April 30, 1999
Dear Stockholder:
On behalf of the Board of Directors, I am pleased to extend to you an
invitation to attend the 1999 Annual Meeting of Stockholders of Carson, Inc.
(the "Company") to be held on Tuesday, June 15, 1999 beginning at 9:30 a.m., New
York City time, in Conference Room 54C at the offices of Milbank, Tweed, Hadley
& McCloy LLP, One Chase Manhattan Plaza, New York, NY 10005.
The notice of meeting and proxy statement which appear on the
following pages contain information about matters which are to be considered at
the meeting. During the meeting we will also review operating results for the
past year and present other information concerning the Company and its
subsidiaries. The meeting should be interesting and informative and we hope you
will be able to attend.
Whether or not you attend, it is important that your shares be voted
at this meeting. In order to ensure that your shares are voted, please complete,
date, sign and return the enclosed proxy in the enclosed postage-paid envelope
at your earliest convenience. If you attend the meeting in person, you may
withdraw your proxy and vote your stock if you desire to do so. Every
stockholder's vote is important, whether you own a few shares or many.
Sincerely yours,
/S/ Roy Keith
Roy Keith
Chairman of the Board
Carson, Inc., 64 Ross Road, Savannah Industrial Park, Savannah, Georgia 31405
<PAGE>
Notice of Annual Meeting of Stockholders
to be held June 15, 1999
To the Holders of Common Stock of
CARSON, INC.:
The Annual Meeting of Stockholders of Carson, Inc. will be held on
Tuesday, June 15, 1999 beginning at 9:30 a.m., New York City time, in Conference
Room 54C at the offices of Milbank, Tweed, Hadley & McCloy LLP, One Chase
Manhattan Plaza, New York, NY 10005, for the following purposes:
(1) To elect four directors of the Company, each to serve for a term of
three years;
(2) To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as independent auditors for 1999;
(3) To adopt the Carson, Inc. 1996 Long-Term Incentive Plan; and
(4) To transact such other business as may properly come before the
meeting.
These matters are more fully discussed in the accompanying proxy
statement.
The close of business on May 14, 1999 has been fixed as the date for
determining the stockholders who are entitled to notice of and to vote at the
annual meeting. All stockholders, whether or not they expect to attend the
annual meeting in person, are requested to mark, date, sign, and return the
enclosed form of proxy in the accompanying envelope.
The Annual Meeting for which this notice is given may be adjourned from
time to time without further notice other than announcement at the meeting or
any adjournment thereof. Any business for which notice is hereby given may be
transacted at any such adjourned meeting.
By Order of the Board of Directors
/S/ Roy Keith
Roy Keith
Chairman of the Board
Savannah, Georgia
April 30, 1999
<PAGE>
PROXY STATEMENT
OF
CARSON, INC.
64 Ross Road
Savannah Industrial Park
Savannah, Georgia 31405
TABLE OF CONTENTS Page
GENERAL........................................................................1
Solicitation of Proxies; Vote Required....................................1
Principal Stockholders and Management Ownership...........................3
Compliance with Section 16(a) of the Exchange Act.........................5
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................6
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS.......................................9
Nominees for Three-Year Terms Expiring in 2002............................9
Directors Continuing in Office Until 2000................................10
Directors Continuing in Office Until 2001................................10
PROPOSAL NUMBER 2: RATIFICATION OF AUDITORS..................................11
PROPOSAL NUMBER 3: ADOPTION OF THE CARSON, INC. 1996 LONG-TERM INCENTIVE
PLAN..........................................................................12
Purpose..................................................................13
Number Of Shares.........................................................13
Administration...........................................................13
Eligibility..............................................................14
Awards Under The Plan....................................................14
Forfeiture Upon Termination..............................................15
Change Of Control........................................................16
Amendment, Suspension Or Termination Of The Plan.........................16
Certain Federal Income Tax Consequences Of The Plan......................17
Effective Date...........................................................21
Approval Of The Carson, Inc. 1996 Long-Term Incentive Plan...............21
OTHER BUSINESS................................................................21
INFORMATION REGARDING DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS......................................................................22
Executive Officers.......................................................22
Meetings and Committees of the Board of Directors........................23
COMPENSATION AND OTHER TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS.....25
Executive Officer Compensation...........................................25
Summary Compensation Table 25
Option Grants in Last Fiscal Year........................................26
i
<PAGE>
Option/SAR Exercises and Holdings........................................27
Long Term Incentive Plans................................................27
Employment Agreements....................................................27
Compensation of Directors................................................30
Compensation Committee Interlocks and Insider Participation..............32
Compensation Committee Report on Executive Compensation..................32
PERFORMANCE GRAPH.............................................................35
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING.................................36
MISCELLANEOUS INFORMATION.....................................................36
APPENDIX A - CARSON, INC. 1996 LONG-TERM INCENTIVE PLAN
ii
<PAGE>
GENERAL
Solicitation of Proxies; Vote Required
The Board of Directors (the "Board") of Carson, Inc. (the "Company")
solicits your proxy in connection with the Annual Meeting of Stockholders to be
held on Tuesday, June 15, 1999 beginning at 9:30 a.m., New York City time, in
Conference Room 54C at the offices of Milbank, Tweed, Hadley & McCloy LLP, One
Chase Manhattan Plaza, New York, NY 10005, and at any adjournment of such
meeting (the "Annual Meeting"). Malcolm Yesner and Robert W. Pierce are named as
proxies in the proxy card enclosed with this proxy statement and have been
designated as proxies by the Company. This proxy statement, the proxy card and
the Company's 1998 Annual Report are first being mailed to stockholders on or
about May 19, 1999.
Each stockholder of record at the close of business on May 14, 1999
(the "Record Date") is entitled to (i) one vote for each share of Class A common
stock, par value $.01 per share, of the Company (the "Class A Common Stock") and
(ii) ten votes for each share of Class C common stock, par value $.01 per share,
of the Company (the "Class C Common Stock", together with the Class A Common
Stock, the "Voting Stock") held on that date upon each matter to be voted on by
the stockholders at the Annual Meeting. Holders of Class A Common Stock and
Class C Common Stock will vote together upon each matter to be voted on at the
Annual Meeting as a single class. At the close of business on April 23, 1999,
there were 9,816,162 shares of Class A Common Stock outstanding and 5,304,700
shares of Class C Common Stock outstanding. There is no cumulative voting of
Voting Stock.
A majority of the voting power of the Voting Stock, represented in
person or by proxy, constitutes a quorum for purposes of holding an election of
directors and the ratification of Deloitte & Touche LLP as independent auditors
of the Company. In the case of votes on such matters, the votes of Voting Stock
represented by a duly executed and returned proxy card will be counted for
purposes of establishing a quorum, despite the fact that the holder of the
shares has withheld authority with respect to the election of directors, has
indicated an abstention with respect to one or more of the other proposals or
the proxy card indicates a broker non-vote with respect to one or more
proposals.
If a quorum, as determined above, is present, a plurality of the votes
cast at the Annual Meeting is required for the election of directors and a
majority of the votes cast at the Annual Meeting is required for the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors. Abstentions will not be treated as votes cast and, therefore, will
have no legal effect with respect to either of the above matters as presented at
the Annual Meeting.
Under applicable New York Stock Exchange rules, establishing a quorum
for purposes of adopting the proposal for the Company's 1996 Long-Term Incentive
Plan (the "1996 LTIP") requires the total vote cast on the matter to represent
over 50% in interest of all securities entitled to vote on the proposal.
Additionally, broker non-votes may not be counted toward such a quorum. If such
a quorum is present with respect to the proposal for the 1996 LTIP, a majority
of the votes cast (which include abstentions under applicable New York Stock
Exchange rules) at the Annual Meeting is required for its adoption. An
abstention on the proposal for the 1996 LTIP will have the effect of a vote
"against" the proposal.
1
<PAGE>
Brokers holding shares in street name for beneficial owners must vote
those shares in accordance with specific instructions, if any, they receive from
the owner; provided that under applicable rules of the New York Stock Exchange,
if specific instructions are not received, brokers have the authority to vote
the shares in their discretion on certain "routine" matters. Absent specific
instructions from the beneficial owners of the shares in the case of
"non-routine" matters, the brokers may not vote the shares with respect to those
matters. The election of directors and the ratification of the appointment of
Deloitte & Touche LLP as the Company's auditors are considered routine matters
on which brokers may vote in their discretion absent specific instructions from
the beneficial owners of the shares. The approval of the 1996 LTIP is considered
a non-routine matter on which brokers may not vote in their discretion. Any
shares as to which a broker or nominee does not have discretionary voting
authority under applicable New York Stock Exchange rules will be considered as
shares not entitled to vote and will therefore not be considered in the
tabulation of the votes.
When the enclosed proxy card is returned, properly executed, and in
time for the Annual Meeting, the shares represented thereby will be voted at the
Annual Meeting. All proxies will be voted in accordance with the instruction set
forth on the proxy card, but if proxies which are executed and returned do not
specify a vote on the proposals considered, the proxies will be voted (i) FOR
the election as directors of the individuals nominated by the Board of Directors
named below, (ii) FOR ratification of the appointment of Deloitte & Touche LLP
as the Company's independent auditors for 1999 and (iii) FOR the proposed
adoption of the Company's 1996 Long-Term Incentive Plan. Any stockholder giving
a proxy has the right to revoke it at any time before the proxy is voted by
giving written notice of revocation to the Secretary of the Company (at the
address set forth above), by submitting a properly-executed, subsequently-dated
proxy or by voting in person at the Annual Meeting.
2
<PAGE>
Principal Stockholders and Management Ownership
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A Common Stock and Class C Common
Stock outstanding as of April 23, 1999 by (i) each person known by the Company
to beneficially own more than 5% of the outstanding shares of Class A Common
Stock or Class C Common Stock, (ii) each of the Company's directors and nominees
for director, (iii) each of the executive officers whose name appears in the
summary compensation table and (iv) all directors and executive officers as a
group. Unless otherwise noted in the footnotes to the table, the persons named
in the table have sole voting and dispositive power with respect to all shares
of Common Stock indicated as being beneficially owned by them.
<TABLE>
<S> <C> <C> <C> <C>
Class A Common Stock (a) Class C Common Stock (a)
Name and Address of
Beneficial Owners
Number % of Class Number % of Class
(In thousands, except footnotes)
DNL Partners Limited Partnership(b)................... 0 0 3,015 56.8%
c/o Morningside Capital Group L.L.C.
One Morningside Drive, North
Suite 200
Westport, CT 06880
Morgan Guaranty Trust Company(c)...................... 0 0 1,069 20.1%
c/o J.P. Morgan Investment Management
522 Fifth Avenue
New York, NY 10036
M&A Investments, Inc. (d) 1,360 13.9% 0 0
5910 North Central Expressway, Suite 1780
Dallas, TX 75206
Indosuez Carson Partners(e) 569 5.8% 0 0
c/o Indosuez Capital
1211 Avenue of the Americas
7th Floor
New York, NY 10036-8701
Leroy Keith(f)........................................ 0 0 341 6.4%
Gregory J. Andrews (g)................................ 300 3.1% 0 0
Malcolm Yesner(h)..................................... 130 1.3% 0 0
Robert W. Pierce (i).................................. 109 1.1% 0 0
Donald N. Riley(j).................................... 9 * 0 0
Richard A. Bozzell(j)................................. 28 * 0 0
Lawrence E. Bathgate, II(k)(l)........................ 69 * 0 0
Jack Kemp(m).......................................... 18 * 46 *
John L. Sabre(n)...................................... 50 * 23 *
Vincent A. Wasik(b)(l)................................ 72 * 3,015 56.8%
Melvyn J. Estrin(m)................................... 18 * 12 *
Abbey J. Butler(n).................................... 28 * 12 *
James L. Hudson(k)(m)................................. 27 * 0 *
Suzanne de Passe(m)................................... 64 * 12 *
All Directors and Officers as a Group (17 persons).... 904 9.1% 3,461 65.2%
</TABLE>
3
<PAGE>
- ---------------
* Less than 1%.
(a) Based on 9,816,162 and 5,304,700 outstanding shares of Class A Common Stock
and Class C Common Stock, respectively. All of the Company's Class B Common
Stock (which was non-voting stock convertible into voting stock upon
transfer in certain circumstances) was converted into shares of Class A
Common Stock on January 15, 1999. Each share of Class C Common Stock is
convertible at any time, at the option of the holder, into one share of
Class A Common Stock. Stockholders are entitled to one vote for each share
of Class A Common Stock and ten votes for each share of Class C Common
Stock. Calculation of percentage of beneficial ownership assumes the
exercise of all options and warrants exercisable within 60 days of the date
hereof only by the respective named stockholder.
(b) Mr. Wasik has a 50.1% ownership interest in the general partner of DNL
Partners, DNL Group L.L.C., and therefore is deemed to have voting and
dispositive control as to the shares held by DNL Partners. Messrs. Wasik,
Bathgate and Hudson, who serve as directors of the Company, are, or have
interests in, limited partners of DNL Partners, including in the case of
Messrs. Wasik and Bathgate, ownership interests in Morningside Capital
Group L.L.C., one of the limited partners in DNL Partners.
(c) As reported on Schedule 13G/A dated December 31, 1998 filed by J.P. Morgan
& Co., Incorporated, as parent holding company. Includes Morgan Guaranty
Trust Company of New York; J.P. Morgan Investment Management, as Investment
Advisor and J.P. Morgan Florida Federal Savings Bank, as Investment
Advisor.
(d) As previously reported, M&A Investments, Inc. ("M&A") disclosed that it
held an approximately 14% limited partnership interest in DNL Partners
which it acquired before the Company became a reporting company under the
Securities Exchange Act of 1934 (the "Exchange Act"). Pursuant to a letter
agreement, M&A requested the distribution of Class C Common Stock in an
amount representing the constructive interest in the Company then held by
M&A through its interest in DNL Partners. According to a Schedule 13D filed
November 19, 1998 by M&A and NII Health Care Corporation ("NIIHCC"), M&A
beneficially owned 1,359,690 shares of Class A Common Stock on November 16,
1998 after giving effect to such distribution and a corresponding
conversion of 1,359,690 shares of Class C Common Stock to Class A Common
Stock. As reported in such Schedule 13D, NIIHCC beneficially owned 372,000
shares of Class A Common Stock.
(e) As of April 29, 1999 as reported by First Union National Bank ("First
Union"), transfer agent to the Company. In addition, First Union also
reported that Indosuez CM II, Inc. held 258,213 shares of Class A Common
Stock as of April 29, 1999.
(f) Consists solely of Class C Common Shares transferred from the DNL Partners
Limited Partnership Voting Trust to individual ownership by Dr. Keith
following termination on November 11, 1998 of a Voting Trust Agreement
dated August 23, 1995. In addition, Dr. Keith owns 100 shares of Class A
Common Stock.
(g) Includes 300,000 shares of Class A Common Stock underlying currently
exercisable stock options which vested upon the death of Mr. Andrews on
February 21, 1999.
(h) Includes 11,000 shares of Class A Common Stock underlying currently
exercisable stock options.
(i) Includes 86,666 shares of Class A Common Stock underlying currently
exercisable stock options.
(j) Includes 9,167 shares of Class A Common Stock underlying currently
exercisable stock options for Mr. Riley. Includes 18,167 shares of Class A
Common Stock underlying currently exercisable stock options for Mr.
Bozzell.
(k) These directors are, or have direct or indirect interests in, limited
partners of DNL Partners. See Note (b).
(l) Includes 5,000 shares of Class A Common Stock underlying currently
exercisable stock options. Also includes 16,932 restricted shares of Class
A Common Stock awarded under the 1996 Non-Employee Director Equity
Incentive Program (the "Outside Directors Program") on May 9, 1997 and
November 20, 1998 which have not yet vested. 903 and 904 shares will vest
on May 9, 1999 and May 9, 2000, respectively. 5,041, 5,042 and 5,042 shares
will vest on November 20, 1999, November 20, 2000 and November 20, 2001,
respectively. Under the Outside Directors Program, Outside Directors are
permitted to vote restricted shares which have not yet vested.
(m) Includes 5,000 shares of Class A Common Stock underlying currently
exercisable stock options. Also includes 11,932 restricted shares of Class
A Common Stock awarded under the Outside Directors Program on May 9, 1997
and November 20, 1998 which have not yet vested. 903 and 904 shares will
vest on May 9, 1999 and May 9, 2000, respectively. 3,375, 3,375 and 3,375
shares will vest on November 20, 1999, November 20, 2000 and November 20,
2001, respectively. Under the Outside Directors Program, Outside Directors
are permitted to vote restricted shares which have not yet vested.
(n) Includes 5,000 shares of Class A Common Stock underlying currently
exercisable stock options. Also includes 23,932 restricted shares of Class
A Common Stock awarded under the Outside Directors Program on May 9, 1997
and November 20, 1998 which have not yet vested. 903 and 904 shares will
vest on May 9, 1999 and May 9, 2000, respectively. 7,375, 7,375 and 7,375
shares will vest on November 20, 1999, November 20, 2000 and November 20,
2001, respectively. Under the Outside Directors Program, Outside Directors
are permitted to vote restricted shares which have not yet vested.
4
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the directors, executive officers and persons who own
beneficially more than 10% of certain equity securities of the Company to file
reports of ownership with the Commission. Copies of all such reports are
required to be furnished to the Company. Based on the reports received by the
Company (and on written representations from the reporting persons), the Company
believes that each of the Company's directors, officers and 10% beneficial
owners of its Class A Common Stock filed on a timely basis the required Forms 3,
4 or 5 at the time such forms were due, except for Malcolm Yesner, who
inadvertently failed to file on a timely basis Form 3 and Form 4 with respect to
six transactions.
