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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CARSON, INC.
(NAME OF SUBJECT COMPANY)
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CARSON, INC.
(NAME OF PERSON(S) FILING STATEMENT)
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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14584510
(CUSIP NUMBER OF CLASS OF SECURITIES)
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MALCOLM R. YESNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARSON, INC.
64 ROSS ROAD, SAVANNAH INDUSTRIAL PARK
SAVANNAH, GEORGIA 31405
TELEPHONE: (912) 651-3400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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COPIES TO:
LAWRENCE LEDERMAN, ESQ.
ROBERT S. REDER, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY LLP
ONE CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
________________________________________________________________________________
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ITEM 1. SUBJECT COMPANY INFORMATION.
(a) Name and Address. The name of the subject company is Carson, Inc., a
Delaware corporation (the 'Company'). The address of its principal executive
offices is 64 Ross Road, Savannah Industrial Park, Savannah, Georgia 31405 and
the telephone number is (912) 651-3400.
(b) Securities. The title of the class of equity securities to which this
statement relates is Class A Common Stock, par value $.01 per share, of the
Company (the 'Class A Common Stock' or the 'Shares'). As of February 25, 2000,
10,083,485 shares of Class A Common Stock were issued and outstanding. In
addition, as of that date, 5,126,163 shares of Class C Common Stock, par value
$.01 per share, of the Company (the 'Class C Common Stock' and, together with
the Class A Common Stock, the 'Company Common Stock') were issued and
outstanding. Each share of Class C Common Stock is convertible into one share of
Class A Common Stock.
ITEM 2. IDENTITY AND BACKGROUND OF THE FILING PERSON.
(a) Name and Address. The name, business address and business telephone of
the Company, which is the person filing this statement, are set forth in Item
1(a) above, which information is incorporated herein by reference.
(b) Tender Offer. This statement relates to the tender offer by Crayon
Acquisition Corp. ('Purchaser'), a Delaware corporation and a wholly-owned
subsidiary of Cosmair, Inc., a Delaware corporation ('Parent'), disclosed in a
Tender Offer Statement on Schedule TO (the 'Schedule TO'), dated March 8, 2000,
offering to purchase all of the outstanding Shares at a price of $5.20 per
share, net to the seller in cash (the 'Offer Price'), upon the terms and subject
to the conditions set forth in the Offer to Purchase dated March 8, 2000, and
any supplement thereto (the 'Offer to Purchase'), and the related Letter of
Transmittal, and any supplement thereto (which, together with the Offer to
Purchase, constitute the 'Offer').
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 25, 2000 (the 'Merger Agreement'), by and among Parent, Purchaser
and the Company. The Merger Agreement provides, among other things, that
following satisfaction or waiver of the conditions set forth in the Merger
Agreement, Purchaser will be merged with and into the Company (the 'Merger'),
the separate corporate existence of Purchaser will cease and the Company will
continue as the surviving corporation (the 'Surviving Corporation'). In the
Merger, each outstanding share of Company Common Stock (other than shares held
in the treasury of the Company, or by Parent, Purchaser or any other
wholly-owned subsidiary of Parent, which shares will be cancelled, and other
than Shares, if any, held by stockholders who perfect any appraisal rights they
may have under the Delaware General Corporation Law (the 'DGCL')) remaining
outstanding, will, by virtue of the Merger and without any action by the holder
thereof, be converted into the right to receive the Offer Price in cash.
According to the Schedule TO, the principal executive offices of Parent and
Purchaser are located at 575 Fifth Avenue, New York, NY 10017.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as described or referred to in the Information Statement attached as
Schedule I hereto or as set forth below, to the knowledge of the Company, there
are no material contracts, agreements, arrangements and understandings and no
actual or potential conflicts of interests between the Company and its
affiliates and (i) the Company, its executive officers and directors or
affiliates or (ii) Parent or Purchaser or any of their respective executive
officers, directors or affiliates.
CONFIDENTIALITY AGREEMENT.
On July 24, 1997, Parent and the Company entered into a confidentiality
agreement which was reaffirmed on March 10, 1999 (the 'Confidentiality
Agreement'). Pursuant to the Confidentiality Agreement, Parent agreed to use the
Evaluation Material (as defined in the Confidentiality
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Agreement) furnished to it by the Company solely for the purpose of evaluating a
possible negotiated transaction between Parent and the Company and further
agreed to keep such material confidential. In addition, Parent agreed in the
Confidentiality Agreement that, for a period of two years, it would refrain from
acquiring, seeking or proposing to acquire the Company or any of its securities
or to engage in the solicitation of proxies for the Company's securities or
otherwise from seeking or proposing to control the Company Board (as defined
herein). The Confidentiality Agreement, a copy of which has been filed as
Exhibit (e)(1) hereto, is more fully summarized in the Offer to Purchase under
the heading 'PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; MERGER
AGREEMENT; STOCKHOLDERS AGREEMENT AND OTHER AGREEMENTS; OTHER
MATTERS -- CONFIDENTIALITY AGREEMENT' and is incorporated herein by reference.
EXCLUSIVITY AGREEMENT.
On February 3, 2000, Parent and the Company entered into an exclusivity
agreement (the 'Exclusivity Agreement'). Pursuant to the Exclusivity Agreement,
the Company, subject to certain exceptions, agreed to negotiate exclusively with
Parent with respect to a possible acquisition of the Company until February 14,
2000, and to afford Parent and its affiliates reasonable access to complete
their due diligence review of the Company. The Company's largest stockholder,
DNL Partners Limited Partnership ('DNL'), which controls a majority of the
voting power of the Company Common Stock through its ownership of 3,015,463
shares of Class C Common Stock, also agreed to be bound by the terms of the
exclusivity arrangement contained in the Exclusivity Agreement. The Exclusivity
Agreement, a copy of which has been filed as Exhibit (e)(2), is incorporated
herein by reference.
MERGER AGREEMENT.
Parent, Purchaser and the Company have entered into the Merger Agreement, a
copy of which is filed as Exhibit (e)(3) hereto. The description of the terms of
the Merger Agreement contained in the Offer to Purchase under the heading
'PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; MERGER AGREEMENT;
STOCKHOLDERS AGREEMENT AND OTHER AGREEMENTS; OTHER MATTERS -- THE MERGER
AGREEMENT' is incorporated herein by reference.
STOCKHOLDERS AGREEMENT.
In connection with, and as a condition to the execution and delivery by
Parent of, the Merger Agreement, Parent, Purchaser, the Company and DNL and
certain other stockholders of the Company owning in the aggregate approximately
88% of the total voting power of all outstanding shares of Company Common Stock
entered into a Stockholders Agreement, dated as of February 25, 2000 (the
'Stockholders Agreement'), pursuant to which each of these stockholders has,
among other things, (i) subject to the fulfillment of certain conditions, agreed
to convert such stockholder's shares of Class C Common Stock into shares of
Class A Common Stock and to tender all of such stockholder's Shares in the
Offer, (ii) agreed to vote such stockholder's shares of Company Common Stock in
favor of the Merger and the Merger Agreement and against various matters that
could reasonably be expected to impede, interfere with, delay, postpone or
adversely affect the Merger and the transactions contemplated by the Merger
Agreement and the Stockholders Agreement and (iii) granted to Parent a proxy
with respect to the foregoing voting arrangements. The Stockholders Agreement, a
copy of which has been filed as Exhibit (e)(4), is more fully summarized in the
Offer to Purchase under the heading 'PURPOSE OF THE OFFER AND THE MERGER; PLANS
FOR THE COMPANY; MERGER AGREEMENT; STOCKHOLDERS AGREEMENT AND OTHER AGREEMENTS;
OTHER MATTERS -- THE STOCKHOLDERS AGREEMENT' and is incorporated herein by
reference.
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YESNER EMPLOYMENT AGREEMENT.
On February 25, 2000, in connection with, and as a condition to the
execution and delivery by Parent of, the Merger Agreement, Malcolm Yesner ('Mr.
Yesner'), the President and Chief Executive Officer of the Company, entered into
an employment agreement with Parent (the 'Yesner Employment Agreement') pursuant
to which Mr. Yesner will serve as the President of Carson Products Company, the
Company's wholly-owned subsidiary ('Carson Products'), and as an officer of
Parent. The Yesner Employment Agreement has an initial term of 24 months
commencing upon the earlier to occur of the completion of the Offer or the
effective date of the Merger (the 'Initial Term'). At the end of the Initial
Term, the Yesner Employment Agreement will remain in effect for additional
one-year terms unless either party has given written notice to the other party
90 days prior to the expiration. Mr. Yesner will receive an annual base salary
of $375,000 through December 31, 2000, $420,000 for the period January 1, 2001
through December 31, 2001 and not less than $420,000 for the period from January
1, 2002 through the remainder of the Initial Term. This base salary may be
increased, but not decreased, by Parent at any time.
Mr. Yesner will receive a guaranteed bonus of $150,000 for Parent's 2000
fiscal year and for the remainder of the term of employment will be eligible to
receive, in the sole discretion of Parent, an annual bonus of up to 30% of Mr.
Yesner's base salary at such time. Mr. Yesner is also entitled to the payment of
a retention bonus of $2,250,000 (the 'Retention Bonus') following the earliest
to occur of (i) the expiration of the Initial Term (provided Mr. Yesner is
employed by Parent on the last day thereof), (ii) Mr. Yesner's death or
disability and (iii) the termination of Mr. Yesner's employment without 'Cause'
or for 'Good Reason' (each as defined in the Yesner Employment Agreement).
Mr. Yesner will participate in Parent's Stock Incentive Plan maintained for
the benefit of the senior executives of Parent (the 'Stock Incentive Plan').
Parent will credit $100,000 to Mr. Yesner's phantom stock account for the 2000
fiscal year and for each successive completed fiscal year of employment Parent
will credit Mr. Yesner's account with an amount equal to Mr. Yesner's annual
bonus actually awarded in such year.
The Yesner Employment Agreement provides that if Mr. Yesner is terminated
without 'Cause' or resigns for 'Good Reason' Mr. Yesner will receive the
following: (i) the sum of his remaining base salary, (ii) any bonus payment Mr.
