Credit, any other Credit Document, or any other agreement or instrument
relating thereto;
(iii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Interest Rate Agreement, any Letter of Credit, any other
Credit Document, or any other agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to any departure from
any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right, remedy,
power or privilege under or in respect of this Agreement any Interest Rate
Agreement, or any other Credit Document except as specifically set forth in
a waiver granted pursuant to the provisions of Section 17 hereof; or
(vi) any other circumstance or happening whatsoever that is similar to
any of the foregoing.
Section 26. Collateral Agent's Right to Sever Indebtedness. (a)
----------------------------------------------
Pledgor acknowledges that (i) the Pledged Collateral does not constitute the
sole source of security for the payment and performance of the Secured
Obligations and that the Secured Obligations are also secured by other types of
property of Pledgor and its Affiliates in other jurisdictions (all such
property, collectively, the "Collateral"), (ii) the number of such jurisdictions
and the nature of the transaction of which this instrument is a part are such
that it would have been impracticable for the parties to allocate to each item
of Collateral a specific loan amount and to execute in respect of such item a
separate credit agreement, and (iii) Pledgor intends that Collateral Agent have
the same rights with respect to the Pledged Collateral, in any judicial
proceeding relating to the exercise of any right or remedy hereunder or
otherwise, that Collateral Agent would have had if each item of Collateral had
been pledged or encumbered pursuant to a separate credit agreement and security
instrument. In furtherance of such intent, Pledgor agrees to the greatest
extent permitted by law that Collateral Agent may at any time by notice (an
"Allocation
<PAGE>
-21-
Notice") to Pledgor allocate a portion of the Secured Obligations (the
"Allocated Indebtedness") to the Pledged Collateral and sever from the remaining
Secured Obligations the Allocated Indebtedness. From and after the giving of an
Allocation Notice with respect to the Pledged Collateral, the Secured
Obligations hereunder shall be limited to the extent set forth in the Allocation
Notice and (as so limited) shall, for all purposes, be construed as a separate
credit obligation of Pledgor unrelated to the other transactions contemplated by
the Credit Agreement, any Interest Rate Agreement, any other Credit Document or
any document related to any thereof. To the extent that the proceeds of any
judicial proceeding relating to the exercise of any right or remedy hereunder of
the Pledged Collateral shall exceed the Allocated Indebtedness, such proceeds
shall belong to Pledgor and shall not be available hereunder to satisfy any
Secured Obligations of Pledgor other than the Allocated Indebtedness. In any
action or proceeding to exercise any right or remedy under this Agreement which
is commenced after the giving by Collateral Agent of an Allocation Notice, the
Allocation Notice shall be conclusive proof of the limits of the Secured
Obligations hereby secured, and Pledgor may introduce, by way of defense or
counterclaim, evidence thereof in any such action or proceeding. Notwithstanding
any provision of this Section 26, the proceeds received by Collateral Agent
pursuant to this Agreement shall be applied by Collateral Agent in accordance
with the provisions of Section 11 hereof.
(b) Pledgor hereby waives to the greatest extent permitted under law
the right to a discharge of any of the Secured Obligations under any statute or
rule of law now or hereafter in effect which provides that the exercise of any
particular right or remedy as provided for herein (by judicial proceedings or
otherwise) constitutes the exclusive means for satisfaction of the Secured
Obligations or which makes unavailable any further judgment or any other right
or remedy provided for herein because Collateral Agent elected to proceed with
the exercise of such initial right or remedy or because of any failure by
Collateral Agent to comply with laws that prescribe conditions to the
entitlement to such subsequent judgment or the availability of such subsequent
right or remedy. In the event that, notwithstanding the foregoing waiver, any
court shall for any reason hold that such subsequent judgment or action is not
available to Collateral Agent, Pledgor shall not (i) introduce in any other
jurisdiction any judgment so holding as a defense to enforcement against Pledgor
of any remedy in
<PAGE>
-22-
the Credit Agreement, any Interest Rate Agreement or any other Credit Document
or (ii) seek to have such judgment recognized or entered in any other
jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered and only with
respect to the collateral referred to in such judgment.
(c) In the event any instrument in addition to the Allocation Notice
is necessary to effectuate the provisions of this Section 26, including, without
limitation, any amendment to this Agreement, any substitute promissory note or
affidavit or certificate of any kind, Collateral Agent may execute and deliver
such instrument as the attorney-in-fact of Pledgor. Such power of attorney is
coupled with an interest and is irrevocable.
(d) Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 26 shall be effective only to the maximum extent
permitted by law.
Section 27. Future Advances. This Agreement shall secure the
---------------
payment of any amounts advanced from time to time pursuant to the Credit
Agreement.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their duly authorized officers as
of the date first above written.
CARSON, INC.,
as Pledgor
By:
_______________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ,
as Collateral Agent
By:
_______________________________
Name:
Title:
By:
_______________________________
Name:
Title:
<PAGE>
SCHEDULE I
Pledged Shares
<TABLE>
<CAPTION>
PERCENTAGE
OF ALL
CAPITAL OR
OTHER EQUITY
CLASS PAR CERTIFICATE NUMBER OF INTERESTS
ISSUER OF STOCK VALUE NO(S). SHARES OF ISSUER
- --------------------------- ------------- ------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Carson Products Company Common $.01 1 1 100%
</TABLE>
<PAGE>
EXHIBIT 1
PLEDGE AMENDMENT
This Pledge Amendment, dated ______________, is delivered pursuant to
Section 5 of the Agreement referred to below. The undersigned hereby agrees
that this Pledge Amendment may be attached to the Holdings Securities Pledge
Agreement, dated as of November 6, 1997, between the undersigned and Credit
Agricole Indosuez, as Collateral Agent (the "Agreement"; capitalized terms used
herein and not defined shall have the meanings assigned to them in the
Agreement) and that the Pledged Shares and/or Intercompany Notes listed on this
Pledge Amendment shall be deemed to be and shall become part of the Pledged
Collateral and shall secure all Secured Obligations.
