SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _______
Commission file number 1-12271
CARSON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1428605
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
64 Ross Road, Savannah Industrial Park
Savannah, Georgia 31405
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code:(912) 651-3400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
At August 1, 1998, 5,000,170 shares of the registrant's Class A Common Stock,
par value $0.01 per share, 1,859,677 shares of the registrant's Class B Common
Stock, par value $0.01 per share, and 8,127,937 shares of the registrant's Class
C Common Stock, par value $0.01 per share were outstanding.
CARSON, INC.
INDEX
Part I. Financial Information Page
Item 1.
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997................................. 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1997............ 4
Condensed Consolidated Statements of Cash Flow
Six Months Ended June 30, 1998 and 1997............................ 5
Notes to Condensed Consolidated Financial Statements................6-8
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9-16
Part II. Other Information................................................... 17
Item 4.
Submission of Matters to a Vote of Security Holders................. 17
Item 6.
(a) Exhibits ....................................................... 18
(b) Reports on Form 8-K............................................. 18
Signatures.......................................................... 19
2
CARSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(In thousands)
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1998 1997
(Unaudited)
CURRENT ASSETS: ------------ ------------
Cash and cash equivalents $ 64,424 $ 14,043
Accounts receivable (less allowance for doubtful accounts
and returns of $4,279 and $3,881 at June 30, 1998 and
December 31, 1997, respectively 24,400 28,148
Inventories, net 25,192 24,861
Other current assets 723 832
------------ ------------
Total current assets 114,739 67,884
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation 21,457 22,202
INVESTMENT IN AM COSMETICS 3,769 3,587
INTANGIBLES, net 97,290 100,385
OTHER ASSETS 7,280 7,366
------------ ------------
TOTAL ASSETS $ 244,535 $ 201,424
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,120 $ 8,567
Due for A&J Cosmetics 3,267 5,416
Accrued expenses 9,469 7,413
Income taxes payable 14,852 1,544
------------ -----------
Total current liabilities 37,708 22,940
LONG-TERM DEBT 100,452 103,623
DUE FOR A&J COSMETICS -- 4,088
DEFERRED INCOME TAXES AND OTHER LIABILITIES 1,671 1,742
MINORITY INTEREST IN SUBSIDIARY 18,673 7,500
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,
5,042,384 and 5,033,248 shares issued as of June 30, 1998
and December 31, 1997, respectively 50 50
Class B, nonvoting, $.01 par value, 2,000,000 shares authorized
and 1,859,677 shares issued and outstanding 19 19
Class C, voting, $.01 par value, 13,000,000 shares authorized
and 8,127,937 shares issued and outstanding 81 81
Paid-in capital 80,628 69,022
Retained earnings (accumulated deficit) 13,204 -4,011
Accumulated other comprehensive losses -6,445 -2,170
Note receivable from employee shareholders, net of discount -1,169 -1,353
Treasury stock, Class A common stock, 42,214 shares at June 30, 1998
and 13,245 shares at December 31, 1997, respectively -337 -107
----------- ------------
Total stockholders' equity 86,031 61,531
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 244,535 $ 201,424
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
3
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales $ 29,174 $ 30,234 $ 60,971 $ 48,166
Cost of goods sold 21,075 13,996 36,453 21,876
--------- --------- --------- ---------
Gross profit 8,099 16,238 24,518 26,290
Expenses:
Marketing and selling 8,826 6,553 17,517 12,277
General and administrative 10,028 4,418 15,976 7,147
Restructuring charges 4,837 0 4,837 0
--------- --------- --------- ---------
23,691 10,971 38,330 19,424
--------- --------- --------- ---------
Operating (loss) income (15,592) 5,267 (13,812) 6,866
Interest expense (3,010) (1,511) (5,847) (2,115)
Gain on sale of subsidiary stock 49,140 0 49,140 0
Other income, net 1,165 381 1,704 716
--------- --------- --------- ---------
Income before income taxes and
minority interest 31,703 4,137 31,185 5,467
Provision for income taxes 13,361 1,661 13,026 2,197
--------- --------- --------- ---------
Income before minority interest 18,342 2,476 18,159 3,270
Minority interest in earnings of
subsidiary (626) (210) (944) (322)
--------- --------- --------- ---------
Net income $ 17,716 $ 2,266 $ 17,215 $ 2,948
========= ========= ========= =========
Basic and diluted net income
per common share $ 1.18 $ 0.15 $ 1.15 $ 0.20
========= ========= ========= =========
Weighted average common
shares outstanding 14,988 14,984 14,990 14,984
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
CARSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands)
<TABLE>
<S> <C> <C>
Six Months Ended June 30,
1998 1997
--------- ---------
OPERATING ACTIVITIES:
Net income $ 17,215 $ 2,948
Adjustments to reconcile net income to
net cash used in operating activities:
Gain on sale of subsidiary stock (49,140) --
Non-cash special charges 14,222 --
Depreciation and amortization 3,189 1,570
Provision for doubtful accounts 196 172
Other, net 431 4
Changes in operating assets and liabilities,
net of acquisitions in 1997:
Accounts receivable (437) (6,806)
Inventories (7,706) (3,556)
Other current assets 90 (454)
Accounts payable 2,443 (1,928)
Income taxes payable 13,679 2,281
Accrued expenses (585) (1,021)
--------- ---------
Total adjustments (23,618) (9,738)
--------- ---------
Net cash used in operating activities (6,403) (6,790)
--------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,926) (3,585)
Acquisitions of business assets, net of cash acquired -- (49,406)
--------- ---------
Net cash used in investing activities (4,926) (52,991)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 9,500 62,100
Principal payments on long-term debt (12,556) (1,412)
Payment on A&J Cosmetics payable (5,416) --
Proceeds from sale of subsidiary stock 74,392 --
Proceeds from equity rights offering -- 1,525
Other, net (277) (68)
--------- ---------
Net cash provided by financing activities 65,643 62,145
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (3,933) --
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 50,381 2,364
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,043 4,191
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,424 $ 6,555
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
5
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 1997 Annual 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. Acquisition
During June, 1998 the Company entered into a Purchase Agreement with Ivax
Corporation, d/b/a IVX Bioscience, Inc., to acquire the shares of Johnson
Products Co., Inc., a Florida corporation. Johnson Products is a major
manufacturer of personal care products for the ethnic market. The acquisition
was completed in July 1998 and was accounted for as a purchase. The purchase
price approximated $85.0 million with $35.0 million paid in cash. The Company
entered into a Credit Agreement with Ivax Corporation for the remaining $50.0
million purchase price. The term loan provided by Ivax matures on November 30,
1998 and bears interest at 9.0% per annum, payable monthly. Any overdue
principal and interest bear interest at 12.0% per annum and are payable upon
demand.
In conjunction with the Credit Agreement, the Company terminated its senior
secured credit facility with Credit Agricole Indosuez. During the third quarter
of 1998, the Company will recognize an extraordinary loss of $0.9 million (net
of tax, or $0.06 per basic and diluted share) for the write-off of $1.6 million
of debt financing costs related to this credit facility.
6
<PAGE>
3. Special and Non-recurring Charges
During the quarter ended June 30, 1998, the Company recorded one-time
pretax charges of $15.1 million ($8.7 million net of tax). The one-time charges
related primarily to the restructuring of product lines and management at the
Company's Savannah operation.
Special and non-recurring charges by category of expenditure were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Included In
----------------- ------------------------ -----------------
Cost of General and Restructuring
Goods Sold Administrative Charges Total
----------------- ------------------------ ----------------- ----------------
Inventories $6.6 $6.6
Management restructuring $1.5 * $1.7 * 3.2
Fixed assets 0.2 * 2.9 3.1
Other 2.0 0.2 * 2.2
----------------- ------------------------ ----------------- ----------------
$6.6 $3.7 $4.8 $15.1
================= ======================== ================= ================
</TABLE>
The inventory charge related primarily to write-down of inventory which
was determined to be non-strategic and to reserves for obsolete inventory and
inventory in excess of usage plans. The management restructuring charges
included employee severance costs and expenses related to the hiring of the
Company's new chief executive officer. The fixed assets charges related
primarily to fixed assets which will be disposed of in connection with the
restructuring of product lines. The other charges included $2.0 million of
additional reserves against accounts receivable for customer deductions.
Of the $15.1 million of special charges, a total of $3.6 million (those
denoted by "*" above) were recorded as accrued liabilities. Cash payments for
these expenses totaled approximately $0.9 million resulting in a liability
balance at June 30, 1998 of $2.7 million.
4. Sale of Subsidiary Stock
During the quarter ended June 30, 1998, the Company recorded a one-time
pretax gain of $49.1 million ($28.1 million net of tax) related to its sale of
29.1 million shares of its South African subsidiary, Carson Holdings Limited
("Carson South Africa"), the shares of which are traded on the Johannesburg
Stock Exchange. This sale generated cash proceeds of $55.2 million and resulted
in an increase in minority interest of $6.0 million which represents the
Company's cost basis in the shares sold.
Concurrent with the sale of the Company's shares, Carson South Africa
issued an additional 10.25 million shares for which it received cash proceeds of
$19.2 million. This transaction resulted in a gain to the Company of $11.7
million which was recorded as paid in capital. The transaction also increased
minority interest by $7.6 million.
As a result of these combined sales, the Company currently owns
approximately 53.2% of the stock of Carson South Africa.
7
<PAGE>
5. Inventories
Inventories are summarized as follows (in thousands):
June 30, 1998 December 31, 1997
------------------------------ ----------------------------
Raw materials $9,877 $10,873
Work-in-process 1,198 1,651
Finished goods 14,116 12,337
------------------------------ ----------------------------
$25,192 $24,861
============================== ============================
6. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is effective and has been adopted for the
Company's fiscal year ending December 31, 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.
The components of comprehensive income were as follows (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Three Months Three Months Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------- -------------- ---------------- ----------------
Net income $17,716 $2,266 $17,215 $2,948
Other comprehensive (loss)
income:
Change in equity due to foreign
currency translation adjustments (4,137) (270) (4,275) 625
-------------- -------------- ---------------- ----------------
Comprehensive income $13,577 $1,996 $12,940 $3,573
============== ============== ================ ================
</TABLE>
The loss in equity due to foreign currency translation adjustments during the
three months and six months ended June 30, 1998 was due to the significant
devaluation of the South African Rand during the second quarter of 1998. The
Rand devalued approximately 20.0%, from 4.9970 Rand per dollar at March 31, 1998
to 5.9950 Rand per dollar at June 30, 1998. During the prior year, no such
significant fluctuation of the Rand occurred.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") is also
effective for the Company's fiscal year ending December 31, 1998. 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. This statement does not
significantly alter the segment disclosures the Company provides.