Yesner would have received had he worked the balance of the Initial Term or, if
applicable, during the balance of any renewal term, (iii) the Retention Bonus if
the Yesner Employment Agreement is terminated within the Initial Term, (iv)
continuation of certain health and welfare benefits, and (v) any other
compensation and benefits as may be provided in accordance with any applicable
plans, programs or agreements of Parent. The Yesner Employment Agreement also
provides that if Mr. Yesner is terminated for 'Cause' or resigns without 'Good
Reason', Mr. Yesner will not be entitled to any additional compensation, except
for any compensation or benefits as may be provided in accordance with any
applicable plans, programs or agreements of Parent.
The Yesner Employment Agreement provides that Mr. Yesner will not compete,
directly or indirectly, within any geographic area in which Parent or its
affiliates are doing business for a period of three years following the date of
Mr. Yesner's termination for any reason (the 'Restriction Period'). In
consideration of such restriction, Mr. Yesner will receive the following: (i)
during the first two years of the Restriction Period a payment of $500,000 per
year and (ii) during the last year of the Restriction Period a payment of
$400,000. If Mr. Yesner voluntarily terminates his employment (other than due to
disability or for 'Good Reason') during the Initial Term, Purchaser may elect to
waive the non-compete provisions in the Yesner Employment Agreement, in which
case, Parent would not be liable to pay any amounts during the Restriction
Period.
Upon the commencement of the Initial Term, the Yesner Employment Agreement
will supersede Mr. Yesner's current employment arrangements with the Company,
which are described in the Information Statement attached as Schedule I hereto.
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A copy of the Yesner Employment Agreement is attached as Exhibit (e)(5)
hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board. On February 18, 2000, the Board of
Directors of the Company (the 'Company Board') unanimously (with three directors
abstaining as described below under ' -- Background') (i) determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, taken together, are fair to, and in the best interests of, the
holders of shares of Company Common Stock, (ii) approved and adopted the Merger
Agreement, the Offer, the Merger and the other transactions contemplated thereby
(including, without limitation, for purposes of Section 203 of the DGCL) and
(iii) recommended that the holders of shares of Company Common Stock accept the
Offer and, if required by the DGCL, approve and adopt the Merger Agreement and
the transactions contemplated thereby. ACCORDINGLY, THE COMPANY BOARD RECOMMENDS
THAT THE STOCKHOLDERS OF THE COMPANY TENDER THEIR SHARES PURSUANT TO THE OFFER.
Copies of a press release announcing the Merger Agreement and the transactions
contemplated thereby and of a letter to the stockholders of the Company
communicating the Company Board's recommendation are filed herewith as Exhibits
(a)(3) and (a)(4), respectively, and are incorporated herein by reference.
(b)(1) Background.
Parent first contacted the Company through their respective financial
advisors in July 1997 concerning a possible acquisition of the Company. On July
24, 1997, Parent and the Company entered into the Confidentiality Agreement and
the Company provided certain information to Parent. A meeting was held between
representatives of the two companies, Parent's financial advisor, Lazard Freres
& Co. LLC ('Lazard'), and the Company's former financial advisor. Thereafter,
Lazard advised the Company's former financial advisor that Parent was not
interested in pursuing an acquisition of the Company.
In September 1998, the Company was contacted by two other potential
strategic buyers interested in discussing a possible acquisition of the Company.
In light of this contact, on September 24, 1998, the Company formally engaged
PaineWebber Incorporated ('PaineWebber') to act as its exclusive financial
advisor to help the Company consider its strategic alternatives. In addition,
the Company engaged Milbank, Tweed, Hadley & McCloy LLP ('Milbank, Tweed') to
assist the Company in connection with any proposed sale transaction.
Between November 1998 and February 1999, PaineWebber contacted five
potential strategic buyers, including Parent, on behalf of the Company. In
February and March 1999, the Company entered into confidentiality agreements
with four of these potential buyers. On March 10, Parent reaffirmed its
obligations to the Company under the Confidentiality Agreement. In addition,
management presentations were made to the potential buyers, who then conducted
certain follow-up due diligence. Although representatives of the Company held
preliminary discussions with certain of the potential buyers, none of them,
including Parent, was willing to make an offer at that time.
In August 1999, the Company publicly announced that it would begin to
explore alternative strategies for the Company's stake in its South African
subsidiary. Thereafter, a South African-based investment banking firm was
retained to solicit bids. Although the Company received two bids as a result of
this process, the Company was not satisfied with the bids and the sales process
was put on hold.
Following the public announcement of a potential sale of the Company's South
African holdings, the Company received inquiries as to whether the Company would
again entertain offers for a transaction involving the entire Company.
Thereafter, between August and November 1999, at the Company's request,
PaineWebber contacted four of the original potential strategic buyers, including
Parent, and seven additional potential buyers, including three financial buyers,
to see if they had any interest in discussing an acquisition of the Company.
From late October through December 1999, Parent and the two other potential
strategic buyers who indicated their interest in
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proceeding further in the process were allowed to conduct in-depth due
diligence, including discussions with members of senior management.
On January 4, 2000, PaineWebber sent letters to four potential bidders,
including Parent, requesting non-binding indications of interest for the
acquisition of the Company. The Company's legal counsel also forwarded a draft
of the Merger Agreement to Parent and one of the other potential bidders,
together with a draft of the Stockholders Agreement indicating that holders of a
portion of the shares of Class C Common Stock representing a majority of the
voting power of the Company Common Stock would agree to support the transaction.
Initially, Parent informed PaineWebber that it was chiefly interested in
acquiring the Company's international operations. PaineWebber responded that the
Company's strong preference was to sell the entire Company. Thereafter, the
Company received three non-binding indications of interest for the sale of the
Company: one was delivered orally to two of the Directors bidding the market
price of the Shares (which at the time was approximately $3.00), and two were
delivered on January 14, 1999 in written form, including one from Parent, each
bidding $5.00 per Share. At the time Parent submitted its bid, Parent advised
PaineWebber that it would seek to renegotiate the employment arrangements of the
Company's President and Chief Executive Officer, Malcolm Yesner, in order to
receive a commitment of continued employment from Mr. Yesner. The Company,
PaineWebber and Milbank, Tweed discussed the relative values of the offers
received. Following clarification from Parent that its $5.00 bid was subject to
reduction to reflect the estimated cost, above 101% of principal amount (the put
price for bondholders upon a change of control of the Company), of retiring the
Company's public senior subordinated bonds, PaineWebber and the Company
concluded that Parent's offer should be valued at approximately $4.40 per Share.
On January 21, 2000, PaineWebber sent follow-up letters to Parent and the
other potential buyer who had submitted a non-binding indication of interest at
the $5.00 level requesting final offers for the Company. On January 27, 2000,
Lazard orally communicated to PaineWebber that Parent reaffirmed its $5.00 per
Share bid but dropped the condition relating to retirement of the Company's
public senior subordinated bonds discussed above which had previously led
PaineWebber and the Company to discount the offer to approximately $4.40. On or
about the same date, the other potential buyer advised PaineWebber that it had
decided not to pursue a transaction with the Company and withdrew its previous
bid.
On February 1, 2000, following further price discussions between PaineWebber
and Parent and its financial advisor, Lazard, Parent informed PaineWebber that,
before proceeding further with any price negotiations, Parent required that the
Company enter into an agreement providing for an exclusivity period, during
which period the Company would agree not to solicit offers from or conduct
negotiations with any other potential bidder and Parent would endeavor to
complete its due diligence review of the Company. Parent also advised the
Company through its legal counsel that Parent's bid was conditioned on all
owners of Class C Common Stock, entering into the Stockholders Agreement with
Parent simultaneously with the execution and delivery of the Merger Agreement
with the Company, thereby assuring stockholder approval of the transaction and
enhancing Parent's ability to complete a short-form merger. Parent also
reaffirmed its need to enter into new employment arrangements with Mr. Yesner
providing for a two-year commitment.
Later on February 1, 2000, a special meeting of the Company Board was held
for the purpose of updating the directors with respect to the history, content
and status of discussions concerning the potential sale of the Company.
Presentations were made by representatives of PaineWebber and Milbank, Tweed as
well as by certain members of the Company Board's Executive Committee who had
been a party to discussions with various of the potential bidders. In
particular, the Company Board was apprised of Parent's offer to acquire the
Company, the issues raised by Parent with respect to the Merger Agreement and
the Stockholders Agreement and of Parent's request that the Company enter into
the Exclusivity Agreement. The Company Board discussed Parent's offer, reviewed
the possible alternatives to the offer, including the likelihood that any other
offers would be forthcoming and continuing to operate as an independent public
company. Following a discussion of the various alternatives available to the
Company, the Company Board instructed PaineWebber to seek an offer of $5.25 per
share from Parent and authorized the
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Company to enter into the Exclusivity Agreement if such an offer was received in
order to encourage Parent to conclude its due diligence in a timely manner.
PaineWebber relayed the Company Board's position to Lazard and, on February
2, 2000, Parent raised its offer to $5.25 per share, subject to satisfactory
completion of its due diligence investigation, expansion of the definition of
'material adverse change' contained in the Merger Agreement and a two-week
exclusivity period. The Company and DNL entered into the Exclusivity Agreement
with Parent on February 3, 2000. The exclusivity period was scheduled to
terminate at midnight on February 14, 2000.
From February 3 to February 14, 2000, the Company and Parent and their
respective legal and financial advisors negotiated the final terms of the Merger
Agreement and the Stockholders Agreement and related documents. Concurrently,
Parent continued its due diligence investigation. During this investigation,
Parent became aware of certain litigation (the 'AM Lawsuits') between the
Company and AM Cosmetics Corp. ('AMC') and its wholly-owned subsidiary, AM
Products Company ('AMP', and together with AMC, the 'AM Companies') and the
terms of a proposed settlement. Parent informed the Company that its offer was
contingent upon a settlement of the AM Lawsuits satisfactory to Parent. For a
more detailed description of the AM Lawsuits see Schedule I attached hereto
under the heading 'CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- AM
COSMETICS.' In addition, during this period, Parent and Mr. Yesner reached
agreement on revised employment terms to take effect upon consummation of the
Merger. See, 'YESNER EMPLOYMENT AGREEMENT.'