5
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Morningside
The Company's subsidiary, Carson Products Company ("Carson Products")
and Morningside Capital Group, L.L.C. ("Morningside") entered into a Management
Assistance Agreement dated August 23, 1995 (as amended, the "Morningside
Management Agreement"), pursuant to which Morningside agreed to supply the
services of Vincent A. Wasik (a principal member of Morningside) to provide
advice and assistance with respect to (i) the formulation of a "strategic
direction"; (ii) the formulation of business plans, capital budgets and
financial strategies; (iii) the formulation of marketing, sales and operational
plans; (iv) the evaluation of investment and acquisition opportunities; and (v)
dealings with banks and other lending institutions. Such services are provided
for a fee of $350,000 per year, payable on a monthly basis in advance plus
reimbursement for out-of-pocket expenses. The Morningside Management Agreement
provides that Carson Products will indemnify Morningside, its members, employees
and agents, including Mr. Wasik, for all actions, claims, damages and
liabilities based upon or arising from the acceptance of or performance of the
obligations of Morningside under the Morningside Management Agreement (other
than actions resulting from gross negligence, willful misconduct or a material
breach of the Morningside Management Agreement by Morningside or Mr. Wasik). The
termination date of the Morningside Management Agreement is August 23, 2003;
however, the term of the agreement shall continue after such termination date
until terminated by not less than 30 days' advance notice by either party. Under
the Morningside Management Agreement, the Company paid Morningside approximately
$127,000 for reimbursement of out-of-pocket expenses in 1998.
Additionally, for the term of the Morningside Management Agreement,
Morningside has agreed that neither it nor Mr. Wasik shall directly or
indirectly (i) own (other than through the ownership of five percent (5%) or
less of any class of securities registered under the Exchange Act), manage,
operate, represent, promote, consult for, control or participate in the
ownership, operation, acquisition or management of any business manufacturing
and/or distributing ethnic hair care products or cosmetics within a 500-mile
radius of Carson Products' headquarters, or (ii) solicit (other than on behalf
of Carson Products or any of its affiliates), divert or take away the business
of any customers of Carson Products or any of its affiliates or any prospective
customers of Carson Products or any of its affiliates.
In connection with the Johnson Products acquisition, Morningside
received fees of $500,000 from the Company for arranging and negotiating the
financing for the acquisition and performing other consulting and financial
advisory services. The Company reimbursed Morningside for approximately $61,000
of out-of-pocket expenses incurred in connection with the acquisition. In
addition, the Company reimbursed Morningside for approximately $94,000 of
expenses related to the debt refinancing and the sale of Cutex in 1998.
6
<PAGE>
AM Cosmetics
Morningside AM Acquisition Corp. ("AM Acquisition") entered into a
Subscription Agreement dated as of June 26, 1996 (the "Subscription Agreement")
with Carson Products, providing for the purchase by Carson Products of 300
shares of cumulative payment-in-kind Preferred Shares (the "PIK Preferred
Shares") issued by AM Acquisition, at a price of $10,000 per share. AM
Acquisition was formed by Morningside on behalf of an investor group to acquire
the assets of Arthur Matney Co., Inc. Certain key management personnel and
shareholders of the Company are or have been key management and shareholders of
AM Cosmetics. AM Cosmetics sells several brands of budget cosmetics, one of
which is targeted at the African-American consumer. The PIK Preferred Shares are
non-voting and are entitled to cumulative dividends payable quarterly in
additional PIK Preferred Shares at a rate of 12% per annum. Additionally, the
PIK Preferred Shares are subject to redemption in whole at the option of Carson
Products on or after July 1, 2005, at the stated value per share (which is
$10,000 per share) plus an amount in cash equal to all accrued and unpaid
dividends on the PIK Preferred Shares. During 1998, AM Cosmetics experienced
significant financial difficulties and management turnover. The Company recorded
a charge of $3.7 million to write off its investment in the PIK Preferred
Shares, as a result of what management believes is permanent impairment in this
asset.
Concurrent with its investment in AM Acquisition, Carson Products
entered into a Management Agreement (the "Carson - AM Management Agreement")
with AM Cosmetics, pursuant to which Carson Products agreed to manage the
business operations of and provide certain other services to AM Cosmetics. In
return, Carson Products was entitled to fees equal to 1% of AM Cosmetics annual
net sales subject to a minimum of $500,000 for 1997. The contract was amended in
1997 to provide a fixed fee of $250,000 for 1998 and thereafter. For the years
ended December 31, 1998 and 1997, the Company received $42,000 and $500,000,
respectively, in management fees. The Company did not receive and therefore did
not accrue revenue for the entire $250,000 of fees in 1998 due to the financial
difficulties experienced by AM Cosmetics. In November 1998 AM Cosmetics served
written notice of termination of the Carson-AM Management Agreement.
Pursuant to the Carson-AM Management Agreement, the parties entered
into a manufacturing agreement in May 1997 which will expire on May 1, 1999 (the
"AM Manufacturing Agreement"). Under the AM Manufacturing Agreement, AM
Cosmetics manufactured the Dark & Lovely line of cosmetics and the Cutex nail
enamel/treatments and nail care treatment products in accordance with Carson
Products' specifications. AM Cosmetics was entitled to a 25% profit margin above
all costs, including general and administrative costs, on the cosmetics products
it produced under the AM Manufacturing Agreement, except for Cutex products for
which the pricing was specified by SKU. The Company purchased approximately $4.7
million and $2.0 million from AM Cosmetics in 1998 and 1997, respectively, under
the AM Manufacturing Agreement. Currently, no production is being carried out
pursuant to this contract.
7
<PAGE>
Carson Products and AM Cosmetics also entered into a sales and
marketing agreement (the "AM Sales/Marketing Agreement") in accordance with the
Carson-AM Management Agreement in 1997. Under the AM Sales/Marketing Agreement,
AM Cosmetics was entitled to a 7.5% sales commission on its sales of all Cutex
products. Such sales commission was approximately $1.5 million and $1.2 million
in 1998 and 1997, respectively. In December 1998, the Company served written
notice of its intention to terminate the AM Sales/Marketing Agreement.
In December 1998 AM Cosmetics instituted an AAA arbitration proceeding
in New York against the Company. In its first claim, AM Cosmetics asserts that
the Company breached the Carson-AM Management Agreement by failing to provide
management level personnel, thus causing AM Cosmetics to hire its own management
team at its own cost and expense. In its second claim, AM Cosmetics asserts that
the Company breached the AM Manufacturing Agreement by failing to pay AM
Cosmetics for manufacturing certain goods and failing to reimburse it for
certain marketing and research costs. Arbitrators were recently selected, and an
initial conference with the arbitration panel is expected in the near future. AM
Cosmetics has not yet specified its damages or provided any calculation of
alleged losses. The Company disputes AM Cosmetics' claim for damages and is
vigorously defending the matter. At this time, the ultimate resolution of the
claims is unknown but is not expected to have a materially adverse effect on the
Company's financial position, results of operations or cash flows.
In addition to the proceedings described above, the Company filed on
April 29, 1999 a civil suit against AM Cosmetics for breach of contract in
connection with the AM Sales/Marketing Agreement. In its suit, the Company
intends to seek damages in excess of $30 million from AM Cosmetics arising
from the failure of AM Cosmetics to use its best efforts to market, distribute,
sell and promote the Company's Cutex brand nail polish and remover in the United
States and Puerto Rico as provided in the AM Sales/Marketing Agreement and
arising from the subsequent deterioration of the Cutex nail polish and remover
businesses.
Dr. Leroy Keith, Chairman of the Company, and Vincent A. Wasik, a
controlling stockholder, a Director and Chairman of the Executive Committee of
the Company and Lawrence E. Bathgate, II, a Director of the Company, each have
ownership interests in AM Cosmetics. Dr. Keith serves as a member of AM
Cosmetics' Board of Directors. In addition, Mr. Bathgate serves as AM Cosmetics'
Chairman of the Board.
8
<PAGE>
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and
Restated Bylaws provide that the members of the Board shall be divided into
three classes with approximately one-third of the directors to stand for
election each year for three-year terms. The total number of directors
comprising the Company's Board is currently set by the Board pursuant to the
Company's Restated Bylaws at eleven. One Board position became vacant upon the
death on February 22, 1999 of Gregory J. Andrews. Of the ten sitting directors,
four members of the Board have terms expiring, and are nominees for election, at
the 1999 Annual Meeting of Stockholders, three members have terms expiring at
the 2000 Annual Meeting of Stockholders and three members have terms expiring at
the 2001 Annual Meeting of Stockholders.
Unless instructions to the contrary are given, all proxies received by
the Company will be voted for the election of the four individuals named below
as nominees for election as directors of the Company to hold office until the
2002 Annual Meeting of Stockholders or until their respective successors are
elected and qualified. Each of the nominees has indicated a willingness to serve
as a director if elected. Should any nominee not be a candidate at the Annual
Meeting, all such proxies so received will be voted in favor of the other
nominees and for such substitute nominee (if any) as shall be designated by the
Board, or the number of directors may be reduced by the Board.
The Board recommends that the stockholders vote FOR the four nominees
named below.
Certain information (as of April 30, 1999) concerning each of the four
nominees for election as director, and each current director in the classes
continuing in office, is set forth below and on the following pages:
Nominees for Three-Year Terms Expiring in 2002
Leroy Keith (age 60) currently serves as Chairman of the Board of the
Company. He became a Director of the Company upon its inception in May 1995, and
served as Vice President until August 1996, when he became Chairman and Chief
Executive Officer. Dr. Keith became Chairman and Chief Executive Officer of
Carson Products concurrently with the Company's acquisition of Aminco, Inc. (the
"Aminco Acquisition") in August 1995. He has served as a Director of AM
Cosmetics since June 1996. He served on the Board of Directors of Aminco, Inc.,
from June 1994 to August 1995. Prior to that, he served as President of
Morehouse College from 1987 to 1994. Dr. Keith is a member of the Board of
Directors of Evergreen Keystone Investment Services, the Mutual Funds Board of
Phoenix Home Life Insurance Company, One to One/The National Mentoring
Partnership, Inc. and the National Committee for the Performing Arts of the John
F. Kennedy Center.
Lawrence E. Bathgate (age 59) became a Director of the Company upon its
inception in May 1995 and of Carson Products in August 1995. He served as
Secretary of the Company from May 1995 to August 1996. He also serves as
President and Chief Executive Officer of Bathgate, Wegener & Wolf, P.A., a law
firm with which he has been affiliated since 1970. Mr. Bathgate is a founder and
principal of Morningside. Additionally, he is currently Chairman of the Board of
AM Cosmetics and has served on the Board of Directors of AM Cosmetics since June
1996. He also serves on the Board of Trustees of Villanova University, the Board
of Regents of Seton Hall University and served as Finance Chairman of the
Republican National Committee from 1988 to 1992.
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John L. Sabre (age 41) became a Director of the Company in August 1996
and of Carson Products concurrent with the Aminco Acquisition in August 1995. He
currently serves as Senior Managing Director at First Dominion Capital. He was
previously employed as Managing Director of Indosuez Capital, a position he held
from April 1992 to August 1997. Prior to that, Mr. Sabre was a Vice President at
Kidder, Peabody & Co. from March 1990 to April 1992.
Vincent A. Wasik (age 54) became Chairman of the Board of Directors and
President of the Company upon its inception in May 1995 and served as such until
August 1996. Mr. Wasik continues to serve as a Director of the Company and has
been a Director of Carson Products since August 1995. He served as Acting Chief
Executive Officer of the Company and of Carson Products during June 1998. He is
also a founder and serves as President of Morningside. From 1985 to 1995, Mr.
Wasik served as President of Fidelco Capital Group. He was also President of
Wondercamp Entertainment Company from 1994 to 1995. He is also currently a
member of the Board of Directors of One to One/The National Mentoring
Partnership, Inc., the National Committee for the Performing Arts of the John F.
Kennedy Center and the Board of Trustees for Boston College.
Directors Continuing in Office Until 2000
Suzanne de Passe (age 51) became a Director of the Company in August
1996 and of Carson Products in June 1996. Ms. de Passe has served as Chief
Executive Officer of de Passe Entertainment since 1991. She currently serves on
the Board of Directors of The American Film Institute and the Los Angeles Opera.
James L. Hudson (age 59) became a Director of the Company in August
1996 and of Carson Products in June 1996. Mr. Hudson has served as Chairman of
JAH Development Company since 1985. Mr. Hudson has served as Chairman of the
Board of Trustees of Morehouse College and as a member of the Board of the
Metropolitan Washington Airports Authority.
Jack Kemp (age 62) became a Director of the Company in December 1996.
He previously served as a Director of Carson Products from February 1996 to
August 1996, when he resigned to accept the Republican nomination for Vice
President of the United States. Mr. Kemp served as Secretary of Housing and
Urban Development for the U.S. Government from 1989 to 1992. Mr. Kemp is also a
member of the Board of Directors of Landair, Cyrix Corp., Oracle Corp., Columbus
Trust Realty, American Bankers Insurance Corp., and Worldcorp and has served as
Co-Director of Empower America since 1993.
Directors Continuing in Office Until 2001
Malcolm R. Yesner (age 41) became President and Chief Executive Officer
of the Company in March 1999, having served as a Director of the Company since
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October 1998. He has also served as President of International Operations of the
Company and Chief Executive Officer of Carson Holdings Limited (South Africa)
since April 1998. From 1992 to 1998, he held the position of Managing Director
of Carson Holdings Ltd. ("Carson South Africa"). Prior to joining Carson South
Africa, Mr. Yesner held senior management positions with Procter & Gamble in
Australia and Bristol Meyers Squibb Limited in South Africa.
Abbey J. Butler (age 61) became a Director of the Company in August
1996 and of Carson Products in June 1996. Mr. Butler currently serves in the
following capacities for the following companies and organizations: Avatex
(formerly FoxMeyer Health Corporation), Director from 1990, Co-Chairman of the
Board of Directors from 1990, Co-Chief Executive Officer from 1990; Ben Franklin
Retail Stores, Inc., Director from November 1991 to March 1997 and Co-Chairman
of the Board of Directors from 1994 to March 1997; C.B. Equities Capital Corp.,
President from 1982 and Director from 1982; Grand Bank Corporation., Director
from 1994; CST Entertainment Inc., Director from 1994; Imagyn Medical
Technology, Inc., Director from 1995; Cyclone Fence Corp., Director from 1995;
Phar-Mor, Inc., Director from 1995, Chairman and Chief Executive Officer; The
American University, Trustee from 1986; Starlight Foundation, Director from
1990; Executive Council of the National Committee for the Performing Arts of the
John F. Kennedy Center, Director from 1989; and President's Advisory Committee
on the Arts, Member from 1992. Mr. Butler is the former Co-Chief Executive
Officer of FoxMeyer Drug Company which, along with FoxMeyer Health Corporation
and certain other of its subsidiaries and affiliates, including Ben Franklin
Retail Stores, Inc., filed for protection under Chapter 11 of the U.S.
Bankruptcy Code on August 27, 1996.
Melvyn J. Estrin (age 56) became a Director of the Company in August
1996 and of Carson Products in June 1996. Mr. Estrin currently serves in the
following capacities for the following companies: Avatex (formerly FoxMeyer
Health Corporation), Director since 1990, Co-Chairman of the Board of Directors
from March 1991, Co-Chief Executive Officer from October 1991; Washington Gas
Light Company, Director from October 1991; Grand Banc Inc., Director from August
1993; UroHealth Systems, Inc., Director from July 1995; Phar-Mor, Inc., Director
from September 1995; Centaur Partners, L.P., Managing Partner from 1990;
University Research Corporation, Chief Executive Officer since 1978; and Estrin
International, Chairman and Chief Executive Officer since 1983. Mr. Estrin has
also served in the following capacities for the following companies and
organizations: Ben Franklin Retail Stores, Inc., Co-Chairman of the Board of
Directors from November 1991 to March 1997, Co-Chief Executive Officer from 1994
to March 1997, Director from 1991 to March 1997; University of Pennsylvania,
Trustee from 1990 to 1995; and Commissioner of the National Capital Planning
Commission, appointed by the President, from 1993 to 1995. Mr. Estrin is the
former Co-Chief Executive Officer of FoxMeyer Drug Company which, along with
FoxMeyer Health Corporation and certain other of its subsidiaries and
affiliates, including Ben Franklin Retail Stores, Inc., filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on August 27, 1996.
PROPOSAL NUMBER 2: RATIFICATION OF AUDITORS
The Board, acting upon the recommendation of the Audit Committee of the
Board, has appointed the firm of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1999. Although action by
the stockholders in this manner is not required, the Board believes that it is
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appropriate to seek stockholder ratification of this appointment in light of the
critical role played by independent auditors in maintaining the integrity of
Company financial controls and reporting.
Therefore, a proposal to ratify the appointment of the firm of Deloitte
& Touche LLP as the principal independent auditors of the Company to audit the
financial statements of the Company and its subsidiaries for the year ending
December 31, 1999 will be presented to the stockholders at the Annual Meeting.
The firm has served as the principal independent auditors for the Company since
August 1995. A representative of Deloitte & Touche LLP is expected to be present
at the Annual Meeting and available to respond to appropriate questions and,
although the firm has indicated that no statement will be made, an opportunity
for a statement will be provided.
If the stockholders do not ratify the appointment of Deloitte & Touche
LLP, the selection of independent auditors will be reconsidered by the Board of
Directors.
The Board recommends that stockholders vote FOR the proposal.