8
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
OVERVIEW
Forward-looking Statements
This report on Form 10-Q as well as other public documents of the
Company contain forward-looking statements which involve risks and
uncertainties, including (i) the Company's plans to introduce new products and
product enhancements, (ii) the Company's plans to make selective acquisitions,
(iii) the Company's marketing, distribution and manufacturing expansion plans,
(iv) future financial performance, (v) cash flows from operations, (vi) capital
expenditures, (vii) the availability of funds from credit facilities and (viii)
the cost and timely implementation of the Company's Year 2000 compliance
modifications. The Company's actual results may differ materially from those
discussed in such forward-looking statements. When used herein and in the
Company's future filings, the terms "expects", "plans", "intends", "estimates",
"projects", "anticipates" or similar expressions are intended to identify
forward-looking statements (within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")). 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 risk factors
that may be described in the Company's filings with the Securities and Exchange
Commission (the "Commission") (including this filing, the Company's IPO
prospectus dated October 14, 1996, the Company's exchange offer prospectus dated
December 19, 1997 and the Company's 1997 Annual Report on Form 10-K), actual
results could differ materially from those expressed in any forward-looking
statements made by the Company. Such risks, uncertainties and factors include,
but are not limited to, foreign business risks, industry cyclicality,
fluctuations in customer demand and order pattern, the seasonal nature of the
business, changes in pricing, the identification of suitable acquisition
candidates, changes in the implementation of the Company's acquisition plans,
the availability of financing, and general economic conditions, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission. Additional risk factors include, but are not limited to, the
following: (a) the Company's success in implementing its growth strategy,
including its success in obtaining financing where required, (b) difficulties or
delays in developing and introducing new products or the failure of consumers to
accept new product offerings, (c) changes in consumer preferences, including
reduced consumer demand for the Company's current products, (d) the nature and
extent of future competition in the Company's principal marketing areas, and (e)
political, economic and demographic developments in the United States, Africa,
Brazil, the Caribbean, Europe and other countries where the Company now does or
in the future may do business.
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 United States retail ethnic hair care market. The Company
currently sells over 70 different products specially formulated to address the
unique physiological characteristics of persons of African descent under six
principal brand names, including 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 50% of
the Company's sales in 1997), hair color, men's depilatory products and hair
care maintenance products, primarily for persons of African descent. The Company
is expanding its product offerings to other segments of the ethnic personal care
market, including cosmetics and skin care products. In addition, the Company is
a leading marketer of nail care products to the United States mass market under
the Cutex brand name. The Company is currently seeking to divest the Cutex
business in order to focus on the worldwide ethnic personal care business.
9
<PAGE>
In the six months ended June 30, 1998, approximately 38.1% of the net
sales of the Company were to customers outside the United States as compared to
27.5 % in the first six months of the prior fiscal year. The following table
presents the Company's net sales by geographic region for these periods (dollars
are in thousands):
Net sales to: 1998 % 1997 %
------------ ----------- ----------- -----------
United States $37,721 61.9% $34,899 72.5%
Africa 17,148 28.1 7,391 15.3
Other 6,102 10.0 5,876 12.2
------------ ----------- ----------- -----------
Total $60,971 100.0% 48,166 100.0%
============ =========== =========== ===========
With the exception of sales in South Africa, Botswana, Lesotho,
Namibia and Swaziland, which are denominated in South African Rand, all of the
Company's sales are recorded in U.S. Dollars. The Company does not view the
exposure to Rand exchange rate fluctuations as significant because Carson South
Africa incurs substantially all of its costs in Rand. Assets and liabilities of
Carson South Africa 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.
Acquisition
During June, 1998 the Company entered into a Purchase Agreement with
Ivax Corporation, d/b/a IVX Bioscience, Inc., in order to acquire the shares of
Johnson Products Co., Inc., a Florida corporation. Johnson Products is a major
manufacturer of personal care products for the ethnic market. Johnson hair care
products include brand names such as Gentle Treatment, UltraSheen, Precise,
Bantu and AfroSheen. Its cosmetics are sold under the Posner name. Also included
in the acquisition was the Dermablend corrective cosmetics line, which the
Company intends to divest immediately. The acquisition was completed on July 14,
1998 and was accounted for as a purchase. The purchase price, including the
Dermablend line, was approximately $85.0 million with $35.0 million paid in
cash. The Company entered into a Credit Agreement with Ivax Corporation for the
remaining $50.0 million purchase price. The short-term loan provided by Ivax
matures on November 30, 1998 and bears interest at 9.0% per annum, payable
monthly. Any overdue principal and interest bear interest at 12.0% per annum and
are payable upon demand. The Company intends to repay the note with a portion of
the proceeds from the divestitures of the Dermablend and Cutex brands.
In conjunction with the Credit Agreement, the Company terminated its
senior secured credit facility with Credit Agricole Indosuez. During the third
quarter of 1998, the Company will recognize an extraordinary loss of $0.9
million (net of tax, or $0.06 per share) for the write-off of $1.6 million of
debt financing costs related to this credit facility.
Special Items
During the quarter ended June 30, 1998, the Company recorded one-time
pretax charges of $15.1 million ($8.7 million net of tax) as well as a one-time
pretax gain of $49.1 million ($28.1 million net of tax).
The one-time charges related primarily to the restructuring of
management and product lines at the Company's Savannah operation. The Company
revised its key management team, including the termination of several senior
managers and the addition of Gregory J. Andrews as Chief Executive Officer, and
announced a new strategic focus on its core business, the worldwide ethnic hair
care market. In connection with this new focus and the Johnson acquisition, all
of the combined products, brands and facilities were reviewed for optimum use.
Items identified as non-strategic or redundant were written down.
Of the pretax charges, $6.6 million was recorded as cost of goods sold
for obsolete or excess inventory and
10
<PAGE>
the elimination of over 100 stock keeping units (SKUs), $3.7 million was
recorded as general and administrative expenses and $4.8 million was recorded as
restructuring charges. The general and administrative expenses included $1.5
million related to the management restructuring, $0.2 million for the write-down
of fixed assets and $2.0 million for additional reserves against accounts
receivable for customer deductions. Restructuring charges included $1.7 million
related to the management restructuring, $2.9 million for the write-down of
fixed assets and $0.2 million of other charges.
The one-time pretax gain of $49.1 million ($28.1 million net of tax)
related to the sale of 29.1 million shares of Carson South Africa, the shares of
which are traded on the Johannesburg Stock Exchange. This sale generated net
cash proceeds of $55.2 million and resulted in an increase in minority interest
of $6.0 million. Concurrent with the sale of the Company's shares, Carson South
Africa issued an additional 10.25 million shares for which it received net cash
proceeds of $19.2 million. This transaction resulted in a gain to the Company of
$11.7 million which was recorded in paid in capital. The transaction also
increased minority interest by $7.6 million. As a result of these combined
sales, the Company currently owns approximately 53.2% of the stock of Carson
South Africa.
Results of Operations
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997
Net Sales. Consolidated net sales for the quarter ended June 30, 1998 of $29.2
million decreased $1.1 million, or 3.53%, from the quarter ended June 30, 1997.
This decrease is summarized as follows (dollars are in thousands):
Quarter Ended Quarter Ended
June 30, 1998 June 30, 1997 % Change
--------------- --------------- ---------
Domestic core $10,413 $18,245 (42.9)
Cutex 6,279 4,762 31.9
Salon Professional and Cosmetics 376 32 1075.0
--------------- --------------- ---------
Total Domestic 17,068 23,039 (25.9)
--------------- --------------- ---------
South Africa 9,347 4,824 93.6
Other International, including U.S.
export 2,759 2,371 16.4
--------------- --------------- ---------
Total International 12,106 7,195 68.2
--------------- --------------- ---------
Consolidated $29,174 $30,234 (3.5)
=============== =============== =========
Sales of the Company's domestic core business, ethnic hair care products,
amounted to $10.4 million in the quarter ended June 30, 1998, a decrease of $7.8
million, or 42.9%, compared to the quarter ended June 30, 1997. This decrease is
the result of several factors, including unusually high sales in the second
quarter of 1997, continuation of the approximately year long softness in the
Company's domestic core sales and overall softness in the domestic ethnic hair
care industry. Sales for the quarter ended June 30, 1997 were unusually high due
to special quarter-end promotions which boosted sales for that quarter and to
customer buy-ins in advance of an announced price increase. The Company no
longer offers such quarter-end promotions. To address the downward trend in the
Company's domestic core sales, the management restructuring changes previously
discussed were undertaken. In
11
<PAGE>
addition, the Company is revising certain sales, distribution and marketing
practices to better meet customer and distributor needs and stimulate interest
at the consumer level, thereby increasing demand for and sales of hair care
products.
Net sales of Cutex increased significantly from the prior year second
quarter. Cutex was purchased in April of 1997 and was not included in the
Company's results of operations for the entire quarter ended June 30, 1997.
Cutex product shipments for the quarter ended June 30, 1998 were actually higher
than the reported net sales indicate due to unusually high levels of returned
product in the second quarter of 1998. Introduction of the new Ultra line of
nail polishes in April 1998 resulted in high returns of old product which it
replaced.
International sales continued to grow significantly from the prior year.
International net sales were $12.1 million in the quarter ended June 30, 1998,
an increase of $4.9 million, or 68.2 %, compared to the quarter ended June 30,
1997. Most of the growth was in Africa, but gains were also made in Europe and
South America, while sales to the Caribbean were down.
Gross Profit. Gross profit was $8.1 million for the quarter ended June 30, 1998
compared to $16.2 million for the quarter ended June 30, 1997. Excluding the
$6.6 million of special charges included in cost of sales, gross profit
decreased to $14.7 million in the quarter ended June 30, 1998 from $16.2 million
in the quarter ended June 30, 1997, and gross margin decreased to 50.3% for the
quarter ended June 30, 1998 from 53.7% for the same quarter in 1997. This
decrease in gross margin was due primarily to decreased production volumes and
partly to geographic and product shifts in the sales mix. Production volume was
curtailed to reduce inventories which had risen to levels in excess of current
needs. Inventories were built up at the end of the prior fiscal year due to
manufacturing inefficiencies which necessitated carrying higher inventory levels
to meet customer needs. Inventories were further built up in the first part of
fiscal 1998 to meet sales forecasts which proved to be too high. To lower
inventory levels, the plant was shut down for two weeks and operated only four
days for several more weeks during the quarter ended June 30, 1998. This action
resulted in unabsorbed overhead in production which adversely impacted gross
margin.
Gross margin was lowered as Carson South Africa's net sales grew as a
percentage of consolidated net sales. Sales in Africa typically provide a lower
gross margin than domestic sales. However, marketing and selling expenses are
also lower on these international sales, and the operating margin on these sales
is typically higher than on domestic sales.
Gross margin was also negatively impacted during the quarter by the high
returns of Cutex product discussed above.