In the afternoon of February 15, 2000, the Company Board held a special
meeting to receive an update on the status of discussions and negotiations with
Parent. At this meeting, representatives of PaineWebber reviewed with the
Company Board its financial analysis of Parent's proposed acquisition price, and
delivered its oral opinion that, as of such date, the $5.25 per share cash
consideration to be received by the stockholders was fair to such stockholders
from a financial point of view. Milbank, Tweed reported on the status of
discussions with respect to the Merger Agreement, the Stockholders Agreement and
related documents (copies of which, together with an executive summary, had been
forwarded to the directors prior to the meeting). In addition, Company officers
and special litigation counsel reported on the status of settlement negotiations
with the AM Companies. The Company Board was advised that the Company and the AM
Companies had agreed in principle to a settlement of the AM Lawsuits pursuant to
which the Company would pay $650,000 to the AM Companies and would surrender
shares of preferred stock of the AM Companies previously purchased by the
Company. Because certain of the directors of the Company were present or former
directors, officers and/or stockholders of the AM Companies, the Company Board
appointed an independent litigation committee of Malcolm Yesner and Jack Kemp to
advise the Company Board as to the fairness and appropriateness of the proposed
settlement. The independent litigation committee approved the settlement
described above, subject to negotiation of a settlement agreement and
appropriate releases for the Company and its current and former officers and
directors.
The Company Board adjourned the meeting in the evening of February 15, 2000,
but reconvened each day for several hours, either in person or telephonically,
from February 16 through February 18, 2000. Each day, the Company's officers and
financial and legal advisors updated the Company Board on the status of the
settlement negotiations and discussions with Parent. During the course of the
week, it became apparent that the AM Companies were not willing to agree to
releases for certain officers and directors of the Company who had been officers
and directors of the AM Companies that were satisfactory either to the Company
Board or to Parent in light of the Company's continuing indemnity obligations to
these officers and directors.
On February 18, the Company Board was informed that the AM Companies
required the Company to increase the settlement amount to $2 million in order to
grant a release to the Company and all of its current and former directors and
officers that was acceptable to each of the Company and Parent in form and
scope. In view of the proposed $1.35 million increase in the settlement cost,
the Company Board recognized that, to the extent the Company bore the
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increased settlement cost, Parent's acquisition cost would be effectively
increased by such amount. The Company Board also recognized, based on the
previous negotiations, that Parent would be unwilling to bear such increase. In
order to induce Parent to proceed with the transaction, DNL advised the Company
Board that it would directly contribute a portion of the settlement increase,
provided that the transaction with Parent was consummated. On this basis, the
Company, Parent and DNL agreed that DNL would fund $531,492 of the increased
settlement cost and Parent's offer would be reduced by $.05 per Share to $5.20
per Share, which is equal to $818,508 and which corresponds to the remaining
portion of the increased settlement cost not being directly funded by DNL
(although DNL would effectively bear approximately $150,773 of this portion of
the increased settlement cost by virtue of its 18.4% ownership interest of the
Company Common Stock). Based on the foregoing developments, the independent
litigation committee reviewed the revised terms for the settlement and
recommended that the Company Board approve a settlement payment totaling $2
million (plus surrender of the preferred stock) to the AM Companies and that a
settlement agreement and satisfactory releases be negotiated as expeditiously as
possible. The Company Board discussed the Company's options with respect to the
settlement negotiations and considered the effect that an extended settlement
negotiation would have on the Company, in particular with respect to Parent's
willingness to proceed with the proposed transaction. The Company Board
unanimously approved the proposed settlement on that date, with three directors
(two of whom were also directors of the AM Companies and the other of whom was
one of the principal beneficiaries of the releases received from the AM
Companies as a result of the increased settlement payment) abstaining.
Thereafter, at the February 18 meeting, PaineWebber advised the Company
Board that the reduction of the proposed merger consideration to $5.20 per Share
in light of the proposed settlement of the AM Lawsuits did not change its
overall conclusions with respect to the fairness of the consideration being
offered by Parent, as reviewed with the Company Board on February 15, 2000.
Accordingly, PaineWebber rendered to the Company Board its oral opinion (which
was confirmed by delivery of a written opinion dated February 18, 2000) as to
the fairness, from a financial point of view, of the $5.20 per Share cash
consideration to be received by Company stockholders in the Offer and the
Merger.
Following PaineWebber's presentation and further discussions among the
directors and the Company's financial and legal advisors and consideration of
the factors discussed below under 'Reasons for the Recommendation,' the Company
Board unanimously, with the three directors who abstained from the vote on the
Settlement Agreement as described above abstaining, (i) determined that the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, taken together, are fair to, and in the best interests of, the
stockholders of the Company, (ii) approved and adopted the Merger Agreement, the
Offer, the Merger and the other transactions contemplated thereby and (iii)
recommended that the stockholders of the Company accept the Offer and, if
required by the DGCL, approve and adopt the Merger and the Merger Agreement and
the transactions contemplated thereby. The Company Board recognized that
completion of negotiations with Parent depended on satisfactory documentation of
the settlement with the AM Companies and the release of the Company from certain
indemnity obligations to certain officers and directors of the Company who had
been officers and directors of the AM Companies. Agreement on the forms of these
releases (the 'Indemnity Releases') was reached on February 18, 2000.
Between February 18 and February 25, 2000, representatives of the Company
and the AM Companies continued to negotiate the terms of a settlement agreement
and the related releases. While the Company was ultimately willing to pay half
of the proposed $2 million settlement upon signing the settlement agreement, the
Company sought to defer payment of the remaining $1 million (the 'Second
Payment'). Parent insisted that the Second Payment not be due until the earlier
of the consummation of the Merger or July 31, 2000, the scheduled termination
date of the Merger Agreement; however, the AM Companies initially were not
prepared to accept deferral of the Second Payment beyond March 31, 2000. In
order to bridge this gap, six directors of the Company (Messrs. Bathgate,
Butler, Estrin, Sabre, Wasik and Yesner) arranged for GrandBank, Inc., a
Maryland state chartered bank, to issue an irrevocable letter of credit (the
'Letter of
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Credit') in the amount of $690,000 for the benefit of the AM Companies to secure
a portion of the Second Payment. The AM Companies are entitled to make a draw
down under the Letter of Credit to the extent that the Second Payment has not
been made on or prior to March 31, 2000. Both Parent and the AM Companies agreed
to this arrangement. Pursuant to a letter agreement among the Company and such
directors (the 'Reimbursement Agreement'), the Company agreed to reimburse such
directors for the full amount of any draw downs under the Letter of Credit in
circumstances in which the Merger is not consummated, together with interest
thereon at the rate of 12% per annum from the date of the draw down to the date
of reimbursement. In circumstances in which the Merger is consummated, the
Company is required to reimburse such directors only for any amounts drawn down
under the Letter of Credit in excess of $531,492 (the first $531,492 of
reimbursement in such circumstance being the responsibility of DNL), together
with interest thereon at the rate of 12% per annum from the date of the draw
down to the date of reimbursement. After review and recommendation by an
independent committee consisting of Leroy Keith, Suzanne de Passe, James Hudson
and Jack Kemp, the reimbursement arrangements embodied in the Reimbursement
Agreement were approved by unanimous written consent of the Company Board.
Copies of the Settlement Agreement, the mutual releases delivered by Carson
Products and the AM Companies and the Reimbursement Agreement are attached as
Exhibits (e)(6), (e)(7), (e)(8) and (e)(9) hereto and are incorporated herein by
reference.
The Company and the AM Companies concluded the settlement negotiations and
entered into a settlement agreement with mutual releases and related
documentation on February 25, 2000 (the 'Settlement Agreement'). In addition,
Parent indicated on that date that it was prepared to enter into the Merger
Agreement in the form negotiated by the parties and their counsel, calling for
an Offer and Merger price of $5.20 per share of Company Common Stock. DNL and
each of the other holders of Class C Common Stock, together with the Company's
directors and certain officers (including those who had abstained from the vote
on the Merger Agreement), indicated their willingness to sign the Stockholders
Agreement. Accordingly, on February 25, 2000, Parent, Purchaser and the Company
signed the Merger Agreement, the Stockholders Agreement and related documents,
each of the Stockholders signed the Stockholders Agreement and granted Parent
the proxy contemplated by the Stockholders Agreement and the Indemnity Releases
were executed and delivered. In addition, on that date Parent and Mr. Yesner
entered into the Yesner Employment Agreement discussed above.
Parent and the Company issued separate press releases announcing the Merger
on February 28, 2000.
(b)(2) Reasons for the Recommendation.
In making the determinations and recommendations set forth in Item 4(a)
above, the Company Board considered a number of factors including, without
limitation, the following:
(i) The historical and recent market prices of the Shares, the lack of
liquidity, trading volume and analyst coverage of the Shares due to the
Company's relatively small market capitalization and the fact that the cash
offer price of $5.20 per share of Company Common Stock provided for in the
Merger Agreement represented a premium of approximately 40% over the closing
trading price of the Shares on the last trading day prior to the
announcement of the Merger.
(ii) The advice and presentation of PaineWebber, including the opinion
of PaineWebber delivered on February 18, 2000 that, as of such date and
based upon its review and analysis and subject to the limitations set forth
therein, the $5.20 per Share cash consideration to be received by the
holders of shares of Company Common Stock in the Offer and the Merger, taken
together, is fair to such holders from a financial point of view. A copy of
the written opinion dated February 18, 2000 of PaineWebber, which sets forth
the procedures followed, matters considered, assumptions made and
limitations of the review undertaken by PaineWebber in rendering its
opinion, is attached as Exhibit (a)(6) hereto and is incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE OPINION OF
PAINEWEBBER IN ITS ENTIRETY.
8
<PAGE>
(iii) The terms and conditions of the Merger Agreement and, in
particular, the facts that the transaction is structured as a two-step
transaction and the Offer provides Company stockholders with an opportunity,
assuming no regulatory delays, to receive their cash payment on an
accelerated basis, and that Parent has the ability to terminate the Offer
and the Merger Agreement only in a limited number of circumstances.