PROPOSAL NUMBER 3: ADOPTION OF THE
CARSON, INC. 1996 LONG-TERM INCENTIVE PLAN
In 1996 the Compensation Committee of the Board recommended to the Board
the adoption of the Carson, Inc. 1996 Long-Term Incentive Plan (the "Plan"),
subject to shareholder approval. The Board subsequently ratified the
Compensation Committee's recommendation and adopted the Plan, subject to (a) the
occurrence of closing of the Company's initial public offering, (b) the approval
of the Plan by the Company's Shareholders in accordance with Section 422 of the
Internal Revenue Code (the "Code"), and (c) the approval of the Plan by the
Company's shareholders following the closing of the initial public offering in
accordance with Section 162(m) of the Code and the regulations thereunder at
such time and to the extent required by Treas. Reg. Section 1.162-27. The
Company's initial public offering closed in 1996 and the Plan was approved in
accordance with Section 422 of the Code prior to such closing. The Board has now
determined to submit the Plan, as amended, to shareholders pursuant to Section
162(m) of the Code. Shareholders are now requested to approve the adoption of
the Plan.
In 1999, the Board amended the Plan, subject to shareholder approval, to
(a) increase the maximum number of shares of common stock in respect of which
awards may be granted or paid out under the Plan, subject to adjustment, by
750,000 shares from 600,000 shares to 1,350,000 shares, (b) increase the maximum
number of shares of common stock underlying an award of stock options and stock
appreciation rights ("SARs") that may be granted to all participants in the
aggregate in any calendar year by 200,000 shares, from 500,000 shares to 700,000
shares, (c) increase the maximum number of shares of common stock underlying an
award of stock options and SARs that may be granted to an individual participant
in any calendar year by 300,000 shares, from 200,000 shares to 500,000 shares
and (d) revise the effective date provision of the Plan. Shareholder approval of
the Plan will also constitute shareholder approval of the amendments described
above.
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A general description of the basic features of the Plan, as amended, is set
forth below. Such description is qualified in its entirety by reference to the
full text of the Plan, as amended, which is set forth in full as Appendix A to
this Proxy Statement.
The Board recommends that shareholders vote FOR adoption of the Carson,
Inc. 1996 Long-Term Incentive Plan.
Purpose
The purpose of the Plan is to further and promote the interests of the
Company, its Subsidiaries and its shareholders by enabling the Company and its
Subsidiaries to attract, retain and motivate employees and consultants or those
who will become employees or consultants, and to align the interests of those
individuals and the Company's stockholders. To do this, the Plan offers
performance-based incentive awards and equity-based opportunities to provide
such employees and consultants with a proprietary interest in maximizing the
growth, profitability and overall success of the Company.
Number Of Shares
The maximum number of shares of Common Stock as to which awards could
be granted may not exceed 1,350,000 shares. During any calendar year, all
participants in the aggregate may not receive an award subject to performance
criteria exceeding, in the aggregate, 300,000 underlying shares of Common Stock.
The maximum amount payable in respect of awards subject to performance criteria
in any calendar year may not exceed 500,000 shares of common stock in the
aggregate to all participants and 100,000 shares of common stock in the case of
any individual participant. The limits on the numbers of shares described in
this paragraph are subject to proportional adjustment to reflect certain stock
changes, such as stock dividends and stock splits.
If, however, any awards expire or terminate unexercised, the shares of
Common Stock allocable to the unexercised or terminated portion of such award
shall again be available for awards under the Plan to the extent of such
expiration or termination, subject to certain limitations under the Plan.
Administration
The administration, interpretation and operation of the Plan will be
vested in the Compensation Committee. Members of the Compensation Committee will
serve at the pleasure of the Company's Board of Directors, which may at any time
remove or add members to it. No member of the Compensation Committee, nor any
other director who is not a salaried employee or officer of the Company will be
eligible to receive an award under the Plan. The day-to-day administration of
the Plan will be carried out by officers and employees of the Company designated
by the Compensation Committee.
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Eligibility
All salaried employees and consultants or those who will become
salaried employees or consultants of the Company and/or its Subsidiaries are
eligible to receive awards under the Plan. Awards under the Plan will be made by
the Compensation Committee. Awards will be made pursuant to individual award
agreements between the Company and each participant.
Awards Under The Plan
Introduction. Awards under the Plan may consist of stock options, stock
appreciation rights, restricted shares or performance unit awards, each of which
is described below. All awards will be evidenced by an agreement approved by the
Compensation Committee. In the discretion of the Compensation Committee, an
eligible employee may receive awards from one or more of the categories
described below, and more than one award may be granted to an eligible employee.
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of certain stock changes, including without limitation stock
dividends and stock splits, the terms of awards and number of shares of any
outstanding award may be equitably adjusted by the Board in its sole discretion.
Stock Options and Stock Appreciation Rights. A stock option is an award
that entitles a participant to purchase shares of Common Stock at a price fixed
at the time the option is granted. Stock options granted under the Plan may be
in the form of incentive stock options (which qualify for special tax treatment)
or non-qualified stock options and may be granted alone or in addition to other
awards under the Plan. Non-qualified stock options may be granted alone or in
tandem with SARs.
SARs entitle a participant to receive, upon exercise, cash, restricted
shares or unrestricted shares of Common Stock as provided in the relevant award
agreement, with a value equal to (a) the difference between (i) the fair market
value on the exercise date of the shares with respect to which an SAR is
exercised and (ii) the fair market value on the date the SAR was granted,
multiplied by (b) the number of shares of Common Stock for which the SAR has
been exercised.
No SAR may be exercised until six months after its grant or prior to
the exercisability of the stock option with which it is granted in tandem,
whichever is later.
The exercise price and other terms and conditions of such options will
be determined by the Compensation Committee at the time of grant, and in the
case of incentive stock options, such exercise price will not be less than 100
percent of the fair market value of the Common Stock on the date of the grant.
No term of any incentive stock options shall exceed ten years after grant. An
option or SAR grant under the Plan does not provide an optionee any rights as a
shareholder and such rights will accrue only as to shares actually purchased
through the exercise of an option or the settlement of an SAR.
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Exercise of an option (or an SAR) will result in the cancellation of
the related option (or SAR) to the extent of the number of shares in respect of
which such option (or SAR) has been exercised. Unless otherwise determined by
the Compensation Committee or provided in the relevant award agreement, stock
options shall become exercisable over a three-year period from the date of grant
with 33-1/3% vesting on each anniversary of the grant in that time period.
Payment for shares issuable pursuant to the exercise of an option may
be made either in cash, by certified check, bank draft, or money order, or, if
permitted by the Compensation Committee and applicable law, by delivery of a
fully-secured promissory note, by delivery of shares of Common Stock already
owned by the participant for at least six months, or some other form of payment
acceptable to the Compensation Committee. The Compensation Committee may also
allow participants to simultaneously exercise stock options and sell the shares
of Common Stock acquired thereby, pursuant to a "cashless exercise" arrangement.
Restricted Share Awards. Restricted share awards are grants of Common
Stock made to a participant subject to conditions established by the
Compensation Committee in the relevant award agreement. The restricted shares
only become unrestricted in accordance with the conditions and vesting schedule,
if any, provided in the relevant award agreement, but in no event shall
restricted shares vest prior to six months after the date of grant. A
participant may not sell or otherwise dispose of restricted shares until the
conditions imposed by the Compensation Committee have been satisfied. Restricted
share awards under the Plan may be granted alone or in addition to any other
awards under the Plan. Restricted shares which vest will be reissued as
unrestricted Common Stock.
Each participant who receives a grant of restricted shares will have
the right to receive all dividends and vote or execute proxies for such shares,
whether or not such shares have vested. Any stock dividends will be treated as
additional restricted shares.
Performance Units. Performance units (with each unit representing a
monetary amount designated in advance by the Compensation Committee) are awards
which may be granted to participants alone or in addition to any other awards
under the Plan. Participants receiving performance unit grants will only earn
such units if the Company and/or the participant achieve certain performance
goals during a designated performance period. The Compensation Committee will
establish such performance goals and may use such measures as total shareholder
return, return on equity, net earnings growth, sales or revenue growth,
comparison to peer companies, individual or aggregate participant performance or
such other measures the Compensation Committee deems appropriate. The
participant may forfeit such units in the event the performance goals are not
met. If all or a portion of a performance unit is earned, payment of the
designated value thereof will be made in cash, in unrestricted Common Stock or
in restricted shares or in any combination thereof, as provided in the relevant
award agreement.
Forfeiture Upon Termination
Unless otherwise provided in the relevant award agreement, if a
participant's employment is terminated for any reason, any unexercisable stock
option or SAR shall be forfeited and canceled by the Company. Such participant's
right to exercise any then-exercisable stock option or SAR will terminate 90
days after the date of such termination (but not beyond the stated term of such
stock option or SAR); provided, however, the Compensation Committee may (to the
extent options were exercisable on the date of termination) extend such period.
If a participant dies, becomes totally disabled or retires, such participant (or
the estate or other legal representative of the participant), to the extent the
stock options of SARs are exercisable immediately prior to the date of death,
total disability or retirement, will be entitled to exercise any stock options
or SARs at any time within the one-year period following such death, disability
or retirement, but not beyond the stated term of such stock option or SAR.
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Unless otherwise provided in the relevant award agreement, if a
participant's employment is terminated for any reason (other than due to death,
total disability or retirement) (a) prior to the lapsing of any applicable
restriction period, or the satisfaction of any other restrictions, applicable to
any grant of restricted shares, or, (b) prior to the completion of any
performance period in respect of any grant of performance units, such restricted
shares or performance units, as the case may be, will be forfeited by such
participant; provided, however, that the Compensation Committee may, in its sole
discretion, determine within 90 days after such termination that all or a
portion of such restricted shares or performance units, as the case may be,
shall not be so forfeited. In the case of death, total disability or retirement,
the participant (or the estate or other legal representatives of the
participant) shall become 100% vested in any restricted shares as of the date of
termination or shall be entitled to earn into the participant's performance
units.
Change Of Control
If a Change of Control, as defined in the Plan, occurs (i) all Stock
Options and/or SARs then unexercised and outstanding will become fully vested
and exercisable, (ii) all restrictions, terms and conditions applicable to
restricted shares then outstanding will be deemed lapsed and satisfied and (iii)
all performance units will be deemed to have been fully earned, each as of the
date of the Change of Control; provided, however, that such Change of Control
provisions will only apply to those participants who are employed by the Company
and/or one of its Subsidiaries as of the date of the Change of Control or who
are terminated before the Change in Control and reasonably demonstrate that such
termination was in connection with or in anticipation of the Change in Control.
Amendment, Suspension Or Termination Of The Plan
The Board may amend, suspend or terminate the Plan (or any portion
thereof) at any time; provided, however, that no amendment by the Board may,
without the approval of a majority of the stockholders, (i) increase the number
of shares of Common Stock which may be issued under the Plan, except as provided
therein, (ii) materially modify the requirements as to eligibility for
participation in the Plan, (iii) materially increase the benefits accruing to
participants under the Plan except as permitted therein, provided Rule 16b-3 of
the Exchange Act does not require shareholder approval. No amendment, suspension
or termination by the Board of Directors shall (a) materially adversely affect
the rights of any participant under any outstanding share grants, without the
consent of such participant, or (b) make any change that would disqualify the
Plan from the exemption provided by Rule 16b-3 of the Exchange Act or from the
benefits or entitlements to deductions provided under Sections 422 and 162(m) of
the Internal Revenue Code of 1986 (the "Code"), respectively.
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Certain Federal Income Tax Consequences Of The Plan
Incentive Stock Options. Stock options granted under the Plan may be
incentive stock options (within the meaning of Section 422 of the Code) or
non-qualified stock options. Upon the grant of an incentive stock option, the
optionee will not recognize any income. No income is recognized by the optionee
upon the exercise of an incentive stock option if the holding period
requirements contained in the Plan and in the Code are met, including the
requirement that the optionee remain an employee of the Company (or a
subsidiary) during the period beginning with the date of the grant of the option
and ending on the day three months (one year if the optionee becomes disabled)
before the date the option is exercised. The optionee must increase his or her
alternative minimum taxable income for the taxable year in which he or she
exercised the incentive stock option by the amount that would have been ordinary
income had the option not been an incentive stock option.
Upon the subsequent disposition of shares acquired upon the exercise of
an incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the later to occur of (i) the end of the
two-year period beginning the day after the day the incentive stock option is
awarded to the optionee, or (ii) the end of the one-year period beginning on the
day after the day the shares are issued to the optionee, any gain or loss
realized upon such disposition will be long-term capital gain or loss, and the
Company (or a subsidiary) will not be entitled to any income tax deduction in
respect of the option or its exercise. For purposes of determining the amount of
such gain or loss, the optionee's tax basis in the shares will be the option
price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within (i) the two-year period beginning on the day after the day
the option was awarded to the optionee, or (ii)the one-year period beginning on
the day after the day the shares are issued to the optionee, the excess, if any,
of the amount realized (up to the fair market value of the shares on the
exercise date) over the option price will be compensation taxable to the
optionee as ordinary income, and the Company will be entitled to a deduction
(subject to the provisions of Section 162(m) of the Code discussed below under
the caption "Limits on Deductions") equal to the amount of ordinary income
realized by the optionee.
If an optionee has not remained an employee of the Company during the
period beginning with the grant of an incentive stock option and ending on the
day three months (one year if the optionee becomes disabled) before the date the
option is exercised, the exercise of such option will be treated as the exercise
of a non-qualified stock option with the tax consequences described below.
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Non-Qualified Stock Options. Upon the grant of a non-qualified stock
option, an optionee will not recognize any income. At the time a nonqualified
option is exercised, the optionee will recognize compensation taxable as
ordinary income, and the Company will be entitled to a deduction (subject to the
provisions of Section 162(m) of the Code discussed below under the caption
"Limits on Deductions"), in an amount equal to the difference between the fair
market value on the exercise date of the shares acquired pursuant to such
exercise and the option price. Upon a subsequent disposition of the shares, the
optionee will recognize long- or short-term capital gain or loss, depending upon
the holding period of the shares. For purposes of determining the amount of such
gain or loss, the optionee's tax basis in the shares will be the fair market
value of such shares on the exercise date.
Effect of Share-for-Share Exercise. If an optionee elects to tender
shares of Common Stock in partial or full payment of the option price for shares
to be acquired through the exercise of an option, generally the optionee will
not recognize any gain or loss on such tendered shares. However, if the shares
tendered in connection with any share-for-share exercise were previously
acquired upon the exercise of an incentive stock option, and such
share-for-share exercise occurs within one year after the tendered shares were
received, such disposition will be a taxable disposition with the tax
consequences described above for the taxable dispositions within one year of
shares acquired upon the exercise of an incentive stock option.
If the optionee tenders shares upon the exercise of an option which
would result in the receipt of compensation by the optionee, as described above
under the caption "Non-Qualified Stock Options", the optionee will recognize
compensation taxable as ordinary income and the Company will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under the caption "Limits on Deductions") in an amount equal only to the
fair market value of the number of shares received by the optionee upon exercise
which is in excess of the number of tendered shares, less any cash paid by the
optionee.
Restricted Shares. A participant will not recognize any income upon the
award of restricted shares unless the participant makes an election under
Section 83(b) of the Code in respect of such grant, as described below. Unless a
participant has made an election under Section 83(b) of the Code in respect of
any restricted shares, any dividends received by the participant with respect to
restricted shares prior to the date the participant recognizes income with
respect to such award (as described below) must be treated by the participant as
compensation taxable as ordinary income, and the Company will be entitled to a
deduction in an amount equal to the amount of ordinary income recognized by the
participant. After the terms and conditions applicable to the restricted shares
are satisfied, or if the participant has made an election under Section 83(b) of
the Code in respect of the restricted shares, any dividends received by the
participant in respect of such award will be treated as a dividend taxable as
ordinary income, and the Company will not be entitled to a deduction in respect
of any such dividend payment.
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At the time the terms and conditions applicable to the restricted
shares are satisfied, a participant will recognize compensation taxable as
ordinary income, and the Company will be entitled to a deduction, in an amount
equal to the then fair market value of the shares of unrestricted Common Stock
received by the participant. The participant's tax basis for any such shares of
Common Stock would be the fair market value on the date such terms and
conditions are satisfied.
A participant may irrevocably elect under Section 83(b) of the Code to
recognize compensation taxable as ordinary income, and the Company will be
entitled to a corresponding deduction, in an amount equal to the fair market
value of such restricted shares (determined without regard to any restrictions
thereon) on the date of grant. Such an election must be made by the participant
not later than 30 days after the date of grant. If such an election is made, no
income would be recognized by the participant (and the Company will not be
entitled to a corresponding deduction) at the time the applicable terms and
conditions are satisfied. The participant's tax basis for the restricted shares
received and for any shares of Common Stock subsequently held in respect thereof
would be the fair market value of the restricted shares (determined without
regard to any restrictions thereon) on the date of grant. If a participant makes
such an election and subsequently all or part of the award is forfeited, the
participant will not be entitled to a deduction as a result of such forfeiture.
The holding period for capital gain or loss purposes in respect of the
Common Stock underlying an award of restricted shares shall commence when the
terms and conditions applicable to the restricted shares are satisfied, unless
the participant makes a timely election under Section 83(b) of the Code. In such
latter case, the holding period will commence immediately after the grant of
such restricted shares.
Performance Units. A participant will not recognize any income upon the
award of a performance unit. If the performance goals applicable to the
performance units are achieved during the applicable performance period and such
performance units are earned, a participant will recognize compensation taxable
as ordinary income, and the Company will be entitled to a deduction equal to the
amount of cash or the then fair market value of unrestricted Common Stock
received by the participant in payment of the performance units. The
participant's tax basis for any such shares of Common Stock would be the fair
market value on the date such unrestricted shares are transferred to the
participant. If all or a portion of the performance units are paid in restricted
shares, see "Restricted Shares" above for a discussion of the applicable tax
treatment.