CARSON, INC.,
as Pledgor
By:
---------------------------------
Name:
Title:
<PAGE>
Pledged Shares
<TABLE>
<CAPTION>
PERCENTAGE
OF ALL
CAPITAL OR
OTHER EQUITY
CLASS PAR CERTIFICATE NUMBER OF INTERESTS
ISSUER OF STOCK VALUE NO(S). SHARES OF ISSUER
- --------------------------- ------------- ------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 12.1
CARSON, INC.
COMPUTATION OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
---------------------------------------
March 31, April 1 to
---------------------- August 22,
1993 1994(b) 1995 1995
---------------------------------------
<S> <C> <C> <C> <C>
Earnings
Pre tax income (loss) 7,540 4,187 8,862 6,177
Interest expense 115 97 136 56
Amortization of debt issue costs 0 0 0 0
----- ----- ----- -----
7,655 4,284 8,998 6,233
Fixed charges:
Interest expense 115 97 136 56
Amortiztaion of debt issue costs 0 0 0 0
----- ----- ----- -----
115 97 136 56
Ratio of earnings to fixed charges 66.6 44.2 66.2 111.3
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Company
----------------------------------------
Transition Period
August 23, 1995 From April 1, 1995
to March 31, to December 31,
1996(b) 1996
-------------- --------------------
<S> <C> <C>
Earnings
Pre tax income (loss) 2,381 (1,529)
Interest expense 4,487 4,545
Amortization of debt issue costs 318 337
----- ------
7,186 3,353
Fixed charges:
Interest expense 4,487 4,545
Amortiztaion of debt issue costs 318 337
----- ------
4,805 4,882
Ratio of earnings to fixed charges 1.5 0.7
===== ======
</TABLE>
Nine Months Nine Months
September 30, September 30,
1996 1997
------------------------------------
Earnings
Pre tax income (loss) (2,285) 7,751
Interest expense 5,523 3,924
Amortization of debt issue costs 1,088 387
------ -----
4,326 12,062
Fixed charges:
Interest expense 5,523 3,924
Amortiztaion of debt issue costs 1,088 387
------ -----
6,611 4,311
Ratio of earnings to fixed charges 0.7 2.8
====== =====
<TABLE>
<CAPTION>
Pro forma Pro forma
9 Months 9 Months
ended ended
December 31, September 30,
1996 1997
--------- -----------
<S> <C> <C>
Earnings
Pre tax income (loss) 582 5,310
Interest Expense 7,840 7,830
Amortization of debt issue costs 511 511
------ ------
8,933 13,651
Fixed Charges:
Interest Expense 7,840 7,830
Amortization of debt issue costs 511 511
------ ------
8,351 8,341
Ratio of earnings to fixed charges 1.1 1.6
====== ======
</TABLE>
<PAGE>
EXHIBIT 21.1
The following entities are subsidiaries
of Carson, Inc.
State or
Country of
Incorporation
Carson Products Company........................................ Delaware
Fine Products Company.......................................... Georgia
Carson Products Company SA (Proprietary) Limited............... South Africa
Carson Holdings Limited........................................ South Africa
Carson Botswana Proprietary Limited............................ Botswana
Carson Products West Africa Limited............................ Ghana
Carson Products East Africa (EPZ) Limited...................... Kenya
<PAGE>
EXHIBIT 21.2
The following entities are subsidiaries
of Carson Products Company:
State or
Country of
Incorporation
Fine Products Company.......................................... Georgia
Carson Products Company SA (Proprietary) Limited............... South Africa
Carson Holdings Limited........................................ South Africa
Carson Botswana Proprietary Limited............................ Botswana
Carson Products West Africa Limited............................ Ghana
Carson Products East Africa (EPZ) Limited...................... Kenya
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Carson, Inc. (the
"Company") on Form S-4 of our report dated March 7, 1997 (June 30, 1997 as to
Note 15) (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the Company's change in its method of accounting for
inventories and the retroactive restatement of the consolidated balance sheets
as of March 31, 1996 and December 31, 1996 and the consolidated statements of
operations, stockholders' equity, and cash flows for the period from August 23,
1995 to March 31, 1996), appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 19, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
reports, as of and for each of the two years in the period ended December 31,
1996 and as of and for the four-month period ended April 30, 1997, dated July
14, 1997 and July 17, 1997, respectively, on our audits of the financial
statements of the Cutex Brands of Chesebrough-Pond's USA Co.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
December 17, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Carson, Inc. of our report dated May 8,
1995, except as to Note 15, which is as of June 30, 1997, relating to the
financial statements of Aminco, Inc., which appears in such Prospectus. We also
consent to the reference to us under the heading of "Independent Accountants" in
such Prospectus
Price Waterhouse L.L.P
Atlanta, Georgia
December 19, 1997
<PAGE>
EXHIBIT 25
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
CARSON, INC.