(iv) The inherent risks in continuing to operate as an independent
public company given the competitive business environment in which the
Company operates and the increasing difficulty that the Company faces,
because of its relatively small size, limited resources and significant
debt, in its ability to achieve increased sales of its products and
services.
(v) The Company Board's familiarity with the Company's business,
prospects, financial condition, results of operations and current business
strategy and the significant challenges that the Company would face if it
did not proceed with the proposed transaction with Parent, including the
need for funds to achieve future plans, the need to refinance the Company's
long term debt in the near future, near and long term business risks and
recent turnovers in Company management.
(vi) The absence of other strategic alternatives given the fact that no
firm offers to acquire the Company -- other than Parent's -- were obtained
by PaineWebber despite its contacting numerous potential strategic and
financial purchasers on behalf of the Company over an extended period of
time.
(vii) The high likelihood that the transactions contemplated by the
Merger Agreement would be consummated, particularly in light of Parent's
reputation and ability to finance the acquisition and the absence of any
financing condition in the Merger Agreement.
(viii) The fact that DNL and other stockholders controlling
approximately 88% of the voting power of the outstanding shares of Company
Common Stock and approximately 48% of the number of outstanding shares of
Company Common Stock on a fully-diluted basis were in favor of the
transaction with Parent and were willing to sign the Stockholders Agreement.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Company Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Company Board may have given different weights to
different factors.
(c) Intent to Tender. Pursuant to the Stockholders Agreement, the
Stockholders have agreed (1) upon receipt of written notice from Parent or
Purchaser that at least 565,857 shares of Class A Common Stock have been
tendered, to convert all of their shares of Class C Common Stock into shares of
Class A Common Stock and tender all shares of Company Common Stock owned by them
pursuant to the Offer, (ii) vote their shares of Company Common Stock in favor
of the Merger and (iii) vote against any action or agreement (other than the
Merger Agreement or the transactions contemplated thereby) that would impede,
interfere with, delay, postpone or attempt to discourage the Merger or the
Offer. The shares of Company Common Stock that are the subject of the
Stockholders Agreement represent, in the aggregate, approximately 48% of the
outstanding shares of Company Common Stock on a fully diluted basis. See
'Stockholders Agreement' under Item 3 above.
To the best of the Company's knowledge, each of its directors and executive
officers, including those who are party to the Stockholders Agreement, presently
intend to tender his or her Shares pursuant to the Offer.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
On September 24, 1998, the Company formally engaged PaineWebber to act as
the Company's exclusive financial advisor in connection with any proposed sale
transaction (a 'Sale') involving the Company and another business entity (the
'Financial Advisor Agreement'). Pursuant to the Financial Advisor Agreement,
PaineWebber agreed, upon the Company's reasonable request, to
9
<PAGE>
perform certain customary financial advisory and investment banking services,
including the rendering of a fairness opinion to the Company Board in connection
with a Sale.
Pursuant to the Financial Advisor Agreement, the Company agreed to pay
PaineWebber cash fees for its services in the following amounts: (i) a retention
fee of $50,000, (ii) $500,000 for rendering an opinion as to the fairness, from
a financial point of view, of the consideration to be received by the Company
and its stockholders in connection with a Sale and (iii) a transaction fee of
.95% of the purchase price upon consummation of a Sale (as defined therein),
less the fees described in clauses (i) and (ii) above.
In addition, the Company has agreed in the Financial Advisor Agreement to
reimburse PaineWebber for its reasonable out-of-pocket expenses, including
reasonable fees of counsel. In a separate letter agreement also executed on
September 24, 1998, the Company has agreed to indemnify PaineWebber and certain
related persons against certain liabilities in connection with PaineWebber's
engagement under the Financial Advisor Agreement.
ITEM 6. SECURITIES TRANSACTIONS.
There have been no transactions in Shares which were effected during the
past sixty (60) days by the Company or, to the best of the Company's knowledge,
any executive officer, director or affiliate of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as set forth in Items 3 and 4 above, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) a tender offer or other acquisition of securities by or of the Company; (ii)
an extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company; (iii) a purchase, sale or transfer of a material amount
of assets by the Company; or (iv) any material change in the present dividend
rate or policy, or indebtedness, or capitalization of the Company.
(b) Except as described in Item 3 above, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relates to one or more of the matters referred to in Item 1006(d)(1)
of Regulation M-A.
ITEM 8. ADDITIONAL INFORMATION.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal, which are attached as Exhibits (a)(1) and (a)(2) hereto,
respectively, and are incorporated by reference herein in their entirety.
10
<PAGE>
ITEM 9. EXHIBITS.
<TABLE>
<CAPTION>
<C> <S>
*(a)(1) -- Offer to Purchase dated March 8, 2000.
*(a)(2) -- Letter of Transmittal with respect to Shares.
**(a)(3) -- Text of press release issued by Carson, Inc. dated
February 28, 2000.
(a)(4) -- Letter to stockholders of Carson, Inc. dated March 8,
2000.
*(a)(5) -- Form of Summary Advertisement dated March 8, 2000.
(a)(6) -- Fairness Opinion of PaineWebber Incorporated dated
February 18, 2000.
*(e)(1) -- Confidentiality Agreement, dated July 24, 1997, as
amended from time to time, by and between Carson, Inc. and
Cosmair, Inc.
*(e)(2) -- Exclusivity Agreement, dated as of February 3, 2000, by
and between Carson, Inc. and Cosmair, Inc. and agreed to
by DNL Partners Limited Partnership.
*(e)(3) -- Agreement and Plan of Merger, dated as of February 25,
2000, by and among Cosmair, Inc., Crayon Acquisition Corp.
and Carson, Inc.
*(e)(4) -- Stockholders Agreement, dated as of February 25, 2000, by
and among Cosmair, Inc., Crayon Acquisition Corp., Carson,
Inc. and the stockholders signatory thereto.
*(e)(5) -- Employment Agreement, dated as of February 25, 2000, by
and between Cosmair, Inc. and Malcolm R. Yesner.
**(e)(6) -- Settlement Agreement, dated as of February 25, 2000,
among Carson Products Company, AM Cosmetics Corp. and AM
Products Company.
**(e)(7) -- Release, dated as of February 25, 2000, by Carson
Products Company in favor of AM Cosmetics Corp. and AM
Products Company.
**(e)(8) -- Release, dated as of February 25, 2000, by AM Cosmetics
Corp. and AM Products Company in favor of Carson Products
Company.
**(e)(9) -- Letter Agreement, dated as of February 25, 2000, among
Carson, Inc. and certain directors of the Company.
***(e)(10) -- Letter Agreement, dated as of February 25, 2000, among
DNL Partners Limited Partnership and Cosmair, Inc.
***(e)(11) -- Form of Indemnity Release between certain officers and
directors of Carson, Inc. and Cosmair, Inc.
(g) -- [not applicable]
</TABLE>
- ---------
* Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule TO
dated March 8, 2000 and incorporated herein by reference.
** Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 2000.
*** To be filed by amendment.
11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
CARSON, INC.
By: /s/ ROBERT W. PIERCE
.........................
Name: Robert W. Pierce
Title: Executive Vice President
and Chief Financial Officer
Dated: March 8, 2000
12
<PAGE>
SCHEDULE I
CARSON, INC.
64 ROSS ROAD, SAVANNAH INDUSTRIAL PARK
SAVANNAH, GEORGIA 31405
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about March 8, 2000 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the 'Schedule
14D-9') of Carson, Inc. (the 'Company') to the holders of record of shares of
Class A Common Stock, par value $.01 per share, of the Company (the 'Class A
Common Stock'). You are receiving this Information Statement in connection with
the possible election of persons designated by Cosmair, Inc., a Delaware
corporation ('Parent'), to at least a majority of the seats on the Board of
Directors of the Company (the 'Board').
On February 25, 2000, the Company, Parent and Crayon Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent ('Purchaser'),
entered into an Agreement and Plan of Merger (the 'Merger Agreement') in
accordance with the terms and subject to the conditions of which (i) Purchaser
will commence a tender offer (the 'Offer') for all of the issued and outstanding
shares of Class A Common Stock at a price of $5.20 per share (or any greater
amount paid per share pursuant to the Offer), net to the seller in cash, and
(ii) following the consummation of the Offer and the satisfaction or waiver of
other conditions set forth in the Merger Agreement, Purchaser will be merged
with and into the Company (the 'Merger'). As a result of the Offer and the
Merger, the Company will become a wholly-owned subsidiary of Parent.
The Merger Agreement requires that the Company use its best efforts, at
Parent's request, to cause Parent's designees to be elected or appointed to the
Board under the circumstances described in Section 1.03 of the Merger Agreement.
See 'BOARD OF DIRECTORS AND EXECUTIVE OFFICERS -- Right to Designate Directors;
Parent's Designees' below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
In accordance with the Merger Agreement, Purchaser will commence the Offer
on Wednesday, March 8, 2000. The Offer is scheduled to expire at 12:00 midnight,
New York City time, on March 8, 2000 unless the Offer is extended or is
terminated under the terms of the Merger Agreement.
The information contained in this Information Statement concerning Parent,
Purchaser and Parent's Designees (as hereinafter defined) has been furnished to
the Company by Parent and Purchaser, and the Company assumes no responsibility
for the accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
Pursuant to the Company's Certificate of Incorporation, each stockholder is
entitled to (i) one vote for each share of 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' and, together with the Class A Common Stock,
the 'Company Common Stock'). At the close of business on February 25, 2000,
there were 10,083,485 shares of Class A Common Stock outstanding and 5,126,163
shares of Class C Common Stock outstanding.
The Board currently consists of ten (10) members and is divided into three
classes, designated as Class I, Class II and Class III, with each Director being
elected to a three-year term. The
I-1
<PAGE>
number of Directors may consist of such number of members, not less than ten
(10) and not more than fifteen (15), as shall be determined from time to time by
resolution of the Board. Vacancies in the Board may be filled by a majority vote
of the remaining Board though less than a quorum of the Board, and any Director
chosen to fill a vacancy will hold office until the expiration of the term of
his or her predecessor in office.