Marketing and Selling Expenses. Marketing and selling expenses increased to $8.8
million in the quarter ended June 30, 1998 from $6.6 million in the quarter
ended June 30, 1997, an increase of 34.7%. This increase was primarily due to
the additions of Cutex, Let's Jam and Dark & Lovely Cosmetics as well as
expanded marketing to support Carson South Africa sales. As a percentage of net
sales, these expenses increased to 30.3% during this period from 21.7% during
the comparable period in 1997.
General and Administrative Expense. General and administrative expenses were
$10.0 million for the quarter ended June 30, 1998 compared to $4.4 million for
the quarter ended June 30, 1997. Excluding the $3.7 million of special charges
included in general and administrative expenses, general and administrative
expenses increased to $6.3 million in the quarter ended June 30, 1998 from $4.4
million in the quarter ended June 30, 1997, an increase of 42.8%. As a
percentage of net sales, general and administrative expenses increased to 21.6%
during this period from 14.6% during the comparable period in 1997. This
increase was primarily due to higher spending at Carson South Africa to support
the subsidiary's growth combined with increased professional fees and higher
warehouse costs associated with high domestic inventory levels.
Restructuring. As discussed above, restructuring charges included $1.7 million
related to the management restructuring, $2.9 million for the write-down of
fixed assets and $0.2 million of other miscellaneous charges.
Operating Income. As a result of the above changes, operating income decreased
to a loss of $15.6 million in the quarter ended June 30, 1998 from income of
$5.3 million in the quarter ended June 30, 1997. Excluding the special charges,
operating income decreased to a loss of $0.5 million in the quarter ended June
30, 1998 from income of $5.3 million in the quarter ended June 30, 1997.
Interest Expense. Interest expense increased significantly to $3.0 million in
the quarter ended June 30, 1998 from $1.5 million in the quarter ended June 30,
1997. The increased interest expense was the result of additional debt incurred
in 1997 to finance acquisitions, which was subsequently refinanced with the
proceeds from the sale of $100 million aggregate
12
<PAGE>
principal amount of 10-year 10 3/8 % Senior Subordinated Notes.
Gain on Sale of Subsidiary Stock. As discussed above, this gain resulted from
the sale of 29.1 million shares of Carson South Africa.
Minority Interest in Earnings of Subsidiary. Minority interest in earnings of
subsidiary increased to expense of $0.6 million in the quarter ended June 30,
1998 from expense of $0.2 million in the quarter ended June 30, 1997. This
increase is due to higher earnings of Carson South Africa in the current year
quarter over the prior year quarter and also to the higher minority ownership
percentage resulting from the sales of subsidiary stock.
Other Income. Other income increased to $1.2 million for the quarter ended June
30, 1998 from $0.4 million for the same quarter of 1997 primarily due to
interest income on cash balances in the United States and South Africa which
were generated by the sale of subsidiary stock.
Provision for Taxes. The provision for taxes increased to $13.4 million, based
on an effective rate of 43.0%, in the quarter ended June 30, 1998 from $1.7
million, based on an effective rate of 42.3%, in the quarter ended June 30,
1997. Excluding the special charges and gain, the provision for taxes decreased
to a benefit of $1.2 million, based on an effective rate of 40.0%, in the
quarter ended June 30, 1998. This effective tax rate has decreased from 1997 due
to the larger impact of the earnings of Carson South Africa, which are taxed at
lower rates than the earnings in the United States.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Net Sales. Consolidated net sales for the six months ended June 30, 1998 of
$61.0 million increased $12.8 million, or 26.6%, over the six months ended June
30, 1997. This increase is summarized as follows (dollars are in thousands):
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997 % Change
---------------- ---------------- ----------
Domestic core $24,893 $30,105 (17.3)
Cutex 11,760 4,762 147.0
Salon Professional and Cosmetics 1,068 32 3237.5
---------------- ---------------- ----------
Total Domestic 37,721 34,899 8.1
---------------- ---------------- ----------
South Africa 17,148 7,391 131.9
Other International 6,102 5,876 3.9
---------------- ---------------- ----------
Total International 23,250 13,267 75.2
---------------- ---------------- ----------
Consolidated $60,971 $48,166 26.6
================ ================ ==========
Sales of the Company's domestic core business, ethnic hair care products,
amounted to $24.9 million in the six months ended June 30, 1998, a decrease of
$5.2 million, or 17.3%, compared to the six months ended June 30, 1997. This
decrease is the result of several factors, including unusually high sales in the
second quarter of 1997, continuation of the approximately year long softness in
the Company's domestic core sales and overall softness in the domestic ethnic
hair care industry. Sales for the six months ended June 30, 1997 were unusually
high due to special quarter-end promotions and customer buy-ins in advance of an
announced price increase at the end of the second quarter of 1997 which boosted
sales for that quarter and the six months ended June 30, 1998. As discussed
previously, a management restructuring was undertaken to address the downward
trend in the Company's domestic core sales. In addition, the Company is revising
certain sales, distribution and marketing practices to better meet customer and
distributor needs and stimulate interest at the consumer level, thereby
increasing demand for and sales of hair care products. Sales were also impacted
by industry
13
<PAGE>
factors, including the effects of drug chain consolidation. Drugstores represent
the largest source of retail sales for the domestic core business.
Net sales of Cutex increased significantly from the prior year six months.
The brand was purchased in April of 1997 and therefore was not included in the
Company's results of operations for the entire six months ended June 30, 1997.
International sales continued to grow significantly from the prior year.
International net sales were $23.2 million in the six months ended June 30,
1998, an increase of $10.0 million, or 75.2 %, compared to the six months ended
June 30, 1997. Most of the growth was in Africa, but gains were also made in
Europe and South America, while sales to the Caribbean were down.
Gross Profit. Gross profit was $24.5 million for the six months ended June 30,
1998 compared to $26.3 million for the six months ended June 30, 1997. Excluding
the $6.6 million of special charges included in cost of sales, gross profit
increased to $31.1 million in the six months ended June 30, 1998 from $26.3
million in the six months ended June 30, 1997, and gross margin decreased to
51.0% for the six months ended June 30, 1998 from 54.6% for the same six months
in 1997. This decrease in gross margin was due primarily to decreased production
volumes and partly to geographic and product shifts in the sales mix. Production
volume was curtailed in the second quarter of 1998 to reduce inventories which
had risen to levels in excess of current needs. Inventories were built up at the
end of the prior fiscal year due to manufacturing inefficiencies which
necessitated carrying higher inventory levels to meet customer needs.
Inventories were further built up in the first part of fiscal 1998 to meet sales
forecasts which proved to be too high. To lower inventory levels, the plant was
shut down for two weeks and run only four days for several more weeks during the
second quarter of 1998. This action resulted in unabsorbed overhead in
production which adversely impacted gross margin.
Gross margin was lowered as Carson South Africa's net sales grew as a
percentage of consolidated net sales. Sales in Africa typically provide a lower
gross margin than domestic sales. However, marketing and selling expenses are
also lower on these international sales, and the operating margin on these sales
is typically higher than on domestic sales.
Gross margin was also negatively impacted during the six months ended June
30, 1998 by high returns of old Cutex product in response to introduction of the
new Ultra line of nail polish and by increased sales of Let's Jam products,
which generated a relatively low gross margin, primarily due to high packaging
costs and the fact that the products are outsourced. Management is working on
packaging changes, evaluating pricing changes and considering in-house
manufacturing to bring these products more in line with the Company's normal
gross margin. There can be no assurance, however, that the Company will achieve
a higher gross margin.
Marketing and Selling Expenses. Marketing and selling expenses increased to
$17.5 million in the six months ended June 30, 1998 from $12.3 million in the
six months ended June 30, 1997, an increase of 42.7%. This increase was
primarily due to the additions of Cutex, Let's Jam and Dark & Lovely Cosmetics
as well as expanded marketing to support Carson South Africa sales. As a
percentage of net sales, these expenses increased to 28.7% during this period
from 25.5% during the comparable period in 1997.
General and Administrative Expense. General and administrative expenses were
$16.0 million for the six months ended June 30, 1998 compared to $7.1 million
for the six months ended June 30, 1997. Excluding the $3.7 million of special
charges included in general and administrative expenses, these expenses
increased to $12.3 million in the six months ended June 30, 1998 from $7.1
million in the six months ended June 30, 1997, an increase of 71.5%. As a
percentage of net sales, general and administrative expenses increased to 20.1%
during this period from 14.8% during the comparable period in 1997. This
increase was due in part to increased personnel, professional and miscellaneous
expenses associated with enhancement of infrastructure needed to support the
Company's anticipated growth, combined with higher amortization of intangibles
related to acquisitions and higher warehouse costs related to high inventory
levels.
Restructuring. As discussed above, restructuring charges included $1.7 million
related to the management restructuring, $2.9 million for the write-down of
fixed assets and $0.2 million of other miscellaneous charges.
Operating Income. As a result of the above changes, operating income decreased
to a loss of $13.8 million in the six months ended June 30, 1998 from income of
$6.9 million in the six months ended June 30, 1997. Excluding the special
charges of $15.1 million, operating income decreased to income of $1.3 million
in the six months ended June 30, 1998 from income of $6.9 million in the six
months ended June 30, 1997.
Interest Expense. Interest expense increased significantly to $5.8 million
in the six months ended June 30, 1998 from
14
<PAGE>
$2.1 million in the six months ended June 30, 1997. The increased interest
expense was the result of additional debt incurred in 1997 to finance
acquisitions, which was subsequently refinanced with the proceeds from the sale
of $100 million aggregate principal amount of 10-year 10 3/8 % Senior
Subordinated Notes.
Gain on Sale of Subsidiary Stock. As discussed above, this gain resulted from
the sale of 29.1 million shares of Carson South Africa.
Minority Interest in Earnings of Subsidiary. Minority interest in earnings of
subsidiary increased to expense of $0.9 million in the six months ended June 30,
1998 from expense of $0.3 million in the six months ended June 30, 1997. This
increase was due to higher earnings of Carson South Africa in the current year
six months over the prior year six months and also to the higher minority
ownership percentage resulting from the sales of subsidiary stock.
Other Income. Other income increased to $1.7 million for the six months ended
June 30, 1998 from $0.7 million for the same six months of 1997 primarily due to
interest income on cash balances in the United States and South Africa which
were generated by the sale of subsidiary stock.
Provision for Taxes. The provision for taxes increased to $13.0 million, based
on an effective rate of 43.0%, in the six months ended June 30, 1998 from $2.2
million, based on an effective rate of 42.7%, in the six months ended June 30,
1997. Excluding the special charges and gain, the provision for taxes decreased
to a benefit of $1.5 million, based on an effective rate of 40.0%, in the six
months ended June 30, 1998. This effective tax rate has decreased from 1997 due
to the larger impact of the earnings of Carson South Africa, which are taxed at
lower rates than the earnings in the United States.