(Exact name of obligor as specified in its charter)
Delaware 06-142-8605
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
64 Ross Road
Savannah, Georgia 31405
(912) 651-3400 (Zip Code)
(Address of principal executive offices)
10 % SENIOR SUBORDINATED NOTES DUE 2007
GUARANTEES OF 10 % SENIOR SUBORDINATED NOTES DUE 2007
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
--------------------------
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
-----------------
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C> <C>
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (September 30, 1997),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
</TABLE>
* Exhibits previously filed with the Securities and Exchange Commission with
Registration No. 33-53693 and incorporated herein by reference thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 3rd day of December, 1997.
MARINE MIDLAND BANK
By: /s/ Frank J. Godino
-------------------------------------
Frank J. Godino
Vice President
<PAGE>
EXHIBIT T1A (VII)
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -------------------------------------------------------------------------------------------------------------
[1]
This financial information has not been reviewed,
or confirmed for accuracy or relevance, by the
Federal Reserve System. Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1997 (950630)
-----------
(RCRI 9999)
This report is required by law; 12 This report form is to be filed by
U.S.C. (S)324 (State member banks); banks with branches and consolidated
12 U.S.C. (S) 1817 (State nonmember subsidiaries in U.S. territories and
banks); and 12 U.S.C. (S)161 possessions, Edge or Agreement
(National banks). subsidiaries, foreign branches,
consoli-dated foreign subsidiaries,
or International Banking Facilities.
- ----------------------------------------------------------------------------
NOTE: The Reports of Condition and The Reports of Condition and Income
Income must be signed by an are to be prepared in accordance with
authorized officer and the Report of Federal regulatory authority
Condition must be attested to by not instructions. NOTE: These
less than two directors (trustees) instructions may in some cases differ
for State nonmember banks and three from generally accepted accounting
directors for State member and principles.
National Banks.
I, Gerald A. Ronning, Executive VP & We, the undersigned directors
- ------------------------------------ (trustees), attest to the correctness
Controller of this Report of Condition
- ----------- (including the supporting schedules)
Name and Title of Officer Authorized and declare that it has been examined
to Sign Report by us and to the best of our
of the named bank do hereby declare knowledge and belief has been
that these Reports of Condition and prepared in conformance with the
Income (including the supporting instructions issued by the
schedules) have been prepared in appropriate Federal regulatory
conformance with the instructions authority and is true and correct.
issued by the appropriate Federal
regulatory authority and are true to
the best of my knowledge and believe.
/s/ Malcolm Burnett
--------------------------------------
Director (Trustee)
/s/ Gerald A. Ronning /s/ James H. Cleave
- -------------------------------------- --------------------------------------
Signature of Officer Authorized to Director (Trustee)
Sign Report
10/27/97 /s/ Bernard J. Kennedy
- -------------------------------------- --------------------------------------
Date of Signature Director (Trustee)
- ------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT
FORMS: NATIONAL BANKS: Return the original
STATE MEMBER BANK: Return the only in the special return address
original and one copy to the envelope provided. If express mail
appropriate Federal Reserve District is used in lieu of the special return
Bank. address envelope, return the original
only to the FDIC, c/o Quality Data
STATE NONMEMBER BANKS: Return the Systems, 2127 Espey Court, Suite 204,
original only in the special return Crofton, MD 21114.
address envelope provided. If
express mail is used in lieu of the
special return address envelope,
return the original only to the
FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD
21114.
- ------------------------------------------------------------------------------
</TABLE>
FDIC Certificate Number [0][0][5][8][9]
(RCRI 9030)
<PAGE>
pd
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities
for your state publication requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
September 30, 1997
ASSETS
Thousands
of dollars
Cash and balances due from depository
institutions:
Noninterest-bearing balances
currency and coin............................ $ 1,110,485
Interest-bearing balances.................... 2,048,920
Held-to-maturity securities.................. 0
Available-for-sale securities................ 3,391,694
Federal funds sold and securities purchased
under agreements to resell................... 1,342,831
Loans and lease financing receivables:
Loans and leases net of unearned
income....................................... 21,487,570
LESS: Allowance for loan and lease
losses....................................... 425,157
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve............... 21,062,413
Trading assets............................... 968,456
Premises and fixed assets (including
capitalized leases).......................... 221,523
Other real estate owned......................... 5,545
Investments in unconsolidated
subsidiaries and associated companies........... 0
Customers' liability to this bank on
acceptances outstanding......................... 23,847
Intangible assets............................... 482,701
Other assets.................................... 537,780
Total assets.................................... 31,196,195
LIABILITIES
Deposits:
In domestic offices.......................... 19,952,350
Noninterest-bearing.......................... 3,982,634
<PAGE>
Interest-bearing............................. 15,969,716
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.......................... 3,344,008
Noninterest-bearing.......................... 0
Interest-bearing............................. 3,344,008
Federal funds purchased and securities sold
under agreements to repurchase............... 2,540,798
Demand notes issued to the U.S. Treasury 279,418
Trading Liabilities............................. 208,931
Other borrowed money:
With a remaining maturity of one year
or less...................................... 1,359,650
With a remaining maturity of more than
one year through three years................. 73,635
With a remaining maturity of more than
three years.................................. 102,337
Bank's liability on acceptances
executed and outstanding........................ 23,847
Subordinated notes and debentures............... 497,711
Other liabilities............................... 596,321
Total liabilities............................... 28,979,006
Limited-life preferred stock and
related surplus................................. 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus......................................... 0
Common Stock.................................... 205,000
Surplus......................................... 1,983,923
Undivided profits and capital reserves.......... 10,090
Net unrealized holding gains (losses)
on available-for-sale securities................ 18,176
Cumulative foreign currency translation
adjustments..................................... 0
Total equity capital............................ 2,217,189
Total liabilities, limited-life
preferred stock, and equity capital............. 31,196,195
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
for
Tender of 10 3/8% Senior Subordinated Notes due 2007, Series A
in Exchange for
10 3/8% Senior Subordinated Notes due 2007, Series B
CARSON, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
EXISTING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
DELIVER TO THE EXCHANGE AGENT:
MARINE MIDLAND BANK
By Mail, By Overnight Courier By Facsimile:
or By Hand: (For Eligible Institutions Only)
Marine Midland Bank (212) 658-2292
140 Broadway, Level A
New York, New York 1005-1180 Confirm by Telephone:
Attention: Corporate Trust Operations (212) 658-5931
For Information Call:
(800) 662-9844
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated , 1998 (the "Prospectus") of Carson, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together describe the Company's offer (the "Exchange Offer") to exchange its 10
3/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for a like principal amount of its issued and outstanding 10 3/8%
Senior Subordinated Notes due 2007, Series A (the "Existing Notes").