PARENT'S RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that, subject to compliance with applicable
law and the Company's Certificate of Incorporation, promptly upon the purchase
by Parent of shares of Class A Common Stock pursuant to the Offer, and from time
to time thereafter, Parent shall be entitled to designate such number of
Directors ('Parent's Designees'), rounded up to the next whole number, as shall
give Parent representation on the Board equal to the product of the total number
of Directors on the Board (giving effect to the Directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate voting power of
such number of shares of Class A Common Stock beneficially owned by Parent or
any affiliate of Parent following such purchase bears to the total voting power
of all shares of Company Common Stock then outstanding, and the Company shall,
at such time, promptly take all actions necessary to cause Parent's Designees to
be elected as Directors of the Company, including increasing the size of the
Board or securing the resignations of incumbent Directors or both.
It is expected that Parent's Designees may assume office at any time
following the purchase by Purchaser of shares of Class A Common Stock pursuant
to the Offer, which purchase may not be earlier than April 4, 2000, and that,
upon assuming office, Parent's Designees will thereafter constitute at least a
majority of the Board.
PARENT'S DESIGNEES
Any director or executive officer of Parent or Purchaser listed in Schedule
I to the Offer to Purchase filed as exhibit (a)(1)(A) to the Tender Offer
Statement on Schedule TO of Parent and Purchaser, dated March 8, 2000 ('Schedule
TO'), filed with the Securities and Exchange Commission may be designated by
Parent as a Parent's Designee. The information contained in said Schedule I with
respect to the potential Parent's Designees has been furnished by Parent for
inclusion herein and is incorporated herein by reference.
DIRECTORS OF THE COMPANY
Set forth below is certain information regarding each current Director of
the Company as of March 8, 2000:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS SINCE
---- --- --------- -----
<S> <C> <C> <C>
Lawrence E. Bathgate, II.............. 60 Director 1995
Abbey J. Butler....................... 62 Director 1996
Suzanne de Passe...................... 52 Director 1996
Melvyn J. Estrin...................... 57 Director 1996
James L. Hudson....................... 60 Director 1996
Leroy Keith........................... 61 Chairman of the Board and Director 1995
Jack Kemp............................. 63 Director 1996
John L. Sabre......................... 42 Director 1996
Vincent A. Wasik...................... 55 Director 1995
Malcolm R. Yesner..................... 42 President and Chief Executive Officer 1998
and Director
</TABLE>
Lawrence E. Bathgate, II became a Director of the Company upon its inception
in May 1995 and of Carson Products Company, the Company's wholly-owned
subsidiary ('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
I-2
<PAGE>
with which he has been affiliated since 1970. Mr. Bathgate is a founder and
principal of MCG Global, L.L.C., a Delaware limited liability company and
affiliate of the Company ('MCG Global'). Additionally, he has served as a
director of AM Cosmetics Corp., a Delaware corporation ('AM Cosmetics'), since
June 1996. He also serves on the Board of Trustees of Villanova University and
the Board of Regents of Seton Hall University and served as Finance Chairman of
the Republican National Committee from 1988 to 1992.
Abbey J. Butler became a Director of the Company in August 1996 and of
Carson Products in June 1996. Mr. Butler currently serves in the following
capacities for the following companies and organizations: Avatex (formerly
FoxMeyer Health Corporation), Director from 1990, Co-Chairman of the Board of
Directors from 1990, Co-Chief Executive Officer from 1990; NII Health Care
Corporation, Co-Chairman of the Board of Directors, Co-Chief Executive Officer;
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; GrandBank Inc.,
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 from
1997; 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.
Suzanne de Passe became a Director of the Company in August 1996 and of
Carson Products in June 1996. Ms. de Passe has served as Chief Executive Officer
of de Passe Entertainment since 1991. She currently serves on the Board of
Directors of The American Film Institute and the Los Angeles Opera.
Melvyn J. Estrin became a Director of the Company in August 1996 and of
Carson Products in June 1996. Mr. Estrin currently serves in the following
capacities for the following companies: Avatex (formerly FoxMeyer Health
Corporation), Director since 1990, Co-Chairman of the Board of Directors from
March 1991, Co-Chief Executive Officer from October 1991; NII Health Care
Corporation, Co-Chairman of the Board of Directors, Co-Chief Executive Officer;
Washington Gas Light Company, Director from October 1991; GrandBank 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.
James L. Hudson became a Director of the Company in August 1996 and of
Carson Products in June 1996. Mr. Hudson has served as Chairman of JAH
Development Company since 1985. Mr. Hudson 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.
Leroy Keith 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 in August 1995. Mr. Keith resigned from his
I-3
<PAGE>
positions as Chief Executive Officer of the Company and Carson Products in June,
1998 but continued as non-executive Chairman of the Board. Prior to his service
with the Company and Carson Products, Mr. Keith 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.
Additionally, he served as a director of AM Cosmetics from June 1996 through
June 1999.
Jack Kemp became a Director of the Company and Carson Products in December
1996. He previously served as a Director of the Company and 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.
John L. Sabre became a Director of the Company in August 1996 and of Carson
Products 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. Additionally, he has served as a director of AM Cosmetics since June
1996.
Vincent A. Wasik became Chairman of the Board of Directors and President of
the Company upon its inception in May 1995 and served as such until August 1996.
Mr. Wasik continues to serve as a Director of the Company and has been a
Director of Carson Products since August 1995. He 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 MCG Global. 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.
Malcolm R. Yesner became President and Chief Executive Officer of the
Company in March 1999 and has served as a Director of the Company since October
1998. He 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.
MEETINGS OF THE BOARD AND COMMITTEES
BOARD MEETINGS
During the twelve months ended December 31, 1999, there were 4 meetings held
by the Board. During 1999, 1 meeting of the Audit Committee, 1 meeting of the
Compensation Committee and 12 telephonic meetings of the Executive Committee
were held. In 1999, all of the directors, except for Suzanne de Passe, James L.
Hudson, John L. Sabre and Malcolm R. Yesner, 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.
I-4
<PAGE>
The Audit Committee members are Abbey J. Butler, John L. Sabre and Leroy
Keith. Mr. Butler is the Chairman of the Audit Committee. 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.
The Compensation Committee members are Melvyn J. Estrin, James L. Hudson and
Jack Kemp. Mr. Estrin is the Chairman of the Compensation Committee. The
Compensation Committee is responsible for all aspects of the Company's executive
compensation policies.
The Executive Committee members are Leroy Keith, Lawrence E. Bathgate, Abbey
J. Butler 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 with respect to the management of the business of the Company,
except as limited by the General Corporation Law of the State of Delaware.
EXECUTIVE OFFICERS OF THE COMPANY WHO ARE NOT DIRECTORS
Set forth below is certain information regarding each Executive Officer of
the Company who is not also a Director as of March 8, 2000.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND BUSINESS EXPERIENCE
NAME AGE FOR THE PAST FIVE YEARS
---- --- -----------------------
<S> <C> <C>
Robert W. Pierce.......................... 57 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 1996.
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 T. Waldon......................... 54 Executive Vice President, Sales of the
Company since August, 1999; Vice
President, Sales since June, 1998;
District Manager and Divisional Director
of Sales from 1994 to June 1998.
Shawn K. Tollerson........................ 36 Vice President, Marketing of the Company
since August, 1999; Marketing Director
from March, 1998 To August, 1999; Branch
Manager from October, 1997 to March, 1998.
</TABLE>
I-5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Class A Common Stock and Class C Common Stock outstanding as of
February 25, 2000 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, (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 Company Common Stock indicated
as being beneficially owned by them. All individuals and entities listed in the
following table, other than Indosuez CM II Inc., Donald N. Riley, Shawn K.
Tollerson and Aurelia T. Waldon, entered into the Stockholders Agreement, dated
as of February 25, 2000, with Parent, Purchaser and the Company, as described in
Item 3 of the Schedule 14D-9.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK (a) CLASS C COMMON STOCK (a)
NAME AND ADDRESS OF -------------------------- --------------------------
BENEFICIAL OWNERS NUMBER % OF CLASS NUMBER % OF CLASS
----------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
DNL Partners Limited Partnership (b) ....... 0 0 3,015,463 58.8%
c/o MCG Global, L.L.C.
One Morningside Drive, North
Suite 200
Westport, CT 06880
Morgan Guaranty Trust Company (c) .......... 0 0 1,187,482 23.2%
c/o J.P. Morgan Investment Management
522 Fifth Avenue
New York, NY 10036
M&A Investments, Inc. (d) .................. 1,731,690 17.2% 0 0
NII Health Care Corporation
5910 North Central Expressway, Suite 1780
Dallas, TX 75206
Indosuez CM II Inc. (e) .................... 258,213 2.6% 0 0
c/o Indosuez Capital
1211 Avenue of the Americas
7th Floor
New York, NY 10036-8701
Lawrence E. Bathgate, II (f)(g)............. 42,835 * 0 0
Abbey J. Butler (d)(h)...................... 728,335 7.2% 11,540 *
Suzanne de Passe (i)........................ 32,835 * 11,540 *
Melvyn J. Estrin (d)(j)..................... 36,335 * 11,540 *
James L. Hudson (f)(k)...................... 46,135 * 0 *
Jack Kemp (l)............................... 36,335 * 46,139 *
Leroy Keith (m)............................. 23,500 * 341,100 6.7%
John L. Sabre (n)........................... 48,336 * 23,069 *
Vincent A. Wasik (b)(o)..................... 62,170 * 3,015,463 58.8%
Malcolm Yesner (p).......................... 899,467 8.3% 0 0
Robert W. Pierce (q)........................ 141,334 0 0
Donald N. Riley (r)......................... 35,901 * 0 0
Shawn K. Tollerson (s)...................... 24,500 * 0 0
Aurelia T. Waldon (t)....................... 30,000 * 0 0
All Directors and Executive Officers as a 2,195,518 19.7% 3,460,391 67.5%
Group (15 persons) (u)....................