Liquidity and Capital Resources
In the six months ended June 30, 1998, net cash used in operations was $6.4
million. Excluding the gain on sale of subsidiary stock, the non-cash special
charges and the taxes related to these, net cash used in operations was $6.1
million. This cash was used primarily for increased inventory levels, including
a $3.6 million increase at Carson South Africa and a $3.5 million increase in
Cutex inventories.
Net cash used in investing activities for the six months ended June 30,1998
consisted of capital expenditures of $4.9 million.
Net cash provided by financing activities for the six months ended June 30,
1998 totaled $65.6 million. Cash inflows included $55.2 million received
domestically from the sale of Carson Holdings stock by the Company and $19.2
million received in South Africa for the issuance of new shares of Carson
Holdings stock. Significant financing cash outflows included the scheduled
payment of $5.4 million for the purchase of A&J Cosmetics and a net $3.0 million
reduction in the Company's outstanding revolver balance.
The cash balance was also adversely impacted by the significant devaluation
of the South African Rand during the second quarter of 1998. The Rand devalued
approximately 20.0%, from 4.9970 Rand per dollar at March 31, 1998 to 5.9950
Rand per dollar at June 30, 1998. Due to this devaluation, the cash balances
held in South Africa fell $3.9 million when converted to U.S. dollars. During
the prior year, no such significant devaluation of the Rand occurred.
The Company believes that cash flow from operating activities, existing
cash balances and anticipated proceeds from the planned divestitures of the
Cutex and Dermablend brands will be sufficient to fund working capital
requirements, capital expenditures and debt service requirements in the
immediate future. A portion of the anticipated proceeds from the business
divestitures is expected to be used to repay the short-term note issued by Ivax
to finance the purchase of Johnson Products in July 1998. If the Ivax note is
not repaid by November 30, 1998, principal and interest will be payable on
demand and will bear interest at 12% per annum. As discussed previously, the
Company's revolving credit facility with Credit Indosuez Agricole was terminated
during July 1998. A new revolving credit facility is currently being negotiated
with a major bank.
15
<PAGE>
Year 2000 Computer Issue
The Company currently utilizes two computer information systems. The JD Edwards
financial package is used to support several financial applications. In its
distribution and manufacturing operations, the Company uses a software package
known as PRISM developed by MARCAM. The JD Edwards and PRISM packages run on an
IBM AS/400 computer and are currently not year 2000 compliant.
To replace the current systems and provide year 2000 compliance, management has
selected a single vendor, integrated business software package. The cost of
conversion to the new system is estimated to be approximately $1.0 million. The
new system is expected to be functional by the end of the second quarter of
1999.
In the unlikely event that implementation of the selected software package
fails, the Company would immediately begin working with another software vendor
to achieve year 2000 compliance as quickly as possible. The risk associated with
not having systems that are compliant by the year 2000 is that the Company would
have to implement manual procedures which would lead to a reduction in
efficiency. The Company could continue to operate, but at a reduced level of
productivity.
16
<PAGE>
CARSON, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is 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.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders of Carson, Inc., held on May 8, 1998, the
following directors were elected to three- year terms expiring in 2001: Joyce M.
Roche, Abbey J. Butler and Melvin J. Estrin. Other directors whose terms of
office continued after the meeting included: Dr. Roy Keith, Lawrence E.
Bathgate, II, Suzanne de Passe, James L. Hudson, Jack F. Kemp, John L. Sabre,
Dennis E. Smith and Vincent A. Wasik. In connection with the management
restructuring, Dennis E. Smith, formerly Executive Vice President of Sales,
resigned from the board of directors in June 1998. The appointment of Deloitte &
Touche LLP as independent auditors for 1998 was also ratified at the annual
meeting.
Results of the annual meeting votes were as follows:
<TABLE>
<S> <C> <C> <C>
Against
or
For Withheld Abstentions
------------------ ------------------ ------------------
(1) To elect directors to three-year terms expiring in 2001:
Joyce M. Roche 71,802,372 1,100 -0-
Abbey J. Butler 71,802,872 600 -0-
Melvin J. Estrin 71,803,472 600 -0-
(2) To ratify the appointment of Deloitte & Touche LLP
as the Company's independent auditors for 1998 71,783,367 14,555 5,550
</TABLE>
Item 5. Other Information
None
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
10.52 Employment Agreement dated as of July 1,1998 between Carson Products
Company and Gregory J. Andrews
10.53 Employment Agreement dated as of June 8,1998 between Carson Products
Company and Aurelia Waldon
27 Financial data schedule.
(b) Reports on Form 8-K --
On June 17, 1998, the Company filed a Form 8-K announcing a restructuring of its
senior management team. The Company also announced the sale of stock of its
South African subsidiary and plans to divest its Cutex nail polish and nail
polish remover business.
On July 29, 1998, the Company filed a Form 8-K announcing that it had completed
the acquisition of Johnson Products Co., Inc.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARSON, INC.
/s/ Gregory J. Andrews Date: August 14, 1998
- -----------------------
Gregory J. Andrews
Chief Executive Officer
/s/ Robert W. Pierce Date: August 14, 1998
- ----------------------
Robert W. Pierce
Executive Vice President, Chief Financial
Officer and Secretary (Principal Financial Officer)
19
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of July 1, 1998,
is made by and among Carson Products Company, a Delaware corporation (the
"Corporation"), and Mr. Gregory Andrews (the "Executive").
Recitals
1. The Corporation desires to employ the Executive as Chief
Executive Officer of the Corporation, and to enter into an employment agreement
embodying the terms of such relationship.
2. The Executive is willing to be employed as Chief Executive
Officer of the Corporation on the terms set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Corporation and the Executive hereby agree as follows.
1. Definitions.
1.1 "Affiliate" means any person or entity of any kind effectively controlling,
effectively controlled by or under effective common control with the
Corporation.
1.2 "Board" means the Board of Directors of the Corporation.
1.3 "Cause" means (a) the Executive is convicted of a felony involving moral
turpitude, (b) the Executive commits a willful serious act intending to enrich
himself at the expense of the Corporation or any Affiliate, or (c) the
Executive, in carrying out his duties and responsibilities under this Agreement,
engages in gross negligence or willful misconduct which, in either case, results
in material harm to the Corporation and/or any Affiliate. The Executive shall be
deemed not to have engaged in gross negligence or willful misconduct if he has
acted in the good faith belief that the action taken is in the best interests of
the Corporation.
1.4 "Disability" means the Executive's inability to render the services required
hereunder by reason of a physical or mental disability reasonably expected to
last for more than six months after the date such disability is first diagnosed,
as determined by the written medical opinion of an independent medical physician
selected in good faith by the Corporation.
1.5 "Change in Control" shall mean and be deemed to have occurred if:
(a) any Person, excluding the Permitted Holders, is or becomes the "Beneficial
Owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934 (the "Exchange Act")), directly or indirectly, of more than 50% of the
total Voting Stock of the Corporation; or
(b) the Corporation 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 Corporation to any Person, or any Person
consolidates with, or merges with or into the Corporation, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Corporation is converted into or exchanged for cash, securities or other
property, other than any such transaction where immediately after such
transaction no Person, excluding Permitted Holders, is the "Beneficial Owner,"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation.
1.6 "Parent" means any corporation which has a direct or indirect legal or
beneficial ownership interest in the Corporation, but only if any such
corporation owns or controls, directly or indirectly, stock possessing at least
50% of the total combined voting power of all classes of stock of the
Corporation.
1.7 "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
Corporation; 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.
1.8 "Person" shall have the meaning ascribed thereto in Section 3(a)(9) of the
Exchange Act, as modified, applied and used in Sections 13(d) and 14(d) thereof;
provided, however, a Person shall not include (i) the Corporation, Carson, Inc.
or their affiliates, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation, Carson, Inc. or their affiliates
(in its capacity as such), (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Corporation or Carson, Inc.
in substantially the same character and proportions as their ownership of stock
of the Corporation or Carson, Inc.
1.9 "Subsidiary" means any corporation (other than the Corporation) in which the
Corporation or any Parent has a direct or indirect legal or beneficial ownership
interest, but only if the Corporation or the Parent, as the case may be, owns or
controls, directly or indirectly, stock possessing at least 20% of the total
combined voting power of all classes of stock in any such corporation.
1.10 "Voting Stock" shall mean any class or classes of capital stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the Board (or persons performing similar functions) for
such Person.
2. Employment. Subject to the terms and provisions set forth in this Agreement,
the Corporation during the Term of Employment agrees to employ the Executive as
Chief Executive Officer of the Corporation and the Executive hereby accepts such
employment.
3. Term of Employment. The term of employment under this Agreement shall
commence as of July 1, 1998 (the "Commencement Date") and, unless earlier
terminated by the Corporation or the Executive under Section 6 of this
Agreement, shall continue until December 31, 2000 (the "Term of Employment").
The Term of Employment shall be extended for additional one-year periods if
neither the Executive nor the Corporation has notified the other in writing at
least six months prior to the end of the then Term of Employment, as the same
may have been extended at such time, that the Term of Employment shall not be
extended or further extended, as the case may be, for any such additional
one-year period.
4. Positions, Responsibilities and Duties.
4.1 Positions and Duties. During the Term of Employment, the Executive shall be
employed and shall serve as Chief Executive Officer of the Corporation. In such
position, the Executive shall have the duties, responsibilities and authority
designated by the Board, which shall be consistent with the duties,
responsibilities and authority generally afforded to an individual serving as
the chief executive officer of a company of comparable size. The Executive shall
serve under the direction and supervision of the Board and shall report to the
Board or the Board's designees. As soon as reasonably practicable after the date
hereof, the Corporation shall use its reasonable best efforts to elect the
Executive as a member of the Board and the board of directors of Carson, Inc.
and, during the Term of Employment, shall nominate the Executive for reelection
to the Board and the board of directors of Carson, Inc. Immediately upon
termination of the Executive's employment with the Corporation for any reason
the Executive shall resign, and shall be deemed to have resigned, from the Board
and the board of directors of Carson, Inc.
4.2 Attention to Duties and Responsibilities. During the Term of Employment, the
Executive shall devote his full business time to the business and affairs of the
Corporation and the Executive shall use his best efforts, ability and fidelity
to perform faithfully and efficiently the duties and responsibilities
contemplated by this Agreement; provided, however, that the Executive shall be
allowed, to the extent such activities do not substantially interfere with the
performance by the Executive of his duties and responsibilities hereunder, to
(a) manage the Executive's personal affairs, and (b) serve on boards or
committees of civic or charitable organizations or trade associations.
5. Compensation and Other Benefits.
5.1 Base Salary. During the Term of Employment, the Executive shall receive a
base salary of $300,000 per annum ("Base Salary") payable in accordance with the
Corporation's normal payroll practices. Such Base Salary shall be reviewed
annually for increase in the sole discretion of the Board. Such Base Salary as
so increased shall then constitute the Executive's "Base Salary" for purposes of
this Agreement. Once increased, such Base Salary may not thereafter be decreased
without the consent of the Executive.