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Limits on Deductions. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of the Company in the year for which a deduction is
claimed by the Company (including its subsidiaries) is limited to $1,000,000 per
person in any year, except that compensation which is performance-based will be
excluded for purposes of calculating the amount of compensation subject to this
$1,000,000 limitation. The ability of the Company to claim a deduction for
compensation paid to any other executive officer or employee of the Company
(including its subsidiaries) is not affected by this provision.
The Company has structured the Plan so that any compensation for which
the Company may claim a deduction in connection with the exercise of
non-qualified stock options and related SARs and the disposition by an optionee
of shares acquired upon the exercise of incentive stock options will be
performance-based within the meaning of Section 162(m) of Code. Because the
restricted share awards under the Plan are not deemed to be performance-based
under Section 162(m) of the Code, amounts for which the Company may claim a
deduction upon the lapse of any restrictions on such restricted share awards
will be subject to the limitations on deductibility under Section 162(m).
Additional Information. The recognition by an employee of compensation
income with respect to a grant or an award under the Plan will be subject to
withholding for federal income and employment tax purposes. If an employee, to
the extent permitted by the terms of a grant or award under the Plan, uses
shares of Common Stock to satisfy the federal income and employment tax
withholding obligation, or any similar withholding obligation for state and
local tax obligations, the employee will recognize a capital gain or loss,
short-term or long-term, depending on the tax basis and holding period for such
shares of Common Stock.
If the provisions of the Plan relating to a change in control become
applicable, certain compensation payments or other benefits received by
"disqualified individuals" (as defined in Section 280G(c) of the Code) under the
Plan or otherwise may cause or result in "excess parachute payments" (as defined
in Section 280G(b)(I) of the Code). Section 4999 of the Code generally imposes a
20% excise tax on the amount of any such excess parachute payments received by
such a disqualified individual, and any such excess parachute payments will not
be deductible by the Company (or a subsidiary). In addition, certain
disqualified individuals may receive reimbursement payments from the Company to
eliminate the adverse effect of such 20% excise tax. Any such reimbursement
payments will be compensation income to the recipient subject to additional
income and excise taxation, but will not be deductible by the Company (or any
subsidiary).
* * * * * *
New Plan Benefits Table
The following table summarizes the stock option grants that had been
made to the named directors and executive officers of the Company under the 1996
LTIP, as of April 30, 1999. After giving effect to the amendment and accounting
for stock option grants made to other employees, 15,975 shares of Class A
Common Stock will be available for issuance under the 1996 LTIP for future
awards. All such future awards are subject to the discretion of the Compensation
Committee and, therefore, are not determinable at this time.
NEW PLAN BENEFITS
1999
- --------------------------------------------------------------------------------
Name and Position Number of Underlying Shares
Grants of Options
- --------------------------------------------------------------------------------
Dr. Leroy Keith 57,500
- --------------------------------------------------------------------------------
Gregory J. Andrews 300,000
- --------------------------------------------------------------------------------
Malcolm R. Yesner 529,000
- --------------------------------------------------------------------------------
Robert W. Pierce 160,000
- --------------------------------------------------------------------------------
Donald N. Riley 77,500
- --------------------------------------------------------------------------------
Richard A. Bozzell 79,500
- --------------------------------------------------------------------------------
Executive Group 1,231,000
- --------------------------------------------------------------------------------
Non-Executive Director Group 80,000
- --------------------------------------------------------------------------------
Non-Executive Officer Employee Group 39,000
- --------------------------------------------------------------------------------
20
<PAGE>
Stock Price
At April 23, 1999, the total number of outstanding shares of Common
Stock was 15,120,862 shares. The closing price of the Common Stock on the New
York Stock Exchange on April 23, 1999, was $3.4375 per share.
Effective Date
The Plan was effective on August 14, 1996, the date of its adoption by
the Board of Directors, subject to shareholder approval. The Plan will terminate
on December 31, 2006, except with respect to awards then outstanding. After such
date no further awards will be granted under the Plan unless the Plan is
extended by the Board.
Approval Of The Carson, Inc. 1996 Long-Term Incentive Plan
To satisfy the requirements for performance based compensation pursuant
to Section 162(m) of the Code, the Carson, Inc. 1996 Long-Term Incentive Plan
must be approved by the affirmative vote of a majority of the votes cast at the
Annual Meeting on this proposal by the holders of the shares of Common Stock
entitled to vote thereat.
The Board of Directors recommends that the stockholders vote FOR
approval of this proposal. If not otherwise specified, proxies will be voted FOR
approval.
OTHER BUSINESS
The directors know of no other matters to be brought before the Annual
Meeting. However, if any other proper matters are brought before the Annual
Meeting, the persons named as proxies in the enclosed proxy card will vote in
accordance with their judgment on such matters.
21
<PAGE>
INFORMATION REGARDING DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
Executive Officers
The following table shows certain information as of April 30, 1999
concerning each person deemed to be an executive officer of the Company, except
those persons also serving as directors. Each executive officer is elected by
the Board or the Company's subsidiaries annually and serves at the pleasure of
the Board. Except as indicated under "COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS - Employment Agreements", there are no
arrangements or understandings between any executive officer and any other
person pursuant to which the officer was elected.
Principal Occupation
and Business Experience
Name Age for the Past Five Years
Robert W. Pierce, Jr. 56 Executive Vice President and Chief
Financial Officer of the Company since
May 1997; Executive Vice President,
Chief Financial Officer and Treasurer
of Maybelline, Inc. from 1990 to May
1997.
Donald N. Riley 50 Executive Vice President of Operations
of the Company since January 1999;
Senior Vice President of Operations,
Carson Products since August 1997;
Director of Engineering, Maybelline
from January 1997 to August 1997;
Regional Operations Director/Plant
Manager, Suzhou China, Maybelline from
1995 to 1997; Director of Quality
Assurance-Worldwide, Maybelline from
1992 to 1995.
Aurelia Waldon 52 Vice President, Sales of the Company
since June 1998; Caribbean Divisional
Director of Sales for the Company from
December 1995 to June 1998; District
Manager for the Company from December
1994 to December 1995.
22
<PAGE>
Name Age Principal Occupation
and Business Experience
for the Past Five Years
Richard A. Bozzell 53 Senior Vice President, Finance of the
Company since July 1997; Executive Vice
President and General Manager, Yardley
of London from 1996 to July 1997;
Vice President of Finance, Maybelline
from 1992 to 1996; Vice President/
Controller, Maybelline from 1990 to
1992.
Sylvia Ervin 54 Vice President, Human Resources of the
Company since December 1998; President,
SEI Consulting Group from 1995 to 1998;
President, Servin Enterprises, Inc.
and Servin Company, Inc. from 1991 to
present; Director, Executive Education
and Development, Xerox Corporation from
1987 to 1991.
Meetings and Committees of the Board of Directors
Board Meetings
During the twelve months ended December 31, 1998, there were seven
meetings held by the Board. During 1998, one meeting of the Audit Committee, one
meeting of the Compensation Committee, and 12 meetings of the Executive
Committee were held. In 1998, all of the directors, except for James L. Hudson
and Jack Kemp participated in at least 75% of the meetings of the Board and the
committees of the Board on which they served.
Board Committees
The Board has three committees - the Audit Committee, the Compensation
Committee and the Executive Committee of the Board.
The Audit Committee members are Abbey J. Butler and John L. Sabre. The
Audit Committee, among other things, makes recommendations to the Board
regarding the independent auditors to be nominated for ratification by
stockholders, reviews the services rendered by such auditors and the related
fees charged, reviews with such auditors the scope of the annual audit and the
results thereof, and makes recommendations to the Board regarding the same,
assists the Board in fulfilling its responsibilities relating to the Company's
accounting, financial reporting and internal auditing policies and procedures,
and assists the Board and makes recommendations with respect to the Company's
budgets and long-range financial planning.
23
<PAGE>
The Compensation Committee members are Abbey J. Butler and John L.
Sabre. The Compensation Committee is responsible for all aspects of the
Company's executive compensation policies. Beginning in 1998, the Compensation
Committee also assumed responsibility for administration of the Company's 1996
Long-Term Incentive Plan (the "1996 LTIP"), formerly administered by the
Company's Stock Plan Committee. See "COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS - Compensation Committee Report on Executive
Compensation".
The Executive Committee members are Leroy Keith, Lawrence E. Bathgate,
Abbey J. Butler, John L. Sabre and Vincent A. Wasik. Mr. Wasik is the Chairman
of the Executive Committee. The Executive Committee has the authority to
exercise all the powers of the full Board of Directors with respect to the
management of the business of the Company, except the power to fill vacancies in
the Board and the power to amend the Company's Restated Bylaws.
24
<PAGE>
COMPENSATION AND OTHER TRANSACTIONS
WITH EXECUTIVE OFFICERS AND DIRECTORS
Executive Officer Compensation
Summary Compensation Table
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer, the four other most highly
compensated current executive officers (which includes the Chairman of the
Board) and two former executive officers (who would have been among the most
highly compensated officers) of the Company (the "named executive officers") for
services rendered in all capacities to the Company (including its subsidiaries)
for the fiscal year ended December 31, 1998, for the fiscal year ended December
31, 1997 and the period from April 1, 1996 to December 31, 1996. Effective
December 31, 1996 the Company changed its fiscal year end from March 31 to
December 31.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long-term
Annual Compensation Compensation Awards
-------------------------------------------- -------------------------------------
Securities
Restricted Underlying
Other Stock Options
Name and Principal Position Fiscal Period Salary($) Bonus($) Annual Awards (#) of Shares
- ----------------------------- ------------------- --------- --------- Compensation ---------- ------------
(h)
------------
Leroy Keith(a) 1/01/98 - 12/31/98 420,000 16,493 0
Former Chief Executive 1/01/97 - 12/31/97 385,000 18,120 50,000
Officer 4/01/96 - 12/31/96 199,449 56,875 14,659 7,500
Gregory J. Andrews(b) 6/30/98 - 12/31/98 144,231 450,000 34,470 300,000
Former President and Chief
Executive Officer
Malcolm R. Yesner(c) 01/01/98 - 12/31/98 228,000 100,000 0 79,000
President - International 01/01/97 - 12/31/97 137,000 100,000
Operations 04/01/96 - 12/31/96 104,000
Robert W. Pierce(d) 1/01/98 - 12/31/98 250,000 50,000 10,515 60,000
Executive Vice President, 1/01/97 - 12/31/97 165,384 50,000 1,233 100,000
and Chief Financial
Officer
Donald N. Riley 1/01/98 - 12/31/98 142,308 30,000 27,568 52,500
Executive Vice President, 1/01/97 - 12/31/97 38,462 10,000 2,178 25,000
Operations
Richard A. Bozzell 1/01/98 - 12/31/98 150,000 22,500 2,775
Senior Vice President, 1/01/97 - 12/31/97 69,231 25,000 528
Finance
Dennis E. Smith(e) 1/01/98 - 12/31/98 415,118 20,288 18,731 0
Former Executive Vice 1/01/97 - 12/31/97 202,323 3,968 10,452 37,000(g)
President, Sales 4/01/96 - 12/31/96 146,136 83,900 10,577 4,000(g)
Joyce M. Roche(f) 1/01/98 - 12/31/98 285,000 40,576 38,737 0
Former President and Chief 1/01/97 - 12/31/97 260,000 7,936 29,404 40,000(g)
Operating Officer 4/01/96 - 12/31/96 133,516 35,000 11,904 6,000(g)
</TABLE>
- ---------------------
(a) Dr. Keith resigned his position as Chief Executive Officer on June 4, 1998
but retained his position as non-executive chairman of the board. Vincent
A. Wasik, a Director and Chairman of the Executive Committee of the
Company, served without compensation as Acting Chief Executive Officer
from June 4, 1998 until the appointment of Gregory J. Andrews to the
position of Chief Executive Officer on June 30, 1998.
25
<PAGE>
(b) Mr. Andrews became President and Chief Executive Officer of Carson Products
and the Company on June 30, 1998. Mr. Andrews passed away on February 21,
1999.
(c) Mr. Yesner became President and Chief Executive Officer of the Company on
March 2, 1999. Since April 1998, he has also served as President -
International Operations of the Company. From 1992 to 1998, Mr. Yesner
served as Managing Director of Carson South Africa.
(d) Mr. Pierce became an executive officer of Carson Products and the Company on
May 9, 1997.
(e) Mr. Smith resigned his position as Executive Vice President - Sales,
effective June 3, 1998.
(f) Ms. Roche resigned her position as President and Chief Operating Officer of
the Company, effective September 16, 1998.
(g) Mr. Smith and Ms. Roche forfeited their awards of stock options upon
resignation from the Company.
(h) Except where otherwise noted, all other compensation for 1998 includes Long
Term Disability in the amount of $525.00 for Dr. Keith, $262.50 for Mr.
Andrews, $525.00 for Mr. Pierce, $525.00 for Mr. Riley and $525.00 for Ms.
Roche. It also includes a car allowance of $11,723 for Dr. Keith, $7,012
for Mr. Andrews, $8,380 for Mr. Pierce, $6,000 for Mr. Riley, $6,750 for Ms.
Roche and $3,000 for Mr. Smith. Also included is Excess Life Insurance of
$4,245 for Dr. Keith and $8,150 for Mr. Andrews. In addition, other
compensation includes relocation expenses of $10,400 and tuition of $8,645
for Mr. Andrews; relocation expenses of $1,610 for Mr. Pierce; relocation
expenses of $21,043 for Mr. Riley; and, imputed interest of $31,462 for Ms.
Roche and imputed interest of $15,731 for Mr. Smith.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the grant of
options to purchase stock to each of the named executive officers during the
fiscal year ended December 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------------------------------------------------------ --------------------
Number of Percent of Total
Securities Options Granted to
Underlying Options Employees in Exercise or
Granted (#) (a) Fiscal Year Base Price ($/Sh) Expiration Date 5% ($) 10% ($)
------------------- -------------------- -------------------- ------------------- ---------- ----------
Name
Dr. Leroy Keith (a) 0 - - - -
Gregory J. Andrews 300,000 (b) 48.3% $2.469 2/22/00 37,035 74,070
Malcolm R. Yesner 25,000 (c) 12.1% $8.75 4/20/08 137,571 348,631
50,000 (c) $2.469 11/09/08 77,637 196,747
Robert W. Pierce 10,000 (d) 8.4% $8.75 4/20/08 55,028 139,452
50,000 (d) $2.469 11/09/08 77,637 196,747
Donald N. Riley 2,500 (e) 9.7% $8.75 4/20/08 13,757 34,863
50,000 (e) $2.469 11/09/08 77,637 196,747
Richard A. Bozzell 45,000 (f) 4.7% $8.75 4/20/08 24,763 62,954
25,000 (f) $2.469 11/09/08 38,819 98,374
Dennis E. Smith 0 0 0 0 - -
Joyce M. Roche 0 0 0 0 - -
</TABLE>
- ---------------------
(a) No options received during 1998.
(b) Options to purchase 300,000 shares of Class A Common Stock were to vest on
each of November 9, 1999, November 9, 2000 and November 9, 2001. However,
as a result of Mr. Andrews' death on February 21, 1999, the options to
purchase all 300,000 shares vested and became exercisable on such date.
Pursuant to the terms of the 1996 LTIP, these options remain exercisable
until February 21, 2000.
(c) Options to purchase 25,000 shares of Class A Common Stock to vest in thirds
on each of April 20, 1999, April 20, 2000 and April 20; options to purchase
50,000 shares to vest in thirds on November 9, 1999, November 9, 2000 and
November 9, 2001.
(d) Options to purchase 10,000 shares of Class A Common Stock to vest in thirds
on each of April 20, 1999, April 20, 2000 and April 20, 2001. Options to
purchase 50,000 shares of Class A Common Stock to vest in thirds on each of
November 9, 1999, November 9, 2000 and November 9, 2001.
(e) Options to purchase 2,500 shares of Class A Common Stock to vest in thirds
on each of April 20, 1999, April 20, 2000 and April 20, 2001.
(f) Options to purchase 4,500 shares of Class A Common Stock to vest in thirds
on each of April 20, 1999, April 20, 2000 and April 20, 2001. Options to
purchase 25,000 shares of Class A Common Stock to vest in thirds on each of
November 9, 1999, November 9,2000 and November 9, 2001.
26
<PAGE>
Option/SAR Exercises and Holdings
The options listed in the table above were outstanding at December 31,
1998 and no options or stock appreciation rights (SARs) were exercised by the
named executive officers during the fiscal year ended December 31, 1998. The
total number of exercisable and unexercisable options held by the named
executive officers at December 31, 1998 was as follows:
-----------------------------------------------------
Total Number of Number of Number of
Securities Exercisable Unexercisable
Underlying Securities Securities
Options Underlying Underlying
Granted (#) Options Granted Options Granted
---------------- ----------------- ----------------
Name
----
Dr. Leroy Keith 57,500 0 57,500
Gregory J. Andrews 300,000 300,000 0
Malcolm R. Yesner 79,000 11,000 68,000
Robert W. Pierce 160,000 86,666 73,334
Donald N. Riley 77,500 9,167 68,333
Richard A. Bozzell 79,500 18,167 61,333
Dennis E. Smith(a) 0 0 0
Joyce Roche(b) 0 0 0
Long Term Incentive Plans
The options listed in the tables above were granted pursuant to the
Company's 1996 LTIP. No other long-term incentive awards were granted to the
named executive officers during the fiscal year ended December 31, 1998.
A full description of the 1996 LTIP is included under Proposal Number 3
beginning on page 12.
Employment Agreements
During 1998, Carson Products entered into an employment agreement with
Mr. Andrews and remained a party to existing employment agreements with Mr.