</TABLE>
- ---------
* Less than 1%.
(a) Based on 10,083,485 and 5,126,163 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
(footnotes continued on next page)
I-6
<PAGE>
(footnotes continued from previous page)
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, and is automatically
converted into one share of Class A Common Stock upon transfer to an
unaffiliated third party. 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 MCG Global, LLC., one of
the limited partners in DNL Partners.
(c) As reported on Schedule 13G/A dated February 2, 2000 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) Includes 1,359,690 shares held by M&A Investments, Inc. ('M&A') and 372,000
shares held by NII Health Care Corporation ('NIIHC'). Each of M&A and NIIHC
is a wholly-owned subsidiary of Avatex Corporation. Messrs. Butler and
Estrin, Directors of the Company, are co-Chairmen and co-Chief Executive
Officers of Avatex.
(e) As of November 4, 1999 as reported by First Union National Bank ('First
Union'), transfer agent to the Company.
(f) These directors are, or have direct or indirect interests in, limited
partners of DNL Partners. See Note (b).
(g) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 25,988 restricted shares of
Class A Common Stock awarded under the 1996 Non-Employee Director Equity
Incentive Program (the 'Outside Directors Program'). Under the Outside
Directors Program, Outside Directors are permitted to vote restricted
shares which have not yet vested.
(h) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 34,154 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested. Includes 575,000 shares owned by C.B. Equities Capital
Corp. LLC, Oxford Capital Management LLC and C.B. Equities Retirement
Trust, for whom Mr. Butler is Portfolio Manager. Does not include shares
owned by M&A and NIIHC described in footnote (d) above.
(i) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 17,654 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested.
(j) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 21,154 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested. Does not include shares owned by M&A and NIIHC described in
footnote (d) above.
(k) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 21,154 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested.
(footnotes continued on next page)
I-7
<PAGE>
(footnotes continued from previous page)
(l) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 21,154 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested.
(m) Includes 18,500 restricted shares of Class A Common Stock awarded under the
Outside Directors Program which have not yet vested.
(n) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 29,154 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested.
(o) Includes 10,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 25,988 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested.
(p) Includes 750,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days.
(q) Includes 123,334 shares of Class A Common Stock underlying stock options
exercisable within 60 days.
(r) Includes 35,001 shares of Class A Common Stock underlying stock options
exercisable within 60 days.
(s) Includes 1,833 shares of Class A Common Stock underlying stock options
exercisable within 60 days.
(t) Includes 5,000 shares of Class A Common Stock underlying stock options
exercisable within 60 days.
(u) Includes 1,049,335 shares of Class A Common Stock underlying stock options
exercisable within 60 days. Also includes 214,900 restricted shares of
Class A Common Stock awarded under the Outside Directors Program which have
not yet vested. Does not include shares owned by M&A and NIIHC described in
footnote (d) above.
I-8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation awarded or paid
to or earned by the former Chief Executive Officer, the current Chief Executive
Officer, the four other most highly compensated current 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,
1999, for the fiscal year ended December 31, 1998 and for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------------- --------------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS
NAME AND PRINCIPAL POSITION FISCAL PERIOD SALARY($) BONUS($) COMPENSATION (d) AWARDS (#) OF SHARES
--------------------------- ------------- --------- -------- ---------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory J. Andrews(a) ........ 1/1/99-2/11/99 69,231 450,000 17,412 300,000
Former President and Chief 6/30/98-12/31/98 144,231 34,470
Executive Officer
Malcolm R. Yesner(b) ......... 1/01/99-12/31/99 375,000 75,000 20,656 700,000
President, Chief Executive 1/01/98-12/31/98 228,000 100,000 0 79,000
Officer 1/01/97-12/31/97 137,000 100,000
Robert W. Pierce(c) .......... 1/01/99-12/31/99 250,000 100,000 8,905 0
Executive Vice President, 1/01/98-12/31/98 250,000 50,000 10,515 60,000
and Chief Financial 1/01/97-12/31/97 165,384 50,000 1,233 100,000
Officer
Donald N. Riley .............. 1/01/99-12/31/99 182,000 38,000 6,000 20,000
Executive Vice President, 1/01/98-12/31/98 142,308 30,000 27,568 52,500
Operations 1/01/97-12/31/97 38,462 10,000 2,178 25,000
Aurelia T. Waldon ............ 1/1/99-12/31/99 138,077 25,000 6,525
Executive Vice President,
Sales
Shawn K. Tollerson ........... 1/1/99-12/31/99 102,308 40,000 1,173
Vice President, Marketing
</TABLE>
- ---------
(a) 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.
(b) 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.
(c) Mr. Pierce became an executive officer of Carson Products and the Company
on May 9, 1997.
(d) Except where otherwise noted, all other compensation for 1999 includes Long
Term Disability in the amount of $87.50 for Mr. Andrews, $393.75 for Mr.
Yesner, $525.00 for Mr. Pierce, Mr. Riley and Ms. Waldon, and $173.00 for
Ms. Tollerson. It also includes a car allowance of $17,324.82 for Mr.
Andrews, $14,137.00 for Mr. Yesner, $8,380 for Mr. Pierce, $6,000 for Mr.
Riley and Ms. Waldon and $1,000 for Ms. Tollerson. Also included is Excess
Life Insurance of $6,125.00 for Mr. Yesner.
I-9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of options
to purchase stock to each of the named executive officers during the fiscal year
ended December 31, 1999:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------------------------- ----------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE OR
GRANTED (#) (a) FISCAL YEAR BASE PRICE ($/SH) EXPIRATION DATE 5% ($) 10% ($)
--------------- ----------- ----------------- --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
NAME
Gregory J. Andrews..... 0 0 0 0 0 0
Malcolm R. Yesner...... 250,000(a) 80.2% $3.1875 2/21/09 501,150 1,270,014
200,000(a) $4.1250 3/15/09 518,838 1,314,838
250,000(a) $2.8750 10/18/09 452,018 1,145,502
Robert W. Pierce....... 0 0 0 0 0 0
Donald N. Riley........ 20,000(b) 2.3% $3.1875 6/28/09 40,092 101,601
Shawn K. Tollerson..... 10,000(c) 2.3% $3.1875 6/28/09 20,046 50,801
10,000(c) $2.8750 10/18/09 18,081 45,820
Aurelia T. Waldon...... 8,000(d) 1.7% $3.1875 6/28/09 16,037 40,640
7,000(d) $2.8750 10/18/09 12,657 32,074
</TABLE>
- ---------
(a) Options to purchase 250,000 shares of Class A Common Stock to vest in
thirds on each of February 21, 2000, February 21, 2001 and February 21,
2002; options to purchase 200,000 shares to vest in thirds on each of
March 15, 2000, March 15, 2001 and March 15, 2002; options to purchase
250,000 shares to vest in thirds on each of October 18, 2000, October 18,
2001 and October 18, 2002. However, all options accelerate and vest upon
consummation of the Merger.
(b) Options to purchase 20,000 shares of Class A Common Stock to vest in thirds
on each of June 28, 2000, June 28, 2001 and June 28, 2002.
(c) Options to purchase 10,000 shares of Class A Common Stock to vest in thirds
on each of June 28, 2000, June 28, 2001 and June 28, 2002; options to
purchase 10,000 shares to vest in thirds on October 18, 2000, October 18,
2001 and October 18, 2002. However, all options accelerate and vest upon
consummation of the Merger.
(d) Options to purchase 8,000 shares of Class A Common Stock to vest in thirds
on each of June 28, 2000, June 28, 2001 and June 28, 2002; options to
purchase 7,000 shares to vest in thirds on October 18, 2000, October 18,
2001 and October 18, 2002. However, all options accelerate and vest upon
consummation of the Merger.
OPTION/SAR EXERCISES AND HOLDINGS
The options listed in the table above were outstanding at December 31, 1999
and no options or stock appreciation rights (SARs) were exercised by the named
executive officers during the fiscal year ended December 31, 1999. The total
number of exercisable and unexercisable options held by the named executive
officers at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
TOTAL NUMBER OF EXERCISABLE UNEXERCISABLE
SECURITIES UNDERLYING SECURITIES SECURITIES
OPTIONS GRANTED (#) UNDERLYING UNDERLYING
(1) OPTIONS GRANTED OPTIONS GRANTED
--- --------------- ---------------
<S> <C> <C> <C>
NAME
Gregory J. Andrews................... 0 0 0
Malcolm R. Yesner.................... 779,000 112,333 666,667
Robert W. Pierce..................... 160,000 103,333 56,667
Donald N. Riley...................... 97,500 113,333 54,167
Shawn K. Tollerson................... 23,500 1,833 21,667
Aurelia T. Waldon.................... 30,000 5,000 25,000
</TABLE>
(footnote on next page)
I-10
<PAGE>
(footnote from previous page)
(1) Of these options, 29,000 for Mr. Yesner, 110,000 for Mr. Pierce, 27,500 for
Mr. Riley, 1,000 for Ms. Tollerson and 10,000 for Ms. Waldon have option
exercise prices in excess of $5.20 and therefore, will not be exercised upon
consummation of the Merger.
LONG TERM INCENTIVE PLANS
The options listed in the tables above were granted pursuant to the
Company's 1996 Long-Term Incentive Plan (the '1996 LTIP'). No other long-term
incentive awards were granted to the named executive officers during the fiscal
year ended December 31, 1999.
EMPLOYMENT AGREEMENTS
Parent entered into a written employment agreement with Malcolm R. Yesner,
dated as of February 25, 2000, which is described in Item 3 of Schedule 14D-9.
Upon the effective time of the Merger, this new employment agreement will
supersede his existing employment agreement with the Company described below.
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, the Company entered into an employment agreement
with Mr. Yesner as President -- International Operations. In 1999, in connection
with the death of Mr. Andrews (as discussed below), the Company entered into an
amended and restated employment agreement with Mr. Yesner which incorporated all
previous amendments and reflected his promotion to President and Chief Executive
Officer of the Company and Carson Products. These agreements contain the terms
discussed below (the 'Employment Agreements'). Mr. Andrews' term of employment
was to expire on December 31, 2000. In respect of his agreement to provide
services as President -- International Operations of the Company, 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 the Company 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.
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 the Company 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 (the Company 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 (the Company 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.
I-11
<PAGE>
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 the Company 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.
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 (the Company 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.
The Employment Agreements also provide that Mr. Pierce and Mr. Riley, while
employed by Carson Products and 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 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.
In October, 1999, Mr. Yesner entered into a non-competition agreement with
the Company which provides that upon the occurrence of a Triggering Event (as
defined below), Mr. Yesner, without the express prior written consent of the
Company, is prohibited from engaging in any Competitive Business (as defined
therein) or any other competitive activity. The restrictions are imposed for a
five-year period commencing upon Mr. Yesner's termination of employment.
'Triggering Event' means the noncompetition and nonsolicitation restrictions
only become effective if, prior to January 1, 2002, either: (i) Mr. Yesner's
employment is terminated under circumstances in which he is entitled to
severance under his employment agreement (i.e., upon his termination without
'Cause' or his voluntary resignation within one year after the occurrence of a
change of control), in which case the restrictions automatically become
effective, or (ii) Mr. Yesner's
I-12
<PAGE>
employment is terminated under circumstances in which he is not entitled to
severance under his employment agreement (i.e., upon his termination for 'Cause
or his voluntary resignation prior to the occurrence of a change of control), in
which case the restrictions become effective only if the Company elects to have
such provisions apply. If the restrictions become effective under either of the
circumstances described above, the Company shall pay to Mr. Yesner a total of
$2.5 million over the five year duration of the restrictions ($200,000 per year
with respect to the United States and $300,000 per year with respect to the rest
of the world) payable in annual installments in arrears.
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. Andrews' employment upon his death. Specifically, Mr.
Andrews' Employment Agreement provides for base salary continuation for a one
month period commencing on the date of such termination. In addition, Mr.
Andrews' 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. Andrews' 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. Andrews' 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. Andrews' 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. Andrews' 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. Because
Mr. Andrews died prior to the earliest settlement date associated with the
Phantom Shares, his estate forfeited any and all Phantom Share rights granted to
him. In November, the Company and Mr. Andrews' estate signed an agreement
whereby the estate relinquished Mr. Andrews' right to exercise his option to
acquire 300,000 shares of Class A Common Stock in return for a cash payment from
the Company of $135,000, less such taxes required to be withheld pursuant to any
applicable law and relinquished Mr. Andrews' right with respect to all Units
granted to Mr. Andrews under the SAR Agreement in return for a cash payment of
$395,804.92, less such taxes required to be withheld pursuant to any applicable
law.
COMPENSATION OF DIRECTORS
In 1999, Leroy Keith received cash compensation in the amount of $500,000 in
compensation for his services to the Company as the non-executive Chairman of
the Board of Directors. No other Directors received any cash compensation for
the services as members of the Board.
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.
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
I-13
<PAGE>
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.
The Outside Directors Program is administered by the Board of Directors. The
Board has the full and final authority to interpret the Outside Directors
Program and to adopt and amend such rules and regulations for the administration
of the Outside Directors Program as the 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
The Company's Compensation Committee consists of Melvyn J. Estrin
(Chairman), James L. Hudson and Jack Kemp, each of whom is an outside,
non-employee member 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. None of the members of
the Compensation Committee has or any time been an officer or employee of the
Company or of any of its subsidiaries.
I-14
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program has as its foundation the
following objectives:
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;
Providing compensatory programs which serve to facilitate the recruitment,
retention and motivation of qualified executives; and
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.
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.
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
I-15
<PAGE>
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.
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 1999, Mr. Yesner's compensation was determined as described above.
Compensation Committee
Melvyn J. Estrin, Chairman
James L. Hudson
Jack Kemp
I-16
<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 consisting of companies in the
cosmetics and grooming industry (the '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 24 consumer product manufacturers, including the
following publicly traded companies: Adrien Arpel, Inc., Advantage Life
Products, Inc., Alberto-Culver Company, Inc., 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 Peromone Sciences, Inc., Inter Parfums Inc., Estee Lauder Cosmetics, Inc.,
Nutramax Products, Inc., Parlux Fragrances Inc., Revlon, Inc., Stephan Co.,
Styling Technology Corp., Tristar Corporation, Zegarelli Group International,
Inc.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------------
10/15/96 12/96 12/97 12/98 12/99
-------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Carson, Inc......................................... 100.00 90.98 43.85 26.23 21.31
Peer Group.......................................... 100.00 106.16 133.05 139.93 122.35
Russell 2000........................................ 100.00 108.95 143.58 134.31 132.31
</TABLE>
I-17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MORNINGSIDE AND MCG
On September 1, 1999, the Management Assistance Agreement by and between
Carson Products and Morningside Capital Group, L.L.C. ('Morningside'), dated
August 23, 1995 (as amended, the 'Morningside Management Agreement'), was
terminated by mutual consent of the parties thereto. Following termination of
the Morningside Management Agreement, Carson Products entered into a
substantially similar Management Assistance Agreement with MCG Global, LLC
('MCG') on September 1, 1999 (the 'MCG Management Agreement'). The principal
members of MCG are the former principal members of Morningside. Pursuant to the
MCG Management Agreement, MCG agrees to supply the services of Vincent A. Wasik
(a principal member of MCG) 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
MCG Management Agreement provides that Carson Products will indemnify MCG, 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 MCG under the MCG Management Agreement (other
than actions resulting from gross negligence, willful misconduct or a material
breach of the MCG Management Agreement by MCG or Mr. Wasik). The termination
date of the MCG 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. Notwithstanding the
foregoing, the MCG Assistance Agreement will terminate upon consummation of the
Offer.
Additionally, for the term of the MCG Management Agreement, MCG 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.
AM COSMETICS
AM Products Company, formerly known as Morningside AM Acquisition Corp.
('AMP'), 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 'AMP PIK Preferred Shares') issued by AMP, at a price of $10,000 per share.
The AMP PIK Preferred Shares were subsequently exchanged by Carson Products for
an equal number of shares of cumulative payment-in-kind Preferred Shares of AM
Cosmetics, the parent corporation of AMP (the 'PIK Preferred Shares'). AM
Cosmetics and AMP were formed by Morningside on behalf of an investor group to
acquire the assets of Arthur Matney Co., Inc. Certain directors and shareholders
of the Company are or have been key management, directors and shareholders of AM
Cosmetics. AM Cosmetics sells several brands of budget cosmetics, one of which
is targeted at the African-American consumer.
Concurrent with its investment in AMP, 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 November
1998, AM Cosmetics served written notice of termination of the Carson-AM
Management Agreement.
I-18
<PAGE>
Pursuant to the Carson-AM Management Agreement, the parties entered into a
manufacturing agreement in May 1997, which expired on May 1, 1999 (the 'AM
Manufacturing Agreement'). In addition, Carson Products and AM Cosmetics entered
into a sales and marketing agreement (the 'AM Sales/Marketing Agreement') in
accordance with the Carson-AM Management Agreement in 1997. 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 (the 'Arbitration'). AM Cosmetics asserted that the
Company breached (i) 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, and (ii) the Manufacturing Agreement by
failing to pay AM Cosmetics for manufacturing certain goods and failing to
reimburse it for certain marketing and research costs. The Company filed a
counterclaim against AM Cosmetics claiming that AM Cosmetics failed to
manufacture products in accordance with the appropriate specifications, which
resulted in the manufacture of defective merchandise.
In addition, on April 29, 1999, the Company instituted a civil suit in
Georgia (the 'Georgia Litigation') alleging that AM Cosmetics breached the AM
Sales/Marketing and also filed a suit in the Superior Court of New Jersey,
Bergen County, seeking a declaratory judgment with respect to AM Cosmetics'
restructuring and its impact upon the PIK Preferred Shares (the 'New Jersey
Litigation'). The New Jersey Litigation was dismissed without prejudice for lack
of prosecution.
Subsequently, in February 2000, AM Cosmetics filed a counterclaim in the
Georgia Litigation alleging that from approximately June 1996 through June 1998,
the Company and AM Cosmetics were controlled and majority-owned, through other
entities, by Morningside, which was controlled and majority-owned by Vincent A.
Wasik. AM Cosmetics alleged that in order to enhance the value of the Company's
stock, Mr. Wasik caused the Company and AM Cosmetics to be operated in a way
that enhanced the Company's business at AM Cosmetics' expense. Specifically, AM
Cosmetics alleged that Wasik caused AM Cosmetics to enter into contracts with
the Company that were commercially unreasonable and/or unprofitable for AM
Cosmetics.
On February 25, 2000, Carson Products entered into a settlement agreement
(the 'Settlement Agreement') with mutual releases with AM Cosmetics and AMP to
resolve each of the Arbitration, the Georgia Litigation and the New Jersey
Litigation and all other disputes between the parties. In addition, the Company
obtained a release, in favor of the Company, from certain indemnity obligations
to certain officers and directors of the Company who had been officers and
directors of AM Cosmetics. Pursuant to the Settlement Agreement, Carson Products
agreed to make a settlement payment totaling $2,000,000 to AM Cosmetics. Carson
Products paid AMP $1,000,000 on February 25, 2000 upon execution of the
Settlement Agreement, and agreed to make the remaining $1,000,000 settlement
payment on the earlier of July 31, 2000 or the closing of the Merger (the
'Second Payment'). In addition, the PIK Preferred Shares were surrendered to AM
Cosmetics and appropriate filings were made to terminate with prejudice each of
the Arbitration, the Georgia Litigation and the New Jersey Litigation.
In connection with the settlement, six Directors of the Company (Messrs.
Bathgate, Butler, Estrin, Sabre, Wasik and Yesner) arranged for caused GrandBank
Inc., a Maryland state chartered bank, to issue an irrevocable letter of credit
(the 'Letter of Credit') in the amount of $690,000 for the benefit of AMP to
secure a portion of the Second Payment. AMP is entitled to make a draw down
under the Letter of Credit to the extent that the Second Payment has not been
made on or prior to March 31, 2000. The Company is required to reimburse such
Directors pursuant to a letter agreement among the Company and such Directors,
for any amounts drawn down under the Letter of Credit in circumstances in which
the Merger is not consummated, together with interest thereon at the rate of 12%
per annum from the date of the draw down to the date of reimbursement. In
circumstances in which the Merger is consummated, the Company is required to
reimburse such Directors only for any amounts drawn down under the Letter of
Credit in excess of $531,492 (the first $531,492 of reimbursement in such
circumstance being the responsibility of the Company's largest stockholder, DNL
Partners Limited Partnership), together with interest
I-19
<PAGE>
thereon at the rate of 12% per annum from the date of the draw down to the date
of reimbursement. These arrangements were approved by an independent committee
of the Board.
Parent conditioned its willingness to enter into the Merger Agreement on the
satisfactory settlement by the Company of all disputes with AMP and AM Cosmetics
arising out of any business relationships between them. The Company believes
that it was in the Company's best interest to settle the controversies between
the parties and the financial terms of the settlement will not have a material
adverse effect on the Company.
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 AS FOLLOWS: MALCOLM YESNER, FORM 4 WITH RESPECT
TO ONE TRANSACTION NOT FILED ON A TIMELY BASIS; AND LAWRENCE E. BATHGATE, II,
SUZANNE DE PASSE AND JOHN L. SABRE, FORMS 5 NOT FILED ON A TIMELY BASIS.
I-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<C> <S> <C>
*(a)(1) -- Offer to Purchase dated March 8, 2000....................
*(a)(2) -- Letter of Transmittal with respect to Shares.............
**(a)(3) -- Text of press release issued by Carson, Inc. dated
February 28, 2000.........................................
(a)(4) -- Letter to stockholders of Carson, Inc. dated March 8,
2000......................................................
*(a)(5) -- Form of Summary Advertisement dated March 8, 2000........
(a)(6) -- Fairness Opinion of PaineWebber Incorporated dated
February 18, 2000.........................................
*(e)(1) -- Confidentiality Agreement, dated July 24, 1997, as
amended from time to time, by and between Carson, Inc. and
Cosmair, Inc..............................................
*(e)(2) -- Exclusivity Agreement, dated as of February 3, 2000, by
and between Carson, Inc. and Cosmair, Inc. and agreed to
by DNL Partners Limited Partnership.......................
*(e)(3) -- Agreement and Plan of Merger, dated as of February 25,
2000, by and among Cosmair, Inc., Crayon Acquisition Corp.
and Carson, Inc...........................................
*(e)(4) -- Stockholders Agreement, dated as of February 25, 2000, by
and among Cosmair,
Inc., Crayon Acquisition Corp., Carson, Inc. and the
stockholders signatory thereto............................
*(e)(5) -- Employment Agreement, dated as of February 25, 2000, by
and between Cosmair, Inc. and Malcolm R. Yesner...........
**(e)(6) -- Settlement Agreement, dated as of February 25, 2000,
among Carson Products Company, AM Cosmetics Corp. and AM
Products Company..........................................
**(e)(7) -- Release, dated as of February 25, 2000, by Carson
Products Company in favor of AM Cosmetics Corp. and AM
Products Company..........................................
**(e)(8) -- Release, dated as of February 25, 2000, by AM Cosmetics
Corp. and AM Products Company in favor of Carson Products
Company...................................................
**(e)(9) -- Letter Agreement, dated as of February 25, 2000, among
Carson, Inc. and certain directors of the Company.........
***(e)(10) -- Letter Agreement, dated as of February 25, 2000, among
DNL Partners Limited Partnership and Cosmair, Inc.........
***(e)(11) -- Form of Indemnity Release between certain officers and
directors of Carson, Inc. and Cosmair, Inc................
</TABLE>
- ---------
* Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule TO
date March 8, 2000 and incorporated herein by reference.
** Incorporated by reference to the Company's Current Report on Form 8-K filed
on March 1, 2000.
*** To be filed by amendment.
<PAGE>
[LETTERHEAD OF CARSON, INC.]
March 8, 2000
Dear Fellow Stockholder:
I am pleased to inform you that on February 25, 2000, Carson, Inc.
('Carson') entered into an Agreement and Plan of Merger (the 'Merger Agreement')
with Cosmair, Inc. ('Cosmair') and its wholly-owned subsidiary, Crayon
Acquisition Corp. ('Purchaser'), pursuant to which Purchaser is commencing a
cash tender offer (the 'Offer') to purchase all of the issued and outstanding
shares of Class A Common Stock of Carson at a purchase price of $5.20 per share
in cash. Purchaser is the U.S. subsidiary of L'Oreal, S.A. of Paris, France.
Following the successful completion of the Offer, in accordance with the terms
of the Merger Agreement, Purchaser will merge with and into Carson (the
'Merger') and Carson will continue as the surviving corporation wholly owned by
Cosmair. Each share of Carson Common Stock not purchased in the Offer will be
converted in the Merger into the right to receive $5.20 per share (or any
greater amount paid in the Offer) in cash, without interest. Concurrent with the
signing of the Merger Agreement, Carson stockholders owning in the aggregate
approximately 48% of the shares outstanding on a fully-diluted basis (which
represent approximately 88% of the voting power of all shares of Carson Common
Stock outstanding) entered into a Stockholders Agreement with Carson, Cosmair
and Purchaser pursuant to which these stockholders have agreed to tender their
shares in the Offer, or if necessary, to vote their shares in favor of the
Merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH THREE DIRECTORS ABSTAINING)
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE STOCKHOLDERS OF CARSON, AND RECOMMENDS THAT ALL STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of PaineWebber
Incorporated to the effect that the $5.20 per share cash consideration to be
received by Carson stockholders pursuant to the Offer and the Merger is fair,
from a financial point of view, to such stockholders.
In addition to the attached Schedule 14D-9 relating to the offer, enclosed
is the Offer to Purchase, dated March 8, 2000, of Purchaser, together with
related materials, including a Letter of Transmittal to be used for tendering
your shares of Class A Common Stock in the Offer. These documents set forth the
terms and conditions of the Offer and Merger and provide instructions as to how
to tender your shares. I urge you to read the enclosed materials carefully.
On behalf of your Board of Directors, I thank you for your continued
support.
Sincerely yours,
/s/ Leroy Keith
Leroy Keith
Chairman of the Board
<PAGE>
[LETTERHEAD OF PAINEWEBBER INVESTMENT BANKING DIVISION]
February 18, 2000
Confidential
Board of Directors
Carson, Inc.
64 Ross Road
Savannah Industrial Park
Savannah, GA 31405
Ladies and Gentlemen:
Cosmair Inc. (the 'Acquiring Company') and Crayon Acquisition Corp. (the
'Purchaser'), a wholly-owned subsidiary of the Acquiring Company propose to
enter into an Agreement and Plan of Merger (the 'Agreement') with Carson, Inc.
(the 'Company') pursuant to which the Purchaser will make a tender offer (the
'Offer') for all of the issued and outstanding shares of Class A Common Stock of
the Company (the 'Class A Common Stock'), including any Class A Common Stock
issued upon conversion of Class C Common Stock of the Company (the 'Class C
Common Stock' and, together with the Class A Common Stock, the 'Company Common
Stock') at a cash price of $5.20 per share. You have informed us that the Offer
is expected to commence within eight business days of entering into the
Agreement. The Agreement also provides that, following consummation of the
Offer, the Purchaser will merge with and into the Company in a merger (the
'Merger') pursuant to which each then outstanding share of Company Common Stock
will be converted into the right to receive $5.20 in cash.
Concurrent with the execution of the Agreement, Acquiring Company, Purchaser
and certain stockholders of the Company (collectively, the 'Stockholders') will
enter into a Stockholders Agreement (the 'Stockholders Agreement') pursuant to
which the Stockholders will, among other things, agree to (i) subject to certain
conditions, convert their shares of Class C Common Stock, if any, into shares of
Class A Common Stock and tender all of their shares of Class A Common Stock in
the Offer, and (ii) in the event that they are not required to so convert and
tender such shares, to vote their shares of Class A Common Stock and Class C
Common Stock in favor of the Merger.
You have asked us whether or not, in our opinion, the proposed cash
consideration to be received by the shareholders of the Company pursuant to the
Offer and the Merger is fair to the shareholders of the Company from a financial
point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1998 and the
Company's Form 10-Q and the related unaudited financial information for
the nine months ended September 30, 1999;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
furnished to us by the Company;
<PAGE>
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Class A Common Stock and compared them with that of certain publicly
traded companies which we deemed to be relevant;
(5) Compared the results of operations of the Company with that of certain
companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(7) Reviewed a draft of the Agreement dated February 18, 2000;
(8) Reviewed a draft of the Stockholders Agreement dated February 18, 2000;
and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company, and
we have not assumed any responsibility to independently verify such information.
We have not made any independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company nor have we been furnished
with any such evaluations or appraisals.
This opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to whether
any shareholder should or should not tender shares of the Company Common Stock
in the offer or as to how any such shareholder should vote on the Merger. This
opinion does not address the relative merits of the Offer and the Merger and any
other transactions or business strategies discussed by the Board of Directors of
the Company as alternatives to the Offer and the Merger or the decision of the
Board of Directors of the Company with respect to the Offer and the Merger. This
opinion is based on economic, monetary and market conditions existing on the
date hereof.
In the ordinary course of business, PaineWebber Incorporated may trade in
the securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Offer and the Merger and will be receiving a fee
in connection with the rendering of this opinion and upon consummation of the
Offer.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Company
Common Stock pursuant to the Offer and the Merger, is fair to such shareholders
from a financial point of view.
This opinion has been prepared for the information of the Board of Directors
of the Company in connection with the Offer and the Merger and shall not be
reproduced, summarized, described or referred to, provided to any person or
otherwise made public or used for any other purpose without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may be
reproduced in full in a Schedule 14D-9 filed by the Company related to the Offer
and in a Proxy or Information Statement filed by the Company related to the
Merger.
Very truly yours,
/s/ PAINEWEBBER INCORPORATED
2