5.2 Signing and Annual Bonus. Within five (5) business days after the execution
of this Agreement, the Corporation shall pay the Executive a one-time signing
bonus equal to $150,000. In addition, during the Term of Employment, the
Executive shall be eligible to receive a target annual bonus equal to 50% of
such Executive's Base Salary if the Corporation attains target performance goals
established in good faith by the Board's Compensation Committee (the "Annual
Bonus"); provided, however, that in respect of the Corporation's 1998 fiscal
year the Executive shall be entitled to receive a guaranteed bonus equal to
$300,000 (the "Guaranteed Bonus").
5.3 Incentive, Retirement, and Savings Plans. During the Term of Employment and
to the extent eligible, the Executive shall participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs, if
any, maintained from time to time by the Corporation for the benefit of senior
executives and other employees of the Corporation; provided, however, that,
unless otherwise determined by the Board, the Executive shall not be eligible to
participate in any profit-sharing plan maintained, sponsored or contributed to
by the Corporation or Carson, Inc. that is intended to qualify under Section
401(a) of the Internal Revenue Code of 1986, as amended.
5.4 Welfare Benefit Plans. During the Term of Employment and to the extent
eligible, the Executive shall participate in and be covered by all the welfare
benefit plans and programs, if any, maintained by the Corporation for the
benefit of senior executives and other employees of the Corporation. The
Executive shall be entitled to life insurance coverage, during the Term of
Employment, having a death benefit equal to $5,000,000, to the extent that the
Executive is and remains insurable and such coverage is available at
commercially reasonable rates.
5.5 Stock Option Grants. The Executive shall be entitled to receive stock option
grants which, subject to the terms and provisions of the Carson, Inc. 1996
Long-Term Incentive Plan and any award or grant agreement executed thereunder,
provides the Executive an opportunity to acquire 250,000 Class A common shares
of Carson, Inc. Such grants will be made, subject to approval by the Carson,
Inc. Compensation Committee, as follows:
(a) An option to acquire 150,000 shares of Class A common stock of Carson, Inc.
shall be granted as soon as practicable after the execution of this Agreement.
Such option shall have a per share exercise price equal to the fair market value
of a share of such Class A common stock on the date of grant and shall become
exercisable as to 75,000 underlying shares on each of July 1, 1999 and July 1,
2000 if the Executive is then employed by the Corporation. In the event that the
Executive dies or is terminated by the Corporation due to Disability or without
Cause during the Term of Employment the option shall become exercisable as to an
aggregate number of underlying shares (inclusive of those already exercisable by
the Executive) equal to 150,000 shares multiplied by a fraction, the numerator
of which is the number of full months during which the Executive was employed by
the Corporation after July 1, 1998 and the denominator of which is 24. Such
option shall remain exercisable as to such resulting number of underlying shares
for one year after the date of any such termination of employment, but not
beyond the stated expiration date of such option.
(b) An option to acquire 50,000 shares of Class A common stock of Carson, Inc.
shall be granted as soon as practicable after the execution of this Agreement.
Such option shall have a per share exercise price equal to the fair market value
of a share of such Class A common stock on the date of grant and shall be
exercisable in full upon grant.
(c) An option to acquire 50,000 shares of Class A common stock of Carson, Inc.
shall be recommended to the Carson, inc. compensation committee for grant in
January, 1999. Such option shall be recommended to become exercisable as to
25,000 underlying shares on each of July 1, 1999 and July 1, 2000 and shall be
recommended to have an exercise price equal to that of the stock options granted
pursuant to Section 5.5(a) and (b) above. It shall also be recommended that in
the event that the Executive dies or is terminated by the Corporation due to
Disability or without Cause during the Term of Employment the option shall
become exercisable as to an aggregate number of underlying shares (inclusive of
those already exercisable by the Executive) equal to 50,000 shares multiplied by
a fraction, the numerator of which is the number of full months during which the
Executive was employed by the Corporation after July 1, 1998 and the denominator
of which is 24. It shall also be recommended that such option shall remain
exercisable as to such resulting number of underlying shares for one year after
the date of any such termination of employment, but not beyond the stated
expiration date of such option.
(d) The Executive shall, at the sole discretion of the Board or a duly
authorized committee thereof, be eligible to receive additional option or other
equity based grants consistent with any applicable compensation plans and
practices.
5.6 Expense Reimbursement. During the Term of Employment, the Executive shall be
entitled to receive prompt reimbursement for all expenses incurred by the
Executive in performing his duties and responsibilities hereunder in accordance
with the policies and procedures of the Corporation as in effect at the time the
expense was incurred, as the same may be changed from time to time. In addition,
during the Term of Employment, the Executive shall be entitled to receive an
annual reimbursement of up to $20,000 for his son's actual private high school
level tuition expense.
5.7 Vacation and Fringe Benefits. During the Term of Employment, the Executive
shall be entitled to four weeks paid vacation at such times which do not
materially interfere with the performance of the Executive's duties hereunder.
In addition, during the Term of Employment, the Executive shall, in accordance
and consistent with the past practices of the Corporation, be entitled to such
fringe benefits and perquisites, if any, as in effect and provided from time to
time to senior executives of the Corporation.
5.8 Colgate Phantom Awards. The Executive shall be entitled to receive the
phantom awards set forth in the SAR Units and Phantom Stock Agreement, dated of
even date herewith, by and between the Executive and the Corporation, in
accordance with and subject to the terms and provisions set forth therein. Such
agreement is attached hereto as Exhibit A.
5.9 Relocation. The Corporation shall reimburse the Executive for all reasonable
expenses incurred by him in respect of moving his furnishings and personal
effects to Savannah, Georgia or its vicinity. In addition, the Corporation, for
a period of four months, shall reimburse the Executive for reasonable temporary
Savannah (or vicinity) lodging expenses incurred by him. To the extent any such
reimbursable expenses are not deductible by the Executive, the Corporation shall
increase such reimbursement payments such that, after the payment by the
Executive of all income taxes attributable thereto, the Executive retains an
amount of such relocation reimbursement payments equal to the amount of any such
non-deductible reimbursable relocation expenses.
6. Termination.
6.1 Termination Due to Death. In the event of the Executive's death during the
Term of Employment, the Term of Employment shall thereupon end and the
Executive, his estate or other legal representative, as the case may be, shall
only be entitled to the pro-rata stock option accelerated exercisability set
forth in (and in accordance with) the last two sentences of Sections 5.5(a) and
5.5(c) above, and:
(a) (i) Base Salary continuation at the rate in effect (as provided in Section
5.1 of this Agreement) on the date of termination for a one-month period
commencing on such date of termination, and (ii) the Guaranteed Bonus if such
termination occurs prior to January 1, 1999.
(b) any Base Salary accrued to the date of termination or any prior fiscal year
Annual Bonus actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.6) incurred as of the date
of termination, but not yet paid as of the date of termination; and
(d) (i) continuation of the Executive's welfare benefits (as described in
Section 5.4 of this Agreement) at the level in effect on the date of termination
for the one-month period following the termination of the Executive's employment
due to death to the extent permitted under the Corporation's plans and programs
at commercially reasonable costs, and (ii) any other compensation and benefits
as may be provided in accordance with the terms and provisions of any applicable
plans, programs or agreements, if any, of the Corporation.
6.2 Termination Due to Disability. Upon 15 days prior written notice to the
Executive, the Corporation may terminate the Executive's employment hereunder
due to Disability. In the event of the Executive's termination due to Disability
during the Term of Employment, the Term of Employment shall thereupon end and
the Executive, or his legal representative, as the case may be, shall only be
entitled to the pro-rata stock option accelerated exercisability, set forth in
(and in accordance with) the last two sentences of Sections 5.5(a) and 5.5(c)
above, and:
(a) (i) Base Salary continuation at the rate in effect (as provided in Section
5.1 of this Agreement) on the date of termination until the Executive commences
receiving benefit payments under the Corporation's long-term disability
insurance plan or program (such continuation, however, not to exceed six
months), and (ii) the Guaranteed Bonus if such termination occurs prior to
January 1, 1999.
(b) any Base Salary accrued to the date of termination or any prior fiscal year
Annual Bonus actually awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.6) incurred as of the date
of termination, but not yet paid as of the date of termination; and
(d) (i) continuation of the Executive's welfare benefits (as described in
Section 5.4 of this Agreement) at the level in effect on the date of termination
for the six-month period following the termination of the Executive's employment
due to Disability to the extent permitted under the Corporation's plans and
programs at commercially reasonable costs, and (ii) any other compensation and
benefits as may be provided in accordance with the terms and provisions of any
applicable plans, programs or agreements, if any, of the Corporation.
6.3 Termination by the Corporation for Cause. The Corporation may terminate the
Executive's employment hereunder for Cause. If the Corporation terminates the
Executive's employment hereunder for Cause during the Term of Employment, the
Term of Employment shall thereupon end as set forth below and the Executive
shall only be entitled to:
(a) Base Salary up to and including the date of termination;
(b) any prior fiscal year Annual Bonus actually awarded, but not yet paid as of
the date of termination;
(c) reimbursement for all expenses (under Section 5.6) incurred as of the date
of termination, but not yet paid as of the date of termination; and
(d) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans, programs or agreements, if
any, of the Corporation or any Subsidiary.
6.4 Termination Without Cause Prior to a Change in Control. Upon 15 days prior
written notice to the Executive, the Corporation may terminate the Executive's
employment hereunder without Cause prior to the occurrence of a Change in
Control. If the Corporation terminates the Executive's employment hereunder
without Cause (other than due to death, Disability or the expiration of the Term
of Employment) during the Term of Employment and prior to the occurrence of a
Change in Control, the Term of Employment shall thereupon end and the Executive
shall only be entitled to the pro-rata stock option accelerated exercisability
set forth in (and in accordance with) the last two sentences of Sections 5.5(a)
and 5.5(c) above, and:
(a) (i) Base Salary continuation at the rate in effect (as provided in Section
5.1 of this Agreement) on the date of termination for an eighteen month period
commencing on such date of termination, and (ii) the Guaranteed Bonus if such
termination occurs prior to January 1, 1999;
(b) any Base Salary accrued or any prior fiscal year Annual Bonus actually
awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.6) incurred as of the date
of termination, but not yet paid as of the date of termination;
(d) continuation of the welfare benefits of the Executive, at the level in
effect (as provided for by Section 5.4 of this Agreement) on the date of
termination for the eighteen month period commencing on the date of termination;
(e) accelerated exercisability of the SAR Units and settlement and redemption of
the Phantom Shares awarded to the Executive pursuant to the SAR Units and
Phantom Stock Agreement, in accordance with the terms and provisions thereof;
and
(f) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans, programs or agreements, if
any, of the Corporation or any Subsidiary.