Pierce and Mr. Riley. Also in 1998, Carson, Inc. entered into an employment
agreement with Mr. Yesner as President - International Operations of Carson,
Inc. In 1999, in connection with the death of Mr. Andrews (as discussed below),
Carson, Inc. entered into an additional agreement with Mr. Yesner reflecting his
promotion to President and Chief Executive Officer of Carson, Inc. and Carson
- ---------------------------
(a) Mr. Smith forfeited all outstanding options received following his
resignation from the Company.
(b) Ms. Roche forfeited all outstanding options received following her
resignation from the Company.
27
<PAGE>
Products. These agreements contain the terms discussed below (the "Employment
Agreements"). Mr. Andrew's term of employment was to expire on December 31,
2000. In respect of his agreement to provide services as President -
International Operations of Carson, Inc., Mr. Yesner's term of employment
expires on December 31, 2001. The agreement entered into with Mr. Yesner in
1999 is terminable at the will of either Carson, Inc. or Carson Products. The
Employment Agreements for Mr. Pierce and Mr. Riley provide for a term of
employment expiring on May 9, 2000 and September 8, 2000, respectively. The
Employment Agreement for Dr. Keith negotiated in 1995 provided for a term of
employment expiring on October 18, 1999. Dr. Keith voluntarily terminated
his employment as Chief Executive Officer on June 4, 1998, but continues to
serve as Chairman of the Board.
Under the Employment Agreements, the annual base salary amounts for
Mr. Andrews, Mr. Yesner, Mr. Pierce and Mr. Riley are $300,000, $375,000 (both
agreements), $250,000, and $182,000, respectively. Pursuant to the Employment
Agreements, Mr. Pierce and Mr. Riley are entitled to annual bonuses determined
under a formula based on specified net revenue growth, net income, earnings per
share and/or stock price growth. Mr. Yesner is entitled to a target annual
bonus, determined in the sole discretion of the Board, of up to 40% of his base
salary, in respect of his services as President - International Operations, and
a further discretionary annual bonus, determined in the sole discretion of the
Board of Directors of Carson Products, in respect of his services as President
and Chief Executive Officer of Carson, Inc. and Carson Products. In addition to
such base salary and annual bonuses, the Employment Agreements provide for
eligibility in any pension and welfare benefit plans (other than certain profit
sharing plans) maintained by Carson Products (Carson, Inc. in the case of Mr.
Yesner), a monthly automobile allowance for Mr. Pierce and Mr. Riley equal to
$500 and $500, respectively, and such other fringe benefits generally provided
by Carson Products (Carson, Inc. in the case of Mr. Yesner), to its employees.
The Employment Agreements provide for certain benefits to each
individual upon a termination of his employment during the term of his
Employment Agreement. If the employment of any of the above named executive
officers is terminated for "Cause" (as defined in the Employment Agreements)
or if such individual voluntarily terminates employment without "Good Reason"
(as defined in the Employment Agreements), such officers will only be entitled
to any unpaid base salary amounts through and including the date of termination
and any prior year's annual bonus which has been awarded, but not yet paid as
of such date of termination.
If Carson Products terminates the employment of Mr. Riley without
Cause, such officer will be entitled to receive a lump sum severance payment
equal to 150% of his base annual salary within 15 days of the date of such
termination. If Carson, Inc. terminates the employment of Mr. Yesner without
Cause, he shall be entitled to base salary continuation at the rate in effect
on the date of termination, for an 18 month period commencing on such date of
termination. If Mr. Pierce's employment is terminated without Cause, Carson
Products shall pay him a lump sum payment equal to any unpaid base salary
through and including the date of his termination without Cause.
Dr. Keith voluntarily terminated his employment with Carson Products
for Good Reason on June 4, 1998. Upon such a termination for Good Reason, Dr.
Keith was entitled to receive severance pay equal to 200% of his annual base
salary(payable in one lump sum). On or around February 5, 1999, Dr. Keith
received one half of his severance payment. Dr. Keith will receive the second
half of his severance payment and certain other benefits through the end of
1999.
28
<PAGE>
In the event of the termination of employment of Mr. Pierce or Mr.
Riley upon death or "Disability," as defined in the Employment Agreements,
the respective individual will be entitled to receive 150% of his annual base
salary (payable in one lump sum). In the event of Mr. Yesner's termination of
employment upon his death or Disability, Mr. Yesner will be entitled to base
salary continuation for a one month period commencing on the date of such
termination.
Mr. Yesner, Mr. Pierce and Mr. Riley are also entitled to termination
benefits if their employment is terminated by Carson Products (Carson, Inc. in
the case of Mr. Yesner) without Cause or by such individual with Good Reason
following a "Change in Control" (as defined in the Employment Agreements). Upon
such a termination following a Change in Control, Mr. Yesner shall be entitled
to a lump sum payment equal to three times the sum of (i) the highest base
salary paid or payable to Mr. Yesner during the twelve month period immediately
preceding the month in which the Change in Control occurs, and (ii) an amount
equal to Mr. Yesner's base salary for the year in which a Change in Control
occurs. Upon such a termination of Mr. Pierce or Mr. Riley following a Change in
Control, Mr. Pierce or Mr. Riley shall be entitled to a lump sum payment equal
to one and one-half times the sum of (i) the highest base salary paid or payable
to such individual during the twelve month period immediately preceding the
month in which the Change in Control occurs, and (ii) an amount equal to 50% of
such individual's base salary for the year in which a Change in Control occurs.
In addition, Mr. Yesner may voluntarily terminate his employment on, or within
one year after, the occurrence of a Change in Control and upon such voluntary
termination, shall be entitled to a lump sum equal to three times the sum of (i)
the highest base salary paid or payable to Mr. Yesner during the twelve month
period immediately preceding the month in which the Change in Control occurs,
and (ii) an amount equal to Mr. Yesner's base salary for the year in which the
Change of Control occurs.
Pursuant to Dr. Keith's Employment Agreement, the Company issued him
341,100 shares of the Class C Common Stock in August 1995, which represented at
the time of issuance 3% of the Company's then outstanding common stock. These
shares were issued in consideration for securing the Aminco Acquisition. These
shares were transferred immediately after issuance to DNL Partners, as trustee
under the Voting Trust. On November 11, 1998, upon dissolution of the Voting
Trust, the 341,100 shares of Class C Common Stock were transferred to Dr.
Keith's individual ownership.
The Employment Agreements also provide that, Mr. Yesner, Mr. Pierce and
Mr. Riley, while employed by Carson Products (Carson, Inc. in the case of Mr.
Yesner), and in the case of Mr. Yesner, for 18 months following the date of his
termination of employment, and in the case of Mr. Pierce and Mr. Riley, during
the period in which Mr. Pierce or Mr. Riley, respectively, is receiving payments
of Base Salary (as defined in the Employment Agreements) from Carson Products
(regardless as to whether Mr. Pierce or Mr. Riley, respectively, is employed by
Carson Products), may not directly or indirectly (i) own, operate, represent,
promote, consult for, control or participate in the ownership, operation,
acquisition or management of any business manufacturing and/or distributing
ethnic hair care products or cosmetics within a 500-mile radius of Carson
Products' headquarters, (ii) solicit (other than on behalf of Carson Products
or any of its affiliates), divert or take away the business of any customers
of Carson Products or any of its affiliates, or any prospective customers
of Carson Products or any of its affiliates whose business Carson Products
or any of its affiliates actively solicits during such officer's employment
29
<PAGE>
with Carson Products, or (iii) solicit or induce any employee of Carson Products
or any of its affiliates to terminate such employee's employment with Carson
Products or such affiliates. With respect to Mr. Yesner, these provisions
extend to both the United States and Africa.
Mr. Andrews passed away on February 21, 1999. The Employment Agreement
between Carson Products and Mr. Andrews provides for certain benefits upon a
termination of Mr. Andrew's employment upon his death. Specifically, Mr.
Andrew's Employment Agreement provides for base salary continuation for a one
month period commencing on the date of such termination. In addition, Mr.
Andrew's Employment Agreement entitled him to life insurance coverage at the
expense of Carson Products, with a death benefit equal to $5,000,000.
As an inducement to Mr. Andrew's agreement to serve as CEO of Carson
Products, Carson Products recognized that its compensation of Mr. Andrews had to
take into account the value of Mr. Andrew's option rights to acquire common
stock of Colgate-Palmolive and shares of restricted stock of Colgate-Palmolive,
which Mr. Andrews forfeited as a result of his leaving Colgate-Palmolive to join
Carson Products. Concurrently with the execution of Mr. Andrew's Employment
Agreement, Carson Products entered into a Stock Appreciation Units and Phantom
Stock Agreement with Mr. Andrews (the "SAR Agreement"). Pursuant to the SAR
Agreement, Carson Products granted to Mr. Andrews stock appreciation right
units (the "Units") and phantom stock (the "Phantom Shares"). When exercisable,
each Unit entitles Mr. Andrews (or his estate) to an amount equal to the current
market price per share of Colgate-Palmolive common stock on the date such Unit
is exercised, less the base value of the Unit, as noted in the SAR Agreement.
Upon settlement and redemption, a Phantom Share entitles Mr. Andrews (or his
estate) to an amount equal to the then current value of one share of
Colgate-Palmolive common stock. The Units and Phantom Shares were to vest and
become exercisable over Mr. Andrew's term of employment with Carson Products.
Mr. Andrews was initially granted a total of 11,534 Units. Under the terms of
the SAR Agreement, 2,000 Units with a base value of $34.3438 per unit, 2,467
Units with a base value of $40.625 per unit and 1,533 Units with a base value of
$62.1563 per unit were exercisable at the time of Mr. Andrews' death.
Pursuant to the SAR Agreement, Units, to the extent exercisable as of the
date of Mr. Andrews' termination of employment due to his death, remain
exercisable for one year after the date of Mr. Andrews' termination. Mr.
Andrews was initially granted a total of 2,861 Phantom Shares; 586 of these
Phantom Shares had a settlement date of March 14, 1999, 644 Phantom Shares had
a settlement date on March 6, 2000, 1,000 Phantom Shares had a settlement date
of May 1, 2000 and the remaining 631 Phantom Shares had a settlement date of
March 5, 2001. Pursuant to the SAR Agreement, all of the Phantom Shares
awarded to Mr. Andrews remain subject to settlement on the dates indicated
above.
Compensation of Directors
During November 1998, the Board amended and restated the 1996
Non-Employee Directors Equity Incentive Program (the "Outside Directors
Program"). The Outside Directors Program was initially approved by the Board in
1996. The Outside Directors Program is designed to attract, retain and motivate
individuals who the Company believes are capable of making significant
contributions to the Board and the Company generally, and to align their
interests with those of the shareholders.
30
<PAGE>
The Outside Directors Program authorizes the issuance of up to 400,000
shares of the Class A Common Stock, subject to adjustment in certain
circumstances. Prior to the amendment and restatement of the Outside Directors
Program, each non-employee director received, immediately following each annual
meeting of the Company's stockholders (i) a number of shares, subject to certain
forfeiture restrictions, of the Class A Common Stock (the "Outside Director
Restricted Shares") equal to the quotient resulting when $25,000 is divided by
the average fair market value of the Class A Common Stock for the five trading
days preceding such annual meeting (the "Trading Period") and (ii) an option to
acquire 5,000 shares of the Class A Common Stock with an exercise price equal to
the average fair market value of the Class A Common Stock for the Trading Period
(the "Outside Director Options").
The amended and restated Outside Directors Program is effective for
1998 and thereafter. Pursuant to the Outside Directors Program, as amended and
restated, the Board has sole discretion to grant options to non-employee
directors in such amounts and subject to such restrictions, terms and conditions
as it shall deem appropriate. In addition, immediately following each annual
meeting of the Company's stockholders occurring after January 1, 1999, each
non-employee director serving on the Audit, Compensation and/or Executive
Committees of the Board shall automatically be granted Outside Director
Restricted Shares. Each non-employee director serving on the Audit Committee
shall receive an award of 3,500 Outside Director Restricted Shares. Each
non-employee director serving on the Compensation Committee shall receive an
award of 3,500 Outside Director Restricted Shares. Each non-employee director
serving on the Executive Committee shall receive 5,000 Outside Director
Restricted Shares. A non-employee director serving on more than one Committee of
the Board shall receive an award of Outside Director Restricted Shares with
respect to his service on each such Committee. In addition, the Board shall have
discretion to grant additional Outside Director Restricted Shares to
non-employee directors, subject to such restrictions, terms and conditions as
the Board shall deem appropriate.
The Outside Director Restricted Shares vest and become non-forfeitable
as to one-third of the aggregate shares granted on each of the next succeeding
three anniversaries of the date of grant of such Restricted Shares. If a
non-employee director resigns voluntarily from the Board or is removed therefrom
with "cause" (as defined in the Outside Directors Program), the unvested Outside
Director Restricted Shares held by such non-employee director will be
immediately forfeited and automatically cancelled by the Company.
The Outside Director Options become exercisable on the first
anniversary of the date of grant of any such option and expire on the tenth
anniversary of such date (if any such option is not exercised prior thereto by
the non-employee director grantee). If a non-employee director resigns
voluntarily from the Board or is removed therefrom for cause, the Outside
Director Options held by such director, if then unexercisable, will be
immediately forfeited by such director and automatically cancelled by the
Company or, if then exercisable, must be exercised by such non-employee director
within 90 days after any such resignation or removal.
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The Outside Directors Program is administered by a duly appointed
committee of the Board of Directors. The committee has the full and final
authority to interpret the Outside Directors Program and to adopt and amend such
rules and regulations for the administration of the Outside Directors Program as
the committee may deem desirable. In addition, the Board has the right to amend
or terminate the Outside Directors Program, subject to certain restrictions set
forth therein.
Compensation Committee Interlocks and Insider Participation
Dr. Leroy Keith, who served as the Chairman of the Board of the Company for all
of 1998 and as Chief Executive Officer of the Company until June 4, 1998, was
also a Director of AM Cosmetics, of which Lawrence E. Bathgate, II, a Director
of the Company, was Chairman of the Board.
Compensation Committee Report on Executive Compensation
The Company's executive compensation program has as its foundation the
following objectives:
o Maintaining a total compensation program consisting of base
salary, performance incentives and benefits designed to support
the corporate goal of providing superior value to our stockholders
and customers;
o Providing compensatory programs which serve to facilitate the
recruitment, retention and motivation of qualified executives; and
o Rewarding key executives for achieving financial, operating and
individual objectives that produce a corresponding and direct
return to the Company's stockholders in both the long-term and the
short-term.
The Company's Compensation Committee consists of Abbey J. Butler and
John L. Sabre, both of whom are outside, non-employee members of the Company's
Board. The Compensation Committee is responsible for all aspects of the
Company's executive compensation policies, including the administration of the
Company's 1996 LTIP.
Philosophy and Objectives
The Company's compensation philosophy and programs are structured to
tie executives' total compensation to the overall performance of the Company. A
secondary objective of the Company's compensation philosophy is to provide an
incentive for executives, and to motivate them to strive for sustainable growth
in earnings, market share, operating profits (or EBITDA), industry leadership,
global expansion, and shareholder value. In addition, the Company's compensation
packages for its executives are designed to attract and retain highly talented
managers and leaders for the positions that the Board has deemed essential to
the Company's long-term success-defined as five years or longer.
32
<PAGE>
Each year, the Compensation Committee will conduct a comprehensive
review of the Company's executive compensation programs. The Compensation
Committee may be assisted in these efforts by an independent consultant and/or
by the Company's internal staff, who provide the Compensation Committee with
relevant information and recommendations regarding compensation policies,
programs and specific compensation practices. This review is designed to ensure
proper programs are in place to enable the Company to achieve its strategic and
operating objectives, provide superior value to its stockholders and customers,
and to document the Company's relative competitive position.
To maintain competitive, comprehensive compensation, the Compensation
Committee will review a comparison of the Company's compensation program with
those offered by comparable companies within relevant industries. For each
component of compensation (as well as total compensation), the Compensation
Committee may seek to ensure that the Company's level of compensation for
expected levels of performance approximates the average for executive officers
in similar positions at comparable companies. Performance above or below
expected levels may be reflected in a corresponding increase or reduction in
certain portions of the Company's overall compensation program.
In accordance with the philosophy described in the preceding
paragraphs, the Compensation Committee has determined that each executive should
receive a portion of her/his compensation in a base salary and a portion should
be awarded on the basis of achievements as measured against the targets
presented above. In setting and adjusting both base salaries and incentive
awards, the Compensation Committee may take into consideration comparability
indices for executives both within the Company's industrial sector and the
prevailing responsibilities for business executives having similar roles and
responsibilities in an expanded context.
The Compensation Committee is mindful that, while every effort will be
made to recognize and evaluate the performance of the Company's senior
management, this process cannot be determined by the exclusive use of a
predetermined formula. The Compensation Committee, therefore, believes that it
must also use judgment and discretion in recognizing and rewarding specific
persons whose individual talents and contributions have benefited the Company
and its shareholders outside of, or in addition, to the Company's financial
performance.
The Company's executive compensation program includes several
components serving long and short-term objectives and taking advantage of
several federal income tax incentives which are not directly performance-based.
In addition, the Company maintains for each of its executive officers a package
of benefits under its pension and welfare benefit plans that is generally
provided to all employees, including a group health insurance plan.
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<PAGE>
Long-Term Incentive Stock Options
The Compensation Committee rewards long-term performance with awards
made pursuant to the 1996 LTIP. The Compensation Committee selects the form and
amount of long-term awards based upon its evaluation of which vehicles are best
positioned to serve as effective incentives for long-term performance. Grants of
stock options under the 1996 LTIP are intended to motivate the Company's
executives to focus on increasing the stock price over a period greater than one
year. The Compensation Committee is mindful that the Company's historical record
as a publicly traded company is limited by virtue of the relatively brief period
in which it has been listed on the New York Stock Exchange; nonetheless, in the
absence of a five-year historical base, the long-term incentive stock options
should, for the immediate future (defined as the twelve-month period ending
December 31, 1999), be tied to specific share price increases.