Capitalized terms used but not defined herein have the respective meanings given
to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date in which the Exchange Offer is extended.
The Company shall notify the holders of the Existing Notes of any extension by
oral or written notice prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
<PAGE>
2
This Letter of Transmittal is to be used by a Holder of Existing Notes
either if original Existing Notes are to be forwarded herewith or if delivery of
Existing Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer--Book-Entry Transfer." Holders
of Existing Notes whose Existing Notes are not immediately available, or who are
unable to deliver their Existing Notes and all other documents required by this
Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date,
or who are unable to complete the procedure for book-entry transfer on a timely
basis, must tender their Existing Notes according to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures." See Instruction 1. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Existing Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Existing
Notes must complete this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Existing Notes to which this Letter of Transmittal relates.
If the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
- --------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES TENDERED
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S),
EXACTLY AS NAME(S) AGGREGATE
APPEAR(S) ON EXISTING NOTES PRINCIPAL AMOUNT PRINCIPAL
(PLEASE FILL IN, IF BLANK) REGISTERED REPRESENTED BY AMOUNT
NUMBER(S)/*/ NOTE(S) TENDERED/**/
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
TOTAL SHARES
- --------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Existing Notes will be
deemed to have tendered the entire aggregate principal amount represented by
such Existing Notes. All tenders must be integral multiples of $1,000.
- --------------------------------------------------------------------------------
<PAGE>
3
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:_________________________________________________
Account Number:________________________________________________________________
Transaction Code Number:_______________________________________________________
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Existing Notes:______________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Window Ticket Number (if available):____________________________________________
Name of Eligible Institution that Guaranteed Delivery:__________________________
Account Number (if delivered by book-entry transfer):___________________________
Transaction Code Number:________________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:___________________________________________________________________________
Address:________________________________________________________________________
If the undersigned in not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Existing Notes, it
acknowledges that the Existing Notes
<PAGE>
4
were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMAN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Existing
Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Existing Notes tendered in accordance with
this Letter of Transmittal, the undersigned hereby exchanges, assigns and
transfers to the Company all right, title and interest in and to the Existing
Notes tendered for exchange hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent, the agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Existing Notes with full power of substitution to (i) deliver such
Existing Notes, or transfer ownership of such Existing Notes on the account
books maintained by the Book-Entry Transfer Facility, to the Company and deliver
all accompanying evidences of transfer and authenticity, and (ii) present such
Existing Notes for transfer on the books of the Company and receive all benefits
and otherwise exercise all rights of beneficial ownership of such Existing
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and coupled
with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Existing
Notes tendered hereby and to acquire the Exchange Notes issuable upon the
exchange of such tendered Existing Notes, and that the Company will acquire good
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the Exchange Notes issued in exchange for the Existing Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such Holders' business and such Holders are not engaging in
and do not intend to engage in a distribution of the Exchange Notes and have no
arrangement or understanding with any person to participate in a distribution of
such Exchange Notes. The undersigned hereby further represent(s) to the Company
that (i) any Exchange Notes acquired in exchange for Existing Notes tendered
hereby are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not the undersigned, (ii) neither the
undersigned nor any such other person is engaging in or intends to engage in a
distribution of the Exchange Notes, (iii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, and (iv) neither the Holder nor any
such other person is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company or, if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If the undersigned or the person receiving the Exchange Notes is a broker-
dealer that is receiving Exchange Notes for its own account in exchange for
Existing Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
<PAGE>
5
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes, in which case, such registration statement must contain the selling
security holder information required by Item 507 of Regulation S-K of the
Commission, and (ii) failure to comply with such requirements in such instance
could result in the undersigned incurring liability under the Securities Act for
which the undersigned is not indemnified by the Company.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Company that the undersigned understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Existing
Notes tendered hereby, including the transfer of such Existing Notes on the
account books maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange properly tendered Existing Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any
tendered Existing Notes that are not accepted for exchange pursuant to the
Exchange Offer for any reason will be returned, without expense, to the
undersigned at the address shown below or at a different address as may be
indicated herein under "Special Delivery Instructions" as promptly as
practicable after the expiration or termination of the Exchange Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Existing Notes pursuant to the procedures described under the caption
"The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Existing Notes accepted for
exchange and return any Existing Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Existing Notes accepted for exchange and any Existing
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown below the undersigned's signature). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Exchange Notes issued in exchange
for the Existing Notes accepted for exchange in the name(s) of, and return any
Existing Notes not tendered or not exchanged to, the person(s) so indicated.
The undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Existing Notes from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Existing Notes so tendered for
exchange.
<PAGE>
6
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Existing Notes in a principal amount not tendered,
or Exchange Notes issued in exchange for Existing Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned, or (ii) if
Existing Notes tendered by book-entry transfer which are not exchanged are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility.
Issue Exchange Notes and/or Existing
Notes to:
Name(s):____________________________
____________________________________
(Please Type or Print)
Address:____________________________
____________________________________
(Include Zip Code)
____________________________________
(Tax Identification or Social
Security No.)
(Complete Substitute Form W-9)
[ ] Credit unexchanged Existing Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
___________________________________
(Book-Entry Transfer Facility Account
Number, if applicable)
<PAGE>
7
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Existing Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Existing Notes accepted for exchange, are
to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.
Mail or deliver Exchange Notes and/or Existing Notes to:
Name(s):____________________________
____________________________________
(Please Type or Print)
Address:____________________________
____________________________________
(Include Zip Code)
____________________________________
(Tax Identification or Social
Security No.)
<PAGE>
8
PLEASE SIGN HERE WHETHER OR NOT
EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
x___________________________ ___________________
Signature of Holder(s) Date
x___________________________ ___________________
Signature of Holder(s) Date
Area Code and Telephone Number:_______________________________________________
The above lines must be signed by the registered Holder(s) of Existing Notes
as its or their name(s) appear(s) on the Existing Notes or on a security
position listing, or by person(s) authorized to become registered Holder(s) by a
properly completed bond power from the registered Holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Existing Notes to which
this Letter of Transmittal relate are held of record by two or more joint
Holders, then all such Holders must sign this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, then such person must (i) set forth his or her full title below and
(ii) unless waived by the Company, submit evidence satisfactory to the Company
of such person's authority so to act. See Instruction 5 regarding the completion
of this Letter of Transmittal, printed below.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
(Include Zip Code)
Tax Payer Identification: ______________________________________________________
MEDALLION SIGNATURE GUARANTEES
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)
_______________________________________________________________________________
(Name)
_______________________________________________________________________________
(Title)
_______________________________________________________________________________
(Name of Firm)
_______________________________________________________________________________
(Address, Include Zip Code)
_______________________________________________________________________________
(Area Code and Telephone Number)
Dated:____________________________________________________________________, 1998
<PAGE>
9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES OR BOOK-
ENTRY CONFIRMATIONS.
All physically delivered Existing Notes or any confirmation of a book-entry
transfer to the Exchange Agent's account at the Book-Entry Transfer Facility of
Existing Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof, and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of the tendered Existing Notes, this Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Existing Notes should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Existing Notes and (a) whose Existing
Notes are not immediately available, or (b) who cannot deliver their Existing
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Existing Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) on or prior to the Expiration
Date, the Exchange Agent must have received from the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Existing Notes, the registration number(s) of such Existing Notes
and the principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three (3) New York Stock
Exchange, Inc. ("NYSE") trading days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof) together with the Existing Notes (or a Book-
Entry Confirmation) in proper form for transfer, will be received by the
Exchange Agent; and (iii) this Letter of Transmittal, together with the
certificates for all physically tendered shares of Existing Notes, in proper
form for transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter of Transmittal must be received by the
Exchange Agent within three (3) NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
Any Holder of Existing Notes who wishes to tender Existing Notes pursuant
to the guaranteed delivery procedures described above must ensure that the
Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m.,
New York City time, on the Expiration Date. Upon request of the Exchange Agent,
a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their
Existing Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. TENDER BY HOLDER.
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. Any beneficial Holder of Existing Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on its behalf or must,
prior to completing and
<PAGE>
10
executing this Letter of Transmittal and delivering its Existing Notes, either
make appropriate arrangements to register ownership of the Existing Notes in
such Holder's name or obtain a properly completed bond power from the registered
Holder.