6.5 Voluntary Termination. The Executive may effect, during the Term of
Employment and upon 30 days prior written notice to the Corporation, a voluntary
termination of his employment hereunder and thereupon the Term of Employment
shall end. A voluntary termination shall entitle the Executive only to all of
the rights and benefits which the Executive would be entitled in the event of a
termination of his employment by the Corporation for Cause.
6.6 Termination Without Cause on or Subsequent to a Change in Control. Upon 30
days prior written notice to the Executive, the Corporation may terminate the
Executive's employment hereunder without Cause on or subsequent to the
occurrence of a Change in Control. If the Corporation terminates the Executive's
employment hereunder without Cause (other than due to death, Disability or the
expiration of the Term of Employment) during the Term of Employment and on or
subsequent to the occurrence of a Change in Control, the Term of Employment
shall thereupon end and the Executive shall only be entitled to the pro-rata
stock option accelerated exercisability set forth in (and in accordance with)
the last two sentences of Sections 5.5(a) and 5.5(c) above, and:
(a) in lieu of any further salary and annual bonus payments to the Executive for
periods subsequent to the date of termination, the Corporation shall pay to the
Executive a lump sum severance payment, in cash, equal to two times the sum of
(i) the highest Base Salary paid or payable to the Executive during the twelve
month period immediately preceding the month in which the Change in Control
occurs, and (ii) the annual bonus paid or determined and payable to the
Executive during such twelve month period.
(b) any Base Salary accrued or any prior fiscal year Annual Bonus actually
awarded, but not yet paid as of the date of termination;
(c) reimbursement for all expenses (under Section 5.6) incurred as of the date
of termination, but not yet paid as of the date of termination;
(d) continuation of the welfare benefits of the Executive, at the level in
effect (as provided for by Section 5.4 of this Agreement) on the date of
termination for the two year period commencing on the date of termination;
(e) accelerated exercisability of the SAR Units and settlement and redemption of
the Phantom Shares awarded to the Executive pursuant to the SAR Units and
Phantom Stock Agreement, in accordance with the terms and provisions thereof;
and
(f) any other compensation and benefits as may be provided in accordance with
the terms and provisions of any applicable plans, programs or agreements, if
any, of the Corporation or any Subsidiary.
6.7 No Mitigation; No Offset. In the event of any termination of employment
under this Section 6, the Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due the Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that the Executive may obtain. Any amounts due under this
Section 6 are in the nature of severance payments, or liquidated damages, or
both, and are not in the nature of a penalty.
6.8 Statements by the Executive or the Corporation. Subject to the requirements
of any applicable securities or other laws or as may otherwise be required in
the performance of his duties hereunder, the Executive agrees that, during and
after the Term of Employment, he shall not at any time make any statement or
representation, written or oral, (a) which the Executive knows or should know
will, or which he knows or should know is reasonably likely to, impair or
adversely affect in any way the reputation, good will, business, customer or
supplier relationships, or public relations of the Corporation, any Parent, any
Subsidiary any Affiliate, and/or any person or entity which the Executive knows
or should know is one of the following: (i) a member of the boards of directors
of the Corporation, any Parent, any Affiliate and/or any Subsidiary, (ii) an
employee of the Corporation, any Parent, any Affiliate and/or any Subsidiary,
(iii) a person or entity who has or has had a legal or beneficial ownership
interest in the shares of the Corporation, any Parent, any Subsidiary and/or any
Affiliate (an "Owner"), and/or (iv) an owner, employee, director, partner,
representative of, and/or adviser to, any such Owner, or (b) which the Executive
knows or should know will, or is reasonably likely to, cause to be brought into
disrepute the name of the Corporation, any Parent, any Subsidiary, any
Affiliate, and/or any person or entity which the Executive knows or should know
is one of the following: (i) a member of the boards of directors of the
Corporation, any Parent, any Affiliate and/or any Subsidiary, (ii) an employee
of the Corporation, any Parent, any Affiliate and/or any Subsidiary, (iii) an
Owner, and/or (iv) an owner, employee, director, partner, representative of,
and/or advisor to, any such Owner (other than, with respect to both (a) and (b)
above, any statement or representation pursuant to or under any order or request
issued by (A) a court of competent jurisdiction, (B) any governmental authority,
or (C) any recognized subpoena power).
6.9 Excise Tax Limitation. Notwithstanding any other provision of this Agreement
to the contrary, in the event that any payments or benefits received or to be
received by the Executive in connection with the Executive's employment with the
Corporation (or termination thereof) would subject the Executive to the excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Excise Tax"), and if such payments or benefits less the Excise Tax is less
than the maximum amount of the payments or benefits which could otherwise be
payable to the Executive without the imposition of the Excise Tax, then, to the
extent necessary to eliminate the imposition of the Excise Tax, (a) such cash
payments and benefits shall first be reduced (if necessary, to zero) and (b) all
other non-cash payments and benefits shall next be reduced.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided or maintained by the Corporation and
for which the Executive may be eligible and qualify, nor shall anything herein
limit or otherwise prejudice such rights as the Executive may have under any
future agreements with the Corporation and/or any Affiliate, including, without
limitation, any stock option agreements.
8. Resolution of Disputes. With the exception of proceedings for equitable
relief brought pursuant to Section 9.4 of this Agreement or otherwise, any
disputes arising under or in connection with this Agreement, including, without
limitation, any assertion by any party hereto that the other party has breached
any provision of this Agreement, shall be resolved by arbitration, to be held in
Savannah, Georgia (or such other location as the Corporation and the Executive
shall agree to in writing), in accordance with the rules and procedures of the
American Arbitration Association.
9. Confidential Information and Noncompetition.
9.1 Confidential Information. The Executive shall not, during the Term of
Employment and at any time thereafter, without the prior express written consent
of the Board, directly or indirectly, use any Confidential Information (as
defined below) in any way, or divulge, disclose or make available or accessible
any Confidential Information to any person, firm, partnership, corporation,
trust or any other entity or third party (other than when required to do so in
good faith to perform the Executive's duties and responsibilities under this
Agreement or when required to do so by a lawful order of a court of competent
jurisdiction). In addition, the Executive shall not create any derivative work
or other product based on or resulting from any Confidential Information (except
in the good faith performance of his duties under this Agreement). The Executive
shall also immediately notify the Board if he becomes aware of any material
unauthorized use or disclosure of any material Confidential Information by any
third party, and the Executive agrees to cooperate fully in any attempts or
efforts by the Corporation or any Affiliate to obtain any relief or remedy in
respect of such unauthorized use or disclosure. The Executive shall also proffer
to the Board's designee, immediately upon any termination of his employment with
the Corporation for any reason, and without retaining any copies, notes or
excerpts thereof, all memoranda, computer disks or other media, computer
programs, diaries, notes, records, data, customer or client lists, marketing
plans and strategies, and any other documents consisting of or containing any
Confidential Information that are in the Executive's actual or constructive
possession or which are subject to his control at such time. In addition, the
Executive shall at all times use his best efforts carefully to safeguard any
Confidential Information in the Executive's possession or under his control. For
purposes of this Agreement, "Confidential Information" shall mean all
information respecting the business and activities of the Corporation, any
Parent and/or any Subsidiary, including, without limitation, the terms and
provisions of this Agreement, the clients, customers, suppliers, employees,
consultants, computer or other files, projects, products, computer disks or
other media, computer hardware or computer software programs, marketing plans,
financial information, methodologies, know-how, processes, practices,
approaches, projections, forecasts, formats, systems, data gathering methods
and/or strategies of the Corporation, any Parent and/or any Subsidiary.
Notwithstanding the immediately preceding sentence, Confidential Information
shall not include any information that is, or becomes, generally available to
the public (unless such availability occurs as a result of the Executive's
breach of any portion of this Section 9.1 or any other obligation the Executive
owes to the Corporation, any Parent and/or any Subsidiary).
9.2 Noncompetition. The Executive, during the Term of Employment and, if his
employment with the Corporation is terminated for any reason (other than due to
death or Disability, or by the Corporation without Cause), for 18 months after
the date of any such termination, shall not, directly or indirectly, within or
with respect to the United States of America or Africa (a) engage, without the
prior express written consent of the Corporation, in any business or activity,
whether as an employee, consultant, partner, principal, agent, representative,
stockholder or in any other individual, corporate or representative capacity, or
render any services or provide any advice to any business, activity, person or
entity, with respect to any of its activities that, directly or indirectly,
compete in any material manner with (i) the Corporation, (ii) any Parent or
Subsidiary, or (iii) any product, service or other business of any such entities
which is in production, distribution or development as of the date of
termination, and/or (b) meaningfully assist, help or otherwise support, without
the prior express written consent of the Corporation, any person, business,
corporation, partnership or other entity or activity, whether as an employee,
consultant, partner, principal, agent, representative, stockholder or in any
other individual, corporate or representative capacity, to create, commence or
otherwise initiate, or to develop, enhance or otherwise further, any business or
activity if such business or activity, directly or indirectly, competes (or is
reasonably likely to compete) in any manner with any significant business or
activity of the Corporation or any Parent or Subsidiary.
9.3 Nonsolicitation. Other than in the performance of his duties with the
Corporation, the Executive, during the Term of Employment and, if his employment
with the Corporation is terminated for any reason (other than due to death or
Disability, or by the Corporation without Cause), for 18 months after the date
of any such termination, shall not, directly or indirectly, (a) take any action
to solicit or divert any business or clients or customers (or potential clients
or potential customers) away from the Corporation or any Parent or Subsidiary,
(b) induce customers, potential customers, clients, potential clients,
suppliers, agents or other persons under contract or otherwise associated or
doing business with the Corporation or any Parent or Subsidiary to terminate,
reduce or alter any such association or business with or from the Corporation or
any Parent or Subsidiary, and/or (c) induce any person in the employment of the
Corporation or any Parent or Subsidiary or any consultant to the Corporation or
any Parent or Subsidiary to (i) terminate such employment, or consulting
arrangement, (ii) accept employment, or enter into any consulting arrangement,
with anyone other than the Corporation or any Parent or Subsidiary, and/or (iii)
interfere with the customers, suppliers, or clients of the Corporation, any
Subsidiary, any Parent or any Affiliate in any manner or the business of the
Corporation, any Subsidiary, any Parent or any Affiliate in any manner. For
purposes of this Section 9.3, a "potential client" or a "potential customer"
shall mean a person or entity that the Corporation, any Parent or any Subsidiary
(A), as of the date the Executive's employment terminates, is, or has expended
time or resources which are not insignificant in amount or kind in, soliciting
or is in preparation for soliciting, and/or (B) has, at any time or from time to
time, within the 12 month period prior to the date the Executive's employment
terminates, been soliciting for or in respect of any current, actively pending
or contemplated product lines, businesses, or services offered by the
Corporation, any Parent or any Subsidiary, including, without limitation, any
marketing arrangements, licensing arrangements, manufacturing arrangements,
and/or distribution arrangements (the "Products").
9.4 Injunctive Relief. The Executive acknowledges and agrees that the
Corporation will have no adequate remedy at law, and would be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 9 of this Agreement. The Executive agrees that the Corporation
shall be entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 9, and to specific performance of each of the
terms of such Section in addition to any other legal or equitable remedies that
the Corporation may have. The Executive further agrees that he shall not, in any
equity proceeding relating to the enforcement of the terms of this Section 9,
raise the defense that the Corporation has an adequate remedy at law.
9.5 Special Severability. The terms and provisions of this Section 9 are
intended to be separate and divisible provisions and if, for any reason, any one
or more of them is held to be invalid or unenforceable, neither the validity nor
the enforceability of any other provision of this Agreement shall thereby be
affected. It is the intention of the parties to this Agreement that the
potential restrictions on the Executive's future employment imposed by this
Section 9 be reasonable in both duration and geographic scope and in all other
respects. If for any reason any court of competent jurisdiction shall find any
provisions of this Section 9 unreasonable in duration or geographic scope or
otherwise, the Executive and the Corporation agree that the restrictions and
prohibitions contained herein shall be effective to the fullest extent allowed
under applicable law in such jurisdiction.
10. Successors.
10.1 The Executive. This Agreement is personal to the Executive and, without the
prior express written consent of the Corporation, shall not be assignable by the
Executive, except that the Executive's rights to receive any compensation or
benefits under this Agreement may be transferred or disposed of pursuant to
testamentary disposition, intestate succession or pursuant to a qualified
domestic relations order. This Agreement shall inure to the benefit of and be
enforceable by the Executive's heirs, beneficiaries and/or legal
representatives.
10.2 The Corporation. This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. The Corporation
shall use its reasonable best efforts to obtain from any successor to all or
substantially all of its business and/or assets, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, an
assumption by such successor of the obligations of the Corporation under this
Agreement.
11. Indemnification.
The Executive shall be entitled to the fullest extent to the
liability and expense indemnification under Delaware state law, as the same may
be amended from time to time.
12. Miscellaneous.
12.1 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to principles
of conflict of laws.
12.2 Amendments/Waiver. This Agreement may not be amended, waived, or modified
otherwise than by a written agreement executed by the parties to this Agreement
or their respective successors and legal representatives. No waiver by any party
to this Agreement of any breach of any term, provision or condition of this
Agreement by the other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same time, or any prior or subsequent time.
12.3 Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand-delivery to the other party, by facsimile
transmission, by overnight courier, or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Gregory Andrews
[Address]
with a copy to: Larry Cagney, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
If to the Corporation: Carson Products Company
71A Ross Road
Savannah, Georgia 31405
Attention: Chairman of the Board
with a copy to: Stephen W. Skonieczny, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza,
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4 Withholding. The Corporation may withhold from any amounts payable under
this Agreement such taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
12.5 Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
12.6 Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
12.7 Entire Agreement. This Agreement contains the entire agreement between the
parties to this Agreement concerning the subject matter hereof and supersedes
all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
12.8 Representation. The Executive represents and warrants that the performance
of the Executive's duties and obligations under this Agreement will not violate
any agreement between the Executive and any other person, firm, partnership,
corporation, or organization.
12.9 Survivorship. The respective rights and obligations of the parties to this
Agreement shall survive any termination of this Agreement or the Executive's
employment hereunder for any reason.
12.10 Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Corporation has caused this Agreement to be executed in
its name on its behalf, all as of the day and year first above written.
CARSON PRODUCTS COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
-------------------------------
Gregory Andrews
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of June 8, 1998,
is made by and among Carson Products Company, a Georgia corporation (the
"Corporation"), and Ms. Aurelia Waldon (the "Executive").
Recitals
1. The Corporation desires to employ the Executive as Vice
President - Sales of the Corporation, and to enter into an employment agreement
embodying the terms of such relationship.
2. The Executive is willing to be employed as Vice President
- -Sales of the Corporation on the terms set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and for other good and valuable consideration, the
Corporation and the Executive hereby agree as follows.
1. Definitions.
1.1 "Board" means the Board of Directors of the Corporation.
1.2 "Cause" means (a) the Executive's dereliction of her duties under this
Agreement, including, without limitation, her refusal to follow or neglect of
the directions of the Board or any executive of the Corporation senior to the
Executive, (b) any willful misconduct by the Executive that is injurious to the
Corporation, or (c) its reputation, or the commission by the Executive of any
crime.
1.3 "Disability" means the Executive's inability to render the services required
hereunder by reason of a physical or mental disability reasonably expected to
last for more than six months after the date such disability is first diagnosed,
as determined by the written opinion of an independent medical physician
selected by the Corporation.
2. Employment. Subject to the terms and provisions set forth in
this Agreement, the Corporation, during the Term of Employment, agrees to employ
the Executive as Vice President - Sales of the Corporation and the Executive
hereby accepts such employment.
3. Term of Employment. The term of employment under this Agreement
shall commence as of June 6, 1998 (the "Commencement Date") and, unless earlier
terminated by the Corporation or the Executive under Section 6 of this
Agreement, shall continue until December 31, 2000 (the "Term of Employment").
4. Positions, Responsibilities and Duties.
4.1 Positions and Duties. During the Term of Employment, the Executive shall be
employed and shall serve as Vice President - Sales of the Corporation with such
duties as are determined from time to time by the Board or the Board's
designees. The Executive shall serve under the direction and supervision of the
Board or the Board's designees and shall report to the Board or the Board's
designees.
4.2 Attention to Duties and Responsibilities. During the Term of Employment, the
Executive shall devote her full time and attention to the business and affairs
of the Corporation and the Executive shall use her best efforts, ability and
fidelity to perform faithfully and efficiently the duties and responsibilities
contemplated by this Agreement.
5. Compensation and Other Benefits.
5.1 Base Salary. During the Term of Employment, the Executive shall receive a
base salary of $130,000 per annum ("Base Salary") payable in accordance with the
Corporation's normal payroll practices.
5.2 Bonus. For each fiscal year of the Corporation ending within the Term of
Employment, the Executive shall receive a bonus (the "Bonus) in an amount equal
to (a) thirty percent (30%) of Base Salary if the "base case" objectives (but
not the "anticipated case" objectives) for that fiscal year as specified by the
Board, or a committee thereof, are achieved, or (b) fifty percent (50%) of Base
Salary if the "anticipated case" objectives for that 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, each 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 for a fiscal
year are achieved. If the "base case" 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-half (1/2) of the aggregate number of
shares delivered to the Executive on each of December 31, 1999 and December 31,
2000 (if the Executive is employed by the Corporation 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.
5.3 Incentive, Retirement, and Savings Plans. During the Term of Employment and
to the extent eligible, the Executive shall participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs, if
any, maintained from time to time by the Corporation for the benefit of senior
executives and other employees of the Corporation; provided, however, that,
unless otherwise determined by the Board, Executive shall not be eligible to
participate in any profit-sharing plan maintained, sponsored or contributed to
by the Corporation or Carson, Inc. that is intended to qualify under Section
401(a) of the Internal Revenue Code of 1986, as amended.
5.4 Welfare Benefit Plans. During the Term of Employment and to the extent
eligible, the Executive, the Executive's spouse, if any, and their eligible
dependents, if any, shall participate in and be covered by all the welfare
benefit plans and programs, if any, maintained by the Corporation for the
benefit of senior executives and other employees of the Corporation.
5.5 Stock Option Grants. Within a reasonable time after the full execution of
this Agreement, the Executive shall be granted a stock option, subject to the
terms and provisions of the Carson, Inc. 1996 Long-Term Incentive Plan and any
award or grant agreement executed thereunder, providing the Executive with an
opportunity to acquire 10,000 Class A common shares of Carson, Inc.
5.6 Expense Reimbursement. During the Term of Employment, the Executive shall be
entitled to receive prompt reimbursement for all expenses incurred by the
Executive in performing her duties and responsibilities hereunder in accordance
with the policies and procedures of the Corporation as in effect at the time the
expense was incurred, as the same may be changed from time to time.
5.7 Vacation and Fringe Benefits. During the Term of Employment, the Executive
shall be entitled to paid vacation in accordance with the Corporation's vacation
policies, as in effect from time to time, and at such times which do not
materially interfere with the performance of the Executive's duties hereunder.
In addition, during the Term of Employment, the Executive shall, in accordance
and consistent with the past practices of the Corporation, be entitled to such
fringe benefits and perquisites, if any, as in effect and provided from time to
time to senior executives of the Corporation.
5.8 Relocation. The Corporation shall reimburse the Executive for all reasonable
expenses incurred by her in respect of moving her furnishings and personal
effects to Savannah, Georgia or its vicinity. In addition, the Corporation shall
reimburse the Executive for (a) the cost of three round trip coach air fares
between Savannah, Georgia and her current residence, (b) reasonable temporary
lodging expenses incurred by her for two months, and (c) all reasonable closing
costs (not to exceed $5,000) incurred by the Executive in connection with her
purchase of a residence in Savannah, Georgia or its vicinity.
5.9 Car Allowance. During the Term of Employment, the Executive shall be
entitled to receive a monthly automobile allowance from the Corporation equal to
$500.
6. Termination.
6.1 Termination Due to Death or Disability. Upon 15 days prior written notice to
the Executive, the Corporation may terminate the Executive's employment
hereunder due to Disability. In the event of the Executive's death or a
termination of the Executive's employment by either the Corporation or the
Executive due to Disability, the Term of Employment shall thereupon end and the
Executive, her estate or other legal representative, as the case may be, shall
only be entitled to Base Salary continuation at the rate in effect (as provided
in Section 5.1 of this Agreement) on the date of termination for a six-month
period commencing on such date of termination.
6.2 Termination by the Corporation for Cause. The Corporation may terminate the
Executive's employment hereunder for Cause. If the Corporation terminates the
Executive's employment hereunder for Cause, the Term of Employment shall
thereupon end as set forth below and the Executive shall only be entitled to
Base Salary up to and including the date of termination.
6.3 Termination Without Cause or for Good Reason. Upon 15 days prior notice to
the Executive, the Corporation may terminate the Executive's employment
hereunder without Cause. If the Corporation terminates the Executive's
employment hereunder without Cause, the Term of Employment shall thereupon end
and the Executive shall only be entitled to Base Salary continuation at the rate
in effect (as provided in Section 5.1 of this Agreement) on the date of
termination for a six-month period commencing on such date of termination.