Tax Considerations
Section 162(m) of the Internal Revenue Code, as amended, generally
limits the Company's federal income tax deduction for compensation paid in any
taxable year to any one of the five highest paid executive officers named in the
Company's Proxy Statement to $1.0 million. The limit does not apply to specified
types of exempt compensation, including payments that are not included in the
employee's gross income, payments made to or from a tax-qualified plan and
compensation that qualifies as performance-based compensation. Under the tax
law, the amount of a performance-based award must be based entirely on an
objective formula, without any subjective consideration of individual
performance.
The Compensation Committee has carefully considered the impact of this
law. At this time, the Compensation Committee believes it is in the Company's
and stockholders' best interests to retain the subjective determination of
individual performance and compensation levels. Consequently, some payments to
the Company's named executive officers could be subject to the limitation
imposed by the Code section 162(m). Options granted under the 1996 LTIP are
designed to qualify as exempt performance-based compensation.
Rationale for CEO Compensation
In 1998, Mr. Andrews' compensation was determined as described above
and is generally consistent with all of the Company's executive officers.
In 1999, the Compensation Committee will base its subjective decisions
regarding Mr. Yesner's annual base salary on Mr. Yesner's role in advancing
important corporate initiatives designed to enhance the Company's performance
and position as a leading manufacturer and marketer of ethnic hair care
products. In addition, as a part of its overall annual review of executive
compensation, the Compensation Committee will review Mr. Yesner's base salary
based on market information for similar positions as well as changes in the
salaries of chief executive officers at companies comparable to the Company.
To recognize sustained long-term performance, on November 9, 1998 the
Compensation Committee granted Mr. Andrews an option to acquire 300,000 shares
of Class A Common Stock having an exercise price per share equal to $2.469.
Compensation Committee
Abbey J. Butler
John L. Sabre
34
<PAGE>
PERFORMANCE GRAPH
The following graph compares (i) the cumulative total stockholder
return on the Class A Common Stock with (ii) the cumulative return of the
Russell 2000 Stock Index ("Russell 2000") and a peer group. The graph assumes
that the value of an investment in the Common Stock and in each index was $100
on October 15, 1996, and that all dividends were reinvested.
The Russell 2000 and the peer group are market-capitalization weighted.
The peer group is comprised of 25 consumer product manufacturers, including
the following publicly traded companies: Adrien Arpel, Inc., Advantage Life
Products, Inc., Alberto-Culver Company, Inc., American Safety Razor Company,
Applewoods, Inc., Avon Products, Inc., Beauticontrol Cosmetics, Inc., Carson,
Inc., CCA Industries, Inc., Chromatics Color Sciences International Inc., Del
Laboratories Inc., Dial Corporation New, French Fragrances Inc., Gillette
Company, Guest Supply, Inc., Human Pheromone Sciences, Inc., Jean Philippe
Fragrances Inc., Lauder Estee Cosmetics, Inc., Nutramax Products, Inc., Parlux
Fragrances Inc., Revlon, Inc., Stephan Co., Styling Technology Corp., Tristar
Corporation, Zegarelli Group International, Inc.
Performance Graph
Measurement Period Company Russell 2000 Index Peer Group
10/15/96 100 100 100
12/31/96 91 107 106
12/31/97 44 131 133
12/31/98 26 130 143
35
<PAGE>
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals by stockholders of the Company intended to be presented at
the 2000 Annual Meeting of Stockholders must be received by the Secretary of the
Company at its principal executive office, no later than January 2, 2000 to be
eligible for inclusion in the Company's Proxy Statement and proxy relating to
that meeting.
According to the Company's Restated Bylaws, for a proposal for action
to be properly presented by any stockholder at an annual meeting, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Company at its principal executive offices not less than sixty (60) days nor
more than ninety (90) days prior to the first anniversary of the preceding
year's annual meeting.
MISCELLANEOUS INFORMATION
The cost of this solicitation of proxies will be borne by the Company.
The Company will request certain banking institutions, brokerage firms,
custodians, trustees, nominees, and fiduciaries to forward solicitation material
to the beneficial owners of shares of the Company held of record by such
persons, and the Company will reimburse reasonable forwarding expenses. Regular
employees of the Company may solicit proxies personally or by mail, telephone or
telegraph. In addition, the Company has retained Phoenix Communications, Inc. to
assist in the distribution of the proxies and proxy statements for a fee
estimated not to exceed $4,000 plus out-of-pocket expenses.
Upon request, the Company's Annual Report on Form 10-K for 1998 to the
Securities and Exchange Commission will be furnished. Such written request
should be directed to the Secretary of the Company at the address stated herein.
36
<PAGE>
The form of proxy and the Proxy Statement have been approved by the Company and
are being mailed and delivered to stockholders by the authority of the Company.
Roy Keith
Chairman of the Board
April 30, 1999
<PAGE>
APPENDIX A
CARSON, INC.
1996 LONG-TERM INCENTIVE PLAN
(as amended by Amendment No. 1)
* * * * *
1. Purpose. The purpose of the 1996 Long-Term Incentive Plan (the
"Plan") is to further and promote the interests of Carson, Inc. (the "Company"),
its Subsidiaries and its shareholders by enabling the Company and its
Subsidiaries to attract, retain and motivate employees and consultants or those
who will become employees or consultants, and to align the interests of those
individuals and the Company's shareholders. To do this, the Plan offers
performance-based incentive awards and equity-based opportunities providing such
employees and consultants with a proprietary interest in maximizing the growth,
profitability and overall success of the Company and its Subsidiaries.
2. Definitions. For purposes of the Plan, the following terms shall
have the meanings set forth below:
2.1 "Award" means an award or grant made to a Participant
under Sections 6, 7, 8 and/or 9 of the Plan.
2.2 "Award Agreement" means the agreement executed by a
Participant pursuant to Sections 3.2 and 17.7 of the Plan in connection with the
granting of an Award.
2.2 "Board" means the Board of Directors of the Company, as
constituted from time to time.
2.3 "Closing" means the occurrence of the closing of the
initial public offerings by the Company of the Common Stock.
2.4 "Code" means the Internal Revenue Code of 1986, as in
effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto.
2.5 "Committee" means the committee of the Board established
to administer the Plan, as described in Section 3 of the Plan.
2.6 "Common Stock" means the Class A Common Stock, par value
$.01 per share, of the Company or any security of the Company issued by the
Company in substitution or exchange therefor.
<PAGE>
2.7 "Company" means Carson, Inc., a Delaware corporation, or
any successor corporation to Carson, Inc.
2.8 "Disability" means disability as defined in the
Participant's then effective employment agreement, or if the participant is not
then a party to an effective employment agreement with the Company which defines
disability, "Disability" means disability as determined by the Committee in
accordance with standards and procedures similar to those under the Company's
long-term disability plan, if any. Subject to the first sentence of this Section
2.8, at any time that the Company does not maintain a long-term disability plan,
"Disability" shall mean any physical or mental disability which is determined to
be total and permanent by a physician selected in good faith by the Company.
2.9 "Exchange Act" means the Securities Exchange Act of 1934,
as in effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto.
2.10 "Fair Market Value" means on, or with respect to, any
given date(s), the average of the highest and lowest market prices of the Common
Stock, as reported on the consolidated transaction reporting system for the New
York Stock Exchange for such date(s) or, if the Common Stock was not traded on
such date(s), on the next preceding day or days on which the Common Stock was
traded. If at any time the Common Stock is not traded on such exchange, the Fair
Market Value of a share of the Common Stock shall be determined in good faith by
the Board.
2.11 "Incentive Stock Option" means any stock option granted
pursuant to the provisions of Section 6 of the Plan (and the relevant Award
Agreement) that is intended to be (and is specifically designated as) an
"incentive stock option" within the meaning of Section 422 of the Code.
2.12 "Non-Qualified Stock Option" means any stock option
granted pursuant to the provisions of Section 6 of the Plan (and the relevant
Award Agreement) that is not (and is specifically designated as not being) an
Incentive Stock Option.
2.13 "Participant" means any individual who is selected from
time to time under Section 5 to receive an Award under the Plan.
2.14 "Performance Units" means the monetary units granted
under Section 9 of the Plan and the relevant Award Agreement.
2.15 "Plan" means the Carson, Inc. 1996 Long-Term Incentive
Plan, as set forth herein and as in effect and as amended from time to time
(together with any rules and regulations promulgated by the Committee with
respect thereto).
<PAGE>
2.16 "Reload Stock Option" means any Non-Qualified Stock
Option automatically granted pursuant to the provisions of Section 6.7 of the
Plan and the relevant Award Agreement.
2.17 "Restricted Shares" means the restricted shares of Common
Stock granted pursuant to the provisions of Section 8 of the Plan and the
relevant Award Agreement.
2.18 "Retirement" means the voluntary retirement by the
Participant from active employment with the Company and its Subsidiaries on or
after the attainment of (i) age 65, or (ii) 60, with the consent of the Board.
2.19 "Stock Appreciation Right" means an Award described in
Section 7.2 of the Plan and granted pursuant to the provisions of Section 7 of
the Plan.
2.20 "Subsidiary(ies)" means any corporation (other than the
Company) in an unbroken chain of corporations, including and beginning with the
Company, if each of such corporations, other than the last corporation in the
unbroken chain, owns, directly or indirectly, more than fifty percent (50%) of
the voting stock in one of the other corporations in such chain.
3. Administration.
3.1 The Committee. The Plan shall be administered by the
Committee. The Committee shall be appointed from time to time by the Board and
shall be comprised of not less than two (2) of the then members of the Board
who are Non-Employee Directors (within the meaning of SEC Rule 16b-3(b)(3)) of
the Company. No member of the Committee shall be eligible to receive awards
under the Plan. Consistent with the Bylaws of the Company, members of the
Committee shall serve at the pleasure of the Board and the Board, subject to the
immediately preceding sentence, may at any time and from time to time remove
members from, or add members to, the Committee.
3.2 Plan Administration and Plan Rules. The Committee is
authorized to construe and interpret the Plan and to promulgate, amend and
rescind rules and regulations relating to the implementation, administration and
maintenance of the Plan. Subject to the terms and conditions of the Plan, the
Committee shall make all determinations necessary or advisable for the
implementation, administration and maintenance of the Plan including, without
limitation, (a) selecting the Plan's Participants, (b) making Awards in such
amounts and form as the Committee shall determine, (c) imposing such
restrictions, terms and conditions upon such Awards as the Committee shall deem
appropriate, and (d) correcting any technical defect(s) or technical
omission(s), or reconciling any technical inconsistency(ies), in the Plan and/or
any Award Agreement. The Committee may designate persons other than members of
the Committee to carry out the day-to-day ministerial administration of the Plan
under such conditions and limitations as it may prescribe, except that the
Committee shall not delegate its authority with regard to the selection for
participation in the Plan and/or the granting of any Awards to Participants. The
Committee's determinations under the Plan need not be uniform and may be made
selectively among Participants, whether or not such Participants are similarly
situated. Any determination, decision or action of the Committee in connection
<PAGE>
with the construction, interpretation, administration, implementation or
maintenance of the Plan shall be final, conclusive and binding upon all
Participants and any person(s) claiming under or through any Participants. The
Company shall effect the granting of Awards under the Plan, in accordance with
the determinations made by the Committee, by execution of written agreements
and/or other instruments in such form as is approved by the Committee.
3.3 Liability Limitation. Neither the Board nor the
Committee, nor any member of either, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan (or any Award Agreement), and the members of the Board and the
Committee shall be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage or expense (including, without limitation,
attorneys' fees) arising or resulting therefrom to the fullest extent permitted
by law and/or under any directors and officers liability insurance coverage
which may be in effect from time to time.
3.4 Pre-IPO Administration. Notwithstanding anything in the
Plan to the contrary and prior to the Closing (the "Pre-IPO Period"), the Plan
may also be administered by the Board. During the Pre-IPO Period (but not
beyond), the Board shall have all the authority, rights and powers set forth in
Sections 3.1, 3.2 and 3.3 of the Plan and may make any and all determinations,
and take any and all other actions, which may or could be made, or taken, by the
Committee under the Plan.
4. Term of Plan/Common Stock Subject to Plan.
4.1 Term. The Plan shall terminate on December 31, 2006,
except with respect to Awards then outstanding. After such date no further
Awards shall be granted under the Plan.
4.2 Common Stock. The maximum number of shares of Common
Stock in respect of which Awards may be granted or paid out under the Plan,
subject to adjustment as provided in Section 14.2 of the Plan, shall not exceed
1,350,000 shares. In the event of a change in the Common Stock of the Company
that is limited to a change in the designation thereof to "Capital Stock" or
other similar designation, or to a change in the par value thereof, or from par
value to no par value, without increase or decrease in the number of issued
shares, the shares resulting from such change shall be deemed to be Common
Stock for purposes of the Plan. Common Stock which may be issued under the
Plan may be either authorized and unissued shares or issued shares which
have been reacquired by the Company (in the open-market or in private
transactions) and which are being held as treasury shares. No fractional
shares of Common Stock shall be issued under the Plan.
4.3 Computation of Available Shares. For the purpose of
computing the total number of shares of Common Stock available for Awards under
the Plan, there shall be counted against the limitations set forth in Section
4.2 of the Plan the maximum number of shares of Common Stock potentially subject
to issuance upon exercise or settlement of Awards granted under Sections 6 and 7
of the Plan, the number of shares of Common Stock issued under grants of
Restricted Shares pursuant to Section 8 of the Plan and the maximum number of
<PAGE>
shares of Common Stock potentially issuable under grants or payments of
Performance Units pursuant to Section 9 of the Plan, in each case determined as
of the date on which such Awards are granted. If any Awards expire unexercised
or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu
of Common Stock, the shares of Common Stock which were theretofore subject (or
potentially subject) to such Awards shall again be available for Awards under
the Plan to the extent of such expiration, forfeiture, surrender, cancellation,
termination or settlement of such Awards.
5. Eligibility. Individuals eligible for Awards under the Plan shall
consist of all salaried employees and consultants, or those who will become such
employees or consultants, of the Company and/or its Subsidiaries who are
responsible for the management, growth and protection of the business of the
Company and/or its Subsidiaries or whose performance or contribution, in the
sole discretion of the Committee, benefits or will benefit the Company.
6. Stock Options.
6.1 Terms and Conditions. Stock options granted under the
Plan shall be in respect of Common Stock and may be in the form of Incentive
Stock Options, Non-Qualified Stock Options or Reload Stock Options (sometimes
referred to collectively herein as the "Stock Option(s))". Such Stock Options
shall be subject to the terms and conditions set forth in this Section 6
and any additional terms and conditions, not inconsistent with the express
terms and provisions of the Plan, as the Committee shall set forth in the
relevant Award Agreement.
6.2 Grant. Stock Options may be granted under the Plan in
such form as the Committee may from time to time approve. Stock Options may be
granted alone or in addition to other Awards under the Plan or in tandem with
Stock Appreciation Rights. Special provisions shall apply to Incentive Stock
Options granted to any employee who owns (within the meaning of Section
422(b)(6) of the Code) more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or its parent corporation or any
subsidiary of the Company, within the meaning of Sections 424(e) and (f) of the
Code (a "10% Shareholder").
6.3 Exercise Price. The exercise price per share of Common
Stock subject to a Stock Option shall be determined by the Committee, including,
without limitation, a determination based on a formula determined by the
Committee; provided, however, that the exercise price of an Incentive Stock
Option or a Reload Stock Option shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date of the grant of
such Incentive Stock Option or Reload Stock Option; provided, further, however,
that, in the case of a 10% Shareholder, the exercise price of an Incentive Stock
Option shall not be less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date of grant.
6.4 Term. The term of each Stock Option shall be such period
of time as is fixed by the Committee; provided, however, that the term of any
Incentive Stock Option shall not exceed ten (10) years (five (5) years, in the
case of a 10% Shareholder) after the date immediately preceding the date on
which the Incentive Stock Option is granted.
<PAGE>
6.5 Method of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Secretary of the
Company, or the Secretary's designee, specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the exercise
price in cash, by certified check, bank draft or money order payable to the
order of the Company or, if permitted by the Committee (in its sole discretion)
and applicable law, by delivery of, alone or in conjunction with a partial cash
or instrument payment, (a) a fully-secured promissory note or notes, (b) shares
of Common Stock already owned by the Participant for at least six (6) months, or
(c) some other form of payment acceptable to the Committee. The Committee may
also permit Participants (either on a selective or group basis) to
simultaneously exercise Stock Options and sell the shares of Common Stock
thereby acquired, pursuant to a "cashless exercise" arrangement or program,
selected by and approved of in all respects in advance by the Committee. Payment
instruments shall be received by the Company subject to collection. The proceeds
received by the Company upon exercise of any Stock Option may be used by the
Company for general corporate purposes. Any portion of a Stock Option that is
exercised may not be exercised again.
6.6 Exercisability. In respect of any Stock Option granted
under the Plan, unless otherwise (a) determined by the Committee (in its sole
discretion) at any time and from time to time in respect of any such Stock
Option, or (b) provided in the Award Agreement or in the Participant's
employment agreement in respect of any such Stock Option, such Stock Option
shall become exercisable as to the aggregate number of shares of Common Stock
underlying such Stock Option, as determined on the date of grant, as follows:
o 33%, on the first anniversary of the date of grant of
the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries;
o 66%, on the second anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries;
o 100%, on the third anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries; and
Notwithstanding anything to the contrary contained in this Section 6.6, such
Stock Option shall become one hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option upon the
death, Disability or Retirement of the Participant.