4. PARTIAL TENDERS.
Tenders of Existing Notes will be accepted only in integral multiples of
$1,000. If less than the entire principal amount of any Existing Notes is
tendered, the tendering Holder should fill in the principal amount tendered in
the column entitled "Principal Amount Tendered" contained in the box entitled
"Description of Existing Notes Tendered" above. The entire principal amount of
Existing Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all
Existing Notes is not tendered, then Existing Notes for the principal amount of
Existing Notes not tendered and Exchange Notes issued in exchange for any
Existing Notes accepted will be sent to the Holder at its registered
address, unless a different address is provided in the box on this Letter of
Transmittal entitled "Special Delivery Instructions", promptly after the
Existing Notes are accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) in signed by the record
Holder(s) of the Existing Notes tendered hereby, the signature must correspond
with the names as written on the face of the Existing Notes without alteration,
enlargement or any change whatsoever. If this Letter of Transmittal is signed
by a participant in the Book-Entry Transfer Facility, the signature must
correspond with the name as it appears on the security position listing as the
owner of the Existing Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Existing Notes listed and tendered hereby and
the Exchange Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Existing Notes is to be reissued) to the
registered Holder, the said Holder need not and should not endorse any tendered
Existing Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Existing Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Existing Notes listed, such
Existing Notes must be endorsed or accompanied by properly completed bond
powers, in each case signed as the name of the registered Holder or Holders
appears on the Existing Notes with the signature thereon guaranteed by an
Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Existing Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
ENDORSEMENTS ON EXISTING NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY
THIS INSTRUCTION 5 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered Holder(s) of the Existing Notes tendered herewith (or
by a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of the tendered Existing Notes) and the
issuance of Exchange Notes (and any Existing Notes not tendered or not accepted)
are to be issued directly to such registered Holder(s) (or, if signed by a
participant in the Book-Entry Transfer Facility, any Exchange Notes or Existing
Notes not tendered or not accepted are to be deposited to such participant's
account at such Book-Entry Transfer Facility)
<PAGE>
11
and neither the box entitled "Special Delivery Instructions" nor the box
entitled "Special Issuance Instructions" has been completed, or (ii) such
Existing Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
a firm that is a bank, broker, dealer, credit union, savings institution,
savings association or other entity that is a member is good standing of the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program, the Stock Exchange Melallion Program,
or by any other entity that is an "eligible guarantor institution" as such term
is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended
(an "Eligible Institution").
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box or boxes, the name
and address (or account at the Book-Entry Transfer Facility) to which Exchange
Notes or substitute Existing Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
7. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, Exchange Notes
or Existing Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered Holder of the Existing Notes tendered hereby,
or if tendered Existing Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Existing Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE EXISTING NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER.
Federal income tax law requires that a Holder of any Existing Notes which
are accepted for exchange must provide the Company (as payor) with its correct
taxpayer identification number ("TIN"), which, in the case of a Holder who is an
individual, is his or her social security number. If the Company is not
provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by Internal Revenue Service. (If withholding results in an over-payment
of taxes, a refund may be obtained.) Certain Holders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each tendering Holder must provide such
Holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN), and that (i) the Holder has not been notified by the Internal Revenue
Service that such Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the Holder that such Holder is no longer subject to backup withholding.
If the Existing Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for information on which
TIN to report.
<PAGE>
12
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS.
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of tendered Existing Notes will be determined by the
Company, in its sole discretion, which determination will be final and binding.
The Company reserves the right to reject any and all Existing Notes not validly
tendered or any Existing Notes, the Company's acceptance of which would, in the
opinion of the Company or its counsel, be unlawful. The Company also reserves
the right to waive any conditions of the Exchange Offer or defects or
irregularities in tenders of Existing Notes as to any ineligibility of any
Holder who seeks to tender Existing Notes in the Exchange Offer. The
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) by the Company shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Existing
Notes, but shall not incur any liability for failure to give such notification.
10. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or part, any of
the conditions to the Exchange Offer set forth in the Prospectus.
11. NO CONDITIONAL TENDER.
No alternative, conditional, irregular or contingent tender of Existing
Notes on transmittal of this Letter of Transmittal will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES.
Any Holder whose Existing Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED EXISTING NOTES AND ISSUANCE OF EXCHANGE NOTES;
RETURN OF EXISTING NOTES.
Subject to the terms and conditions of the Exchange Offer, the Company will
accept for exchange all validly tendered Existing Notes as soon as practicable
after the Exchange Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Existing Notes when, as and if the Company
has given written and oral notice thereof to the Exchange Agent. If any
tendered Existing Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Existing Notes will be returned, without expense, to
the undersigned at the address shown above (or credited to the undersigned's
account at the Book-Entry Transfer Facility designated above) or at a different
address as may be indicated under the box entitled "Special Delivery
Instructions."
<PAGE>
13
15. WITHDRAWAL.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE EXISTING NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY
TRANSFER OR IN ORIGINAL FORM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<PAGE>
14
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PAYER'S NAME: MARINE MIDLAND BANK
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--PLEASE PROVIDE YOUR PART III--Social Security
FORM W-9 TIN IN THE BOX AT THE RIGHT Number OR
DEPARTMENT OF THE TREASURY AND CERTIFY BY SIGNING AND Employer Identification Number
INTERNAL REVENUE SERVICE DATING BELOW
(If awaiting TIN write "Applied For")
Payer's Request for Taxpayer
Identification Number (TIN)
PART II-For Payees Exempt from Backup
Withholding, see the enclosed Guidelines
for Certification of Taxpayer Identification
Number on Substitute Form W-9 and complete
as instructed therein.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The Number shown on this form in my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
- --------------------------------------------------------------------------------
NAME: __________________________________________________________________
(Please Print)
SIGNATURE: __________________________ DATE: ____________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all reportable payments made to me thereafter will be withheld until
I provide a number.