6.4 Voluntary Termination. The Executive may effect, upon 30 days prior written
notice to the Corporation, a voluntary termination of her employment hereunder
and thereupon the Term of Employment shall end. A voluntary termination shall
entitle the Executive only to all of the rights and benefits which the Executive
would be entitled in the event of a termination of her employment by the
Corporation for Cause.
6.5 Statements by the Executive or the Corporation. Subject to the requirements
of any applicable securities or other laws, the Executive agrees that, during
and after the Term of Employment, she shall not at any time make any statement
or representation, written or oral, (a) which the Executive knows or should know
will, or which she knows or should know is reasonably likely to, impair, bring
into disrepute, or adversely affect in any way the reputation, good will,
business, customer or supplier relationships, or public relations of the
Corporation, any affiliate, and/or any person or entity which the Executive
knows or should know is one of the following: (i) a member of the boards of
directors of the Corporation, any affiliate and/or any subsidiary, (ii) an
employee of the Corporation, any affiliate and/or any subsidiary, (iii) a person
or entity who has or has had a legal or beneficial ownership interest in the
shares of the Corporation, any subsidiary and/or any affiliate (an "Owner"),
and/or (iv) an owner, employee, director, partner, representative of, and/or
adviser to, any such Owner.
7. Resolution of Disputes. With the exception of proceedings for equitable
relief brought pursuant to Section 8.4 of this Agreement or otherwise, any
disputes arising under or in connection with this Agreement, including, without
limitation, any assertion by any party hereto that the other party has breached
any provision of this Agreement, shall be resolved by arbitration, to be held in
New York, New York, in accordance with the rules and procedures of the American
Arbitration Association.
8. Confidential Information and Noncompetition.
8.1 Confidential Information. The Executive shall not, during the Term of
Employment and at any time thereafter, without the prior express written consent
of the Board, directly or indirectly, use any Confidential Information (as
defined below) in any way, or divulge, disclose or make available or accessible
any Confidential Information to any person, firm, partnership, corporation,
trust or any other entity or third party (other than when required to do so in
good faith to perform the Executive's duties and responsibilities under this
Agreement or when required to do so by a lawful order of a court of competent
jurisdiction). In addition, the Executive shall not create any derivative work
or other product based on or resulting from any Confidential Information (except
in the good faith performance of her duties under this Agreement). The Executive
shall also immediately notify the Board if she becomes aware of any unauthorized
use or disclosure of any Confidential Information by any third party, and the
Executive agrees to cooperate fully in any attempts or efforts by the
Corporation or any affiliate to obtain any relief or remedy in respect of such
unauthorized use or disclosure. The Executive agrees that she shall not make any
copies of any kind of any document, computer software or other writing or
recording containing any Confidential Information without the prior approval of
the Board (other than when required to do so in good faith to perform the
Executive's duties and responsibilities under this Agreement or when required to
do so by a lawful order of a court of competent jurisdiction). The Executive
shall also proffer to the Board's designee, no later than the effective date of
any termination of her employment with the Corporation for any reason, and
without retaining any copies, notes or excerpts thereof, all memoranda, computer
disks or other media, computer programs, diaries, notes, records, data, customer
or client lists, marketing plans and strategies, and any other documents
consisting of or containing any Confidential Information that are in the
Executive's actual or constructive possession or which are subject to her
control at such time. In addition, the Executive shall at all times use her best
efforts carefully to safeguard any Confidential Information in the Executive's
possession or under her control. For purposes of this Agreement, "Confidential
Information" shall mean all information respecting the business and activities
of the Corporation, any parent, any affiliate, and/or any subsidiary, including,
without limitation, the terms and provisions of this Agreement, the clients,
customers, suppliers, officers, employees, consultants, computer or other files,
projects, products, computer disks or other media, computer hardware or computer
software programs, marketing plans, financial information, methodologies,
know-how, processes, practices, approaches, projections, forecasts, formats,
systems, data gathering methods and/or strategies of the Corporation, any
parent, any affiliate and/or any subsidiary. Notwithstanding the immediately
preceding sentence, Confidential Information shall not include any information
that is, or becomes, generally available to the public (unless such availability
occurs as a result of the Executive's breach of any portion of this Section 8.1
or any other obligation the Executive owes to the Corporation, any parent, any
affiliate and/or any subsidiary).
8.2 Noncompetition. The Executive, if her employment with the Corporation is
terminated for any reason (other than due to death, or Disability or by the
Corporation without Cause), shall not, during the Term of Employment and for 12
months after the date of any such termination, directly or indirectly, within or
with respect to the United States of America and/or Africa (a) engage, without
the prior express written consent of the Corporation, in any business or
activity, whether as an employee, officer, consultant, partner, principal,
agent, representative, stockholder or in any other individual, corporate or
representative capacity, or render any services or provide any advice to any
business, activity, person or entity, if such business, activity, service,
person or entity, directly or indirectly, competes in any material manner with
(i) the Corporation, (ii) any parent or subsidiary, or (iii) any product,
service or other business of any such entities which is in production,
distribution or development as of the date of any such termination, and/or (b)
meaningfully assist, help or otherwise support, without the prior express
written consent of the Corporation, any person, business, corporation,
partnership or other entity or activity, whether as an employee, consultant,
partner, principal, agent, representative, stockholder or in any other
individual, corporate or representative capacity, to create, commence or
otherwise initiate, or to develop, enhance or otherwise further, any business or
activity if such business or activity, directly or indirectly, competes (or is
reasonably likely to compete) in any manner with any significant business or
activity of the Corporation or any parent or subsidiary.
8.3 Nonsolicitation. The Executive, if her employment with the Corporation is
terminated for any reason (other than due to death, or Disability, or by the
Corporation without Cause), shall not, directly or indirectly, during the Term
of Employment and for 12 months after the date of termination (a) take any
action to solicit or divert any business (or potential business) or clients or
customers (or potential clients or potential customers) away from the
Corporation or any parent or subsidiary, (b) induce customers, potential
customers, clients, potential clients, suppliers, agents or other persons under
contract or otherwise associated or doing business with the Corporation or any
parent or subsidiary to terminate, reduce or alter any such association or
business with or from the Corporation or any parent or subsidiary, and/or (c)
induce any person in the employment of the Corporation or any parent or
subsidiary or any consultant to the Corporation or any parent or subsidiary to
(i) terminate such employment, or consulting arrangement, (ii) accept
employment, or enter into any consulting arrangement, with anyone other than the
Corporation or any parent or subsidiary, and/or (iii) interfere with the
customers, suppliers, or clients of the Corporation, any subsidiary, any parent
or any affiliate in any manner or the business of the Corporation, any
subsidiary, any parent or any affiliate in any manner. For purposes of this
Section 8.3, a "potential client" or a "potential customer" shall mean a person
or entity that the Corporation, any parent or any subsidiary (A), as of the date
the Executive's employment terminates, is, or will be in the reasonably
foreseeable future, soliciting or considering soliciting (or has targeted for
solicitation, or will be so targeting in the reasonably foreseeable future),
and/or (B) has, at any time or from time to time, within the 12 month period
prior to the date the Executive's employment terminates, been soliciting for or
in respect of any current, actively pending or contemplated product lines,
businesses, or services offered by the Corporation, any parent or any
subsidiary, including, without limitation, any licensing arrangements,
manufacturing arrangements, and/or distribution arrangements (the "Products"),
and "potential business" shall mean any current or reasonably foreseeable
commercial activity or any current or reasonably foreseeable commercial
opportunities associated in any way with the Products.
8.4 Injunctive Relief. The Executive acknowledges and agrees that the
Corporation will have no adequate remedy at law, and would be irreparably
harmed, if the Executive breaches or threatens to breach any of the provisions
of this Section 8 of this Agreement. The Executive agrees that the Corporation
shall be entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of this Section 8, and to specific performance of each of the
terms of such Section in addition to any other legal or equitable remedies that
the Corporation may have. The Executive further agrees that she shall not, in
any equity proceeding relating to the enforcement of the terms of this Section
8, raise the defense that the Corporation has an adequate remedy at law.
8.5 Special Severability. The terms and provisions of this Section 8 are
intended to be separate and divisible provisions and if, for any reason, any one
or more of them is held to be invalid or unenforceable, neither the validity nor
the enforceability of any other provision of this Agreement shall thereby be
affected. It is the intention of the parties to this Agreement that the
potential restrictions on the Executive's future employment imposed by this
Section 8 be reasonable in both duration and geographic scope and in all other
respects. If for any reason any court of competent jurisdiction shall find any
provisions of this Section 8 unreasonable in duration or geographic scope or
otherwise, the Executive and the Corporation agree that the restrictions and
prohibitions contained herein shall be effective to the fullest extent allowed
under applicable law in such jurisdiction.
9. Successors.
9.1 The Executive. This Agreement is personal to the Executive and, without the
prior express written consent of the Corporation, shall not be assignable by the
Executive, except that the Executive's rights to receive any compensation or
benefits under this Agreement may be transferred or disposed of pursuant to
testamentary disposition, intestate succession or pursuant to a qualified
domestic relations order. This Agreement shall inure to the benefit of and be
enforceable by the Executive's heirs, beneficiaries and/or legal
representatives.
9.2 The Corporation. This Agreement shall inure to the benefit of and be binding
upon the Corporation and its successors and assigns. The Corporation shall use
its reasonable best efforts to obtain from any successor to all or substantially
all of its business and/or assets, whether direct or indirect, by purchase,
merger, consolidation, acquisition of stock, or otherwise, an assumption by such
successor of the obligations of the Corporation under this Agreement.
10. Miscellaneous.
10.1 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, without regard to the
principles of conflict of laws thereof.
10.2 Amendments/Waiver. This Agreement may not be amended, waived, or modified
otherwise than by a written agreement executed by the parties to this Agreement
or their respective successors and legal representatives. No waiver by any party
to this Agreement of any breach of any term, provision or condition of this
Agreement by the other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same time, or any prior or subsequent time.
10.3 Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand-delivery to the other party, by facsimile
transmission, by overnight courier, or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Ms. Aurelia Waldon
c/o Carson Products Company
P.O. Box 22309
Savannah, GA 31403
If to the Corporation: Carson Products Company
71 A Ross Road
Savannah, Georgia 31405
Attention:
with a copy to: Stephen W. Skonieczny, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza,
New York, New York 10005
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
10.4 Withholding. The Corporation may withhold from any amounts payable under
this Agreement such taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
10.5 Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
10.6 Captions. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
10.7 Entire Agreement. This Agreement contains the entire agreement between the
parties to this Agreement concerning the subject matter hereof and supersedes
all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
10.8 Survivorship. The respective rights and obligations of the parties to this
Agreement shall survive any termination of this Agreement or the Executive's
employment hereunder for any reason.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Corporation has caused this Agreement to be executed in
its name on its behalf, all as of the day and year first above written.
CARSON PRODUCTS COMPANY
By: _____________________________
Name: ___________________________
Title: __________________________
---------------------------------
[Executive]
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