6.7 Reload Stock Options. The Committee may, in its sole
discretion, provide in any Award Agreement in respect of any Non-Qualified Stock
Option that if the Participant delivers shares of the Company's Common Stock
already owned by such Participant for at least six (6) months in full or partial
payment of the exercise price of such Non-Qualified Stock Option, the
Participant shall automatically (subject to the limitations contained in Section
4.2) and immediately thereupon be granted a Reload Stock Option to purchase that
number of shares of Common Stock delivered by the Participant to the Company (on
such terms as the Committee may prescribe under and in accordance with the
Plan).
<PAGE>
6.8 Tandem Grants. If Non-Qualified Stock Options and Stock
Appreciation Rights are granted in tandem, as designated in the relevant Award
Agreements, the right of a Participant to exercise any such tandem Stock Option
shall terminate to the extent that the shares of Common Stock subject to such
Stock Option are used to calculate amounts or shares receivable upon the
exercise of the related tandem Stock Appreciation Right.
7. Stock Appreciation Rights.
7.1 Terms and Conditions. The grant of Stock Appreciation
Rights under the Plan shall be subject to the terms and conditions set forth in
this Section 7 and any additional terms and conditions, not inconsistent with
the express terms and provisions of the Plan, as the Committee shall set forth
in the relevant Award Agreement.
7.2 Stock Appreciation Rights. A Stock Appreciation Right is
an Award granted with respect to a specified number of shares of Common Stock
entitling a Participant to receive an amount equal to the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the Fair
Market Value of a share of Common Stock on the date of grant of the Stock
Appreciation Right, multiplied by the number of shares of Common Stock with
respect to which the Stock Appreciation Right shall have been exercised.
7.3 Grant. A Stock Appreciation Right may be granted in
addition to any other Award under the Plan or in tandem with or independent of a
Non-Qualified Stock Option.
7.4 Date of Exercisability. Unless otherwise provided in the
Participant's employment agreement or the Award Agreement in respect of any
Stock Appreciation Right, a Stock Appreciation Right may be exercised by a
Participant, in accordance with and subject to all of the procedures established
by the Committee, in whole or in part at any time and from time to time during
its specified term. Notwithstanding the preceding sentence, in no event shall a
Stock Appreciation Right be exercisable prior to the date which is six (6)
months after the date on which the Stock Appreciation Right was granted or prior
to the exercisability of any Non-Qualified Stock Option with which it is granted
in tandem. The Committee may also provide, as set forth in the relevant Award
Agreement and without limitation, that some Stock Appreciation Rights shall be
automatically exercised and settled on one or more fixed dates specified therein
by the Committee.
7.5 Form of Payment. Upon exercise of a Stock Appreciation
Right, payment may be made in cash, in Restricted Shares or in shares of
unrestricted Common Stock, or in any combination thereof, as the Committee, in
its sole discretion, shall determine and provide in the relevant Award
Agreement.
7.6 Tandem Grant. The right of a Participant to exercise a
tandem Stock Appreciation Right shall terminate to the extent such Participant
exercises the Non-Qualified Stock Option to which such Stock Appreciation Right
is related.
<PAGE>
8. Restricted Shares.
8.1 Terms and Conditions. Grants of Restricted Shares shall
be subject to the terms and conditions set forth in this Section 8 and any
additional terms and conditions, not inconsistent with the express terms and
provisions of the Plan, as the Committee shall set forth in the relevant Award
Agreement. Restricted Shares may be granted alone or in addition to any other
Awards under the Plan. Subject to the terms of the Plan, the Committee shall
determine the number of Restricted Shares to be granted to a Participant and the
Committee may provide or impose different terms and conditions on any particular
Restricted Share grant made to any Participant. With respect to each Participant
receiving an Award of Restricted Shares, there shall be issued a stock
certificate (or certificates) in respect of such Restricted Shares. Such stock
certificate(s) shall be registered in the name of such Participant, shall be
accompanied by a stock power duly executed by such Participant, and shall bear,
among other required legends, the following legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including, without limitation, forfeiture events)
contained in the Carson, Inc. 1996 Long-Term Incentive Plan
and an Award Agreement entered into between the registered
owner hereof and Carson, Inc. Copies of such Plan and Award
Agreement are on file in the office of the Secretary of
Carson, Inc., Savannah, Georgia. Carson, Inc. will furnish to
the recordholder of the certificate, without charge and upon
written request at its principal place of business, a copy of
such Plan and Award Agreement. Carson, Inc. reserves the right
to refuse to record the transfer of this certificate until all
such restrictions are satisfied, all such terms are complied
with and all such conditions are satisfied."
Such stock certificate evidencing such shares shall, in the sole discretion of
the Committee, be deposited with and held in custody by the Company until the
restrictions thereon shall have lapsed and all of the terms and conditions
applicable to such grant shall have been satisfied.
8.2 Restricted Share Grants. A grant of Restricted Shares is
an Award of shares of Common Stock granted to a Participant, subject to such
restrictions, terms and conditions as the Committee deems appropriate,
including, without limitation, (a) restrictions on the sale, assignment,
transfer, hypothecation or other disposition of such shares, (b) the requirement
that the Participant deposit such shares with the Company while such shares are
subject to such restrictions, and (c) the requirement that such shares be
forfeited upon termination of employment for specified reasons within a
specified period of time or for other reasons (including, without limitation,
the failure to achieve designated performance goals).
<PAGE>
8.3 Restriction Period. In accordance with Sections 8.1 and
8.2 of the Plan and unless otherwise determined by the Committee (in its sole
discretion) at any time and from time to time, Restricted Shares shall only
become unrestricted and vested in the Participant in accordance with such
vesting schedule relating to such Restricted Shares, if any, as the Committee
may establish in the relevant Award Agreement (the "Restriction Period").
Notwithstanding the preceding sentence, in no event shall the Restriction Period
be less than six (6) months after the date of grant. During the Restriction
Period, such stock shall be and remain unvested and a Participant may not sell,
assign, transfer, pledge, encumber or otherwise dispose of or hypothecate such
Award. Upon satisfaction of the vesting schedule and any other applicable
restrictions, terms and conditions, the Participant shall be entitled to receive
payment of the Restricted Shares or a portion thereof, as the case may be, as
provided in Section 8.4 of the Plan.
8.4 Payment of Restricted Share Grants. After the satisfaction
and/or lapse of the restrictions, terms and conditions established by the
Committee in respect of a grant of Restricted Shares, a new certificate, without
the legend set forth in Section 8.1 of the Plan, for the number of shares of
Common Stock which are no longer subject to such restrictions, terms and
conditions shall, as soon as practicable thereafter, be delivered to the
Participant.
8.5 Shareholder Rights. A Participant shall have, with respect
to the shares of Common Stock underlying a grant of Restricted Shares, all of
the rights of a shareholder of such stock (except as such rights are limited or
restricted under the Plan or in the relevant Award Agreement). Any stock
dividends paid in respect of unvested Restricted Shares shall be treated as
additional Restricted Shares and shall be subject to the same restrictions and
other terms and conditions that apply to the unvested Restricted Shares in
respect of which such stock dividends are issued.
9. Performance Units.
9.1 Terms and Conditions. Performance Units shall be subject
to the terms and conditions set forth in this Section 9 and any additional terms
and conditions, not inconsistent with the express provisions of the Plan, as the
Committee shall set forth in the relevant Award Agreement.
9.2 Performance Unit Grants. A Performance Unit is an Award of
units (with each unit representing such monetary amount as is designated by the
Committee in the Award Agreement) granted to a Participant, subject to such
terms and conditions as the Committee deems appropriate, including, without
limitation, the requirement that the Participant forfeit such units (or a
portion thereof) in the event certain performance criteria or other conditions
are not met within a designated period of time.
9.3 Grants. Performance Units may be granted alone or in
addition to any other Awards under the Plan. Subject to the terms of the Plan,
the Committee shall determine the number of Performance Units to be granted to a
Participant and the Committee may impose different terms and conditions on any
particular Performance Units granted to any Participant.
<PAGE>
9.4 Performance Goals and Performance Periods. Participants
receiving a grant of Performance Units shall only earn into and be entitled to
payment in respect of such Awards if the Company and/or the Participant achieves
certain performance goals (the "Performance Goals") during and in respect of a
designated performance period (the "Performance Period"). The Performance Goals
and the Performance Period shall be established by the Committee, in its sole
discretion. The Committee shall establish Performance Goals for each Performance
Period prior to, or as soon as practicable after, the commencement of such
Performance Period. The Committee shall also establish a schedule or schedules
for Performance Units setting forth the portion of the Award which will be
earned or forfeited based on the degree of achievement, or lack thereof, of the
Performance Goals at the end of the relevant Performance Period. In setting
Performance Goals, the Committee may use, but shall not be limited to, such
measures as total shareholder return, return on equity, net earnings growth,
sales or revenue growth, cash flow, comparisons to peer companies, individual or
aggregate Participant performance or such other measure or measures of
performance as the Committee, in its sole discretion, may deem appropriate. Such
performance measures shall be defined as to their respective components and
meaning by the Committee (in its sole discretion). During any Performance
Period, the Committee shall have the authority to adjust the Performance Goals
and/or the Performance Period in such manner as the Committee, in its sole
discretion, deems appropriate at any time and from time to time.
9.5 Payment of Units. With respect to each Performance Unit,
the Participant shall, if the applicable Performance Goals have been achieved,
or partially achieved, as determined by the Committee in its sole discretion, by
the Company and/or the Participant during the relevant Performance Period, be
entitled to receive payment in an amount equal to the designated value of each
Performance Unit times the number of such units so earned. Payment in settlement
of earned Performance Units shall be made as soon as practicable following the
conclusion of the respective Performance Period in cash, in unrestricted Common
Stock, or in Restricted Shares, or in any combination thereof, as the Committee
in its sole discretion, shall determine and provide in the relevant Award
Agreement.
10. Deferral Elections/Tax Reimbursements/Other Provisions.
10.1 Deferrals. The Committee may permit a Participant to
elect to defer receipt of any payment of cash or any delivery of shares of
Common Stock that would otherwise be due to such Participant by virtue of the
exercise, earn out or settlement of any Award made under the Plan. If any such
election is permitted, the Committee shall establish rules and procedures for
such deferrals, including, without limitation, the payment or crediting of
reasonable interest on such deferred amounts credited in cash, and the payment
or crediting of dividend equivalents in respect of deferrals credited in units
of Common Stock. The Committee may also provide in the relevant Award Agreement
for a tax reimbursement cash payment to be made by the Company in favor of any
Participant in connection with the tax consequences resulting from the grant,
exercise, settlement, or earn out of any Award made under the Plan.
<PAGE>
10.2 Performance-Based Awards. Performance Units,
performance-based Restricted Shares, and other Awards subject to performance
criteria are intended to be "qualified performance-based compensation" within
the meaning of section 162(m) of the Code and shall be paid solely on account of
the attainment of one or more preestablished, objective performance goals within
the meaning of section 162(m) and the regulations thereunder. Until otherwise
determined by the Committee, the performance goals shall be the attainment of
preestablished levels of any of net income, market price per share, earnings per
share, return on equity, return on capital employed and/or cash flow. The payout
of any such Award to a Covered Employee may be reduced, but not increased, based
on the degree of attainment of other performance criteria or otherwise at the
discretion of the Committee. For purposes of the Plan, "Covered Employee" has
the same meaning as set forth in Section 162(m) of the Code.
10.3 Maximum Yearly Awards. The maximum annual Common Stock
amounts in this Section 10.3 are subject to adjustment under Section 14.2 and
are subject to the Plan maximum under Section 4.2.
10.3.1 Performance-Based Awards. All Participants in
the aggregate may not receive in any calendar year Performance Units,
performance-based Restricted Shares and other Awards subject to
performance criteria exceeding, in the aggregate, 300,000 underlying
shares of Common Stock. The maximum amount payable in respect of such
Awards in any calendar year may not exceed 500,000 shares of Common
Stock (or the then equivalent Fair Market Value thereof) in the
aggregate to all Participants and 100,000 shares of Common Stock (or
the then equivalent Fair Market Value thereof) in the case of any
individual Participant.
10.3.2 Stock Options and SARs. All Participants in
the aggregate may not receive in any calendar year Awards of Options
and Stock Appreciation Rights, in the aggregate, exceeding 700,000
underlying shares of Common Stock. Each individual Participant may not
receive in any calendar year Awards of Options or Stock Appreciation
Rights exceeding 500,000 underlying shares of Common Stock.
11. Dividend Equivalents. In addition to the provisions of Section 8.5
of the Plan, Awards of Stock Options, and/or Stock Appreciation Rights, may, in
the sole discretion of the Committee and if provided for in the relevant Award
Agreement, earn dividend equivalents. In respect of any such Award which is
outstanding on a dividend record date for Common Stock, the Participant shall be
credited with an amount equal to the amount of cash or stock dividends that
would have been paid on the shares of Common Stock covered by such Award had
such covered shares been issued and outstanding on such dividend record date.
The Committee shall establish such rules and procedures governing the crediting
of such dividend equivalents, including, without limitation, the amount, the
timing, form of payment and payment contingencies and/or restrictions of such
dividend equivalents, as it deems appropriate or necessary.
12. Termination of Employment.
12.1 General. Except as is otherwise provided (a) in the
relevant Award Agreement as determined by the Committee (in its sole
discretion), or (b) in the Participant's then effective employment agreement, if
any, the following terms and conditions shall apply as appropriate and as not
inconsistent with the terms and conditions, if any, contained in such Award
Agreement and/or such employment agreement:
<PAGE>
12.1.1 Options/SARs. Subject to any determination of
the Committee pursuant to Section 6.6 of the Plan, if a Participant's
employment with the Company terminates for any reason any then
unexercisable Stock Options and/or Stock Appreciation Rights shall be
forfeited and cancelled by the Company. Except as otherwise provided in
this Section 12.1.1, if a Participant's employment with the Company and
its Subsidiaries terminates for any reason, such Participant's rights,
if any, to exercise any then exercisable Stock Options and/or Stock
Appreciation Rights, if any, shall terminate ninety (90) days after the
date of such termination (but not beyond the stated term of any such
Stock Option and/or Stock Appreciation Right as determined under
Sections 6.4 and 7.4) and thereafter such Stock Options or Stock
Appreciation Rights shall be forfeited and cancelled by the Company.
The Committee, in its sole discretion, may determine that any such
Participant's Stock Options and/or Stock Appreciation Rights, if any,
to the extent exercisable immediately prior to any termination of
employment (other than a termination due to death, Retirement or
Disability), may remain exercisable for an additional specified time
period after such ninety (90) day period expires (subject to any other
applicable terms and provisions of the Plan and the relevant Award
Agreement), but not beyond the stated term of any such Stock Option
and/or Stock Appreciation Right. If any termination of employment is
due to death, Retirement or Disability, a Participant (and such
Participant's estate, designated beneficiary or other legal
representative, as the case may be and as determined by the Committee)
shall have the right, to the extent exercisable immediately prior to
any such termination, to exercise such Stock Options and/or Stock
Appreciation Rights, if any, at any time within the one (1) year period
following such termination due to death, Retirement or Disability (but
not beyond the term of any such Stock Option and/or Stock Appreciation
Right as determined under Sections 6.4 and 7.4).
12.1.2 Restricted Shares. If a Participant's
employment with the Company and its Subsidiaries terminates for any
reason (other than due to Disability, Retirement or death) prior to the
satisfaction and/or lapse of the restrictions, terms and conditions
applicable to a grant of Restricted Shares, such Restricted Shares
shall immediately be cancelled and the Participant (and such
Participant's estate, designated beneficiary or other legal
representative) shall forfeit any rights or interests in and with
respect to any such Restricted Shares. Notwithstanding anything to the
contrary in this Section 12, the Committee, in its sole discretion, may
determine, prior to or within ninety (90) days after the date of such
termination, that all or a portion of any such Participant's Restricted
Shares shall not be so cancelled and forfeited. If the Participant's
employment terminates due to death, Disability or Retirement, the
Participant shall become 100% vested in any such Participant's
restricted Shares as of the date of any such termination.
<PAGE>
12.1.3 Performance Units. If a Participant's
employment with the Company and its Subsidiaries terminates for any
reason (other than due to Disability, Retirement or death) prior to the
completion of any Performance Period, any Performance Units granted in
respect of such Performance Period shall immediately be cancelled by
the Company and the Participant (and such Participant's estate,
designated beneficiary or other legal representative) shall forfeit any
rights or interests in and with respect to any such Performance Units.
Notwithstanding anything to the contrary in this Section 12, the
Committee, in its sole discretion may determine, prior to or within
ninety (90) days after the date of any such termination, that all or a
portion of any such Participant's Performance Units shall not be so
cancelled and forfeited upon termination of employment for any reason
or for a particular reason. If the Participant's employment terminates
due to death, Disability or Retirement, the Participant shall be
entitled to earn into such Participant's Performance Units in
accordance with Section 9 of the Plan; provided, however, that any such
earn out (determined in good faith by the Committee) shall be
proportionately reduced based on the number of days transpired in the
relevant Performance Periods prior to such death, Disability or
Retirement over the total number of calendar days in any such relevant
Performance Period.
13. Non-transferability of Awards. Unless otherwise provided in the
Award Agreement, no Award under the Plan or any Award Agreement, and no rights
or interests herein or therein, shall or may be assigned, transferred, sold,
exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a
Participant or any beneficiary(ies) of any Participant, except by testamentary
disposition by the Participant or the laws of intestate succession. No such
interest shall be subject to execution, attachment or similar legal process,
including, without limitation, seizure for the payment of the Participant's
debts, judgements, alimony, or separate maintenance. Unless otherwise provided
in the Award Agreement, during the lifetime of a Participant, Stock Options and
Stock Appreciation Rights are exercisable only by the Participant.