SIGNATURE: __________________ DATE: _____________________________
- --------------------------------------------------------------------------------
<PAGE>
15
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--
Social Security numbers have nine digits separated by two hyphens: i.e., 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT GIVE THE SOCIAL SECURITY NUMBER FOR THIS TYPE OF ACCOUNT GIVE THE EMPLOYER
OF-- IDENTIFICATION NUMBER OF--
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identification
number of the personal
representative or trustee
unless the legal entity itself
is not designated in the
account title.)(5)
2. Two or more individuals The actual owner of the account 10. Corporate account The corporation
(joint account) or, if combined funds, any one
of the individuals(1)
3. Husband and wife (joint The actual owner of the account 11. Religious, charitable, or The organization
account) or, if joint funds, either person educational organization
account
4. Custodian account of a The minor(2) 12. Partnership account held The partnership
minor (Uniform Gift to in the name of the business
Minors Act)
5. Adult and minor (joint The adult or, if the minor is 13. Association, club or other The organization
account) the only contributor, the tax-exempt organization
minor(1)
6. Account in the name of The ward, minor or incompetent 14. A broker or registered The broker or nominee
guardian or committee for person(3) nominee
a designated ward, minor
or incompetent person
7. a. The usual revocable The grantor trustee(1) 15. Account with the The public entity
savings trust account Department of Agriculture in
(grantor is also trustee) the name of a public entity
b. So-called trust The actual owner(1) (such as a State or local
account that is not a government, school, district,
legal or valid trust or prison) that receives
under state law agricultural program payments
8. Sole proprietorship The actual owner(4)
account
- ---------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a) of the Code.
- - An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1) of the Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue. Payments of dividends and patronage
dividends not generally subject to backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee. Payments of interest not generally subject to
backup withholding include the following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- - Payments described in section 6049(b)(5) of the Code to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451 of the Code.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM W-9
ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE
FORM AND SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041, 6041A(a), 6042,
6044, 6045, 6049, 6050A, and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file a tax return.
Payers must generally withhold 31% of taxable interest, dividends, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
for
Tender of 10 3/8% Senior Subordinated Notes due 2007, Series A
in Exchange for
10 3/8% Senior Subordinated Notes due 2007, Series B
CARSON, INC.
This form, or one substantially equivalent hereto, must be used by a Holder
to accept the Exchange Offer of Carson, Inc., a Delaware corporation (the
"Company"), who wishes to tender 10 3/8% Senior Subordinated Notes due 2007,
Series A (the "Existing Notes") to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer--Guaranteed Delivery
Procedures" of the Company's Prospectus, dated , 1998 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
Holder who wishes to tender Existing Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date (as defined below) of the
Exchange Offer. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). EXISTING NOTES TENDERED IN THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
MARINE MIDLAND BANK
By Mail, By Overnight Courier By Facsimile:
or By Hand: (For Eligible Institutions Only)
Marine Midland Bank (212) 658-2292
140 Broadway, Level A
New York, New York 10005-1180 Confirm by Telephone:
Attention: Corporate Trust Operations (212) 658-5931
For Information Call:
(800) 662-9844
_________________________
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE>
2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Existing Notes set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
THE UNDERSIGNED HEREBY TENDERS THE EXISTING NOTES LISTED BELOW:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF EXISTING NOTES AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
OR ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- --------------------------------------------------- ------------------- --------------------
<S> <C> <C>
</TABLE>
The Book-Entry Transfer Facility Account Number
(if the Existing Notes will be tendered by book-entry transfer):
- -----------------------------------------------------------------
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Holder(s) or
Authorized Signatory:____________________________________________________
Name(s) of Registered Holder(s):___________________________________________
Address:_______________________________________________________________
______________________________________________________________________
Area Code and Telephone No._____________________
Date_____________________
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Existing Notes or on a security
position listing as the owner of Existing Notes, or by person(s) authorized to
become Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Capacity:
________________________________________________________________________________
Address(es):
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity that is a member in good standing of the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Guarantee program, the Stock Exchange Medallion Program, or a bank, broker,
dealer, credit union, savings association or other entity that is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended guarantees deposit with the Exchange
Agent of the Letter of Transmittal (or facsimile thereof), together with the
Existing Notes tendered hereby in proper form for transfer (or confirmation of
the book-entry transfer of such Existing Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility described in the Prospectus under the
caption "The Exchange Offer --Guaranteed Delivery Procedures" and in the Letter
of Transmittal and any other required documents, all by 5:00 p.m., New York City
time, within three (3) New York Stock Exchange trading days following the
Expiration Date.
Name of Firm: _______________________________ _________________________________
(AUTHORIZED SIGNATURE)
Address:_____________________________________ Name:____________________________
(INCLUDE ZIP CODE)
Title:___________________________
Area Code and Tel. Number: (PLEASE TYPE OR PRINT)
_____________________________________________ Date:______________________, 1998
DO NOT SEND EXISTING NOTES WITH THIS FORM. ACTUAL SURRENDER OF EXISTING NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY.
A properly completed and duly executed copy of this Notice of Guaranteed
Delivery and any other documents required by this Notice of Guaranteed Delivery
must be received by the Exchange Agent at its address set forth herein prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and sole risk of the Holder and the delivery will be deemed made only
when actually received by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
As an alternative to delivery by mail, the Holder may wish to consider using an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY.
If this Notice of Guaranteed Delivery is signed by the registered Holder(s)
of the Existing Notes referred to herein, the signature must correspond with the
name(s) written on the face of the Existing Notes without alteration,
enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is
signed by a participant of the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of the Existing Notes, the signature
must correspond with the name shown on the security position listing as the
owner of the Existing Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Existing Notes listed or a participant of the Book-
Entry Transfer Facility, this Notice of Guaranteed Delivery
<PAGE>
4
must be accompanied by appropriate bond powers, signed as the name of the
registered Holder(s) appears on the Existing Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions and requests for assistance and requests for additional copies of
the Prospectus may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company, or other nominee for assistance concerning the Exchange Offer.
<PAGE>
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY
PARTICIPANT FROM BENEFICIAL OWNER
for
Tender of 10 3/8% Senior Subordinated Notes due 2007, Series A
in Exchange for
10 3/8% Senior Subordinated Notes due 2007, Series B
CARSON, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
EXISTING NOTES. TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Carson, Inc. (the "Company"), a Delaware corporation, to exchange its 10 3/8%
Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of its issued and outstanding 10 3/8% Senior
Subordinated Notes Due 2007, Series A (the "Existing Notes") upon the terms and
subject to the conditions set forth in the Company's Prospectus, dated
, 1998, and the related Letter of Transmittal (which together constitute the
"Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated , 1998;
2. Letter of Transmittal (together with accompanying Substitute Form W-9
and Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold
Existing Notes in your name or in the name of your nominee, with space
provided for obtaining such client's instruction with regard to the
Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes being tendered.
Pursuant to the Letter of Transmittal, each Holder of Existing Notes will
represent to the Company that (i) the Exchange Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
Holder, (ii) the Holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes within the meaning of the
Securities Act, (iii) if the Holder is not a broker-dealer, or is a broker-
dealer but will not receive Exchange Notes for its own account in exchange for
Existing Notes, the Holder is not engaged in and does not intend to participate
in the distribution of such Exchange Notes and (iv) the Holder is not an
"affiliate" of the Company within the meaning of Rule 405 under
<PAGE>
2
the Securities Act or, if the Holder is an "affiliate," that the
Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the Holder
is a broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Existing Notes, it represents
that such Existing Notes were acquired as a result of market-making activities
or other trading activities, and it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, the Holder is not deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Existing Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Existing Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Existing Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
MARINE MIDLAND BANK
<PAGE>
3
Tender of 10 3/8% Senior Subordinated Notes Due 2007, Series A
in Exchange for
10 3/8% Senior Subordinated Notes Due 2007, Series B
CARSON, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
(THE "EXPIRATION DATE").
EXISTING NOTES TENDERED IN THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus dated , 1998,
of Carson, Inc. (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company, to exchange its 10 3/8% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for a like principal
amount of its issued and outstanding 10 3/8% Senior Subordinated Notes due 2007,
Series A (the "Existing Notes"), upon the terms and subject to the conditions
set forth in the Exchange offer.
The Exchange Offer is not conditioned upon any minimum number of
Existing Notes being tendered.
We are the holder of record of Existing Notes held by us for your own
account. A tender of such Existing Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is
furnished to you for your information only and cannot be used by you to tender
Existing Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Existing Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Existing Notes
will represent to the Company that (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being acquired in the ordinary course of business of the
holder, (ii) the holder has no arrangement or understanding with any person to
participate in the distribution within the meaning of the Securities Act of such
Exchange Notes, (iii) if the holder is not a broker-dealer, or is a broker-
dealer but will not receive Exchange Notes for its own account in exchange for
Existing Notes, the holder is not engaged in and does not intend to participate
in the distribution of such Exchange Notes and (iv) the holder is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if the holder is an "affiliate", that the holder will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable. If the holder is a broker-dealer (whether or not it is
also an "affiliate") that will receive Exchange Notes for its own account in
exchange for Existing Notes, it will represent that such Existing Notes were
acquired as a result of market-making activities or other trading activities,
and it will acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes, the holder is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
<PAGE>
4
Instruction to Registered Holder and/or Book
Entry Transfer Participant from Beneficial Owner
for
Tender of 10 3/8% Senior Subordinated Notes due 2007, Series A
in Exchange for
10 3/8% Senior Subordinated Notes due 2007, Series B
CARSON, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
EXISTING NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Carson, Inc., a Delaware corporation (the
"Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its 10 3/8% Senior Subordinated Notes due 2007, Series B
(the "Exchange Notes") for all of its outstanding 10 3/8% Senior Subordinated
Notes due 2007, Series A (the "Existing Notes"). Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Existing Notes held by you for the account of
the undersigned.
The aggregate face amount of the Existing Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$__________ of the 10 3/8% Senior Subordinated Notes due 2007, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] To TENDER the following Existing Notes held by you for the
account of the undersigned (INSERT PRINCIPAL AMOUNT OF Existing Notes TO BE
TENDERED (IF ANY): $____________.
[ ] NOT to TENDER any Existing Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Existing Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the undersigned, (ii) the undersigned has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), (iii) if the undersigned is not a broker-dealer,
or is a broker-dealer but will not receive Exchange Notes for its own account in
exchange for Existing Notes, the undersigned is not engaged in and does
not intend to participate in the distribution of such Exchange Notes and (iv)
the undersigned is not an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or, if the undersigned is an "affiliate,"
<PAGE>
5
the undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Existing Notes, it represents
that such Existing Notes were acquired as a result of market-making activities
or other trading activities, and it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, the undersigned is not deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
SIGN HERE
Name of beneficial
owner(s):_______________________________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please
print):_________________________________________________________________________
Address:________________________________________________________________________
Telephone
Number:_________________________________________________________________________
Taxpayer Identification or Social Security
Number:_________________________________________________________________________
Date:___________________________________________________________________________