14. Changes in Capitalization and Other Matters.
14.1 No Corporate Action Restriction. The existence of the
Plan, any Award Agreement and/or the Awards granted hereunder shall not limit,
affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's or any
Subsidiary's capital structure or its business, (b) any merger, consolidation or
change in the ownership of the Company or any Subsidiary, (c) any issue of
bonds, debentures, capital, preferred or prior preference stocks ahead of or
affecting the Company's or any Subsidiary's capital stock or the rights thereof,
(d) any dissolution or liquidation of the Company or any Subsidiary, (e) any
sale or transfer of all or any part of the Company's or any Subsidiary's assets
or business, or (f) any other corporate act or proceeding by the Company or any
Subsidiary. No Participant, beneficiary or any other person shall have any claim
against any member of the Board or the Committee, the Company or any Subsidiary,
or any employees, officers or agents of the Company or any subsidiary, as a
result of any such action.
<PAGE>
14.2 Recapitalization Adjustments. In the event of any change
in capitalization affecting the Common Stock of the Company, including, without
limitation, a stock dividend or other distribution, stock split, reverse stock
split, recapitalization, consolidation, subdivision, split-up, spin-off,
split-off, combination or exchange of shares or other form of reorganization or
recapitalization, or any other change affecting the Common Stock, the Board
shall authorize and make such proportionate adjustments, if any, as the Board
deems appropriate to reflect such change, including, without limitation, with
respect to the aggregate number of shares of the Common Stock for which Awards
in respect thereof may be granted under the Plan, the maximum number of shares
of the Common Stock which may be granted or awarded to any Participant, the
number of shares of the Common Stock covered by each outstanding Award, and the
exercise price or other price per share of Common Stock in respect of
outstanding Awards.
14.3 Certain Mergers.
14.3.1 If the Company enters into or is involved in
any merger, reorganization or other business combination with any
person or entity (such merger, reorganization or other business
combination to be referred to herein as a "Merger Event") and as a
result of any such Merger Event the Company will be or is the surviving
corporation, a Participant shall be entitled, as of the date of the
execution of the agreement evidencing the Merger Event (the "Execution
Date") and with respect to both exercisable and unexercisable Stock
Options and/or Stock Appreciation Rights (but only to the extent not
previously exercised), to receive substitute stock options and/or stock
appreciation rights in respect of the shares of the surviving
corporation on such terms and conditions, as to the number of shares,
pricing and otherwise, which shall substantially preserve the value,
rights and benefits of any affected Stock Options or Stock Appreciation
Rights granted hereunder as of the date of the consummation of the
Merger Event. Notwithstanding anything to the contrary in this Section
14.3, if any Merger Event occurs, the Company shall have the right, but
not the obligation, to pay to each affected Participant an amount in
cash or certified check equal to the excess of the Fair Market Value of
the Common Stock underlying any affected unexercised Stock Options or
Stock Appreciation Rights as of the Execution Date (whether then
exercisable or not) over the aggregate exercise price of such
unexercised Stock Options and/or Stock Appreciation Rights, as the case
may be.
14.3.2 If, in the case of a Merger Event in which the
Company will not be, or is not, the surviving corporation, and the
Company determines not to make the cash or certified check payment
described in Section 14.3.1 of the Plan, the Company shall compel and
obligate, as a condition of the consummation of the Merger Event, the
surviving or resulting corporation and/or the other party to the Merger
Event, as necessary, or any parent, subsidiary or acquiring corporation
thereof, to grant, with respect to both exercisable and unexercisable
Stock Options and/or Stock Appreciation Rights (but only to the extent
not previously exercised), substitute stock options or stock
appreciation rights in respect of the shares of common or other capital
stock of such surviving or resulting corporation on such terms and
conditions, as to the number of shares, pricing and otherwise, which
shall substantially preserve the value, rights and benefits of any
affected Stock Options and/or Stock Appreciation Rights previously
granted hereunder as of the date of the consummation of the Merger
Event.
<PAGE>
14.3.3 Upon receipt by any affected Participant of
any such cash, certified check, or substitute stock options or stock
appreciation rights as a result of any such Merger Event, such
Participant's affected Stock Options and/or Stock Appreciation Rights
for which such cash, certified check or substitute awards was received
shall be thereupon cancelled without the need for obtaining the consent
of any such affected Participant.
14.3.4 The foregoing adjustments and the manner of
application of the foregoing provisions, including, without limitation,
the issuance of any substitute stock options and/or stock appreciation
rights, shall be determined in good faith by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of
fractional shares.
15. Change of Control.
15.1 Acceleration of Awards Vesting. Anything in the Plan to
the contrary notwithstanding, if a Change of Control of the Company occurs (a)
all Stock Options and/or Stock Appreciation Rights then unexercised and
outstanding shall become fully vested and exercisable as of the date of the
Change of Control, (b) all restrictions, terms and conditions applicable to all
Restricted Shares then outstanding shall be deemed lapsed and satisfied as of
the date of the Change of Control, and (c) the Performance Period shall be
deemed completed, all Performance Goals shall be deemed attained at the highest
levels and all Performance Units shall be deemed to have been fully earned as of
the date of the Change of Control. The immediately preceding sentence shall
apply to only those Participants (i) who are employed by the Company and/or one
of its Subsidiaries as of the date of the Change of Control, or (ii) to whom
Section 15.3 below is applicable.
15.2 Payment After Change of Control. Notwithstanding anything
to the contrary in the Plan, within thirty (30) days after a Change of Control
occurs, (a) the holder of an Award of Restricted Shares vested under Section
15.1(b) above shall receive a new certificate for such shares without the legend
set forth in Section 8 of the Plan (and, in the case only of a Change of Control
under Section 15.4.1 of the Plan, such holder shall have the right, but not the
obligation, to elect, within ten (10) business days after the Participant has
actual or constructive knowledge of the occurrence of such Change of Control, to
require the Company to purchase such shares from the Participant at their then
Fair Market Value, (b) the holder of Performance Units shall receive payment of
the value of such grants in cash at the highest levels, and (c) in the case only
of a Change of Control under Section 15.4.1 of the Plan, the holders of any
Stock Options and/or Stock Appreciation Rights shall have the right, but not the
obligation, to elect, within ten (10) business days after the Participant has
actual or constructive knowledge of the occurrence of such Change of Control, to
require the Company to purchase such Stock Options and/or Stock Appreciation
Rights from the Participant for an aggregate amount equal to the then aggregate
Fair Market Value of the Common Stock underlying such Awards tendered, less the
aggregate exercise price of such tendered Awards.
15.3 Termination as a Result of a Change of Control. Anything
in the Plan to the contrary notwithstanding, if a Change of Control occurs and
if the Participant's employment is terminated before such Change of Control and
it is reasonably demonstrated by the Participant that such employment
termination (a) was at the request, directly or indirectly, of a third party who
has taken steps reasonably calculated to effect the Change of Control, or (b)
otherwise arose in connection with or in anticipation of the Change of Control,
then for purposes of this Section 15, the Change of Control shall be deemed to
have occurred immediately prior to such Participant's employment termination
(for all purposes other than those set forth in Section 15.2(c) of the Plan).
<PAGE>
15.4 Change of Control. For the purpose of this Agreement,
"Change of Control" shall mean:
15.4.1 The acquisition, after and not pursuant to the
Closing, by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of either (a) the shares of the Common
Stock, or (b) the combined voting power of the voting securities of the
Company entitled to vote generally in the election of directors (the
"Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (x) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any Subsidiary, (y) any acquisition by
any underwriter in connection with any firm commitment underwriting of
securities to be issued by the Company, or (z) any acquisition by any
corporation if, immediately following such acquisition, more than 80%
of the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation (entitled to vote generally in the election of
directors), is beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who, immediately
prior to such acquisition, were the beneficial owners of the Common
Stock and the Voting Securities in substantially the same proportions,
respectively, as their ownership, immediately prior to such
acquisition, of the Common Stock and Voting Securities; or
15.4.2 Individuals who, as of the effective date of
the Plan, constitute the Board (the "Incumbent Board") cease thereafter
for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent
to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by at least a
majority of the directors then serving and comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or
15.4.3 Approval by the shareholders of the Company of
a reorganization, merger or consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all
of the individuals and entities who were the beneficial owners,
immediately prior to such reorganization, merger or consolidation, of
the Common Stock and Voting Securities beneficially own, directly or
indirectly, immediately after such reorganization, merger or
consolidation more than 80% of the then outstanding common stock and
voting securities (entitled to vote generally in the election of
directors) of the corporation resulting from such reorganization,
merger or consolidation in substantially the same proportions as their
respective ownership, immediately prior to such reorganization, merger
or consolidation, of the Common Stock and the Voting Securities; or
<PAGE>
15.4.4 Approval by the shareholders of the Company of
(a) a complete liquidation or substantial dissolution of the Company,
or (b) the sale or other disposition of all or substantially all of the
assets of the Company, other than to a Subsidiary, wholly-owned,
directly or indirectly, by the Company.
16. Amendment, Suspension and Termination.
16.1 In General. The Board may suspend or terminate the Plan
(or any portion thereof) at any time and may amend the Plan at any time and from
time to time in such respects as the Board may deem advisable to insure that any
and all Awards conform to or otherwise reflect any change in applicable laws or
regulations, or to permit the Company or the Participants to benefit from any
change in applicable laws or regulations, or in any other respect the Board may
deem to be in the best interests of the Company or any Subsidiary. No such
amendment, suspension or termination shall (x) materially adversely effect the
rights of any Participant under any outstanding Stock Options, Stock
Appreciation Rights, Performance Units, or Restricted Share grants, without the
consent of such Participant, or (y) make any change that would disqualify the
Plan, or any other plan of the Company or any Subsidiary intended to be so
qualified, from the benefits provided under Section 422 of the Code, or any
successor provisions thereto.
16.2 Award Agreement Modifications. The Committee may (in its
sole discretion) amend or modify at any time and from time to time the terms and
provisions of any outstanding Stock Options, Stock Appreciation Rights,
Performance Units, or Restricted Share grants, in any manner to the extent that
the Committee under the Plan or any Award Agreement could have initially
determined the restrictions, terms and provisions of such Stock Options, Stock
Appreciation Rights, Performance Units, and/or Restricted Share grants,
including, without limitation, changing or accelerating (a) the date or dates as
of which such Stock Options or Stock Appreciation Rights shall become
exercisable, (b) the date or dates as of which such Restricted Share grants
shall become vested, or (c) the performance period or goals in respect of any
Performance Units. No such amendment or modification shall, however, materially
adversely affect the rights of any Participant under any such Award without the
consent of such Participant.
17. Miscellaneous.
17.1 Tax Withholding. The Company shall have the right to
deduct from any payment or settlement under the Plan, including, without
limitation, the exercise of any Stock Option or Stock Appreciation Right, or the
delivery, transfer or vesting of any Common Stock or Restricted Shares, any
federal, state, local or other taxes of any kind which the Committee, in its
sole discretion, deems necessary to be withheld to comply with the Code and/or
any other applicable law, rule or regulation. If the Committee, in its sole
discretion, permits shares of Common Stock to be used to satisfy any such tax
withholding, such Common Stock shall be valued based on the Fair Market Value of
such stock as of the date the tax withholding is required to be made, such date
to be determined by the Committee. The Committee may establish rules limiting
the use of Common Stock to meet withholding requirements by Participants who are
subject to Section 16 of the Exchange Act.
<PAGE>
17.2 No Right to Employment. Neither the adoption of the Plan,
the granting of any Award, nor the execution of any Award Agreement, shall
confer upon any employee of the Company or any Subsidiary any right to continued
employment with the Company or any Subsidiary, as the case may be, nor shall it
interfere in any way with the right, if any, of the Company or any Subsidiary to
terminate the employment of any employee at any time for any reason.
17.3 Unfunded Plan. The Plan shall be unfunded and the Company
shall not be required to segregate any assets in connection with any Awards
under the Plan. Any liability of the Company to any person with respect to any
Award under the Plan or any Award Agreement shall be based solely upon the
contractual obligations that may be created as a result of the Plan or any such
award or agreement. No such obligation of the Company shall be deemed to be
secured by any pledge of, encumbrance on, or other interest in, any property or
asset of the Company or any Subsidiary. Nothing contained in the Plan or any
Award Agreement shall be construed as creating in respect of any Participant (or
beneficiary thereof or any other person) any equity or other interest of any
kind in any assets of the Company or any Subsidiary or creating a trust of any
kind or a fiduciary relationship of any kind between the Company, any Subsidiary
and/or any such Participant, any beneficiary thereof or any other person.
17.4 Payments to a Trust. The Committee is authorized to cause
to be established a trust agreement or several trust agreements or similar
arrangements from which the Committee may make payments of amounts due or to
become due to any Participants under the Plan.
17.5 Other Company Benefit and Compensation Programs. Payments
and other benefits received by a Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participant's compensation for purposes of
the determination of benefits under any other employee welfare or benefit plans
or arrangements, if any, provided by the Company or any Subsidiary unless
expressly provided in such other plans or arrangements, or except where the
Board expressly determines in writing that inclusion of an Award or portion of
an Award should be included to accurately reflect competitive compensation
practices or to recognize that an Award has been made in lieu of a portion of
competitive annual base salary or other cash compensation. Awards under the Plan
may be made in addition to, in combination with, or as alternatives to, grants,
awards or payments under any other plans or arrangements of the Company or its
Subsidiaries. The existence of the Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation plans or programs and additional
compensation arrangements as it deems necessary to attract, retain and motivate
employees.
17.6 Listing, Registration and Other Legal Compliance. No
Awards or shares of the Common Stock shall be required to be issued or granted
under the Plan unless legal counsel for the Company shall be satisfied that such
issuance or grant will be in compliance with all applicable federal and state
securities laws and regulations and any other applicable laws or regulations.
<PAGE>
The Committee may require, as a condition of any payment or share issuance, that
certain agreements, undertakings, representations, certificates, and/or
information, as the Committee may deem necessary or advisable, be executed or
provided to the Company to assure compliance with all such applicable laws or
regulations. Certificates for shares of the Restricted Shares and/or Common
Stock delivered under the Plan may be subject to such stock-transfer orders and
such other restrictions as the Committee may deem advisable under the rules,
regulations, or other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed, and any
applicable federal or state securities law. In addition, if, at any time
specified herein (or in any Award Agreement or otherwise) for (a) the making of
any Award, or the making of any determination, (b) the issuance or other
distribution of Restricted Shares and/or Common Stock, or (c) the payment of
amounts to or through a Participant with respect to any Award, any law, rule,
regulation or other requirement of any governmental authority or agency shall
require either the Company, any Subsidiary or any Participant (or any estate,
designated beneficiary or other legal representative thereof) to take any action
in connection with any such determination, any such shares to be issued or
distributed, any such payment, or the making of any such determination, as the
case may be, shall be deferred until such required action is taken. With respect
to persons subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with all applicable conditions of SEC Rule 16b-3. To
the extent any provision of the Plan or any action by the administrators of the
Plan fails to so comply with such rule, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
17.7 Award Agreements. Each Participant receiving an Award
under the Plan shall enter into an Award Agreement with the Company in a form
specified by the Committee. Each such Participant shall agree to the
restrictions, terms and conditions of the Award set forth therein and in the
Plan.
17.8 Designation of Beneficiary. Each Participant to whom an
Award has been made under the Plan may designate a beneficiary or beneficiaries
to exercise any option or to receive any payment which under the terms of the
Plan and the relevant Award Agreement may become exercisable or payable on or
after the Participant's death. At any time, and from time to time, any such
designation may be changed or cancelled by the Participant without the consent
of any such beneficiary. Any such designation, change or cancellation must be on
a form provided for that purpose by the Committee and shall not be effective
until received by the Committee. If no beneficiary has been designated by a
deceased Participant, or if the designated beneficiaries have predeceased the
Participant, the beneficiary shall be the Participant's estate. If the
Participant designates more than one beneficiary, any payments under the Plan to
such beneficiaries shall be made in equal shares unless the Participant has
expressly designated otherwise, in which case the payments shall be made in the
shares designated by the Participant.
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17.9 Leaves of Absence/Transfers. The Committee shall have the
power to promulgate rules and regulations and to make determinations, as it
deems appropriate, under the Plan in respect of any leave of absence from the
Company or any Subsidiary granted to a Participant. Without limiting the
generality of the foregoing, the Committee may determine whether any such leave
of absence shall be treated as if the Participant has terminated employment with
the Company or any such Subsidiary. If a Participant transfers within the
Company, or to or from any Subsidiary, such Participant shall not be deemed to
have terminated employment as a result of such transfers.
17.10 Loans. Subject to applicable law, the Committee may
provide, pursuant to Plan rules, for the Company or any Subsidiary to make loans
to Participants to finance the exercise price of any Stock Options, as well as
the withholding obligation under Section 17.1 of the Plan and/or the estimated
or actual taxes payable by the Participant as a result of the exercise of such
Stock Option and the Committee may prescribe the terms and conditions of any
such loan.
17.11 Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware, without reference to the principles of conflict of laws thereof. Any
titles and headings herein are for reference purposes only, and shall in no way
limit, define or otherwise affect the meaning, construction or interpretation of
any provisions of the Plan.
17.12 Effective Date. The Plan shall be effective upon its
approval by the Board and adoption by the Company, subject to (a) the occurrence
of the Closing, (b) approval of the Plan by the Company's shareholders in
accordance with Section 422 of the Code, and (c) approval of the Plan by the
Company's shareholders following the Closing in accordance with Section 162(m)
and the regulations thereunder at such time and to the extent required by Treas.
Reg. Section 1.162-27.
IN WITNESS WHEREOF, this Plan is adopted by the Company on
this _____ day of August, 1996.
CARSON, INC.
By: ________________________
Name:
Title:
