<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STYLING TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2844 75-2665378
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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2390 EAST CAMELBACK ROAD, SUITE 435
PHOENIX, ARIZONA 85016
(602) 955-3353
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SEE "TABLE OF ADDITIONAL REGISTRANTS" ON THE FOLLOWING PAGE FOR INFORMATION
RELATING TO THE GUARANTORS OF SECURITIES REGISTERED HEREBY.
------------------------
SAM L. LEOPOLD
CHIEF EXECUTIVE OFFICER
2390 EAST CAMELBACK ROAD, SUITE 435
PHOENIX, ARIZONA 85016
(602) 955-3353
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
ROBERT S. KANT, ESQ.
O'CONNOR, CAVANAGH, ANDERSON
KILLINGSWORTH & BESHEARS, P.A.
ONE EAST CAMELBACK, SUITE 1100
PHOENIX, ARIZONA 85012
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practical after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED PRICE PER UNIT(1) PER SHARE(1) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
10 7/8% Senior Subordinated Notes
Due 2008......................... $100,000,000 100% $100,000,000 $29,500
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457 (f)(2), based on the stated principal amount of
each Outstanding Note (as defined) which may be received by the Registrant
in the exchange transaction in which the Exchange Notes (as defined) will be
offered.
(2) Registered herewith are Guarantees of Subsidiaries of Styling Technology
Corporation of the 10 7/8% Senior Subordinated Notes due 2008 for which no
additional consideration will be received. Accordingly, pursuant to Rule
457(o), under the Securities Act, which permits the registration fee to be
calculated on the basis of the maximum offering price of all securities
registered, no additional fee is included for the registration of such
Guarantees.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
TO FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
TAX
STATE OF IDENTIFICATION
NAME OF ENTITY ORGANIZATION NUMBER
-------------- -------------- --------------
<S> <C> <C>
Beauty Products Inc. ....................................... Wisconsin 39-1907817
Cosmetics International Inc. ............................... Wisconsin 39-1761136
European Touch Co., Incorporated............................ Wisconsin 39-1547653
European Touch, Ltd II...................................... Wisconsin 39-1559190
Gena Laboratories, Inc. .................................... Texas 75-0287780
J.D.S. Manufacturing Co., Inc. ............................. California 95-4128887
U.K. Abba Products, Inc. ................................... California 33-0321417
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION DATED AUGUST 7, 1998
[STYLING TECHNOLOGY LOGO]
OFFER TO EXCHANGE
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT)
---------------------
The Exchange Offer will expire at 5:00 p.m., E.D.T., on , 1998,
unless extended.
Styling Technology Corporation, a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate
principal amount of $100,000,000 of its outstanding 10 7/8% Senior Subordinated
Notes due 2008 (the "Outstanding Notes") for an equal principal amount of its
10 7/8% Senior Subordinated Notes due 2008 in integral multiples of $1,000 (the
"Exchange Notes" and, together with the Outstanding Notes, the "Notes"). The
Exchange Notes will be general unsecured obligations of the Company and are
substantially identical (including principal amount, interest rate, maturity,
and redemption rights) to the Outstanding Notes for which they may be exchanged
pursuant to this Exchange Offer, except that the Exchange Notes will be
registered under the Securities Act of 1933, as amended, and therefore will not
be subject to certain transfer restrictions and registration rights relating to
the Outstanding Notes. The Outstanding Notes have been, and the Exchange Notes
will be, issued under an Indenture dated as of June 23, 1998 (the "Indenture"),
among the Company, certain of its subsidiaries (the "Guarantors"), and State
Street Bank and Trust Company of California, N.A., as trustee (the "Trustee").
See "Description of the Exchange Notes." There will be no proceeds to the
Company from the Exchange Offer; however, pursuant to a Registration Rights
Agreement dated as of June 23, 1998 (the "Registration Rights Agreement") among
the Company, the Guarantors, and the Initial Purchasers (as defined) of the
Outstanding Notes, the Company will bear certain offering expenses.
The Company will accept for exchange any and all Outstanding Notes validly
tendered on or prior to 5:00 p.m., E.D.T., on , 1998, unless
extended (the "Expiration Date"). Tenders of Outstanding Notes may be withdrawn
at any time prior to 5:00 p.m., E.D.T., on the Expiration Date; otherwise such
tenders are irrevocable. State Street Bank and Trust Company of California,
N.A., is acting as Exchange Agent (the "Exchange Agent") in connection with the
Exchange Offer. The minimum period of time that the Exchange Offer will remain
open is 30 business days from the date the Registration Statement is declared
effective. The Exchange Offer is not conditioned upon any minimum principal
amount of Outstanding Notes being tendered for exchange, but is otherwise
subject to certain customary conditions.
(Cover text continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1998
<PAGE> 4
(Continued from Cover Page)
Interest on the Exchange Notes will accrue at a rate equal to 10 7/8% per
annum and will be payable semiannually in arrears on January 1 and July 1 of
each year commencing January 1, 1999. Interest on the Exchange Notes will accrue
from the most recent date to which interest has been paid on the Outstanding
Notes or, if no interest has been paid, from the date of original issuance of
the Outstanding Notes.
The Outstanding Notes in an aggregate principal amount of $100,000,000 were
sold by the Company as of June 23, 1998 (the "Initial Offering"), to NationsBanc
Montgomery Securities LLC, Friedman, Billings, Ramsey & Co., Inc., and Imperial
Capital, LLC (the "Initial Purchasers") pursuant to a Purchase Agreement among
the Company, the Guarantors, and the Initial Purchasers dated June 18, 1998 (the
"Purchase Agreement") in a transaction not registered under the Securities Act
of 1933, as amended (the "Securities Act"), in reliance upon the exemption
provided in Section 4(2) of the Securities Act. The Initial Purchasers
subsequently placed the Outstanding Notes with qualified institutional buyers in
reliance upon Rule 144A under the Securities Act. Accordingly, the Outstanding
Notes may not be re-offered, resold, or otherwise transferred in the United
States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of the Company
under the Registration Rights Agreement. See "The Exchange Offer."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties (including Exxon Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Inc. (available June 5, 1991), Mary Kay Cosmetics,
Inc. (available June 5, 1991), and Sherman & Sterling (available July 2, 1993)),
the Company believes that Exchange Notes issued pursuant to this Exchange Offer
may be offered for resale, resold, and otherwise transferred by a holder who is
not an affiliate of the Company without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating in and has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. Persons wishing to exchange Outstanding Notes in the
Exchange Offer must represent to the Company that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until 25
days after the Expiration Date, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus. See "Plan of
Distribution."
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading on the Nasdaq
Stock Market, Inc. National Market. The Outstanding Notes are currently eligible
for trading in the Private Offering, Resales and Trading through Automated
Linkages ("PORTAL") Market of the Nasdaq Stock Market, Inc. Following
commencement of the Exchange Offer, the Outstanding Notes may continue to be
traded in the PORTAL Market. Following consummation of the Exchange Offer, the
Exchange Notes will not be eligible for trading in the PORTAL Market. The
Initial Purchasers are not obligated to make a market in the Exchange Notes and
any market-making may be discontinued at any time without notice. Accordingly,
no assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of or the trading market for the
Exchange Notes.
<PAGE> 5
(Continued from Cover Page)
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes of other holders
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Outstanding Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of untendered Outstanding Notes will continue
to be subject to the existing restrictions upon transfer thereof.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer initially will be issued in the form of a Global Exchange Note
(as defined herein), which will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the Depositary's
name or in the name of Cede & Co., its nominee, in each case for credit to an
account of a direct or indirect participant in the Depositary, including Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System and Citibank, N.A., as depositary for Cedel, S.A. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Exchange Note, Exchange Notes in
certificated form will be issued in exchange for the Global Exchange Note on the
terms set forth in the Indenture. See "Description of the Exchange
Notes -- Book-Entry, Delivery, and Form."
---------------------
No dealer, salesperson, or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the Exchange Notes offered hereby, nor does it constitute an offer to
sell or the solicitation of an offer to buy any of the Exchange Notes to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Commission. Such reports, proxy statements, and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; the Chicago Regional Office, Suite 1400, 500 West Madison Street,
Citicorp Center, Chicago, Illinois 60661; and the New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
the prescribed fees. The Commission maintains a Web site on the Internet that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The address
of this site on the Internet is http://www.sec.gov. The Company's Common Stock
is quoted on the Nasdaq National Market. The Company will furnish periodic
reports to the Trustee, which will make them available upon request to the
holders of the Notes.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, so long as any Notes are outstanding,
it will furnish to the holders of the Notes following the consummation of the
Exchange Offer and file with the Commission (unless the Commission will not
accept such a filing) (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified public accountants
and (ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, for so long as any of the Notes remains outstanding,
the Company has agreed to make available to any prospective purchaser of Notes
or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) of the Securities Act.
NOTE REGARDING FORWARD-LOOKING INFORMATION
THE INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "WILL," "COULD," "SHOULD," "EXPECT," "ANTICIPATE," "INTEND," "PLAN,"
"ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREOF.
SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED ON VARIOUS ASSUMPTIONS AND
ESTIMATES AND ARE INHERENTLY SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING RISKS AND UNCERTAINTIES RELATING TO THE POSSIBLE INVALIDITY OF THE
UNDERLYING ASSUMPTIONS AND ESTIMATES AND POSSIBLE CHANGES OR DEVELOPMENTS IN
SOCIAL, ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL, AND REGULATORY
CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD
PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS, AND COMPETITORS AND
LEGISLATIVE, REGULATORY, JUDICIAL, AND OTHER GOVERNMENTAL AUTHORITIES AND
OFFICIALS. IN ADDITION TO ANY RISKS AND UNCERTAINTIES SPECIFICALLY IDENTIFIED IN
THE TEXT SURROUNDING SUCH FORWARD-LOOKING STATEMENTS, THE STATEMENTS IN "RISK
FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS OR IN THE REPORTS, PROXY
STATEMENTS, AND OTHER INFORMATION REFERRED TO IN "AVAILABLE INFORMATION"
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL AMOUNTS, RESULTS, EVENTS, AND CIRCUMSTANCES TO DIFFER MATERIALLY FROM
THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
(i)
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto that appear elsewhere
in this Prospectus. Unless the context otherwise requires, all references to the
"Company" mean Styling Technology Corporation and its subsidiaries. All
references to "STC" mean Styling Technology Corporation and its subsidiaries
without taking into account the Recent Acquisitions. All references to the
"Recent Acquisitions" mean the acquisition of Pro Finish USA, Ltd. ("Pro
Finish"), which was acquired in May 1998 (the "Pro Finish Acquisition"), the
acquisitions of European Touch Co., Incorporated and two related companies
(together, "European Touch") and European Touch, Ltd. II ("European Touch II"),
which were acquired in June 1998 (the "European Touch Acquisitions"), and the
acquisition of a controlling interest in Ft. Pitt Acquisition, Inc. and its 90%
owned subsidiary Ft. Pitt -- Framesi, Ltd., in August 1998. As used herein, the
pro forma financial information includes the adjustments described in "Unaudited
Pro Forma Consolidated Financial Data."
THE COMPANY
The Company is a leading developer, producer, and marketer of a wide array
of professional salon products, addressing all salon product categories,
including hair care, nail care, and skin and body care products, as well as
salon appliances and sundries. Through strategic acquisitions, the Company has
acquired well-recognized brand names, a strong distribution network, established
marketing and salon industry education programs, and significant production and
sourcing capabilities. For the 12 months ended March 31, 1998, on a pro forma
basis, the Company generated net sales and EBITDA of $87.0 million and $24.5
million, respectively.
The Company believes it is the only company that develops, produces, and
markets products in each category of the professional salon products industry
and that its ability to offer customers a "one-stop shop" for brand-name
professional salon products creates a competitive advantage. The Company
currently sells more than 550 products under 14 principal brand names, including
ABBA Pure and Natural Hair Care(R) products, Body Drench(R) skin and body care
products, Clean + Easy(R) hair removal products, Gena(R) nail and pedicure
products, Kizmit(TM) acrylic nail enhancements, and Revivanail(R) nail
treatments. In the United States, the Company markets its product lines through
professional salon industry distribution channels to more than 2,500 customers,
consisting primarily of salon product and tanning supply distributors (which
resell to beauty and tanning salons), beauty supply outlets, and salon chains.
The Company also markets its products directly to more than 3,000 spas, resorts,
and health and country clubs through its in-house sales force. Internationally,
the Company sells its products primarily through international salon product
distributors.
THE INDUSTRY
The professional salon products industry has grown significantly during the
last several years. According to industry sources, professional salon industry
revenue (which includes revenue from salon services and the sale of salon
products) for 1996 was approximately $40 billion in the United States and $80
billion worldwide, having grown approximately 10% from the prior year. Industry
sources estimate that there are approximately 127 million client visits to
salons each month and that there are more than 200,000 beauty salons and 1.8
million licensed cosmetologists in the United States. Professional salon
products companies sell their products primarily to regional, full-service salon
product distributors that resell products from multiple manufacturers to salons
and salon professionals. The Company estimates that sales to distributors
represent approximately 85% of revenue for professional salon product companies.
The professional salon products industry is highly fragmented. Of the
approximately 700 companies selling professional salon products in the United
States, most generate less than $10 million in sales and focus on a single
product category. For example, most companies offering professional salon hair
care products do not also offer nail or skin care products.
Professional salon products have two end consumers: the salon professional
who uses them in the performance of salon services and the salon client who
purchases them for personal use. The Company
1
<PAGE> 8
believes salons typically generate between 10% and 30% of their revenue from
retail sales of professional salon products. As the users and "prescribers" of
professional salon products, salon professionals typically select products on
the basis of performance rather than price. As a result, suppliers of
professional salon products focus on educating distributors and salon
professionals on the uses and benefits of their products and on industry trends.
Because these products are "prescribed" by salon professionals and are sold
primarily in connection with the rendering of a service, professional salon
products typically foster strong brand loyalty and exhibit relative price
insensitivity. Consequently, professional salon products generally command
substantially higher profit margins than mass-marketed beauty products.
BUSINESS STRENGTHS
The Company believes that the following business strengths provide it with
a competitive advantage in the professional salon products industry:
- - PREMIER BRAND NAMES. The Company offers a variety of well-known brands in all
professional salon product categories, including ABBA Pure and Natural Hair
Care(R), Alpha 9(R), Body Drench(R), Clean + Easy(R), Cosmic(R), European
Touch(TM), Gena(R), Kizmit(TM), Omni P.O. Professionals Only(R), One Touch(R),
Pro Finish(TM), Revivanail(R), SRC(TM), and Suntopia(TM). The Company believes
that the strength of its brand names is based on the reputation of its
products for quality among salon professionals, the performance of its
products, and its focused commitment to the needs of salon professionals and
their clientele. Because of the importance of proven product performance to
salon professionals, they remain extremely loyal to their favorite brands. The
Company's portfolio of well-recognized brands is a significant driver of sales
to distributors, beauty supply outlets, and salon chains.
- - BREADTH OF PRODUCT OFFERINGS. The Company believes that it currently is the
only producer of professional salon products with offerings across all salon
product categories. As the Company has expanded its product offerings, it has
begun to provide distributors, beauty supply outlets, and salon chains with an
increasingly larger percentage of the products they require to service the
needs of salons and salon professionals. The Company believes the breadth of
its product offerings provides it with a significant competitive advantage by
allowing its distributors to purchase more products from fewer vendors and by
enabling the Company to cross-market its brands and offer tailored lines of
products to distributors, beauty supply outlets, and salon chains. This
"one-stop shop" approach also serves to strengthen the relationship between
the Company and its customers.
- - STRONG DISTRIBUTION NETWORK. The Company has established relationships with
top salon product distributors, beauty supply outlets, and salon chains.
Unlike consumer products companies that sell a large percentage of their
products through a concentrated retailer base, the Company sells its products
into highly fragmented distribution channels of more than 2,500 distributors,
beauty supply outlets, and salon chains in the United States and
internationally and to more than 3,000 spas, resorts, and health and country
clubs through its in-house sales force. This extensive distribution network
creates a strong base from which the Company can pursue additional business
through cross-marketing of its current and future brands and new product
introductions. The breadth of its distribution network also enables the
Company to penetrate every major geographical market in the United States and
to expand its international business.
- - HISTORY OF SUCCESSFUL ACQUISITIONS. Since November 1996, the Company has
acquired and successfully integrated seven professional salon products
businesses, not including the Recent Acquisitions. The Company has integrated
acquired distribution channels into its existing operations; integrated
purchasing, production, and marketing efforts; and consolidated accounting,
human resources, and other back office functions. Acquisitions have been a
major factor in enabling the Company to increase its net sales to $87.0
million, on a pro forma basis for the latest 12 months (including the Recent
Acquisitions, other than the acquisition of a controlling interest in Framesi
USA), while achieving significant margin improvement. The Company is
developing an operating platform to allow it to support an increasing range of
professional salon products as it continues to acquire additional companies
and product lines.
2
<PAGE> 9
- - FAVORABLE COST STRUCTURE. Professional salon products typically command
higher margins and exhibit relative price insensitivity when compared to their
mass-market counterparts. The Company believes that it has been able to
achieve operating margins that exceed industry averages. These improved
operating margins result from the Company's success in utilizing its increased
purchasing power to achieve cost savings; integrating sourcing and
distribution capabilities; eliminating duplicative facilities, personnel, and
administrative functions; and consolidating sales and marketing and product
development, when appropriate. The Company also is taking advantage of the
highly competitive third-party manufacturing environment to reduce production
costs. Pro forma gross margins improved from 52.4% in 1996 to 56.3% in 1997,
and pro forma EBITDA margins improved from 17.6% in 1996 to 27.0% in 1997.
- - EXPERIENCED MANAGEMENT TEAM. The Company has an experienced management team
with significant industry experience. Sam Leopold, the Company's Chief
Executive Officer, has more than 12 years of experience in the professional
salon products industry, including as the owner of a chain of mall-based
retail salons. Other members of the Company's senior management team have, on
average, over 12 years of experience in the consumer and salon products
industry, particularly in the areas of sales, marketing, and operations. Mr.
Leopold beneficially owns approximately 25% of the Company's Common Stock, and
each other member of the Company's senior management team has an equity stake
in the Company.
STRATEGY
The Company's objective is to be the leading professional salon products
company in the United States and internationally. In order to achieve this
objective, the Company is pursuing a strategy of continued growth through
acquisitions and internal business expansion. Key elements of this strategy
include the following:
ACQUISITION STRATEGY
The Company seeks to acquire professional salon product businesses
possessing complementary salon products with well-recognized brand names and
strong distribution networks and to capitalize on the substantial fragmentation
and growth potential existing in the professional salon products industry. The
Company believes that there are many attractive acquisition candidates in the
professional salon products industry, primarily as a result of the highly
fragmented nature of the industry and the desire of owners for exit strategies.
The Company maintains a disciplined approach to acquisitions and evaluates each
potential acquisition based on the following acquisition goals:
- - CONTINUE TO ACQUIRE LEADING BRANDS. The Company plans to continue its
strategy of acquiring leading brand names that complement its portfolio of
brands and command strong customer loyalty. By following this strategy, the
Company plans to solidify its position as a leading supplier of professional
salon products and further enhance its relationships with distributors.
Additionally, well-known and well-respected professional brands are able to
command consistently higher prices than mass-marketed retail brands and lesser
known or respected professional brands.
- - DIVERSIFY AND STRENGTHEN PRODUCT OFFERINGS. The Company intends to acquire
companies and product lines that diversify and strengthen its portfolio of
salon products. In this regard, the Company seeks to acquire complementary
products that will enable it to offer multiple brands in each salon product
category and a broader range of products addressing the various niches within
these categories. The Company believes that this approach will enable it to
offer distributors and beauty supply outlets, which typically carry multiple
brands in each category, a more complete "one-stop shop" for the majority of
their salon products.
- - STRENGTHEN DISTRIBUTION NETWORK. The Company intends to acquire companies and
product lines that strengthen its relationships with domestic and
international distributors. By acquiring companies with strong distribution,
the Company will be in a position to increase sales by introducing its
existing products into new distribution channels and newly acquired or
developed products into existing distribution channels.
- - CONTINUE TO PURSUE ACQUISITIONS AT ATTRACTIVE CASH FLOW MULTIPLES. The
Company plans to continue to pursue acquisition candidates at attractive cash
flow multiples. To achieve this goal, the Company evaluates each acquisition
candidate's historical operating results and future earnings potential, the
size and
3
<PAGE> 10
anticipated growth of the market it serves, and its relative position in that
market. The Company seeks to acquire companies and product lines at
acquisition multiples of typically three to six times adjusted EBITDA.
INTERNAL GROWTH STRATEGY
The Company intends to increase sales and improve margins within its
existing product lines. Elements of its internal growth strategy include the
following:
- - LEVERAGE WELL-ESTABLISHED DISTRIBUTION CHANNELS. The Company intends to
leverage its distribution channels by providing distributors with an
increasingly comprehensive array of products. Through management's existing
relationships and those of acquired companies, the Company has developed and
integrated an increasingly extensive distribution network. The Company
believes that offering a growing array of well-known brands in all salon
product categories will further enhance its position as a key supplier to its
customers.
- - CAPITALIZE ON BRAND NAME RECOGNITION; LINE EXTENSIONS. The Company believes
the strong brand name recognition of its product lines lends itself to line
extension. For example, ABBA, one of the top brands in the aromatherapy
segment of the hair care category, recently introduced its Botanical High(TM)
line of volume therapy hair care products. The Company believes that the
loyalty of salons and salon professionals to strong brands generally makes
them receptive to line extensions that capitalize on the credibility of those
brands. Strong brand names also provide the Company the opportunity to
cross-market established and developing brands and products.
- - EXPAND DISTRIBUTION TO SALON CHAINS. The Company is aggressively targeting
sales directly to salon chains, which the Company believes are underserved by
distributors and other salon product companies. The Company believes that its
increasingly diverse product offerings will enable it to offer salon chains
the benefits of one-stop shopping, centralized single-source ordering,
tailored promotional programs, and dedicated customer service. The Company has
formed a sales and marketing team focused exclusively on further penetrating
this underserved segment of the salon product market.
- - EXPAND DISTRIBUTION OF EXISTING PRODUCTS INTERNATIONALLY. The Company
believes significant opportunities exist to increase sales and profits through
the expansion of the international distribution of its products. Currently,
the U.S. market for professional salon products represents approximately 50%
of the worldwide market. In contrast, only approximately 15% of the Company's
pro forma 1997 net sales were generated outside of the United States. In the
past year, the Company has expanded its international distribution to 38
countries. The Company will continue to focus on introducing its products into
its recently expanded international distribution channels, which provide
access to most international beauty markets.
- - ENHANCE OPERATIONAL EFFICIENCIES OF ACQUIRED BUSINESSES. To date, the Company
has successfully integrated seven acquired businesses. Following each
acquisition, the Company has enhanced operational efficiency by (i)
eliminating duplicative administrative functions, thereby lowering overhead
expenses, (ii) expanding distribution channels, and (iii) adding and
disseminating further market and product knowledge throughout the Company's
operations. The Company believes that the continued realization of operational
efficiencies will enhance internal growth and profitability.
- - CAPITALIZE ON LIFESTYLE TRENDS. The Company intends to continue to capitalize
on current lifestyle trends that are favorable to the professional salon
industry. Growing consumer focus on healthy living and personal indulgences
should continue to fuel expansion in the salon/spa industry, as the demand for
services such as body treatments and massages increases. Additionally, the
aging of the baby boomers (those born between 1945 and 1964) is expected to
benefit the salon industry.
4
<PAGE> 11
RECENT ACQUISITIONS
Concurrently with the consummation of the Initial Offering, the Company
acquired European Touch II at a purchase price of approximately $22 million in
cash and European Touch at a purchase price of $3.2 million in cash. European
Touch II is a leading developer, producer, and marketer of salon pedicure
equipment, with 1997 net sales of $8.6 million and adjusted EBITDA of $2.8
million. European Touch is a leading developer, producer, and marketer of
professional nail enhancement and treatment products, with 1997 net sales of
$6.0 million and adjusted EBITDA of $2.0 million. These acquisitions, together
with the recently completed Pro Finish Acquisition and the Company's existing
Alpha 9 and Omni product lines, will allow the Company to offer a range of
well-known brands in the nail care products category.
In August 1998, the Company acquired a controlling interest in Ft. Pitt
Acquisition, Inc. and its 90% owned subsidiary, Ft. Pitt-Framesi, Ltd.
(together, "Framesi USA"). Framesi USA holds exclusive license rights for the
sale in the United States and most of Latin America of Framesi hair color
products along with its complementary Biogenol line of shampoos, conditioners,
and styling products. The Company paid a purchase price of approximately $30.0
million for the Ft. Pitt Acquisition, Inc. stock in the form of cash and seller
carryback financing. The Company has completed 11 acquisitions since November
1996.
---------------
The Company was incorporated in June 1995 in Delaware. The Company's
principal executive offices are located at 2390 East Camelback Road, Suite 435,
Phoenix, Arizona 85016, and its telephone number is (602) 955-3353.
5
<PAGE> 12
THE EXCHANGE OFFER
The Outstanding Notes...... The Outstanding Notes were sold by the Company as
of June 23, 1998, in the Initial Offering, to the
Initial Purchasers pursuant to the Purchase
Agreement. The Initial Purchasers subsequently
resold the Outstanding Notes to "Qualified
Institutional Buyers" as such term is defined in
Rule 144A under the Securities Act ("QIBs").
Registration
Requirements............... Pursuant to the Purchase Agreement, the Company,
the Guarantors, and the Initial Purchasers entered
into the Registration Rights Agreement, which
grants the holders of the Outstanding Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which terminate upon the
consummation of the Exchange Offer. If applicable
law or applicable interpretations of the staff of
the Commission do not permit the Company to effect
the Exchange Offer, the Company and the Guarantors
agreed to file a shelf registration (the "Shelf
Registration Statement") covering resales of the
Outstanding Notes. See "The Exchange
Offer -- Resale of Exchange Notes" and "The
Exchange Offer -- Shelf Registration Statement."
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of the Exchange Notes for each
$1,000 principal amount of Outstanding Notes. As of
the date hereof, $100.0 million aggregate principal
amount of Outstanding Notes are outstanding. The
Company will issue the Exchange Notes subsequent to
the Expiration Date and on or before September ,
1998 (the "Exchange Date"), unless the Exchange
Offer is extended. See "Risk Factors -- Exchange
Offer Procedures; Consequences of Failure to
Exchange."
Based on an interpretation of the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes may be
offered for resale, resold, and otherwise
transferred by any holder thereof (other than any
such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business
and that such holder does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) or
similar no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes
were acquired by such broker-dealer as a result of
market-
6
<PAGE> 13
making activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of Exchange Notes. The
Letter of Transmittal for the Exchange Offer states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed to make this
Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resale for a period of up to 180 days from the
consummation of the Exchange Offer. See "Plan of
Distribution."
Expiration Date............ 5:00 p.m., E.D.T., on , 1998, unless
extended.
Interest on the Exchange
Notes.................... Interest on the Exchange Notes will accrue at a
rate equal to 10 7/8% per annum and will be payable
semi-annually in arrears on January 1 and July 1 of
each year, commencing January 1, 1999. Interest on
the Exchange Notes will accrue from the most recent
date to which interest has been paid on the
Outstanding Notes or, if no interest has been paid,
from the date of original issuance of the
Outstanding Notes.
Procedures for Tendering
Outstanding Notes........ Each holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign, and date
the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or
such facsimile, together with the Outstanding Notes
and any other required documentation to the
Exchange Agent at the address set forth herein. By
executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the holder or person receiving such
Exchange Notes, whether or not such person is the
holder, is acquiring the Exchange Notes in the
ordinary course of business and that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Outstanding Notes,
tendering holders may transfer Outstanding Notes
pursuant to the procedure for book-entry transfer
as set forth under "The Exchange
Offer -- Procedures for Tendering."
Each Participating Dealer that acquired Outstanding
Notes as a result of market-making or other trading
activities must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Outstanding Notes are
registered in the name of a broker-dealer,
commercial bank, trust company, or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf.
7
<PAGE> 14
If such beneficial owner wishes to tender on such
owner's own behalf, such owner must prior to
completing and executing the Letter of Transmittal
and delivering its Outstanding Notes, either make
appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of record ownership
may take considerable time.
Guaranteed Delivery
Procedures............... Holders of Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding Notes
are not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal,
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to
the Expiration Date must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Outstanding Notes may be withdrawn at
any time prior to 5:00 p.m., E.D.T., on the
Expiration Date pursuant to the procedures
described under "The Exchange Offer -- Withdrawal
of Tenders."
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes........... Subject to certain conditions, the Company will
accept for exchange any and all Outstanding Notes
that are properly tendered in the Exchange Offer
prior to 5:00 p.m., E.D.T., on the Expiration Date.
The Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the Exchange Date. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Federal Income Tax
Consequences............. The issuance of the Exchange Notes to holders of
the Outstanding Notes pursuant to the Exchange
Offer should not be a taxable event for United
States federal income tax purposes. See "Certain
Income Tax Considerations."
Effect on Holders of
Outstanding Notes........ As a result of the making of this Exchange Offer,
the Company will have fulfilled one of its
obligations under the Registration Rights
Agreement, and, with certain exceptions noted
below, holders of Outstanding Notes who do not
tender their Outstanding Notes will not have any
further registration rights under the Registration
Rights Agreement or otherwise. Such holders will
continue to hold the untendered Outstanding Notes
and will be entitled to all the rights and subject
to all the limitations applicable thereto under the
Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to
have further effectiveness as a result of the
Exchange Offer. All untendered Outstanding Notes
will continue to be subject to certain restrictions
on transfer. Accordingly, if any Outstanding Notes
are tendered and accepted in the Exchange Offer,
the trading market of the untendered Outstanding
Notes could be adversely affected. See "Risk
Factors -- Exchange Offer Procedures" and "Risk
Factors -- Absence of a Public Market; Restrictions
on Transfer."
Exchange Agent............. State Street Bank and Trust Company of California,
N.A. (the "Exchange Agent").
8
<PAGE> 15
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Securities Offered............ $100.0 million in aggregate principal amount of
10 7/8% Senior Subordinated Notes of the
Company due 2008 (the "Exchange Notes").
Maturity Date................. July 1, 2008.
Interest Payment Dates........ January 1 and July 1, commencing January 1,
1999.
Subsidiary Guarantees......... The Exchange Notes will be jointly and
severally guaranteed by each of the Company's
existing domestic subsidiaries and certain
future domestic subsidiaries of the Company
(each a "Guarantor" and, collectively, the
"Guarantors").
Subordination................. The Exchange Notes will be general unsecured
obligations of the Company, will be
subordinated in right of payment to all current
and future Senior Debt (as defined), and senior
or pari passu in right of payment to all
existing and future subordinated Debt (as
defined) of the Company. The Subsidiary
Guarantees will be general unsecured
obligations of the Guarantors, will be
subordinated in right of payment to all Senior
Debt of the Guarantors, and will rank senior or
pari passu in right of payment to all existing
and future subordinated Debt of the Guarantors.
The Company recently entered into a new credit
facility consisting of a revolving credit
facility and an acquisition term loan facility
in the aggregate principal amount of $50.0
million (the "New Credit Facility"). Any
borrowings under the New Credit Facility will
be Senior Debt. As of August 4, 1998, the
Company had approximately $25.0 million of
Senior Debt. See "Certain Indebtedness -- New
Credit Facility" and "Risk
Factors -- Subordination of the Notes and the
Subsidiary Guarantees."
Optional Redemption........... On or after July 1, 2003, the Company may
redeem the Exchange Notes, in whole or in part,
at the redemption prices set forth herein, plus
accrued and unpaid interest thereon, to the
date of redemption. See "Description of the
Exchange Notes -- Optional Redemption."
Change of Control............. Upon a Change of Control (as defined), the
Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the date
of repurchase. See "Description of the Exchange
Notes -- Repurchase at the Option of Holders --
Change of Control."
Covenants..................... The Indenture will restrict, among other
things, the ability of the Company and its
subsidiaries to incur additional indebtedness,
issue preferred stock, enter into sale and
leaseback transactions, incur liens, pay
dividends or make certain other restricted
payments, apply net proceeds from certain asset
sales, enter into certain transactions with
affiliates, merge or consolidate with any other
person, sell stock of subsidiaries, and assign,
transfer, lease, convey, or otherwise dispose
of substantially all of the assets of the
Company. See "Description of Exchange
Notes -- Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
9
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following unaudited consolidated financial information should be read
in conjunction with the Unaudited Pro Forma Consolidated Financial Data and the
notes thereto and the historical Consolidated Financial Statements and notes
thereto of STC and European Touch II contained elsewhere in this registration
statement. In November 1996, Styling Technology Corporation commenced operations
with an initial public offering and the simultaneous acquisition of four
businesses. Styling Technology Corporation has acquired seven other businesses
since November 1996. The unaudited pro forma consolidated financial information
reflects the results of the Company (which includes all of the Company's
acquisitions, including the Recent Acquisitions, other than the acquisition of a
controlling interest in Framesi USA). The unaudited pro forma consolidated
financial information also reflects certain pro forma adjustments that are more
fully described in the accompanying notes. The Unaudited Pro Forma Consolidated
Statement of Operations Data reflects the Initial Offering, the application of
the net proceeds therefrom, and the results of operations of the Company (which
includes all of the Company's acquisitions, including the Recent Acquisitions,
other than the acquisition of a controlling interest in Framesi USA) as if each
acquisition, the Initial Offering, and application of the net proceeds therefrom
occurred at the beginning of each period presented (including certain
adjustments to the historical financial statements that are more fully described
in the notes to the Unaudited Pro Forma Consolidated Financial Data contained
elsewhere in this registration statement). The "As Adjusted" Unaudited
Consolidated Balance Sheet Data reflects the historical financial information of
STC together with the Initial Offering and the application of the net proceeds
therefrom and the Recent Acquisitions, other than the acquisition of a
controlling interest in Framesi USA, as if each had occurred on March 31, 1998.
The Unaudited Pro Forma Consolidated Statement of Operations Data referred to
above may not be indicative of actual results that would have been achieved if
the Initial Offering and the application of the net proceeds therefrom and the
acquisitions had occurred on the dates indicated or the results that may be
realized in the future. The unaudited pro forma consolidated financial
information contains only certain adjustments that are directly attributable to
the Initial Offering, the application of net proceeds therefrom, and the
acquisitions. The table also presents certain historical actual consolidated
financial information. The consolidated statement of operations data for the
period from November 27, 1996 to December 31, 1996 and for the year ended
December 31, 1997, are derived from the consolidated financial statements of the
Company, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere herein. The
unaudited consolidated financial information as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998, are derived from the Company's
unaudited interim consolidated financial statements and in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
UNAUDITED STATEMENT OF OPERATIONS DATA -- PRO FORMA:
Net sales................................................. $84,935 $19,728 $21,807
Gross profit(1)........................................... 47,857 11,267 12,298
Selling, general, and administrative expenses(2).......... 29,417 7,543 7,197
Income from operations(3)................................. 18,440 3,724 5,101
Income before extraordinary item and income taxes......... 7,205 915 2,292
Net income(4)............................................. 3,991 448 202
Diluted earnings per share................................ .97 .22 .05
Diluted weighted average shares outstanding............... 4,113 4,117 4,278
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
NOVEMBER 27, THREE MONTHS ENDED
1996 TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1996 1997 1997 1998
------------ ------------ ------ -----------
<S> <C> <C> <C> <C>
ACTUAL CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 1,083 $ 38,108 $7,479 $16,225
Cost of sales........................................ 571 16,756 3,234 7,042
------- -------- ------ -------
Gross profit......................................... 512 21,352 4,245 9,183
Selling, general, and administrative expenses........ 737 12,201 2,398 5,395
------- -------- ------ -------
Income (loss) from operations........................ $ (225) $ 9,151 $1,847 $ 3,788
======= ======== ====== =======
Income (loss) before extraordinary item.............. $ (151) $ 4,207 $1,054 $ 1,439
Extraordinary item, net of tax benefit............... -- (1,377) -- --
------- -------- ------ -------
Net income (loss).................................... $ (151) $ 2,830 $1,054 $ 1,439
======= ======== ====== =======
OTHER DATA:
Ratio of earnings to fixed charges(5)................ -- 5.0x 30.1x 3.0x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------
AS
ACTUAL ADJUSTED(6)
------- -----------
<S> <C> <C>
UNAUDITED CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,528 $ 15,751
Working capital........................................... 13,238 38,702
Total assets.............................................. 94,286 141,349
Long-term debt, including current maturities.............. 53,843 100,000
Total stockholders' equity................................ 30,057 28,957
</TABLE>
- ---------------
(1) Reflects the adjustment to cost of sales related to a reduction of
third-party manufacturing costs negotiated in connection with the Company's
acquisitions of ABBA and the Clean + Easy/One Touch product lines, and
realized following the closing of such acquisitions, for the year ended
December 31, 1997, and the three months ended March 31, 1997, of
approximately $3.4 million and $674,000, respectively. No adjustment is
included for the three months ended March 31, 1998 as the actual operations
for these divisions are included in the operations of STC for this period.
(2) Reflects the net impact in selling, general, and administrative expenses of
an aggregate of (i) approximately $2.3 million, $572,000, and $375,000 for
the year ended December 31, 1997, and the three months ended March 31, 1997
and 1998, respectively, to reflect the elimination of salaries and benefits
of specific individuals not continuing with the combined companies, and (ii)
approximately $1.9 million, $558,000, and $231,000 for the year ended
December 31, 1997, and the three months ended March 31, 1997 and 1998,
respectively, to reflect the additional amortization of goodwill associated
with each acquisition.
(3) Represents cash interest expense on the Notes plus amortization of related
financing costs.
(4) Reflects adjustment to the income tax provision based on applying the
statutory income tax rates of each company, adjusted for goodwill
amortization from the acquisitions of ABBA, Gena, and JDS, which is not
deductible for income tax reporting purposes. Also includes an adjustment to
remove the extraordinary item for the year ended December 31, 1997.
(5) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
for this purpose include interest expense, amortization of deferred
financing costs and one-third of operating lease payments (the portion
deemed to be representative of the interest factor).
(6) The "As Adjusted" balance sheet data reflects the completion of the Initial
Offering, the application of the net proceeds therefrom, and the Recent
Acquisitions (other than the acquisition of a controlling interest in
Framesi USA), on a pro forma basis, as of March 31, 1998.
11
<PAGE> 18
RISK FACTORS
Holders of the Outstanding Notes should carefully review the information
set forth below, in addition to the other information in this Prospectus, before
deciding to tender their Outstanding Notes in the Exchange Offer.
EXCHANGE OFFER PROCEDURES; CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Exchange Notes in exchange for Outstanding Notes pursuant
to the Exchange Offer will be made only after the timely receipt by the Company
of such Outstanding Notes, a properly completed and duly executed Letter of
Transmittal, and all other required documents. Therefore, holders of the
Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of Outstanding Notes for exchange. Outstanding Notes that
are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. Upon consummation of the Exchange Offer, the
registration rights under the Registration Rights Agreement will terminate. In
addition, any holder of Outstanding Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for the Outstanding
Notes, where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." TO THE EXTENT THAT SOME OF THE OUTSTANDING
NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE OFFER, THE TRADING MARKET FOR
UNTENDERED AND TENDERED BUT UNACCEPTED OUTSTANDING NOTES COULD BE ADVERSELY
AFFECTED.
LEVERAGE
The Company is highly leveraged. On March 31, 1998, after giving pro forma
effect to the Offering and the repayment of amounts outstanding under the
previous credit facility and certain other outstanding indebtedness, the Company
would have had total indebtedness of approximately $100.0 million (all of which
would have consisted of the Notes) and stockholders' equity of approximately
$29.0 million. In addition, the Company, subject to certain conditions, will be
able to borrow up to an additional $50.0 million under the New Credit Facility.
As of August 4, 1998, the Company had approximately $25.0 million of Senior Debt
incurred under the New Credit Facility. See "Certain Indebtedness -- New Credit
Facility." Subject to certain conditions, the Company and its subsidiaries will
be permitted to incur additional indebtedness in the future. See
"Capitalization," "Selected Consolidated Financial Data," and "Description of
the Exchange Notes."
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness (including the Exchange
Notes), or to fund planned capital expenditures and product development expense
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory, and other
factors that are beyond its control. Following the Offering and the closing of
the New Credit Facility, the Company's line of credit, current cash resources,
and expected cash flows from operations are expected to be sufficient to fund
the Company's capital needs during the next 12 months at its current level of
operations, apart from capital needs resulting from acquisitions. However, the
Company may be required to obtain additional capital to fund its planned growth
and future acquisitions. In addition, the Company may need to refinance all or a
portion of the principal of the Exchange Notes on or prior to maturity. There
can be no assurance that the Company will generate sufficient cash flow from
operations or that future borrowings will be available under the New Credit
Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Exchange Notes, or to fund its other liquidity
needs. In addition, there can be no assurance that the Company will be able to
effect any such refinancing on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
12
<PAGE> 19
The degree to which the Company will be leveraged following the Offering
could have important consequences to holders of the Exchange Notes, including
(i) making it more difficult for the Company to raise additional funds to
finance desired acquisitions, (ii) increasing the Company's vulnerability to
general adverse economic and industry conditions, (iii) limiting the Company's
ability to obtain other funds to finance future working capital, capital
expenditures, product development, and other general corporate requirements,
(iv) requiring the dedication of a substantial portion of the Company's cash
flow from operations to the payment of the principal of and interest on its
indebtedness (including the Exchange Notes), thereby reducing the availability
of such cash flow to fund working capital, capital expenditures, product
development, or other general corporate purposes, (v) limiting the Company's
flexibility in planning for, or reacting to, changes in its business and the
industry, and (vi) placing the Company at a competitive disadvantage as compared
to less leveraged competitors. In addition, the Indenture and the New Credit
Facility contain financial and other restrictive covenants limiting the ability
of the Company, among other things, to borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default that,
if not cured or waived, could have a material adverse effect on the Company. The
degree to which the Company is leveraged could prevent it from repurchasing all
of the Exchange Notes tendered to it upon the occurrence of a Change of Control.
See "Description of the Exchange Notes -- Repurchase at Option of
Holder -- Change of Control" and "Certain Indebtedness."
The obligation of the lenders to advance funds under the New Credit
Facility is conditioned upon, among other things, the execution of definitive
loan documents. No assurance can be given that the Company and the lenders will
enter into such definitive documents or that any funds will be advanced under
such facility. See "Certain Indebtedness -- New Credit Facility."
SUBORDINATION OF THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTEES
The Exchange Notes and the Subsidiary Guarantees will be subordinated in
right of payment to all current and future Senior Debt of the Company and the
Guarantors, including any indebtedness under the New Credit Facility. The
Indenture, however, provides that the Company may not, and may not permit any of
the Guarantors to, incur or otherwise become liable for any indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Exchange Notes or any of the Subsidiary
Guarantees. Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership, or similar proceeding relating to the Company or its property, the
lenders under the New Credit Facility and other creditors that are holders of
Senior Debt will be entitled to be paid in full before any payment may be made
with respect to the Exchange Notes. In addition, the subordination provisions of
the Indenture provide that payments with respect to the Exchange Notes will be
blocked in the event of a payment default on Senior Debt and may be blocked for
up to 179 days each year in the event of certain non-payment defaults on Senior
Debt. In the event of a bankruptcy, liquidation, or reorganization of the
Company, the holders of the Exchange Notes will participate ratably with all
holders of subordinated indebtedness of the Company that is deemed to be of the
same class as the Exchange Notes, and potentially with all other general
creditors of the Company, based upon the respective amounts owed to each holder
or creditor, in the remaining assets of the Company. If any of the foregoing
events occur, there can be no assurance that there would be sufficient assets to
pay amounts due on the Exchange Notes. As a result, holders of the Exchange
Notes may receive less, ratably, than the holders of Senior Debt.
Any borrowings under the New Credit Facility will be Senior Debt. As of
August 4, 1998, the Company has borrowed approximately $25.0 million of Senior
Debt under the New Credit Facility. See "Certain Indebtedness -- New Credit
Facility." The Indenture permits the incurrence of substantial additional
indebtedness, including Senior Debt, by the Company and its subsidiaries in the
future. See "Description of the Exchange Notes."
CERTAIN FACTORS THAT COULD ADVERSELY AFFECT OPERATING RESULTS
The Company's operating results are affected by a wide variety of factors
that could adversely impact its net sales and operating results. These factors,
many of which are beyond the control of the Company, include the Company's
ability to identify trends in the professional salon products industry and to
create and introduce
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products on a timely basis that take advantage of those trends, continued market
acceptance of its products among salon professionals and their clientele, the
Company's ability to arrange for timely production and delivery of its products,
the level and timing of orders placed by customers, and competition and
competitive pressures on prices.
The success of the Company's operations depends to an extent upon a number
of factors relating to discretionary consumer spending. These factors include
economic conditions, such as employment, business conditions, interest rates,
and tax rates, as well as the continued growth of the professional salon
products industry. There can be no assurance that consumer spending will not be
adversely affected by general social trends and economic conditions, thereby
impacting the Company's growth, net sales, and profitability. If the demand for
professional salon products and related merchandise were to decline, the
Company's business, financial condition, and operating results could be
adversely affected.
ACQUISITION STRATEGY
The success of the Company's acquisition strategy will depend in large part
on its ability to acquire and operate successfully additional professional salon
product businesses. There can be no assurance that any additional suitable
acquisitions can be identified or consummated. In addition, increased
competition for acquisition candidates may increase purchase prices for
acquisitions to levels beyond the Company's financial capability or assessment
of value. The Company expects to use cash and its securities, including its
Common Stock, as the primary consideration for future acquisitions. The size,
timing, and integration of any future acquisitions may cause substantial
fluctuations in operating results from quarter to quarter. Consequently,
operating results for any quarter may not be indicative of the results that may
be achieved for any subsequent fiscal quarter or for a full fiscal year.
INTEGRATION OF BUSINESS OPERATIONS
The Company completed four acquisitions during fiscal 1996 and three
acquisitions during fiscal 1997 and has completed four acquisitions in fiscal
1998. There can be no assurance that the Company will be able to integrate
effectively the operations of acquired businesses with the Company's operations,
to manage effectively the combined operations of acquired businesses, to achieve
the Company's operating and growth strategies with respect to these businesses,
to obtain increased revenue opportunities as a result of the anticipated
synergies created by expanded product offerings and additional distribution
channels, or to reduce the overall selling, general, and administrative expenses
associated with acquired operations. The integration of the management,
operations, and facilities of acquired businesses could involve unforeseen
difficulties, which could have a material adverse effect on the Company's
business, financial condition, and operating results.
The Company conducts due diligence reviews of each acquired business and
receives representations and warranties regarding each acquired business. There
can be no assurance, however, that unforeseen liabilities will not arise in
connection with the operation of the businesses acquired to date or future
acquired businesses or that any contractual purchase price adjustments, rights
of set-off, or other remedies available to the Company will be sufficient to
compensate the Company in the event unforeseen liabilities arise.
The Company anticipates using the opportunities created by the combination
of acquired businesses to effect what the Company believes will be substantial
cost savings, including a reduction in operating expenses as a result of the
elimination of duplicative administrative, warehouse, and distribution
facilities, functions, and personnel. Significant uncertainties, however,
accompany any business combination, and there can be no assurance that the
Company will be able to achieve anticipated integration of facilities,
functions, and personnel in order to achieve operating efficiencies or otherwise
realize cost savings as a result of the acquisitions to date or future
acquisitions. The inability to achieve the anticipated cost savings could have a
material adverse effect on the Company's business, financial condition, and
operating results.
CONSUMER PREFERENCES AND NEW PRODUCT INTRODUCTIONS
Consumer preferences in the professional salon products industry depend to
a significant extent on the prescriptive role of salon professionals. Relatively
few products achieve wide acceptance in the professional salon market. The
Company believes that its success in the professional salon products industry
depends, in
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part, on its ability to introduce new and attractive products on a regular basis
that anticipate and respond to changing consumer demands and preferences in a
timely manner. There can be no assurance that any new products introduced by the
Company will achieve any significant degree of market acceptance or that any
acceptance that is achieved will be sustained for any significant amount of
time. The failure of new product lines or product innovations to achieve or
sustain market acceptance could have a material adverse effect on the Company's
business, financial condition, and operating results.
MANAGEMENT OF GROWTH
Since its initial public offering in November 1996, the Company's
operations have undergone significant changes and growth, including the
acquisition and integration of seven professional salon product businesses (not
including the Recent Acquisitions or the acquisition of a controlling interest
in Framesi USA), the expansion of its product lines and distribution channels,
and the restructuring of its third-party manufacturing arrangements. The
Company's growth and expanding operations may place a significant strain on the
Company's management, administrative, operational, and financial resources as
well as increased demands on its systems and controls. The Company's ability to
manage its growth will require it to continue to integrate successfully the
operations of any acquired businesses with the Company's operations; to enhance
further its operational, financial, and management systems and its marketing
programs; to motivate, manage, and retain its current employees; and to
identify, hire, and train additional employees. The failure of the Company to
manage its growth on an effective basis could have a material adverse effect on
the Company's business, financial condition, and operating results.
DEPENDENCE ON DISTRIBUTION CHANNELS
The Company sells a significant portion of its products to professional
salon product distributors and salon chains. Distributors and salon chains in
the United States and in foreign markets have periodically experienced
consolidation and other ownership changes and may in the future consolidate,
undergo restructurings, or realign their affiliations, which could decrease the
number of salons that sell the Company's products or increase the ownership
concentration within the professional salon products industry. Some of these
distributors may be thinly capitalized and unable to withstand changes in
business conditions. If a significant distributor of the Company's products
discontinues selling the Company's products, performs poorly and is unable to
pay for purchased products, or reorganizes or liquidates and is unable to
continue selling the Company's products, the Company's business, financial
condition, and operating results could be materially and adversely affected. In
addition, the laws and regulations of various states may limit the ability of
the Company to change distributors under certain circumstances, making it
difficult to terminate a distributor without good or just cause, as defined by
applicable statutes or regulations. The resulting difficulty or inability to
replace distributors, poor performance of the Company's distributors, or the
Company's inability to collect accounts receivable from its major distributors
could have a material adverse effect on the Company's business, financial
condition, and operating results. See "Business -- Sales and Distribution."
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
The Company depends upon third parties to manufacture most of its products.
Although the Company owns most of the formulations, tools, and molds used in the
manufacturing processes of its products, the Company has limited control over
the manufacturing processes themselves. As a result, any difficulties
encountered by the third-party manufacturers that result in product defects,
production delays, cost overruns, or the inability to fulfill orders on a timely
basis could have a material adverse effect on the Company's business, financial
condition, and operating results.
The Company generally does not have long-term contracts with its
third-party manufacturers. Although the Company believes it would be able to
secure other third-party manufacturers to produce its products as a result of
its ownership of the formulations, tools, and molds used in the manufacturing
process, the Company's operations would be adversely affected if it lost its
relationship with any of its current suppliers (including particularly two
manufacturers of hair removal appliances in China) or if its current suppliers'
operations or sea or air transportation with its China-based manufacturers were
disrupted or terminated even for a relatively short period of time. See "-- Risk
of International Operations." The Company's tools and molds are located at
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the facilities of its domestic and offshore third-party manufacturers.
Accordingly, significant damage to such facilities could result in the loss of
or damage to a material portion of its key tools and molds and production delays
could result while new facilities are being arranged and replacement tools and
molds are being produced. The Company does not maintain an inventory of
sufficient size to provide protection for any significant period against an
interruption of supply, particularly if it were required to obtain alternative
sources of supply.
Although the Company does not purchase directly the raw materials used to
manufacture the majority of its products, it is potentially subject to
variations in the prices it pays its third-party manufacturers for products
depending on their cost for raw materials.
DEPENDENCE ON MAJOR CUSTOMERS
The Company depends upon salon product and tanning supply distributors,
beauty supply outlets, and salon chains to distribute its products. During 1997,
the Company's largest customer, Sally Beauty Company, Inc. ("Sally"), a division
of Alberto-Culver Company, accounted for approximately 13% of the net sales of
the Company. Sally would have accounted for approximately 9% of the pro forma
consolidated net sales of the Company during 1997. The Company currently
maintains more than 5,500 active customer accounts. The Company does not have
long-term contracts with any of its customers. An adverse change in, or
termination of, the Company's relationship with, or an adverse change in the
financial viability of, one or more of its major customers, including Sally,
could have a material adverse effect on the Company's business, financial
condition, and operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the skills of
its current key employees and its ability to identify, hire, and retain
additional sales, marketing, and financial personnel. There can be no assurance
that the Company will be successful in retaining its existing key personnel or
in attracting and retaining additional key personnel. The loss of services of
key personnel, particularly Sam Leopold (the Company's Chairman, President, and
Chief Executive Officer), or the inability to attract and retain additional
qualified personnel could have a material adverse effect upon the Company's
business, financial condition, and operating results. The Company has an
employment agreement with Mr. Leopold that extends through September 2001.
RISK OF INTERNATIONAL OPERATIONS
International sales comprised approximately 15% of the Company's pro forma
consolidated net sales during 1997. The Company intends to expand its
international sales through acquisitions and internal growth. In addition,
certain of the Company's products are manufactured in China. See "-- Dependence
on Third Parties for Manufacturing." The foreign manufacture and sale of
products and the purchase of raw materials and components from foreign suppliers
may be materially and adversely affected by political and economic conditions
abroad, including foreign currency rate fluctuations. Protectionist trade
legislation in either the United States or foreign countries, such as a change
in the current tariff structures, export compliance laws, or other trade
policies could materially and adversely affect the Company's ability to
manufacture or sell products in foreign markets.
The Company's relationships with third-party manufacturers in China could
be disrupted or adversely affected due to a number of factors, including
governmental regulation, fluctuations in exchange rates, and changes in economic
and political conditions in China. If the Company's supply sources in China were
disrupted for any reason, the Company believes, based on existing market
conditions, that it could establish alternative supply relationships. However,
because establishing these relationships involves numerous uncertainties
relating to delivery requirements, price, payment terms, quality control, and
other matters, the Company is unable to predict whether such relationships would
be on terms satisfactory to the Company.
The Company's relationships with its third-party manufacturers in China are
also subject to risks associated with changes in United States legislation and
regulations relating to imports, including quotas, duties, taxes, and other
charges or restrictions on imports. Products that the Company imports from China
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currently receive preferential tariff treatment accorded goods from countries
granted "most favored nation" status. Under the Trade Act of 1974, the President
of the United States is authorized, upon making specified findings, to waive
certain restrictions that would otherwise render China ineligible for most
favored nation treatment. The President has waived these provisions each year
since 1979. Most favored nation status was accordingly renewed in June 1997
despite legislation pursued by Congress demanding that China desist from certain
trade and military activities. Congress will continue to monitor these
activities and may encourage the President to reconsider the renewal of most
favored nation status for China in June 1998. No assurance can be given that
China will continue to enjoy most favored nation status in the future. Raw
materials and finished products entering the United States from China without
the benefit of most favored nation treatment would be subject to significantly
higher duty rates.
INTELLECTUAL PROPERTY
The market for the Company's products depends to a significant extent upon
the goodwill associated with its trademarks and trade names. Therefore,
trademark protection is important to the Company's business. Although a number
of the Company's trademarks and trade names are registered in the United States
and in foreign countries, there can be no assurance that the Company will be
successful in asserting trademark or trade name protection for its trademarks
and trade names in the United States or other markets, and the costs to the
Company of such efforts may be substantial. In addition, the laws of certain
foreign countries may not protect the Company's intellectual property rights to
the same extent as the laws of the United States.
While the Company currently holds certain patents, the Company does not
consider any single patent to be material to the conduct of its business. To the
extent the Company asserts its patent rights, there can be no assurance that any
patents issued to the Company will not be challenged, invalidated, or
circumvented, that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have sufficient resources to
prosecute infringements of its rights. The Company relies primarily on trade
secret protection for its proprietary information. There can be no assurance
that the Company will be able to protect its intellectual property or that third
parties will not assert intellectual property infringement claims against the
Company. See "Business -- Intellectual Property."
COMPETITION
The professional salon products industry is highly competitive. The
Company's products compete directly against professional salon and other similar
products sold through distributors of professional salon products and
professional salons. In addition, the Company's professional salon products
compete indirectly against hair care, nail care, and skin and body care products
as well as salon appliances and sundries sold through a variety of non-salon
retail channels, including department stores, mall-based specialty stores and,
to a lesser extent, mass merchants, drugstores, supermarkets, telemarketing
programs, television "infomercials," and catalogs. Current and potential
competitors include a number of companies that have substantially greater
resources than the Company, including better brand-name recognition, broader
product lines, and wider distribution channels. The professional salon products
industry is characterized by a lack of significant barriers to entry with
respect to the development and production of professional salon products, which
may result in new competition, including possible imitators of one or more of
the Company's recognized product lines. In addition, it is common in the
professional salon products industry for companies to market products that are
similar to products being successfully marketed by competitors. Increased
competition and any reductions in competitors' prices that require the Company
to implement price reductions in order to remain competitive could have a
material adverse effect on the Company's business, financial condition, and
operating results. See "Business -- Competition."
REGULATION AND POTENTIAL CLAIMS
Certain of the Company's advertising and product labeling practices are
subject to regulation by the Federal Trade Commission ("FTC"), and certain of
its professional salon product production practices are subject to regulation by
the Food and Drug Administration ("FDA") as well as by various other federal,
state, and local regulatory authorities. Compliance with federal, state, and
local laws and regulations has not had a material adverse effect on the Company
to date. Nonetheless, federal, state, and local regulations in the
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United States that are designed to protect consumers have had, and can be
expected to have, an increasing influence on product claims, production methods,
product content, labeling, and packaging. In addition, any expansion by the
Company of its operations to produce professional salon products that include
over-the-counter drug ingredients (such as certain sun screen ingredients) would
result in the Company becoming subject to additional FDA regulations as well as
a higher degree of inspection and greater burden of regulatory compliance than
currently exist. The nature and use of professional salon products could give
rise to product liability claims if one or more users of the Company's products
were to suffer adverse reactions following their use of the products. Such
reactions could be caused by various factors, many of which are beyond the
Company's control, including hypoallergenic sensitivity and the possibility of
malicious tampering with the Company's products. In the event of such an
occurrence, the Company could incur substantial litigation expense, receive
adverse publicity, and suffer a loss of sales.
The operations of the Company subject it to federal, state, and local
governmental regulations related to the use, storage, discharge, and disposal of
hazardous chemicals. The failure by the Company to comply with current or future
environmental regulations could result in the imposition of fines on the
Company, suspension of production, or a cessation of operations. Compliance with
such regulations could require the Company to acquire costly equipment or to
incur other significant expenses. Any failure by the Company to control the use,
or adequately restrict the discharge, of hazardous substances could subject it
to future liabilities. The Company believes that it is in substantial compliance
with applicable federal, state, and local rules and regulations governing the
discharge of hazardous materials into the environment. There are no significant
capital expenditures for environmental control matters anticipated in the
current year or expected in the near future. See "Business -- Government
Regulation."
RESTRICTIVE DEBT COVENANTS
The New Credit Facility and the Indenture contain certain restrictive
financial and operating covenants that limit the discretion of the Company with
respect to certain business matters. These covenants will place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make certain
payments and investments, and to sell or otherwise dispose of assets and merge
or consolidate with other entities. The New Credit Facility will also require
the Company to meet certain financial ratios and tests. A failure to comply with
the obligations contained in the New Credit Facility or the Indenture, if not
cured or waived, could result in the acceleration of the related debt and the
acceleration of debt under other instruments that contain cross-acceleration or
cross-default provisions. If, as a result thereof, a default occurs with respect
to Senior Debt, the subordination provisions in the Indenture would likely
restrict payments to the holders of the Exchange Notes. In addition, if the
Company were obligated to repay all or a significant portion of its
indebtedness, there can be no assurance that the Company would have sufficient
cash to do so or that the Company could successfully refinance such
indebtedness. Other indebtedness of the Company that may be incurred in the
future may contain financial or other covenants more restrictive than those of
the New Credit Facility or the Exchange Notes. See "Certain Indebtedness -- New
Credit Facility," "Description of Notes -- Subordination," and "Description of
the Exchange Notes -- Certain Covenants."
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Exchange Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase. There can
be no assurance, however, that sufficient funds will be available at the time of
any Change of Control to make any required repurchases of Exchange Notes
tendered or that restrictions in the New Credit Facility will allow the Company
to make such required repurchases. Despite these provisions, the Company could
enter into certain transactions, including certain recapitalizations, that would
not constitute a Change of Control, but would increase the amount of debt
outstanding at such time. See "Description of the Exchange Notes -- Repurchase
at the Option of Holders."
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FRAUDULENT CONVEYANCE
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Guarantor, at the time it incurred the indebtedness evidenced by the
Exchange Notes or its Subsidiary Guarantee, (i) (a) was rendered insolvent by
reason of such occurrence or (b) was engaged in a business or transaction for
which the assets remaining with the Company or such Guarantor constituted
unreasonably small capital or (c) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, and (ii) the
Company or such Guarantor received less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Exchange Notes
and the Subsidiary Guarantees, and any pledge or other security interest
securing such indebtedness, could be voided, or claims in respect of the
Exchange Notes or the Subsidiary Guarantees could be subordinated to all other
debts of the Company or such Guarantor, as the case may be. In addition, the
payment of interest and principal by the Company pursuant to the Exchange Notes
or the payment of amounts by a Guarantor pursuant to a Subsidiary Guarantee
could be voided and required to be returned to the person making such payment or
to a fund for the benefit of the creditors of the Company or such Guarantor, as
the case may be.
The measures of insolvency will vary depending upon the law applied in any
proceeding with respect to the foregoing. Generally, however, the Company or a
Guarantor would be considered insolvent if (i) the sum of its debts, including
contingent liabilities, were greater than the saleable value of all of its
assets at a fair valuation or the present fair saleable value of its assets were
less than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history,
and other factors, the Company believes that, after giving effect to the
indebtedness incurred in connection with the Offering, the application of the
net proceeds therefrom, and the establishment of the New Credit Facility,
neither the Company nor any Guarantor will be insolvent, will have unreasonably
small capital for the business in which it is engaged, or will incur debts
beyond its ability to pay such debts as they mature. There can be no assurance,
however, as to what standard a court would apply in making such determinations
or that a court would agree with the Company's conclusions in this regard.
ABSENCE OF A PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Outstanding Notes are currently owned by a relatively small number of
beneficial owners. The Outstanding Notes have not been registered under the
Securities Act and are subject to significant restrictions on resale. The
Exchange Notes are a new issue of securities for which there is currently no
active trading market. The Company does not intend to apply for a listing or
quotation of the Exchange Notes on any securities exchange or stock market. The
Initial Purchasers have informed the Company that they currently intend to make
a market in the Exchange Notes. However, the Initial Purchasers are not
obligated to do so, and any such market making may be discontinued at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Exchange Notes. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. Future trading
prices of the Exchange Notes will depend upon many factors, including, among
others, prevailing interest rates, the market for similar securities, and other
factors, including general economic conditions and the financial condition of
the Company.
The Exchange Offer will not be conditioned upon any minimum or maximum
aggregate principal amount of Outstanding Notes being tendered for exchange. No
assurance can be given as to the liquidity of the trading market for the
Exchange Notes, or, in the case of non-tendering holders of the Outstanding
Notes, the trading market for the Outstanding Notes following the Exchange
Offer.
To the extent that all or most of the holders of the Outstanding Notes
tender such Notes, the liquidity of the Exchange Notes should be increased as a
result of the larger size of the issue. However, there can be no assurance that
any or all holders of the Outstanding Notes will accept the Exchange Offer. To
the extent that fewer of the holders of the Outstanding Notes accept the
Exchange Offer, the liquidity of the Exchange Notes
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could be decreased. In addition, wide acceptance of the Exchange Offer will
affect and could decrease the liquidity of the Outstanding Notes held by
non-tendering holders.
The liquidity of, and trading market for, the Outstanding Notes or the
Exchange Notes also may be adversely affected by general declines in the market
for similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
CONTROL BY MANAGEMENT
Mr. Leopold, the Chairman of the Board, President, and Chief Executive
Officer of the Company, beneficially owns approximately 25% of the outstanding
shares of the Company's Common Stock. Consequently, Mr. Leopold will have the
ability to influence the election of all of the directors of the Company and
thereby control the business, affairs, and management of the Company. In
addition, Mr. Leopold will have the ability to influence most matters requiring
stockholder approval including significant corporate matters, such as the
amendment of the Company's Certificate of Incorporation and any merger,
consolidation, or sale of all or substantially all of the assets of the Company.
Such a high level of ownership may have the effect of delaying, deterring, or
preventing a change in the control of the Company, even when such a change would
be in the best interests of the other stockholders or the holders of the Notes,
and may adversely affect the voting and other rights of the other holders of the
Company's Common Stock.
POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK
The market price of the Company's Common Stock has increased dramatically
since the Company's initial public offering in November 1996. The period was
marked by generally rising stock prices, extremely favorable industry
conditions, and substantially improved operating results by the Company. There
can be no assurance that these favorable conditions will continue. The trading
price of the Company's Common Stock in the future could be subject to wide
fluctuations in response to quarterly variations in operating results of the
Company, actual or anticipated announcements of new products by the Company or
its competitors, changes in analysts' estimates of the Company's financial
performance, general conditions in the markets in which the Company competes,
worldwide economic and financial conditions, and other events or factors. The
stock market also has experienced extreme price and volume fluctuations that
have particularly affected the market prices for many rapidly expanding
companies and that often have been unrelated to the operating performance of
such companies. These broad market fluctuations and other factors may adversely
affect the market price of the Company's Common Stock. Any reduction in the
trading price of the Company's Common Stock could adversely affect the Company's
ability to acquire additional businesses.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists concerning
the potential effects associated with such compliance. The Company has assessed
and continues to assess the impact the Year 2000 issue will have on its
reporting and operating systems. The Company is addressing the Year 2000 issue
by upgrading to a new release of its key operating and financial software
system, which will be Year 2000 compliant. The Company will test the new system
for Year 2000 compliance when the system is upgraded. In addition, during 1998
the Company intends to assess the impact any Year 2000 compliance problems
suffered by its customers, third-party contract manufacturers, and suppliers may
have on the Company. Although the Company does not anticipate that the Year 2000
issue will have a significant impact on its business, any significant Year 2000
compliance problem of any of the Company, its customers, or its third-party
contract manufacturers or suppliers could have a material adverse effect on the
Company's business, financial condition, and operating results.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on June 23, 1998, to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Outstanding Notes with QIBs in reliance on Rule 144A
under the Securities Act. As a condition of the purchase of the Outstanding
Notes by the Initial Purchasers, the Company, and the Guarantors entered into
the Registration Rights Agreement with the Initial Purchasers, which requires,
among other things, that the Company and the Guarantors file with the Commission
a registration statement under the Securities Act with respect to an offer by
the Company to the holders of the Outstanding Notes to issue and deliver to such
holders, in exchange for Outstanding Notes, a like principal amount of Exchange
Notes. The Company and the Guarantors are required to use their best efforts to
cause the registration statement relating to the Exchange Offer (the
"Registration Statement") to be declared effective by the Commission under the
Securities Act and commence the Exchange Offer. The Exchange Notes are to be
issued without a restrictive legend, and based on interpretations by the staff
of the Commission, the Company believes that the Exchange Notes may be reoffered
and resold by a holder that is not an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating in and has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes. A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "-- Resale of
Exchange Notes."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The term "Holder" with respect to the Exchange Offer means any person in
whose name the Outstanding Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all
Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m., E.D.T.,
on the Expiration Date. On the Exchange Date, the Company will issue $1,000
principal amount of Exchange Notes in exchange for $1,000 principal amount of
Outstanding Notes accepted in the Exchange Offer. Holders may tender some or all
of their Outstanding Notes pursuant to the Exchange Offer. However, Outstanding
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights under the Registration Rights Agreement. The Exchange Notes
will evidence the same debt as the Outstanding Notes and will be entitled the
benefits of the Indenture.
As of the date of this Prospectus, $100.0 million aggregate principal
amount of the Outstanding Notes was outstanding and registered in the name of
Cede & Co., as nominee for the Depositary. The Company has fixed the close of
business of , 1998, as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission thereunder, including Rule 14e-1
thereunder.
21
<PAGE> 28
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as, and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue at a rate of 10 7/8% per annum
and will be payable semi-annually in arrears on January 1 and July 1 of each
year, commencing January 1, 1999. Interest on the Exchange Notes will accrue
from the most recent date to which interest has been paid on the Outstanding
Notes or, if no interest has been paid, from the date of original issuance of
the Outstanding Notes.
PROCEDURES FOR TENDERING
Only a Holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must complete, sign,
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Outstanding Notes and any other required documents, to the Exchange Agent
prior to 5:00 p.m., E.D.T., on the Expiration Date. The Company is not asking
any Holder for a proxy, and no Holder is requested to send the Company a proxy.
To be tendered effectively, the Outstanding Notes, Letter of Transmittal, and
other required documents must be received by the Exchange Agent at the address
set forth below under "-- Exchange Agent" prior to 5:00 p.m., E.D.T., on the
Expiration Date. Delivery of the Outstanding Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representations set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between such Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
22
<PAGE> 29
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Outstanding Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Exchange Notes at the Depositary (the "Book-Entry Transfer Facility") for
the purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of the Outstanding Notes
by causing such Book-Entry Transfer Facility to transfer such Outstanding Notes
into the Exchange Agent's account with respect to the Outstanding Notes in
accordance with the Book-Entry Transfer Facility's procedures for such transfer.
Although delivery of the Outstanding Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures; provided, however, that a
participant in the Book-Entry Transfer Facility's book-entry system may, in
accordance with the Book-Entry Transfer Facility's Automated Tender Offer
Program procedures and in lieu of physical delivery to the Exchange Agent of a
Letter of Transmittal, electronically acknowledge its receipt of, and agreement
to be bound by, the terms of the Letter of Transmittal. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities, or conditions of tender as to particular Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Outstanding Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Outstanding Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
23
<PAGE> 30
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available, (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal, or any other required documents to
the Exchange Agent, or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Outstanding Notes, and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five Nasdaq Stock Market trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Outstanding Notes (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five Nasdaq Stock Market trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., E.D.T., on the Expiration Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., E.D.T., on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Outstanding Notes to be withdrawn (the "Depositor"),
(ii) identify the Outstanding Notes to be withdrawn (including the certificate
number(s) and principal amount of such Outstanding Notes, or, in the case of
Outstanding Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Outstanding Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Outstanding Notes register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Outstanding Notes are to be
registered, if different from that of the Depositor, and (v) if applicable
because the Outstanding Notes have been tendered pursuant to book-entry
procedures, specify the name and number of the participant's account at the
Book-Entry Transfer Facility to be credited, if different from that of the
Depositor. All questions as to the validity, form, and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be
24
<PAGE> 31
issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Any Outstanding Notes which have been tendered but which are
not accepted for exchange, will be returned to the Holder thereof without cost
to such Holder as soon as practicable after withdrawal, rejection of tender, or
termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
EXCHANGE AGENT
The State Street Bank and Trust Company of California, N.A., has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notice of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
State Street Bank and Trust Company of California,
N.A. By Facsimile: (213) 362-7357
633 West Fifth Street, 12th floor Confirm by Telephone: (213) 362-7300
Los Angeles, California 90071
Attention: Corporate Trust Administration
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone, facsimile, or in
person by officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees, and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be issued in the name of, any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of the Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value, less a discount, as reflected in the
Company's accounting records on the Exchange Date. Accordingly, no gain or loss
for accounting purposes will be recognized. The expenses of the Exchange Offer
will be amortized over the term of the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold, and otherwise transferred by any holder of
such Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
25
<PAGE> 32
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes may not rely on the position of the staff
of the Commission enunciated in Exxon Capital Holdings Corporation and Morgan
Stanley & Co., Incorporated, or similar no-action letters, but rather must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Outstanding Notes, where such
Outstanding Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person is engaged in or intends to
engage in, or has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, and (iii) the Holder and such other
person acknowledge that if they participate in the Exchange Offer for the
purpose of distributing the Exchange Notes (a) they must, in the absence of an
exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes and cannot rely on the no-action letters referenced above and (b) failure
to comply with such requirements in such instance could result in such Holder
incurring liability under the Securities Act for which such Holder is not
indemnified by the Company. Further, by tendering in the Exchange Offer, each
Holder that may be deemed an "affiliate" (as defined under Rule 405 of the
Securities Act) of the Company will represent to the Company that such Holder
understands and acknowledges that the Exchange Notes may not be offered for
resale, resold, or otherwise transferred by that Holder without registration
under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
SHELF REGISTRATION STATEMENT
If the Company is not permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Commission or the staff of the Commission, the Company and
the Guarantors have agreed to file with the Commission and use their best
efforts to have declared effective and keep continuously effective for up to two
years a registration statement that would allow resales of Outstanding Notes
owned by such holders.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Outstanding Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Outstanding Notes
in open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company, however, has no present plans to acquire any
Outstanding Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Outstanding Notes.
26
<PAGE> 33
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement
with respect to the Outstanding Notes. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes contemplated in this Prospectus,
the Company will receive Outstanding Notes in like principal amount, the form
and terms of which are substantially similar to the form and terms of the
Exchange Notes, except as otherwise described herein. The Outstanding Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in any increase or decrease in the indebtedness of the Company.
27
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial information should
be read in conjunction with the historical Consolidated Financial Statements and
notes thereto of STC and European Touch II contained elsewhere in this
Prospectus. In November 1996, Styling Technology Corporation commenced
operations with an initial public offering and the simultaneous acquisition of
four businesses. Styling Technology Corporation has acquired seven other
businesses since November 1996. The unaudited pro forma consolidated financial
information reflects the results of the Company (which includes all of the
Company's acquisitions, including the Recent Acquisitions, other than the
acquisition of a controlling interest in Framesi USA). The unaudited pro forma
consolidated financial information also reflects certain pro forma adjustments
that are more fully described in the accompanying notes. The Unaudited Pro Forma
Consolidated Statement of Operations reflects the Initial Offering, the
application of the net proceeds therefrom, and the results of operations of the
Company (which includes all of the Company's acquisitions, including the Recent
Acquisitions, other than the acquisition of a controlling interest in Framesi
USA) as if each acquisition, the Initial Offering, and application of the net
proceeds therefrom occurred at the beginning of each period presented (including
certain adjustments to the historical financial statements that are more fully
described in the notes hereto). The Unaudited Pro Forma Condensed Consolidated
Balance Sheet reflects the historical financial information of STC together with
the Initial Offering and the application of the net proceeds therefrom and the
Recent Acquisitions, other than the acquisition of a controlling interest in
Framesi USA, as if each had occurred on March 31, 1998. The Unaudited Pro Forma
Consolidated Statements of Operations may not be indicative of actual results
that would have been achieved if the Initial Offering, the application of the
net proceeds therefrom, and the acquisitions had occurred on the dates indicated
or the results that may be realized in the future. The unaudited pro forma
consolidated financial information contains only certain adjustments that are
directly attributable to the Initial Offering, the application of net proceeds
therefrom, and the acquisitions described above.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
--------------------------------
EUROPEAN EUROPEAN PRO FORMA
STC(a) PRO FINISH TOUCH II TOUCH ADJUSTMENTS PRO FORMA
------- ---------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $16,225 $2,011 $2,095 $1,476 $ -- $21,807
Cost of sales........................ 7,042 1,034 877 556 -- 9,509
------- ------ ------ ------ ------- -------
Gross profit......................... 9,183 977 1,218 920 -- 12,298
Selling, general, and administrative
expenses........................... 5,395 747 589 610 (144)(b) 7,197
------- ------ ------ ------ ------- -------
Income from operations............... 3,788 230 629 310 144 5,101
Interest and other income (expense),
net................................ (1,264) -- 32 -- (1,577)(c) (2,809)
------- ------ ------ ------ ------- -------
Income before extraordinary item and
taxes.............................. 2,524 230 661 310 (1,433) 2,292
Provision for income taxes........... 1,085 86 -- -- (181)(d) 990
------- ------ ------ ------ ------- -------
Income before extraordinary item..... 1,439 144 661 310 (1,252) 1,302
Extraordinary item, net of tax
benefit............................ -- -- -- -- (1,100)(e) (1,100)
------- ------ ------ ------ ------- -------
Net income........................... $ 1,439 $ 144 $ 661 $ 310 $(2,352) $ 202
======= ====== ====== ====== ======= =======
Diluted weighted average shares
outstanding........................ 4,278
=======
Diluted Earnings Per Share
Income before extraordinary item.......................................................... $ 0.30
Extraordinary item, net of tax benefit.................................................... (0.25)
-------
Net income................................................................................ $ 0.05
=======
</TABLE>
28
<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
--------------------------------
CLEAN+EASY/ EUROPEAN EUROPEAN PRO FORMA
STC(a) ABBA ONE TOUCH PRO FINISH TOUCH II TOUCH ADJUSTMENTS PRO FORMA
------- ------ ----------- ---------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $38,108 $5,742 $18,902 $7,569 $8,628 $5,986 $ -- $ 84,935
Cost of sales.............. 16,756 2,780 11,212 4,189 3,713 1,828 (3,400) (f) 37,078
------- ------ ------- ------ ------ ------ ------- --------
Gross profit............... 21,352 2,962 7,690 3,380 4,915 4,158 3,400 47,857
Selling, general, and
administrative
expenses................. 12,201 2,358 7,312 2,812 2,256 2,911 (433) (b) 29,417
------- ------ ------- ------ ------ ------ ------- --------
Income from operations..... 9,151 604 378 568 2,659 1,247 3,833 18,440
Interest and other income
(expense), net........... (1,847) 50 129 (124) 106 (10) (9,539) (c) (11,235)
------- ------ ------- ------ ------ ------ ------- --------
Income before extraordinary
item and taxes........... 7,304 654 507 444 2,765 1,237 (5,706) 7,205
Provision for income
taxes.................... 3,097 185 -- 111 -- 230 (409) (d) 3,214
------- ------ ------- ------ ------ ------ ------- --------
Income before extraordinary
item..................... 4,207 469 507 333 2,765 1,007 (5,297) 3,991
Extraordinary item, net.... (1,377) -- -- -- -- -- 1,377 (e) --
------- ------ ------- ------ ------ ------ ------- --------
Net income................. $ 2,830 $ 469 $ 507 $ 333 $2,765 $1,007 $(3,920) $ 3,991
======= ====== ======= ====== ====== ====== ======= ========
Diluted weighted average
shares outstanding....... 4,113
========
Diluted Earnings Per Share
Income before extraordinary item.............................................................................. $ 0.97
Extraordinary item, net....................................................................................... --
--------
Net income.................................................................................................... $ 0.97
========
</TABLE>
29
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
------------------------------
PRO EUROPEAN EUROPEAN PRO FORMA
STC FINISH TOUCH II TOUCH ADJUSTMENTS PRO FORMA
------- ------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........ $ 2,528 $ 173 $ 430 $ 63 $100,000 (h) $ 15,751
(57,443)(h)
(30,000)(g)
Accounts receivable, net......... 15,605 774 982 585 -- 17,946
Inventory........................ 10,604 1,170 561 1,617 -- 13,952
Prepaid expenses and other
current assets................ 2,268 90 -- 104 -- 2,462
------- ------ ------ ------ -------- --------
Total current assets.......... 31,005 2,207 1,973 2,369 12,557 50,111
Property and equipment, net........ 3,010 144 436 284 -- 3,874
Goodwill, net...................... 56,475 898 -- -- 23,179 (g) 80,552
Other assets....................... 3,796 390 17 109 3,600 (h) 6,812
(1,100)(h)
------- ------ ------ ------ -------- --------
Total assets....................... $94,286 $3,639 $2,426 $2,762 $ 38,236 $141,349
======= ====== ====== ====== ======== ========
Current liabilities:
Accounts payable................. $ 4,841 $ 448 $ 285 $ 363 $ -- $ 5,937
Accrued liabilities.............. 4,698 297 31 86 -- 5,112
Current portion of long-term debt
and other..................... 8,228 120 113 197 (8,298)(h) 360
------- ------ ------ ------ -------- --------
Total current liabilities..... 17,767 865 429 646 8,298 11,409
------- ------ ------ ------ -------- --------
Long-term debt and other, less
current portion.................. 46,462 20 46 -- 100,000 (h) 100,983
------- ------ ------ ------ -------- --------
(45,545)(h)
--------
Stockholders' equity:
Common stock..................... 1 2,148 1 1 (2,150)(g) 1
Additional paid-in capital....... 27,925 336 2,008 17 (2,361)(g) 27,925
Retained earnings................ 3,931 270 -- 2,098 (2,368)(g) 2,831
(1,100)(h)
Treasury stock................... (1,800) -- (58) -- 58 (g) (1,800)
------- ------ ------ ------ -------- --------
Total stockholders' equity.... 30,057 2,754 1,951 2,116 (7,921) 28,957
------- ------ ------ ------ -------- --------
Total liabilities and stockholders'
equity........................... $94,286 $3,639 $2,426 $2,762 $ 38,236 $141,349
======= ====== ====== ====== ======== ========
</TABLE>
30
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) Includes the results of ABBA from June 1997 and Clean + Easy / One Touch
from December 1997, their respective dates of acquisition.
(b) Reflects the net impact in selling, general, and administrative expenses of
an aggregate of (i) approximately $375,000 and $2.3 million for the three
months ended March 31, 1998 and the year ended December 31, 1997,
respectively, to reflect the elimination of salaries and benefits of
specific individuals not continuing with the combined companies, and (ii)
approximately $231,000 and $1.9 million for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively, to reflect the
additional amortization of goodwill associated with each acquisition.
(c) Represents cash interest expense on the Notes plus amortization of related
financing costs.
(d) Reflects adjustment to the income tax provision, based on applying the
statutory income tax rates of each company, adjusted for goodwill
amortization from the ABBA, Gena, and JDS acquisitions, which is not
deductible for income tax reporting purposes.
(e) Reflects the write-off of loans under the Existing Credit Facility of $2.0
million ($1.1 million on a tax adjusted basis) for the three months ended
March 31, 1998. Also includes an adjustment to remove the extraordinary
item for the year ended December 31, 1997.
(f) Reflects the adjustment to cost of sales related to the reduction of
third-party manufacturing costs negotiated in connection with the
acquisitions of ABBA and the Clean + Easy / One Touch product lines and
realized following the closing of such acquisition.
(g) To record the purchase prices of the Recent Acquisitions (other than the
acquisition of a controlling interest in Framesi USA) and the allocation of
these purchase prices to the net assets of the businesses acquired.
(h) To record the issuance of the Notes, including the payment of estimated fees
and expenses of $3.6 million. Also assumes the repayment of the Existing
Credit Facility and certain other debt, and the write-off of deferred
financing costs as a result of the refinancing of the previously outstanding
indebtedness.
31
<PAGE> 38
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Unaudited Pro Forma Consolidated Statement of Operations Data for the
years ended December 31, 1997, the three months ended March 31, 1997 and 1998,
and the Pro Forma Consolidated Balance Sheet Data as of March 31, 1998 is
derived from the historical financial statements of STC, and the historical
financial statements of the businesses acquired in the Recent Acquisitions,
other than the acquisition of a controlling interest in Framesi USA. Certain of
these historical financial statements have been audited by Arthur Andersen LLP
and are included elsewhere in this Prospectus. The Unaudited Pro Forma
Consolidated Statement of Operations Data reflects the Initial Offering, the
application of the net proceeds therefrom, and the results of operations of the
Company (which includes all of the Company's acquisitions, including the Recent
Acquisitions, other than the acquisition of a controlling interest in Framesi
USA) as if the Offering, the application of the net proceeds therefrom, and each
of the acquisitions occurred at the beginning of each period presented
(including certain adjustments to the historical financial statements that are
more fully described in the notes to the Unaudited Pro Forma Consolidated
Financial Data contained elsewhere in this Prospectus). The Pro Forma
Consolidated Balance Sheet Data reflects the historical financial information of
STC together with the Initial Offering, the application of the net proceeds
therefrom, and the Recent Acquisitions, other than the acquisition of a
controlling interest in Framesi USA, as if each had occurred on March 31, 1998.
The Unaudited Pro Forma Consolidated Statement of Operations Data referred to
above may not be indicative of actual results that would have been achieved if
the Initial Offering, the application of the net proceeds therefrom, and the
acquisitions had occurred on the dates indicated or of the results that may be
realized in the future. The unaudited pro forma consolidated financial
information contains only certain adjustments that are directly attributable to
the Initial Offering and the application of the net proceeds therefrom, and the
acquisitions described above. The table also presents certain historical actual
consolidated financial information. The consolidated statement of operations
data for the period from November 27, 1996 to December 31, 1996 and for the year
ended December 31, 1997, are derived from the consolidated financial statements
of the Company, which have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report included elsewhere herein. The
unaudited consolidated financial information as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998, are derived from the Company's
unaudited interim consolidated financial statements but, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments. Included also in the historical financial data below is financial
information for the four initial companies, which were acquired by the Company.
Concurrently with its initial public offering in November, 1996, the Company
acquired four businesses, and commenced operations. Selected historical
financial data is provided for these four businesses: Gena Laboratories, Inc.
("Gena"), Body Drench, a division of Designs by Norvell, Inc. ("Body Drench"),
JDS Manufacturing Co., Inc. ("JDS"), and Kotchammer Investments, Inc. ("KII").
The historical financial information for Gena and Body Drench for each of the
three years in the periods ending February 29, 1996 and December 31, 1995,
respectively, was derived from their financial statements, which have been
audited by Arthur Andersen LLP and appear elsewhere in this Prospectus
statement. The historical financial information for JDS for each of the two
years in the period ended September 30, 1995 was derived from its financial
statements which have been audited by Arthur Andersen LLP and appear elsewhere
in this Prospectus. The historical financial information for KII for the year
ended December 31, 1995 was derived from their financial statements, which have
been audited by Arthur Andersen LLP and appear elsewhere in this registration
statement. The historical financial information for Gena, Body Drench, JDS, and
KII as of and for the six-and nine-month periods ended August 31, 1996, June 30,
1996, June 30, 1996, and June 30, 1996, respectively, and for the six- and
nine-month periods ended August 31, 1995, June 30, 1995, June 30, 1995, and June
30, 1995, respectively, was derived from their unaudited financial statements
appearing elsewhere in this Prospectus. The historical financial information for
earlier periods for Gena, Body Drench, JDS, and KII not specifically referenced
above, was derived from each company's unaudited financial statements not
included in this Prospectus. The Selected Consolidated Historical and Pro Forma
Data provided below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical Consolidated Financial Statements and notes thereto of STC and
European Touch II appearing elsewhere in this Prospectus.
32
<PAGE> 39
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA -- COMPANY PRO FORMA:
Net sales................................................ $84,935 $19,728 $21,807
Gross profit(1).......................................... 47,057 11,267 12,298
Selling, general, and administrative expenses(2)......... 29,417 7,543 7,197
Income from operations(3)................................ 18,440 3,724 5,101
Income before extraordinary item and income taxes........ 7,205 915 2,292
Net income(4)............................................ 3,991 448 202
Diluted earnings per share............................... .97 .22 .05
Diluted weighted average shares outstanding.............. 4,113 4,117 4,278
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 27, THREE MONTHS ENDED
1996 TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------
1996 1997 1997 1998
------------ ------------ ------- --------
<S> <C> <C> <C> <C>
ACTUAL CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales.................................... $1,083 $38,108 $7,479 $16,225
Cost of sales................................ 571 16,756 3,234 7,042
------ ------- ------ -------
Gross profit................................. 512 21,352 4,245 9,183
Selling, general, and administrative
expenses.................................. 737 12,201 2,398 5,395
------ ------- ------ -------
Income (loss) from operations................ $ (225) $ 9,151 $1,847 $ 3,788
====== ======= ====== =======
Income (loss) before extraordinary item...... $ (151) $ 4,207 $1,054 $ 1,439
Extraordinary item, net of tax benefit....... -- (1,377) -- --
------ ------- ------ -------
Net income (loss)............................ $ (151) $ 2,830 $1,054 $ 1,439
====== ======= ====== =======
OTHER DATA:
Ratio of earnings to fixed charges(5)........ -- 4.0x 29.8x 2.0x
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED FEBRUARY 28, AUGUST 31,
-------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA --
GENA:
Net sales.................... $5,906 $6,537 $6,426 $ 7,524 $ 8,384 $4,336 $4,705
Gross profit................. 2,642 2,868 3,146 3,360 3,565 2,039 2,160
Selling, general, and
administrative expenses... 2,416 2,570 2,744 2,964 3,033 1,573 1,454
Income from operations....... 226 298 402 396 532 466 706
Net income................... 180 204 278 232 317 279 442
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA --
BODY DRENCH(6):
Net sales.................... $5,111 $6,234 $6,653 $11,138 $11,871 $8,250 $6,586
Gross profit................. 2,567 2,667 2,614 4,796 5,444 3,686 3,121
Selling, general, and
administrative expenses... 1,827 2,285 2,055 4,076 4,883 2,971 2,402
Income from operations....... 740 382 559 720 561 714 719
Net income................... 740 382 328 446 294 416 440
</TABLE>
33
<PAGE> 40
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
-------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA --
JDS:
Net sales.................... $3,843 $3,819 $3,799 $ 3,578 $ 3,368 $2,592 $2,339
Gross profit................. 2,172 2,149 2,054 2,114 2,019 1,561 1,389
Selling, general, and
administrative expenses... 2,071 2,191 2,092 2,170 2,046 1,549 1,393
Income (loss) from
operations................ 101 (42) (38) (56) (26) 12 (4)
Net income (loss)............ 16 (20) (29) (16) 9 23 (3)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA --
KII:
Net sales.................... -- -- $ 102 $ 1,999 $ 1,558 $ 777 $ 736
Gross profit................. -- -- 60 1,014 846 405 393
Selling, general, and
administrative expenses... -- -- 87 1,040 891 476 329
Income (loss) from
operations................ -- -- (27) (26) (45) (71) 64
Net income (loss)............ -- -- (32) (104) (135) (117) 25
</TABLE>
<TABLE>
<CAPTION>
STYLING GENA BODY DRENCH JDS KII
AS OF AS OF AS OF AS OF AS OF
MARCH 31, 1998 AUGUST 31, 1996 JUNE 30, 1996(7) JUNE 30, 1996 JUNE 30, 1996
-------------- --------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $13,238 $2,315 $ 329 $333 $ 345
Total assets............... 94,286 3,975 4,221 728 622
Long-term debt, including
current maturities...... 53,843 291 -- 432 610
Total stockholders'
equity.................. 30,057 3,065 582 27 (200)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998(7)
-----------------
ACTUAL AS ADJUSTED
------- -----------------
<S> <C> <C>
UNAUDITED CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,528 $ 15,751
Working capital........................................... 13,238 38,702
Total assets.............................................. 94,286 141,349
Long-term debt, including current maturities.............. 53,843 100,000
Total stockholders' equity................................ 30,057 28,957
</TABLE>
- ---------------
(1) Reflects the adjustment to cost of sales related to a reduction of
third-party manufacturing costs negotiated in connection with the Company's
acquisitions of ABBA and the Clean + Easy/One Touch product lines, and
realized following the closing of such acquisitions, for the year ended
December 31, 1997, and the three months ended March 31, 1997, of
approximately $3.4 million and $674,000, respectively. No adjustment is
included for the three months ended March 31, 1998 as the actual operations
for these divisions are included in the operations of STC for this period.
(2) Reflects the net impact in selling, general, and administrative expenses of
an aggregate of (i) approximately $2.3 million, $572,000, and $375,000 for
the year ended December 31, 1997, and the three months ended March 31, 1997
and 1998, respectively, to reflect the elimination of salaries and benefits
of specific individuals not continuing with the combined companies, and (ii)
approximately $1.9 million, $558,000, and $231,000 for the year ended
December 31, 1997, and the three months ended March 31, 1997 and 1998,
respectively, to reflect the additional amortization of goodwill associated
with each acquisition.
(3) Represents cash interest expense on the Notes plus amortization of related
financing costs.
(4) Reflects adjustment to the income tax provision based on applying the
statutory income tax rates of each company, adjusted for goodwill
amortization from the acquisitions of ABBA, Gena, and JDS, which is not
deductible for income tax reporting purposes. Also includes an adjustment to
remove the extraordinary item for the year ended December 31, 1997.
(5) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
for this purpose include interest expense, amortization of deferred
financing costs and one-third of operating lease payments (the portion
deemed to be representative of the interest factor).
(6) Body Drench has historically operated as a division of another company.
Total stockholders' equity data represents the total company's owners' net
investment in the division to be acquired by Styling.
(7) The "As Adjusted" balance sheet data reflects the completion of the Initial
Offering, the application of the net proceeds therefrom, and the Recent
Acquisitions (other than the acquisition of a controlling interest in
Framesi USA), on a pro forma basis, as of March 31, 1998.
34
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Data," and the Consolidated Financial Statements of STC and notes
thereto, which are contained elsewhere in this Offering Memorandum.
INTRODUCTION
The Company develops, produces, and markets professional salon products,
including hair care, nail care, and skin and body care products as well as salon
appliances and sundries. The Company sells its products primarily to salon
product and tanning supply distributors, beauty supply outlets, and salon chains
and, to a lesser extent, directly to spas, resorts, health and country clubs,
and hair, nail, and tanning salons throughout the United States as well as in
Canada, Europe, Latin America, Australia, and Asia. The Company offers a
diversified line of well-established, brand-name professional salon products.
The Company was founded in June 1995 and commenced operations on November
26, 1996. On that date, simultaneous with the consummation of an initial public
offering, the Company acquired four professional salon products businesses (the
"Acquired Businesses), Gena, Body Drench, IDS and KII. In March 1997, the
Company acquired a line of premium tanning products from Creative Laboratories,
Inc. marketed under the "Suntopia" brand name. In June 1997, the Company
acquired ABBA, a producer and marketer of an aromatherapy-based line of hair
products, for $20.0 million. In December 1997, the Company acquired the Clean +
Easy and One Touch product lines of Inverness Corporation and Inverness (UK)
Limited, consisting of salon and retail hair removal appliances and products
marketed under the Clean + Easy and One Touch brand names, for $20.0 million. In
May 1998, the Company completed the Pro Finish Acquisition for $5.0 million. The
Company acquired European Touch and European Touch II for $25.0 million
concurrently with the consummation of the Initial Offering.
Except for the historical information contained herein, the discussion in
this registration statement contains or may contain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those factors discussed under
"Risk Factors." Historical results are not necessarily indicative of operating
results for any future period.
RESULTS OF OPERATIONS -- STYLING TECHNOLOGY CORPORATION
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
STC earned net income of $1.4 million, or $0.34 per share, for the three
months ended March 31, 1998, compared to net income of $1.1 million, or $0.26
per share, for the corresponding period during 1997. STC attributes the
improvement in net income during the three months ended March 31, 1998 primarily
to the contributions of ABBA and Clean + Easy/One Touch, both of which were
acquired during 1997, as well as to growth in STC's existing operations.
Net Sales
Net sales amounted to $16.2 million for the three months ended March 31,
1998, compared to net sales of $7.5 million for the three months ended March 31,
1997. The $8.7 million, or 117%, increase in sales was due primarily to the
additions of ABBA and Clean + Easy/One Touch, acquired in June and December
1997, respectively. Sales growth was also attributable to increased sales in
STC's existing brands, which was in excess of 10% on a consolidated basis. In
particular, STC's Body Drench brand experienced strong sales growth as compared
to the same period in 1997, primarily as a result of strong demand for STC's
full line of tanning products which was introduced in new packaging in the
fourth quarter of 1997. STC's ABBA brand also experienced significant sales
growth as compared to 1997 due to favorable changes in its exclusive
distribution network which resulted in a shift to larger distributors with
higher sales volume.
35
<PAGE> 42
Cost of Sales
Cost of sales amounted to $7.0 million, or 43% as a percentage of net
sales, for the three months ended March 31, 1998, compared to $3.2 million, or
43% as a percentage of net sales, for the three months ended March 31, 1997. As
a result of the foregoing, STC realized gross profit of $9.2 million, or 57%,
for the three months ended March 31, 1998, compared to $4.2 million, or 57%,
during the corresponding period in 1997. STC's ability to sustain this favorable
gross margin percentage is attributable primarily to maintaining the cost of
goods levels negotiated with third-party suppliers during 1997. In addition,
gross margins associated with the ABBA and Clean + Easy/One Touch brands, after
renegotiation of pricing with third-party manufacturers at ABBA and cost savings
from the shift from domestic to offshore manufacturing for the Clean + Easy/One
Touch hair removal appliances, were generally consistent with the consolidated
gross margin of STC's existing brands.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $5.4 million for the
three months ended March 31, 1998 compared to $2.4 million for the three months
ended March 31, 1997. The increase in selling, general, and administrative
expenses was primarily due to expenses added as a result of the ABBA and Clean +
Easy/ One Touch acquisitions as well as increased selling, general, and
administrative expenses incurred to strengthen STC's infrastructure to support
its acquisition and growth strategy. Selling, general, and administrative
expenses, as a percentage of net sales, remained relatively consistent at 33% of
net sales for the three months ended March 31, 1998 compared to 32% of net sales
for the three months ended March 31, 1997 as STC controlled increases in
selling, general, and administrative expenses at levels commensurate with
increases in sales.
Provision for Income Taxes
The provision for income taxes for the three months ended March 31, 1998
amounted to $1.1 million which represents an effective tax rate of approximately
43%, compared with a provision of $733,000 which represents an effective tax
rate of approximately 41% for the three months ended March 31, 1997. The higher
effective tax rate for the quarter ended March 31, 1998 is primarily
attributable to the income tax effect of goodwill, which is not deductible for
income tax purposes, associated with the acquisition of ABBA.
Income from Operations and Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
Income from operations was $3.8 million for the three months ended March
31, 1998 compared to $1.8 million for the three months ended March 31, 1997.
EBITDA was approximately $4.6 million for the three months ended March 31, 1998,
compared to approximately $2.1 million for the three months ended March 31,
1997. EBITDA is not intended to represent net cash provided by operating
activities as defined by GAAP and should not be considered as an alternative to
net income as an indicator of operating performance or to net cash provided by
operating activities as a measure of liquidity. STC believes EBITDA is a measure
commonly reported and widely used by analysts, investors, and other interested
parties who monitor business performance. Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of STC's
operating performance.
RESULTS OF OPERATIONS -- STYLING TECHNOLOGY CORPORATION
YEAR ENDED DECEMBER 31, 1997
Net Sales
Net sales amounted to $38.1 million for the year ended December 31, 1997
compared to combined net sales for the Acquired Businesses of $23.0 million for
the year ended December 31, 1996. The $15.1 million, or 65.7%, increase in sales
was partly the result of increased sales of STC's Body Drench and Gena product
lines as compared to the sales achieved by the individual Acquired Businesses in
the same period during 1996. In addition, net sales for the year ended December
31, 1997 include the operating results of ABBA from
36
<PAGE> 43
June 26, 1997 to December 31, 1997 and the operating results of Clean + Easy/One
Touch from December 1, 1997 to December 31, 1997.
Cost of Sales
Cost of sales amounted to $16.8 million, or 44% as a percentage of net
sales, for the year ended December 31, 1997. Cost of sales as a percentage of
net sales substantially decreased from the 53% reported for the period from
November 27, 1996 to December 31, 1996, a percentage which was consistent with
the combined cost of sales as a percentage of net sales incurred by the Acquired
Businesses prior to their acquisition by STC. The Company anticipates using the
opportunities created by each of its acquisitions in seeking to reduce cost of
sales as a percentage of net sales in future periods by eliminating duplicative
direct costs as well as negotiating lower manufacturing and raw materials costs
with suppliers.
Gross Profit
As a result of the foregoing, STC realized gross profit for the year ended
December 31, 1997 of $21.4 million, or 56% as a percentage of net sales. This
improvement in gross margin percentage over that reported by the individual
Acquired Businesses prior to their acquisition is attributable primarily to the
negotiation of reduced product costs in December 1996 with the primary supplier
of STC's Body Drench product line and the consolidation of warehousing and
production functions of the Gena, Alpha 9, and Omni product lines at STC's
Duncanville, Texas facility. STC has also achieved substantial reductions in
cost of goods through negotiation with third party suppliers to ABBA and Clean +
Easy/One Touch.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $12.2 million, or 32% as
a percentage of net sales, for the year ended December 31, 1997, which
represents a significant improvement over such expenses incurred by the
individual business acquired prior to their acquisition by STC. This improvement
in selling, general, and administrative expenses as a percentage of net sales in
primarily attributable to the elimination of duplicative management and other
personnel, duplicative selling and distribution costs, the consolidation of
certain accounting, human resources, and other administrative functions of the
Acquired Businesses, and subsequent acquisitions, and is partially offset by
non-cash goodwill amortization resulting from acquisitions and increased costs
of operating as a public company.
Extraordinary Item
In connection with the acquisition of the Clean + Easy/One Touch product
lines discussed above, STC entered into the Existing Credit Facility, as
discussed under "Liquidity and Capital Resources" below. The Existing Credit
Facility replaced the previous credit facility negotiated in connection with the
acquisition of ABBA. STC reported an extraordinary, non-cash charge of
approximately $1.4 million, net of income taxes, or $0.33 per diluted share,
related to the write-off of unamortized financing costs associated with its
previous credit facility.
Net Income
STC earned net income of $4.2 million, or $1.02 per diluted share, for the
year ended December 31, 1997 before the extraordinary item discussed above.
After the extraordinary item, net income for the year ended December 31, 1997
was $2.8 million, or $0.69 per diluted share. These results mark significant
improvement over the operating results of the Acquired Businesses prior to their
acquisition. STC attributes the improvement in net income during the year ended
December 31, 1997 primarily to the successful implementation of a key component
of its business strategy, the enhancement of operating efficiencies of the
Acquired Businesses, and subsequent acquisitions. Prior year financial
information for the Acquired Businesses presented and discussed herein excludes
the operating results of ABBA and the Clean + Easy/One Touch and Suntopia
product lines, which were acquired during 1997.
37
<PAGE> 44
Income from Operations and Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
Income from operations was $9.2 million for the year ended December 31,
1997. EBITDA was approximately $11.0 million for the year ended December 31,
1997. EBITDA is not intended to represent cash flows from operations as defined
by GAAP and should not be considered as (i) an alternative to net income, (ii)
an indicator of the Company's operating performance, or (iii) a measure of
liquidity. The Company believes EBITDA is a measure commonly reported and widely
used by analysts, investors, and other interested parties that monitor
performance of companies that employ a consolidation or "roll-up" strategy.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance relative to
other consolidators.
RESULTS OF OPERATIONS -- STYLING TECHNOLOGY CORPORATION
PERIOD FROM NOVEMBER 27, 1996 TO DECEMBER 31, 1996
Net Sales
Net sales amounted to approximately $1.1 million for the period from
November 27, 1996 to December 31, 1996. The level of sales during this period is
not indicative of anticipated future sales levels or historical sales of the
Acquired Businesses, as STC's primary focus during this period was the
consolidation of the Acquired Businesses.
Cost of Sales
Cost of sales was approximately $600,000 for the period from November 27,
1996 to December 31, 1996. Cost of sales as a percentage of net sales was 53%
for this period, which is consistent with the combined cost of sales as a
percentage of net sales incurred by the Acquired Businesses, prior to their
acquisition.
Gross Profit
As a result of the foregoing, gross profit amounted to approximately
$500,000 for the period from November 27, 1996 to December 31, 1996.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were approximately $700,000
for the period from November 27, 1996 to December 31, 1996, which is generally
consistent with the level of selling, general, and administrative expenses
incurred by the Acquired Businesses on a combined basis, prior to their
acquisition. During this period, STC was focused primarily on the process of
integrating the operations of the Acquired Businesses.
Net Loss
Net loss for STC was approximately $200,000 for the period from November
27, 1996 to December 31, 1996.
RESULTS OF OPERATIONS -- GENA
SIX MONTHS ENDED AUGUST 31, 1996 COMPARED TO SIX MONTHS ENDED AUGUST 31, 1995
Net Sales
Net sales increased 8.5% to $4.7 million in the six months ended August 31,
1996 from $4.3 million in the six months ended August 31, 1995. The increase in
net sales was attributable to an increase in sales volume generated by
promotional efforts, primarily through price discounts. The increase in sales
was also attributable to the increased sales of the paraffin spa equipment and
products.
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<PAGE> 45
Cost of Sales
Cost of sales, as a percentage of net sales, increased to 54.1% in the six
months ended August 31, 1996 as compared with 53.0% in the six months ended
August 31, 1995. The increase was primarily attributable to increased costs for
certain raw materials associated with production of the paraffin spa equipment.
Gross Profit
Gross profit increased 5.9% to $2.2 million in the six months ended August
31, 1996 from $2.0 million for the six months ended August 31, 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 7.6% to $1.5
million in the six months ended August 31, 1996 from $1.6 million in the six
months ended August 31, 1995. The decrease was primarily attributable to a
reduction of the Gena's advertising costs related to trade publications and
other promotional services. In addition, Gena's expenses associated with
education and trade show efforts decreased in the six months ended August 31,
1996.
Net Income
Net income increased 58.4% to $0.4 million in the six months ended August
31, 1996 from $0.3 million in the six months ended August 31, 1995.
TWELVE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO TWELVE MONTHS ENDED FEBRUARY
28, 1995
Net Sales
Net sales increased 11.4% to $8.4 million in the 12 months ended February
29, 1996 from $7.5 million in the 12 months ended February 28, 1995. The
increase in net sales was attributable to growth in sales of existing products,
which consisted primarily of increased acceptance of the paraffin spa product
line that was introduced in February 1993 and the continued sales growth for the
MRX product line that was acquired in September 1994.
Cost of Sales
Cost of sales, as a percentage of net sales, increased to 57.5% in the 12
months ended February 29, 1996 as compared with 55.3% in the 12 months ended
February 28, 1995. The increase was attributable to additional costs incurred to
produce the new paraffin spa equipment, which has a higher cost of sales, as a
percentage of net sales, at approximately 64.0%. Additionally, cost of sales, as
a percentage of net sales, on the new MRX product line, introduced in September
1994, was approximately 60.0%, which was also higher than Gena's other product
lines.
Gross Profit
As a result of the foregoing, gross profit increased 6.1% to $3.6 million
in the 12 months ended February 29, 1996 from $3.4 million in the 12 months
ended February 28, 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses remained relatively constant
at $3.0 million in the 12 months ended February 29, 1996 and 1995. The slight
increase in selling, general, and administrative expenses was attributable to an
increase in selling and promotional costs primarily related to increased sales
of the paraffin spa product. Additionally, Gena was offering greater promotional
incentives to generate additional sales resulting in increased selling costs.
The above increases were partially offset by reduced travel expenses and smaller
management bonuses than had been paid in the previous period.
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<PAGE> 46
Net Income
Net income increased 36.6% to $0.3 million in the 12 months ended February
29, 1996 from $0.2 million in the 12 months ended February 28, 1995.
TWELVE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO TWELVE MONTHS ENDED FEBRUARY
28, 1994
Net Sales
Net sales increased 17.1% to $7.5 million in the 12 months ended February
28, 1995 from $6.4 million in the 12 months ended February 28, 1994. The
increase was primarily a result of increased sales of Gena's paraffin spa
product line which had been introduced in February 1993, and the acquisition of
Design Classic(TM) in February 1994, a manufacturer of fiberglass nail products.
Gena also acquired the MRX product line, an all-purpose antiseptic and hydrating
lotion, in September 1994 and began to ship substantial quantities in fiscal
1995. Total sales related to the Design Classic and MRX product lines were
approximately $1.0 million in 1995.
Cost of Sales
Cost of sales, as a percentage of net sales, increased to 55.3% in the 12
months ended February 28, 1995 as compared with 51.0% in the 12 months ended
February 28, 1994 as a result of additional labor, machine retooling and
material costs incurred to produce the new paraffin spa product, which has lower
gross margins than Gena's other products. In addition, Gena incurred certain
one-time packaging and other costs to integrate their newly acquired Design
Classic product line. Gena also experienced an increase in certain raw materials
costs.
Gross Profit
As a result of the foregoing, gross profit increased 6.8% to $3.4 million
in the 12 months ended February 28, 1995 from $3.1 million in the 12 months
ended February 28, 1994.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 8.0% to $3.0
million in the 12 months ended February 28, 1995 from $2.7 million in the 12
months ended February 28, 1994 as a result of the increase in selling and
promotional costs related to the introduction and promotion of the paraffin spa
product line. In addition, Gena incurred an increase in costs related to the
acquisition of Design Classic, which includes amortization of intangible assets,
and increased personnel costs required to support the new product.
Net Income
Net income decreased 16.5% to $0.2 million in the 12 months ended February
28, 1995 from $0.3 million in the 12 months ended February 28, 1994.
RESULTS OF OPERATIONS -- BODY DRENCH
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Sales
Net sales for the six months ended June 30, 1996 decreased 20.2% to $6.6
million compared to $8.2 million for the six months ended June 30, 1995. The
decrease in net sales during the first six months of 1995 was primarily related
to difficulty in obtaining inventory from third party manufacturers in the six
months ended June 30, 1996 due to cash flow difficulties experienced by Body
Drench's parent. This caused Body Drench to forego potential sales due to its
inability to deliver product to customers in time for the Spring 1996 tanning
season. The Contemporary product line is comprised of various lotions and creams
to be used in conjunction with the indoor tanning process. Sales of the
Contemporary product line, which was introduced in October 1994, declined in the
first six months of 1996, and was partially offset by the increased sales of its
new
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<PAGE> 47
product releases Tan FX and Tan EX and the Body Bath lotion product. Upon
completion of the Acquisitions and implementation of the Company's strategy (see
"Business -- Strategy"), management believes that the decline in sales will not
represent a continuing material trend.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 52.6% for the six
months ended June 30, 1996 as compared with 55.3% for the six months ended June
30, 1995. This decrease was due primarily to a greater percentage of net sales
in the 1996 period relating to the Tan FX and Tan EX products, which carried
lower production and packaging costs as compared to the Contemporary product
line.
Gross Profit
As a result of the foregoing, gross profit decreased 15.3% to $3.1 million
in the six months ended June 30, 1996 from $3.7 million in the six months ended
June 30, 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 19.2% to $2.4
million for the six months ended June 30, 1996 compared to $3.0 million for the
six months ended June 30, 1995. The decrease was attributable primarily to a
decrease in advertising related expenses in salaries and commissions, as Body
Drench did not introduce as many new products in 1996 and eliminated several
sales and administrative positions.
Net Income
Net income remained relatively constant at $0.4 million in the six months
ended June 30, 1996 and 1995.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Net Sales
Net sales in 1995 increased 6.6% to $11.9 million compared to $11.1 million
in 1994. The increase in net sales was due to the release of the new
Contemporary product line introduced in October 1994. During 1995, Body Drench
realized a full year of Contemporary sales as compared to only a partial year in
1994. The increase in net sales was also impacted by the release of the Tan FX
and Tan EX products, and the Contemporary products introduced in the fourth
quarter of 1995.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 54.1% for the 12
months ended December 31, 1995 as compared with 56.9% for the 12 months ended
December 31, 1994. This decrease was due primarily to the introduction of the
Contemporary product line during late 1994 which carried a lower raw material
cost in relation to net sales as compared to products sold during 1995.
Gross Profit
As a result of the foregoing, gross profit increased 13.5% to $5.4 million
in the 12 months ended December 31, 1995 from $4.8 million in the 12 months
ended December 31, 1994.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 19.8% to $4.9
million in 1995 compared to $4.1 million in 1994. The increase was attributable
to the continued increase of shipping costs in proportion to sales levels due to
the growing number of backorders from the Contemporary product line. Backorders
resulted primarily from the Body Drench's inability to produce sufficient
product to meet customer orders due to cash flow shortages at DBN and Body
Drench. Additionally, advertising expense increased by approximately 1.0% of net
sales as a result of the heavy promotional efforts in various magazines,
catalogs and brochures with the
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<PAGE> 48
release of the new Contemporary product line. Body Drench also incurred higher
personnel costs through the addition of several marketing and sales
professionals.
Net Income
Net income decreased 34.1% to $0.3 million in the 12 months ended December
31, 1995 compared to $0.4 million in the 12 months ended December 31, 1994.
TWELVE MONTHS ENDED DECEMBER 31, 1994 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1993
Net Sales
Net sales increased 67.4% to $11.1 million in the 12 months ended December
31, 1994 compared to $6.7 million in the 12 months ended December 31, 1993. The
increase in net sales was attributable to management's decision to expand the
distribution network to include several beauty supply distributors. This
expansion of distribution channels included establishing a dedicated sales force
to promote Body Drench's products to the tanning and beauty industry. In
addition, Body Drench introduced the Contemporary product line in October 1994.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 56.9% for the 12
months ended December 31, 1994 as compared with 60.7% for the 12 months ended
December 31, 1993. This decrease was due primarily to lower purchasing costs as
a result of the higher volume of purchases during 1994. In addition, Body Drench
incurred lower overhead and labor costs as a percentage of revenues, as a result
of increased production efficiencies due to higher utilization of pre-packaged,
ready to ship products.
Gross Profit
As a result of the foregoing, gross profit increased 83.5% to $4.8 million
in the 12 months ended December 31, 1994 from $2.6 million in the 12 months
ended December 31, 1993.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 98.3% to $4.1
million in 1994 compared to $2.1 million in 1993. The increase in selling,
general, and administrative expenses related to additional sales and
administrative positions to support the corresponding increase in sales. In
addition, Body Drench incurred significant up front costs of promotional
literature, including new catalogs, brochures and price sheets, related to the
introduction of the Contemporary product line introduced in October 1994. Body
Drench also incurred a higher level of freight charges in proportion to sales
levels due to significant number of backorders, resulting from inventory
shortages, which caused additional shipment costs to customers.
Net Income
Net income increased 36.0% to $0.4 million in 1994 compared to $0.3 million
in 1993.
RESULTS OF OPERATIONS -- JDS
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Net Sales
Net sales decreased 9.8% to $2.3 million for the nine months ended June 30,
1996 compared to $2.6 million for the nine months ended June 30, 1995. The
decrease was caused by a decline in its customer base as a result of the
acquisition of several JDS' customers by a large beauty supply company that is
not a customer of JDS. Upon completion of the Acquisitions and implementation of
the Company's strategy (see "Business -- Strategy"), management believes that
the decline in sales will not represent a continuing material trend.
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<PAGE> 49
Cost of Sales
Cost of sales, as a percentage of net sales, increased slightly to 40.6% in
the nine months ended June 30, 1996 as compared with 39.8% in the nine months
ended June 30, 1995. This increase was due to significant costs incurred for raw
materials as a result of the introduction of a new product.
Gross Profit
As a result of the foregoing, gross profit decreased 11.0% to $1.4 million
in the nine months ended June 30, 1996 from $1.6 million in the nine months
ended June 30, 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 10.1% to $1.4
million in the nine months ended June 30, 1996 from $1.5 million in the nine
months ended June 30, 1995. The decrease related primarily to the elimination of
warehouse personnel, as a result of JDS' effort to reduce overhead costs.
Net Income (Loss)
Net loss was ($3,094) in the nine months ended June 30, 1996 compared to
net income of $23,275 in the nine months ended June 30, 1995.
TWELVE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO TWELVE MONTHS ENDED
SEPTEMBER 30, 1994
Net Sales
Net sales decreased 5.9% to $3.4 million for the 12 months ended September
30, 1995 compared to $3.6 million for the 12 months ended September 30, 1994.
The decrease was primarily a result of increased competition from several new
products in the market that impacted JDS' market share. Upon completion of the
Acquisitions and implementation of the Company's strategy (see
"Business -- Strategy"), management believes that the decline in sales will not
represent a continuing material trend.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 40.1% in the 12
months ended September 30, 1995 as compared with 40.9% in the 12 months ended
September 30, 1994. The increase was a result of obtaining more favorable
freight terms with its shipping contractors.
Gross Profit
As a result of the foregoing, gross profit decreased 4.5% to $2.0 million
in the 12 months ended September 30, 1995 from $2.1 million in the 12 months
ended September 30, 1994.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 5.7% to $2.0
million for the 12 months ended September 30, 1995 compared to $2.2 million for
the 12 months ended September 30, 1994. The decrease was primarily a result of a
decrease in promotional costs, as no new products were introduced during 1995,
and a decrease in management salaries resulting from an effort to reduce
overhead costs.
Net Income (Loss)
Net income was $8,574 in the 12 months ended September 30, 1995 compared to
a net loss of ($16,494) in the 12 months ended September 30, 1994.
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<PAGE> 50
TWELVE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO TWELVE MONTHS ENDED
SEPTEMBER 30, 1993
Net Sales
Net sales decreased 5.8% to $3.6 million for the 12 months ended September
30, 1994 compared to $3.8 million for the 12 months ended September 30, 1993.
The decrease was primarily a result of a decrease in JDS' customer base as a
result of several of their customers ceasing operations. The largest of these
companies comprised approximately $100,000 of JDS' sales in 1993.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 40.9% in the 12
months ended September 30, 1994 as compared with 45.9% in the 12 months ended
September 30, 1993. The decrease was primarily a result of more favorable
purchasing terms achieved due to a change in its raw materials source.
Gross Profit
Gross profit increased 2.9% from $2.0 million for the 12 months ended
September 30, 1993 to $2.1 million for the twelve months ended September 30,
1994.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 3.7% to $2.2
million in the 12 months ended September 30, 1994 compared to $2.1 million in
the 12 months ended September 30, 1993. The increase was partly a result of an
increase in promotional costs associated with the introduction of a new brand of
nail enhancement products. The remaining increase resulted primarily from the
addition of a new regional manager and a new sales incentive program.
Net Loss
Net loss decreased 43.1% to $16,494 in the 12 months ended September 30,
1994 compared to $29,000 in the 12 months ended September 30, 1993.
RESULTS OF OPERATIONS -- KII
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Sales
Net sales decreased 5.3% to $0.7 million in the six months ended June 30,
1996 compared to $0.8 million in the six months ended June 30, 1995. The
decrease in net sales was primarily attributable to a reduction in the customer
base and decreased promotional efforts.
Cost of Sales
Cost of sales, as a percentage of net sales, decreased to 46.6% in the six
months ended June 30, 1996 as compared with 47.9% in the six months ended June
30, 1995. This decrease was due primarily to a continued increase in purchasing
costs related to KII's international freight costs.
Gross Profit
Gross profits remained relatively constant at $0.4 million for the six
months ended June 30, 1995 and 1996.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 30.9% to $0.3
million in the six months ended June 30, 1996 compared to $0.5 million in the
six months ended June 30, 1995. The decrease in selling,
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<PAGE> 51
general, and administrative expenses was primarily attributable to a reduction
in commission expenses related to the decrease in sales as well as lower
promotional costs.
Net Income (Loss)
Net income was $24,765 in the six months ended June 30, 1996 compared to a
net loss of ($116,610) in the six months ended June 30, 1995.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Net Sales
Net sales in the 12 months ended December 31, 1995 decreased 22.1% to $1.6
million compared to $2.0 million in the 12 months ended December 31, 1994. As
part of its overall strategy, KII acquired a division of Redken in December
1993. During 1994, Redken reduced its customer base by 17 distributors, which
had a direct impact on sales for KII. Upon completion of the Acquisitions and
implementation of the Company's strategy (see "Business -- Strategy"),
management believes that the decline in sales will not represent a continuing
material trend.
Cost of Sales
Cost of sales, as a percentage of net sales, increased to 45.7% in the 12
months ended December 31, 1995 as compared with 49.3% in the 12 months ended
December 31, 1994. The increase was primarily attributable to increased freight
and duty costs associated with international purchases.
Gross Profit
As a result of the foregoing, gross profit decreased 16.6% to $0.8 million
in the 12 months ended December 31, 1995 from $1.0 million in the 12 months
ended December 31, 1994.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 14.3% to $0.9
million in the 12 months ended December 31, 1995 compared to $1.0 million in the
12 months ended December 31, 1994. The decrease in selling, general, and
administrative expenses was attributable to a decrease in salaries and
commissions through the elimination of several sales positions.
Net Loss
Net loss increased to $134,919 in the 12 months ended December 31, 1995
from $72,000 in the 12 months ended December 31, 1994.
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<PAGE> 52
QUARTERLY FINANCIAL INFORMATION AND SEASONALITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 7,479 $ 7,437 $10,669 $12,523 $16,225
Gross profit.............................. 4,245 4,191 5,802 7,114 9,183
Selling, general, and administrative...... (2,398) (2,333) (3,574) (3,896) (5,395)
Income from operations.................... 1,847 1,858 2,228 3,218 3,788
Income before extraordinary item.......... 1,054 1,031 828 1,294 1,439
Extraordinary item, net................... -- -- -- (1,377) --
Net income (loss)......................... 1,054 1,031 828 (83) 1,439
Diluted EPS before extraordinary item..... $ 0.26 $ 0.25 $ 0.20 $ 0.31 $ 0.34
Diluted EPS after extraordinary item...... 0.26 0.25 0.20 (0.02) 0.34
</TABLE>
The Company has experienced moderate seasonality in quarterly operating
results due mainly to the effect of the indoor tanning season (generally
December through June) on the operating results of the Body Drench and Suntopia
product lines. The Company expects the seasonal effect of Body Drench and
Suntopia sales to lessen over time as the Company continues its acquisition
strategy.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, the Company's investment in
accounts receivable increased by $1.3 million as a result of a corresponding
growth in sales for the quarter, as well as significant sales during March in
the Company's ABBA and Body Drench brands resulting from favorable customer
responses to promotional programs. The Company also used cash from operations to
achieve a net reduction in accounts payable and accrued liabilities of $1.4
million. The reduction of accounts payable and accrued liabilities during the
period relates primarily to the payment of liabilities assumed in the
Clean + Easy/One Touch acquisition as well as related accrued acquisition and
offering costs. As a result of these factors, which offset net income of $1.4
million and noncash expenditures of $865,000, the Company recorded net cash used
in operations of $473,000 for the quarter ended March 31, 1998.
In December 1997, the Company entered into the Existing Credit Facility, a
seven-year, $75.0 million senior credit facility with a group of banks for whom
Credit Agricole Indosuez acted as agent. Under the Existing Credit Facility
$50.0 million was used to pay for the acquisition of the Clean + Easy/One Touch
product lines, acquisition fees, and the repayment of the Company's previous
credit facility. In connection with the Offering, the Company will repay all
amounts outstanding under the Existing Credit Facility, and the Existing Credit
Facility will be terminated.
The Company repaid $825,000 of term loan amortization under its Existing
Credit Facility and utilized net proceeds from its working capital line of
credit of $1.9 million during the quarter ended March 31, 1998. As a result, net
cash provided by financing activities for the quarter amounted to $1.2 million
and, along with cash on hand, was utilized to fund net cash used in investing
activities of $1.2 million as well as operating cash requirements as discussed
above.
As a result of the foregoing, the Company's working capital position
decreased slightly to $13.2 million at March 31, 1998 from $13.9 million at
December 31, 1997.
The Company has recently entered into a $50.0 million New Credit Facility.
The New Credit Facility consists of a revolving credit facility in a principal
amount of $25.0 million and an acquisition facility in a principal amount of
$25.0 million. The revolving credit facility will include a sub-limit of up to
$7.5 million for letters of credit. In August 1998, the Company borrowed $25.0
million under the acquisition facility to fund the acquisition of a controlling
interest in Framese USA. See "Summary -- Recent Acquisitions" and "Certain
Indebtedness -- New Credit Facility." No assurance can be given that the Company
and the lenders will enter into definitive loan documents or that any funds will
be advanced under the New Credit Facility.
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<PAGE> 53
Following the Offering and the closing of the New Credit Facility, the
Company's line of credit, current cash resources and expected cash flows from
operations are expected to be sufficient to fund the Company's capital needs
during the next 12 months at its current level of operations, apart from capital
needs resulting from acquisitions. However, the Company may be required to
obtain additional capital to fund its planned growth and future acquisitions.
The Company intends to fund its future capital needs through a combination of
current cash resources, expected cash flows from operations, bank financing,
seller notes payable, issuance of common stock, and additional public or private
debt or equity financing. The availability of such capital resources cannot be
assured and is dependent upon prevailing market conditions, interest rates, and
the financial condition of the Company. See "Risk Factors -- Leverage."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists concerning
the potential effects associated with such compliance. The Company has assessed
and continues to assess the impact the Year 2000 issue will have on its
reporting and operating systems. The Company is addressing the Year 2000 issue
by upgrading to a new release of its key operating and financial software
system, which will be Year 2000 compliant. The Company will test the new system
for Year 2000 compliance when the system is upgraded. In addition, during 1998
the Company intends to assess the impact any Year 2000 compliance problems
suffered by its customers, third-party contract manufacturers, and suppliers may
have on the Company. Although the Company does not anticipate that the Year 2000
issue will have a significant impact on its business, any significant Year 2000
compliance problem of any of the Company, its customers, or its third-party
contract manufacturers or suppliers could have a material adverse effect on the
Company's business, financial condition, and results of operations.
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<PAGE> 54
BUSINESS
The Company is a leading developer, producer, and marketer of a wide array
of professional salon products, addressing all salon product categories,
including hair care, nail care, and skin and body care products, as well as
salon appliances and sundries. Through strategic acquisitions, the Company has
acquired well-recognized brand names, a strong distribution network, established
marketing and salon industry education programs, and significant production and
sourcing capabilities. For the 12 months ended March 31, 1998, on a pro forma
consolidated basis, the Company generated net sales and EBITDA of $87.0 million
and $24.5 million, respectively.
The Company believes it is the only company that develops, produces, and
markets products in each category of the professional salon products industry
and that its ability to offer customers a "one-stop shop" for brand-name
professional salon products creates a competitive advantage. The Company
currently sells more than 550 products under 14 principal brand names, including
ABBA Pure and Natural Hair Care products, Body Drench skin and body care
products, Clean + Easy hair removal products, Gena nail and pedicure products,
Kizmit acrylic nail enhancements, and Revivanail nail treatments. In the United
States, the Company markets its product lines through professional salon
industry distribution channels to more than 2,500 customers, consisting
primarily of salon product and tanning supply distributors (which resell to
beauty and tanning salons), beauty supply outlets, and salon chains. The Company
also markets its products directly to more than 3,000 spas, resorts, and health
and country clubs through its in-house sales force. Internationally, the Company
sells its products primarily through international salon product distributors.
INDUSTRY OVERVIEW
Professional salon products consist of hair care, nail care, and skin and
body care products as well as salon appliances and sundries that are used by
salon professionals in rendering salon services to their clients. Many
professional salon products also are retailed to clients and other customers of
salons, resorts, spas, health and country clubs, and beauty supply outlets,
typically upon the advice of a salon professional who recommends products to
address the client's individual needs.
Professional hair care products include shampoo, conditioner, styling gel,
glaze, mousse, hair spray, permanent, hair relaxer, and hair color products.
Professional nail care products include fiberglass and acrylic nail enhancement
solutions applied by the salon professional in rendering the nail service and
the accessories used by the professional to apply the solutions; natural nail
care and pedicure solutions and accessories; and polishes. Skin and body care
products include body lotions, tanning products, cosmetics, skin moisturizers,
hair removal and depilatory products, and other personal care products (such as
shaving creams and antiperspirants) used by salon professionals in rendering
salon services (such as facials, manicures, pedicures, leg and body waxing,
paraffin therapy, aromatherapy, and thermo-therapy) or available for use by
patrons of tanning salons, spas, resorts, and health and country clubs.
Professional salon appliances and sundries include hair dryers, curling irons,
brushes, furniture, and salonwear (such as capes).
The professional salon products industry has grown significantly during the
last several years. According to industry sources, professional salon industry
revenue (which includes revenue from salon services and the sale of salon
products) for 1996 was approximately $40 billion in the United States and $80
billion worldwide, having grown approximately 10% from the prior year. Industry
sources estimate that there are approximately 127 million client visits to
salons each month and that there are more than 200,000 beauty salons and 1.8
million licensed cosmetologists in the United States. Professional salon
products companies sell their products primarily to regional, full-service salon
product distributors that resell products from multiple manufacturers to salons
and salon professionals. The Company estimates that sales to distributors
represent more than 85% of revenue for professional salon product companies. The
professional salon products industry is highly fragmented. Of the approximately
700 companies selling professional salon products in the United States, most
generate less than $10 million in sales and focus on a single product category.
For example, most companies offering professional salon hair care products do
not also offer nail or skin care products.
Professional salon products have two end consumers: the salon professional
who uses them in the performance of salon services and the salon client who
purchases them for personal use. The Company
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believes salons typically generate between 10% and 30% of their revenue from
retail sales of professional salon products. As the users and "prescribers" of
professional salon products, salon professionals typically select products on
the basis of performance rather than price. As a result, suppliers of
professional salon products focus on educating distributors and salon
professionals on the uses and benefits of their products and on industry trends.
Because these products are "prescribed" by salon professionals and are sold
primarily in connection with the rendering of a service, professional salon
products typically foster strong brand loyalty and exhibit relative price
insensitivity. Consequently, professional salon products generally command
substantially higher profit margins than mass-marketed beauty products.
BUSINESS STRENGTHS
The Company believes that the following business strengths provide it with
a competitive advantage in the professional salon products industry:
- Premier Brand Names. The Company offers a variety of well-known brands
in all professional salon product categories, including ABBA Pure and
Natural Hair Care, Alpha 9, Body Drench, Clean + Easy, Cosmic, European
Touch, Gena, Kizmit, Omni P.O. Professionals Only, One Touch, Pro Finish,
Revivanail, SRC, and Suntopia. The Company believes that the strength of
its brand names is based on the reputation of its products for quality
among salon professionals, the performance of its products, and its
focused commitment to the needs of salon professionals and their
clientele. Because of the importance of proven product performance to
salon professionals, they remain extremely loyal to their favorite
brands. The Company's portfolio of well-recognized brands is a
significant driver of sales to distributors, beauty supply outlets, and
salon chains.
- Breadth of Product Offerings. The Company believes that it currently is
the only producer of professional salon products with offerings across
all salon product categories. As the Company has expanded its product
offerings, it has begun to provide distributors, beauty supply outlets,
and salon chains with an increasingly larger percentage of the products
they require to service the needs of salons and salon professionals. The
Company believes the breadth of its product offerings provides it with a
significant competitive advantage by allowing its distributors to
purchase more products from fewer vendors and by enabling the Company to
cross-market its brands and offer tailored lines of products to
distributors, beauty supply outlets, and salon chains. This "one-stop
shop" approach also serves to strengthen the relationship between the
Company and its customers.
- Strong Distribution Network. The Company has established relationships
with top salon product distributors, beauty supply outlets, and salon
chains. Unlike consumer products companies that sell a large percentage
of their products through a concentrated retailer base, the Company sells
its products into highly fragmented distribution channels of more than
2,500 distributors, beauty supply outlets, and salon chains in the United
States and internationally and to more than 3,000 spas, resorts, and
health and country clubs through its in-house sales force. This extensive
distribution network creates a strong base from which the Company can
pursue additional business through cross-marketing of its current and
future brands and new product introductions. The breadth of its
distribution network also enables the Company to penetrate every major
geographical market in the United States and to expand its international
business.
- History of Successful Acquisitions. Since November 1996, the Company has
acquired and successfully integrated seven professional salon products
businesses, not including the Recent Acquisitions. The Company has
integrated acquired distribution channels into its existing operations;
integrated purchasing, production, and marketing efforts; and
consolidated accounting, human resources, and other back office
functions. Acquisitions have been a major factor in enabling the Company
to increase its net sales to $87.0 million, on a pro forma basis for the
latest 12 months (including the Recent Acquisitions), while achieving
significant margin improvement. The Company is developing an operating
platform to allow it to support an increasing range of professional salon
products as it continues to acquire additional companies and product
lines.
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- Favorable Cost Structure. Professional salon products typically command
higher margins and exhibit relative price insensitivity when compared to
their mass-market counterparts. The Company believes that it has been
able to achieve operating margins that exceed industry averages. These
improved operating margins result from the Company's success in utilizing
its increased purchasing power to achieve cost savings; integrating
sourcing and distribution capabilities; eliminating duplicative
facilities, personnel, and administrative functions; and consolidating
sales and marketing and product development, where appropriate. The
Company also is taking advantage of the highly competitive third-party
manufacturing environment to reduce production costs. Pro forma gross
margins improved from 52.4% in 1996 to 56.3% in 1997, and pro forma
EBITDA margins improved from 17.6% in 1996 to 27.0% in 1997.
- Experienced Management Team. The Company has an experienced management
team with significant industry experience. Sam Leopold, the Company's
Chief Executive Officer, has more than 12 years of experience in the
professional salon products industry, including as the owner of a chain
of mall-based retail salons. Other members of the Company's senior
management team have, on average, over 12 years of experience in the
consumer and salon products industry, particularly in the areas of sales,
marketing, and operations. Mr. Leopold beneficially owns approximately
25% of the Company's Common Stock, and each other member of the Company's
senior management team has an equity stake in the Company.
STRATEGY
The Company's objective is to be the leading professional salon products
company in the United States and internationally. In order to achieve this
objective, the Company is pursuing a strategy of continued growth through
acquisitions and internal business expansion. Key elements of this strategy
include the following:
Acquisition Strategy
The Company seeks to acquire professional salon product businesses
possessing complementary salon products with well-recognized brand names and
strong distribution networks and to capitalize on the substantial fragmentation
and growth potential existing in the professional salon products industry. The
Company believes that there are many attractive acquisition candidates in the
professional salon products industry, primarily as a result of the highly
fragmented nature of the industry and the desire of owners for exit strategies.
The Company maintains a disciplined approach to acquisitions and evaluates each
potential acquisition based on the following acquisition goals:
- Continue to Acquire Leading Brands. The Company plans to continue its
strategy of acquiring leading brand names that complement its portfolio
of brands and command strong customer loyalty. By following this
strategy, the Company plans to solidify its position as a leading
supplier of professional salon products and further enhance its
relationships with distributors. Additionally, well-known and
well-respected professional brands are able to command consistently
higher prices than mass-marketed retail brands and lesser known or
respected professional brands.
- Diversify and Strengthen Product Offerings. The Company intends to
acquire companies and product lines that diversify and strengthen its
portfolio of salon products. In this regard, the Company seeks to acquire
complementary products that will enable it to offer multiple brands in
each salon product category and a broader range of products addressing
the various niches within these categories. The Company believes that
this approach will enable it to offer distributors and beauty supply
outlets, which typically carry multiple brands in each category, a more
complete "one-stop shop" for the majority of their salon products.
- Strengthen Distribution Network. The Company intends to acquire
companies and product lines that strengthen its relationships with
domestic and international distributors. By acquiring companies with
strong distribution, the Company will be in a position to increase sales
by introducing its existing products into new distribution channels and
newly acquired or developed products into existing distribution channels.
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- Continue to Pursue Acquisitions at Attractive Cash Flow Multiples. The
Company plans to continue to pursue acquisition candidates at attractive
cash flow multiples. To achieve this goal, the Company evaluates each
acquisition candidate's historical operating results and future earnings
potential, the size and anticipated growth of the market it serves, and
its relative position in that market. The Company seeks to acquire
companies and product lines at acquisition multiples of typically three
to six times adjusted EBITDA.
Internal Growth Strategy
The Company intends to increase revenue and improve margins within its
existing product lines. Elements of its internal growth strategy include the
following:
- Leverage Well-Established Distribution Channels. The Company intends to
leverage its distribution channels by providing distributors with an
increasingly comprehensive array of products. Through management's
existing relationships and those of acquired companies, the Company has
developed and integrated an increasingly extensive distribution network.
The Company believes that offering a growing array of well-known brands
in all salon product categories will further enhance its position as a
key supplier to many of its customers.
- Capitalize on Brand Name Recognition; Line Extensions. The Company
believes the strong brand name recognition of its product lines lends
itself to line extension. For example, ABBA, one of the top brands in the
aromatherapy segment of the hair care category, recently introduced its
Botanical High line of volume therapy hair care products. The Company
believes that the loyalty of salons and salon professionals to strong
brands generally makes them receptive to line extensions that capitalize
on the credibility of those brands. Strong brand names also provide the
Company the opportunity to cross-market established and developing brands
and products.
- Expand Distribution to Salon Chains. The Company is aggressively
targeting sales directly to salon chains, which the Company believes are
underserved by distributors and other salon product companies. The
Company believes that its increasingly diverse product offerings will
enable it to offer salon chains the benefits of one-stop shopping,
centralized single-source ordering, tailored promotional programs, and
dedicated customer service. The Company has formed a sales and marketing
team focused exclusively on further penetrating this underserved segment
of the salon product market.
- Expand Distribution of Existing Products Internationally. The Company
believes significant opportunities exist to increase sales and profits
through the expansion of the international distribution of its products.
Currently, the U.S. market for professional salon products represents
approximately 50% of the worldwide market. In contrast, only
approximately 15% of the Company's pro forma 1997 net sales was generated
outside of the United States. In the past year, the Company has expanded
its international distribution to 38 countries. The Company will continue
to focus on introducing its products into its recently expanded
international distribution channels, which provide access to most
international beauty markets.
- Enhance Operational Efficiencies of Acquired Businesses. To date, the
Company has successfully integrated seven acquired businesses. Following
each acquisition, the Company has enhanced operational efficiency by (i)
eliminating duplicative administrative functions, thereby lowering
overhead expenses, (ii) expanding distribution channels, and (iii) adding
and disseminating further market and product knowledge throughout the
Company's operations. The Company believes that the continued realization
of operational efficiencies will enhance internal growth and
profitability.
- Capitalize on Lifestyle Trends. The Company intends to continue to
capitalize on current lifestyle trends that are favorable to the
professional salon industry. Growing consumer focus on healthy living and
personal indulgences will continue to fuel expansion in the salon/spa
industry, as the demand for services such as body treatments and massages
increases. Additionally, the aging of the baby boomers (those born
between 1945 and 1964) is expected to benefit the salon industry.
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PRODUCTS
The Company offers products in all salon product categories. The Company
sells more than 550 professional salon hair care, natural nail care and nail
enhancement products, skin and body care products, and salon accessories and
sundries, representing approximately 1,500 stock keeping units ("SKUs"). The
Company believes that the strength of its brand names is based on the reputation
of its products for quality among salon professionals, the performance of its
products, and its focused commitment to the needs of salon professionals and
their clientele. The Company believes these brand names are widely recognized by
salon product distributors and salon professionals and their clients as
high-quality, effective products.
The table below sets forth a description of the Company's principal
products, the brand names under which the products are sold, and the Company's
estimate of approximate percentage of such products sold for professional salon
use and retailed to salon and customers.
<TABLE>
<CAPTION>
% RETAIL
% SALON SALES BY
PRODUCT CATEGORY PRODUCT DESCRIPTION BRAND NAMES USE(1) SALONS(1)
---------------- ------------------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Hair Care Shampoo, conditioner, and ABBA, Body Drench, Gena 40% 60%
styling and finishing aids
Nail Care Natural nail care products, Alpha 9, Cosmic, European 70 30
acrylic and fiberglass nail Touch, Gena, Kizmit, Omni, Pro
enhancement products, nail Finish, Revivanail
treatments, nail polish,
light-bonded nail systems, and
manicure and pedicure solutions
and accessories
Skin and Body Care Moisturizing lotion, indoor and Body Drench, Clean + Easy, 35 65
outdoor tanning products, Gena, One Touch, Suntopia
personal care products,
paraffin waxes, thermo-therapy
treatments, and hair removal
systems and depilatory products
Salon Appliances and Hairdryers, curling irons, European Touch, Maiko, SRC 100 0
Sundries salon footspas, salon pedicure
equipment, salon furniture, and
salonwear (capes/aprons)
</TABLE>
- ---------------
(1) Company estimates
Hair Care Products
The Company offers a variety of hair care products at various price points
under the ABBA, Body Drench, and Gena brands. The ABBA line, which is marketed
under the ABBA Pure and Natural trademark, consists of highly concentrated,
high-quality products. The ABBA line consists of 100% vegan, aromatherapy
inspired, herbal hair care products, using botanical ingredients. The ABBA line
includes shampoo, conditioner, gel, and hair spray made using a blend of herbal
therapy botanicals, tri-molecular proteins, panthenol, and neutral henna
designed to produce fuller, thicker, and shinier hair. The product line features
a new addition, the Botanical High line of volume therapy hair products. ABBA
products are used widely throughout the hair care industry and generate
significant salon retail sales.
Under the Gena brand name, the Company offers a line of tea-tree oil hair
care products with anesthetic qualities designed to relieve dry, itching scalp.
In addition, the Company markets hair care products as a part of its Body Drench
line of personal care products, primarily to spas, resorts, and health and
country clubs.
Nail Care Products
The Company believes that it has the most complete and diverse line of
branded products in the nail care category for salon professionals. The
Company's nail care product offerings consist of products designed to support
the various salon services performed by nail technicians, including manicure,
pedicure, acrylic and fiberglass nail enhancement, natural nail treatments, and
nail polishes. Most nail care companies encourage distributors to purchase their
entire product line in order to buy any of their nail care products. The
Company,
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however, offers a number of top-selling products across all segments of the nail
category, permitting its customers to select and purchase individual SKUs from
among multiple brands, including Alpha 9, European Touch, Gena, Kizmit, Pro
Finish, and Revivanail. The Company, for example, offers distributors and salon
chains the ability to purchase the Company's Revivanail nail treatments and
Alpha 9 acrylic nail enhancement products without having to purchase the full
line of Revivanail or Alpha 9 products.
The Company's Alpha 9, European Touch, Kizmit, and Omni acrylic
professional nail enhancement products consist of complete lines of liquids,
powders, tips, files, and other implements and treatments necessary for the
professional nail technician to complete the acrylic nail enhancement process.
The Gena line of natural nail care products features Warm-O-Lotion(TM), a
collagen-enriched manicure lotion that is prominently featured in salons
throughout the United States. The Gena line also includes professional pedicure
products, such as Pedi Soft(R), a collagen-enriched conditioning lotion; Pedi
Care(TM) dry skin lotion; and Pedi Soak(R) foot bath. The Gena product line also
includes paraffin therapy products, such as Paraffin Springs Therapy Spa(TM), a
paraffin bath for conditioning heat therapy treatments; the Healthy Hoof(TM)
nail and skin treatment line to strengthen, moisturize, and condition nails and
cuticles; and MRX(TM) antiseptics and lotions for use by salon professionals.
The Company offers base coats, top coats, nail glues, and cuticle lotions
under its European Touch and Pro Finish brands. The Pro Finish line of nail care
products also features a light bonded nail system that seals the nail
enhancement under UV lighting.
The Company's European Touch brand features nail treatment products, such
as Revivanail and Theracreme(R). The Company offers a three-step nail overlay
system that offers simplicity, speed, and strength.
Skin and Body Care
The Company believes that it is the largest supplier of skin and body care
and tanning products to the salon industry. The Company sells a broad range of
professional skin and body care and tanning products, including moisturizers,
lotions, depilatories, and hair removal products, under its Body Drench, Clean +
Easy, One Touch, and Suntopia brands.
Body Drench professional skin care products include moisturizing lotions
and body baths supplemented with Vitamins A and E and botanical extracts for
moisture retention and skin rejuvenation, alpha hydroxy acids for natural skin
exfoliation, and Unitrienol T-27 for skin elasticity. Body Drench indoor tanning
products, which utilize the Carboplex(TM) delivery system, replace moisture lost
during tanning and promote faster, darker tanning results. The Company also
offers outdoor tan care and sun protection products under the Body Drench name.
The Suntopia line of exclusively distributed professional tanning products
includes various tanning creams and lotions, enriched shower gels, a moisture
replenishing lotion, and a tan enhancing product. Suntopia products, which are
made using an exotic blend of botanicals and forested extracts, are designed to
promote and maintain a long-lasting tan. The Suntopia line complements the Body
Drench line by targeting a younger market.
Clean + Easy and One Touch brands include patented professional hair
removal products. The Clean + Easy brand serves the professional salon market
with an extensive line of hair removal products and related sundries used by
salon professionals. The Clean + Easy Roll-On Wax System is one of the Company's
top selling hair removal products. The One Touch line serves the retail consumer
in the personal care market. One Touch products include roll-on waxers,
depilatories, and electrolysis products.
Salon Appliances and Sundries
The Company sells salon appliances and sundries, including hairstyling
appliances, salonwear, and spa chairs. The SRC line of professional curling
irons and blow dryers are recognized within the salon industry as the finest
quality in salon appliances. The appliances are designed for high usage and
durability and feature quick startup and recovery capabilities. All SRC
professional curling irons are backed by the industry's only
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three-year warranty. The Company's Maiko(TM) salonwear line features capes and
aprons for the stylist and the stylist's clientele.
The Company also sells various salon equipment products, such as whirlpool
footspas, salon chairs designed for clients and technicians, manicure and
pedicure tables and footrests, and portable salon accessory carts. These
products are sold under the European Touch name and are intended to capitalize
on the growing trend among salons to offer services beyond the basic salon
services.
PRODUCT DEVELOPMENT
The Company seeks to leverage the significant brand-name recognition of its
existing product lines by introducing new products and formulations under its
core brand names. The Company believes that its diverse product offerings
provide it with greater capacity and know-how to develop, test, and market new
products in each of its product lines, including the expanded application of
proprietary technologies. The Company contracts with third-party manufacturers
to develop new formulations that meet the Company's specifications and quality
standards. The Company has not incurred and does not expect to incur significant
capital expenditures in connection with its product development efforts. The
Company's management, working together with its sales and marketing and product
development personnel, continuously monitor shifts in the salon industry to
identify new product opportunities. Feedback from salon professionals and the
Company's educators also play a significant role in product development. The
Company believes the experience of its key managers, their relationships within
the industry, and the Company's product line orientation enable it to quickly
recognize and respond to salon innovations and industry trends.
MARKETING
The Company sells its professional salon products and appliances primarily
through professional salon industry distribution channels to salon product and
tanning supply distributors, salon chains, and beauty supply outlets, and to a
lesser extent, directly to spas, resorts, and health and country clubs
throughout the United States and in Canada, Europe, Latin America, Australia,
and Asia. The Company believes that its strategy of marketing its salon products
exclusively for use in or resale by the salon industry complements the
professional image of the Company's products and fosters a high degree of
loyalty by distributors of professional salon products.
The Company's sales and marketing efforts focus on educating salon
professionals and salon product distributors regarding the high quality and
performance benefits of the Company's products as well as the latest trends and
developments in the salon industry. The Company's marketing program includes
participation in salon industry trade shows, at which salon product
manufacturers exhibit and sell their products to wholesale salon product
distributors; several annual domestic and international salon professionals
trade shows; and numerous professional salon distributor-sponsored shows, at
which products, styles, and techniques are demonstrated to salon professionals.
The Company's marketing program emphasizes customer education through regular
in-the-field product demonstrations for salon professionals, usually in
conjunction with the distributors' sales and marketing efforts. In addition, the
Company's products are advertised in trade and distributor publications and
promoted in national magazines, such as Glamour, Good Housekeeping, InStyle,
McCall's, Mirabella, and Self. The Company also produces educational videos and
literature for distribution to distributors and salon professionals.
SALES AND DISTRIBUTION
The Company believes that it has strong relationships in each of the
professional salon distribution channels, including exclusive and open channels.
Products sold through exclusive channels are available to a limited number of
distributors in each region, while those sold through open channels are
available to all distributors. The ABBA line of hair care products is sold on an
exclusive basis to approximately 45 salon product distributors and salon chains
throughout the United States, Canada, and Australia through seven regional sales
managers and a strong educational support team. The Company's nail care product
lines are sold nationally and internationally to approximately 1,000 salon
product distributors by an internal sales force of
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nine marketing representatives and approximately 75 independent manufacturers'
representatives. This distribution base includes Sally, the largest wholesale
supplier of professional supply products with more than 1,900 supply stores
worldwide. Body Drench product lines are sold throughout the United States and
in Canada, Europe, Latin America, and Australia. Body Drench products are sold
to approximately 85 salon product distributors, 75 tanning supply distributors,
and directly to more than 3,000 spas, resorts, and health and country clubs by a
sales force of seven marketing representatives, telemarketers, and field sales
personnel as well as by approximately 25 independent manufacturer
representatives. SRC salon appliances and salonwear are sold nationally on an
exclusive basis to more than 50 salon product distributors, 14 beauty schools,
and six salon chains by a sales force of two employees and approximately 30
manufacturer representatives. Clean + Easy products are sold to approximately
1,000 customers through a sales manager and approximately 25 manufacturer
representatives. One Touch products are sold to approximately 400 customers by
two sales managers and approximately 25 manufacturer representatives. Together,
Clean + Easy and One Touch products are sold internationally to approximately
100 customers by a director of international sales. The Company's European Touch
II pedicure spa products are sold to approximately 700 salon product
distributors and three salon chains through an internal sales force of six
marketing representatives. See "Risk Factors -- Dependence on Major Customers."
PRODUCTION
The Company has developed relationships with third parties to manufacture
most of its products. Certain of the Company's hair removal appliances are
manufactured by two manufacturers in China. Although the Company generally does
not have long-term contracts with its manufacturers, the Company owns most of
the formulations, tools, and molds utilized in the manufacturing processes of
its products and believes it could substitute other manufacturers if necessary.
See "Risk Factors -- Dependence on Third Parties for Manufacturing" and "Risk
Factors -- Risk of International Operations."
The principal production operations of the Company are limited primarily to
solvents and waxes for the Company's Gena line of nail care and pedicure
products and certain wax products for the Company's Clean + Easy and One Touch
product lines. The Company produces solvents and waxes for its Gena line at its
30,000 square foot facility in Duncanville, Texas, near Dallas. The production
area in the Duncanville facility consists of approximately 6,000 square feet of
space and includes formula compounding areas, multiple manual and fully
automated liquid filling lines, and packaging facilities. The compounding or
mixing department utilizes a combination of manual and fully automated batch
processing systems. The Company maintains an inventory of raw materials and
packaging materials as well as certain finished goods in its on-site warehouses
that comprise a total of approximately 20,000 square feet.
The Company produces certain of its Clean + Easy and One Touch depilatory
products at its 32,000 square foot facility in Fair Lawn, New Jersey. The 8,600
square foot manufacturing area in the Company's Fair Lawn facility is devoted to
the production of wax and the packaging of a variety of hair removal appliances
for domestic and export markets. The wax production area consists of automatic
and manual batching and filling operations. Raw materials and work-in-process
inventories are maintained in a 10,000 square foot warehouse, while finished
goods are maintained in the 5,000 square foot shipping and receiving area.
The Company assembles and upholsters its European Touch II salon furniture
and appliances in its 15,000 square foot manufacturing and warehousing facility
in Butler, Wisconsin.
Raw materials used to produce the Company's professional salon products
(other than salon appliances and sundries) include water, alcohol, mineral and
natural oils, fragrances, other chemicals, and a wide variety of packaging
materials and compounds including containers, such as cardboard boxes and
plastic containers, container caps, tops, valves and labels, all of which it
purchases from outside sources. The principal raw materials and packaging
components for the Company's products are available from numerous domestic and
international suppliers. Although the Company itself does not purchase the raw
materials used to manufacture the majority of its products, it is potentially
subject to variations in the prices it pays its third-party manufacturers for
products depending on their costs for raw materials. While the industry from
time to time
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has experienced raw material cost increases, the Company believes it will be
able to purchase its requirements at competitive prices. To date, increases in
raw material costs have not had a material effect on the Company's operating
results.
The Company continually monitors the quality of its products. The Company
also carries product liability insurance at levels it believes to be adequate.
COMPETITION
The Company's products compete directly against professional salon and
other similar products sold through distributors of professional salon products
and professional salons. The Company competes on the basis of product
recognition, quality, performance, distribution, and price. The Company's
principal competitors in the professional salon hair care products market
include Nexxus Products Co., Paul Mitchell Systems, Matrix, and Redken. The
Company's competitors in the professional salon nail care market include
Creative Nail Design, Inc., OPI Products Inc., Star Nail Products, Inc., and
Backscratchers, Inc. The Company's largest competitors in the professional salon
skin and body care products market include California Suncare, Inc., Supre Inc.,
Swedish Beauty Manufacturing, Inc., Australian Gold, Inc., American
International, Inc., and Divi International. The Company's largest competitors
in the professional salon appliances and sundries market are Helen of Troy
Limited, Belson Products (a division of Windmere Corporation), Conair
Corporation, Cricket Brush Company (a division of West Coast Beauty Supply Co.),
Andre (a division of Fromm International, Inc.), and Betty Dain Creations, Inc.
In addition, the Company's professional salon products compete indirectly
against hair care, nail care, and skin and body care products as well as salon
appliances and sundries sold through a variety of non-salon retail channels,
including department stores, mall-based specialty stores and, to a lesser
extent, mass merchants, drugstores, supermarkets, telemarketing programs,
television "infomercials," and catalogs. See "Risk Factors -- Competition."
INTELLECTUAL PROPERTY
The Company has registered, or has pending registration applications for
its principal trademarks and trade names in the United States and in foreign
countries. Principal trademarks and trade names of the Company include ABBA Pure
and Natural Hair Care, Alpha 9, Body Drench, Clean + Easy, Cosmic, European
Touch, Gena, Kizmit, Omni P.O. Professionals Only, One Touch, Pro Finish,
Revivanail, SRC, and Suntopia. The Company believes its position in the
marketplace depends to a significant extent upon the goodwill engendered by its
trademarks and trade names and, therefore, considers trademark protection to be
important to its business. The Company will seek to register significant
trademarks and trade names in other foreign countries as it enters these
markets.
While the Company currently holds certain patents, the Company does not
consider any single patent to be material to the conduct of its business. The
Company relies primarily on trade secret protection for its proprietary
information. See "Risk Factors -- Intellectual Property."
GOVERNMENT REGULATION
Certain of the Company's advertising and product labeling practices are
subject to regulation by the FTC, and certain of its professional salon product
production practices are subject to regulation by the FDA as well as by various
other federal, state, and local regulatory authorities. Compliance with federal,
state, and local laws and regulations has not had a material adverse effect on
the Company to date. Nonetheless, federal, state, and local regulations in the
United States that are designed to protect consumers have had, and can be
expected to have, an increasing influence on product claims, production methods,
product content, labeling, and packaging. In addition, any expansion by the
Company of its operations to produce professional salon products that include
over-the-counter drug ingredients (such as certain sun screen ingredients) would
result in the Company becoming subject to additional FDA regulations as well as
a higher degree of inspection and greater burden of regulatory compliance than
currently exist.
The operations of the Company subject it to federal, state, and local
governmental regulations related to the use, storage, discharge, and disposal of
hazardous chemicals. The failure by the Company to comply with
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current or future environmental regulations could result in the imposition of
fines on the Company, suspension of production, or a cessation of operations.
Compliance with such regulations could require the Company to acquire costly
equipment or to incur other significant expenses. Any failure by the Company to
control the use, or adequately restrict the discharge, of hazardous substances
could subject it to future liabilities. The Company believes that it is in
substantial compliance with applicable federal, state, and local rules and
regulations governing the discharge of hazardous materials into the environment.
There are no significant capital expenditures for environmental control matters
anticipated in the current year or expected in the near future. See "Risk
Factors -- Regulation and Potential Claims."
EMPLOYEES
At March 31, 1998, STC employed 195 persons, consisting of 79
administrative employees, 89 warehouse and production employees, and 27 sales
and marketing employees. None of the Company's employees are covered by
collective bargaining agreements with the Company, and the Company believes that
its relations with its employees are good.
PROPERTIES
The Company owns an administrative, production, and warehousing facility in
Duncanville, Texas, near Dallas. The 20,000 square foot facility includes an
approximately 4,000 square foot administrative area, a 6,000 square foot
production area, and a 10,000 square foot warehousing area. The Company believes
the facility is well maintained and adequate for its needs. The Company also
leases additional warehouse space in Duncanville, Texas; production,
administrative, and warehouse space in Fair Lawn, New Jersey, Butler, Wisconsin,
and the United Kingdom; administrative space in Scottsdale, Arizona, Lebanon,
Tennessee, and Costa Mesa, California; as well as the Company's principal
executive offices in Phoenix, Arizona.
LITIGATION
The Company is, and may in the future be, party to litigation arising in
the ordinary course of its business. The Company does not consider any current
claims to be material to its business, financial condition, or operating
results. There can be no assurance that the Company's insurance coverage will be
adequate to cover all liabilities occurring out of any claims that may be
instituted in the future or that any future claims that are not covered by
insurance will not have an adverse effect on the Company's business, financial
condition, or operating results.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
The following table sets forth certain information regarding the directors,
executive officers, and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sam L. Leopold............................ 44 Chairman of the Board, President, and
Chief Executive Officer
Richard R. Ross........................... 31 Executive Vice President, Chief
Financial Officer, Treasurer, Secretary,
and Director
Michael L. Kaplan......................... 29 Executive Vice President and General
Counsel
James V. Henrietta........................ 53 Executive Vice President -- Sales and
Marketing
Karen L. Terwilleger...................... 49 Director of Operations
J. Timothy Montrose....................... 32 Corporate Controller
James A. Brooks........................... 68 Director
Peter W. Burg............................. 43 Director
Michael H. Feinstein...................... 62 Director
Sylvan Schefler........................... 60 Director
</TABLE>
SAM L. LEOPOLD, a founder of the Company, has served as its Chairman of the
Board and Chief Executive Officer of the Company since the Company's
incorporation in June 1995 and as President of the Company since February 1998.
Mr. Leopold owns and previously served as President and Chairman of Beauty
Boutique International, which was founded in 1990 and operates three retail
salons in Arizona. Mr. Leopold is not involved with the day-to-day operations of
Beauty Boutique International, although Beauty Boutique International purchases
products from the Company in the ordinary course of business. From 1986 to 1991,
Mr. Leopold served as Executive Vice President of Consumer Beauty Supply, Inc.
(dba Beauty Express), a mall-based retail chain of beauty salons. During that
time, Mr. Leopold was responsible for day-to-day operations and oversaw the
growth and development of Beauty Express from less than 20 retail salons to more
than 50 retail salons. From 1989 to 1991, Mr. Leopold served as President of
Avanti International, Inc. developing a line of hair care products.
RICHARD R. ROSS has served as Chief Financial Officer, Treasurer, and
Secretary of the Company since April 1997 and as Executive Vice President and a
director of the Company since May 1998. Mr. Ross served in the audit and
business advisory group of Arthur Andersen LLP from June 1989 to April 1997,
most recently in the position of Manager. In his capacity at Arthur Andersen
LLP, Mr. Ross worked with the Company from its inception in June 1995, as well
as with other acquisition-oriented public companies, until joining the Company
in April 1997. Mr. Ross is a certified public accountant.
MICHAEL L. KAPLAN has served as Executive Vice President and General
Counsel of the Company since July 1998. Mr. Kaplan was an attorney with the
Phoenix-based law firm of O'Conner, Cavanagh, Anderson, Killingsworth &
Beshears, P.A. from September 1995 to June 1998, where he specialized in
mergers, acquisitions, and corporate finance and represented
acquisition-oriented public companies, including the Company. Mr. Kaplan also
was an attorney with Fennemore Craig, P.C. from September 1993 to August 1995.
JAMES V. HENRIETTA has served as Executive Vice President -- Sales and
Marketing of the Company since February 1998. From January 1996 to February
1998, Mr. Henrietta served as a Regional Director for Zotos International
("Zotos"), a hair care company in the professional salon products industry. Mr.
Henrietta served as a Regional Director for Helene Curtis from May 1994 until
its sale to Zotos in January 1996. From 1991 to 1994, Mr. Henrietta founded and
served as President of JVH, an investment/consulting business. From 1980 to
1991, Mr. Henrietta served as President of the Paris Ace Beauty Supply Company.
During that
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<PAGE> 65
time, Mr. Henrietta facilitated the company's sales growth from $5 million in
annual revenues to over $21 million by opening or acquiring over 43 beauty
supply stores.
KAREN L. TERWILLEGER has served as Director of Operations of the Company
since November 1997. Ms. Terwilleger served as Manager of Non-Inventory
Procurement and Manager of Contract Manufacturing Operations at The Dial
Corporation from September 1995 to February 1997. Ms. Terwilleger served as
Manager of Purchasing, Contract Manufacturing, and Packaging Development at
Benckiser Consumer Products, Inc. from June 1988 to September 1995. Ms.
Terwilleger served as Senior Purchasing Manager for Playtex, Inc. from 1987 to
1988; as Director of Manufacturing for Columbia Products, Inc. from 1985 to
1987; and as Assistant Plant Manager for Oral-B Laboratories, Inc. from 1984 to
1985. Ms. Terwilleger served in various capacities for Bristol-Myers, Co. and
its Clairol, Inc. subsidiary from 1978 to 1984.
J. TIMOTHY MONTROSE has served as Corporate Controller of the Company since
May 1997 and has been employed by the Company since December 1996. From November
1995 to December 1996, Mr. Montrose served as the Accounting Manager for
Cellular World Corporation, a retail chain of wireless communication products
stores. From April 1993 to November 1995, Mr. Montrose served as Senior
Accountant with the Dallas Stars Hockey Club of the National Hockey League and
was actively involved in the club's transition from Minneapolis to Dallas.
JAMES A. BROOKS has served as a director of the Company since September
1996. Mr. Brooks has been President of Signe Inc., a management consulting firm
for major consumer product companies and a variety of salon industry companies,
since founding the company in December 1984. Mr. Brooks served as Senior Vice
President of Sales and Marketing of Lamaur, Inc. from 1983 to 1984, at that time
a publicly traded company listed on the New York Stock Exchange and a leading
domestic producer and marketer of a broad range of hair care products. Mr.
Brooks served as Senior Vice President of Sales and Marketing of Redken
Laboratories, Inc. from 1977 to 1983.
PETER W. BURG has served as a director of the Company since February 1997.
Mr. Burg has been a director and shareholder in the law firm of Burg & Eldrege,
P.C. (and its predecessor Burg & Aspinwall, P.C.) since October 1984.
MICHAEL H. FEINSTEIN has served as a director of the Company since June
1997. Mr. Feinstein has served as a consultant to Samoth Capital Corporation, a
publicly owned real estate company, since April 1998. Mr. Feinstein served as
Senior Vice President and Chief Financial Officer of Monaco Finance, Inc., a
publicly held specialty finance company, from July 1995 to April 1998. From
September 1993 to June 1995, Mr. Feinstein served initially as Executive Vice
President and subsequently as acting President and Chief Executive Officer of
American Southwest Financial Corporation, which engaged in the securitization
and administration of mortgage-backed bonds and certificates. From January 1983
through September 1993, Mr. Feinstein served in various senior management
positions, including, at different times, Chief Financial Officer, Treasurer,
Chief Operating Officer, and Executive and Senior Vice President of Asset
Investors Corporation, a New York Stock Exchange-listed REIT, and MDC Holdings
Inc., a New York Stock Exchange-listed national homebuilder. Prior to 1983, Mr.
Feinstein was a partner in the public accounting firm now known as Deloitte &
Touche.
SYLVAN SCHEFLER has served as a director of the Company since November
1996. Mr. Schefler has been Chairman of Maxima Group, LLC, a merchant banking
firm, since September 1997, and a partner of Crystal Asset Management Group,
Ltd., a merchant banking firm, since 1990. Mr. Schefler served as Vice Chairman
of Prime Charter Ltd., an investment banking firm and one of the representatives
of the underwriters of the Company's initial public offering, from 1995 to April
1997. Mr. Schefler served as Chairman of the Investment Banking Division and as
a member of the Executive Committee of Prime Charter Ltd. from September 1994 to
April 1997. Previously, Mr. Schefler was Chief Executive Officer of Hampshire
Securities Corporation, an investment banking firm, from 1990 to 1992. Mr.
Schefler previously served in various capacities with Drexel Burnham Lambert
Incorporated for over 30 years, including as a member of its Executive Committee
and Board of Directors. Mr. Schefler has served as a director of GSE Systems,
Inc., a supplier of software systems for manufacturing industries, since August
1995.
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<PAGE> 66
The Company has agreed that, for a period of three years from its initial
public offering in November 1996, the representatives of the underwriters of the
Company's initial public offering (the "Representatives") will have the right to
send a representative to observe each meeting of the Company's Board of
Directors, or in lieu of such observer, the Representatives may elect to require
the Company to use its best efforts to elect Sylvan Schefler, formerly Vice
Chairman of Prime Charter Ltd., or another mutually acceptable designee, to the
Company's Board of Directors for such three-year period. Mr. Schefler serves as
a member of the Company's Board of Directors.
Directors hold office until their successors have been elected and
qualified. Officers serve at the pleasure of the Board of Directors. There are
no family relationships among any of the directors or officers of the Company.
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<PAGE> 67
CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Initial Offering, the Company repaid all amounts
outstanding under its previous credit facility, and that credit facility was
terminated. The Company entered into a $50.0 million New Credit Facility with
NationsBank, N.A., and BankBoston, N.A., as agents. The New Credit Facility
consists of a revolving credit facility in a principal amount of $25.0 million
and an acquisition facility in a principal amount of $25.0 million. The
revolving credit facility will include a sub-limit of up to $7.5 million for
letters of credit. As of August 4, 1998, the Company has borrowed approximately
$25.0 million under the acquisition facility. The following is a summary
description of the principal terms of the New Credit Facility and is subject to,
and qualified in its entirety by, reference to the definitive agreement.
All obligations of the Company will be unconditionally and irrevocably
guaranteed jointly and severally by each of the Company's domestic subsidiaries.
Indebtedness under the New Credit Facility will be secured by a first priority
security interest in (i) all of the capital stock of each of the Company's
domestic subsidiaries, (ii) 65% of the capital stock of each foreign subsidiary,
and (iii) all domestic assets of the Company and its subsidiaries.
The proceeds of the New Credit Facility will be available for working
capital, capital expenditures, acquisitions, and general corporate purposes of
the Company and its subsidiaries. Loans under the acquisition facility will be
available in multiple draws from the closing through December 31, 1999 only for
the purpose of making permitted acquisitions.
Interest Rates. The New Credit Facility will bear interest at rates per
annum equal to, at the option of the Company, either (i) the LIBOR interbank
rate plus the applicable margin or (ii) the base rate plus the applicable
margin.
Maturity. The New Credit Facility will mature on June 30, 2003.
Mandatory Repayments. Mandatory repayments must be made from the net
proceeds of an issuance or incurrence of certain indebtedness, the net proceeds
from the sale of equity, and from the proceeds of certain sales or dispositions
of certain assets.
Optional Prepayments. Loans may be prepaid and commitments may be reduced
at the Company's option in minimum amounts to be agreed upon.
Covenants. The New Credit Facility contains certain covenants applicable
to, and other requirements of, the Company and its subsidiaries. The covenants
include, among other things, delivery of financial statements and other reports;
notices of default, material litigation, and material governmental, and
environmental proceedings; payment of taxes; maintenance of insurance;
limitation on liens; limitations on mergers, consolidations, and sales of
assets; limitations on incurrence of debt; limitations on dividends and stock
redemptions and the redemption and/or prepayment of other debt; limitations on
investments; limitation on transactions with affiliates; and limitation on
capital expenditures and acquisitions. The New Credit Facility requires the
Company to meet certain financial covenants, including minimum fixed charge
coverage and maximum leverage ratios.
Events of Default. The New Credit Facility specifies certain customary
events of default, including nonpayment of principal; interest, fees, or other
amounts; violation of covenants; inaccuracy of representations and warranties;
cross-default to other material agreements and indebtedness; bankruptcy;
material judgments; ERISA violations; actual or asserted invalidity by the
borrower or any of the borrower's subsidiaries of any loan documents or security
interests; or changes in control.
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<PAGE> 68
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued pursuant
to an Indenture dated as of June 23, 1998 (the "Indenture") between the Company,
the Guarantors, and State Street Bank and Trust Company of California, N.A., as
trustee (the "Trustee"). The terms of the Exchange Notes are identical in all
material respects to the Outstanding Notes, except that the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting their transfer.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. Copies
of the Indenture and Registration Rights Agreement are available as set forth
below under "-- Additional Information." The definitions of certain terms used
in the following summary are set forth below under "-- Certain Definitions." For
purposes of this summary, the term "Company" refers only to Styling Technology
Corporation, a Delaware corporation, and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior Debt.
As of March 31, 1998, on a pro forma basis, the Company would have had no Senior
Debt outstanding. Any borrowings under the New Credit Facility will be Senior
Debt. The Indenture will permit the incurrence of additional Senior Debt in the
future.
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY, AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $100.0
million and will mature on July 1, 2008. Interest on the Exchange Notes will
accrue at the rate of 10 7/8% per annum and will be payable semi-annually in
arrears on January 1 and July 1, commencing on January 1, 1999, to Holders of
record of Exchange Notes on the immediately preceding December 15 and June 15,
respectively. The Indenture provides for the issuance of up to an additional
$25.0 million aggregate principal amount of additional notes having identical
terms and conditions as the Notes (the "Additional Notes"), subject to
compliance with the covenants contained in the Indenture. As of the date of this
Prospectus, however, the Company does not anticipate issuing Additional Notes.
For purposes of this "Description of the Exchange Notes," any reference to the
Notes does not include any Additional Notes.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Exchange Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders of the Exchange Notes at their respective addresses set forth in the
register of Holders of Exchange Notes; provided that all payments of principal,
premium, or interest with respect to Exchange Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Exchange Notes will be issued in denominations of $1,000 and
integral multiples thereof.
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<PAGE> 69
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Exchange
Notes will be subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Debt, whether outstanding on the date
of the Indenture or thereafter incurred, and senior or pari passu in right of
payment, as set forth in the Indenture, to the prior payment in full of all
subordinated Debt of the Company, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership, or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors, or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Exchange Notes will be
entitled to receive any payment with respect to the Exchange Notes, and until
all Obligations with respect to Senior Debt are paid in full, any distribution
to which the Holders of Exchange Notes would be entitled shall be made to the
holders of Senior Debt (except that Holders of Exchange Notes may receive and
retain Permitted Junior Securities and payments made from the trust described
under "-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Exchange Notes (except in Permitted Junior Securities or from the trust
described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Debt. Payments on the Exchange Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated and not
repaid. No new period of payment blockage may be commenced unless and until (i)
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if any,
and interest on the Exchange Notes that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company that are holders of Senior Debt. On a pro
forma basis at March 31, 1998, after giving effect to the Offering and the
application of the proceeds therefrom, the Company would have had no Senior Debt
outstanding. Any borrowings under $50.0 million New Credit Facility will be
Senior Debt. The Indenture will limit, subject to certain financial tests, the
amount of additional Debt, including Senior Debt, that the Company and its
Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Debt and
Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The
Subsidiary Guarantees will be unsecured. The Subsidiary Guarantee of each
Guarantor will be subordinated to the prior payment in full of all Senior Debt
of such Guarantor, and the amounts for which the Guarantors will be liable under
the guarantees issued from time to time with respect to Senior Debt. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law. However, see
"Risk Factors -- Fraudulent Conveyance."
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<PAGE> 70
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another Person
whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes, the
Indenture, and the Registration Rights Agreement; and (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor to a third party or an Unrestricted
Subsidiary, by way of merger, consolidation, or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor or the designation of
such Guarantor as an Unrestricted Subsidiary, then such Guarantor (in the event
of a sale or other disposition, by way of such a merger, consolidation, or
otherwise, of all of the capital stock of such Guarantor, or in the event of
such designation) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to July 1,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 105.4375%
2004...................................................... 103.6250%
2005...................................................... 101.8125%
2006 and thereafter....................................... 100.0000%
</TABLE>
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. An Exchange
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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<PAGE> 71
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered, and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
an Exchange Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each such Exchange Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company either will
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this covenant. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization, or
similar transaction.
The New Credit Facility is expected to provide that certain change of
control events with respect to the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Debt to which the Company or any of its Subsidiaries becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when the Company is prohibited from purchasing Notes, the Company could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the New Credit Facility. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times, and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance, or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries,
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<PAGE> 72
taken as a whole. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, the ability of a Holder of Notes
to require the Company to repurchase such Notes as a result of a sale, lease,
transfer, conveyance, or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes, or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) shall be deemed to be cash or Cash Equivalents for purposes of this
provision.
On or prior to the 365th day following the receipt of any Net Proceeds from
an Asset Sale, the Company (or such Restricted Subsidiary, as the case may be)
may, subject to the provisions of the Indenture described under "-- Certain
Covenants -- Restricted Payments," apply such Net Proceeds, at its option, (a)
to permanently repay and reduce the amounts permitted to be borrowed by the
Company or such Restricted Subsidiary under the terms of any of its Senior Debt,
or (b) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business (provided that such Person
concurrently becomes a Restricted Subsidiary of the Company), or (c) to acquire
other long-term assets that are used or useful in a Permitted Business. Pending
the final application of any such Net Proceeds, the Company (or such Restricted
Subsidiary, as the case may be) may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes and all holders of other Debt that is pari passu with the
Notes containing provisions similar to those set forth in the Indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets (an
"Asset Sale Offer") to repurchase the maximum principal amount of Notes and such
other pari passu Debt that may be purchased out of the aggregate amount of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of repurchase, in accordance with the procedures set forth in the
Indenture and such other pari passu Debt. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company (or such
Restricted Subsidiary, as the case may be) may use such Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes and such other pari passu Debt tendered into such Asset Sale
Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other pari passu Debt to be purchased on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
The Company or any of its Restricted Subsidiaries may engage in
transactions in which assets are transferred in exchange for one or more assets
that are of a type customarily used in a Permitted Business; provided that if
the fair market value of the assets to be transferred by the Company or such
Restricted Subsidiary, plus the fair market value of any other consideration
paid or credited by the Company or such
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Restricted Subsidiary exceeds $1.0 million, such transaction shall require
approval of the Board of Directors of the Company; provided that no such
transaction shall be permitted if the Consolidated Coverage Ratio of the Company
would be reduced after giving effect to such transaction; and provided, further,
that the transferee of such assets shall initially be designated as a Restricted
Subsidiary if such Person becomes a Subsidiary by virtue of such Asset Sale. In
addition, each such transaction shall be valued at an amount equal to all
consideration received by the Company or such Restricted Subsidiary in such
transaction, other than such assets received pursuant to such exchange ("Other
Consideration"), for purposes of determining whether an Asset Sale has occurred.
If the Other Consideration is of an amount and character such that such
transaction constitutes an Asset Sale, then the first two paragraphs of this
"Asset Sales" covenant shall be applicable to any proceeds of such Other
Consideration.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable to the repurchase of Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
Asset Sale provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or to the
Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem, or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease, or
otherwise acquire or retire for value any Debt that is pari passu with or
subordinated to the Notes (other than Notes), except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "-- Incurrence of Debt and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to
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its common equity capital or from the issue or sale of Equity Interests of
the Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus (iii) to the extent that any Restricted Investment that
was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment plus, (iv)
in the event an Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, an amount equal to the lesser of (A) the net book value of
Investments made in such Unrestricted Subsidiary at the time of such
designation and (B) the fair market value of Investments made in such
Unrestricted Subsidiary at the time of such designation.
So long as no Default has occurred and is continuing or would be caused
thereby, the foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance, or other
acquisition of any pari passu or subordinated Debt or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of, other
Equity Interests of the Company (other than any Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance, or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase, or other acquisition of pari passu or subordinated Debt
with the net cash proceeds from an incurrence of Permitted Refinancing Debt; and
(iv) the payment of any dividend by a Restricted Subsidiary of the Company to
the holders of its Equity Interests on a pro rata basis.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee, if such fair market value
exceeds $1.0 million and in addition, by a majority of the independent directors
of the Board of Directors if such fair market value exceeds $5.0 million. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. In the
event of any such designation, all outstanding Investments owned by the Company
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be a Restricted Payment made as of the time of such designation and will
reduce the amount available for Restricted Payments under the first paragraph of
this covenant. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if such redesignation would not cause a Default.
Incurrence of Debt and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee, or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
(including Acquired Debt) and that the Company will not issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of preferred stock; provided, however, that the Company and the Restricted
Subsidiaries may incur Debt (including Acquired Debt), the Company may issue
shares of Disqualified Stock and the Restricted Subsidiaries may issue shares of
Preferred Stock if the Consolidated Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are
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available immediately preceding the date on which such additional Debt is
incurred or such Disqualified Stock or Preferred Stock is issued would have been
at least (a) 2.0 to 1.0, if such incurrence or issuance is on or prior to July
1, 2001, and (b) 2.25 to 1.0, if such incurrence or issuance is after July 1,
2001, in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Debt had been
incurred, or the Disqualified Stock or Preferred Stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Debt (collectively, "Permitted
Debt") so long as no Default shall have occurred and be continuing or would be
caused thereby:
(i) the incurrence by the Company or the Guarantors of Debt under
Credit Facilities; provided that the aggregate principal amount of all term
Debt of the Company and its Restricted Subsidiaries outstanding under all
Credit Facilities after giving effect to such incurrence does not exceed an
amount equal to $50.0 million less the aggregate amount of all Net Proceeds
of Asset Sales that have been applied by the Company or any of its
Restricted Subsidiaries since the date of the Indenture to permanently
repay and reduce the commitments with respect to Debt under a Credit
Facility pursuant to the covenant described above under the caption
"-- Asset Sales"; and provided, further, that the Company will not permit
any Restricted Subsidiary that has incurred Debt under this clause (i) to
be released or relieved of any obligations under its Subsidiary Guarantee
so long as any such Debt remains outstanding;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Debt;
(iii) the incurrence by the Company of Debt represented by the Notes
and the Exchange Notes (in each case, other than Additional Notes) and the
incurrence by the Guarantors of Debt represented by the Subsidiary
Guarantees;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt represented by Capital Lease Obligations, mortgage
financings, or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant, or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Debt in exchange for, or the net
proceeds of which are used to refund, refinance, or replace Debt (other
than intercompany Debt) that was permitted by the Indenture to be incurred
under the first paragraph hereof or clauses (ii) or (iii) or this clause
(v) of this paragraph;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Debt between or among the Company and any of
its Wholly Owned Restricted Subsidiaries; provided, however, that (i) if
the Company is the obligor on such Debt, such Debt is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Debt being held by a Person other
than the Company or a Restricted Subsidiary thereof and (B) any sale or
other transfer of any such Debt to a Person that is not either the Company
or a Wholly Owned Restricted Subsidiary thereof shall be deemed, in each
case, to constitute an incurrence of such Debt by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vi);
(vii) Hedging Obligations consisting of Interest Rate Agreements
entered into in the ordinary course of business and not for the purpose of
speculation; provided, however, that such Interest Rate Agreements do not
increase the Debt of the Company outstanding at any time other than as a
result of fluctuations in interest rates or by reason of fees, indemnities,
and compensation payable thereunder;
(viii) Debt of the Company or any Restricted Subsidiary arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or its
Restricted
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Subsidiaries pursuant to such agreements, in any case incurred in
connection with the disposition of any business, assets, or Restricted
Subsidiary of the Company to the extent none of the foregoing results in an
obligation to repay an obligation for money borrowed by any Person and are
limited in aggregate amount to no greater than 10% of the fair market value
of such business, assets, or Restricted Subsidiary so disposed of;
(ix) the guarantee by the Company or any of the Guarantors of Debt of
the Company or a Restricted Subsidiary of the Company that was permitted to
be incurred by another provision of this covenant; and
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Debt in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, together with all
other Debt of the Company and its Restricted Subsidiaries outstanding at
such time (other than Debt permitted by the first paragraph hereof or by
clauses (i) through (ix) above) does not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Debt meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above as of
the date of incurrence thereof, or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Debt on the date of
its incurrence in any manner that complies with this covenant. Accrual of
interest, accretion, or amortization of original issue discount will not be
deemed to be an incurrence of Debt for purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume, or suffer
to exist any Lien of any kind securing Debt, Attributable Debt, or trade
payables on any asset now owned or hereafter acquired or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens, unless all payments due under the Indenture and the Notes are
secured on an equal and ratable basis with the Debt so secured until such time
as such is no longer secured by a Lien; provided that if such Debt is by its
terms expressly subordinated to the Notes or any Subsidiary Guarantee, the Lien
securing such Debt shall be subordinate and junior to the Lien securing the
Notes and the Subsidiary Guarantees with the same relative priority as such
subordinate or junior Debt shall have with respect to the Notes and the
Subsidiary Guarantees.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries, or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries. However, the foregoing restrictions will not apply to encumbrances
or restrictions existing under or by reason of (a) Existing Debt as in effect on
the date of the Indenture, (b) the New Credit Facility as originally executed by
the Company and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements, or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, or refinancings are no more restrictive,
taken as a whole, with respect to such dividend and other payment restrictions
than those contained in the New Credit Facility as originally executed by the
Company, (c) the Indenture and the Notes, (d) applicable law, (e) customary
non-assignment provisions in licensing agreements or leases entered into in the
ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause
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(iii) above on the property so acquired, (g) any agreement for the sale or other
disposition of a Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition, (h) Permitted
Refinancing Debt, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Debt are no more restrictive, taken as a
whole, than those contained in the agreements governing the Debt being
refinanced, (i) Liens securing Debt otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption "-- Liens"
that limit the right of the Company or any of its Restricted Subsidiaries to
dispose of the assets subject to such Lien, (j) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business,
(k) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business, (l)
restrictions existing by reason of or under Debt existing on the date of the
Indenture, and (m) any customary restrictions existing under any agreement
entered into with respect to the sale or disposition of all or substantially all
the Equity Interests or assets of a Restricted Subsidiary, provided that the
disposition or sale is governed by the restrictions described under "Repurchase
at the Option of Holders."
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey, or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
conveyance, or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes, and the Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance, or other disposition shall have been made
will, immediately after such transaction after giving pro forma effect thereto
and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Debt pursuant to the Consolidated Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Debt and Issuance of Preferred Stock." The Indenture also
provides that the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance, or other disposition of
assets between or among the Company and its Wholly Owned Restricted
Subsidiaries.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer, or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance, or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate
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consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal, or investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions: (i) the entering into and performance of obligations
under any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
the past practice of the Company or such Restricted Subsidiary, (ii)
transactions between or among the Company and/or its Restricted Subsidiaries,
(iii) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of the Company, (iv) any sale or other issuance of Equity Interests
(other than Disqualified Stock) of the Company, and (v) Restricted Payments that
are permitted by the provisions of the Indenture described above under the
caption "-- Restricted Payments."
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or any of its Restricted Subsidiaries may
enter into a sale and leaseback transaction if (i) the Company or such
Restricted Subsidiary, as applicable, could have (a) incurred Debt in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Additional Debt and Issuance of Preferred Stock" and (b) incurred a Lien to
secure such Debt pursuant to the covenant described above under the caption
"-- Liens," (ii) the consideration received in connection with such sale and
leaseback transaction is at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction, and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described above
under the caption "-- Repurchase at the Option of Holders -- Asset Sales."
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not sell any shares of Capital Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any shares of its Capital Stock except: (i) to the
Company or a Wholly Owned Restricted Subsidiary or (ii) (A) in compliance with
the covenant described under "Asset Sales" if, immediately after giving effect
to such issuance or sale, such Restricted Subsidiary would continue to be a
Restricted Subsidiary or (B) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer be a Restricted
Subsidiary and the Investment of the Company in such Person after giving effect
to such issuance or sale would have been permitted to be made under the covenant
described under "-- Restricted Payments" as if made on the date of such issuance
or sale. Notwithstanding the foregoing, (i) the Company may sell all of the
Capital Stock of a Subsidiary as long as the Company is in compliance with the
terms of the covenant described under "-- Repurchase at the Option of
Holders -- Asset Sales" and (ii) the Company and its Restricted Subsidiaries may
issue directors' qualifying shares or shares issued to be held by foreign
nationals (in each case to the extent mandated by applicable law).
Limitation on the Sale or Issuance of Preferred Stock of Restricted
Subsidiaries
The Company will not sell any shares of Preferred Stock of any Restricted
Subsidiary and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any shares of its Preferred Stock to any Person
(other than to the Company or a Wholly Owned Restricted Subsidiary).
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
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Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver, or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered to
be paid or is paid to all Holders of the Notes that consent, waive, or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver, or agreement.
No Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee, or otherwise become liable for any Debt that is subordinate
or junior in right of payment to any Senior Debt and senior in any respect in
right of payment to the Notes, and (ii) no Guarantor will incur, create, issue,
assume, guarantee, or otherwise become liable for any Debt that is subordinate
or junior in right of payment to any Senior Debt of such Guarantor and senior in
any respect in right of payment to the Subsidiary Guarantees.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports, in each case within the time
periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Additional Subsidiary Guarantees
The Indenture provides that (i) the Company will not permit any of its
Restricted Subsidiaries that is not a Subsidiary Guarantor to guarantee or
secure through the granting of Liens the payment of any Debt of the Company or
any Guarantor and (ii) the Company will not and will not permit any of its
Restricted Subsidiaries to pledge any intercompany notes representing
obligations of any of its Restricted Subsidiaries, to secure the payment of any
Debt of the Company or any Guarantor, in each case unless such Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture evidencing
such Subsidiary's Subsidiary Guarantee (providing for the unconditionally
guarantee by such Restricted Subsidiary, on a senior subordinated basis, of the
Notes).
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest (including
any Additional Interest) on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
any of its Restricted Subsidiaries to comply with the provisions described under
the captions "-- Repurchase at the Option of Holders -- Change of Control,"
"-- Repurchase at the Option of Holders -- Asset Sales," "-- Certain
Covenants -- Restricted Payments," "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets," or "-- Certain Covenants -- Incurrence of
Debt and Issuance of Preferred Stock"; (iv) failure by the Company or any of its
Restricted Subsidiaries for 60 days after notice to comply with any of its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Debt for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Debt or guarantee now exists,
or is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Debt prior
to the expiration of the grace period provided in such Debt on the date of such
default (a "Payment Default") or (b) results in the acceleration of such Debt
prior to its express maturity and, in each case, the principal amount of any
such Debt, together with the principal amount of any other such Debt under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any
of its Restricted Subsidiaries to pay final judgments aggregating in excess of
$5.0 million, which judgments are not paid, discharged or stayed for a period of
60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to July
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to July 1, 2003, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, AND STOCKHOLDERS
No director, officer, employee, incorporator, or stockholder of the Company
or any of its Subsidiaries, as such, shall have any liability for any
obligations of the Company or any of its Subsidiaries under the Notes, the
Subsidiary Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and the Guarantors'
obligations discharged with respect to the Subsidiary Guarantees ("Legal
Defeasance"), except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties, and immunities of the
Trustee, and the Company's obligations in connection therewith, and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company and its
Subsidiaries may, at its option and at any time, elect to have the obligations
of the Company released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes or the Subsidiary Guarantees. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation, and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes or the
Subsidiary Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain, or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain, or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or
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constitute a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying, or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement, or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, or interest on the Notes, (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders"), or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 66 2/3% in
aggregate principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights
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or benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method, and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability,
or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Styling Technology
Corporation, 2390 East Camelback Road, Suite 435, Phoenix, Arizona 85016,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY, AND FORM
The Exchange Notes initially will be issued in the form of one Global
Exchange Note (the "Global Exchange Note"). The Global Exchange Note will be
deposited on the Exchange Date with the Depositary and registered in the name of
Cede & Co., as nominee of the Depositary (the "Global Exchange Note Holder").
Except as set forth below, the Global Exchange Note may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Note, the Depositary will
credit on its internal system the principal amounts of the Exchange Notes of the
individual beneficial interests represented by such Global Exchange Note to the
respective accounts of exchanging holders who have accounts with the Depositary
and (ii) ownership of such interest in the Global Exchange Note will be shown
on, and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Exchange Note will be limited to such extent.
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note Holder will be considered the sole
holder under the Indenture of any Exchange Notes evidenced by the Global
Exchange Note. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Exchange Notes.
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Payments in respect of the principal of and premium, and interest, on any
Exchange Notes registered in the name of the Global Exchange Note Holder on the
applicable record date will be payable by the Trustee to or at the direction of
the Global Exchange Note Holder in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Exchange Notes, including the Global Exchange
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Exchange Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request to the Trustee, exchange such beneficial
interest for Exchange Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated Securities
in the name of, and cause the same to be delivered to, such person or persons
(or the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Exchange Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Exchange Note
Holder of the Global Exchange Note, Exchange Notes in such form will be issued
to each person that the Global Exchange Note Holder and the Depositary identify
as being the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Exchange Notes (including principal, premium, if any, and interest)
be made by wire transfer of immediately available funds to the accounts
specified by the Global Exchange Note Holder. With respect to Notes in
certificated form, the Company will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The Exchange Notes
represented by the Global Exchange Notes are expected to be eligible to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Exchange Notes will, therefore, be required by
the
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Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Notes will also be settled in
immediately available funds.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
The Company, the Guarantors, and the Initial Purchasers entered into the
Registration Rights Agreement in connection with the issuance of the Outstanding
Notes. Pursuant to the Registration Rights Agreement, the Company and the
Guarantors agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes. If (i) the Company and the Guarantors are not required to file
the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company prior to the 20th day following consummation of the Exchange Offer
that (A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) that it may not resell the Exchange Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns Notes acquired directly from the Company or an affiliate of the Company,
the Company will file with the Commission a shelf registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement") to cover resales of the Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company and the Guarantors will use their
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until (i) the date
on which such Note has been exchanged by a person other than a broker-dealer for
an Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on
which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement, or (iv) the date on
which such Note is distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that (i) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 45 days after the Closing Date, (ii) the Company and
the Guarantors will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 90
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company and the Guarantors
will commence the Exchange Offer and use their best efforts to issue on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Notes tendered prior thereto in the Exchange Offer, and (iv) if
obligated to file the Shelf Registration Statement, the Company and the
Guarantors will use their best efforts to file the Shelf Registration Statement
with the Commission on or prior to 45 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 90 days after such obligation arises. If (a) the Company and the
Guarantors fail to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company and the Guarantors fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then interest ("Additional
Interest") will accrue on the Notes (in addition to the stated interest on the
Notes) from and including the date on which any such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured. Additional Interest will accrue at a rate of 0.50% per annum over the
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rate at which interest is then otherwise accruing during the 90-day period
immediately following the occurrence of any Registration Default and shall
increase by 0.25% per annum at the end of each subsequent 90-day period, but in
no event shall such Additional Interest exceed 2.00% per annum. Additional
Interest will be payable in cash, semiannually in arrears on each January 1 and
July 1, regardless of whether any such date is otherwise an Interest Payment
Date. All references herein and in the Indenture to "interest" on the Notes
shall be deemed to include any Additional Interest that may become payable
thereon according to the provisions of this paragraph.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Notes
included in the Shelf Registration Statement. Holders of Notes will also be
required to suspend their use of the prospectus included in the Shelf
Registration Statement under certain circumstances upon receipt of written
notice to that effect from the Company.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such other Person is merged with
or into or becomes a Subsidiary of such specified Person, including,
without limitation, Debt incurred in connection with, or in contemplation
of, such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Debt secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by," and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the Voting
Stock of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance, or other
disposition of any assets or rights (including, without limitation, by way
of a sale and leaseback) other than sales of inventory in the ordinary
course of business consistent with past practices (provided that the sale,
conveyance, or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the
caption "-- Repurchase at the Option of Holders -- Change of Control"
and/or the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation, or Sale of Assets" and not by the
provisions of the Asset Sale covenant), and (ii) the issue by any
Restricted Subsidiary of the Company of any Equity Interests of such
Restricted Subsidiary and the sale by the Company or any of its Restricted
Subsidiaries of any Equity Interest of any of the Company's Subsidiaries,
in the case of either clause (i) or (ii), whether in a single transaction
or a series of related transactions (a) that have a fair market value in
excess of $1.0 million or (b) for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments," (iv) the issuance by the
Company of shares of its Capital Stock, (v) sale or other disposition of
cash or Cash Equivalents, (vi) the sale or disposition of
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damaged, worn out, or other obsolete personal property in the ordinary
course of business, (vii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort, or other claims of any
kind, (viii) the granting of Liens not prohibited by the Indenture, or (ix)
the execution and performance of contracts to provide manufacturing and
other services, including in connection with Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments (after
excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, utilities, and other similar expenses payable by
the lessee pursuant to the terms of the lease) during the remaining term of
the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessee, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which
case the rental payments shall include such penalty).
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited), and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months, and overnight bank deposits, in each
case with any domestic commercial bank having capital and surplus in excess
of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case maturing within six months
after the date of acquisition, and (vi) money market funds at least 95% of
the assets of which constitute Cash Equivalents of the kinds described in
clauses (i)-(v) of this definition.
"Change of Control" means the occurrence of any of the following: (i)
the sale, transfer, conveyance, or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than to a Principal or a
Related Party of a Principal (as defined below), (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, except that in calculating the beneficial ownership
of any particular "person," such "person" shall be deemed to have
beneficial ownership of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Voting Stock of the Company (measured by voting power
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rather than number of shares), (iv) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors, or (v) the Company consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving
or transferee Person (immediately after giving effect to such issuance).
"Common Stock" means the common stock, par value $0.0001 per share, of
the Company.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Operating Cash Flow for the period
of the most recent four consecutive fiscal quarters ending at least 45 days
(or, if less, the number of days after the end of such fiscal quarter as
the consolidated financial statements of the Company shall be available)
prior to the date of such determination to (ii) Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (1) if the
Company or any Restricted Subsidiary has incurred any Debt since the
beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an incurrence of Debt, or both,
Operating Cash Flow and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such Debt as if
such Debt had been incurred on the first day of such period (except that,
in the case of Debt used to finance working capital needs incurred under a
revolving credit or similar arrangement, the amount thereof shall be deemed
to be the average daily balance of such Debt during such four-fiscal-
quarter period), (2) if since the beginning of such period the Company or
any Restricted Subsidiary shall have made any Asset Sale, the Operating
Cash Flow for such period shall be reduced by an amount equal to the
Operating Cash Flow (if positive) directly attributable to the assets which
are the subject of such Asset Sale for such period, or increased by an
amount equal to the Operating Cash Flow (if negative) directly attributable
thereto for such period, and Consolidated Interest Expense directly
attributable to any Debt of the Company or any Restricted Subsidiary
repaid, repurchased, defeased, assumed by a third person (to the extent the
Company and its Restricted Subsidiaries are no longer liable for such Debt)
or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Sale for such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Debt of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Debt after
such sale), (3) if since the beginning of such period the Company shall
have consummated a Public Equity Offering, Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Debt of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its Restricted Subsidiaries in connection
with such Public Equity Offering for such period, (4) if since the
beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person which becomes a Restricted Subsidiary) or an
acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a
calculation to be made hereunder, Operating Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the incurrence of any Debt) as if such Investment
or acquisition occurred on the first day of such period and (5) if since
the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made
any Asset Sale, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such period, Operating Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Sale, Investment or
acquisition occurred on the first day of such period. If any Debt bears a
floating rate of interest and is
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being given pro forma effect, the interest of such Debt shall be calculated
as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Debt if such Interest Rate Agreement has
a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest
expense, and to the extent incurred by the Company or its Restricted
Subsidiaries, (i) interest expense attributable to Capital Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, and (viii) interest actually paid on any Debt of
any other Person that is guaranteed by the Company or any Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income
(or loss) of any Person if such Person is not the Company or a Restricted
Subsidiary, except that, subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to a Restricted Subsidiary, to the limitations contained in clause (iii)
below); (ii) for purposes of clause (c)(i) of the first paragraph of the
covenant described under "Certain Covenants -- Restricted Payments" only,
any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition; (iii) any net income of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed
by such Restricted Subsidiary consistent with such restriction during such
period to the Company or another as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income;
(iv) any gain (or loss) realized upon the sale or other disposition of any
assets of the Company, or its consolidated Subsidiaries (including pursuant
to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (or loss)
realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative effect
of a change in accounting principles.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of
such Board of Directors on the date of the Indenture or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced, or refinanced in whole or in part
from time to time. Debt under Credit Facilities outstanding on the date on
which Notes are first issued and authenticated under the Indenture
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shall be deemed to have been incurred on such date in reliance on the
exception provided by clause (i) of the definition of Permitted Debt.
"Debt" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing
any Hedging Obligations, except any such balance that constitutes an
accrued expense or trade payable, if and to the extent any of the foregoing
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all Debt of others secured by a Lien on any asset of such
Person (whether or not such Debt is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person. The amount of any Debt outstanding as of
any date shall be (i) the accreted value thereof, in the case of any Debt
issued with original issue discount, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in
the case of any other Debt. Guarantees of Debt otherwise included in the
determination of such amount shall not also be included in the foregoing
definition of "Debt."
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) any Debt outstanding under the New
Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that
has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of
the Holder thereof, in whole or in part, on or prior to the date that is 91
days after the date on which the Notes mature; provided, however, that any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Existing Debt" means Debt of the Company and its Subsidiaries in
existence on the date of the Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the date of
the Indenture.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge
of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Debt.
"Guarantors" means (i) each of the Company's direct or indirect
domestic Restricted Subsidiaries as of the date of the Indenture and (ii)
any other direct or indirect domestic Restricted Subsidiary that
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executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements, and interest rate collar agreements and (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including guarantees of Debt or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Debt,
Equity Interests, or other securities, together with all items that are or
would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the Company sells
or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale
or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests
of such Subsidiary not sold or disposed of in an amount determined as
provided in the penultimate paragraph of the covenant described above under
the caption "-- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement
to sell or give a security interest in and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net
of (i) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, sales
commissions, title and other reasonable fees, costs and expenses consistent
with past practices and related to such Asset Sale) and any relocation
expenses incurred as a result thereof, (ii) taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) amounts required to be
applied to the repayment of Debt (other than Debt incurred under a Credit
Facility) secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP, and (iv)
deduction of appropriate amounts to be provided by the Company or a
Restricted Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed in such Asset Sale and
retained by the Company or a Restricted Subsidiary after such Asset Sale
including, without limitation, pension and other post employment benefit
liabilities and liabilities related to environmental matters or against
indemnification obligations associated with the assets disposed of in such
Asset Sale.
"New Credit Facility" means that certain Credit Facility to be entered
into among the Company and domestic subsidiaries of the Company and
NationsBank, N.A., as administrative and collateral agent, and the other
financial institutions a party thereto, as such agreement in whole or in
part may be, in one or more agreements with one or more bank lending
groups, amended, renewed, extended, substituted, refinanced, restructured,
replaced, supplemented or otherwise modified, in whole or in part, from
time to time.
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"Non-Recourse Debt" means Debt (i) as to which neither the Company nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Debt), (b) is directly or indirectly liable (as a guarantor or otherwise),
or (c) constitutes the lender; and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse
of time or both) any holder of any other Debt (other than the Notes being
offered hereby) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Debt.
"Operating Cash Flow" means for any Person and for any period, the sum
of Consolidated Net Income plus (A) Consolidated Interest Expense, plus (B)
the following to the extent deducted in calculating such Consolidated Net
Income, without duplication: (i) income tax expense, (ii) depreciation
expense, (iii) amortization expense, (iv) all other non-cash items reducing
Consolidated Net Income (other than items that will require cash payments
and for which an accrual or reserve is, or is required by GAAP to be made),
and (v) transaction fees and related expenses incurred in connection with a
business combination accounted for as a pooling of interest transaction for
accounting purposes. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization
of, a Subsidiary of the Company shall be added to Consolidated Net Income
to compute Operating Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income.
"Permitted Business" means the business conducted by the Company and
its Restricted Subsidiaries on the date of the Indenture and all businesses
reasonably related thereto (as determined in good faith by the Board of
Directors of the Company).
"Permitted Investments" means (a) any Investment in the Company or in
any Restricted Subsidiary of the Company that is a Guarantor; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in another Person, if as a result of such
Investment (x) such other Person becomes a Restricted Subsidiary of the
Company that is a Subsidiary Guarantor, (y) such other Person becomes a
Restricted Subsidiary of the Company that is not a Subsidiary Guarantor
but, at the time of such Investment, is not subject to a consensual
encumbrance or consensual restriction that would be prohibited by the
covenant described under "-- Certain Covenants -- Dividend and Other
Payment Restrictions Affecting Subsidiaries," without regard to the
exception described in clauses (i), (ii), or (iii) thereunder, or (z) such
other Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary of the Company that, at the
time of such Investment, either is a Subsidiary Guarantor or is not subject
to a consensual encumbrance or consensual restriction that would be
prohibited by the covenant described under "-- Certain
Covenants -- Dividend and Other Payment Restrictions Affecting
Subsidiaries," without regard to the exception described in clauses (i),
(ii), or (iii) thereunder; (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company; (f) Investments
represented by accounts receivable created or acquired in the ordinary
course of business; (g) loans or advances to employees, officers, or
directors not to exceed $1.0 million outstanding at any one time; (h)
Investments under or pursuant to Hedging Obligations consisting of Interest
Rate Agreements entered into in the ordinary course of business and not for
the purpose of speculation; (i) Investments in the Notes otherwise
permitted under the Indenture; (j) the repurchase, redemption, retirement,
or repayment of up to $2.0 million of Debt of the Company incurred as
deferred financing costs in connection with the Company's purchase of Gena
Laboratories, Inc. and outstanding as of the date of the Indenture; and (k)
Investments
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in Persons engaged in a Permitted Business; provided, however, that the
aggregate amount of all such Investments described in this clause (k) shall
not exceed at any one time outstanding 7.5% of the consolidated total
assets of the Company as reflected on the most recent balance sheet
delivered by the Company to the Trustee pursuant to the requirements of the
Indenture.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens securing Debt and other Obligations
under Credit Facilities that were permitted by the terms of the Indenture
to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property
of a Person existing at the time such Person is merged with or into or
consolidated with the Company or any Subsidiary of the Company; provided
that such Liens were in existence prior to the contemplation of such merger
or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds, or other obligations of a like nature incurred in the ordinary
course of business; (vi) Liens to secure Debt (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the
covenant entitled "Incurrence of Debt and Issuance of Preferred Stock"
covering only the assets acquired with such Debt; (vii) Liens existing on
the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are
being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (ix) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; (x) Liens on
assets of the Company securing Senior Debt of the Company that was
permitted to be incurred by the terms of the Indenture and Liens on assets
of Guarantors to secure Senior Debt of such Guarantors that was permitted
by the Indenture to be incurred; (xi) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries;
(xii) Liens on any insurance policies arising out of borrowings against the
cash surrender value of such insurance policies held by the Company,
provided that such Liens do not exceed the amount of Debt and are secured
only by the cash surrender value of such insurance policies; and (xiii)
Liens in connection with sale and leaseback transactions otherwise
permitted by the Indenture.
"Permitted Refinancing Debt" means any Debt of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease, or refund
other Debt of the Company or any of its Restricted Subsidiaries (other than
intercompany Debt); provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Debt does not exceed
the principal amount of (or accreted value, if applicable), plus accrued
interest on, the Debt so extended, refinanced, renewed, replaced, defeased,
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Debt being extended, refinanced, renewed, replaced, defeased, or
refunded; (iii) if the Debt being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in
the documentation governing the Debt being extended, refinanced, renewed,
replaced, defeased, or refunded; and (iv) such
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Debt is incurred either by the Company or by the Restricted Subsidiary who
is the obligor on the Debt being extended, refinanced, renewed, replaced,
defeased, or refunded.
"Person" means any individual, corporation, partnership, limited
liability company or partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or government (including any
agency or instrumentality thereof).
"Preferred Stock" as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" means Sam L. Leopold.
"Public Equity Offering" means an underwritten offering of Common
Stock with gross proceeds to the Company of at least $20.0 million pursuant
to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than registration
statement on Form S-8 or otherwise relating to equity securities issuable
under any employee benefit plan of the Company).
"Related Party" with respect to the Principal means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or
(B) any trust, corporation, partnership, or other entity, the
beneficiaries, stockholders, partners, owners, or Persons beneficially
holding an 80% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Debt outstanding under Credit Facilities
and all Hedging Obligations with respect thereto, (ii) any other Debt
permitted to be incurred by the Company under the terms of the Indenture,
unless the instrument under which such Debt is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include (w) any liability for federal, state, local, or other taxes
owed or owing by the Company, (x) any Debt of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables, or (z) any Debt
that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Debt, the date on which such payment of
interest or principal was scheduled to be paid in the original
documentation governing such Debt, and shall not include any contingent
obligations to repay, redeem, or repurchase any such interest or principal
prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers, or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof) and (ii) any partnership (a) the
sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such Person (or any
combination thereof). For purposes of this "Description of Notes," when no
referent Person is specifically identified, "Subsidiary" shall be deemed to
refer to a Subsidiary of the Company.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Debt other than Non-Recourse Debt; (b) is not party
to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels
of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Debt of the Company or any of
its Restricted Subsidiaries; and (e) has at least one director on its board
of directors that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries and has at least one executive officer
that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified
copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above
under the caption "Certain Covenants -- Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be
an Unrestricted Subsidiary for purposes of the Indenture and any Debt of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary
of the Company as of such date (and, if such Debt is not permitted to be
incurred as of such date under the covenant described under the caption
"-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred
Stock," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation
shall be deemed to be an incurrence of Debt by a Restricted Subsidiary of
the Company of any outstanding Debt of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Debt is permitted
under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Debt and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Debt at
any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by (ii) the then
outstanding principal amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares or
foreign national shares, in each case to the extent mandated by law) shall
at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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CERTAIN INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences resulting from the acquisition, ownership, and disposition of the
Exchange Notes that may be relevant to a holder acquiring one or more of such
Exchange Notes in exchange for Outstanding Notes acquired for cash at original
issuance. The following summary is of a general nature only and is not intended
to be, and should not be construed to be, legal or tax advice to any prospective
investor and no representation with respect to the tax consequences of any
particular investor is made.
The legal conclusions expressed in this summary are based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations ("Regulations"), judicial authority, and
administrative rulings and practice, all as in effect as of the date of this
Prospectus, and all of which are subject to change, either prospectively or
retroactively. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no rulings from the Service have
been or will be sought with respect to any matter involving the tax aspects of
the purchase, ownership, or exchange or other disposition of the Exchange Notes.
Legislative, judicial, or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein.
This summary deals only with persons who will hold the Exchange Notes as
capital assets within the meaning of Section 1221 of the Code, and does not
address tax considerations applicable to investors who may be subject to special
tax rules, such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities or currencies, persons who hold Exchange Notes
as part of a "hedge," "straddle" or "conversion transaction" for tax purposes,
and persons who have a "functional currency" other than the U.S. dollar.
In addition, the description generally does not consider the effect of any
applicable foreign, state, local, or other tax laws or estate or gift tax
considerations.
PERSONS CONSIDERING THE ACQUISITION OF THE EXCHANGE NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX
LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION,
TO THEIR PARTICULAR SITUATIONS AND THE POSSIBLE EFFECT OF CHANGES IN U.S.
FEDERAL OR OTHER TAX LAWS.
U.S. HOLDERS
The following discussion is limited to the United States federal income tax
consequences relevant to a holder of the Exchange Notes that is a U.S. Holder.
The term "U.S. Holder" refers to a person that is classified for U.S. federal
tax purposes as a U.S. person. For this purpose, a U.S. person includes (i) a
current or, in certain circumstances, former citizen or resident of the United
States, (ii) a corporation, limited liability company, partnership, or other
business entity created or organized under the laws of the United States or of
any state or political subdivision thereof (unless, in the case of a partnership
or limited liability company, the Treasury provides otherwise by Regulations),
(iii) an estate whose income is includable in gross income for U.S. federal
income tax purposes regardless of its source, (iv) a trust if (A) a U.S. court
is able to exercise primary supervision over the administration of the trust and
(B) one or more U.S. persons have authority to control all substantial decisions
of the trust, or (v) a person whose worldwide income or gain is otherwise
subject to U.S. federal income taxation on a net basis.
The Exchange Offer. Pursuant to Regulations, the exchange of Outstanding
Notes for Exchange Notes pursuant to the Exchange Offer should not constitute a
significant modification of the terms of the Outstanding Notes and, accordingly,
such exchange should be treated as a "non-event" for federal income tax
purposes. Therefore, such exchange should have no federal income tax
consequences to U.S. Holders of Outstanding Notes who exchange such notes for
Exchange Notes, the holding period of an Exchange Note should include the
holding period of the Outstanding Note for which it was exchanged, the basis of
an Exchange Note should be the same as the basis of the Outstanding Note for
which it was exchanged, and each U.S. Holder of Exchange Notes should continue
to be required to include interest on the
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Outstanding Notes in its gross income in accordance with its method of
accounting for federal income tax purposes.
Payment of Interest and Additional Interest. Stated interest on an
Exchange Note generally will be includable in the income of a U.S. Holder as
ordinary income at the time such interest is received or accrued, in accordance
with such U.S. Holder's method of accounting for United States federal income
tax purposes. The Company will be obligated to pay Additional Interest amounts
in the event of a Registration Default (as defined). See "Description of the
Exchange Notes -- Registration Rights; Additional Interest." Under the
Regulations, certain contingent payments on debt instruments must be accrued
into gross income by a holder (regardless of such holder's method of
accounting). However, any payment subject to a remote or incidental contingency
(i.e., there is a remote likelihood that the contingency will occur or the
potential amount of the contingent payment is insignificant relative to the
total expected amount of remaining payments) is not treated as a contingent
payment and is ignored until payment, if any, is actually made. The Company
believes that the Additional Interest payments resulting from a Registration
Default are subject to a remote or incidental contingency. Accordingly, the
Company intends to take the position that a U.S. Holder of a Note should report
any Additional Interest payments resulting from a Registration Default as
ordinary income in accordance with such holder's method of accounting for United
States federal income tax purposes. The Service, however, may take a different
position, which could affect the timing of both a U.S. Holder's income and the
Company's deduction with respect to such Additional Interest.
Original Issue Discount. If the Notes are not issued at a discount or are
deemed to be issued with no discount because such discount is de minimis, a U.S.
Holder will include in income as ordinary interest income the gross amount of
interest paid or payable in respect of the Notes as provided above in
"-- Payment of Interest and Additional Interest." Original issue discount
("OID") will be considered de minimis and, thus, will be treated as zero
discount if the OID is less than one-fourth ( 1/4) of one percent of the stated
redemption price at maturity, multiplied by the number of complete years to
maturity. The Company expects that the Notes will not have OID.
Market Discount. The resale of Notes may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note generally will be equal to the amount, if any, by which the stated
redemption price at maturity of the Note immediately after its acquisition
exceeds the U.S. Holder's tax basis in the Note. Subject to a de minimis
exception, these provisions generally require a U.S. Holder of a Note acquired
at a market discount to treat as ordinary income any gain recognized on the
disposition of such Note to the extent of the "accrued market discount" on such
Note at the time of disposition, unless the U.S. Holder elects to include
accrued market discount in income currently. In general, market discount on a
Note will be treated as accruing on a straight-line basis over the term of such
Note, or, at the election of the U.S. Holder, under a constant yield method. A
U.S. Holder of a Note acquired at a market discount who does not elect to
include accrued market discount in income currently may be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the Note until the Note is disposed of in a
taxable transaction.
Sale, Exchange, or Retirement of Notes. Upon the sale, exchange,
redemption, retirement, or other disposition of a Note, other than the exchange
of a Note for an Exchange Note (see "-- The Exchange Offer" above), a U.S.
Holder of a Note generally will recognize gain or loss in an amount equal to the
difference between the amount of cash and the fair market value of any property
received on the sale, exchange, or retirement of the Note (other than in respect
of accrued and unpaid interest on the Note, which amounts are treated as
ordinary interest income) and such U.S. Holder's adjusted tax basis in the Note.
Such gain or loss will be capital gain or loss, except to the extent of any
accrued market discount (see "-- Market Discount" above). In general, the
maximum tax rate for noncorporate taxpayers on long-term capital gains is 20%
with respect to capital assets (including the Notes), but only if they have been
held for more than 12 months at the time of disposition.
Backup Withholding and Information Reporting. In general, information
reporting requirements will apply to interest payments on the Notes made to U.S.
Holders other than certain exempt recipients (such as corporations) and to
proceeds realized by such U.S. Holders on dispositions of Notes. A 31% backup
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withholding tax will apply to such amounts if the U.S. Holder (i) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual, is
generally his social security number, within a reasonable time after request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly
interest or dividend income, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that it is not subject to backup withholding.
A U.S. Holder's failure to provide a correct TIN may also subject the holder to
Service penalties. The Company will also institute backup withholding if
instructed to do so by the Service. Any amount withheld from a payment to a U.S.
Holder under the backup withholding rules is allowable as a credit against such
U.S. Holder's federal income tax liability or may be refunded, provided that the
requisite procedures are followed. U.S. Holders of Notes should consult their
tax advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
NON-U.S. HOLDERS
This Section summarizes certain U.S. federal tax consequences of the
ownership and disposition of Notes by "Non-U.S. Holders." The term "Non-U.S.
Holder" refers to a person that is not classified for U.S. federal tax purposes
as a "United States person," as defined in "-- U.S. Holders" above.
Interest on Notes. In general, a Non-U.S. Holder will not be subject to
U.S. federal income tax or regular withholding tax with respect to interest
received or accrued on the Notes so long as (a) such interest is not effectively
connected with the conduct of a trade or business within the United States (or,
if an income tax treaty applies, is attributable to a United States permanent
establishment) of the Non-U.S. Holder, (b) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (c) the Non-U.S. Holder is not
(A) a controlled foreign corporation for U.S. federal income tax purposes that
is related to the Company actually or constructively through stock ownership, or
(B) a bank that received the Note on an extension of credit made pursuant to a
loan agreement entered into in the ordinary course of its trade or business and
(d) either (i) the beneficial owner of the Note certifies to the Company or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides its
name and address on U.S. Treasury Form W-8 (or on a suitable substitute form) or
(ii) the Note is held by a securities clearing organization, bank, or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") on behalf of such Non-U.S.
Holder and such financial institution certifies under penalties of perjury that
such a Form W-8 (or suitable substitute form) has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. Except as provided
in the following paragraph, a Non-U.S. Holder that cannot satisfy the foregoing
requirements will be subject to U.S. federal income tax withholding at a rate of
30% (or lower treaty rate).
If interest received on the Notes by a Non-U.S. Holder is effectively
connected to the conduct by such Non-U.S. Holder of a trade or business within
the United States (or, if an income tax treaty applies, is attributable to a
United States permanent establishment of the Non-U.S. Holder), such interest
will be subject to U.S. federal income tax on a net basis at the rates
applicable to U.S. persons generally (and, with respect to corporate Non-U.S.
Holders under certain circumstances, may also be subject to a 30% branch profits
tax). If payments are subject to U.S. federal income tax on a net basis in
accordance with the rules described in the preceding sentence, such payments
will not be subject to U.S. withholding tax so long as the Non-U.S. Holder
provides the Company or its paying agent with a properly executed Form 4224.
Gain on Disposition of Notes. Non-U.S. Holders generally will not be
subject to U.S. federal income taxation on gain recognized on a disposition of
Notes so long as (i) the gain is not effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the United States (or, if an
income tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Holder) and (ii) in the case of a Non-U.S. Holder
who is an individual, either such Non-U.S. Holder is not present in the United
States for 183 days or more in the taxable year of disposition or such Non-U.S.
Holder does not have a "tax home" (within the meaning of section 911(d)(3) of
the Code) in the United States.
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U.S. Estate Tax. Notes owned or treated as owned by an individual who is
not a citizen or resident (as specially defined for U.S. federal estate tax
purposes) of the United States at the time of death ("Nonresident Decedent")
will not be includable in the Nonresident Decedent's gross estate for U.S.
federal estate tax purposes as a result of the Nonresident Decedent's death,
provided that, at the time of death, the Nonresident Decedent does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of the Company and payments with respect to such Notes
would not have been effectively connected with the conduct of a trade or
business in the United States by the Nonresident Decedent. A Nonresident
Decedent's estate may be subject to U.S. federal estate tax on property
includable in the estate for U.S. federal estate tax purposes.
U.S. Information Reporting Requirements and Backup Withholding. Generally,
payments of interest, OID, premium or principal on the Notes to Non-U.S. Holders
will not be subject to information reporting or backup withholding if the
Non-U.S. Holder complies with the certification requirements set forth in clause
(d) under "-- Interest on Notes" above.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Notes, effected by, to or through the foreign office of a broker; provided,
however, that if the broker is a U.S. person or a U.S.-related person,
information reporting will apply unless the broker has documentary evidence in
its records as to the Non-U.S. Holder's foreign status (and has not actual
knowledge to the contrary), or the Non-U.S. Holder certifies as to its non-U.S.
status under penalty of perjury or otherwise establishes an exemption. Backup
withholding will not apply to payments made through a foreign office of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. person). For these purposes, a "U.S. related person" is (i) a
controlled foreign corporation for U.S. federal income tax purposes or (ii) a
foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from the activities that are effectively connected with the conduct
of a U.S. trade or business.
The payment of the proceeds from the disposition of a Note to or through
the U.S. office of any U.S. or foreign broker will be subject to information
reporting and possibly backup withholding unless the Non-U.S. Holder of the Note
certifies as to its foreign status under penalties of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the Non-U.S. Holder is a U.S. person or that the conditions of
any other exemption are not, in fact, satisfied. The payment of the proceeds
from the disposition of a Note to or through a non-U.S. office of a non-U.S.
broker that is not a U.S. related person will not be subject to information or
backup withholding.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payments to a Non-U.S. Holder will be allowed as a
credit against such Non-U.S. Holder's U.S. federal income tax liability, if any,
and any amounts withheld in excess of such Non-U.S. Holder's U.S. federal income
tax liability will be refunded, provided that the requisite procedures are
followed.
Prospective Final Regulations. On October 7, 1997, new Regulations ("New
Regulations") were issued that modify the requirements imposed on a Non-U.S.
Holder and certain intermediaries for establishing the recipient's status as a
Non-U.S. Holder eligible for exception from or reduction in U.S. withholding tax
and backup withholding described above. The New Regulations generally are
effective for payments made after December 31, 1999, subject to certain
transition rules. (However, new Temporary Regulations, effective for returns
relating to taxable years for which the due date for filing returns (without
extensions) is after December 15, 1997, require some Non-U.S. Holders to satisfy
certain residency requirements when claiming the benefits of an applicable
income tax treaty.) In general, the New Regulations do not significantly alter
the substantive withholding and information reporting requirements but rather
unify current certification procedures and forms and clarify reliance standards.
In addition the New Regulations impose more stringent conditions on the ability
of financial intermediaries acting for Non-U.S. Holders to provide
certifications on behalf of Non-U.S. Holders, which may include entering into an
agreement with the Service to audit certain documentation with respect to such
certifications. Non-U.S. Holders should consult
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their own tax advisors to determine the effects of the application of the New
Regulations to their particular circumstances.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with such resale. In addition, until 25 days after the Expiration
Date, all dealers effecting transactions in the Exchange Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, a professional association,
Phoenix, Arizona.
EXPERTS
The audited financial statements included in this Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STYLING TECHNOLOGY CORPORATION
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholders' Equity............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
GENA LABORATORIES, INC.
Report of Independent Public Accountants.................... F-20
Balance Sheets.............................................. F-21
Statements of Operations.................................... F-22
Statements of Stockholders' Equity.......................... F-23
Statements of Cash Flows.................................... F-24
Notes to Financial Statements............................... F-25
BODY DRENCH (A DIVISION OF DESIGNS BY NORVELL, INC.)
Report of Independent Public Accountants.................... F-31
Balance Sheets.............................................. F-32
Statements of Operations.................................... F-33
Statements of Changes in Owner's Investment................. F-34
Statements of Cash Flows.................................... F-35
Notes to Financial Statements............................... F-36
JDS MANUFACTURING CO., INC.
Report of Independent Public Accountants.................... F-39
Balance Sheets.............................................. F-40
Statements of Operations.................................... F-41
Statements of Stockholders' Equity.......................... F-42
Statements of Cash Flows.................................... F-43
Notes to Financial Statements............................... F-44
KOTCHAMMER INVESTMENTS, INC.
Report of Independent Public Accountants.................... F-47
Balance Sheet............................................... F-48
Statements of Operations.................................... F-49
Statements of Stockholders' Deficit......................... F-50
Statements of Cash Flows.................................... F-51
Notes to Financial Statements............................... F-52
</TABLE>
F-1
<PAGE> 102
<TABLE>
<S> <C>
U.K. ABBA PRODUCTS, INC.
Report of Independent Public Accountants.................... F-55
Balance Sheets.............................................. F-56
Statements of Operations.................................... F-57
Statements of Stockholders' Equity.......................... F-58
Statements of Cash Flows.................................... F-59
Notes to Financial Statements............................... F-60
INVERNESS CORPORATION AND INVERNESS (UK) LIMITED
Report of Independent Public Accountants.................... F-65
Statement of Net Assets of Certain Product Lines............ F-66
Statement of Operating Revenues and Expenses................ F-67
Notes to Financial Statements............................... F-68
EUROPEAN TOUCH, LTD. II
Report of Independent Public Accountants.................... F-72
Balance Sheets.............................................. F-73
Statements of Operations.................................... F-74
Statements of Stockholders' Equity.......................... F-75
Statements of Cash Flows.................................... F-76
Notes to Financial Statements............................... F-77
</TABLE>
F-2
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Styling Technology Corporation:
We have audited the accompanying consolidated balance sheets of STYLING
TECHNOLOGY CORPORATION, a Delaware corporation, and subsidiaries (the
"Company"), as of December 31, 1996 and 1997, and the related consolidated
statements of operations and cash flows for the period from November 27, 1996
(commencement of operations) to December 31, 1996 and for the year ended
December 31, 1997, and the related consolidated statements of stockholders'
equity for the period from June 30, 1995 to December 31, 1995 and the years
ended December 31, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and 1997, and the results of its operations and its cash flows for the
period from November 27, 1996 to December 31, 1996 and for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
February 19, 1998.
F-3
<PAGE> 104
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 4,491,000 $ 3,063,000 $ 2,528,000
Accounts receivable, net........................ 1,640,000 14,296,000 15,605,000
Inventory....................................... 2,635,000 10,951,000 10,604,000
Prepaid expenses and other current assets....... 292,000 2,120,000 2,268,000
----------- ----------- -----------
Total current assets.................... 9,058,000 30,430,000 31,005,000
PROPERTY AND EQUIPMENT, net....................... 1,125,000 2,640,000 3,010,000
GOODWILL, net..................................... 21,831,000 56,506,000 56,475,000
OTHER ASSETS...................................... 220,000 2,913,000 3,796,000
----------- ----------- -----------
$32,234,000 $92,489,000 $94,286,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 3,000,000 $ 7,065,000 $ 4,841,000
Accrued liabilities............................. 1,516,000 3,832,000 4,698,000
Current portion of long-term debt and other..... 83,000 5,647,000 8,228,000
----------- ----------- -----------
Total current liabilities............... 4,599,000 16,544,000 17,767,000
----------- ----------- -----------
LONG-TERM DEBT AND OTHER, less current portion.... 2,316,000 47,377,000 46,462,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000
shares authorized............................ -- -- --
Common stock, $.0001 par value, 10,000,000
shares authorized; 4,757,000 shares issued;
3,949,000 shares outstanding at December 31,
1996 and 1997 and 4,035,000 (unaudited) at
March 31, 1998............................... 1,000 1,000 1,000
Additional paid-in capital...................... 27,456,000 27,875,000 27,925,000
Retained earnings (deficit)..................... (338,000) 2,492,000 3,931,000
Treasury stock.................................. (1,800,000) (1,800,000) (1,800,000)
----------- ----------- -----------
Total stockholders' equity.............. 25,319,000 28,568,000 30,057,000
----------- ----------- -----------
$32,234,000 $92,489,000 $94,286,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 105
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NOVEMBER 27, 1996 THREE MONTHS ENDED
(COMMENCEMENT MARCH 31,
OF OPERATIONS) TO YEAR ENDED ------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
------------------- ----------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................ $1,083,000 $38,108,000 $7,479,000 $16,225,000
COST OF SALES........................ 571,000 16,756,000 3,234,000 7,042,000
---------- ----------- ---------- -----------
Gross profit............... 512,000 21,352,000 4,245,000 9,183,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 737,000 12,201,000 2,398,000 5,395,000
---------- ----------- ---------- -----------
Income (loss) from
operations............... (225,000) 9,151,000 1,847,000 3,788,000
INTEREST EXPENSE AND OTHER INCOME,
net................................ 2,000 (1,847,000) 60,000 1,264,000
---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND INCOME TAXES.............. (223,000) 7,304,000 1,787,000 2,524,000
PROVISION FOR (BENEFIT FROM) INCOME
TAXES.............................. (72,000) 3,097,000 733,000 1,085,000
---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................... (151,000) 4,207,000 1,054,000 1,439,000
EXTRAORDINARY ITEM, net of tax
benefit of $882,000 during the year
ended December 31, 1997............ -- (1,377,000) -- --
---------- ----------- ---------- -----------
NET INCOME (LOSS).................... $ (151,000) $ 2,830,000 $1,054,000 $ 1,439,000
========== =========== ========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary
item............................ $ (0.04) $ 1.07 $ 0.27 $ 0.36
Extraordinary item, net............ -- (0.35) -- --
---------- ----------- ---------- -----------
Net income (loss).................. $ (0.04) $ 0.72 $ 0.27 $ 0.36
========== =========== ========== ===========
Weighted average shares............ 3,770,000 3,949,000 3,949,000 3,971,000
========== =========== ========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary
item............................ $ (0.04) $ 1.02 $ 0.26 $ 0.34
Extraordinary item, net............ -- (0.33) -- --
---------- ----------- ---------- -----------
Net income (loss).................. $ (0.04) $ 0.69 $ 0.26 $ 0.34
========== =========== ========== ===========
Weighted average shares............ 3,770,000 4,113,000 4,117,000 4,278,000
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 106
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL RETAINED TOTAL
SHARES COMMON PAID-IN EARNINGS TREASURY STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL (DEFICIT) STOCK EQUITY
----------- ------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995
(inception)....................... -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock.......... 1,616,000 1,000 -- -- -- 1,000
--------- ------ ----------- ---------- ----------- -----------
BALANCE, December 31, 1995.......... 1,616,000 1,000 -- -- -- 1,000
Issuance of common stock and
warrants....................... 20,000 -- 179,000 (187,000) -- (8,000)
Issuance of common stock and
warrants in initial public
offering, net of offering costs
of approximately $1,351,000.... 3,116,000 -- 27,227,000 -- -- 27,227,000
Issuance of common stock in KII
acquisition.................... 5,000 -- 50,000 -- -- 50,000
Purchase of 808,000 shares of
treasury stock................. (808,000) -- -- -- (1,800,000) (1,800,000)
Net loss for the period from
November 27, 1996 (commencement
of operations) to December 31,
1996........................... -- -- -- (151,000) -- (151,000)
--------- ------ ----------- ---------- ----------- -----------
BALANCE, December 31, 1996.......... 3,949,000 1,000 27,456,000 (338,000) (1,800,000) 25,319,000
Issuance of warrants.............. -- -- 419,000 -- -- 419,000
Net income........................ -- -- -- 2,830,000 -- 2,830,000
--------- ------ ----------- ---------- ----------- -----------
BALANCE, December 31, 1997.......... 3,949,000 1,000 27,875,000 2,492,000 (1,800,000) 28,568,000
Exercise of Stock Options
(unaudited)....................... 86,000 -- 50,000 -- -- 50,000
Net Income (unaudited).............. -- -- -- 1,439,000 1,439,000
--------- ------ ----------- ---------- ----------- -----------
BALANCE, March 31, 1998
(unaudited)....................... 4,035,000 $1,000 $27,925,000 $3,931,000 $(1,800,000) $30,057,000
========= ====== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 107
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
NOVEMBER 27, THREE MONTHS ENDED
1996 TO MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (151,000) $ 2,830,000 $ 1,054,000 $ 1,439,000
Adjustments to reconcile net income (loss) to net
cash used in operating activities --
Depreciation and amortization................... 97,000 1,846,000 252,000 865,000
Interest accretion to note payable.............. -- 174,000 43,000 44,000
Changes in assets and liabilities --
Accounts receivable, net........................ 532,000 (7,405,000) (2,477,000) (1,309,000)
Inventory....................................... (21,000) (2,992,000) (520,000) 347,000
Prepaid expenses and other assets............... (34,000) (353,000) (432,000) (448,000)
Accounts payable and accrued liabilities........ (788,000) 3,520,000 356,000 (1,411,000)
------------ ------------ ----------- -----------
Net cash used in operating activities...... (365,000) (2,380,000) (1,724,000) (473,000)
------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of acquired businesses, net of cash
acquired........................................ (20,523,000) (45,150,000) (350,000) --
Purchases of property and equipment............... (46,000) (582,000) (102,000) (341,000)
Change in investments, long-term receivables and
other........................................... -- -- -- (886,000)
------------ ------------ ----------- -----------
Net cash used in investing activities...... (20,569,000) (45,732,000) (452,000) (1,227,000)
------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
offering and acquisition costs.................. 27,225,000 -- -- --
Proceeds from issuance of long-term debt, net of
financing costs................................. -- 71,633,000 -- --
Payments on long-term debt........................ -- (24,949,000) -- --
Purchase of treasury stock........................ (1,800,000) -- -- --
Proceeds from credit facility, net of financing
costs........................................... -- -- -- 1,940,000
Exercise of stock options......................... -- -- -- 50,000
Repayment of notes payable and credit facility.... -- -- (22,000) (825,000)
------------ ------------ ----------- -----------
Net cash provided by financing
activities............................... 25,425,000 46,684,000 (22,000) 1,165,000
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 4,491,000 (1,428,000) (2,198,000) (535,000)
CASH AND CASH EQUIVALENTS, beginning of period...... -- 4,491,000 4,492,000 3,063,000
------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 4,491,000 $ 3,063,000 $ 2,294,000 $ 2,528,000
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 108
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) FORMATION OF THE COMPANY:
Initial Public Offering and Acquired Businesses
Styling Technology Corporation ("Styling") was formed in June 1995. From
June 1995 through November 26, 1996, Styling conducted no operations and its
only activities related to negotiating acquisitions and related financing.
During November 1996, Styling completed an initial public offering (the
"Offering") of 3,116,000 shares of its common stock. Simultaneously with the
consummation of the Offering, Styling acquired in separate transactions four
businesses that develop, produce, and market professional salon products. Prior
to the Offering, the Company effected a 0.808-for-1 reverse stock split on all
its outstanding common stock. As a result, all share amounts were adjusted to
give effect to the split, including the option terms as discussed herein.
Upon consummation of the Offering, Styling acquired all of the outstanding
stock of Gena Laboratories, Inc. ("Gena") and JDS Manufacturing Co., Inc.
("JDS") and certain assets and liabilities of the Body Drench Division of
Designs by Norvell, Inc. ("Body Drench") and Kotchammer Investments, Inc.
("KII") (collectively, the "Acquired Businesses"). The cost of the Acquired
Businesses, including direct acquisition costs, was approximately $22.9 million.
The combined purchase price was funded with approximately $20.8 million in cash
from the net proceeds of the Offering, and approximately $2.1 million of seller
carryback financing and issuance of common stock. The acquisitions were
accounted for using the purchase method of accounting. The purchase price was
allocated based on the fair market value of the assets and liabilities acquired.
Approximately $5.2 million was allocated to current assets, approximately $1.1
million to property and equipment, approximately $5.0 million to current
liabilities, and approximately $0.3 million to long-term debt. Approximately
$21.9 million of the purchase price represents costs in excess of fair values
acquired, and was recorded as goodwill.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Styling (which includes the Body Drench division, KII, Suntopia and the Clean
and Easy/One Touch product lines) and the Gena, JDS, U.K. ABBA Products, Inc.
("ABBA") and Styling Technology (UK) Limited subsidiaries (collectively, the
"Subsidiaries"). The Company's accompanying consolidated financial statements
include the operations of Styling and Subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation. Financial information and transactions with Styling Technology
(UK) Limited are reported in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, Foreign Currency Translation.
Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and trade
receivables. In management's opinion, the Company places its cash and cash
equivalents in high quality credit institutions. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
F-8
<PAGE> 109
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain amounts as of December 31, 1996 and for the period from November
27, 1996 to December 31, 1996 have been reclassified to conform with fiscal year
1997 presentation.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items and for items where the net realizable value is
less than cost.
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Raw materials and work-in-process.................. $1,325,000 $ 2,594,000
Finished goods..................................... 1,310,000 8,357,000
---------- -----------
$2,635,000 $10,951,000
========== ===========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciation on property
and equipment is provided using the straightline method over their estimated
useful lives.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives are charged to expense as incurred.
Goodwill
Goodwill is the cost in excess of fair value of net tangible assets of
acquired businesses and is amortized using the straight-line method over 25
years. The Company continually evaluates whether events and circumstances have
occurred subsequent to its acquisition that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the
undiscounted future cash flows over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. Accumulated amortization at
December 31, 1996 and 1997 was approximately $86,000 and $1.4 million,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
long-term debt and letters of credit. The estimated fair value amounts have been
determined by the Company at December 31, 1996 and at December 31, 1997, using
available market information and valuation methodologies described below. The
carrying values of cash and cash equivalents and accounts receivable approximate
fair values due to the
F-9
<PAGE> 110
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
short-term maturities of these instruments. The carrying amount on the long-term
debt is estimated to approximate fair value as the actual interest rates are
consistent with rates estimated to be currently available for debt with similar
terms and remaining maturities. The carrying amount of the letters of credit
reflects fair value as the related fees are competitively determined in the
marketplace.
Revenue Recognition
The Company recognizes revenue from sales at the time product is shipped.
The allowance for doubtful accounts at December 31, 1996 and 1997 was
approximately $427,000 and $1.0 million, respectively.
Income Taxes
The Company provides for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are recognized for
the expected future income tax consequences, based on enacted tax laws, of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities and carryforwards. This method requires
recognition of deferred tax assets for the expected future tax effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized.
Other Assets
Other assets consist primarily of deferred financing costs associated with
the Company completing various financings transactions (see Note 5). These costs
are capitalized as incurred and amortized over the related debt into interest
expense and other income in the accompanying consolidated statements of
operations.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
gains, and losses) in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. In management's opinion, the adoption of SFAS No. 130
will not have a material impact on the Company's financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. In management's opinion, the adoption of SFAS
No. 131 will not have a material impact on the Company's financial position or
results of operations.
F-10
<PAGE> 111
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Interim Financial Data
The unaudited interim financial data as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods. Operating results and cash flows for the three
months ended March 31, 1997 and 1998 are not necessarily indicative of the
results that will be achieved for the full year.
Supplemental Cash Flow Information
For the year ended December 31, 1997, the Company paid approximately $1.7
million and $1.2 million for income taxes and interest, respectively. No amounts
were paid for income taxes or interest for the period from November 27, 1996 to
December 31, 1996.
Earnings (Loss) Per Share
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
supersedes Accounting Principles Board Opinion No. 15. SFAS No. 128 modifies the
calculation of primary and fully diluted earnings per share (EPS) and replaces
them with basic and diluted EPS. SFAS No. 128 is effective for financial
statements for both interim and annual periods presented after December 15,
1997, and as a result, all prior-period EPS data presented herein has been
restated.
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the period from November 27, 1996 to December 31,
1996 and the year ended December 31, 1997, is as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------------ -----------------------------------
EFFECT OF EFFECT OF
STOCK STOCK
OPTIONS OPTIONS
BASIC AND DILUTED BASIC AND DILUTED
EPS WARRANTS EPS EPS WARRANTS EPS
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary item
(numerator)................. $ (151,000) -- $ (151,000) $4,207,000 -- $4,207,000
Extraordinary item, net
(numerator)................. -- -- -- 1,377,000 -- 1,377,000
---------- ---------- ---------- ---------- ------- ----------
Net income (loss)
(numerator)................. $ (151,000) -- $ (151,000) $2,830,000 -- $2,830,000
========== ========== ========== ========== ======= ==========
Shares (denominator).......... 3,770,000 -- 3,770,000 3,949,000 164,000 4,113,000
========== ========== ========== ========== ======= ==========
Per share amount -- income
(loss) before extraordinary
item........................ $ (0.04) $ (0.04) $ 1.07 $ 1.02
Per share
amount -- extraordinary
item, net................... -- -- (0.35) (0.33)
---------- ---------- ---------- ----------
Per share amount -- net income
(loss)...................... $ (0.04) $ (0.04) $ 0.72 $ 0.69
========== ========== ========== ==========
</TABLE>
For the period from November 27, 1996 to December 31, 1996, no common stock
equivalents were considered in the EPS calculations as their effect was
antidilutive. For purposes of applying the treasury stock method, the Company
has assumed that it will fully utilize tax deductions arising from the assumed
exercise of non-qualified stock options.
(3) 1997 BUSINESS COMBINATIONS:
During March 1997, the Company acquired inventory and other assets of the
Utopia product line of high-end tanning products from Creative Laboratories,
Inc. for approximately $350,000 in cash.
F-11
<PAGE> 112
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 25, 1997, the Company acquired all of the issued and outstanding
common stock of ABBA, which produces a proprietary line of aromatherapy-based
professional hair care products. The Company paid a purchase price of
approximately $20 million in cash for the ABBA common stock. In connection with
the ABBA acquisition, the Company also negotiated approximately $1.1 million in
facilitation fees, payable over three years, to certain former shareholders of
ABBA for pre-closing efforts to facilitate completion of the acquisition (see
Note 5). The ABBA acquisition is accounted for under the purchase method of
accounting. The purchase price was allocated to assets and liabilities based on
their estimated fair values as of the date of acquisition. The cost in excess of
fair values was approximately $20.1 million and is recorded as goodwill in the
accompanying consolidated balance sheets.
On December 10, 1997, the Company acquired certain assets and assumed
certain liabilities of Inverness Corporation and Inverness (UK) Limited
(collectively "Inverness"). Inverness produces salon and retail hair removal
apparatus and products under the brand names "One Touch" and "Clean + Easy." The
Company paid a purchase price consisting of (i) $16.5 million in cash; and (ii)
an additional $3.5 million in cash held in escrow pending release contingent
upon the successful transition of the manufacture of certain hair removal
appliances to offshore manufacturing. The Inverness acquisition is accounted for
under the purchase method of accounting. The purchase price was allocated to
assets and liabilities based on their estimated fair values as of the date of
acquisition. The cost in excess of fair values was approximately $13.4 million
and is recorded as goodwill in the accompanying consolidated balance sheets. The
amounts of assets acquired and liabilities assumed in the Inverness acquisitions
were based on the preliminary fair values as of the date of acquisition, and may
be revised at a later date.
The following assets were acquired and liabilities assumed at the closing
date of the three acquisitions described above:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 5,251,000
Inventory................................................... 5,324,000
Other assets................................................ 1,475,000
Property and equipment...................................... 1,316,000
Accounts payable and accrued liabilities.................... (2,861,000)
------------
Net assets acquired......................................... 10,505,000
Cash paid at closing for purchase price and acquisition
costs..................................................... 45,150,000
------------
Goodwill.................................................... $ 34,645,000
============
</TABLE>
Pro Forma Results of Operations
The following unaudited pro forma summary includes the combined results of
operations of the Company, the Acquired Businesses, and the Utopia, ABBA and
Inverness acquisitions, as if all such acquisitions had occurred at the
beginning of 1996 and 1997 after giving effect to certain pro forma adjustments.
These pro forma adjustments include only the effect of goodwill amortization,
interest expense that would have been incurred to finance a portion of the
purchase of the acquisitions, and the estimated related income tax effects. The
pro forma financial data is for informational purposes only, and is not
necessarily indicative of the results of operations had the acquisitions
occurred at the beginning of 1996 and 1997 and is not necessarily indicative of
future operating results.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales......................................... $51,374,000 $62,752,000
Net income (loss)................................. (1,639,000) 2,447,000
Income (loss) per diluted share................... (0.43) 0.59
</TABLE>
F-12
<PAGE> 113
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31,
LIVES ------------------------
(YEARS) 1996 1997
------- ---------- ----------
<S> <C> <C> <C>
Land....................................... -- $ 150,000 $ 150,000
Building and leasehold improvements........ 7-40 567,000 594,000
Machinery and equipment.................... 3-7 274,000 1,559,000
Furniture and fixtures..................... 7 65,000 375,000
Computers, vehicles and other.............. 3-5 80,000 356,000
---------- ----------
1,136,000 3,034,000
Less -- accumulated depreciation........... (11,000) (394,000)
---------- ----------
$1,125,000 $2,640,000
========== ==========
</TABLE>
The Company recorded approximately $11,000 and $383,000 in depreciation
expense for the period from November 27, 1996 to December 31, 1996 and the year
ended December 31, 1997, respectively, which is included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
(5) LONG-TERM DEBT AND OTHER:
Long-term debt and other consists of the following at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Senior credit facility, collateralized by substantially all
the assets of the Company, maturing through December 31,
2004..................................................... $ -- $50,000,000
Gena Note, imputed interest at 10%, secured by 225,000
shares of contingently issuable common stock held in
escrow and an outstanding letter of credit for $500,000,
maturing November 26, 1998............................... 1,667,000 1,841,000
Unsecured notes payable related to the acquisition of JDS,
bearing interest from 8% to 10%, due quarterly, maturing
November 26, 1998........................................ 283,000 283,000
Note payable related to the acquisition of KII, repaid
during 1997.............................................. 140,000 --
Note payable, repaid during 1997........................... 309,000 --
Facilitation fee payable (see Note 3)...................... -- 900,000
---------- -----------
2,399,000 53,024,000
Less: current portion...................................... (83,000) (5,647,000)
---------- -----------
$2,316,000 $47,377,000
========== ===========
</TABLE>
F-13
<PAGE> 114
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate future maturities of long-term debt and other are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998.................................................... $ 5,647,000
1999.................................................... 4,797,000
2000.................................................... 5,480,000
2001.................................................... 6,300,000
2002.................................................... 7,300,000
Thereafter.............................................. 23,500,000
-----------
$53,024,000
===========
</TABLE>
Senior Credit Facilities
In June 1997, in connection with the ABBA acquisition, the Company entered
into a six year, $28 million credit facility ("Old Credit Facility") with a
group of banks with Credit Agricole Indosuez ("Indosuez") acting as agent. The
Old Credit Facility consisted of three separate loans: a $13 million term A
loan, a $10 million term B loan, and a $5 million revolving line of credit.
In December 1997, in connection with the acquisition of Inverness, the
Company extinguished the Old Credit Facility and entered into a new credit
facility ("New Credit Facility"). The New Credit Facility is a seven-year, $75
million credit facility with a new group of banks with Indosuez acting as agent.
The New Credit Facility consists of four separate loans: (i) a $25 million term
A loan ("Term A Loan"), (ii) a $25 million term B loan ("Term B Loan"), (iii) a
$12.5 million acquisition term loan, and (iv) a $12.5 million revolving line of
credit. In connection with the extinguishment of the Old Credit Facility, the
Company took an extraordinary non-cash charge of approximately $1.4 million, net
of income taxes, related to the write-off of unamortized financing costs.
The Company may utilize the acquisition term loan in connection with
funding future acquisitions. These future acquisitions would require the Company
to meet certain pro forma financial ratios. Upon such financing, the acquisition
term loan will convert proportionately into Term A and Term B Loans based on the
respective principal outstanding on the Term A and Term B Loans at that time.
The interest rate on the New Credit Facility is paid quarterly and
determined by the base rate (the "Base Rate"), as defined. The Base Rate is
equal to the higher of (i) the Federal Funds Rate plus 0.5%, or (ii) the
Indosuez prime lending rate. The Term A Loan bears interest at the Base Rate
plus 1.0%, and matures on December 31, 2002. The Term B Loan bears interest at
the Base Rate plus 1.5% and matures on December 31, 2004. The revolving line of
credit bears interest at the Base Rate plus 1.0%, and expires on December 31,
2002. The revolving line of credit will be used for working capital purposes.
The Company may, at its option after January 9, 1998, convert the interest
rates relating to any of the loans to a LIBOR rate. Should the Company exercise
this option, the Term A Loan will bear interest at the LIBOR rate plus 2.5%; the
Term B Loan will bear interest at the LIBOR rate plus 3.0%; and the revolving
line of credit will bear interest at the LIBOR rate plus 2.5%.
The New Credit Facility contains certain provisions that, among other
things, will require the Company to comply with certain financial ratio
requirements and will limit the ability of the Company to make certain capital
expenditures, to incur certain additional indebtedness, to sell assets, or to
declare dividends. In addition, the New Credit Facility requires the Company to
enter into certain interest rate protection instruments. As of December 31,
1997, the Company had not yet entered into any interest rate protection
transactions.
F-14
<PAGE> 115
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) STOCKHOLDERS' EQUITY:
Treasury Stock
In October 1996, the Company entered into a stock repurchase agreement with
a founder, pursuant to which the founder agreed to sell approximately 808,000
shares of Company's common stock to the Company for $1.8 million, payable upon
consummation of the Offering. Accordingly, upon consummation of the Offering,
the founder was no longer a stockholder of the Company.
Initial Public Offering
In November 1996, the Company completed the Offering of approximately 2.9
million shares of its common stock with an issue price of $10.00 per share.
During December 1996, the Company's underwriters exercised an over allotment
option, resulting in the issuance of approximately 216,000 additional shares.
Net proceeds from the Offering and over allotment option amounted to
approximately $27,226,000. In connection with the Offering, the Company issued
203,000 five year warrants to its underwriters with an exercise price of $12.00
per share.
Warrants
In connection with the Old Credit Facility, the Company issued 160,000 five
year warrants to lenders with exercise prices between $10.18 and $11.38 per
share. These warrants have been recorded at fair value as additional paid-in
capital in the accompanying December 31, 1997 consolidated balance sheet.
In connection with the consummation of the Acquired Businesses and the
Offering, the Company issued warrants to purchase 20,000 shares of common stock
with an exercise price of $12.50 per share.
Stock Options
At the initial capitalization of the Company, 162,000 stock options to
purchase shares of the common stock of the Company were issued to an officer
with an exercise price of $0.10 per share. Subsequent to December 31, 1997,
approximately 72,000 stock options were cancelled in connection with the
officer's retirement.
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"),
which provides for the grant of incentive and nonqualified stock options to
acquire common stock of the Company to key personnel and directors of the
Company.
A summary of the status of all the Company's stock options at December 31,
1996 and 1997, and changes during the periods ended is presented in the
following table:
<TABLE>
<CAPTION>
1996 1997
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.......... 162,000 $ .10 250,000 $ 3.58
Granted................................. 88,000 10.00 430,000 10.57
Exercised............................... -- -- -- --
Canceled................................ -- -- (131,000) 10.60
-------- ------ -------- ------
Outstanding at end of year................ 250,000 $ 3.58 549,000 $ 7.38
======== ====== ======== ======
Exercisable at end of year................ 18,000 $10.00 136,000 $ 9.71
======== ====== ======== ======
Weighted average fair value per share of
options granted......................... $ 5.65 $ 4.13
======== ========
</TABLE>
Options outstanding at December 31, 1997 have exercise prices between $0.10
and $11.38. 162,000 options have exercise prices of $0.10 with a remaining
average contractual life of 7.5 years, with cliff vesting
F-15
<PAGE> 116
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after four years. 387,000 options have exercise prices between $9.25 and $11.38
with a remaining average contractual life of 9.4 years, with vesting between one
and five years.
The following pro forma disclosures of net income (loss) are made assuming
the Company had accounted for the stock options pursuant to the provision of
SFAS No. 123, Accounting for Stock-Based Compensation.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
NOVEMBER 27,
1996
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ------------
<S> <C> <C>
Income (loss) before extraordinary item
As reported........................................... $(151,000) $ 4,207,000
Pro forma............................................. (226,000) 3,876,000
Diluted EPS -- as reported............................ (0.04) 1.02
Diluted EPS -- pro forma.............................. (0.06) 0.94
Extraordinary item, net
As reported........................................... -- (1,337,000)
Diluted EPS -- as reported............................ -- (0.33)
Net income (loss)
As reported........................................... (151,000) 2,830,000
Pro forma............................................. (226,000) 2,539,000
Diluted EPS -- as reported............................ (0.04) 0.69
Diluted EPS -- pro forma.............................. (0.06) 0.62
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions used for grants in 1996; risk-free interest rates of 5.85%, expected
lives of 3.8 years; and a volatility factor of 60%. The weighted average
assumptions used for grants in 1997 were as follows: risk-free interest rates of
5.99% to 6.62%, expected lives of two to six years; and a volatility factor of
38.59%. The dividend yield assumed is zero for both 1996 and 1997.
(7) INCOME TAXES:
The provision for (benefit from) income taxes for the periods ended
December 31, 1996 and 1997, consists of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Current expense...................................... $ -- $3,146,000
Deferred benefit..................................... (72,000) (49,000)
-------- ----------
Net income tax expense (benefit)..................... $(72,000) $3,097,000
======== ==========
</TABLE>
F-16
<PAGE> 117
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred tax accounts as of December 31, 1996 and
1997, consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets
Tax effect of net operating loss carryforward... $ 86,000 $ --
Reserves and other accruals..................... 84,000 232,000
Inventory capitalization........................ -- 222,000
Other........................................... 38,000 8,000
--------- ---------
Total deferred tax assets............................ 208,000 462,000
--------- ---------
Non-current deferred tax liabilities
Accelerated tax depreciation and amortization... 16,000 162,000
--------- ---------
Net deferred tax asset............................... $ 192,000 $ 300,000
========= =========
</TABLE>
A reconciliation of the U.S. federal statutory income tax rate to the
Company's income (loss) before extraordinary item effective tax rate is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- ----
<S> <C> <C>
Statutory federal rate...................................... (34)% 34%
Effect of state taxes....................................... (5) 4
Nondeductible amortization of goodwill...................... 8 4
Other....................................................... (1) --
--- ---
(32)% 42%
=== ===
</TABLE>
The net operating loss deferred tax asset of approximately $86,000
originating in the year ended December 31, 1996, was completely utilized as of
December 31, 1997.
(8) RELATED PARTY INFORMATION:
During 1996, certain founders advanced approximately $112,500 to the
Company to fund various Offering and acquisition costs, all of which was repaid
during the year.
A member of the Company's Board of Directors serves as President of a
consulting firm which was paid a $150,000 fee in connection with the ABBA
acquisition.
A member of the Company's Board of Directors is a partner in a law firm
that represents the Company in certain legal matters. The total fees paid to the
firm during 1997 were approximately $8,000.
A member of the Company's Board of Directors is a partner in a merchant
banking firm which provided services to the Company related to obtaining
financing and completing certain acquisitions. During 1997, this firm earned
$1,120,000 for these services.
A former member of the Company's Board of Directors serves as a consultant
to the Company. He was paid consulting fees and reimbursement of out of pocket
expenses of approximately $213,000 during the period in which he served as a
Director for the Company.
The Company's Chief Executive Officer owns a salon chain which is a
customer of the Company. Sales to these stores from all divisions were
approximately $153,000 during 1997. The total accounts receivable balance as of
December 31, 1997, from these stores was approximately $96,000.
F-17
<PAGE> 118
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES:
Legal Matters
The Company is party to certain legal matters arising in the ordinary
course of its business. In management's opinion, as of December 31, 1997, the
expected outcome of such matters will not have a material impact on the
Company's financial position or results of operations.
Operating Leases
The Company leases certain equipment and office and warehouse space under
noncancelable operating leases. Rent expense related to these lease agreements
totaled approximately $12,000 for the period November 27, 1996 (commencement of
operations) to December 31, 1996. Rent expense for the year ended December 31,
1997, was approximately $313,000.
Future lease payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998................................................. $ 768,000
1999................................................. 760,000
2000................................................. 740,000
2001................................................. 482,000
2002................................................. 415,000
Thereafter........................................... 202,000
----------
$3,367,000
==========
</TABLE>
Retirement Plans
Two of the Company's divisions had 401(k) plans in place at the time of
their acquisition. The first of these plans allows contributions of up to 18% of
compensation for eligible employees. The Company may match up to 25% of the
employee's contribution up to a maximum of 4% of the employee's compensation.
The Company made payments to this 401(k) Plan for approximately $5,000 during
1997. Any full-time employee who has been with that division of the Company for
at least three months may enroll during a semiannual enrollment period.
The second plan allows contributions of up to 20% of compensation for
eligible employees. The Company may match up to 50% of the employee's
contribution up to a maximum of 6% of compensation. The Company made payments to
this 401(k) plan in the sum of $13,000 during 1997. Any full-time employee who
has been with that division of the Company for at least one year may enroll
during a semi-annual enrollment period.
(10) CUSTOMER AND VENDOR CONCENTRATION:
Sales to a major U.S. beauty supply chain as a percentage of total net
sales approximated 25% for the period November 27, 1996 to December 31, 1996.
During 1997, this customer accounted for approximately 13% of the total net
sales of the Company. The unaudited pro forma concentration of this single
customer would represent 9% of total net sales for the year ended December 31,
1997, assuming the ABBA and Inverness acquisitions had occurred on January 1,
1997.
As part of the Company's strategy, the Company uses third parties to
manufacture the majority of the Company's products. One of these third party
suppliers accounted for approximately 15% of the total cost of sales for the
year ended December 31, 1997.
F-18
<PAGE> 119
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) EVENTS SUBSEQUENT TO AUDITOR'S REPORT:
In June 1998, the Company acquired European Touch Co. and two related
companies (collectively "European Touch") and European Touch, Ltd. II ("European
Touch II"). European Touch is a developer, producer, and marketer of
professional nail enhancement and treatment products and European Touch II is a
developer, producer, and marketer of salon pedicure equipment. These companies
were purchased for approximately $25.0 million and financed by the placement of
$100.0 million 10 7/8% Senior Subordinated Notes due 2008 ("Notes"). The
remaining $75.0 million under the Notes was used to payoff existing indebtedness
and for general working capital purposes. In addition, the Company obtained a
$50.0 million line of credit ("Line of Credit") with a bank in connection with
the placement of the Notes.
In August 1998, the Company acquired a controlling interest in Ft. Pitt
Acquisition, Inc. and its 90% owned subsidiary, Ft. Pitt-Framesi, Ltd.
(together, "Framesi USA"). Framesi USA hold exclusive license rights for the
sale in the United States and most of Latin America of Framesi hair color
products along with its complimentary Biogenol line of shampoos, conditioners,
and styling products. The Company paid approximately $30.0 million for the Ft.
Pitt Acquisition, Inc. stock, in the form of cash and seller carryback
financing. Approximately $25.0 million from the Line of Credit was used to
finance the $30.0 million purchase price.
F-19
<PAGE> 120
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying balance sheets of GENA LABORATORIES, INC.
as of February 28, 1995 and February 29, 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended February 29, 1996, and for the period March 1, 1996 to November
26, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gena Laboratories, Inc. as
of February 28, 1995 and February 29, 1996, and the results of its operations
and its cash flows for each of the three years in the period ended February 29,
1996 and for the period March 1, 1996 to November 26, 1996, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 21, 1997.
F-20
<PAGE> 121
GENA LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 390,325 $ 250,644
Investments............................................... 14,999 46,500
Accounts receivable, net of allowance for doubtful
accounts of $120,347 and $136,093, respectively........ 863,208 965,615
Inventory................................................. 965,335 1,213,688
Deferred tax asset........................................ 99,055 131,790
---------- ----------
Total current assets.............................. 2,332,922 2,608,237
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$392,026 and $471,771, respectively....................... 884,638 830,093
DEFERRED TAX ASSET, net of current portion.................. -- 19,870
OTHER ASSETS................................................ 346,866 256,770
---------- ----------
$3,564,426 $3,714,970
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 391,381 $ 382,926
Accrued expenses.......................................... 302,808 259,903
Current portion of note payable to related parties........ 32,571 34,929
Current portion of long-term debt......................... 96,056 95,248
---------- ----------
Total current liabilities......................... 822,816 773,006
---------- ----------
NOTE PAYABLE TO RELATED PARTIES, less current portion....... 342,464 307,358
---------- ----------
LONG-TERM DEBT, net of current portion...................... 124,186 11,518
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $5 par value, 2,000 shares authorized,
issued and outstanding................................. 10,000 10,000
Additional paid-in capital................................ 88,303 88,303
Unrealized holding loss on investment..................... (35,303) (3,802)
Retained earnings......................................... 2,211,960 2,528,587
---------- ----------
Total stockholders' equity........................ 2,274,960 2,623,088
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $3,564,426 $3,714,970
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-21
<PAGE> 122
GENA LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 1, 1996
------------------------------------------ TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, NOVEMBER 26,
1994 1995 1996 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
NET SALES...................................... $6,426,416 $7,523,751 $8,384,092 $6,707,727
COST OF SALES.................................. 3,280,046 4,163,395 4,818,786 3,900,347
---------- ---------- ---------- ----------
GROSS PROFIT................................... 3,146,370 3,360,356 3,565,306 2,807,380
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 2,744,363 2,963,926 3,033,409 1,983,650
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS......................... 402,007 396,430 531,897 823,730
OTHER INCOME AND (EXPENSE), net................ 35,092 (35,282) (30,480) 2,225
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES....... 437,099 361,148 501,417 825,955
PROVISION FOR INCOME TAXES..................... 158,613 129,606 184,790 297,344
---------- ---------- ---------- ----------
NET INCOME..................................... $ 278,486 $ 231,542 $ 316,627 $ 528,611
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 123
GENA LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 28, 1993......... 2,000 $10,000 $88,303 $1,687,828 $1,786,131
Net income......................... -- -- -- 278,486 278,486
Net change in unrealized holding
loss............................ -- -- -- 1,006 1,006
----- ------- ------- ---------- ----------
BALANCE AT FEBRUARY 28, 1994......... 2,000 10,000 88,303 1,967,320 2,065,623
Net income......................... -- -- -- 231,542 231,542
Net change in unrealized holding
loss............................ -- -- -- (22,205) (22,205)
----- ------- ------- ---------- ----------
BALANCE AT FEBRUARY 28, 1995......... 2,000 10,000 88,303 2,176,657 2,274,960
Net income......................... -- -- -- 316,627 316,627
Net change in unrealized holding
loss............................ -- -- -- 31,501 31,501
----- ------- ------- ---------- ----------
BALANCE AT FEBRUARY 29, 1996......... 2,000 10,000 88,303 2,524,785 2,623,088
Net income for the period March 1,
1996 to November 26, 1996....... -- -- -- 528,611 528,611
Distributions to stockholders...... -- -- -- (513,000) (513,000)
----- ------- ------- ---------- ----------
BALANCE AT NOVEMBER 26, 1996......... 2,000 $10,000 $88,303 $2,540,396 $2,638,699
===== ======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 124
GENA LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 1, 1996
-------------------------------------------- TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, NOVEMBER 26,
1994 1995 1996 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 278,486 $ 231,542 $ 316,627 $ 528,611
Adjustments to reconcile net income to
net cash used in operating
activities --
Depreciation and amortization........ 114,021 155,185 168,685 37,939
Loss on sale of securities on fixed
assets............................. -- 32,513 -- --
Decrease (increase) in accounts
receivable......................... 38,647 (157,714) (102,407) 90,671
Decrease (increase) in inventory..... (14,638) (118,638) (248,353) (24,975)
Decrease (increase) in other
assets............................. 80,863 (30,814) (51,449) (228,444)
(Decrease) increase in accounts
payable and accrued liabilities.... (122,813) 210,426 (51,360) 14,157
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... 374,566 322,500 31,743 417,959
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (331,996) (23,648) (25,200) (11,886)
Cost incurred to acquire new
businesses........................... (180,213) (140,000) -- --
Proceeds from sale of investments....... -- -- -- 46,500
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities.......... (512,209) (163,648) (25,200) 34,614
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) long-term
debt, net............................ 178,585 (136,668) (146,224) (137,098)
Distributions to stockholders........... -- -- -- (513,000)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... 178,585 (136,668) (146,224) (650,098)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH........... 40,942 22,184 (139,681) (197,525)
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 327,199 368,141 390,325 250,644
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 368,141 $ 390,325 $ 250,644 $ 53,119
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid........................... $ 8,325 $ 54,401 $ 43,259 $ 23,871
========= ========= ========= =========
Income taxes paid....................... $ 137,580 $ 127,609 $ 232,417 $ 195,860
========= ========= ========= =========
FIXED ASSETS AND NEW BUSINESSES ACQUIRED
THROUGH FINANCING TRANSACTIONS.......... $ 528,449 $ 24,911 $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 125
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Acquisition and Basis of Presentation
Effective November 26, 1996, shareholders of Gena Laboratories, Inc. (the
Company) sold all of its outstanding stock to Styling Technology Corporation for
consideration of approximately $9,700,000. These financial statements present
the historical financial position and results of operations of the acquired
business for periods prescribed by applicable rules of the Securities and
Exchange Commission.
Organization and Nature of Operations
The Company was incorporated in 1930 to manufacture nail care and personal
care products. In 1979, the current owners purchased the Company and focused the
operation on professional salon care with an emphasis on nail products. The
Company is now a recognized quality manufacturer and distributor of professional
beauty products worldwide, and offers an extensive line of nail, skin and hair
care products as well as pedicure and other specialty beauty products and
accessories. Principally, its products are sold through wholesale distributors
of professional beauty products, hair and nail salons and professional beauty
supply outlets worldwide.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
Investments
The Company considers all its investments as available for sale and
accordingly, recognizes any unrealized holding gains and losses as a separate
component of stockholders' equity, in accordance with SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items and for items where the net realizable value is
less than cost.
Inventories consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Raw materials and work-in-process................... $675,735 $ 849,582
Finished goods...................................... 289,600 364,106
-------- ----------
$965,335 $1,213,688
======== ==========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciation on property
and equipment is provided using the straight-line method over the estimated
useful lives of the assets.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives are charged to expense as incurred. For the years ended
February 28, 1994 and 1995, February 29, 1996, and for the period March 1, 1996
to
F-25
<PAGE> 126
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
November 26, 1996, maintenance and repair expenses charged to cost of operations
were approximately $26,000, $47,000, $23,000 and $32,245, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in high
credit quality institutions. Concentrations of credit risk with respect to trade
receivables are described in Note 6. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, receivables, accounts
payable and accrued expenses approximate fair values due to the short-term
maturities of these instruments. The carrying amount on the long-term debt is
estimated to approximate fair value as the actual interest rates are consistent
with rates estimated to be currently available for debt with similar terms and
remaining maturities.
Revenue Recognition
The Company recognizes revenue from sales at the time product is shipped.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
(3) OTHER ASSETS:
Other assets consist primarily of goodwill, which represents the excess of
consideration paid over the fair market values of identifiable net assets
acquired. The goodwill is being amortized on a straight-line basis over 25
years. The Company has also recorded other intangible assets, which include
noncompete, consulting and trademark agreements, related to acquisitions of
various beauty companies. Such assets are being amortized on a straight-line
basis, over a period of 3 to 25 years. Accumulated amortization on such
intangibles was $349,423 and $433,070 as of February 28, 1995 and February 29,
1996.
F-26
<PAGE> 127
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Land................................................ $ 150,000 $ 150,000
Factory equipment................................... 407,427 431,832
Computers........................................... 43,030 43,825
Furniture, fixtures and autos....................... 108,875 108,875
Building and leasehold improvements................. 567,332 567,332
---------- ----------
1,276,664 1,301,864
Less: Accumulated depreciation...................... (392,026) (471,771)
---------- ----------
$ 884,638 $ 830,093
========== ==========
</TABLE>
(5) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Unsecured note payable, bearing interest at prime
(8.25% at February 29, 1996), unpaid balance due
by November 1996.................................. $123,529 $ 52,942
Various notes payable, bearing interest from 7.5% to
8.0%, maturing through 1998....................... 96,713 53,824
-------- --------
220,242 106,766
Less: Current maturities............................ (96,056) (95,248)
-------- --------
$124,186 $ 11,518
======== ========
</TABLE>
In 1993, the Company entered into a $250,000 unsecured revolving line of
credit, which bears interest at prime and matures July 1997. As of February 28,
1995 and February 29, 1996, the Company had not drawn on this facility.
Aggregate principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
- ------------
<S> <C>
1997.............................................. $ 95,248
1998.............................................. 11,518
--------
$106,766
========
</TABLE>
(6) MAJOR CUSTOMERS:
The Company's strategy includes providing production and distribution
services to a major U.S. beauty distribution company. Sales to this customer as
a percentage of total sales approximated 31%, 28% and 28% for the years ended
February 28, 1994, 1995 and February 29, 1996, respectively, and 34% for the
period March 1, 1996 to November 26, 1996.
F-27
<PAGE> 128
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES:
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires the use of an asset and liability approach in accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect when these differences are expected to reverse. These
differences result principally from the recognition of revenues and expenses
using the cash basis of accounting and the use of different depreciation and
amortization methods for income tax reporting.
The components of the income tax provision consist of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 1, 1996
-------------------------------------------- TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, NOVEMBER 26,
1994 1995 1996 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Current:
Federal......................... $134,927 $139,468 $208,499 $303,501
State........................... 18,699 19,329 28,896 42,054
-------- -------- -------- --------
153,626 158,797 237,395 345,555
Deferred provision (benefit)...... 4,987 (29,191) (52,605) (48,211)
-------- -------- -------- --------
Provision for income taxes...... $158,613 $129,606 $184,790 $297,344
======== ======== ======== ========
</TABLE>
The components of deferred taxes are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserve......................................... $ 6,707 $ 8,376
Uniform inventory cost capitalization..................... 50,233 62,739
Capital losses in excess of capital gains................. 1,544 10,362
Allowance for doubtful accounts........................... 44,492 50,314
Amortization.............................................. 15,773 38,586
-------- --------
Total gross deferred tax assets................... 118,749 170,377
-------- --------
Deferred tax liabilities:
Depreciation.............................................. (19,694) (18,717)
-------- --------
Total gross deferred tax liabilities.............. (19,694) (18,717)
-------- --------
Net deferred tax asset............................ $ 99,055 $151,660
======== ========
</TABLE>
F-28
<PAGE> 129
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes provided at the federal
statutory rate with income taxes recorded by the Company:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MARCH 1, 1996
-------------------------------------------- TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, NOVEMBER 26,
1994 1995 1996 1996
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Tax provision at statutory rate... $148,614 $122,790 $170,482 $280,824
Expense of permanent differences
resulting from the recognition
of interest income and travel
and entertainment expenses, and
the effect of state taxes....... 9,999 6,816 14,308 16,520
-------- -------- -------- --------
Income tax provision.... $158,613 $129,606 $184,790 $297,344
======== ======== ======== ========
</TABLE>
(8) RELATED PARTY TRANSACTIONS:
In the fiscal year ended February 28, 1994, the Company purchased land and
building amounting to $650,000, from a partnership (the Partnership) of which
three of the four partners are shareholders of the Company. The sales price
approximated the book value as recorded by the Partnership. Prior to the
transaction the Company leased this real estate from the Partnership. The
Company acquired the land and building using cash, and financed the remaining
portion with a note due the Partnership. Interest and principal of $5,105 are
payable monthly. The loan bears interest at 7%, and fully matures in 2003.
The total of the related party note payable is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------
<S> <C> <C>
Total shareholder note payable...................... $375,035 $342,287
Less: Current maturities.......................... (32,571) (34,929)
-------- --------
Shareholder note payable, net of current portion.... $342,464 $307,358
======== ========
</TABLE>
Principal maturities related to this loan are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28, TOTAL
------------ --------
<S> <C>
1997.............................................. $ 34,929
1998.............................................. 37,454
1999.............................................. 40,162
2000.............................................. 43,065
2001.............................................. 46,178
Thereafter........................................ 140,499
--------
$342,287
========
</TABLE>
The Company also entered into a lease with the Partnership in 1991, for
approximately 10,000 square feet for storage and production purposes. Lease
expense related to this space totaled approximately $83,049, $44,346, $51,346
and $58,993 for the years ended February 28, 1994 and 1995, February 29, 1996,
and the period March 1, 1996 to November 26, 1996, respectively.
F-29
<PAGE> 130
GENA LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
Lease commitments related primarily to a warehouse space lease are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28, TOTAL
------------ --------
<S> <C>
1997.............................................. $ 41,100
1998.............................................. 41,100
1999.............................................. 41,100
2000.............................................. 41,100
2001.............................................. 41,100
Thereafter........................................ 202,500
--------
$408,000
========
</TABLE>
F-30
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying balance sheets of BODY DRENCH (a Division
of Designs by Norvell, Inc., a Tennessee corporation) as of December 31, 1994
and 1995, and the related statements of operations, changes in owner's
investment and cash flows for each of the three years in the period ended
December 31, 1995 and for the period January 1, 1996 to November 26, 1996. These
financial statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Body Drench as of December
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the three years then ended and for the period January 1, 1996 to November 26,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 21, 1997.
F-31
<PAGE> 132
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $89,841
and $58,242, respectively.............................. $1,396,048 $1,234,966
Inventories............................................... 3,052,783 3,078,656
Other current assets...................................... 5,152 150,713
---------- ----------
Total current assets.............................. 4,453,983 4,464,335
---------- ----------
EQUIPMENT, net of accumulated depreciation of $245,424 and
$297,176, respectively.................................... 167,697 316,443
---------- ----------
Total assets...................................... $4,621,680 $4,780,778
========== ==========
LIABILITIES AND OWNER'S INVESTMENT
CURRENT LIABILITIES:
Accounts payable.......................................... $2,550,654 $3,221,337
Bank overdraft............................................ 651,953 274,810
Accrued expenses and other................................ 296,546 257,813
---------- ----------
Total current liabilities......................... 3,499,153 3,753,960
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
OWNER'S INVESTMENT.......................................... 1,122,527 1,026,818
---------- ----------
Total liabilities and owner's investment.......... $4,621,680 $4,780,778
========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
balance sheets.
F-32
<PAGE> 133
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1996
YEARS ENDED DECEMBER 31, TO
---------------------------------------- NOVEMBER 26,
1993 1994 1995 1996
---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
NET SALES............................. $6,653,488 $11,138,369 $11,871,171 $9,642,980
COST OF SALES......................... 4,039,843 6,342,770 6,426,775 5,867,104
---------- ----------- ----------- ----------
GROSS PROFIT.......................... 2,613,645 4,795,599 5,444,396 3,775,876
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 2,054,919 4,075,756 4,883,265 4,004,728
---------- ----------- ----------- ----------
INCOME FROM OPERATIONS................ 558,726 719,843 561,131 (228,852)
---------- ----------- ----------- ----------
INTEREST EXPENSE...................... 30,159 -- 87,585 --
---------- ----------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................... 528,567 719,843 473,546 (228,852)
PROVISION (BENEFIT) FOR INCOME
TAXES............................... 200,855 273,540 179,947 (91,541)
---------- ----------- ----------- ----------
NET INCOME (LOSS)..................... $ 327,712 $ 446,303 $ 293,599 $ (137,311)
---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 134
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
STATEMENTS OF CHANGES IN OWNER'S INVESTMENT
<TABLE>
<S> <C>
BALANCE, December 31, 1992.................................. $ (127,491)
Net income................................................ 327,712
Net payments to parent.................................... (748,153)
-----------
BALANCE, December 31, 1993.................................. (547,932)
Net income................................................ 446,303
Net receipts from parent.................................. 1,224,156
-----------
BALANCE, December 31, 1994.................................. 1,122,527
Net income................................................ 293,599
Net payments to parent.................................... (389,308)
-----------
BALANCE, December 31, 1995.................................. 1,026,818
Net loss.................................................. (137,311)
Net payments to parent.................................... (1,311,710)
-----------
BALANCE, November 26, 1996.................................. $ (422,203)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 135
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED JANUARY 1,
DECEMBER 31, 1996 TO
----------------------------------- NOVEMBER 26,
1993 1994 1995 1996
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 327,712 $ 446,303 $ 293,599 $ (137,311)
Adjustments to reconcile net income (loss)
to net cash used in operating
activities -- Depreciation............. 67,244 36,619 51,752 94,963
Changes in operating assets and
liabilities:
Accounts receivable, net............... (49,548) (1,099,273) 161,082 274,164
Inventories............................ (224,184) (2,024,887) (25,873)
Other, net............................. (5,127) 2,084 (145,561) 1,167,937
Accounts payable....................... 516,725 783,427 670,683 158,304
Accrued expenses....................... 177,767 33,284 (38,733) (258,849)
--------- ----------- --------- -----------
Net cash provided by (used in)
operating activities............ 810,589 (1,822,443) 966,949 1,299,208
--------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment.................... (62,436) (53,666) (200,498) (12,502)
--------- ----------- --------- -----------
Net cash provided by (used in)
investing activities............ (62,436) (53,666) (200,498) (12,502)
--------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft............................ -- 651,953 (377,143) 25,004
Net payments to/receipts from parent...... (748,153) 1,224,156 (389,308) (1,311,710)
--------- ----------- --------- -----------
Net cash provided by (used in)
financing activities............ (748,153) 1,876,109 (766,451) (1,286,706)
--------- ----------- --------- -----------
NET CHANGE IN CASH.......................... -- -- -- --
--------- ----------- --------- -----------
CASH, beginning of period................... -- -- -- --
--------- ----------- --------- -----------
CASH, end of period......................... $ -- $ -- $ -- $ --
========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 136
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Acquisition and Basis of Presentation
Effective November 26, 1996, Designs by Norvell, Inc. (Norvell) sold the
assets of its Body Drench Division (the Division) to Styling Technology
Corporation (STC) for consideration of approximately $7,900,000. These financial
statements present the historical financial position and results of operations
of the acquired business for periods prescribed by applicable rules of the
Securities and Exchange Commission.
The accompanying financial statements represent the accounts of the
Division pursuant to the terms of the Asset Purchase Agreement between STC and
Norvell. In addition, interest expense included in the statements of operations
represents allocations of parent company interest, as calculated by Norvell.
Nature and Seasonality of Operations
The Division is engaged in the manufacture and distribution of skin care,
sun care and body care products. Their products are sold to professional hair
and tanning salons, health clubs, beauty supply outlets and retail product based
salons, both domestic and international.
The Division's revenues are seasonal in nature, with the first six months
of the year having the majority of the volume.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fair Value of Financial Instruments
The carrying values of receivables, accounts payable and accrued expenses
approximate fair values due to the short-term maturities of these instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Division to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the number of customers comprising the Division's customer base. The Division
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
Revenue Recognition
The Division recognizes revenue from sales at the time product is shipped.
Equipment
Equipment is recorded at cost and depreciation on equipment is provided
using the straight-line method over the estimated useful lives of the related
assets.
F-36
<PAGE> 137
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives are charged to expense as incurred. For the three years ended
December 31, 1995 and for the period January 1, 1996 to November 26, 1996,
maintenance and repair expenses charged to cost of operations were approximately
$25,978, $26,117, $30,498 and $6,021, respectively.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined
using the first-in, first-out method.
The components of inventories are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Raw materials and work-in-process................... $1,675,601 $1,583,372
Finished goods...................................... 1,377,182 1,495,284
---------- ----------
$3,052,783 $3,078,656
========== ==========
</TABLE>
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Factory equipment.................................... $ 134,880 $ 178,405
Computer equipment................................... 243,647 394,026
Furniture and fixtures............................... 34,594 41,188
--------- ---------
413,121 613,619
Less -- Accumulated depreciation..................... (245,424) (297,176)
--------- ---------
$ 167,697 $ 316,443
========= =========
</TABLE>
(4) INCOME TAXES:
The Division accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires the recording of deferred tax assets and liabilities based on
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect when these differences are expected to
reverse. In accordance with SFAS 109, the Division has recorded a provision for
income taxes separately from Norvell.
(5) COMMITMENTS AND CONTINGENCIES:
Leases
The Division leases certain facilities and equipment under operating lease
agreements.
Future minimum payments under noncancelable operating leases with terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1996............................................... $79,455
1997............................................... 50,423
1998............................................... 41,067
1999............................................... 2,333
</TABLE>
F-37
<PAGE> 138
BODY DRENCH
(A DIVISION OF DESIGNS BY NORVELL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense under such operating leases was $52,163, $101,217, $238,746
and $188,761, for the three years ended December 31, 1995, and for the period
January 1, 1996 to November 26, 1996, respectively.
The Division is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Division's potential
exposure under the pending proceedings is adequately provided for in the
accompanying financial statements.
(6) SIGNIFICANT VENDORS:
Two vendors accounted for 69.3%, 67.4%, 53.0% and 53.0% of the Division's
total raw materials purchases from vendors for the years ended December 31,
1993, 1994, 1995 and for the period January 1, 1996 to November 26, 1996,
respectively. Management does not believe that the loss of these vendors would
significantly impact the Division's operations.
F-38
<PAGE> 139
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying balance sheets of JDS MANUFACTURING CO.,
INC. (a California corporation) as of September 30, 1995 and 1996, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996 and for the period
October 1, 1996 to November 26, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JDS Manufacturing Co., Inc.
as of September 30, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1996
and for the period October 1, 1996 to November 26, 1996, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 21, 1997.
F-39
<PAGE> 140
JDS MANUFACTURING CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 57,397 $ 85,260
Accounts receivable, net of allowance for doubtful
accounts of $10,000, and $15,000, respectively......... 329,965 313,405
Inventory................................................. 264,347 209,140
Prepaid expenses.......................................... 11,861 4,716
-------- --------
Total current assets.............................. 663,570 612,521
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$100,031, and $114,660, respectively...................... 30,292 19,157
OTHER ASSETS................................................ 102,934 136,404
-------- --------
$796,796 $768,082
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $196,309 $152,938
Accrued expenses.......................................... 53,740 81,411
-------- --------
Total current liabilities......................... 250,049 234,349
-------- --------
NOTES PAYABLE TO RELATED PARTIES............................ 516,200 434,210
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 10,000 shares authorized,
1,000 shares issued and outstanding.................... 10,000 10,000
Retained earnings......................................... 20,547 89,523
-------- --------
Total stockholders' equity........................ 30,547 99,523
-------- --------
Total liabilities and stockholders' equity........ $796,796 $768,082
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-40
<PAGE> 141
JDS MANUFACTURING CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 1, 1996
FOR THE YEARS ENDED SEPTEMBER 30, TO
-------------------------------------- NOVEMBER 26,
1994 1995 1996 1996
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
SALES................................... $3,577,779 $3,367,599 $3,113,682 $613,142
COST OF SALES........................... 1,651,965 1,550,155 1,407,128 275,513
---------- ---------- ---------- --------
Gross profit.................. 1,925,814 1,817,444 1,706,554 337,629
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,981,928 1,843,871 1,614,505 257,784
---------- ---------- ---------- --------
Income (loss) from
operations.................. (56,114) (26,427) 92,049 79,845
OTHER INCOME, net....................... 44,191 41,951 35,272 1,263
---------- ---------- ---------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.......................... (11,923) 15,524 127,321 81,108
PROVISION FOR INCOME TAXES.............. 4,571 6,950 58,345 35,688
---------- ---------- ---------- --------
NET INCOME (LOSS)....................... $ (16,494) $ 8,574 $ 68,976 $ 45,420
========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 142
JDS MANUFACTURING CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1993......................... 1,000 $10,000 $ 28,467 $ 38,467
Net loss.......................................... -- -- (16,494) (16,494)
----- ------- -------- --------
BALANCE, September 30, 1994......................... 1,000 10,000 11,973 21,973
Net income........................................ -- -- 8,574 8,574
----- ------- -------- --------
BALANCE, September 30, 1995......................... 1,000 10,000 20,547 30,547
Net income........................................ -- -- 68,976 68,976
----- ------- -------- --------
BALANCE, September 30, 1996......................... 1,000 10,000 89,523 99,523
Net income, for the period October 1, 1996 to
November 26, 1996.............................. -- -- 45,420 45,420
----- ------- -------- --------
BALANCE, November 26, 1996.......................... 1,000 $10,000 $134,943 $144,943
===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 143
JDS MANUFACTURING CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 1, 1996
FOR THE YEARS ENDED SEPTEMBER 30, TO
----------------------------------- NOVEMBER 26,
1994 1995 1996 1996
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(16,494) $ 8,574 $ 68,976 $ 45,420
Adjustments to reconcile net income (loss)
to net cash used in operating
activities --
Depreciation........................... 18,735 15,661 14,628 1,439
Decrease (increase) in accounts
receivable........................... (4,438) 89,139 16,560 (172,645)
Decrease (increase) in inventory....... 14,441 (34,089) 55,207 47,329
Decrease (increase) in other assets.... (33,786) (35,112) (26,325) (19,756)
Increase (decrease) in accounts payable
and accrued expenses................. 4,263 (47,256) (15,700) 57,480
-------- -------- -------- ---------
Net cash provided by (used in)
operating activities............ (17,279) (3,083) 113,346 (40,733)
-------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (10,582) (8,203) (3,493) (1,912)
-------- -------- -------- ---------
Net cash used in investing
activities...................... (10,582) (8,203) (3,493) (1,912)
-------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments to) shareholder
notes payable, net..................... 24,012 (5,692) (81,990) (14,748)
-------- -------- -------- ---------
Net cash provided by (used in)
financing activities............ 24,012 (5,692) (81,990) (14,748)
-------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH............. (3,849) (16,978) 27,863 (57,393)
CASH, beginning of period................... 78,224 74,375 57,397 85,260
-------- -------- -------- ---------
CASH, end of period......................... $ 74,375 $ 57,397 $ 85,260 $ 27,867
======== ======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.......................... $ 36,134 $ 35,589 $ 39,030 $ --
======== ======== ======== =========
Income taxes paid...................... $ 4,090 $ 4,571 $ 7,000 $ 53,896
======== ======== ======== =========
EXCHANGE OF OTHER ASSET FOR REDUCTION IN
SHAREHOLDER NOTES PAYABLE................. $ -- $ -- $ -- $ 136,404
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 144
JDS MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Acquisition and Basis of Presentation
Effective November 26, 1996, shareholders of JDS Manufacturing Co., Inc.
(the Company) sold all of its outstanding stock to Styling Technology
Corporation for consideration of approximately $4,400,000. These financial
statements present the historical financial position and results of operations
of the acquired business for periods prescribed by applicable rules of the
Securities and Exchange Commission.
Organization and Nature of Operations
The Company was incorporated in 1987. Since 1989, the Company has been a
manufacturer and distributor of several extensive lines of high quality,
brand-recognized nail enhancement application products and nail accessories. Its
products are sold throughout the United States, principally to professional
supply outlets, beauty distributors, professional nail salons and professional
manicurists.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
Fair Value of Financial Instruments
The carrying values of cash, receivables, accounts payable and accrued
expenses approximate fair values due to the short-term maturities of these
instruments. The carrying amount on the long-term debt is estimated to
approximate fair value as the actual interest rates are consistent with rates
estimated to be currently available for debt with similar terms and remaining
maturities.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items and for items where the net realizable value is
less than cost.
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Raw material and work-in process.................. $ 31,722 $ 25,097
Finished goods.................................... 232,625 184,043
-------- --------
$264,347 $209,140
======== ========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciation on property
and equipment is provided using the straight-line method over their estimated
useful lives.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives, are charged to expense as incurred. For the years ended
September 30, 1994, 1995, 1996 and for the period October 1, 1996 to November
26, 1996, maintenance and repair expenses charged to cost of operations were
$5,452, $4,507, $2,509 and $598, respectively.
F-44
<PAGE> 145
JDS MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in high
quality credit institutions. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the Company's
customer base. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
Revenue Recognition
The Company recognizes revenue from sales at the time product is shipped.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Furniture and equipment........................... $ 98,490 $ 101,984
Automobiles....................................... 13,976 13,976
Leaseholds and other.............................. 17,857 17,857
--------- ---------
130,323 133,817
Less: accumulated depreciation.................... (100,031) (114,660)
--------- ---------
$ 30,292 $ 19,157
========= =========
</TABLE>
(4) NOTES PAYABLE TO RELATED PARTIES:
As of September 30, 1995 and 1996, the Company had notes payable due to its
two principal shareholders of $516,200 and $434,210, respectively. These notes
originated in October 1994, and bear interest at 8%. Loan advances and
repayments are made at the shareholders' discretion, with the entire balance
becoming due on September 30, 1997. As such, the entire balance is classified as
long-term.
(5) INCOME TAXES:
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
requires the use of an asset and liability approach in accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect when these differences
F-45
<PAGE> 146
JDS MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are expected to reverse. These differences, resulting principally from use of
accelerated depreciation methods for income tax reporting, were not material at
the balance sheet dates.
(6) COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
Total future commitments for operating leases are $12,459 through September
30, 1997.
(7) SIGNIFICANT CUSTOMER:
The Company's strategy includes providing nail care and accessories to a
major U.S. beauty distribution company. Sales to this customer as a percentage
of total sales were approximately 11%, 14%, 26% and 26% for September 30, 1994,
1995, 1996 and for the period October 1, 1996 to November 26, 1996,
respectively.
F-46
<PAGE> 147
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying balance sheet of KOTCHAMMER INVESTMENTS,
INC. (a California corporation) as of December 31, 1995, and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1995, and for the period January 1, 1996 to November 26,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kotchammer Investments, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year ended December 31, 1995, and for the period January 1, 1996 to
November 26, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 21, 1997.
F-47
<PAGE> 148
KOTCHAMMER INVESTMENTS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 96,364
Accounts receivable....................................... 136,971
Inventory, net............................................ 403,730
Prepaid expenses and other................................ 21,799
---------
Total current assets.............................. 658,864
---------
PROPERTY AND EQUIPMENT, net................................. 75,472
OTHER ASSETS................................................ 1,026
---------
$ 735,362
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 14,015
Accrued expenses.......................................... 121,183
Line of credit............................................ 215,000
Current portion of notes payable to shareholders.......... 270,000
---------
Total current liabilities......................... 620,198
---------
NOTES PAYABLE TO SHAREHOLDERS, net of current portion....... 340,000
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $20 par value, 2,500 shares authorized,
2,500 shares issued and outstanding.................... 50,000
Retained deficit.......................................... (274,836)
---------
Total stockholders' deficit....................... (224,836)
---------
Total liabilities and stockholders' deficit....... $ 735,362
=========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-48
<PAGE> 149
KOTCHAMMER INVESTMENTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, NOVEMBER 26,
1995 1996
------------ ---------------
<S> <C> <C>
NET SALES................................................... $1,557,709 $1,248,460
COST OF SALES............................................... 711,925 585,704
---------- ----------
Gross profit...................................... 845,784 662,756
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 891,146 590,800
---------- ----------
Income (loss) from operations..................... (45,362) 71,956
INTEREST EXPENSE AND OTHER, net............................. (89,557) (74,250)
---------- ----------
NET LOSS.................................................... $ (134,919) $ (2,294)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 150
KOTCHAMMER INVESTMENTS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS DEFICIT
------ ------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994....................... 2,500 $50,000 $(139,917) $ (89,917)
Net loss....................................... -- -- (134,919) (134,919)
----- ------- --------- ---------
BALANCE, December 31,1995........................ 2,500 50,000 (274,836) (224,836)
Net loss....................................... -- -- (2,294) (2,294)
----- ------- --------- ---------
BALANCE, November 26, 1996....................... 2,500 $50,000 $(277,130) $(227,130)
===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 151
KOTCHAMMER INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, NOVEMBER 26,
1995 1996
------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(134,919) $ (2,294)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation.............................................. 23,436 19,203
Decrease (increase) in accounts receivable................ 43,004 (19,111)
Decrease (increase) in inventory.......................... (45,278) 51,566
Decrease in prepaids and other assets..................... 63,372 6,502
Increase (decrease) in accounts payable and accrued
liabilities............................................ (43,234) 89,960
--------- ---------
Net cash provided by (used in) operating
activities...................................... (93,619) 145,826
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (17,215) --
--------- ---------
Net cash used in investing activities............. (17,215) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments to) shareholder notes payable,
net.................................................... 100,000 --
Proceeds from (payments to) line of credit, net........... (5,000) (215,000)
--------- ---------
Net cash (used in) provided by financing
activities...................................... 95,000 (215,000)
--------- ---------
NET DECREASE IN CASH........................................ (15,834) (69,174)
CASH, beginning of period................................... 112,198 96,364
--------- ---------
CASH, end of period......................................... $ 96,364 $ 27,190
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................. $ 72,916 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 152
KOTCHAMMER INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Acquisition and Basis of Presentation
Effective November 26, 1996, shareholders of Kotchammer Investments, Inc.
(the Company) sold its assets to Styling Technology Corporation for
consideration of approximately $639,000. These financial statements present the
historical financial position and results of operations of the acquired business
for periods prescribed by applicable rules of the Securities and Exchange
Commission.
Organization and Nature of Operations
The Company was incorporated in December 1993 to acquire a division of
Redken Laboratories, Inc. The Company distributes and markets professional salon
appliances and salonwear. Its products are sold throughout the United States,
principally to professional supply outlets, beauty distributors, and
professional hair stylists.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
Fair Value of Financial Instruments
The carrying values of cash, receivables, accounts payable and accrued
expenses approximate fair values due to the short-term maturities of these
instruments. The carrying amount on the long-term debt is estimated to
approximate fair value as the actual interest rates are consistent with rates
estimated to be currently available for debt with similar terms and remaining
maturities.
Inventory
Inventory consists of finished goods and are valued at the lower of cost
(first-in, first-out) or net realizable value. Reserves are established against
inventory for excess, slow-moving and obsolete items and for items where the net
realizable value is less than cost.
Property and Equipment
Property and equipment are recorded at cost and depreciation on property
and equipment is provided using the straight-line method over their estimated
useful lives.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments in high
quality credit institutions. Concentrations of credit risk with respect to trade
receivables are limited due to the number of customers comprising the Company's
customer base.
Revenue Recognition
The Company recognizes revenue from sales at the time product is shipped.
F-52
<PAGE> 153
KOTCHAMMER INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE 1995
----------- --------
<S> <C> <C>
Machinery and equipment............................... 5 years $ 76,803
Furniture and fixtures................................ 7 years 22,458
Computer equipment.................................... 5 years 16,652
--------
115,913
Less -- Accumulated depreciation...................... (40,441)
--------
$ 75,472
========
</TABLE>
(4) LINE OF CREDIT:
At December 31, 1995, the Company had a $220,000 line of credit with a bank
which expired in August of 1996 and carried an interest rate of 9.75%. During
1996, the line of credit was repaid.
(5) NOTES PAYABLE TO SHAREHOLDERS:
Notes payable to shareholders consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Note payable dated December 8, 1993, interest at a bank's
reference rate plus 1.25% (11% at December 31, 1995),
maturing January 15, 2004................................. $ 120,000
Note payable dated December 8, 1993, interest at a bank's
reference rate plus 1.25% (11% at December 31, 1995),
maturing January 15, 2004................................. 120,000
Note payable dated December 8, 1993, interest at a bank's
reference rate plus 1.25% (11% at December 31, 1995),
maturing January 31, 2004................................. 270,000
Note payable dated May 3, 1995, interest at a bank's
reference rate plus 1.25% (11% at December 31, 1995),
maturing January 31, 2004................................. 70,000
Note payable, dated June 5, 1995, interest at a bank's
reference rate, plus 1.25% (11% at December 31, 1995),
maturing January 31, 2004................................. 30,000
---------
610,000
Less: current maturities.................................... (270,000)
---------
$ 340,000
=========
</TABLE>
As of December 31, 1995, one of the notes payable to shareholders was
classified as current as a result of the Company incurring a technical default
with a certain financial covenant.
F-53
<PAGE> 154
KOTCHAMMER INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES:
The Company has elected S Corporation status under Subchapter S of the
Internal Revenue Code. This election results in substantially all U.S. federal
taxable income being taxed to the stockholders. Accordingly, there is no
provision for income taxes reflected in these financial statements for the year
ended December 31, 1995, and for the period January 1, 1996 to November 26,
1996.
(7) COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements. Total future commitments for operating leases are $45,851 through
July 1997. Rent expense incurred under operating leases was $35,363, and $26,173
for the year ended December 31, 1995 and for the period January 1, 1996 to
November 26, 1996, respectively.
F-54
<PAGE> 155
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Styling Technology Corporation:
We have audited the accompanying balance sheets of U.K. ABBA PRODUCTS, INC.
(a California corporation) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.K. ABBA Products, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
June 20, 1997.
F-55
<PAGE> 156
U.K. ABBA PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 308,020 $ 337,274 $ 475,037
Accounts receivable.................................. 775,858 872,602 1,063,784
Inventory............................................ 1,079,833 1,377,373 1,683,241
Other current assets................................. 302,078 68,938 72,244
---------- ---------- ----------
Total current assets.............................. 2,465,789 2,656,187 3,294,306
PROPERTY AND EQUIPMENT, net............................ 238,230 219,169 216,625
OTHER ASSETS........................................... 10,318 8,818 24,333
---------- ---------- ----------
$2,714,337 $2,884,174 $3,535,264
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 388,676 $ 323,840 $ 857,061
Accrued expenses..................................... 146,819 313,004 284,556
Current portion of note payable and capital lease
obligation........................................ 51,954 86,867 70,247
Income taxes payable................................. 328,654 121,144 209,885
Line of credit....................................... 200,000 100,000 --
---------- ---------- ----------
Total current liabilities......................... 1,116,103 944,855 1,421,749
---------- ---------- ----------
DEFERRED INCOME TAXES.................................. 6,788 16,774 25,774
---------- ---------- ----------
NOTE PAYABLE AND CAPITAL LEASE OBLIGATION, net of
current portion...................................... 86,872 -- --
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 200,000 shares
authorized, 118,518 issued and outstanding........ 360,000 360,000 360,000
---------- ---------- ----------
Retained earnings.................................... 1,144,574 1,562,545 1,727,741
---------- ---------- ----------
Total stockholders' equity........................ 1,504,574 1,922,545 2,087,741
---------- ---------- ----------
Total liabilities and stockholders' equity........ $2,714,337 $2,884,174 $3,535,264
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-56
<PAGE> 157
U.K. ABBA PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- --------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................ $9,056,549 $10,603,312 $2,477,101 $3,150,100
COST OF SALES............................ 4,193,992 5,013,178 1,180,306 1,518,524
---------- ----------- ---------- ----------
Gross profit................... 4,862,557 5,590,134 1,296,795 1,631,576
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................... 4,182,192 4,880,380 979,204 1,351,127
---------- ----------- ---------- ----------
Income from operations......... 680,365 709,754 317,591 280,449
INTEREST EXPENSE AND OTHER, net.......... 12,453 1,328 3,831 454
---------- ----------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES.................................. 667,912 708,426 313,760 279,995
PROVISION FOR INCOME TAXES............... 267,165 290,455 128,642 114,799
---------- ----------- ---------- ----------
NET INCOME............................... $ 400,747 $ 417,971 $ 185,118 $ 165,196
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 158
U.K. ABBA PRODUCTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------- -------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994................... 118,518 $360,000 $ 743,827 $1,103,827
Net income................................. -- -- 400,747 400,747
------- -------- ---------- ----------
BALANCE, December 31, 1995................... 118,518 360,000 1,144,574 1,504,574
Net income................................. -- -- 417,971 417,971
------- -------- ---------- ----------
BALANCE, December 31, 1996................... 118,518 360,000 1,562,545 1,922,545
Net income (unaudited)..................... -- -- 165,196 165,196
------- -------- ---------- ----------
BALANCE, March 31, 1997 (unaudited).......... 118,518 $360,000 $1,727,741 $2,087,741
======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 159
U.K. ABBA PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- --------------------------
1995 1996 1996 1997
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 400,747 $ 417,971 $ 185,118 $ 165,196
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation............................. 40,194 58,590 20,837 14,155
Increase in accounts receivable.......... (36,463) (96,744) (85,595) (191,182)
Increase in inventory.................... (239,437) (297,540) (165,829) (305,868)
(Increase) decrease in other assets...... (281,508) 234,640 249,492 (18,821)
(Decrease) increase in accounts
payable................................ (53,711) (64,836) (887) 533,221
Increase (decrease) in accrued
expenses............................... 143,958 166,185 (5,435) (28,448)
Increase (decrease) in income taxes
payable................................ 65,070 (207,510) 71,142 88,741
Increase in deferred income taxes........ 6,788 9,986 -- 9,000
--------- --------- --------- ---------
Net cash provided by operating
activities........................ 45,638 220,742 268,843 265,994
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (80,367) (39,529) (24,655) (11,611)
--------- --------- --------- ---------
Net cash used in investing
activities........................ (80,367) (39,529) (24,655) (11,611)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of
credit................................... 200,000 (100,000) (200,000) (100,000)
Payments of note payable and capital lease
obligation............................... (58,458) (51,959) (16,370) (16,620)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities.............. 141,542 (151,959) (216,370) (116,620)
--------- --------- --------- ---------
NET INCREASE IN CASH.......................... 106,813 29,254 27,818 137,763
CASH, beginning of period..................... 201,207 308,020 308,020 337,274
--------- --------- --------- ---------
CASH, end of period........................... $ 308,020 $ 337,274 $ 335,838 $ 475,037
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid............................... $ 23,926 $ 13,890 $ 5,946 $ 2,914
========= ========= ========= =========
Income taxes paid........................... $ 335,377 $ 497,965 $ 137,642 $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995, the Company assumed a capital lease for property and equipment for $59,284.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 160
U.K. ABBA PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) ORGANIZATION AND BASIS OF PRESENTATION
Organization and Nature of Operations
U.K. ABBA Products, Inc. (the Company), was incorporated in 1988 to
manufacture pure and natural hair care products, using proprietary formulas it
owns, and distribute them exclusively through distributor relationships to
professional hair salons and supply stores. The Company is a provider of hair
care products, specializing in the cleansing, restoring, styling and finishing
aspects of the hair care process. The Company maintains its pure and natural
approach by using botanical formulas, which does not include the use of any
animal ingredients. The Company has approximately 18 different products, and
distributes nationally and internationally throughout the United States, Puerto
Rico and Canada.
Acquisition Agreement
In accordance with the terms of an acquisition agreement (the Agreement)
between Styling Technology Corporation, (STC) and the Company dated June 25,
1997, STC agreed to acquire all of the common stock of the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items and for items where the net realizable value is
less than cost.
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and work-in-process...... $ 176,398 $ 200,915 $ 180,276
Finished goods......................... 903,435 1,176,458 1,502,965
---------- ---------- ----------
$1,079,833 $1,377,373 $1,683,241
========== ========== ==========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciation on property
and equipment is provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 7
Office equipment............................................ 3-7
</TABLE>
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which are not significant and do not
improve assets or extend their useful lives, are charged to expense as incurred.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its cash in high quality credit
institutions. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
F-60
<PAGE> 161
U.K. ABBA PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The carrying values of cash, receivables, accounts payable, and accrued
expenses approximate fair values due to the short-term maturities of these
instruments. The carrying amounts on the note payable and line of credit are
estimated to approximate fair value as the actual interest rates are consistent
with rates estimated to be currently available for debt with similar terms and
remaining maturities.
Revenue Recognition
The Company recognizes revenue from sales upon shipment of the product.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Information
In management's opinion, the financial statements for the three-month
periods ended March 31, 1996 and 1997, include all adjustments, consisting of
normal recurring adjustments, necessary to present fairly on a basis consistent
with that of the audited data presented herein the Company's financial position
and results of operations as of and for the periods then ended in accordance
with generally accepted accounting principles. Operating results for the
three-month period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1997.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures................... $157,170 $ 182,803 $ 187,132
Office equipment......................... 178,580 192,476 199,758
-------- --------- ---------
335,750 375,279 386,890
Less-Accumulated depreciation............ (97,520) (156,110) (170,265)
-------- --------- ---------
$238,230 $ 219,169 $ 216,625
======== ========= =========
</TABLE>
F-61
<PAGE> 162
U.K. ABBA PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTE PAYABLE AND CAPITAL LEASE OBLIGATION
The note payable and capital lease obligation consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, interest at prime plus 1.5%
(10.0% and 9.75% at December 31, 1995 and
1996, respectively, and 9.75% (unaudited)
at March 31, 1997), monthly principal and
interest payments until December 1997,
secured by substantially all assets of the
Company................................... $ 86,808 $ 45,138 $ 31,250
Capital lease obligation, payable in monthly
installments of $1,242 until April 2000... 52,018 41,729 38,997
-------- -------- --------
138,826 86,867 70,247
Less -- Current portion..................... (51,954) (86,867) (70,247)
-------- -------- --------
$ 86,872 $ -- $ --
======== ======== ========
</TABLE>
The Company has classified the note payable and capital lease obligation as
current in the accompanying balance sheets at December 31, 1996 and March 31,
1997 as it is the intent of STC to pay off these instruments upon the
consummation of the Acquisition.
(5) LINE OF CREDIT
As of December 31, 1996, the Company has a $700,000 revolving line of
credit (the Old Line of Credit), which bears interest at prime plus 1.0% and
matures April 1997. In April 1997, the Company negotiated a new line of credit
of up to $1,000,000 (unaudited). As of December 31, 1995 and 1996, the Company
had $200,000, and $100,000, respectively, outstanding the Old Line of Credit. As
of March 31, 1997, the Company had not drawn on the Old Line of Credit. The Old
Line of Credit is secured by substantially all the assets of the Company.
(6) INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires the use of an asset and liability approach in accounting for income
taxes. Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect when these differences are expected to reverse. These
differences result principally from the recognition of reserve expenses for
financial reporting purposes which do not generate current tax deductions, and
the use of different depreciation and inventory capitalization methods for
income tax and financial reporting.
The components of the income tax provision (benefit) consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------------------
1995 1996 1996 1997
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................. $259,138 $255,450 $113,138 $106,686
State............................... 45,731 45,079 19,966 11,613
-------- -------- -------- --------
304,869 300,529 133,104 118,299
Deferred.............................. (37,704) (10,074) (4,462) (3,500)
-------- -------- -------- --------
Provision for income taxes.......... $267,165 $290,455 $128,642 $114,799
======== ======== ======== ========
</TABLE>
F-62
<PAGE> 163
U.K. ABBA PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Uniform inventory cost capitalization............. $32,000 $54,000 $59,500
Other............................................. 15,878 13,938 13,938
------- ------- -------
Total gross deferred tax assets................ 47,878 67,938 73,438
------- ------- -------
Deferred tax liabilities:
Depreciation...................................... 6,788 16,774 25,774
------- ------- -------
Total gross deferred tax liabilities........... 6,788 16,774 25,774
------- ------- -------
Net deferred tax asset.............................. $41,090 $51,164 $47,664
======= ======= =======
</TABLE>
The total gross deferred tax assets are included in other current assets in
the accompanying balance sheets.
The following is a reconciliation of income taxes provided at the federal
statutory rate with income taxes recorded by the Company:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------ ------------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax provision at statutory rate.......................... 34% 34% 34% 34%
Expense of permanent differences resulting from the
corporate owned life insurance and travel and
entertainment expenses, and the effect of state
taxes.................................................. 6% 7% 7% 7%
-- -- -- --
Income tax provision................................ 40% 41% 41% 41%
== == == ==
</TABLE>
(7) RELATED PARTY TRANSACTIONS
The Company utilizes third party warehouses for its storage, production and
distribution of its inventory. The Company's minority shareholder is a
shareholder of one of these third party warehouses. In the ordinary course of
business, the Company contracts for the manufacturing of various products with
this warehouse. Management believes these transactions were under terms no less
favorable to the Company than those arranged with other parties. During the
years ended December 31, 1995 and 1996, and the three months ended March 31,
1996 and 1997, the Company paid approximately $2,799,532, $2,741,167, $511,020,
(unaudited) and $674,977 (unaudited) respectively, for storage, production and
distribution services to this third party. The following inventory amounts with
this third party as of December 31, 1995 and 1996, and March 31, 1997, were
$171,539, $189,592, $168,106 (unaudited), respectively.
(8) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
statements.
F-63
<PAGE> 164
U.K. ABBA PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Lease commitments relate primarily to the rental of office equipment and
the office building lease. Minimum payments under these noncancelable lease
obligations are as follows for the year ended December 31:
<TABLE>
<S> <C>
1997...................................................... $126,120
1998...................................................... 33,000
1999...................................................... 25,800
2000...................................................... 21,600
--------
$206,520
========
</TABLE>
F-64
<PAGE> 165
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying statement of net assets of certain product
lines of Inverness Corporation and Inverness (UK) Limited (collectively, the
Company) as of November 30, 1997, and the related statement of operating
revenues and expenses for the period from January 1, 1997 through November 30,
1997, (see Note 1 for basis of presentation). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of net assets of certain product lines and the
related statement of operating revenues and expenses have been prepared pursuant
to the asset purchase agreement dated October 31, 1997 and effective December 1,
1997, between Styling Technology Corporation and the Company (Note 1). These
financial statements are not intended to be a complete presentation of the
Company's financial position or results of operations. The statement of net
assets of certain product lines and the related statement of operating revenues
and expenses are presented for the purposes of complying with the financial
statement requirements of the Securities Exchange Commission for acquired or to
be acquired businesses.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the statement of net assets of certain product lines
of the Company as of November 30, 1997, and the related statement of operating
revenues and expenses for the period from January 1, 1997 through November 30,
1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 21, 1998.
F-65
<PAGE> 166
INVERNESS CORPORATION AND
INVERNESS (UK) LIMITED
STATEMENT OF NET ASSETS OF CERTAIN PRODUCT LINES
NOVEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance for uncollectible
accounts of $147,993................................... $4,050,348
Inventory, net (Note 2)................................... 3,378,831
Other current assets...................................... 127,446
----------
Total current assets.............................. 7,556,625
----------
PROPERTY AND EQUIPMENT, net (Note 3)........................ 969,018
OTHER NONCURRENT ASSETS, net (Note 2)....................... 787,878
----------
Total assets...................................... 9,313,521
----------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable.......................................... 819,455
Accrued liabilities....................................... 529,076
----------
Total current liabilities......................... 1,348,531
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
NET ASSETS.................................................. $7,964,990
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-66
<PAGE> 167
INVERNESS CORPORATION AND
INVERNESS (UK) LIMITED
STATEMENT OF OPERATING REVENUES AND EXPENSES
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH NOVEMBER 30, 1997
<TABLE>
<S> <C>
NET SALES (Note 2).......................................... $18,902,241
COST OF SALES (Note 1)...................................... 11,212,403
-----------
Gross profit........................................... 7,689,838
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 1)....... 7,311,470
-----------
Income from operations................................. 378,368
-----------
OTHER INCOME AND EXPENSES:
Other income (Note 2)..................................... 358,282
Interest expense (Note 1)................................. (229,921)
-----------
Total other income and expenses, net.............. 128,361
-----------
EXCESS OF REVENUES OVER EXPENSES............................ $ 506,729
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-67
<PAGE> 168
INVERNESS CORPORATION AND INVERNESS (UK) LIMITED
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Acquisition Agreement and Basis of Presentation
The accompanying financial statements represent the net assets of certain
product lines of Inverness Corporation and Inverness (UK) Limited to be acquired
(collectively, the Company). These statements are presented to comply with the
financial statement requirements of the Securities Exchange Commission for
acquired or to be acquired businesses.
In accordance with the terms of an asset purchase agreement (the Agreement)
dated October 31, 1997 and effective December 1, 1997, Styling Technology
Corporation agreed to acquire assets of certain product lines of Inverness
Corporation and Inverness (UK) Limited. The assets primarily consist of trade
receivables, inventories, and equipment. The terms also include a purchase price
of $20 million in cash and the assumption of certain liabilities which include
accounts payable, accrued liabilities and operating leases. The accompanying
financial statements represent the accounts of the purchased assets and assumed
liabilities pursuant to the terms of the Agreement.
The Company is a manufacturer and distributor of various personal care
products in the following product lines:
CLEAN AND EASY PROFESSIONAL SALON PRODUCTS -- Roll-on waxing products sold
to professional salons.
ONE TOUCH ELECTROLYSIS, DEPILATORIES AND HOME WAXING -- Battery-operated
electrolysis machines, a variety of roll-on creams and depilatories, cream hair
lighteners, strip wax and heated waxing appliances to be used by consumers at
home. These products are sold to beauty supply stores, drug stores, discount
stores, catalog mailers and showrooms, mass volume retailers and department
stores.
Allocated Expenses
The product lines of the Company have historically been accounted for in
the consolidated financial statements of Inverness Corporation and Inverness
(UK) Limited (hereinafter referred to as Inverness). Inverness' management
prepared these financial statements by allocating certain of the total costs of
Inverness, to product lines acquired, based on the most conservative
methodologies.
Certain overhead items are allocated to cost of sales for these product
lines. Indirect labor and fringe benefit expenses are allocated based on
standard direct labor hours. Rent, real estate taxes, insurance and other common
costs are allocated based on estimated warehouse space occupied.
Certain selling, general and administrative (S,G&A) expenses and interest
expense are allocated to each product line based on the percent of budgeted
S,G&A expense for that product line to Inverness' total S,G&A expense. Budgeted
S,G&A expenses for each product line are allocated based on Inverness' budgeted
net sales to each product line, adjusted for certain specific allocations. S,G&A
expenses consist primarily of sales salaries and commissions, travel and
entertainment, advertising, and shipping expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items.
F-68
<PAGE> 169
INVERNESS CORPORATION AND INVERNESS (UK) LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventory, net, consists of the following at November 30, 1997:
<TABLE>
<S> <C>
Raw materials and work-in-process........................... $1,430,441
Finished goods.............................................. 1,948,390
----------
$3,378,831
==========
</TABLE>
Other Noncurrent Assets
Other noncurrent assets consist of trademarks and patents of $436,451 and
$351,427, respectively, net of accumulated amortization. Trademarks and patents
are amortized on a straight-line basis over a 5-year and 17-year period,
respectively. Amortization expense allocated to the product lines for the period
January 1, 1997 through November 30, 1997, for trademarks and patents was
approximately $114,000 and $23,000, respectively.
Revenue Recognition
The Company recognizes revenue from sales upon shipment of the product.
Other Income
The Company recorded a gain from the settlement of an infringement lawsuit
related to a patent for the One Touch Electrolysis and Home Waxing product line.
Income Taxes
Inverness does not allocate income tax expense to the product lines of the
Company. Accordingly, the accompanying statement of operating revenues and
expenses for the period January 1, 1997 through November 30, 1997 does not
include a provision for income taxes.
Principles of Consolidation
The accompanying consolidated financial statements include the product
lines acquired related to Inverness Corporation and Inverness (UK) Limited. All
material intercompany items and transactions have been eliminated in
consolidation. Financial information relating to the product lines within
Inverness (UK) Limited is reported in accordance with Statement of Financial
Accounting Standards No. 52, FOREIGN CURRENCY TRANSLATION.
Use of Estimates
The preparation of financial information in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also effect the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 107, DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS. The Company's Financial Instruments, as defined by SFAS
No. 107, include accounts receivable, accounts payable and accrued liabilities.
The
F-69
<PAGE> 170
INVERNESS CORPORATION AND INVERNESS (UK) LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimated fair value amounts have been determined by the Company at November 30,
1997, using available market information.
The carrying value of accounts receivable, accounts payable and accrued
liabilities approximates fair value due to the short-term maturities of these
instruments.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at November 30, 1997:
<TABLE>
<S> <C>
Furniture and fixtures...................................... $ 169,887
Machinery and equipment..................................... 3,036,530
-----------
3,206,417
Less-accumulated depreciation............................... (2,237,399)
-----------
$ 969,018
===========
</TABLE>
Property and equipment are recorded at cost and depreciation is provided on
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures...................................... 4-7
Machinery and equipment..................................... 3-20
</TABLE>
Accumulated depreciation has been recorded utilizing an allocation
methodology based on the relative cost of these product lines' property and
equipment in relation to Inverness' balance of property and equipment.
Depreciation expense allocated to the product lines for the period January 1,
1997 through November 30, 1997, was approximately $283,000.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which are not significant and do not
improve assets or extend their useful lives, are charged to expense as incurred.
Repairs and maintenance expense for the period January 1, 1997 through November
30, 1997, was approximately $59,000.
(4) RELATED PARTY TRANSACTIONS:
Inverness leases its primary facility from its majority shareholder under a
noncancelable operating lease expiring in July 1998. Rent expense allocated to
the product lines for the period January 1, 1997 through November 30, 1997, was
approximately $248,000.
In addition, the product lines acquired are part of Inverness Corporation
and Inverness UK Limited, which are both 100% owned by the same shareholder. The
inventory within the Inverness UK Limited product lines is supplied primarily by
Inverness Corporation. For the period from January 1, 1997 through November 30,
1997, sales from Inverness Corporation to Inverness UK Limited were
approximately $1,290,000, all of which were eliminated during consolidation.
(5) CONCENTRATION OF CREDIT RISK:
Sales To Major Customers
During the period January 1, 1997 through November 30, 1997, sales to a
major customer comprised approximately 11% of the Company's revenues. At
November 30, 1997, the amount due from this customer included in accounts
receivable was approximately $1,079,000.
F-70
<PAGE> 171
INVERNESS CORPORATION AND INVERNESS (UK) LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Vendor Concentration
The Company purchased approximately 26% of its inventory from two vendors
during period January 1, 1997 through November 30, 1997. At November 30, 1997,
the amounts due to these vendors included in accounts payable was approximately
$13,000.
(6) COMMITMENTS AND CONTINGENCIES:
Leases
The Company has several noncancelable operating leases for facilities and
equipment. The U.S. facility's lease expires in July 1998. The UK facility lease
runs through January 2003. Future minimum payments under these noncancelable
operating leases with terms are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
NOVEMBER 30,
------------
<S> <C>
1998...................................................... $281,532
1999...................................................... 123,954
2000...................................................... 107,865
2001...................................................... 96,233
2002...................................................... 95,310
Thereafter................................................ 23,827
--------
$728,721
========
</TABLE>
Rental expense allocated to the product lines for the period January 1,
1997 through November 30, 1997, was approximately $538,000.
F-71
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Styling Technology Corporation:
We have audited the accompanying balance sheet of EUROPEAN TOUCH, LTD. II
(a Wisconsin S Corporation) as of December 31, 1997, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of European Touch, Ltd. II as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
May 1, 1998.
F-72
<PAGE> 173
EUROPEAN TOUCH, LTD. II
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
-----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 992,475 $ 429,636
Accounts receivable, net of allowance for doubtful
accounts of $54,945 and $54,945, respectively.......... 1,011,622 982,354
Inventory................................................. 440,446 560,957
---------- ----------
Total current assets.............................. 2,444,543 1,972,947
PROPERTY AND EQUIPMENT, net................................. 399,614 436,240
OTHER ASSETS................................................ 2,375 16,990
---------- ----------
$2,846,532 $2,426,177
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 327,203 $ 285,012
Accrued liabilities....................................... 31,088 31,114
Current portion of deferred income........................ 58,675 54,214
Customer deposits and other............................... 78,956 58,651
---------- ----------
Total current liabilities......................... 495,922 428,991
DEFERRED INCOME, net of current portion..................... 50,000 46,183
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized and
issued 750 shares outstanding.......................... 1,000 1,000
Treasury stock at cost, 250 shares........................ (58,000) (58,000)
Retained earnings......................................... 2,357,610 2,008,003
---------- ----------
Total stockholders' equity........................ 2,300,610 1,951,003
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,846,532 $2,426,177
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-73
<PAGE> 174
EUROPEAN TOUCH, LTD. II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED ------------------------
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES............................................. $8,628,485 $1,483,359 $2,094,596
COST OF SALES......................................... 3,713,799 592,063 877,060
---------- ---------- ----------
Gross profit........................................ 4,914,686 891,296 1,217,536
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 2,256,213 460,566 589,069
---------- ---------- ----------
INCOME FROM OPERATIONS................................ 2,658,473 430,730 628,467
OTHER INCOME.......................................... 106,394 31,222 32,126
---------- ---------- ----------
NET INCOME............................................ $2,764,867 $ 461,952 $ 660,593
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE> 175
EUROPEAN TOUCH, LTD. II
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
------ ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996........ 1,000 $1,000 $(58,000) $ 1,418,893 $ 1,361,893
Net income........................ -- -- -- 2,764,867 2,764,867
Distributions to stockholders..... -- -- -- (1,826,150) (1,826,150)
----- ------ -------- ----------- -----------
BALANCE AT DECEMBER 31, 1997........ 1,000 1,000 (58,000) 2,357,610 2,300,610
Net income (unaudited)............ -- -- -- 660,593 660,593
Distributions to stockholders
(unaudited).................... -- -- -- (1,010,200) (1,010,200)
----- ------ -------- ----------- -----------
BALANCE AT MARCH 31, 1998
(unaudited)....................... 1,000 $1,000 $(58,000) $ 2,008,003 $ 1,951,003
===== ====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 176
EUROPEAN TOUCH, LTD. II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED ------------------------
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 2,764,867 $ 461,952 $ 660,593
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................... 60,695 10,356 18,510
Loss on disposal of assets...................... 24,692 -- --
(Increase) decrease in accounts receivable...... (221,918) (146,847) 29,268
Increase in inventory........................... (189,348) -- (120,511)
Increase in other assets........................ (61) (59) (14,615)
Increase (decrease) in accounts payable and
accrued liabilities........................... 186,446 (62,445) (42,165)
Increase (decrease) in deferred income.......... 18,773 21,845 (8,278)
Increase (decrease) in customer deposits and
other......................................... 45,727 4,013 (20,305)
----------- --------- -----------
Net cash provided by operating
activities............................... 2,689,873 288,815 502,497
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (274,007) (17,091) (55,136)
----------- --------- -----------
Net cash used in investing activities...... (274,007) (17,091) (55,136)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders...................... (1,826,150) (157,941) (1,010,200)
----------- --------- -----------
Net cash used in financing activities...... (1,826,150) (157,941) (1,010,200)
----------- --------- -----------
NET INCREASE (DECREASE) IN CASH...................... 589,716 113,783 (562,839)
CASH AND CASH EQUIVALENTS, beginning of period....... 402,759 402,759 992,475
----------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period............. $ 992,475 $ 516,542 $ 429,636
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 177
EUROPEAN TOUCH, LTD. II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Organization and Nature of Operations
European Touch, Ltd. II (the Company) was incorporated in 1985 to
manufacture and distribute whirlpool pedicure spas and accessories. The Company
sells its products primarily to wholesale distributors of professional salon
equipment, nail salons, and, to a lesser extent, spas and resorts throughout the
United States, as well as Canada, Europe, Latin America, Mexico and Asia.
Acquisition Agreement
In accordance with the terms of a definitive Acquisition Agreement between
Styling Technology Corporation (STC) and European Touch, Ltd. II, Inc. (the
Company), STC agreed to acquire all of the stock of the Company for a purchase
price of $20.1 million. The closing is estimated to take place in the second
quarter of 1998.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or net
realizable value. Reserves are established against inventory for excess,
slow-moving and obsolete items and for items where the net realizable value is
less than cost.
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Raw materials and work-in-process................... $ 30,831 $ 39,267
Finished goods...................................... 409,615 521,690
-------- --------
$440,446 $560,957
======== ========
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and depreciation is provided
using the straight-line method over the estimated useful lives of the assets,
which range from 3-15 years.
Expenditures for major renewals and betterments are capitalized, while
expenditures for maintenance and repairs, which do not improve assets or extend
their useful lives are charged to expense as incurred. Maintenance and repair
expenses charged to cost of operations were approximately $500, $0 and $134 for
the year ended December 31, 1997 and the three-month unaudited periods ended
March 31, 1997 and 1998, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are described in
F-77
<PAGE> 178
EUROPEAN TOUCH, LTD. II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Note 5. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.
Income Taxes
The Company's stockholders have elected to have the Company treated as an S
Corporation for income tax purposes. Therefore, no provision for income taxes is
reflected in the accompanying financial statements.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, receivables, accounts
payable and accrued expenses approximate fair values due to the short-term
maturities of these instruments.
Revenue Recognition
The Company recognizes revenue at the time product is shipped. However,
installment sales are accounted for under the installment method. Installment
sale terms require 50% in cash before shipment is made and monthly payments for
the balance over the period ranging from 12 to 24 months. Installment sales are
recognized as payments are received.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Final settlement amounts could differ from those estimates.
Interim Unaudited Financial Information
In management's opinion, the financial statements for the three-month
periods ended March 31, 1997 and 1998, include all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the Company's
financial position, results of operations and cash flows as of and for the
periods then ended. Operating results for the three-month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998.
(3) ACCOUNTS RECEIVABLE:
Accounts receivable include installment receivable amounts. Of the total of
these receivables of $217,350 and $200,794 as of December 31, 1997 and March 31,
1998 (unaudited), approximately $100,000 and $92,000, respectively, were due
beyond one year from these balance sheet dates.
F-78
<PAGE> 179
EUROPEAN TOUCH, LTD. II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements.............................. $ 9,400 $ 9,400
Production tooling and equipment.................... 210,943 263,303
Furniture and fixtures.............................. 149,800 149,800
Computers and vehicles.............................. 179,669 182,445
--------- ---------
549,812 604,948
Less- Accumulated depreciation...................... (150,198) (168,708)
--------- ---------
$ 399,614 $ 436,240
========= =========
</TABLE>
(5) CUSTOMER CONCENTRATION:
Sales to a major U.S. beauty distribution company as a percentage of total
net sales approximated 13%, 13% and 16% for the year ended December 31, 1997 and
the three-month unaudited periods ended March 31, 1997 and 1998, respectively.
Three of the Company's customers had accounts receivable totaling 45% and 28%
(unaudited) of the Company's total accounts receivable balance as of December
31, 1997 and March 31, 1998, respectively.
(6) RELATED PARTY TRANSACTIONS:
The Company leases its primary facilities from a partnership of which all
partners are stockholders of the Company. Lease expense related to this space
totaled $98,721, $37,260 and $45,332 for the year ended December 31,1997 and the
three-month unaudited periods ended March 31, 1997 and 1998, respectively.
The Company advances certain expenses related to trade shows and computer
services to a company of which two of the three stockholders are stockholders of
the Company. Expenses paid by the Company on behalf of the related company were
approximately $39,000, $2,300 and $25,000 for the year ended December 31, 1997
and the three-month unaudited periods ended March 31, 1997 and 1998,
respectively. The total accounts receivable balance as of December 31, 1997 and
March 31, 1998, from this company was approximately $7,000 and $10,000,
respectively.
(7) COMMITMENTS AND CONTINGENCIES:
Legal Matters
In the normal course of business, the Company is named as a defendant in
various litigation matters. In management's opinion, the ultimate resolution of
these matters will not have a material impact on the Company's financial
conditions or results of operations.
F-79
<PAGE> 180
EUROPEAN TOUCH, LTD. II
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Operating Leases
The Company leases office and warehouse space under operating lease
agreements. Future lease payments under non-cancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998.................................................. $142,796
1999.................................................. 146,196
2000.................................................. 146,196
2001.................................................. 108,796
2002.................................................. 43,915
--------
$587,899
========
</TABLE>
Retirement Plans
The Company has a defined contribution plan under 401(k) (the Plan) of the
Internal Revenue Code. Employees of the Company are eligible to participate in
the Plan after completing one year of service, 1,000 work hours and reaching age
21. Voluntary salary reductions may be elected by each participating employee
and contributed to the Plan (not to exceed $9,500 for a calendar year). The
Company may match up to 25% of the employee's contribution up to a maximum of
6.5% of the employee's compensation. The Company expensed $38,997 related to the
Plan during 1997.
F-80
<PAGE> 181
- ---------------------------------------------------
- ---------------------------------------------------
ALL TENDERED OUTSTANDING NOTES, EXECUTED LETTERS OF TRANSMITTAL, AND OTHER
RELATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND
REQUESTS FOR ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS,
THE LETTER OF TRANSMITTAL, AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO
THE EXCHANGE AGENT AS FOLLOWS:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
633 WEST FIFTH STREET, 12TH FLOOR
LOS ANGELES, CALIFORNIA 90071
By Facsimile: (213) 362-7357
Confirm by Telephone: (213) 362-7300
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
Until 25 days after the Expiration Date, all dealers effecting transactions
in the Exchange Notes, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriter and with respect to
their unsold allotments or subscriptions.
No dealer, salesperson, or other person has been authorized to give
information or to make any representations other than those contained in this
Prospectus and the accompanying Letter of Transmittal in connection with the
Exchange Offer covered by this Prospectus and the accompanying Letter of
Transmittal, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. Neither this Prospectus
nor the accompanying Letter of Transmittal nor both together constitute an offer
to sell, or a solicitation of an offer to buy, any security other than the
Exchange Notes offered hereby, nor does it constitute an offer to sell or a
solicitation of an offer to buy any of the Exchange Notes to anyone or by anyone
in any jurisdiction where, or to any person to whom, it would be unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus or
the Letter of Transmittal or both together nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that information
contained herein is correct as of any time subsequent to the date hereof.
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
[STYLING TECHNOLOGY LOGO]
$100,000,000
10 7/8% SENIOR SUBORDINATED NOTES
DUE 2008
---------------------
PROSPECTUS
---------------------
----------------------------------
TABLE OF CONTENTS
----------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................ 1
Risk Factors....................... 12
The Exchange Offer................. 21
Use of Proceeds.................... 27
Unaudited Pro Forma Consolidated
Financial Data................... 28
Selected Historical and Pro Forma
Consolidated Financial Data...... 32
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 35
Business........................... 48
Management......................... 58
Certain Indebtedness............... 61
Description of The Exchange
Notes............................ 62
Certain Income Tax
Considerations................... 90
Plan of Distribution............... 94
Legal Matters...................... 94
Experts............................ 94
</TABLE>
, 1998
- ---------------------------------------------------
- ---------------------------------------------------
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article Eighth of the Company's Certificate of Incorporation (the
"Certificate"), the Company shall indemnify and advance expenses, to the fullest
extent permitted by the Delaware General Corporation Law to each person who is
or was a director, officer or employee of the Company, or who serves or served
any other enterprise or organization at the request of the Company (an
"Indemnitee"). In addition, the Company has adopted provisions in its Bylaws
that require the Company to indemnify its directors, officers, and certain other
representatives of the Company against expenses and certain other liabilities
arising out of their conduct on behalf of the Company to the maximum extent and
under all circumstances permitted by law.
Under Delaware law, to the extent that an Indemnitee is successful on the
merits or otherwise in defense of a suit or proceeding brought against him or
her by reason of the fact that he or she is or was a director, officer or
employee of the Company, or serves or served any other enterprise or
organization at the request of the Company, the Company shall indemnify him or
her against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action.
An Indemnitee also may be indemnified under Delaware law against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement if
he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the Company, and, with respect
to any criminal action, had no reasonable cause to believe his or her conduct
was unlawful.
An Indemnitee also may be indemnified under Delaware law against expenses
(including attorneys' fees) actually and reasonably incurred in the defense or
settlement of a suit by or in the right of the Company if he or she acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company, except that no indemnification
may be made if the Indemnitee is adjudged to be liable to the Company, unless a
court determines that such Indemnitee is entitled to indemnification for such
expenses which the court deems proper.
Also under Delaware law, expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding may be paid by the
Company in advance of the final disposition of the suit, action or proceeding
upon receipt of an undertaking by or on behalf of the officer or director to
repay such amount if it is ultimately determined that he or she is not entitled
to be indemnified by the Company. The Company may also advance expenses incurred
by other employees and agents of the Company upon such terms and conditions, if
any, that the Board of Directors of the Company deems appropriate.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to officers, directors or persons controlling the
Company pursuant to Delaware law or the Company's Certificate, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement(1)
1.2 Purchase Agreement dated as of June 18, 1998, by and among
NationsBanc Montgomery Securities LLC, Friedman, Billings,
Ramsey & Co., Inc., Imperial Bank Capital LLC, the Company,
and certain subsidiaries of the Company, as Guarantors.
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Certificate of Amendment of Certificate of Incorporation(1)
3.3 Bylaws of the Registrant(1)
</TABLE>
II-1
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.1 Specimen of Stock Certificate(1)
4.2 Specimen of Redeemable Common Stock Warrant(1)
4.3 Form of Warrant issued to Credit Agricole Indosuez(2)
4.4 Form of Warrant issued to Bank Boston N.A.(3)
4.5 Indenture dated as of June 23, 1998, by and among the
Company, the Guarantors Signatories thereto, and State
Street Bank and Trust Company of California, N.A.
4.6 Form of Global Notes (included in Exhibit 4.5)
4.7 Registration Rights Agreement dated as of June 23, 1998, by
and among NationsBanc Montgomery Securities LLC, Friedman,
Billings, Ramsey & Co., Inc., and Imperial Bank Capital LLC,
the Company and certain subsidiaries of the Company, as
Guarantors.
5 Opinion of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A.*
10.1 Stock Purchase Agreement by and among Registrant and Donald
N. Black, Howard Black, Barbara Black, Robert Black, Don
Cottam, Jim Cottam and the Cottam Family Partnership, L.P.
(shareholders) with respect to Gena Laboratories, Inc.(1)
10.2 Stock Purchase Agreement by and among Registrant and Jack
Sperling and Gary Sperling (Shareholders) with respect to
JDS Manufacturing Co., Inc.(1)
10.3 Asset Purchase Agreement by and among Registrant, Designs by
Norvell, Inc. and Joy Norvell Martin (Stockholder) with
respect to the Body Drench division of Designs by Norvell,
Inc.(1)
10.4 Asset Purchase Agreement by and among Registrant, Kotchammer
Investments, Inc. and the Hammer Family Living Trust, The
Jones Family Trust and Gerald Kotch (Stockholders)(1)
10.5 Employment Agreement between Registrant and Sam L.
Leopold(1)
10.11 1996 Stock Option Plan(1)
10.12 Stock Repurchase Agreement, as amended, between Registrant
and Kenneth S. Bernstein(1)
10.13 Bridge Note(1)
10.15 Exclusive Manufacturing Agreement between the Registrant and
Amole, Incorporated(4)
10.16 Asset Purchase Agreement between the Registrant and Creative
Laboratories, Inc., dated March 17, 1997(5)
10.17 Stock Purchase Agreement dated as of June 25, 1997 among the
Registrant; James Markham; Daniel Genis and Arline Genis,
Co-Trustees of the 1992 Genis Family Revocable Trust dated
February 28, 1992; Arthur Benfield Bush, Arthur Benfield
Bush and Gina L. Bush, Trustees of the Alan and Gina Bush
Charitable Remainder Unitrust #1, dated June 1, 1997; Arthur
Benfield Bush and Gina L. Bush, Trustees of the Alan and
Gina Bush Remainder Unitrust #2, dated June 1, 1997; Yoram
Fishman, Trustee of the Yoram Fishman Living Trust, dated
May 18, 1987, and Yuri Levi, Trustee of the Yoram Fishman
Charitable Remainder Trust dated May 30, 1997.(6)
10.18 Credit Agreement dated as of June 25, 1997 among the
Registrant and Credit Agricole Indosuez, New York branch, as
agent and the lending institutions listed therein.(6)
10.19 Asset Purchase Agreement dated as of October 31, 1997 among
the Registrant, Inverness Corporation, and Inverness (UK)
Limited.(7)
10.20 Transition and Manufacturing Agreement dated as of December
10, 1997 the Registrant and Inverness Corporation.(7)
10.21 Credit Agreement dated as of December 10, 1997 among the
Registrant and Credit Agricole Indosuez, New York branch, as
agent and the lending institutions listed therein.(7)
10.23 Stock Purchase Agreement dated as of June 23, 1998 among the
Company and the former shareholders of European Touch, Ltd.
II(8)
</TABLE>
II-2
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.24 Credit Agreement dated June 30, 1998 among the Company,
BankBoston, N.A., and NationsBank, N.A.*
10.25 Stock Purchase Agreement dated as of August 3, 1998, among
the Company, Kevin T. Weir, Carol M. Weir, and Dennis M.
Katawczik
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A. (to be included in its opinion filed as
Exhibit 5)
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Pages of this Registration
Statement)
25 Statement of Eligibility of Trustee on Form T-1 of State
Street Bank and Trust Company of California, N.A.
27 Financial Data Schedules
99 Form of Letter of Transmittal and Notice of Guaranteed
Delivery
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement on Form S-1
(Registration No. 333-12469) filed September 20, 1996 and declared effective
November 12, 1996.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission (the "Commission") on
August 14, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed with the Commission on November 14, 1997.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K as
filed with the Commission on April 10, 1997.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on May 14, 1997.
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on July 10, 1997.
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on December 24, 1997.
(b) Financial Statements filed as part of this report:
Consolidated Financial Statements and Supplemental Schedules as listed
in the Index to Consolidated Financial Statements on page F-1 of this
report.
(c) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K with respect to the
acquisition of the Clean + Easy and One Touch product lines from
Inverness Corporation and Inverness (UK) Limited on December 24, 1997,
as amended by the Form 8-K/A filed on February 23, 1998 and the Form 8-
K/A filed on March 20, 1998.
(d) Financial Statement Schedules
None.
(8) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on July 8, 1998.
All other schedules have been omitted on the basis of immateriality or
because such schedules are not otherwise applicable.
II-3
<PAGE> 185
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant, in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction that was not
the subject of and included in the registration statement when it became
effective.
II-4
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on August 7th, 1998.
STYLING TECHNOLOGY CORPORATION
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold, Chairman of the
Board,
President, and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Sam L. Leopold and
Richard R. Ross, and each of them, as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SAM L. LEOPOLD Chairman of the Board of August 7, 1998
- --------------------------------------------------- Directors, President, and Chief
Sam L. Leopold Executive Officer (Principal
Executive Officer)
/s/ RICHARD R. ROSS Chief Financial Officer, Vice August 7, 1998
- --------------------------------------------------- President, Treasurer, Secretary,
Richard R. Ross and Director (Principal
Financial Officer)
/s/ JAMES A. BROOKS Director August 7, 1998
- ---------------------------------------------------
James A. Brooks
/s/ PETER W. BURG Director August 7, 1998
- ---------------------------------------------------
Peter W. Burg
/s/ MICHAEL H. FEINSTEIN Director August 7, 1998
- ---------------------------------------------------
Michael H. Feinstein
/s/ SYLVAN SCHEFLER Director August 7, 1998
- ----------------------------------------------
Sylvan Schefler
</TABLE>
II-5
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
BEAUTY PRODUCTS INC.
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Sam L. Leopold and
Richard R. Ross, and each of them, as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
By: /s/ RICHARD R. ROSS
- ---------------------------------------------
Richard R. Ross
Secretary and Director
</TABLE>
II-6
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
COSMETICS INTERNATIONAL INC.
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Sam L. Leopold and
Richard R. Ross, and each of them, as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
By: /s/ RICHARD R. ROSS
- ---------------------------------------------
Richard R. Ross
Secretary and Director
</TABLE>
II-7
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
EUROPEAN TOUCH CO., INCORPORATED
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Sam L. Leopold and
Richard R. Ross, and each of them, as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
By: /s/ RICHARD R. ROSS
- ---------------------------------------------
Richard R. Ross
Secretary and Director
By: /s/ ANNELIE PENN
- ---------------------------------------------
Annelie Penn
Director
</TABLE>
II-8
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
EUROPEAN TOUCH, LTD II
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Sam L. Leopold and
Richard R. Ross, and each of them, as his true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
By: /s/ RICHARD R. ROSS
- ---------------------------------------------
Richard R. Ross
Secretary and Director
By: /s/ J. TIMOTHY MONTROSE
- ---------------------------------------------
J. Timothy Montrose
Director
By: /s/ ANNELIE PENN
- ---------------------------------------------
Annelie Penn
Director
</TABLE>
II-9
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this
day of August, 1998.
GENA LABORATORIES, INC.
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below appoints Richard R. Ross as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August , 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
</TABLE>
II-10
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
J.D.S. Manufacturing Co., Inc.
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below appoints Richard R. Ross, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director (Principal Executive
Officer)
</TABLE>
II-11
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, on this 7th
day of August, 1998.
U.K. ABBA PRODUCTS, INC.
By: /s/ SAM L. LEOPOLD
------------------------------------
Sam L. Leopold
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below appoints Richard R. Ross as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on August 7, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ SAM L. LEOPOLD
- ---------------------------------------------
Sam L. Leopold
President and Director
(Principal Executive Officer)
</TABLE>
II-12
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ----------- -----------------
<S> <C>
1.1 Form of Underwriting Agreement(1)
1.2 Purchase Agreement dated as of June 18, 1998, by and among
NationsBanc Montgomery Securities LLC, Friedman, Billings,
Ramsey & Co., Inc., Imperial Bank Capital LLC, the Company,
and certain subsidiaries of the Company, as Guarantors.
3.1 Certificate of Incorporation of the Registrant(1)
3.2 Certificate of Amendment of Certificate of Incorporation(1)
3.3 Bylaws of the Registrant(1)
4.1 Specimen of Stock Certificate(1)
4.2 Specimen of Redeemable Common Stock Warrant(1)
4.3 Form of Warrant issued to Credit Agricole Indosuez(2)
4.4 Form of Warrant issued to Bank Boston N.A.(3)
4.5 Indenture dated as of June 23, 1998, by and among the
Company, the Guarantors Signatories thereto, and State
Street Bank and Trust Company of California, N.A.
4.6 Form of Global Notes (included in Exhibit 4.5)
4.7 Registration Rights Agreement dated as of June 23, 1998, by
and among NationsBanc Montgomery Securities LLC, Friedman,
Billings, Ramsey & Co., Inc., and Imperial Bank Capital LLC,
the Company and certain subsidiaries of the Company, as
Guarantors.
5 Opinion of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A.*
10.1 Stock Purchase Agreement by and among Registrant and Donald
N. Black, Howard Black, Barbara Black, Robert Black, Don
Cottam, Jim Cottam and the Cottam Family Partnership, L.P.
(shareholders) with respect to Gena Laboratories, Inc.(1)
10.2 Stock Purchase Agreement by and among Registrant and Jack
Sperling and Gary Sperling (Shareholders) with respect to
JDS Manufacturing Co., Inc.(1)
10.3 Asset Purchase Agreement by and among Registrant, Designs by
Norvell, Inc. and Joy Norvell Martin (Stockholder) with
respect to the Body Drench division of Designs by Norvell,
Inc.(1)
10.4 Asset Purchase Agreement by and among Registrant, Kotchammer
Investments, Inc. and the Hammer Family Living Trust, The
Jones Family Trust and Gerald Kotch (Stockholders)(1)
10.5 Employment Agreement between Registrant and Sam L.
Leopold(1)
10.11 1996 Stock Option Plan(1)
10.12 Stock Repurchase Agreement, as amended, between Registrant
and Kenneth S. Bernstein(1)
10.13 Bridge Note(1)
10.15 Exclusive Manufacturing Agreement between the Registrant and
Amole, Incorporated(4)
10.16 Asset Purchase Agreement between the Registrant and Creative
Laboratories, Inc., dated March 17, 1997(5)
10.17 Stock Purchase Agreement dated as of June 25, 1997 among the
Registrant; James Markham; Daniel Genis and Arline Genis,
Co-Trustees of the 1992 Genis Family Revocable Trust dated
February 28, 1992; Arthur Benfield Bush, Arthur Benfield
Bush and Gina L. Bush, Trustees of the Alan and Gina Bush
Charitable Remainder Unitrust #1, dated June 1, 1997; Arthur
Benfield Bush and Gina L. Bush, Trustees of the Alan and
Gina Bush Remainder Unitrust #2, dated June 1, 1997; Yoram
Fishman, Trustee of the Yoram Fishman Living Trust, dated
May 18, 1987, and Yuri Levi, Trustee of the Yoram Fishman
Charitable Remainder Trust dated May 30, 1997.(6)
10.18 Credit Agreement dated as of June 25, 1997 among the
Registrant and Credit Agricole Indosuez, New York branch, as
agent and the lending institutions listed therein.(6)
10.19 Asset Purchase Agreement dated as of October 31, 1997 among
the Registrant, Inverness Corporation, and Inverness (UK)
Limited.(7)
10.20 Transition and Manufacturing Agreement dated as of December
10, 1997 the Registrant and Inverness Corporation.(7)
</TABLE>
II-13
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ----------- -----------------
<S> <C>
10.21 Credit Agreement dated as of December 10, 1997 among the
Registrant and Credit Agricole Indosuez, New York branch, as
agent and the lending institutions listed therein.(7)
10.23 Stock Purchase Agreement dated as of June 23, 1998 among the
Company and the former shareholders of European Touch, Ltd.
II(8)
10.24 Credit Agreement dated June 30, 1998 among the Company,
BankBoston, N.A., and NationsBank, N.A.*
10.25 Stock Purchase Agreement dated as of August 3, 1998, among
the Company, Kevin T. Weir, Carol M. Weir, and Dennis M.
Katawczik
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A. (to be included in its opinion filed as
Exhibit 5)
24 Power of Attorney of Directors and Executive Officers
(included on the Signature Pages of this Registration
Statement)
25 Statement of Eligibility of Trustee on Form T-1 of State
Street Bank and Trust Company of California, N.A.
27 Financial Data Schedules
99 Form of Letter of Transmittal and Notice of Guaranteed
Delivery
</TABLE>
- ---------------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement on Form S-1
(Registration No. 333-12469) filed September 20, 1996 and declared effective
November 12, 1996.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission (the "Commission") on
August 14, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
as filed with the Commission on November 14, 1997.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K as
filed with the Commission on April 10, 1997.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on May 14, 1997.
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on July 10, 1997.
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on December 24, 1997.
(b) Financial Statements filed as part of this report:
Consolidated Financial Statements and Supplemental Schedules as listed
in the Index to Consolidated Financial Statements on page F-1 of this
report.
(c) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K with respect to the
acquisition of the Clean + Easy and One Touch product lines from
Inverness Corporation and Inverness (UK) Limited on December 24, 1997,
as amended by the Form 8-K/A filed on February 23, 1998 and the Form 8-
K/A filed on March 20, 1998.
(d) Financial Statement Schedules
None.
(8) Incorporated by reference to the Registrant's Current Report on Form 8-K as
filed with the Commission on July 8, 1998.
All other schedules have been omitted on the basis of immateriality or
because such schedules are not otherwise applicable.
II-14
<PAGE> 1
Exhibit 1.2
STYLING TECHNOLOGY CORPORATION,
AS ISSUER OF THE NOTES
AND
GENA LABORATORIES, INC.
J.D.S. MANUFACTURING CO., INC.
U.K. ABBA PRODUCTS, INC.
AS GUARANTORS
$100,000,000
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
DATED JUNE 18, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
IMPERIAL CAPITAL, LLC
<PAGE> 2
<TABLE>
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TABLE OF CONTENTS
PAGE(S)
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<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES................................................................2
(a) No Registration Required.................................................................2
(b) No Integration of Offerings or General Solicitation......................................3
(c) Eligibility for Resale under Rule 144A...................................................3
(d) The Offering Memorandum..................................................................3
(e) Purchase Agreement.......................................................................3
(f) Registration Rights Agreement and DTC Agreement..........................................4
(g) Authorization of the Securities and the Exchange Securities..............................4
(h) Authorization of the Indenture...........................................................4
(i) Description of the Securities and the Indenture..........................................5
(j) No Material Adverse Change...............................................................5
(k) Independent Accountants..................................................................5
(l) Preparation of the Financial Statements..................................................5
(m) Incorporation and Good Standing of the Company and its Subsidiaries......................6
(n) Capitalization and Other Capital Stock Matters...........................................6
(o) Stock Exchange Listing...................................................................6
(p) Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required ......................................................................7
(q) No Material Actions or Proceedings.......................................................7
(r) Intellectual Property Rights.............................................................8
(s) All Necessary Permits, etc...............................................................8
(t) Title to Properties......................................................................8
(u) Tax Law Compliance.......................................................................8
(v) Company Not an "Investment Company"......................................................8
(w) Insurance................................................................................9
(x) No Price Stabilization or Manipulation...................................................9
(y) No Default in Senior Indebtedness........................................................9
(z) Regulation S.............................................................................9
(aa) Reporting Issuers.......................................................................9
(bb) Company's Accounting System.............................................................9
(cc) Compliance with Environmental Laws......................................................9
(dd) Periodic Review of Costs of Environmental Compliance...................................10
(ee) ERISA Compliance.......................................................................10
(ff) Solvency...............................................................................11
(gg) Related Party Transactions.............................................................11
(hh) New Credit Facility....................................................................11
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES................................................12
(a) The Securities..........................................................................12
(b) The Closing Date........................................................................12
(c) Delivery of the Securities..............................................................12
(d) Delivery of Offering Memorandum to the Initial Purchasers...............................12
(e) Initial Purchasers as Qualified Institutional Buyers....................................13
SECTION 3. ADDITIONAL COVENANTS.........................................................................13
(a) Initial Purchasers' Review of Proposed Amendments and Supplements.......................13
(b) Amendments and Supplements to the Offering Memorandum and Other Securities Act Matters..13
(c) Copies of the Offering Memorandum.......................................................14
(d) Blue Sky Compliance.....................................................................14
(e) Use of Proceeds.........................................................................14
(f) Ratings of the Securities...............................................................14
(g) The Depositary..........................................................................14
</TABLE>
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TABLE OF CONTENTS
CONTINUED
<TABLE>
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(h) Additional Issuer Information...........................................................14
(i) Agreement Not To Offer or Sell Additional Securities....................................15
(j) Future Reports to the Initial Purchasers................................................15
(k) Registration Rights Agreement...........................................................15
(l) No Integration..........................................................................15
(m) Restriction on Repurchases..............................................................15
(n) Legended Securities.....................................................................16
(o) PORTAL..................................................................................16
(p) Form D..................................................................................16
(q) Due Diligence...........................................................................16
SECTION 4. PAYMENT OF EXPENSES..........................................................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE INITIAL PURCHASERS......................................17
(a) Accountants' Comfort Letter.............................................................17
(b) No Material Adverse Change or Ratings Agency Change.....................................17
(c) Opinions of Counsel for the Company.....................................................17
(d) Opinion of Counsel for the Initial Purchasers...........................................18
(e) Officers' Certificate...................................................................18
(f) Bring-down Comfort Letter...............................................................18
(g) PORTAL Listing..........................................................................19
(h) Registration Rights Agreement...........................................................19
(i) Additional Documents....................................................................19
SECTION 6. REIMBURSEMENT OF INITIAL PURCHASERS' EXPENSES................................................20
SECTION 7. OFFER, SALE AND RESALE PROCEDURES............................................................20
SECTION 8. INDEMNIFICATION..............................................................................22
(a) Indemnification of the Initial Purchasers...............................................22
(b) Indemnification of the Company and the Guarantors, its Directors and Officers...........22
(c) Notifications and Other Indemnification Procedures......................................23
(d) Settlements.............................................................................24
SECTION 9. CONTRIBUTION.................................................................................24
SECTION 10. TERMINATION OF THIS AGREEMENT...............................................................25
SECTION 11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.........................................26
SECTION 12. NOTICES.....................................................................................26
SECTION 13. SUCCESSORS..................................................................................27
SECTION 14. PARTIAL UNENFORCEABILITY....................................................................27
SECTION 15. GOVERNING LAW; CONSENT TO JURISDICTION......................................................28
</TABLE>
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(A) GOVERNING LAW PROVISIONS..........................................................28
SECTION 16. DEFAULT OF ONE OR MORE OF THE SEVERAL INITIAL PURCHASERS....................................28
SECTION 17. GENERAL PROVISIONS..........................................................................29
</TABLE>
iii
<PAGE> 5
PURCHASE AGREEMENT
June 18, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
IMPERIAL CAPITAL, LLC
As Initial Purchasers
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introduction. Styling Technology Corporation, a Delaware
corporation (the "Company"), proposes to issue and sell to the several Initial
Purchasers named on Schedule A (the "Initial Purchasers"), acting severally and
not jointly, the respective amounts set forth in such Schedule A of $100,000,000
aggregate principal amount of the Company's 10O% Senior Subordinated Notes due
2008 (the "Notes"). NationsBanc Montgomery Securities LLC, Friedman, Billings,
Ramsey & Co., Inc. and Imperial Capital, LLC have agreed to act as the several
Initial Purchasers in connection with the offering and sale of the Notes.
The Notes will be issued pursuant to an indenture dated as of
June 23, 1998 (the "Indenture") between the Company, the Guarantors (as defined
below) and State Street Bank and Trust Company of California, N.A., as trustee
(the "Trustee"). Notes issued in book-entry form will be issued in the name of
Cede & Co., as nominee of The Depository Trust Company (the "Depositary"),
pursuant to a DTC Agreement, to be dated as of the Closing Date (as defined in
Section 2) (the "DTC Agreement"), among the Company, the Trustee and the
Depositary.
The holders of the Notes will be entitled to the benefits of a
registration rights agreement to be dated as of the Closing Date (the
"Registration Rights Agreement") among the Company, the Guarantors and the
Initial Purchasers, pursuant to which the Company and the Guarantors will agree
to file, within 45 days of the Closing Date, a registration statement with the
Commission registering the Exchange Securities (as defined below) under the
Securities Act.
The payment of principal of, premium and Additional Interest
(as defined in the Indenture), if any, and interest on the Notes and the
Exchange Notes (as defined in the Registration Rights Agreement) will be
unconditionally guaranteed by (i) each of the Company's direct or indirect
domestic Restricted Subsidiaries (as defined in the Indenture) as of the date of
the Indenture and (ii) any other direct or indirect domestic Restricted
Subsidiary that executes an additional guarantee in accordance with the terms of
the Indenture, and their respective successors and assigns (collectively, the
"Guarantors"), pursuant to their guarantees
<PAGE> 6
(the "Guarantees"). The Notes and the Guarantees attached thereto are
collectively referred to herein as the "Securities"; and the Exchange Notes and
the Guarantees attached thereto are collectively referred to herein as the
"Exchange Securities."
The Company and the Guarantors understand that the Initial
Purchasers propose to make an offering of the Securities on the terms and in the
manner set forth herein and in the Offering Memorandum (as defined below) and
agree that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers (the "Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold to or through the Initial Purchasers without being
registered with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933 (the "Securities Act," which term, as used herein,
includes the rules and regulations of the Commission promulgated thereunder), in
reliance upon exemptions therefrom. The terms of the Securities and the
Indenture will require that investors that acquire Securities expressly agree
that Securities may only be resold or otherwise transferred, after the date
hereof, if such Securities are registered for sale under the Securities Act or
if an exemption from the registration requirements of the Securities Act is
available (including the exemptions afforded by Rule 144A ("Rule 144A") or
Regulation S ("Regulation S") thereunder).
The Company has prepared and delivered to each Initial
Purchaser copies of an Offering Memorandum "subject to completion" dated May 28,
1998 (the "Preliminary Offering Memorandum") and has prepared and will deliver
to each Initial Purchaser, on the date hereof or the next succeeding day, copies
of the Offering Memorandum dated June 18, 1998 describing the terms of the
Securities, each for use by such Initial Purchaser in connection with its
solicitation of offers to purchase the Securities. As used herein, the term
"Offering Memorandum" shall mean, with respect to any date or time referred to
in this Agreement, the Company's Offering Memorandum dated June 18, 1998
including amendments or supplements thereto and any exhibits thereto, in the
most recent form that has been prepared and delivered by the Company to the
Initial Purchasers in connection with their solicitation of offers to purchase
Securities. Further, any reference to the Preliminary Offering Memorandum or the
Offering Memorandum shall be deemed to refer to and include any Additional
Issuer Information (as defined in Section 3(h)) furnished by the Company prior
to the completion of the distribution of the Securities.
The Company and the Guarantors hereby confirm their agreements
with the Initial Purchasers as follows:
Section 1. Representations and Warranties. The Company and the
Guarantors hereby represent, warrant and covenant, jointly and severally, to
each Initial Purchaser as follows:
(a) No Registration Required. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in Section
2(e) hereof and with the procedures set forth in Section 7 hereof, it is not
necessary in connection with the offer, sale and delivery of the Securities to
the Initial Purchasers and to each Subsequent Purchaser in the manner
contemplated by this Agreement and the Offering Memorandum to register the
Securities under the Securities Act or, until such time as the Exchange
Securities are issued, pursuant to an effective registration statement, to
qualify the Indenture under the Trust
2
<PAGE> 7
Indenture Act of 1939 (the "Trust Indenture Act," which term, as used herein,
includes the rules and regulations of the Commission promulgated thereunder).
(b) No Integration of Offerings or General Solicitation. The
Company has not, directly or indirectly, solicited any offer to buy or offered
to sell, and will not, directly or indirectly, solicit any offer to buy or offer
to sell, in the United States or to any United States citizen or resident, any
security which is or would be integrated with the sale of the Securities in a
manner that would require the Securities to be registered under the Securities
Act. None of the Company, its affiliates (as such term is defined in Rule 501(b)
under the Securities Act (each, an "Affiliate")), or any person acting on its or
any of their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation or warranty) has engaged or will engage, in connection
with the offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities Act.
With respect to those Securities sold in reliance upon Regulation S, (i) none of
the Company, its Affiliates or any person acting on its or their behalf (other
than the Initial Purchasers, as to whom the Company makes no representation or
warranty) has engaged or will engage in any directed selling efforts within the
meaning of Regulation S and (ii) each of the Company and its Affiliates and any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom the Company makes no representation or warranty) has complied and will
comply with the offering restrictions set forth in Regulation S.
(c) Eligibility for Resale under Rule 144A. The Securities
are eligible for resale pursuant to Rule 144A and will not be, at the Closing
Date, of the same class as securities listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted in a U.S. automated
interdealer quotation system.
(d) The Offering Memorandum. The Offering Memorandum does not,
and at the Closing Date will not, include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation, warranty and agreement shall not
apply to statements in or omissions from the Offering Memorandum made in
reliance upon and in conformity with information furnished to the Company in
writing by any Initial Purchaser through NationsBanc Montgomery Securities LLC
expressly for use in the Offering Memorandum. Each of the Preliminary Offering
Memorandum and the Offering Memorandum, as of its date, contains all the
information specified in, and meeting the requirements of, Rule 144A(d)(4). The
Company has not distributed and will not distribute, prior to the later of the
Closing Date and the completion of the Initial Purchasers' distribution of the
Securities, any offering material in connection with the offering and sale of
the Securities other than the Preliminary Offering Memorandum or the Offering
Memorandum.
(e) Purchase Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company and the Guarantors, enforceable in accordance with its terms, except
as rights to indemnification hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
3
<PAGE> 8
(f) Registration Rights Agreement and DTC Agreement. At the
Closing Date, each of the Registration Rights Agreement and the DTC Agreement
will be duly authorized, executed and delivered by, and will be a valid and
binding agreement of, the Company and, as applicable, each of the Guarantors,
enforceable in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(g) Authorization of the Securities and the Exchange
Securities.
(i) The Notes to be purchased by the Initial
Purchasers from the Company are in the form contemplated by the Indenture, have
been duly authorized for issuance and sale pursuant to this Agreement and the
Indenture and, at the Closing Date, will have been duly executed by the Company
and, when authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price therefor, will constitute valid
and binding agreements of the Company, enforceable in accordance with their
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles and will be entitled to the benefits of the Indenture.
(ii) The Exchange Notes have been duly and validly
authorized for issuance by the Company, and when issued and authenticated in
accordance with the terms of the Indenture, the Registration Rights Agreement
and the Exchange Offer, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or affecting enforcement
of the rights and remedies of creditors or by general principles of equity and
will be entitled to the benefits of the Indenture.
(iii) The Guarantees of the Notes and the Exchange
Notes are in the respective forms contemplated by the Indenture, have been duly
authorized for issuance and sale pursuant to this Agreement and the Indenture
and, at the Closing Date, will have been duly executed by each of the Guarantors
and, when authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price for the Notes, will constitute
valid and binding agreements of the Guarantors, enforceable in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles and will be entitled to the benefits of the Indenture.
(h) Authorization of the Indenture. The Indenture has been
duly authorized by the Company and the Guarantors and, at the Closing Date, will
have been duly executed and delivered by the Company and the Guarantors and will
constitute a valid and binding agreement of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
4
<PAGE> 9
(i) Description of the Securities and the Indenture. The
Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Offering Memorandum and
will be in substantially the respective forms previously delivered to the
Initial Purchasers.
(j) No Material Adverse Change. Except as otherwise disclosed
in the Offering Memorandum, subsequent to the respective dates as of which
information is given in the Offering Memorandum: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a "Material
Adverse Change"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(k) Independent Accountants. Arthur Andersen LLP, which has
expressed its opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) filed with the
Commission included in the Offering Memorandum are independent public or
certified public accountants within the meaning of Regulation S-X under the
Securities Act and the Exchange Act.
(l) Preparation of the Financial Statements. The financial
statements, together with the related schedules and notes, included in the
Offering Memorandum present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. Such financial
statements have been prepared in conformity with generally accepted accounting
principles as applied in the United States on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. The financial data set forth in the Offering Memorandum under the
captions "Summary -- Summary Consolidated Financial Data," "Consolidated
Financial Data" and "Capitalization" fairly present the information set forth
therein on a basis consistent with that of the audited financial statements
contained in the Offering Memorandum. The pro forma consolidated financial
statements of the Company and its subsidiaries and the related notes thereto
included under the caption "Summary -- Summary Pro Forma Consolidated Financial
Data," "Unaudited Pro Forma Consolidated Financial Data" and elsewhere in the
Offering Memorandum present fairly the information contained therein, have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements and have been properly presented on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein. The Company's ratios of
earnings to fixed charges set forth in the Offering Memorandum under the
captions "Summary -- Summary Unaudited Pro Forma Consolidated Financial Data,"
"Selected Consolidated Financial Data" and
5
<PAGE> 10
"Unaudited Pro Forma Consolidated Financial Data" have been calculated in
compliance with Item 503(d) of Regulation S-K under the Securities Act.
(m) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Offering Memorandum and, company and, as applicable, the
Guarantors, to enter into and perform its obligations under each of this
Agreement, the Registration Rights Agreement, the DTC Agreement, the Securities,
the Exchange Securities and the Indenture. Each of the Company and each
subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Arizona (in the case of the Company) and
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than, in the case of the Company, the State
of Arizona) where the failure to so qualify or to be in good standing would not,
individually or in the aggregate, result in a Material Adverse Change. All of
the issued and outstanding capital stock of each subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 22 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
(n) Capitalization and Other Capital Stock Matters. At March
31, 1998, on a consolidated basis, after giving pro forma effect to the issuance
and sale of the Securities pursuant hereto, the Company would have had an
authorized and outstanding capitalization as set forth in the Offering
Memorandum under the caption "Capitalization" (other than for subsequent
issuances of capital stock, if any, pursuant to employee benefit plans described
in the Offering Memorandum or upon exercise of outstanding options described in
the Offering Memorandum). All of the outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable and
have been issued in compliance with federal and state securities laws. None of
the outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to subscribe
for or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or any of its
subsidiaries other than those accurately described in the Offering Memorandum
(o) Stock Exchange Listing. The Common Stock is registered
pursuant to Section 12(g) of the Exchange Act and is listed on the Nasdaq
National Market, and the Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.
6
<PAGE> 11
(p) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound (including,
without limitation, the Credit Agreement, dated December 10, 1997, by and among
the Company and Credit Agricole Indosuez, New York Branch, as Agent for the
other Lenders party thereto) (the "Existing Credit Facility"), or to which any
of the property or assets of the Company or any of its subsidiaries is subject
(each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's and, as applicable, each Guarantor's execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the DTC
Agreement and the Indenture, and the issuance and delivery of the Securities or
the Exchange Securities, and consummation of the transactions contemplated
hereby and thereby and by the Offering Memorandum (i) have been duly authorized
by all necessary corporate action and will not result in any violation of the
provisions of the charter or by-laws of the Company or any subsidiary, (ii) will
not conflict with or constitute a breach of, or Default or a Debt Repayment
Triggering Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, or require the consent of any
other party to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually or in the
aggregate, result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or court
decree applicable to the Company or any subsidiary. No consent, approval,
authorization or other order of, or registration or filing with, any court or
other governmental or regulatory authority or agency, is required for the
Company's or, as applicable, any Guarantor's execution, delivery and performance
of this Agreement, the Registration Rights Agreement, the DTC Agreement or the
Indenture, or the issuance and delivery of the Securities or the Exchange
Securities, or consummation of the transactions contemplated hereby and thereby
and by the Offering Memorandum, except such as have been obtained or made by the
Company and are in full force and effect under the Securities Act, applicable
state securities or blue sky laws. As used herein, a "Debt Repayment Triggering
Event" means any event or condition which gives, or with the giving of notice or
lapse of time would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of such indebtedness
by the Company or any of its subsidiaries.
(q) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's or any Guarantor's knowledge, threatened (i) against or affecting the
Company or any of its subsidiaries, (ii) which has as the subject thereof any
officer or director of, or property owned or leased by, the Company or any of
its subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such action,
suit or proceeding might be determined adversely to the Company or such
subsidiary and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company or any of
its subsidiaries or with the employees of any principal supplier of the
7
<PAGE> 12
Company, exists or, to the best of the Company's or any Guarantor's knowledge,
is threatened or imminent.
(r) Intellectual Property Rights. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to conduct
their businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
(s) All Necessary Permits, etc. The Company and each
subsidiary possess such valid and current certificates, authorizations or
permits issued by the appropriate state, federal or foreign regulatory agencies
or bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating to
the revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(t) Title to Properties. The Company and each of its
subsidiaries has good and marketable title to all the properties and assets
reflected as owned in the financial statements referred to in Section 1(k) above
(or elsewhere in the Offering Memorandum), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not materially interfere with the use made or proposed to be
made of such property by the Company or such subsidiary. The real property,
improvements, equipment and personal property held under lease by the Company or
any subsidiary are held under valid and enforceable leases, with such exceptions
as are not material and do not materially interfere with the use made or
proposed to be made of such real property, improvements, equipment or personal
property by the Company or such subsidiary.
(u) Tax Law Compliance. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax returns
and have paid all taxes required to be paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against any
of them. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(k) above in respect of
all federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined.
(v) Company and Guarantors Not "Investment Companies." The
Company and the Guarantors have been advised of the rules and requirements under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
Neither the Company nor any Guarantor is, nor after receipt of payment for the
Securities will be, an "investment company" within the meaning of Investment
Company Act and the Company and each Guarantor will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
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<PAGE> 13
(w) Insurance. Each of the Company and its subsidiaries are
insured by recognized, financially sound institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes. The Company has no reason to believe that it or any subsidiary will
not be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and
at a cost that would not result in a Material Adverse Change. Neither of the
Company nor any subsidiary has been denied any insurance coverage which it has
sought or for which it has applied.
(x) No Price Stabilization or Manipulation. Neither the
Company nor any Guarantor has taken or will take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the Company or any
Guarantor to facilitate the sale or resale of the Securities.
(y) No Default in Senior Indebtedness. No event of default
exists under any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument constituting Senior Debt (as defined in the
Indenture).
(z) Regulation S. The Company and its affiliates, the
Guarantors and their respective affiliates, and all persons acting on their
behalf (other than the Initial Purchasers, as to whom the Company and the
Guarantors make no representation) have complied with and will comply with the
offering restrictions and requirements of Regulation S in connection with the
offering of the Securities outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by Rule
902(h).
(aa) Reporting Issuers. Each of the Company and the
Guarantors is a "reporting issuer," as defined in Rule 902 under the Securities
Act.
(bb) Company's Accounting System. The Company maintains a
system of accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances,
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<PAGE> 14
hazardous substances, petroleum and petroleum products (collectively, "Materials
of Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environment Concern (collectively, "Environmental
Laws"), which violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation of the
business of the Company or its subsidiaries under applicable Environmental Laws,
or noncompliance with the terms and conditions thereof, nor has the Company or
any of its subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
the Company or any of its subsidiaries is in violation of any Environmental Law;
(ii) there is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the Company has
received written notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern at any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental Claims"), pending
or, to the best of the Company's knowledge, threatened against the Company or
any of its subsidiaries or any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law; and (iii) to the best of
the Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim against
the Company or any of its subsidiaries or against any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law.
(dd) Periodic Review of Costs of Environmental Compliance. In
the ordinary course of its business, the Company conducts a periodic review of
the effect of Environmental Laws on the business, operations and properties of
the Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
(ee) ERISA Compliance. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined
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<PAGE> 15
under ERISA) has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfunded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(ff) Solvency. The Company and each Guarantor is, and
immediately after the Closing Date will be, Solvent. As used herein, the term
"Solvent" means, with respect to the Company or a Guarantor on a particular
date, that on such date (i) the fair market value of the assets of the Company
or such Guarantor is greater than the total amount of liabilities (including
contingent liabilities) of the Company or such Guarantor, (ii) the present fair
salable value of the assets of the Company or such Guarantor is greater than the
amount that will be required to pay the probable liabilities of the Company or
such Guarantor on its debts as they become absolute and matured, (iii) the
Company or such Guarantor is able to realize upon its assets and pay its debts
and other liabilities, including contingent obligations, as they mature and (iv)
the Company or such Guarantor does not have unreasonably small capital.
(gg) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or any
subsidiary or any other person that would be required to be described in the
Offering Memorandum were it to be filed as a part of a Registration Statement on
Form S-1 under the Securities Act, which have not been described as would have
been so required.
(hh) New Credit Facility. The New Credit Facility (as defined
in the Offering Memorandum) has been duly and validly authorized by the Company
and each of the Guarantors.
(ii) The European Touch Acquisitions. Each of (a) the Stock
Purchase Agreement dated as of June 17, 1998 between the Company and the
stockholders of European Touch Co., Incorporated, (b) the Stock Purchase
Agreement dated as of June 17, 1998 between the Company and the stockholders of
European Touch, Ltd. II, (c) the Stock Purchase Agreement dated as of June 17,
1998 between the Company and the stockholders of Beauty Products Inc. and (d)
the Stock Purchase Agreement dated as of June 17, 1998 between the Company and
the stockholders of Cosmetics International Inc. (collectively, the "European
Touch Acquisition Agreements") with respect to the Company's acquisition of each
of such companies (the "European Touch Companies") has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, each of the
Company and the stockholders of the European Touch Companies, and is enforceable
against each party thereto in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles. The Company's
acquisitions of the
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<PAGE> 16
European Touch Companies pursuant to the European Touch Acquisition Agreements
are collectively referred to as the "European Touch Acquisitions."
Any certificate signed by an officer of the Company or a
Guarantor and delivered to the Initial Purchasers or to counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company or
such Guarantor, as the case may be, to each Initial Purchaser as to the matters
set forth therein.
Section 2. Purchase, Sale and Delivery of the Securities.
(a) The Securities. The Company and the Guarantors agree to
issue and sell to the several Initial Purchasers, severally and not jointly, all
of the Securities upon the terms herein set forth. On the basis of the
representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, the Initial Purchasers agree,
severally and not jointly, to purchase from the Company and the Guarantors the
aggregate principal amount of Securities set forth opposite their names on
Schedule A, at a discounted purchase price of 97.0% (which amount equals a Price
to Investors of 100% less the Initial Purchasers' Discount of 3.0%) of the
principal amount thereof payable on the Closing Date.
(b) The Closing Date. Delivery of certificates for the
Securities in definitive form to be purchased by the Initial Purchasers and
payment therefor shall be made at the offices of NationsBanc Montgomery
Securities LLC, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed to by the Company and the Initial Purchasers) at 7:00
a.m. (San Francisco time) on June 23, 1998, or such other time and date not
later than 10:30 a.m. (San Francisco time) on June 30, 1998 as the Initial
Purchasers shall designate by notice to the Company (the time and date of such
closing are called the "Closing Date"). Delivery of other closing documents
shall be made at the offices of Latham & Watkins, San Francisco, California, on
the Closing Date.
(c) Delivery of the Securities. The Company shall deliver, or
cause to be delivered, to NationsBanc Montgomery Securities LLC for the accounts
of the several Initial Purchasers certificates for the Securities at the Closing
Date against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The certificates for the
Securities shall be in such denominations ($1,000 or integral multiples thereof)
and registered in the name of Cede & Co., as nominee of the Depository, pursuant
to the DTC Agreement and shall be made available for inspection on the business
day preceding the Closing Date at a location in New York City as the Initial
Purchasers may designate; provided that certificated Securities originally
purchased by or transferred to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not also
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) will be issued in minimum denominations of $250,000. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Initial Purchasers.
(d) Delivery of Offering Memorandum to the Initial Purchasers.
Not later than 12:00 p.m. on the second business day following the date of
this Agreement, the Company
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<PAGE> 17
shall deliver or cause to be delivered copies of the Offering Memorandum in such
quantities and at such places as the Initial Purchasers shall reasonably
request.
(e) Initial Purchasers as Qualified Institutional Buyers.
Each Initial Purchaser severally and not jointly represents and warrants to, and
agrees with, the Company that it is a "qualified institutional buyer" within the
meaning of Rule 144A (a "Qualified Institutional Buyer") and an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act (an
"Accredited Investor").
Section 3. Additional Covenants. The Company and the Guarantors
further covenant and agree with each Initial Purchaser as follows:
(a) Initial Purchasers' Review of Proposed Amendments and
Supplements. Prior to amending or supplementing the Offering Memorandum, the
Company shall furnish to the Initial Purchasers for review a copy of each such
proposed amendment or supplement, and the Company shall not file any such
proposed amendment or supplement to which the Initial Purchasers reasonably
object.
(b) Amendments and Supplements to the Offering Memorandum and
Other Securities Act Matters. If, prior to the completion of the placement of
the Securities by the Initial Purchasers with the Subsequent Purchasers (as
evidenced by a notice in writing from the Initial Purchasers to the Company),
any event shall occur or condition exist as a result of which it is necessary to
amend or supplement the Offering Memorandum in order to make the statements
therein, in the light of the circumstances when the Offering Memorandum is
delivered to a purchaser, not misleading, or if in the opinion of the Initial
Purchasers or counsel for the Initial Purchasers it is otherwise necessary to
amend or supplement the Offering Memorandum to comply with law, the Company
agrees to prepare promptly (subject to Section 3(a) hereof) and furnish at its
own expense to the Initial Purchasers, amendments or supplements to the Offering
Memorandum so that the statements in the Offering Memorandum as so amended or
supplemented will not, in the light of the circumstances when the Offering
Memorandum is delivered to a purchaser, be misleading or so that the Offering
Memorandum, as amended or supplemented, will comply with law.
Following the consummation of the Exchange Offer or the
effectiveness of an applicable shelf registration statement and for so long as
the Securities are outstanding if, in the reasonable judgment of the Initial
Purchasers, the Initial Purchasers or any of their affiliates (as such term is
defined in the rules and regulations under the Securities Act) are required to
deliver a prospectus in connection with sales of, or market-making activities
with respect to, such securities, (A) to periodically amend the applicable
registration statement so that the information contained therein complies with
the requirements of Section 10(a) of the Securities Act, (B) to amend the
applicable registration statement or supplement the related prospectus or the
documents incorporated therein when necessary to reflect any material changes in
the information provided therein so that the registration statement and the
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances existing as of the date the prospectus is so
delivered, not misleading and (C) to provide the Initial Purchasers with copies
of each amendment or supplement filed and such other documents as the Initial
Purchasers may reasonably request.
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<PAGE> 18
The Company hereby expressly acknowledges that the
indemnification and contribution provisions of Sections 8 and 9 hereof are
specifically applicable and relate to each offering memorandum, registration
statement, prospectus, amendment or supplement referred to in this Section 3(b).
(c) Copies of the Offering Memorandum. The Company agrees to
furnish the Initial Purchasers, without charge, as many copies of the Offering
Memorandum and any amendments and supplements thereto as they shall have
reasonably requested.
(d) Blue Sky Compliance. The Company shall cooperate with the
Initial Purchasers and counsel for the Initial Purchasers to qualify or register
the Securities for sale under (or obtain exemptions from the application of) the
Blue Sky or state securities laws of those jurisdictions designated by the
Initial Purchasers, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Securities. The Company shall not be required to qualify
as a foreign corporation or to take any action that would subject it to general
service of process in any such jurisdiction where it is not presently qualified
or where it would be subject to taxation as a foreign corporation. The Company
will advise the Initial Purchasers promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Securities for offering, sale or trading in any jurisdiction or any initiation
or threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or exemption,
the Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(e) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Securities sold by it in the manner described under the
caption "Use of Proceeds" in the Offering Memorandum.
(f) Ratings of the Securities. The Company and the Guarantors
shall take all reasonable action necessary to enable Standard & Poor's Ratings
Group, a division of McGraw Hill, Inc. ("S&P"), and Moody's Investors Service,
Inc. ("Moody's") to provide their respective credit ratings of the Securities.
(g) The Depositary. The Company and the Guarantors will
cooperate with the Initial Purchasers and use its best efforts to permit the
Securities to be eligible for clearance and settlement through the facilities of
the Depositary.
(h) Additional Issuer Information. Prior to the completion of
the placement of the Securities by the Initial Purchasers with the Subsequent
Purchasers (as evidenced by a notice in writing from the Initial Purchasers to
the Company), the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed under
Section 13 or 15(d) of the Exchange Act. Additionally, at any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, for the
benefit of holders and beneficial owners from time to time of Securities, the
Company shall furnish at its expense, upon request, to holders and beneficial
owners of Securities and prospective purchasers of Securities, information
("Additional Issuer Information") satisfying the requirements of subsection
(d)(4) of Rule 144A.
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<PAGE> 19
(i) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Offering Memorandum, the
Company will not, without the prior written consent of NationsBanc Montgomery
Securities LLC (which consent may be withheld at the sole discretion of
NationsBanc Montgomery Securities LLC), directly or indirectly, sell, offer,
contract or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act,
or otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any debt
securities of the Company or securities exchangeable for or convertible into
debt securities of the Company (other than as contemplated by this Agreement and
to register the Exchange Securities).
(j) Future Reports to the Initial Purchasers. During the
period of five years following the date hereof, the Company will furnish to
NationsBanc Montgomery Securities LLC at 600 Montgomery Street, San Francisco,
CA 94111, Attention: David Martin; and Friedman, Billings, Ramsey & Co., Inc.,
Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, VA 22209,
Attention: Bob Hartheimer; and Imperial Capital, LLC, 150 South Rodeo Dr., Suite
100, Beverly Hills, CA 90212, Attention: Jason Reese, (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public or certified
public accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form
10-Q, Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its capital stock or debt securities (including the holders of the
Securities).
(k) Registration Rights Agreement. The Company and each
Guarantor shall comply with all provisions and obligations of, and shall cause
the Exchange Offer (as defined in the Registration Rights Agreement) to be made
in the appropriate form as contemplated by, the Registration Rights Agreement,
and shall comply with all applicable federal and state securities laws in
connection with the Exchange Offer.
(l) No Integration. The Company agrees that it will not and
will cause its Affiliates not to make any offer or sale of securities of the
Company of any class if, as a result of the doctrine of "integration" referred
to in Rule 502 under the Securities Act, such offer or sale would render invalid
(for the purpose of (i) the sale of the Securities by the Company and the
Guarantors to the Initial Purchasers, (ii) the resale of the Securities by the
Initial Purchasers to Subsequent Purchasers or (iii) the resale of the
Securities by such Subsequent Purchasers to others) the exemption from the
registration requirements of the Securities Act provided by Section 4(2) thereof
or by Rule 144A or by Regulation S thereunder or otherwise.
(m) Restriction on Repurchases. Until the expiration of two
years after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any Securities which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the Securities Act), whether as beneficial
owner or otherwise (except as agent acting as a securities broker on behalf of
and for the account of customers in the ordinary course of business in
unsolicited broker's
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<PAGE> 20
transactions) unless, immediately upon any such purchase, the Company or any
Affiliate shall submit such Securities to the Trustee for cancellation.
(n) Legended Securities. Each certificate for a Note will
bear the legend contained in "Transfer Restrictions" in the Offering Memorandum
for the time period and upon the other terms stated in the Offering Memorandum.
(o) PORTAL. The Company will use its best efforts to cause
such Notes to be eligible for the National Association of Securities Dealers,
Inc. PORTAL market (the "PORTAL market").
(p) Form D. The Company will file with the Commission, not
later than 15 days after the Closing Date, five copies of a notice on Form D
under the Securities Act (one of which will be manually signed by a person duly
authorized by the Company); will otherwise comply with the requirements of Rule
503 under the Securities Act; and will furnish promptly to the Initial
Purchasers evidence of each such required timely filing (including a copy
thereof).
(q) Due Diligence. In connection with the original
distribution of the Securities, the Company and each of the Guarantors agree
that, prior to any offer or resale of the Securities by the Initial Purchasers,
the Initial Purchasers and counsel for the Initial Purchasers shall have the
right to make reasonable inquiries into the business of the Company and its
subsidiaries. The Company and each of the Guarantors also agree to provide
answers to each prospective Subsequent Purchaser of Securities who so requests
concerning the Company and its subsidiaries (to the extent that such information
is available or can be acquired and made available to prospective Subsequent
Purchasers without unreasonable effort or expense and to the extent the
provision thereof is not prohibited by applicable law) and the terms and
conditions of the offering of the Securities, as provided in the Offering
Memorandum.
NationsBanc Montgomery Securities LLC, on behalf of the
several Initial Purchasers, may, in its sole discretion, waive in writing the
performance by the Company or the Guarantors of any one or more of the foregoing
covenants or extend the time for their performance.
Section 4. Payment of Expenses. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Securities (including all printing and engraving costs), (ii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Securities to the Initial Purchasers, (iii) all fees and expenses of the
Company's and the Guarantors' counsel, independent public or certified public
accountants and other advisors, (iv) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
each Preliminary Offering Memorandum and the Offering Memorandum (including
financial statements and exhibits), and all amendments and supplements thereto,
this Agreement, the Registration Rights Agreement, the Indenture, the DTC
Agreement, and the Notes and the Guarantees, (v) all filing fees, attorneys'
fees and expenses incurred by the Company or the Initial Purchasers in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Securities for offer
and sale under the Blue Sky laws and, if requested by the Initial
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<PAGE> 21
Purchasers, preparing and printing a "Blue Sky Survey" or memorandum, and any
supplements thereto, advising the Initial Purchasers of such qualifications,
registrations and exemptions, (vi) the fees and expenses of the Trustee,
including the fees and disbursements of counsel for the Trustee in connection
with the Indenture, the Securities and the Exchange Securities, (vii) any fees
payable in connection with the rating of the Securities or the Exchange
Securities with the ratings agencies and the listing of the Securities with the
PORTAL market, (viii) any filing fees incident to, and any reasonable fees and
disbursements of counsel to the Initial Purchasers in connection with the review
by the National Association of Securities Dealers, Inc., if any, of the terms of
the sale of the Securities or the Exchange Securities, (ix) all fees and
expenses (including reasonable fees and expenses of counsel) of the Company and
the Guarantors in connection with approval of the Securities by DTC for
"book-entry" transfer, and (x) the performance by the Company and the Guarantors
of their respective other obligations under this Agreement. Except as provided
in this Section 4, Section 6, Section 8 and Section 9 hereof, the Initial
Purchasers shall pay their own expenses, including the fees and disbursements of
their counsel.
Section 5. Conditions of the Obligations of the Initial Purchasers. The
obligations of the several Initial Purchasers to purchase and pay for the
Securities as provided herein on the Closing Date shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Guarantors set forth in Section 1 hereof as of the date hereof and as of the
Closing Date as though then made and to the timely performance by the Company
and the Guarantors of their respective covenants and other obligations
hereunder, and to each of the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Initial Purchasers shall have received from Arthur Andersen LLP, independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Initial Purchasers, in form and substance satisfactory
to the Initial Purchasers, containing statements and information of the type
ordinarily included in accountants "comfort letters" to Initial Purchasers,
delivered according to Statement of Auditing Standards Nos. 72 and 76 (or any
successor bulletins), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Offering Memorandum.
(b) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the Closing
Date:
(i) in the judgment of the Initial Purchasers there
shall not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(c) Opinion of Counsel for the Company and the Guarantors. On
the Closing Date, the Initial Purchasers shall have received the favorable
opinion of O'Connor,
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<PAGE> 22
Cavanagh, Anderson, Killingsworth & Beshears, counsel for the Company and the
Guarantors, dated as of such Closing Date, the form of which is attached as
Exhibit A hereto.
(d) Opinion of Counsel for the Initial Purchasers. On the
Closing Date, the Initial Purchasers shall have received the favorable opinion
of Latham & Watkins, counsel for the Initial Purchasers, dated as of such
Closing Date, with respect to such matters as may be reasonably requested by the
Initial Purchasers.
(e) Officers' Certificates. On the Closing Date, the Initial
Purchasers shall have received a written certificate or certificates executed by
the President and the Secretary of the Company and the President and the
Secretary of each Guarantor, dated as of the Closing Date, to the effect set
forth in subsection (b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to the Closing Date there has not occurred
any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company or such Guarantor, as the case may be, set forth
in Section 1 of this Agreement are true and correct with the
same force and effect as though expressly made on and as of
the Closing Date;
(iii) each of European Touch Acquisition Agreements
with respect to the Company's acquisition of each of the
European Touch Companies has been duly authorized, executed
and delivered by, and is a valid and binding agreement of,
each of the Company and the stockholders of the European Touch
Companies, and is enforceable against each party thereto in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable
principles;
(iv) the Company and each Guarantor, as the case may
be, has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied under this
Agreement and under each of the European Touch Acquisition
Agreements at or prior to the Closing Date; and
(v) each of the stockholders of the European Touch
Companies has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied
under its respective Acquisition Agreement at or prior to the
Closing Date.
(f) Bring-down Comfort Letter. On the Closing Date the Initial
Purchasers shall have received from Arthur Andersen LLP, independent public or
certified public accountants for the Company, a letter dated such date, in form
and substance satisfactory to the Initial Purchasers, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant to
subsection (a) of this Section 5, except that the specified date referred to
therein for the carrying out of procedures shall be no more than three business
days prior to the Closing Date.
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(g) PORTAL Listing. At the Closing Date, the Notes shall have
been designated for trading on the PORTAL market.
(h) Registration Rights Agreement. The Company and the
Guarantors shall have entered into the Registration Rights Agreement and the
Initial Purchasers shall have received executed counterparts thereof.
(i) Availability of Documents Relating to the European Touch
Acquisitions. Prior to the time of this Agreement, the Company shall have
furnished, or caused to be furnished, for review by the Initial Purchasers and
counsel for the Initial Purchasers copies of the European Touch Acquisition
Agreements (including all final and completed schedules and exhibits thereto),
and such further information, certificates and documents as any of them may
reasonably request. At the Closing Date, none of the European Touch Acquisition
Agreements shall have been amended, in any material respect, from the agreements
as originally executed.
(j) European Touch Acquisitions. At the Closing Date, each of
the European Touch Acquisition Agreements shall have been duly authorized,
executed and delivered by each of the Company and each of the stockholders of
the European Touch Companies. At the Closing Date, each of the Company and the
stockholders of the European Touch Companies shall have complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied under its respective European Touch Acquisition Agreement at or prior
to the Closing Date. Each of the European Touch Acquisitions shall have been
consummated by the Company, in accordance with the terms and conditions of the
respective European Touch Acquisition Agreement, without any material
contingencies or liabilities of or owing by the Company except as disclosed in
the Offering Memorandum.
(k) European Touch Companies as Guarantors of the Notes. At
the Closing Date, each of the European Touch Companies shall have become,
jointly and severally, Guarantors of the Notes.
(l) Termination of Existing Credit Facility. The financial
institutions party to the Existing Credit Facility will have prepared and, if
applicable, executed all such instruments and agreements as are necessary to
release, terminate and discharge all mortgages, pledges, security interests and
other liens and encumbrances on any property or assets of the Company or any of
its subsidiaries created or arising pursuant to or in connection with the
Existing Credit Facility and, on the Closing Date, such instruments and
agreements shall be delivered to the Company and the Company shall , as promptly
as practicable thereafter, take such actions (including filings or recordings in
governmental offices) as are necessary to effect the release, termination and
discharge of all such mortgages, pledges, security interests, liens and
encumbrances.
(m) Additional Documents. On or before the Closing Date, the
Initial Purchasers and counsel for the Initial Purchasers shall have received
such information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Securities
as contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.
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If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Initial Purchasers by notice to the Company at any time on or prior to the
Closing Date, which termination shall be without liability on the part of any
party to any other party, except that Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
Section 6. Reimbursement of Initial Purchasers' Expenses. If this
Agreement is terminated by the Initial Purchasers pursuant to Section 5 or
Section 6, or if the sale to the Initial Purchasers of the Securities on the
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company or the Guarantors to perform any agreement herein or to
comply with any provision hereof, the Company agrees to reimburse the Initial
Purchasers (or such Initial Purchasers as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Initial Purchasers in connection
with the proposed purchase and the offering and sale of the Securities,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Offer, Sale and Resale Procedures. Each of the Initial
Purchasers, on the one hand, and the Company and each of the Guarantors, on the
other hand, hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) Offers and Sales only to Institutional Accredited
Investors or Qualified Institutional Buyers. Offers and sales of the Securities
will be made only by the Initial Purchasers or Affiliates thereof qualified to
do so in the jurisdictions in which such offers or sales are made. Each such
offer or sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be qualified institutional buyers (as defined in Rule
144A under the Securities Act), or (B) to a limited number of other
institutional accredited investors (as such term is defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D) that the offeror or seller reasonably believes
to be and, with respect to sales and deliveries, that are Accredited Investors
("Institutional Accredited Investors"), or (C) non-U.S. persons outside the
United States to whom the offeror or seller reasonably believes offers and sales
of the Securities may be made in reliance upon Regulation S under the Securities
Act, upon the terms and conditions set forth in Annex I hereto, which Annex I is
hereby expressly made a part hereof.
(ii) No General Solicitation. The Securities will be offered
by approaching prospective Subsequent Purchasers on an individual basis. No
general solicitation or general advertising (within the meaning of Rule 502(c)
under the Securities Act) will be used in the United States in connection with
the offering of the Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a
non-bank Subsequent Purchaser of a Note acting as a fiduciary for one or more
third parties, in connection with an offer and sale to such purchaser pursuant
to clause (i) above, each third party shall, in the judgment of the applicable
Initial Purchaser, be an Institutional Accredited Investor or a Qualified
Institutional Buyer or a non-U.S. person outside the United States.
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<PAGE> 25
(iv) Restrictions on Transfer. Upon original issuance by the
Company, and until such time as the same is no longer required under the
applicable requirements of the Securities Act, the Securities (and all
securities issued in exchange therefor or in substitution thereof, other than
the Exchange Securities) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE
INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1) (a) TO A PERSON THAT THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
Following the sale of the Securities by the Initial Purchasers
to Subsequent Purchasers pursuant to the terms hereof, the Initial Purchasers
shall not be liable or responsible to the Company or any Guarantor for any
losses, damages or liabilities suffered or incurred by the Company or any
Guarantor, including any losses, damages or liabilities under the Securities
Act, arising from or relating to any resale or transfer of any Security.
(v) Delivery of Offering Memorandum. Each Initial Purchaser
will deliver to each purchaser of the Securities from such Initial Purchaser, in
connection with its
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original distribution of the Securities, a copy of the Offering Memorandum, as
amended and supplemented at the date of such delivery.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Initial Purchasers. The Company and
each of the Guarantors, jointly and severally, agree to indemnify and hold
harmless each Initial Purchaser, its officers and employees, and each person, if
any, who controls any Initial Purchaser within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Initial Purchaser or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
(or any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading; or
(ii) in whole or in part upon any inaccuracy in the representations and
warranties of the Company or any of the Guarantors contained herein; and to
reimburse each Initial Purchaser and each such controlling person for any and
all expenses (including the fees and disbursements of counsel chosen by
NationsBanc Montgomery Securities LLC) as such expenses are reasonably incurred
by such Initial Purchaser or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage, liability or
expense to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company or the Guarantors by the Initial Purchasers expressly for use in any
Preliminary Offering Memorandum or the Offering Memorandum (or any amendment or
supplement thereto). The indemnity agreement set forth in this Section 8(a)
shall be in addition to any liabilities that the Company and the Guarantors may
otherwise have.
(b) Indemnification of the Company, the Guarantors and their
Respective Directors and Officers. Each Initial Purchaser agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors and
each of their respective directors and each person, if any, who controls the
Company and the Guarantors within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company or any Guarantor or any such director, or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Initial Purchaser), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in any Preliminary Offering Memorandum or
the Offering Memorandum (or any amendment or supplement thereto), or arises out
of or is based upon the omission or alleged omission to state therein a material
fact required to be stated therein or
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<PAGE> 27
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary Offering
Memorandum or the Offering Memorandum (or any amendment or supplement thereto),
in reliance upon and in conformity with written information furnished to the
Company and the Guarantors by the Initial Purchasers expressly for use therein;
and to reimburse the Company and the Guarantors, or any such director or
controlling person for any legal and other expenses reasonably incurred by the
Company and the Guarantors, or any such director or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. The Company and the
Guarantors hereby acknowledge that the only information that the Initial
Purchasers have furnished to the Company or any Guarantor expressly for use in
any Preliminary Offering Memorandum or the Offering Memorandum (or any amendment
or supplement thereto) are the statements set forth (A) as the last paragraph on
page iii of the Offering Memorandum concerning stabilization by the Initial
Purchasers and (B) in the third and sixth paragraphs under the caption "Plan of
Distribution" in the Offering Memorandum; and the Initial Purchasers confirm
that such statements are correct. The indemnity agreement set forth in this
Section 8(b) shall be in addition to any liabilities that each Initial Purchaser
may otherwise have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in and, to the extent that it
shall elect, jointly with all other indemnifying parties similarly notified, by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party
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(NationsBanc Montgomery Securities LLC in the case of Section 8(b) and Section
9), representing the indemnified parties who are parties to such action) or (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
Section 9. Contribution. If the indemnification provided for in Section
8 is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Guarantors, on the one hand,
and the Initial Purchasers, on the other hand, from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Guarantors, on the one
hand, and the Initial Purchasers, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the Guarantors, and the total discount received by the Initial Purchasers
bear to the aggregate initial offering price of the Securities. The relative
fault of the Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, shall be determined by reference to, among other
things, whether any such untrue or alleged
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<PAGE> 29
untrue statement of a material fact or omission or alleged omission to state a
material fact or any such inaccurate or alleged inaccurate representation or
warranty relates to information supplied by the Company or any Guarantor, on the
one hand, or the Initial Purchasers, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Guarantors and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no Initial
Purchaser shall be required to contribute any amount in excess of the discount
received by such Initial Purchaser in connection with the Securities distributed
by it. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to this Section 9 are several,
and not joint, in proportion to their respective commitments as set forth
opposite their names in Schedule A. For purposes of this Section 9, each officer
and employee of an Initial Purchaser and each person, if any, who controls an
Initial Purchaser within the meaning of the Securities Act and the Exchange Act
shall have the same rights to contribution as such Initial Purchaser, and each
director of the Company or any Guarantor, each officer of the Company or any
Guarantor who signed the Registration Statement, and each person, if any, who
controls the Company or any Guarantor within the meaning of the Securities Act
and the Exchange Act shall have the same rights to contribution as the Company.
Section 10. Termination of this Agreement. Prior to the Closing Date,
this Agreement maybe terminated by the Initial Purchasers by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York or
Arizona authorities; (iii) there shall have occurred any outbreak or escalation
of national or international hostilities or any crisis or calamity, or any
change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States' or international political, financial or economic conditions, as
in the judgment of the Initial
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<PAGE> 30
Purchasers is material and adverse and makes it impracticable to market the
Securities in the manner and on the terms described in the Offering Memorandum
or to enforce contracts for the sale of securities; (iv) in the judgment of the
Initial Purchasers there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the Initial
Purchasers may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 10 shall be without liability
on the part of (a) the Company or any Guarantor to any Initial Purchaser, except
that the Company shall be obligated to reimburse the expenses of the Initial
Purchasers pursuant to Sections 4 and 6 hereof, (b) any Initial Purchaser to the
Company or any Guarantor, or (c) of any party hereto to any other party except
that the provisions of Section 8 and Section 9 shall at all times be effective
and shall survive such termination.
Section 11. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, the Guarantors, their respective officers and of the
several Initial Purchasers set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Initial Purchaser or the Company and the Guarantors or any of its
or their partners, officers or directors or any controlling person, as the case
may be, and will survive delivery of and payment for the Securities sold
hereunder and any termination of this Agreement.
Section 12. Notices. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Initial Purchasers:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: David G. Martin
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
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with a copy (which shall not constitute notice) to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, California 94111
Facsimile: (415) 395-8095
Attention: Gregory K. Miller, Esq.
If to the Company or the Guarantors:
2390 East Camelback Rd., Ste 435
Phoenix, AZ 85016
Facsimile: (602) 955-3383
Attention: Richard Ross, Chief Financial Officer
with a copy (which shall not constitute notice) to:
O'Connor Cavanagh
1 East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Facsimile: (602) 263-2900
Attention: Robert S. Kant, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Initial Purchasers
pursuant to Section 16 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Securities as such from any of the Initial Purchasers merely by reason of
such purchase.
Section 14. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
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Section 15. Governing Law; Consent to Jurisdiction.
(a) Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in the
City and County of San Francisco (collectively, the "Specified Courts"), and
each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States irrevocably appoints CT Corporation System,
which currently maintains a San Francisco office at 49 Stevenson Street, San
Francisco, California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such suit, action
or proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
SECTION 16. DEFAULT OF ONE OR MORE OF THE SEVERAL INITIAL PURCHASERS.
If any one or more of the several Initial Purchasers shall fail or refuse to
purchase Securities that it or they have agreed to purchase hereunder on the
Closing Date, and the aggregate number of Securities which such defaulting
Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase
does not exceed 10% of the aggregate number of the Securities to be purchased on
such date, the other Initial Purchasers shall be obligated, severally, in the
proportions that the number of Securities set forth opposite their respective
names on Schedule A bears to the aggregate number of Securities set forth
opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as may be specified by the Initial Purchasers with the consent
of the non-defaulting Initial Purchasers, to purchase the Securities which such
defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused
to purchase on such date. If any one or more of the Initial Purchasers shall
fail or refuse to purchase Securities and the aggregate number of Securities
with respect to which such default occurs exceeds 10% of the aggregate number of
Securities to be purchased on the Closing Date, and arrangements satisfactory to
the Initial Purchasers and the Company for the purchase of such Securities are
not made within 48 hours after such default, this Agreement shall terminate
without liability of any party to any other party except that the provisions of
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination. In any such case either the Initial
Purchasers or the Company shall have the right to postpone the Closing Date, as
the case may be, but in no event for longer than seven days in
28
<PAGE> 33
order that the required changes, if any, to the Offering Memorandum or any other
documents or arrangements may be effected.
As used in this Agreement, the term "Initial Purchaser" shall
be deemed to include any person substituted for a defaulting Initial Purchaser
under this Section 10. Any action taken under this Section 16 shall not relieve
any defaulting Initial Purchaser from liability in respect of any default of
such Initial Purchaser under this Agreement.
Section 17. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any Preliminary Offering
Memorandum and the Offering Memorandum (and any amendments and supplements
thereto), as required by the Securities Act and the Exchange Act.
29
<PAGE> 34
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
STYLING TECHNOLOGY CORPORATION
By: /s/ Sam L. Leopold
---------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
---------------------------
Richard R. Ross
Secretary
GENA LABORATORIES, INC.
By: /s/ Sam L. Leopold
---------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
---------------------------
Richard R. Ross
Secretary
J.D.S. MANUFACTURING CO., INC.
By: /s/ Sam L. Leopold
---------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
---------------------------
Richard R. Ross
Secretary
<PAGE> 35
ABBA PRODUCTS, INC.
By: /s/ Sam L. Leopold
---------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
---------------------------
Richard R. Ross
Secretary
<PAGE> 36
The foregoing Purchase Agreement is hereby confirmed and
accepted by the Initial Purchasers in San Francisco, California as of the date
first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
IMPERIAL CAPITAL, LLC
As the several Initial Purchasers
By NATIONSBANC MONTGOMERY SECURITIES LLC
/s/ illegible
By: -------------------------------------
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
Aggregate
Principal Amount
of Securities to be
Initial Purchasers Purchased
- ------------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC $ 65,000,000
Friedman, Billings, Ramsey & Co., Inc. 25,000,000
Imperial Capital, LLC ................ 10,000,000
Total ................................ $100,000,000
</TABLE>
A-1
<PAGE> 38
EXHIBIT A
Opinions of counsel for the Company to be delivered pursuant
to Section 5(c) of the Purchase Agreement.
References to the Offering Memorandum in this Exhibit A
include any supplements thereto at the Closing Date.
References below to Guarantors shall mean the "Guarantors"
that executed the Purchase Agreement, together with each of the European Touch
Companies that will execute and deliver the Indenture to become Guarantors
simultaneous with the Closing.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations, under the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the Securities, the
Exchange Securities and the DTC Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Arizona and in each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of Arizona) where the failure to so qualify
or to be in good standing would not, individually or in the aggregate, result in
a Material Adverse Change.
(iv) Each of the Guarantors and each other significant subsidiary of
the Company (as defined in Rule 405 under the Securities Act) has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation; has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum; to the best knowledge of such counsel, is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change; and, in the case of the Guarantors, has corporate power and
authority to enter into and perform its obligations under the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the Securities, the
Exchange Securities and the DTC Agreement, as applicable.
(v) All of the issued and outstanding capital stock of the Guarantors
and each such significant subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company, directly
or through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or, to the best knowledge of such counsel, any pending
or threatened claim.
A-2
<PAGE> 39
(vi) The authorized, issued and outstanding capital stock of the
Company conforms in all material respects to the descriptions thereof in the
Offering Memorandum. All of the outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable and, to the
best of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state securities
laws.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of Delaware
or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Company and the Guarantors (other than the European
Touch Companies).
(ix) Each of the Registration Rights Agreement and the DTC Agreement
(A) has been duly authorized, executed and delivered by, and (B) is a valid and
binding agreement of, the Company and the Guarantors, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(x) The Indenture (A) has been duly authorized, executed and delivered
by each of the Company and the Guarantors and (B) (assuming the due
authorization, execution and delivery thereof by the Trustee) constitutes a
valid and binding agreement of the Company and the Guarantors, enforceable
against each of them in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights and remedies of creditors
or by general principles of equity.
(xi) The Notes (A) are in the form contemplated by the Indenture and
have been duly authorized by the Company for issuance and sale pursuant to this
Agreement and the Indenture, and (B) when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the Trustee)
and delivered against payment of the purchase price therefor, will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or affecting enforcement of the rights and remedies of creditors or by general
principles of equity and will be entitled to the benefits of the Indenture.
(xii) The Exchange Notes (A) have been duly and validly authorized for
issuance by the Company, and (B) (assuming no change in applicable laws prior to
the issuance date of the Exchange Notes) when issued and authenticated in
accordance with the terms of the Indenture, the Registration Rights Agreement
and the Exchange Offer, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization,
A-3
<PAGE> 40
moratorium, or similar laws relating to or affecting enforcement of the rights
and remedies of creditors or by general principles of equity and will be
entitled to the benefits of the Indenture.
(xiii) The Guarantees of the Notes and the Exchange Notes (A) are in
the respective forms contemplated by the Indenture and, have been duly
authorized for issuance and sale pursuant to this Agreement and the Indenture
and have been duly executed by each of the Guarantors, and (B) when
authenticated in the manner provided for in the Indenture and delivered against
payment of the purchase price for the Notes, will constitute valid and binding
agreements of the Guarantors, enforceable in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles and will be
entitled to the benefits of the Indenture.
(xiv) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
(xv) The statements in the Offering Memorandum under the captions "Risk
Factors -- Subordination," " -- Regulation," " -- Restrictive Debt Covenants"
and " -- Fraudulent Conveyances," "Description of the Notes," "Business --
Intellectual Property," "Certain United States Federal Tax Considerations for
Non-United States Holders" and "Notice to Investors," insofar as such statements
constitute matters of law, summaries of legal matters, the Company's charter or
by-law provisions, documents or legal proceedings, or legal conclusions, have
been reviewed by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
(xvi) To the best knowledge of such counsel, except as is disclosed in
the Offering Memorandum, there are no legal or governmental proceedings that are
pending or threatened against the Company or any of its subsidiaries that would
be required by Item 103 of Regulation S-K to be disclosed in a Registration
Statement on Form S-1.
(xvii) To the best knowledge of such counsel, except as is disclosed in
the Offering Memorandum, there are no transactions or relationships that would
be required by Item 404 of Regulation S-K to be disclosed in a Registration
Statement on Form S-1.
(xviii) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's or the Guarantors' execution, delivery and
performance of the Purchase Agreement, the Registration Rights Agreement, the
DTC Agreement, the Indenture, the Securities, the Exchange Securities or the
Guarantees, as applicable, or consummation of the transactions contemplated
thereby and by the Offering Memorandum, except as required under applicable
state securities or blue sky laws.
(xix) The execution and delivery of the Purchase Agreement, the
Registration Rights Agreement, the DTC Agreement, the Securities, the Exchange
Securities and the Indenture by the Company and the Guarantors, as applicable,
and the performance by the Company and the Guarantors, of their respective
obligations thereunder (other than performance by the Company and the Guarantors
of their respective obligations under the indemnification section of the
Purchase Agreement, as to which no opinion need be rendered) (i) have been duly
A-4
<PAGE> 41
authorized by all necessary corporate action on the part of the Company and the
Guarantors; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not constitute a
breach of, or Default or a Debt Repayment Triggering Event under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, (A) the Credit
Agreement, dated December 10, 1997, by and among the Company and Credit Agricole
Indosuez, New York Branch, as Agent, and the other Lenders party thereto or (B)
to the best knowledge of such counsel, any other material Existing Instrument;
or (iv) to the best knowledge of such counsel, will not result in any violation
of any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary.
(xx) The Company is not, and after receipt of payment for the
Securities will not be, an "investment company" within the meaning of Investment
Company Act.
(xxi) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary or is in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
Existing Instrument, except in each such case for such violations or Defaults as
would not, individually or in the aggregate, result in a Material Adverse
Change.
(xxii) No registration of the Notes or the Guarantees under the
Securities Act, and no qualification of an indenture under the Trust Indenture
Act with respect thereto, is required for in connection with the purchase of the
Initial Securities by the Initial Purchasers or the initial resale of the
Initial Securities by the Initial Purchasers to Qualified Institutional Buyers
or Institutional Accredited Investors in the manner contemplated by this
Agreement and the Offering Memorandum other than any registration or
qualification that may be required in connection with the Exchange Offer
contemplated by the Offering Memorandum or in connection with the Registration
Rights Agreement. Such counsel need express no opinion, however, as to when or
under what circumstances any Initial Notes initially sold by the Initial
Purchasers may be reoffered or resold.
(xxiii) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, and each amendment or supplement thereto, as of its
date (except for the financial statements included therein, as to which no
opinion need be expressed), contained all of the information required under Rule
144A(d)(A) of the Securities Act.
(xxiv) Upon repayment of amounts outstanding under the Existing Credit
Facility, the Company will be entitled to obtain the release, termination and
discharge of the mortgages, pledges, security interests and other liens referred
to in paragraph 5(l) of this Agreement.
(xxv) The New Credit Facility has been duly and validly authorized by
the Company and each of the Guarantors (including, without limitation, the
European Touch Companies).
(xxvi) Each of the European Touch Acquisition Agreements has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
each of the Company and the stockholders of the European Touch Companies, and is
enforceable against each party thereto in accordance with its terms, except as
the enforcement thereof may be limited by
A-5
<PAGE> 42
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public or certified public
accountants for the Company and with representatives of the Initial Purchasers
at which the contents of the Offering Memorandum, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Offering
Memorandum (other than as specified above), and any supplements or amendments
thereto, on the basis of the foregoing, nothing has come to their attention
which would lead them to believe that either the Offering Memorandum, as of its
date or at the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (it being understood that such counsel need express no
belief as to the financial statements or other financial data derived therefrom,
included in the Offering Memorandum or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws the States of California, Wisconsin
and Texas and of any other jurisdiction other than the General Corporation Law
of the State of Delaware, the laws of the State of Arizona or the federal law of
the United States, to the extent they deem proper and specified in such opinion,
upon the opinion (which shall be dated the Closing Date shall be satisfactory in
form and substance to the Initial Purchasers, shall expressly state that the
Initial Purchasers may rely on such opinion as if it were addressed to them and
shall be furnished to the Initial Purchasers) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Initial Purchasers; provided, however, that such counsel shall further state
that they believe that they and the Initial Purchasers are justified in relying
upon such opinion of other counsel, and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials.
A-6
<PAGE> 43
ANNEX I
Resale Pursuant to Regulation S or Rule 144A. Each Initial
Purchaser understands that:
(a) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Securities in the United States or
to, or for the benefit or account of, a U.S. Person (other than a
distributor), in each case, as defined in Rule 902 under the Securities
Act (i) as part of its distribution at any time and (ii) otherwise
until 40 days after the later of the date the Notes were first offered
to persons other than "distributors" (as defined in Regulation S) in
reliance upon Regulation S and the Closing Date, other than in
accordance with Regulation S of the Securities Act or another exemption
from the registration requirements of the Securities Act. Such Initial
Purchaser agrees that, during such 40-day restricted period, it will
not cause any advertisement with respect to the Securities (including
any "tombstone" advertisement) to be published in any newspaper or
periodical or posted in any public place and will not issue any
circular relating to the Securities, except such advertisements as are
permitted by and include the statements required by Regulation S.
(b) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Securities by it to any distributor, dealer
or person receiving a selling concession, fee or other remuneration
during the 40-day restricted period referred to in Rule 903(c)(2) under
the Securities Act, it will send to such distributor, dealer or person
receiving a selling concession, fee or other remuneration a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered and sold within the United
States or to, or for the account or benefit of, U.S. persons
(i) as part of your distribution at any time or (ii) otherwise
until 40 days after the later of the date the Notes were first
offered to persons other than "distributors" (as defined in
Regulation S) in reliance upon Regulation S and the Closing
Date, except in either case in accordance with Regulation S
and under the Securities Act (or Rule 144A or to Accredited
Institutions in transactions that are exempt from the
registration requirements of the Securities Act), and in
connection with any subsequent sale by you of the Notes
covered hereby in reliance on Regulation S during the period
referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing effect.
Terms used above have the meanings assigned to them in
Regulation S."
<PAGE> 44
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<PAGE> 1
EXHIBIT 4.5
STYLING TECHNOLOGY CORPORATION
as issuer of the Notes and
GENA LABORATORIES, INC.,
J.D.S. MANUFACTURING CO., INC.,
U.K. ABBA PRODUCTS, INC.,
EUROPEAN TOUCH CO., INCORPORATED,
EUROPEAN TOUCH, LTD. II,
BEAUTY PRODUCTS INC.
and
COSMETICS INTERNATIONAL INC.
as Guarantors
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
INDENTURE
DATED AS OF JUNE 23, 1998
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310 (a)(1).......................................................... 7.10
(a)(2) ............................................................. 7.10
(a)(3).............................................................. N.A.
(a)(4).............................................................. N.A.
(a)(5).............................................................. 7.10
(i)(b).............................................................. 7.10
(ii)(c)............................................................. N.A.
311(a).............................................................. 7.11
(b) ................................................................ 7.11
(iii(c)............................................................. N.A.
312 (a)............................................................. 2.05
(b) ................................................................ 11.03
(iv)(c)............................................................. 11.03
313(a).............................................................. 7.06
(b)(2).............................................................. 7.07
(v)(c).............................................................. 7.06; 11.02
(vi)(d)............................................................. 7.06
314(a).............................................................. 4.03; 11.02
(c)(1).............................................................. 11.04
(c)(2).............................................................. 11.04
(c)(3).............................................................. N.A.
(vii)(e)............................................................ 11.05
(f) ................................................................ NA
315 (a)............................................................. 7.01
(b) ................................................................ 7.05, 11.02
(A)(c).............................................................. 7.01
(d) ................................................................ 7.01
(e) ................................................................ 6.11
316 (a)(last sentence).............................................. 2.09
(a)(1)(A)........................................................... 6.05
(a)(1)(B)........................................................... 6.04
(a)(2).............................................................. N.A.
(b) ................................................................ 6.07
(B)(c).............................................................. 2.12
317 (a)(1).......................................................... 6.08
(a)(2).............................................................. 6.09
(b) ................................................................ 2.04
318 (a)............................................................. 11.01
(b) ................................................................ N.A.
(c) ................................................................ 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
i
<PAGE> 3
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.........................1
SECTION 1.01. DEFINITIONS..................................................1
SECTION 1.02. OTHER DEFINITIONS...........................................17
SECTION 1.03..............................................................17
SECTION 1.04. RULES OF CONSTRUCTION.......................................18
ARTICLE 2. THE NOTES.........................................................18
SECTION 2.01. FORM AND DATING.............................................18
SECTION 2.02. EXECUTION AND AUTHENTICATION................................19
SECTION 2.03. REGISTRAR AND PAYING AGENT..................................19
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.........................20
SECTION 2.05. HOLDER LISTS................................................20
SECTION 2.06. TRANSFER AND EXCHANGE.......................................20
SECTION 2.07. REPLACEMENT NOTES...........................................33
SECTION 2.08. OUTSTANDING NOTES...........................................33
SECTION 2.09. TREASURY NOTES..............................................33
SECTION 2.10. TEMPORARY NOTES.............................................34
SECTION 2.11. CANCELLATION................................................34
SECTION 2.12. DEFAULTED INTEREST..........................................34
ARTICLE 3. REDEMPTION AND PREPAYMENT.........................................35
SECTION 3.01. NOTICES TO TRUSTEE..........................................35
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED...........................35
SECTION 3.03. NOTICE OF REDEMPTION........................................35
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION..............................36
i
<PAGE> 4
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.................................36
SECTION 3.06. NOTES REDEEMED IN PART......................................37
SECTION 3.07. OPTIONAL REDEMPTION.........................................37
SECTION 3.08. MANDATORY REDEMPTION........................................37
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.........37
ARTICLE 4. COVENANTS.........................................................39
SECTION 4.01. PAYMENT OF NOTES............................................39
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.............................39
SECTION 4.03. REPORTS.....................................................40
SECTION 4.04. COMPLIANCE CERTIFICATE......................................40
SECTION 4.05. TAXES.......................................................41
SECTION 4.06. STAY, EXTENSION AND USURY LAWS..............................41
SECTION 4.07. RESTRICTED PAYMENTS.........................................41
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES......................................43
SECTION 4.09. INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK..........44
SECTION 4.10. ASSET SALES.................................................46
SECTION 4.11. TRANSACTIONS WITH AFFILIATES................................48
SECTION 4.12. LIENS.......................................................48
SECTION 4.13. BUSINESS ACTIVITIES.........................................49
SECTION 4.14. CORPORATE EXISTENCE.........................................49
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL..................49
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.................................50
SECTION 4.17. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS...............50
SECTION 4.18. RESTRICTION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES...51
SECTION 4.19. LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES......51
SECTION 4.20. ADDITIONAL NOTE GUARANTEES..................................51
ii
<PAGE> 5
SECTION 4.21. PAYMENTS FOR CONSENT........................................51
ARTICLE 5. SUCCESSORS........................................................52
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.....................52
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED...........................52
ARTICLE 6. DEFAULTS AND REMEDIES.............................................53
SECTION 6.01. EVENTS OF DEFAULT...........................................53
SECTION 6.02. ACCELERATION................................................55
SECTION 6.03. OTHER REMEDIES..............................................55
SECTION 6.04. WAIVER OF PAST DEFAULTS.....................................55
SECTION 6.05. CONTROL BY MAJORITY.........................................56
SECTION 6.06. LIMITATION ON SUITS.........................................56
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT...............56
SECTION 6.08. COLLECTION SUIT BY TRUSTEE..................................57
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM............................57
SECTION 6.10. PRIORITIES..................................................57
SECTION 6.11. UNDERTAKING FOR COSTS.......................................58
ARTICLE 7. TRUSTEE...........................................................58
SECTION 7.01. DUTIES OF TRUSTEE...........................................58
SECTION 7.02. RIGHTS OF TRUSTEE...........................................59
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE................................60
SECTION 7.04. TRUSTEE'S DISCLAIMER........................................60
SECTION 7.05. NOTICE OF DEFAULTS..........................................60
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES..................60
SECTION 7.07. COMPENSATION AND INDEMNITY..................................61
SECTION 7.08. REPLACEMENT OF TRUSTEE......................................61
iii
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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC............................62
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION...............................62
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...........63
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..........................63
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE....63
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE..............................63
SECTION 8.03. COVENANT DEFEASANCE.........................................64
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE..................64
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS....................65
SECTION 8.06. REPAYMENT TO COMPANY........................................66
SECTION 8.07. REINSTATEMENT...............................................66
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER..................................67
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.........................67
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES............................67
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.........................69
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS...........................69
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES............................69
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.............................69
ARTICLE 10. SUBORDINATION....................................................70
SECTION 10.01. AGREEMENT TO SUBORDINATE...................................70
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.......................70
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT..........................70
SECTION 10.04. ACCELERATION OF SECURITIES.................................71
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER........................71
SECTION 10.06. NOTICE BY COMPANY..........................................72
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SECTION 10.07. SUBROGATION................................................72
SECTION 10.08. RELATIVE RIGHTS............................................72
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY...............73
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE...................73
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.........................73
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION......................73
SECTION 10.13. AMENDMENTS.................................................74
ARTICLE 11. NOTE GUARANTEES..................................................74
SECTION 11.01. GUARANTEE..................................................74
SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE............................75
SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY..........................75
SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE...................75
SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.........76
SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS..........................77
ARTICLE 12. MISCELLANEOUS....................................................77
SECTION 12.01. TRUST INDENTURE ACT CONTROLS...............................77
SECTION 12.02. NOTICES....................................................77
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH
OTHER HOLDERS OF NOTES.....................................78
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.........79
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION..............79
SECTION 12.06. RULES BY TRUSTEE AND AGENTS................................79
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS,
OFFICERS, EMPLOYEES AND STOCKHOLDERS.......................79
SECTION 12.08. GOVERNING LAW..............................................80
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS..............80
SECTION 12.10. SUCCESSORS.................................................80
SECTION 12.11. SEVERABILITY...............................................80
v
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SECTION 12.12. COUNTERPART ORIGINALS......................................80
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC...........................80
vi
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EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
Exhibit E FORM OF NOTATION OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
<PAGE> 10
INDENTURE dated as of June 23, 1998 between Styling Technology
Corporation, a Delaware corporation (the "Company"), Gena Laboratories, Inc., a
Texas corporation, J.D.S. Manufacturing Co., Inc., a California corporation,
U.K. ABBA Products, Inc., a California corporation, European Touch Co.,
Incorporated, a Wisconsin corporation, European Touch, Ltd. II, a Wisconsin
Corporation, Beauty Products Inc., a Wisconsin corporation, Cosmetics
International Inc., a Wisconsin corporation, and State Street Bank and Trust
Company of California, N.A., as trustee (the "Trustee").
The parties hereto agree as follows for the benefit of each
other and for the equal and ratable benefit of the holders of the 10 7/8% Senior
Subordinated Notes due 2008 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person,
(i) Debt of any other Person existing at the time such other Person is merged
with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Debt incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person and (ii) Debt secured by a Lien encumbering any asset acquired
by such specified Person.
"Additional Interest" shall have the definition set forth in
the Registration Rights Agreement. All references in this Indenture and in the
Notes to "interest" on the Notes shall be deemed to include Additional Interest
that may become payable thereon according to the provisions of the Registration
Rights Agreement.
"Additional Notes" means up to $25.0 million in aggregate
principal amount of Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the Voting Stock
of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
<PAGE> 11
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
set forth in Section 4.15 and/or Section 5.01 and not by the provisions of
Section 4.10, and (ii) the issue by any Restricted Subsidiary of the Company of
any Equity Interests of such Restricted Subsidiary and the sale by the Company
or any of its Restricted Subsidiaries of any Equity Interest of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company
or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary, (iii) a Restricted Payment that is permitted
pursuant to Section 4.07 hereof, and (iv) the issuance by the Company of shares
of its Capital Stock, (v) sale or other disposition of cash or Cash Equivalents,
(vi) the sale or disposition of damaged, worn out or other obsolete personal
property in the ordinary course of business, (vii) the surrender or waiver of
contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind, (viii) the granting of Liens not prohibited by this
Indenture or (ix) the execution and performance of contracts to provide
manufacturing and other services, including in connection with Asset Sales.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments (after
excluding all amounts required to be paid on account of maintenance and repairs,
insurance, taxes, utilities and other similar expenses payable by the lessee
pursuant to the terms of the lease) during the remaining term of the lease
included in such sale and leaseback transaction (including any period for which
such lease has been extended or may, at the option of the lessee, be extended)
or until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of a penalty (in which case the rental payments shall
include such penalty).
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board of Directors of the Company.
"Business Day" means any day other than a Legal Holiday.
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<PAGE> 12
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of
$500,000,000 and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from either
Moody's Investors Service, Inc. or Standard & Poor's Corporation and, in each
case, maturing within six months after the date of acquisition, and (vi) money
market funds at least 95% of the assets of which constitute Cash Equivalents of
the kinds described in clauses (i) through (v) of this definition.
"Cedel" means Cedel Bank, S.A.
"Change of Control" means the occurrence of any of the
following: (i) the sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than to a Principal or a Related Party of a
Principal (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principal and his Related Parties, becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in
calculating the beneficial ownership of any particular "person," such "person"
shall be deemed to have beneficial ownership of all securities that such person
has the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition), directly or
indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares), (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors or (v) the Company consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged
3
<PAGE> 13
for cash, securities or other property, other than any such transaction where
the Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance).
"Company" means Styling Technology Corporation, a Delaware
corporation, and any and all successors thereto.
"Common Stock" means the common stock, par value $0.0001 per
share, of the Company.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Operating Cash Flow for the
period of the most recent four consecutive fiscal quarters ending at least 45
days (or, if less, the number of days after the end of such fiscal quarter as
the consolidated financial statements of the Company shall be available) prior
to the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; provided, however, that (1) if the Company or any
Restricted Subsidiary has incurred any Debt since the beginning of such period
that remains outstanding on such date of determination or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
incurrence of Debt, or both, Operating Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Debt as if such Debt had been incurred on the first day of such
period (except that, in the case of Debt used to finance working capital needs
incurred under a revolving credit or similar arrangement, the amount thereof
shall be deemed to be the average daily balance of such Debt during such
four-fiscal-quarter period), (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Sale, the
Operating Cash Flow for such period shall be reduced by an amount equal to the
Operating Cash Flow (if positive) directly attributable to the assets which are
the subject of such Asset Sale for such period, or increased by an amount equal
to the Operating Cash Flow (if negative) directly attributable thereto for such
period, and Consolidated Interest Expense directly attributable to any Debt of
the Company or any Restricted Subsidiary repaid, repurchased, defeased, assumed
by a third person (to the extent the Company and its Restricted Subsidiaries are
no longer liable for such Debt) or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such Asset
Sale for such period (or, if the Capital Stock of any Restricted Subsidiary is
sold, the Consolidated Interest Expense for such period directly attributable to
the Debt of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Debt after such
sale), (3) if since the beginning of such period the Company shall have
consummated a Public Equity Offering, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Debt of the Company or any Restricted Subsidiaries
in connection with such Public Equity Offering for such period, or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its Restricted Subsidiaries in connection with such
Public Equity Offering for such period, (4) if since the beginning of such
period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets, which acquisition
constitutes all or substantially all of an operating unit of a business,
including any such Investment or acquisition occurring in connection
4
<PAGE> 14
with a transaction requiring a calculation to be made hereunder, Operating Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the incurrence of any Debt) as if
such Investment or acquisition occurred on the first day of such period and (5)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
any Investment or acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a Restricted
Subsidiary during such period, Operating Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Sale, Investment or acquisition occurred on the first
day of such period. If any Debt bears a floating rate of interest and is being
given pro forma effect, the interest of such Debt shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Debt if such Interest Rate Agreement has a remaining term in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest expense,
and to the extent incurred by the Company or its Restricted Subsidiaries, (i)
interest expense attributable to Capital Lease Obligations, (ii) amortization of
debt discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary and (viii) interest actually paid on any
Debt of any other Person that is guaranteed by the Company or any Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net
income of the Company and its consolidated Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(or loss) of any Person if such Person is not the Company or a Restricted
Subsidiary, except that, subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) for purposes of clause (c)(i)
of the first paragraph of Section 4.07 only, any net income (or loss) of any
Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary consistent with such restriction during such period to the Company or
another as a dividend or other distribution (subject, in the case of a dividend
or other distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other
disposition of any assets of the Company, or its consolidated
5
<PAGE> 15
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain (or loss) realized upon the sale or other disposition of any Capital Stock
of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect
of a change in accounting principles.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or
more debt facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Debt under Credit
Facilities outstanding on the date on which Notes are first issued and
authenticated under this Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (i) of the definition of
Permitted Debt.
"Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Debt" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Debt of others secured by a
Lien on any asset of such Person (whether or not such Debt is assumed by such
Person) and, to the extent not otherwise included, the guarantee by such Person
of any indebtedness of any other Person. The amount of any Debt outstanding as
of any date shall be (i) the accreted value thereof, in the case of any Debt
issued with original issue discount, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Debt. Guarantees of Debt otherwise included in the
determination of such amount shall not also be included in the foregoing
definition of "Debt."
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
6
<PAGE> 16
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Senior Debt" means (i) any Debt outstanding under
the New Credit Facility and (ii) any other Senior Debt permitted under this
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, in each case at the option of the holder thereof), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the provisions of Section
4.07 hereof.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Debt" means Debt of the Company and its Subsidiaries
in existence on the date hereof, until such amounts are repaid.
7
<PAGE> 17
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Debt.
"Guarantors" means (i) each of the Company's direct or
indirect domestic Restricted Subsidiaries as of the date of this Indenture and
(ii) any other direct or indirect domestic Restricted Subsidiary that executes a
Note Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" means $100.0 million in aggregate principal
amount of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
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<PAGE> 18
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Debt or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Debt, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as set forth in Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in The City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all holders of the Notes for use by such
holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
(i) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, sales commissions, title and
other reasonable fees, costs and expenses consistent with past practices and
related to such Asset Sale) and any relocation expenses incurred as a result
thereof, (ii) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be applied to the repayment of Debt
(other than Debt incurred under a Credit Facility) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP and (iv) deduction of appropriate amounts to be provided by
the Company or a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed in such Asset Sale
and retained by the Company or a Restricted
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<PAGE> 19
Subsidiary after such Asset Sale including, without limitation, pension and
other post employment benefit liabilities and liabilities related to
environmental matters or against indemnification obligations associated with the
assets disposed of in such Asset Sale.
"New Credit Facility" means that certain Credit Facility to be
entered into among the Company and all domestic subsidiaries of the Company and
NationsBank, N.A., as administrative and collateral agent, and the other
financial institutions a party thereto, as such agreement in whole or in part
may be, in one or more agreements with one or more bank lending groups, amended,
renewed, extended, substituted, refinanced, restructured, replaced, supplemented
or otherwise modified, in whole or in part, from time to time.
"Non-Recourse Debt" means Debt (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Debt), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt (other than the
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Guarantee" means the guarantee by each Guarantor of the
Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Operating Cash Flow" means for any Person and for any period,
the sum of Consolidated Net Income plus (A) Consolidated Interest Expense, plus
(B) the following to the extent
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<PAGE> 20
deducted in calculating such Consolidated Net Income, without duplication: (i)
income tax expense, (ii) depreciation expense, (iii) amortization expense, (iv)
all other non-cash items reducing Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be made) and (v) transaction fees and related expenses
incurred in connection with a business combination accounted for as a pooling of
interest transaction for accounting purposes. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute Operating Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear
or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Business" means the business conducted by the
Company and its Restricted Subsidiaries on the date of this Indenture and all
businesses reasonably related thereto (as determined in good faith by the Board
of Directors of the Company).
"Permitted Investments" means (a) any Investment in the
Company or in any Restricted Subsidiary of the Company that is a Guarantor; (b)
any Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in another Person, if as a result of such Investment
(x) such other Person becomes a Restricted Subsidiary of the Company that is a
Guarantor, (y) such other Person becomes a Restricted Subsidiary of the Company
that is not a Guarantor but, at the time of such Investment, is not subject to a
consensual encumbrance or consensual restriction that would be prohibited by
Section 4.08 hereof, without regard to the exception described in clauses (i),
(ii) or (iii) thereunder, or (z) such other Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company that, at the time of such Investment, either is a Guarantor or is not
subject to a consensual encumbrance or consensual restriction that would be
prohibited by Section 4.08 hereof, without regard to the exception described in
clauses (i), (ii) or (iii) thereunder; (d) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with Sections 3.09 and 4.10 hereof; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (f) Investments represented by accounts
receivable created or acquired in the ordinary course of business; (g) loans or
advances to employees, officers or directors not to exceed $1.0 million
outstanding at any one time; (h) Investments under or pursuant to Hedging
Obligations consisting of Interest Rate Agreements entered into in the ordinary
course of business and not for the purpose of speculation; (i) Investments in
the Notes otherwise permitted under this Indenture; (j) the repurchase,
redemption, retirement or repayment of up to
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<PAGE> 21
$2.0 million of Debt of the Company incurred as deferred financing costs in
connection with the Company's purchase of Gena Laboratories, Inc. and
outstanding as of the date of this Indenture; and (k) Investments in Persons
engaged in a Permitted Business; provided, however, that the aggregate amount of
all such Investments described in this clause (k) shall not exceed at any one
time outstanding 7.5% of the consolidated total assets of the Company as
reflected on the most recent balance sheet delivered by the Company to the
Trustee pursuant to the requirements of this Indenture.
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Notes are subordinated to Senior
Debt pursuant to Article 10 of this Indenture.
"Permitted Liens" means (i) Liens securing Debt and other
Obligations under Credit Facilities that were permitted by the terms of this
Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing at the time such Person is merged with or into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Debt
(including Capital Lease Obligations) permitted by clause (d) of the second
paragraph of Section 4.09 hereof covering only the assets acquired with such
Debt; (vii) Liens existing on the date of this Indenture; (viii) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Subsidiary; (x) Liens on assets of the Company securing Senior Debt of the
Company that was permitted to be incurred by the terms of this Indenture and
Liens on assets of Guarantors to secure Senior Debt of such Guarantors that was
permitted by this Indenture to be incurred; (xi) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xii)
Liens on any insurance policies arising out of borrowings against the cash
surrender value of such insurance policies held by the Company, provided that
such Liens do not exceed the amount of Debt and are secured only by the cash
surrender value of such insurance policies; and (xiii) Liens in connection with
sale and leaseback transactions otherwise permitted by the Indenture.
"Permitted Refinancing Debt" means any Debt of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Debt of the Company or any of its Restricted Subsidiaries (other than
intercompany Debt); provided that: (i) the principal amount (or accreted value,
if applicable) of such
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<PAGE> 22
Permitted Refinancing Debt does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Debt so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Debt being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Debt being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Debt has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the holders of Notes as those
contained in the documentation governing the Debt being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the Debt
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership,
limited liability company or partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or government (including
any agency or instrumentality thereof).
"Preferred Stock" as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" means Sam L. Leopold.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means an underwritten offering of
Common Stock with gross proceeds to the Company of at least $20.0 million
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than registration statement on
Form S-8 or otherwise relating to equity securities issuable under any employee
benefit plan of the Company).
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 23, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Regulation S" means Regulation S promulgated under the
Securities Act.
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<PAGE> 23
"Regulation S Global Note" means a global Note bearing the
Private Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to the Principal means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Representative" means this Indenture trustee or other
trustee, agent or representative for any Senior Debt.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Office of the Trustee or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred by the Trustee because of his knowledge of and familiarity with the
particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Period" means the period through and including the
40th day after the later of the date the Notes were first offered to persons
other than "distributors" (as defined in Regulation S) in reliance upon
Regulation S and the closing of the Offering.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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<PAGE> 24
"Senior Debt" means (i) all Debt outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other Debt
permitted to be incurred by the Company under the terms of this Indenture,
unless the instrument under which such Debt is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Notes and
(iii) all Obligations with respect to the foregoing. Notwithstanding anything to
the contrary in the foregoing, Senior Debt shall not include (w) any liability
for federal, state, local or other taxes owed or owing by the Company, (x) any
Debt of the Company to any of its Subsidiaries or other Affiliates, (y) any
trade payables or (z) any Debt that is incurred in violation of this Indenture.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Debt, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Debt, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). For purposes of
this Indenture, when no referent Person is specifically identified, "Subsidiary"
shall be deemed to refer to a Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent global Note in
the form of Exhibit A attached hereto that bears the Global Note Legend and that
has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
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<PAGE> 25
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Debt other than Non-Recourse Debt; (b) is not party to
any agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Debt of the Company or any of its Restricted Subsidiaries; and (e) has at least
one director on its board of directors that is not a director or executive
officer of the Company or any of its Restricted Subsidiaries and has at least
one executive officer that is not a director or executive officer of the Company
or any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Debt of such Subsidiary shall
be deemed to be incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Debt is not permitted to be incurred as of such date under
Section 4.09 hereof, the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Debt by a Restricted Subsidiary of the Company
of any outstanding Debt of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Debt is permitted pursuant to Section 4.09
hereof, calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no Default or Event
of Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Debt at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Debt.
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"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares or
foreign national shares, in each case to the extent mandated by law) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction".....................................................4.11
"Asset Sale Offer"..........................................................4.10
"Authentication Order"......................................................2.02
"Bankruptcy Law"............................................................4.01
"Change of Control Offer"...................................................4.15
"Change of Control Payment".................................................4.15
"Change of Control Payment Date" ...........................................4.15
"Covenant Defeasance".......................................................8.03
"DTC".......................................................................2.03
"Event of Default"..........................................................6.01
"Excess Proceeds"...........................................................4.10
"incur".....................................................................4.09
"Legal Defeasance" .........................................................8.02
"Offer Amount"..............................................................3.09
"Offer Period"..............................................................3.09
"Other Consideration".......................................................4.10
"Paying Agent"..............................................................2.03
"Payment Blockage Notice"..................................................10.03
"Payment Default"...........................................................6.01
"Permitted Debt"............................................................4.09
"Purchase Date".............................................................3.09
"Registrar".................................................................2.03
"Restricted Payments".......................................................4.07
SECTION 1.03. TIA PROVISIONS.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
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<PAGE> 27
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes and the Note Guarantees means the
Company and the Guarantors, respectively, and any successor obligor upon the
Notes and the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Note conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
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(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibit A attached hereto (including the Global Note Legend thereon
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Global Note that are held by
Participants through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers (an "Authentication Order"), authenticate Notes for original
issue up to $125.0 million aggregate principal amount of Notes, of which $100.0
million shall be issued on the date of this Indenture. The aggregate principal
amount of Notes outstanding at any time may not exceed such amount except as
provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be
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presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Custodian with respect to the Global
Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of holders or the Trustee all money held by the Paying Agent for the
payment of principal or premium, if any, or interest on the Notes, and will
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall
have no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Trustee shall serve
as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
holders of Notes and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes . A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes shall be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that
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it is unwilling or unable to continue to act as Depositary or that it is no
longer a clearing agency registered under the Exchange Act and, in either case,
a successor Depositary is not appointed by the Company within 120 days after the
date of such notice from the Depositary, (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the Trustee
or (iii) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes. Upon the occurrence of either of the
preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued
in such names as the Depositary shall instruct the Trustee. Global Notes also
may be exchanged or replaced, in whole or in part, as provided in Sections 2.07
and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Regulation S Global
Note may not be made to a U.S. Person or for the account or benefit of
a U.S. Person (other than an Initial Purchaser). Beneficial interests
in any Unrestricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the
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Depositary to the Registrar containing information regarding the Person
in whose name such Definitive Note shall be registered to effect the
transfer or exchange referred to in (1) above. Upon consummation of an
Exchange Offer by the Company in accordance with Section 2.06(f)
hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to
have been satisfied upon receipt by the Registrar of the instructions
contained in the Letter of Transmittal delivered by the Holder of such
beneficial interests in the Restricted Global Notes. Upon satisfaction
of all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the Notes or
otherwise applicable under the Securities Act, the Trustee shall adjust
the principal amount of the relevant Global Note(s) pursuant to Section
2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Global Note, then
the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
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(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a certificate
from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note, a certificate from such holder
in the form of Exhibit B hereto, including the certifications in item
(4) thereof; and
(3) in each such case set forth in this subparagraph
(D), if the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
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(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c) shall be registered in such
name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall
instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall bear the
Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such
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beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a Definitive
Note that does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph
(D), if the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive Note
or to transfer such beneficial interest to a Person who takes delivery thereof
in the form of a Definitive Note, then, upon satisfaction of the conditions set
forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate
principal amount of the applicable Global Note to be reduced accordingly
pursuant to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in
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whose names such Notes are so registered. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear
the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
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the Trustee shall cancel the Restricted Definitive Note,
increase or cause to be increased the aggregate principal
amount of, in the case of clause (A) above, the appropriate
Restricted Global Note, in the case of clause (B) above, the
144A Global Note, and in the case of clause (C) above, the
Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes
to exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery thereof in
the form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph
(D), if the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer contained
herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
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Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase
or cause to be increased the aggregate principal amount of the Unrestricted
Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in
item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
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(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person
or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof; and
(3) in each such case set forth in this subparagraph
(D), if the Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such exchange
or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer . Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in
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accordance with Section 2.02, the Trustee shall authenticate (i) one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of the beneficial interests in the Restricted Global Notes
tendered for acceptance by Persons that certify in the applicable Letters of
Transmittal that (x) they are not broker-dealers, (y) they are not participating
in a distribution of the Exchange Notes and (z) they are not affiliates (as
defined in Rule 144) of the Company, and accepted for exchange in the Exchange
Offer and (ii) Definitive Notes in an aggregate principal amount equal to the
principal amount of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.
(g) Legends . The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO
THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE
PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1)(a) TO A PERSON THAT THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
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PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE.
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section
2.06 (and all Notes issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER
ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS
HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE,
(II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF STYLING
TECHNOLOGY CORPORATION.
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made
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on such Global Note by the Trustee or by the Depositary at the direction of the
Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (c) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
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(ix) Neither the Company nor the Trustee will be liable for
any delay by the holder of a beneficial interest in a Global Note or
the Depositary in identifying beneficial owners of the Notes and the
Company, and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of a beneficial
interest in a Global Note or the Depositary for all purposes.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee and the Company receive evidence to their satisfaction
of the destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon receipt of an Authentication Order, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses (including reasonable attorneys' fees and expenses) in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Company and the Trustee receives proof
satisfactory to each of them that the replaced Note is held by a bona fide
purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
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shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. Subject to Section 2.07 hereof, the Company may not issue new
Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid. In lieu of the foregoing procedures, the
Company may pay defaulted interest in any other manner satisfactory to the
Trustee.
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ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
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(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent cash sufficient to pay
the redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
cash so deposited with the Trustee or the Paying Agent by the Company in excess
of the amounts necessary to pay the redemption price of, and accrued interest
on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
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SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the reasonable expense of the Company a new Note
equal in principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Company shall not have the option to redeem the Notes pursuant
to this Section 3.07 prior to July 1, 2003. Thereafter, the Company shall have
the option to redeem the Notes, in whole or in part, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on July 1 of the years indicated below:
YEAR PERCENTAGE
2003...................................................................105.4375%
2004...................................................................103.6250%
2005...................................................................101.8125%
2006 and thereafter....................................................100.0000%
(b) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to holders who tender Notes pursuant to the Asset Sale Offer.
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Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(j) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest after the Purchase Date;
(d) that a Holder electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(e) that a Holder electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(f) that a Holder shall be entitled to withdraw its election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(h) that holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
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tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Additional Interest, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency (which may be an office of the Trustee or
an Affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from
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time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, the City
of New York for such purposes. The Company shall give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby designates both the Corporate Trust Office
of the Trustee and the corporate trust administration office of State Street
Bank and Trust Company, N.A., an Affiliate of the Trustee, with a place of
business at 61 Broadway, 15th Floor, New York, New York 10006, as offices or
agencies of the Company in accordance with Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if the Company were required to file such reports, in each
case, within the time periods specified in the SEC's rules and regulations. In
addition, following consummation of the Exchange Offer, whether or not required
by the rules and regulations of the SEC, the Company shall file a copy of all
such information and reports with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. The Company shall at all times
comply with TIA Section 314(a).
(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such Guarantor
is so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company or such Guarantor (as the case may be) during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company and the Guarantors have
kept, observed, performed and fulfilled their obligations under this Indenture,
and further stating that no Default or Event of Default has occurred (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events
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of Default of which each such Officer may have knowledge and what action the
Company and such Guarantor is taking or proposes to take with respect thereto),
and that, to the best of each signing Officers' knowledge, no event has occurred
and remains in existence by reason of which payments on account of the principal
of or interest, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action the Company or such
Guarantor is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then-current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company and each Restricted Subsidiary shall, so long as any of
the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of
the Company or such Restricted Subsidiary becoming aware of any Default or Event
of Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company or such Restricted Subsidiary is taking or proposes
to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on
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account of the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries) or to
the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Debt that is pari passu
with or subordinated to the Notes (other than Notes), except a payment of
interest or principal at Stated Maturity; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Debt pursuant to the Consolidated Coverage
Ratio test set forth in Section 4.09, and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clause (ii), (iii) and (iv) of the next succeeding paragraph), is less than the
sum, without duplication, of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date of this Indenture to the end
of the Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company since the date of this Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company), plus (iii) to the extent that
any Restricted Investment that was made after the date of this Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment
plus, (iv) in the event an Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary, an amount equal to the lesser of (A) the net book value
of Investments made in such Unrestricted Subsidiary at the time of such
designation and (B) the fair market value of Investments made in such
Unrestricted Subsidiary at the time of such designation.
So long as no Default has occurred and is continuing or would
be caused thereby, the foregoing provisions shall not prohibit (i) the payment
of any dividend within 60 days after the date of
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declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture; (ii) the redemption, repurchase,
retirement, defeasance or other acquisition of any pari passu or subordinated
Debt or Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, other Equity Interests of the Company (other than
any Disqualified Stock); provided that the amount of any such net cash proceeds
that are used for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of
pari passu or subordinated Debt with the net cash proceeds from an incurrence of
Permitted Refinancing Debt; and (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this Section 4.07 shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, if such fair
market value exceeds $1.0 million, and in addition, by a majority of the
independent directors of the Board of Directors if such fair market value
exceeds $5.0 million. Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, together with a copy
of any fairness opinion or appraisal required by this Indenture.
The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a Default.
In the event of any such designation, all outstanding Investments owned by the
Company and its Restricted Subsidiaries in the Subsidiary so designated shall be
deemed to be a Restricted Payment made as of the time of such designation and
shall reduce the amount available for Restricted Payments under the first
paragraph of this covenant. Such designation shall be permitted only if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if such redesignation would not cause a Default.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits or (ii) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company or
any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) Existing Debt as
in effect on the date hereof, (ii) the New Credit Facility as originally
executed by the Company and any amendments, modifications, restatements,
renewals,
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increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are no more restrictive,
taken as a whole, with respect to such dividend and other payment restrictions
than those contained in the New Credit Facility as originally executed by the
Company, (iii) this Indenture and the Notes, (iv) applicable law, (v) customary
non-assignment provisions in licensing agreements or leases entered into in the
ordinary course of business and consistent with past practices, (vi) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (c) above on the property
so acquired, (vii) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition, (viii) Permitted Refinancing Debt,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are no more restrictive, taken as a whole, than those
contained in the agreements governing the Debt being refinanced, (ix) Liens
securing Debt otherwise permitted to be incurred pursuant to the provisions of
Section 4.12 that limit the right of the Company or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien, (x) provisions with
respect to the disposition or distribution of assets or property in joint
venture agreements and other similar agreements entered into in the ordinary
course of business, (xi) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary course of
business, (xii) restrictions existing by reason of or under Debt existing on the
date of this Indenture and (xiii) any customary restrictions existing under any
agreement entered into with respect to the sale or disposition of all or
substantially all the Equity Interests or assets of a Restricted Subsidiary,
provided that the disposition or sale is governed by the restrictions described
under Section 3.07 hereof.
SECTION 4.09. INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
(including Acquired Debt) and the Company shall not issue any Disqualified Stock
and shall not permit any of its Restricted Subsidiaries to issue any shares of
Preferred Stock; provided, however, that the Company and the Restricted
Subsidiaries may incur Debt (including Acquired Debt), the Company may issue
shares of Disqualified Stock and the Restricted Subsidiaries may issue shares of
Preferred Stock if the consolidated Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional Debt is
incurred or such Disqualified Stock or Preferred Stock is issued would have been
at least (a) 2.0 to 1.0, if such incurrence or issuance is on or prior to July
1, 2001 and (b) 2.25 to 1.0, if such incurrence or issuance is after July 1,
2001, in each case determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Debt had been
incurred, or the Disqualified Stock or Preferred Stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this Section 4.09
shall not apply to the incurrence of any of the following items of Debt
(collectively, "Permitted Debt") so long as no Default shall have occurred and
be continuing or would be caused thereby:
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(a) the incurrence by the Company or the Guarantors of Debt under
Credit Facilities; provided that the aggregate principal amount of all term Debt
of the Company and its Restricted Subsidiaries outstanding under all Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to $50.0 million less the aggregate amount of all Net Proceeds of Asset
Sales that have been applied by the Company or any of its Restricted
Subsidiaries since the date of this Indenture to permanently repay and reduce
the commitments with respect to Debt under a Credit Facility pursuant to Section
4.10 hereof; and provided, further, that the Company shall not permit any
Restricted Subsidiary that has incurred Debt under this clause (i) to be
released or relieved of any obligations under its Note Guarantee so long as any
such Debt remains outstanding;
(b) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Debt;
(c) the incurrence by the Company of Debt represented by the Notes and
the Exchange Notes (in each case, other than Additional Notes) and the
incurrence by the Guarantors of Debt represented by the Note Guarantees;
(d) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Company
or such Restricted Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(e) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds
of which are used to refund, refinance or replace Debt (other than intercompany
Debt) that was permitted by this Indenture to be incurred under the first
paragraph hereof or clauses (b) or (c) or this clause (e) of this paragraph;
(f) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Debt between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the Company
is the obligor on such Debt, such Debt is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and (ii)(A)
any subsequent issuance or transfer of Equity Interests that results in any such
Debt being held by a Person other than the Company or a Restricted Subsidiary
thereof and (B) any sale or other transfer of any such Debt to a Person that is
not either the Company or a Wholly Owned Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Debt by the Company or
such Restricted Subsidiary, as the case may be, that was not permitted by this
clause (f);
(g) Hedging Obligations consisting of Interest Rate Agreements entered
into in the ordinary course of business and not for the purpose of speculation;
provided, however, that such Interest Rate Agreements do not increase the Debt
of the Company outstanding at any time other than as a result of fluctuations in
interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(h) Debt of the Company or any Restricted Subsidiary arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or its Restricted
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Subsidiaries pursuant to such agreements, in any case incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of the
Company to the extent none of the foregoing results in an obligation to repay an
obligation for money borrowed by any Person and are limited in aggregate amount
to no greater than 10% of the fair market value of such business, assets or
Restricted Subsidiary so disposed of;
(i) the guarantee by the Company or any of the Guarantors of Debt of
the Company or a Restricted Subsidiary of the Company that was permitted to be
incurred by another provision of this covenant; and
(j) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Debt in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, together with all other Debt of
the Company and its Restricted Subsidiaries outstanding at such time (other than
Debt permitted by the first paragraph hereof or by clauses (a) through (i)
above) does not to exceed $10.0 million.
For purposes of determining compliance with this Section 4.09,
in the event that an item of proposed Debt meets the criteria of more than one
of the categories of Permitted Debt described in clauses (a) through (j) above
as of the date of incurrence thereof, or is entitled to be incurred pursuant to
the first paragraph of this Section 4.09 as of the date of incurrence thereof,
the Company shall, in its sole discretion, classify such item of Debt in any
manner that complies with this Section 4.09. Accrual of interest, accretion or
amortization of original issue discount shall not be deemed to be an incurrence
of Debt for purposes of this Section 4.09.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to consummate an Asset Sale unless (i) the Company (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by the Company or such Restricted Subsidiary into cash or Cash
Equivalents (to the extent of the cash or Cash Equivalents received), shall be
deemed to be cash or Cash Equivalents for purposes of this provision.
On or prior to the 365th day following the receipt of any Net
Proceeds from an Asset Sale, the Company (or such Restricted Subsidiary, as the
case may be) may, subject to the provisions
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of Section 4.09 hereof, apply such Net Proceeds, at its option, (a) to
permanently repay and reduce the amounts permitted to be borrowed by the Company
or such Restricted Subsidiary under the terms of any of its Senior Debt, or (b)
to acquire all or substantially all of the assets of, or a majority of the
Voting Stock of, another Permitted Business (provided that such Person
concurrently becomes a Restricted Subsidiary of the Company), or (c) to acquire
other long-term assets that are used or useful in a Permitted Business. Pending
the final application of any such Net Proceeds, the Company (or such Restricted
Subsidiary, as the case may be) may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall be required to make an offer to
all holders of Notes and all holders of other Debt that is pari passu with the
Notes containing provisions similar to those set forth in this Indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets (an
"Asset Sale Offer") to repurchase the maximum principal amount of Notes and such
other pari passu Debt that may be purchased out of the aggregate amount of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of repurchase, in accordance with the procedures set forth in Section
3.09 hereof and such other pari passu Debt. To the extent that any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company (or such
Restricted Subsidiary, as the case may be) may use such remaining Excess
Proceeds for any purpose not otherwise prohibited by this Indenture. If the
aggregate principal amount of Notes and such other pari passu Debt tendered into
such Asset Sale Offer surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other pari passu
Debt to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Company or any of its Restricted Subsidiaries may engage
in transactions in which assets are transferred in exchange for one or more
assets that are of a type customarily used in a Permitted Business; provided
that if the fair market value of the assets to be transferred by the Company or
such Restricted Subsidiary, plus the fair market value of any other
consideration paid or credited by the Company or such Restricted Subsidiary
exceeds $1.0 million, such transaction shall require approval of the Board of
Directors of the Company; provided that no such transaction shall be permitted
if the Consolidated Coverage Ratio of the Company would be reduced after giving
effect to such transaction; and provided, further, that the transferee of such
assets shall initially be designated as a Restricted Subsidiary if such Person
becomes a Subsidiary by virtue of such Asset Sale. In addition, each such
transaction shall be valued at an amount equal to all consideration received by
the Company or such Restricted Subsidiary in such transaction, other than such
assets received pursuant to such exchange ("Other Consideration"), for purposes
of determining whether an Asset Sale has occurred. If the Other Consideration is
of an amount and character such that such transaction constitutes an Asset Sale,
then the first two paragraphs of this Section 4.10 shall be applicable to any
proceeds of such Other Consideration.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable to the repurchase of
Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of this
Indenture, the
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Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Asset Sale
provisions of this Indenture by virtue thereof.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (a) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
(i) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (ii) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided, however, that (i) the
entering into and performance of obligations under any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary, (ii) transactions between or among the Company
and/or its Restricted Subsidiaries, (iii) payment of reasonable directors' fees
to Persons who are not otherwise Affiliates of the Company, (iv) any sale or
other issuance of Equity Interests (other than Disqualified Stock) of the
Company and (v) transactions permitted under Section 4.07 hereof shall not be
deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien of any kind securing Debt, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens, unless all payments due under this Indenture and the Notes are
secured on an equal and ratable basis with the Debt so secured until such time
as such is no longer secured by a Lien; provided that if such Debt is by its
terms expressly subordinated to the Notes or any Note Guarantee, the Lien
securing such Debt shall be subordinate and junior to the Lien securing the
Notes and the Note Guarantees with the same relative priority as such
subordinate or junior Debt shall have with respect to the Notes and the Note
Guarantees.
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SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses, except to
such extent as would not be material to the Company and its Subsidiaries taken
as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Restricted
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the holders
of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company
shall make an offer (a "Change of Control Offer") to each Holder to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of each
Holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within 30 days following
any Change of Control, the Company shall mail a notice to each Holder stating:
(1) that the Change of Control Offer is being made pursuant to this Section 4.15
and that all Notes tendered will be accepted for payment; (2) the purchase price
and the purchase date, which shall be no earlier than 30 days and no later than
60 days from the date such notice is mailed (the "Change of Control Payment
Date"); (3) that any Note not tendered will continue to accrue interest; (4)
that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (5)
that holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and
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regulations are applicable in connection with the repurchase of Notes in
connection with a Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder an Exchange Note equal in principal amount to any unpurchased
portion of the Notes surrendered by such Holder, if any; provided, that each
such Exchange Note shall be in a principal amount of $1,000 or an integral
multiple thereof. Prior to complying with the provisions of this Section 4.15,
but in any event within 90 days following a Change of Control, the Company
either shall repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.15,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.15 and Section 3.09 hereof and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company shall not incur, create, issue, assume, guarantee or otherwise become
liable for any Debt that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Notes, and (ii)
no Guarantor shall incur, create, issue, assume, guarantee or otherwise become
liable for any Debt that is subordinate or junior in right of payment to any
Senior Debt of such Guarantor and senior in any respect in right of payment to
the Note Guarantees.
SECTION 4.17. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any of its Restricted Subsidiaries may enter into a
sale and leaseback transaction if (i) the Company or such Restricted Subsidiary
could have (a) incurred Debt in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Consolidated
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and
(b) incurred a Lien to secure such Debt pursuant to the provisions of Section
4.12 hereof, (ii) the consideration received in connection with such sale and
leaseback transaction is at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback
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transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, Section 4.10 hereof.
SECTION 4.18. RESTRICTION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not sell any shares of Preferred Stock of
any Restricted Subsidiary and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of its Preferred Stock to
any Person (other than to the Company or a Wholly Owned Restricted Subsidiary).
SECTION 4.19. LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not sell any shares of Capital Stock of a
Restricted Subsidiary and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except: (i) to
the Company or a Wholly Owned Restricted Subsidiary or (ii) (A) in compliance
with Section 4.10 if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would continue to be a Restricted Subsidiary or (B)
if, immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and the Investment of the
Company in such Person after giving effect to such issuance or sale would have
been permitted to be made under Section 4.07 as if made on the date of such
issuance or sale. Notwithstanding the foregoing, (i) the Company may sell all of
the Capital Stock of a Subsidiary as long as the Company is in compliance with
the terms of Section 4.10 and (ii) the Company and its Restricted Subsidiaries
may issue directors' qualifying shares or shares issued to be held by foreign
nationals (in each case to the extent mandated by applicable law).
SECTION 4.20. ADDITIONAL NOTE GUARANTEES.
The Company (i) shall not permit any of its Restricted
Subsidiaries that is not a Guarantor to guarantee or secure through the granting
of Liens the payment of any Debt of the Company or any Guarantor and (ii) shall
not and shall not permit any of its Restricted Subsidiaries to pledge any
intercompany notes representing obligations of any of its Restricted
Subsidiaries, to secure the payment of any Debt of the Company or any Guarantor,
in each case unless such Subsidiary, the Company and the Trustee execute and
deliver a supplemental indenture evidencing such Subsidiary's Note Guarantee
(providing for the unconditional guarantee by such Restricted Subsidiary, on a
senior subordinated basis, of the Notes).
SECTION 4.21. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
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ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not, directly or indirectly, consolidate or
merge with or into (whether or not the Company is the surviving corporation) or
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Notes and this Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction, no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made shall, immediately after such transaction after
giving pro forma effect thereto and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof. The Company shall not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this Section 5.01 shall not
be applicable to a sale, assignment, transfer, conveyance, or other disposition
of assets between or among the Company and its Wholly Owned Restricted
Subsidiaries.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein; and
thereafter, the predecessor corporation shall be relieved of all obligations and
covenants under this Indenture and the Notes, except that such predecessor
corporation shall not be so relieved if it retains any material assets other
than (i) proceeds of the sale of assets and (ii) Equity Interests in
Unrestricted Subsidiaries.
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ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest (including any
Additional Interest) on the Notes when the same becomes due and payable and the
Default continues for a period of 30 days, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(b) the Company defaults in the payment when due of the principal
of or premium, if any, on the Notes when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to purchase) or
otherwise, whether or not such payment is prohibited by the provisions of
Article 10 hereof;
(c) the Company or any of its Restricted Subsidiaries fails to
observe or perform any covenant, condition or agreement on the part of the
Company to be observed or performed pursuant to Sections 3.09, 4.07, 4.09, 4.10
and 5.01 hereof;
(d) the Company or any of its Restricted Subsidiaries fails to
comply with any of its other agreements or covenants in, or provisions of, the
Notes or this Indenture and the Default continues for the period and after the
notice specified below;
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Debt for money borrowed by the Company or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Debt or guarantee now exists or shall be created
hereafter, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Debt prior to the expiration of the grace
period provided in such Debt (a "Payment Default") or (b) results in the
acceleration of such Debt prior to its express maturity and, in each case, the
principal amount of such Debt, together with the principal amount of any other
Debt as to which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $5.0 million or more;
(f) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the Company
or any of its Restricted Subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such undischarged
judgments exceeds $5 million;
(g) except as permitted by this Indenture, any Note Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Note Guarantee;
(h) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
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(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the Company or any
Restricted Subsidiary; or
(iii) orders the liquidation of the Company or any Restricted
Subsidiary, and the order or decree remains unstayed and in effect for 60
consecutive days.
An Event of Default shall not be deemed to have occurred under clause
(c), (e) or (f) until the Trustee shall have received written notice from the
Company or any of the holders or unless a Responsible Officer shall have
knowledge of such Event of Default. A Default under clause (d) is not an Event
of Default until the Trustee notifies the Company, or the holders of at least
25% in principal amount of the then outstanding Notes notify the Company and the
Trustee, of the Default and the Company or any Restricted Subsidiary does not
cure the Default within 60 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have had to pay if the Company then had
elected to redeem the Notes pursuant to Section 3.07 hereof, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the Notes to the contrary
notwithstanding. If an Event of Default occurs prior to July 1, 2003 by reason
of any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to July 1, 2003, then the premium payable for purposes of this
paragraph for each of the years beginning on July 1 of the years set forth below
shall be as set forth in the following table expressed as a percentage of the
amount that would otherwise be due but for the provisions of this sentence, plus
accrued interest, if any, to the date of payment:
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Year Percentage
1998 114.5000%
1999 112.6875%
2000 110.8750%
2001 109.0625%
2002 107.2500%
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default
specified in clauses (h) and (i) of Section 6.01 hereof with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary) occurs and is continuing,
the Trustee (by notice to the Company) or the holders of at least 25% in
principal amount of the then outstanding Notes (by written notice to the Company
and the Trustee) may declare the unpaid principal of and any accrued interest on
all the Notes to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately (together with the premium
referred to in Section 6.01, if applicable); provided, however, that so long as
any Designated Senior Debt is outstanding, such declaration shall not become
effective until the earlier of (x) the day which is five Business Days after the
receipt by Representatives of Designated Senior Debt of such written notice of
acceleration or (y) the date of acceleration of any Designated Senior Debt. If
an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs
with respect to the Company, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes shall be due and payable immediately without further
action or notice. The holders of a majority in aggregate principal amount of the
then outstanding Notes may, by written notice to the Trustee, rescind on behalf
of all of the holders an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, interest or premium that has become due
solely because of the acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the holders of all of the Notes waive an existing Default
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or Event of Default and its consequences hereunder, except a continuing Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium, if any,
and interest on the Note, on or after the respective due dates expressed in the
Note (including in connection with an offer to purchase), or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
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SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Notes and interest on overdue principal and, to the extent lawful, interest and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes
for principal, premium, if any and interest, respectively; and
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Third: to the Company (or to the extent the Trustee collects
any amount from any Guarantor to such Guarantor) or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to holders of Notes pursuant to this Section 6.10. The Trustee shall
give the Company prior notice of such record date and payment date.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
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(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company or any
Guarantor. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the holders unless such holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
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SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture. When the Trustee incurs expenses or renders
services after an Event of Default specified in Section 6.01(g) or (h) hereof
occurs, the expenses and the compensation for the services (including the fees
and expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
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(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid. Notwithstanding replacement of
the Trustee pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business (including
the trust created by this Indenture) to, another corporation, the successor
corporation without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has (or if the Trustee is a subsidiary of
a bank holding company, such holding
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company and its Affiliates shall have) a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes and the Guarantors' obligations discharged with respect to the Note
Guarantees upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their respective obligations with respect
to all outstanding Notes and Note Guarantees, respectively, on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal Defeasance means that the Company and the Guarantors shall
be deemed to have paid and discharged the entire Debt represented by the
outstanding Notes and the Note Guarantees, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of holders of outstanding Notes to receive solely from the trust fund described
in Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (b) the Company's obligations with respect to such Notes
under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article Eight. Subject to compliance with this
Article Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
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SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their respective obligations under the covenants contained in
Sections 4.07 through 4.13, Sections 4.15 through 4.22 and Article 11 hereof
with respect to the outstanding Notes on and after the date the conditions set
forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and
the Notes and Note Guarantees shall thereafter be deemed not "outstanding" for
the purposes of any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such covenants, but
shall continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Notes and Note Guarantees shall not be deemed
outstanding for accounting purposes). For this purpose, Covenant Defeasance
means that, with respect to the outstanding Notes and Note Guarantees, the
Company and the Guarantors may omit to comply with and shall have no liability
in respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof,
but, except as specified above, the remainder of this Indenture and such Notes
and Note Guarantees shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.01 hereof of the option applicable to this Section 8.03
hereof, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of
Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in
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the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article Eight
concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and
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to become due thereon in respect of principal, premium, if any, and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the request of the Company any money or non-callable Government
Securities held by it as provided in Section 8.04 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company,
the Guarantors and the Trustee may amend or supplement this Indenture, the Note
Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's or a Guarantor's
obligations to the Holders of the Notes by a successor to the Company or a
Guarantor pursuant to Article 5 or Article 11 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this
Indenture.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture (including Sections 3.09,
4.10 and 4.15 hereof), the Note Guarantees and the Notes with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
voting as a single class (including consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes), and, subject to
Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture, the Note Guarantees or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
voting as a single class (including consents obtained in connection with a
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tender offer or exchange offer for, or purchase of, the Notes). Section 2.08
hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding voting as a single class may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Notes.
However, without the consent of each Holder affected, an amendment or waiver
under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes) and a waiver of the payment
default that resulted from such acceleration;
(e) make any Note payable in money other than that stated in the
Notes;
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(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Sections 3.09, 4.10 or 4.15 hereof; or
(h) make any change in the foregoing amendment and waiver provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
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ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by the Notes is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution (which may consist of cash, securities
or other property, by set-off or otherwise) to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshalling of
the Company's assets and liabilities:
(a) holders of Senior Debt shall be entitled to receive payment in full
of all Obligations due in respect of such Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of Notes shall be entitled to receive any
payment with respect to the Notes (except that Holders may receive and retain
Permitted Junior Securities and payments and other distributions made from any
trust created pursuant to Section 8.01 hereof); and
(b) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, any distribution to which Holders would
be entitled but for this Article 10 shall be made to holders of Senior Debt
(except that the holders of Notes may receive and retain Permitted Junior
Securities and payments and other distributions made from any trust created
pursuant to Section 8.01 hereof), as their interests may appear.
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the
Trustee or any Holder in respect of Obligations with respect to the Notes and
may not acquire from the Trustee or any Holder any Notes for cash or property
(other than Permitted Junior Securities and payments and other distributions
made from any defeasance trust created pursuant to Section 8.01 hereof) until
all principal and other Obligations with respect to the Senior Debt have been
paid in full if:
(a) a default in the payment of the principal of, premium, if any, or
interest on Designated Senior Debt occurs and is continuing beyond any
applicable period of grace; or
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(b) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Debt. Payments on the Notes
may and shall be resumed (i) in the case of a payment default, upon the
date on which such default is cured or waived and (ii) in case of a
nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated and not repaid. No new period
of payment blockage may be commenced unless and until (A) 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice and (B) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions
in respect of the Notes and may acquire them upon the earlier of:
(a) the date upon which the default is cured or waived, or
(b) in the case of a default referred to in Section 10.03(b) hereof,
179 days pass after notice is received if the maturity of such Designated Senior
Debt has not been accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.04. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an
Event of Default, the Company shall promptly notify holders of Senior Debt of
the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any
payment of any Obligations with respect to the Notes at a time when the Trustee
or such Holder, as applicable, has actual knowledge that such payment is
prohibited by Section 10.03 hereof, such payment shall be held by the Trustee or
such Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under this Indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied
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covenants or obligations with respect to the holders of Senior Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to
any such holders if the Trustee shall pay over or distribute to or on behalf of
holders or the Company or any other Person money or assets to which any holders
of Senior Debt shall be entitled by virtue of this Article 10, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to materially violate this Article 10, but
failure to give such notice shall not affect the subordination of the Notes to
the Senior Debt as provided in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full and until the Notes are
paid in full, holders of Notes shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the holders of Notes have been applied to the
payment of Senior Debt. A distribution made under this Article 10 to holders of
Senior Debt that otherwise would have been made to holders of Notes is not, as
between the Company and holders, a payment by the Company on the Notes.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of holders of
Notes and holders of Senior Debt. Nothing in this Indenture shall:
(a) impair, as between the Company and holders of Notes, the obligation
of the Company, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(b) affect the relative rights of holders of Notes and creditors of the
Company other than their rights in relation to holders of Senior Debt; or
(c) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to holders of Notes.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
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SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, neither the Trustee nor the Paying Agent shall be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment or distribution by the Trustee or the Paying Agent, and
the Trustee and the Paying Agent may continue to make payments on the Notes,
unless a Responsible Officer of the Trustee shall have received at the Corporate
Trust Office at least five Business Days prior to the date of such payment
written notice of facts that would cause the payment of any Obligations with
respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, the Agents are hereby authorized to file an appropriate
claim for and on behalf of the holders of the Notes.
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SECTION 10.13. AMENDMENTS.
The provisions of this Article 10 shall not be amended or
modified without (a) the written consent of the holders of all Senior Debt and
(b) the consent of the holders of at least 66 2/3% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of holders of Notes.
ARTICLE 11.
NOTE GUARANTEES
SECTION 11.01. GUARANTEE.
Subject to this Article 11, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the obligations of the Company hereunder or thereunder, that: (a)
the principal of, premium, if any, and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal of, premium, and interest on
the Notes, if any, if lawful, and all other obligations of the Company to the
holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay the same immediately.
Each Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection.
The Guarantors hereby agree that their obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenant that this Note Guarantee shall not be
discharged except by complete performance of the obligations contained in the
Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, this
Note Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the holders in respect of any obligations
guaranteed hereby until payment in full of all obligations
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<PAGE> 84
guaranteed hereby. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the holders and the Trustee, on the other hand,
(x) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 hereof for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6 hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this Note
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the holders under the Note Guarantee.
SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE.
The Obligations of each Guarantor under its Note Guarantee
pursuant to this Article 10 shall be junior and subordinated to the Senior Debt
of such Guarantor on the same basis as the Notes are junior and subordinated to
Senior Debt of the Company. For the purposes of the foregoing sentence, the
Trustee and the holders shall have the right to receive and/or retain payments
by any of the Guarantors only at such times as they may receive and/or retain
payments in respect of the Notes pursuant to this Indenture, including Article
10.
SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Note
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Note Guarantee. To effectuate the foregoing intention,
the Trustee, the holders and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor under its Note Guarantee and this Article 10 shall
be limited to the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 10, result in the obligations of such Guarantor under its Note Guarantee
not constituting a fraudulent transfer or conveyance.
SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 11.01,
each Guarantor hereby agrees that a notation of such Note Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of such Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Guarantor by its
President or one of its Vice Presidents.
Each Guarantor hereby agrees that its Note Guarantee set forth
in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
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<PAGE> 85
If an Officer whose signature is on this Indenture or on the
Note Guarantee no longer holds that office at the time the Trustee authenticates
the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Note
Guarantee set forth in this Indenture on behalf of the Guarantors.
In accordance with the terms of Section 4.20 hereof, the
Company shall cause its Restricted Subsidiaries to execute supplemental
indentures to this Indenture and Note Guarantees pursuant to this Article 11, to
the extent applicable.
SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person) another Person whether or not affiliated
with such Guarantor unless:
(a) subject to Articles 4 and 5 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
unconditionally assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, this Indenture and the Note Guarantee and the
Registration Rights Agreement on the terms set forth herein or therein; and
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Note Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Note Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Note Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Note
Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Note Guarantees had been issued at the date
of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
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SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor, then such
Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) will be
released and relieved of any obligations under its Note Guarantee; provided that
the Net Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of this Indenture, including without limitation
Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the applicable provisions
of this Indenture, including without limitation Section 4.10 hereof, the Trustee
shall execute any documents reasonably required in order to evidence the release
of any Guarantor from its obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 11.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address as set forth below:
If to the Company and/or any Guarantor:
Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, Arizona 85016
Telecopier No.: (602) 955-3383
Attention: Richard R. Ross
Chief Financial Officer
77
<PAGE> 87
With a copy to:
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears
One East Camelback Rd., Ste. 1100
Phoenix, Arizona 85012
Telecopier No.: (602) 263-2900
Attention: Robert S. Kant, Esq.
If to the Trustee:
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, California 90071
Telecopier No.: (213) 362-7357
Attention: Corporate Trust Administration (Styling
Technology Corporation 10 7/8%
Senior Subordinated Notes due 2008)
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to the
Trustee and the holders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery. Notwithstanding the foregoing, notices to the
Trustee are effected only upon receipt by a Responsible Officer.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
78
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SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, with respect to questions of law, in the opinion of such
counsel, all such conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or its Subsidiaries, as such, shall
have any liability for any obligations of the Company or its Subsidiaries under
the Notes, the Note Guarantees, this Indenture or for any claim based on, in
respect
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<PAGE> 89
of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10. SUCCESSORS.
All agreements of the Company and the Guarantors in this
Indenture and the Notes shall bind their respective successors, except as
provided in Section 11.06. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 90
[SIGNATURE PAGE TO INDENTURE]
Dated as of June 23, 1998.
STYLING TECHNOLOGY CORPORATION, a Delaware
corporation
BY: /s/ Sam L. Leopold
---------------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
---------------------------------------------------
Richard R. Ross
Chief Financial Officer
GENA LABORATORIES, INC., a Texas corporation
BY: /s/ Sam L. Leopold
---------------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
---------------------------------------------------
Richard R. Ross
Secretary
J.D.S. MANUFACTURING CO, INC., a California
corporation
BY: /s/ Sam L. Leopold
---------------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
---------------------------------------------------
Richard R. Ross
Secretary
U.K. ABBA PRODUCTS, INC., a California corporation
BY: /s/ Sam L. Leopold
---------------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
---------------------------------------------------
Richard R. Ross
Secretary
<PAGE> 91
[SIGNATURE PAGE TO INDENTURE, CONT.]
EUROPEAN TOUCH CO., INCORPORATED, a Wisconsin
corporation
BY: /s/ Sam L. Leopold
--------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
--------------------------------------------
Richard R. Ross
Secretary
EUROPEAN TOUCH, LTD. II, a Wisconsin corporation
BY: /s/ Sam L. Leopold
--------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
--------------------------------------------
Richard R. Ross
Secretary
BEAUTY PRODUCTS INC., a Wisconsin corporation
BY: /s/ Sam L. Leopold
--------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
BY: /s/ Richard R. Ross
--------------------------------------------
Richard R. Ross
Secretary
COSMETICS INTERNATIONAL INC., a Wisconsin
corporation
BY: /s/ Sam L. Leopold
--------------------------------------------
Sam L. Leopold
President and Chief Executive Officer
+BY: /s/ Richard R. Ross
--------------------------------------------
Richard R. Ross
Secretary
<PAGE> 92
Executed as of the date first written above
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A.
BY:
--------------------------------------------
Name:
Title:
<PAGE> 93
EXHIBIT A
(Face of Note)
(a) CUSIP/CINS ___________________________
10 7/8% Senior Subordinated Notes due 2008
No. $___________________
-----
STYLING TECHNOLOGY CORPORATION
promises to pay to _______________________________ or registered assigns,
the principal sum of _____________________________________ Dollars
on July 1, 2008.
Interest Payment Dates: January 1 and July 1.
Record Dates: June 15 and December 15.
A-1
<PAGE> 94
[SIGNATURE PAGE TO NOTE]
Dated as of June 23, 1998.
STYLING TECHNOLOGY CORPORATION
BY:
------------------------------
Sam L. Leopold
President
BY:
------------------------------
Richard R. Ross
Secretary
A-2
<PAGE> 95
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
State Street Bank and Trust Company of California, N.A.,
as Trustee
By:
---------------------------------
(Back of Note)
10 7/8% Senior Subordinated Notes due 2008
[GLOBAL NOTE LEGEND TO BE INSERTED (AS APPLICABLE) PURSUANT TO THE PROVISIONS OF
THE INDENTURE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED
UNDER THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON THAT THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
A-3
<PAGE> 96
1. INTEREST. Styling Technology Corporation, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 10 7/8 % per annum from June 23, 1998 until maturity and shall pay
the Additional Interest payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Additional
Interest semi-annually on January 1 and July 1 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be January 1, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Additional Interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Additional Interest to the Persons who are
registered holders of Notes at the close of business on the June 15 or December
15 next preceding the Interest Payment Date, even if such Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Additional Interest, if
any, and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Additional Interest may be made by check
mailed to the holders at their addresses set forth in the register of holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Additional
Interest on, all Global Notes and all other Notes the holders of which shall
have provided wire transfer instructions to the Company or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company of California, N.A., the Trustee under the Indenture, will act
as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of June 23, 1998 ("Indenture") between the Company, the Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are
subject to all such terms, and holders are referred to the Indenture and such
Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $125.0 million in aggregate principal amount, provided
however that the Initial Notes shall be limited to $100.0 million in aggregate
principal amount.
5. OPTIONAL REDEMPTION. The Company shall not have the option
to redeem the Notes prior to July 1, 2003. Thereafter, the Company shall have
the option to redeem the Notes, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal
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amount) set forth below plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the twelve-month
period beginning on July 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003 105.4375%
2004 103.6250%
2005 101.8125%
2006 and thereafter 100.0000%
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed, pursuant
to the procedures governing the Change of Control Offer set forth in the
Indenture.
(b) If the Company or a Subsidiary consummates any Asset
Sales, within five days of each date on which the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall be required to make an offer to
all holders of Notes and all holders of other Debt that is pari passu with the
Notes containing provisions similar to those set forth in the Indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets (as
"Asset Sale Offer") pursuant to Sections 3.09 and 4.10 of the Indenture and such
other pari passu Debt to repurchase the maximum principal amount of Notes and
such other pari passu Debt that may be purchased out of the aggregate amount of
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of repurchase, in accordance with the procedures set forth in the
Indenture. To the extent that any Excess Proceeds remain after consummation of
an Asset Sale Offer, the Company (or such Restricted Subsidiary, as the case may
be) may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and such other pari passu
Debt surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other pari passu Debt to be purchased on
a pro rata basis. holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered
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address. Notes in denominations larger than $1,000 may be redeemed in part but
only in whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the then outstanding Notes voting as a single class, and any existing
default or compliance with any provision of the Indenture, the Note Guarantees
or the Notes may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Notes, voting as a single class.
Without the consent of any Holder of a Note, the Indenture, the Note Guarantees
or the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act, to provide for the Issuance of
Additional Notes in accordance with the limitations set forth in the Indenture,
or to allow any Guarantor to execute a supplemental indenture to the Indenture
and/or a Note Guarantee with respect to the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on the Notes; (ii)
default in payment when due of principal of or premium, if any, on the Notes
when the same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the Company
or any of its Restricted Subsidiaries to comply with Section 3.09, 4.07, 4.09,
4.10 or 5.01 of the Indenture; (iv) failure by the Company or any of its
Restricted Subsidiaries for 60 days after notice to the Company or any of its
Restricted Subsidiaries by the Trustee or the holders of at least 25% in
principal amount of the Notes then outstanding voting as a single class to
comply with certain other agreements in the Indenture or the Notes; (v) default
under certain other agreements relating to Indebtedness of the Company or any of
its Restricted Subsidiaries which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries; and (viii) except as permitted by the Indenture, any
Note Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor or any Person acting on its behalf shall deny or disaffirm its
obligations under such Guarantor's Note Guarantee. If any Event of Default
occurs and is continuing, the Trustee or the holders of at
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least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Notes.
The Company and each Guarantor (to the extent required under the TIA) is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company and the Restricted Subsidiaries are required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such, shall not
have any liability for any obligations of the Company or such Guarantor under
the Notes the Note Guarantees or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to holders
of Notes under the Indenture, holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of June 23, 1998, between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
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Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, AZ 85016
Attention: Chief Financial Officer
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<PAGE> 101
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
to transfer this Note on the books of the Company. The Agent may substitute
another to act for him.
Date: _________________
Your Signature:___________________
(Sign exactly as your name appears
on the face of this Note)
SIGNATURE GUARANTEE:
[SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCK BROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO SECURITIES
AND EXCHANGE COMMISSION RULE 17Ad-15.]
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[] Section 4.10 [] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $________
Date: Your Signature:
------------- ----------------------
(Sign exactly as your
name appears on the Note)
Tax Identification No:
SIGNATURE GUARANTEE: -----------------
[SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCK BROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO SECURITIES
AND EXCHANGE COMMISSION RULE 17Ad-15.]
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount
at maturity of
Amount of decrease in Amount of increase in this Global Note Signature of
Principal Amount Principal Amount following such authorized officer of
at maturity of at maturity of decrease (or Trustee or
Date of Exchange this Global Note this Global Note increase) Custodian
- ----------------------- -------------------------- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE> 104
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, Arizona 85016
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, California 90071
Re: 10 7/8% Senior Subordinated Notes due 2008
Reference is hereby made to the Indenture, dated as of June
23, 1998 (the "Indenture"), between Styling Technology Corporation, as issuer
(the "Company"), the Guarantors listed on Schedule I thereto and State Street
Bank and Trust Company of California, N.A., as trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor
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hereby further certifies that (i) the Transfer is not being made to a person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER
THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance
with the transfer restrictions applicable to beneficial interests in Restricted
Global Notes and Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act and any applicable blue sky securities laws of any state
of the United States, and accordingly the Transferor hereby further certifies
that (check one):
(a) [ ]such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ]such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ]such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act;
or
(d) [ ]such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is
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supported by (1) a certificate executed by the Transferee in the form of Exhibit
D to the Indenture and (2) if such Transfer is in respect of a principal amount
of Notes at the time of transfer of less than $250,000, an Opinion of Counsel
provided by the Transferor or the Transferee (a copy of which the Transferor has
attached to this certification), to the effect that such Transfer is in
compliance with the Securities Act. Upon consummation of the proposed transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Definitive Notes and
in the Indenture and the Securities Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [ ]CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ]CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ]CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
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This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
---------------------------
[Insert Name of Transferor]
By:
------------------------
Name:
Title:
Dated:____________________
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP _________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 863905AA3), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] Unrestricted Global Note (CUSIP ________); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, Arizona 85016
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, California 90071
Re: 10 7/8% Senior Subordinated Notes due 2008
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of June
23, 1998 (the "Indenture"), between Styling Technology Corporation, as issuer
(the "Company"), and State Street Bank and Trust Company of California, N.A., as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial
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<PAGE> 110
interest in a Restricted Global Note for an Unrestricted Definitive Note, the
Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to the Restricted Global Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Definitive Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(c) [ ]CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ]CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ]CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [ ]CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted
C-2
<PAGE> 111
Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global
Note, [ ] Regulation S Global Note with an equal principal amount, the Owner
hereby certifies (i) the beneficial interest is being acquired for the Owner's
own account without transfer and (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, and in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Exchange in accordance with the
terms of the Indenture, the beneficial interest issued will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the relevant Restricted Global Note and in the Indenture and the Securities Act.
C-3
<PAGE> 112
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By: _______________________________
Name:
Title:
Dated: ____________________
C-4
<PAGE> 113
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, Arizona 85016
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, California 90071
Re: 10 7/8% Senior Subordinated Notes due 2008
Reference is hereby made to the Indenture, dated as
of June 23, 1998 (the "Indenture"), between Styling Technology Corporation, as
issuer (the "Company"), and State Street Bank and Trust Company of California,
N.A., as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
In connection with our proposed purchase of
$____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions and conditions
set forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in
D-1
<PAGE> 114
the form of this letter and if such transfer is in respect of a principal amount
of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel
in form reasonably acceptable to the Company to the effect that such transfer is
in compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Note or beneficial interest
in a Global Note from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
------------------------------------------
[Insert Name of Accredited Investor]
By: _______________________________
Name:
Title:
Dated: ______________________
D-2
<PAGE> 115
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of June 23, 1998 (the "Indenture")
among STYLING TECHNOLOGY CORPORATION, the Guarantors listed on Schedule I
thereto and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as trustee
(the "Trustee"), (a) the due and punctual payment of the principal of, premium,
if any, and interest on the Notes (as defined in the Indenture), whether at
maturity, by acceleration, redemption or otherwise, the due and punctual payment
of interest on overdue principal and premium, and, to the extent permitted by
law, interest, and the due and punctual performance of all other obligations of
the Company to the holders or the Trustee all in accordance with the terms of
the Indenture and (b) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. The
obligations of the Guarantors to the holders of Notes and to the Trustee
pursuant to the Note Guarantee and the Indenture are expressly set forth in
Article 11 of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee, on behalf of such Holder, to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such
purpose; provided, however, that the Indebtedness evidenced by this Note
Guarantee shall cease to be so subordinated and subject in right of payment upon
any defeasance of this Note in accordance with the provisions of the Indenture.
[signature page follows]
E-1
<PAGE> 116
[SIGNATURE PAGE TO NOTATION OF GUARANTEE]
GENA LABORATORIES, INC.
By:
---------------------------------
Sam L. Leopold
President
By:
---------------------------------
Richard R. Ross
Secretary
J.D.S. MANUFACTURING CO., INC.
By:
---------------------------------
Sam L. Leopold
President
By:
---------------------------------
Richard R. Ross
Secretary
U.K. ABBA PRODUCTS, INC.
By:
---------------------------------
Sam L. Leopold
President
By:
---------------------------------
Richard R. Ross
Secretary
EUROPEAN TOUCH CO., INCORPORATED
By:
---------------------------------
Sam L. Leopold
President
By:
---------------------------------
Richard R. Ross
Secretary
E-2
<PAGE> 117
[SIGNATURE PAGE TO NOTATION OF GUARANTEE, CONT.]
EUROPEAN TOUCH, LTD. II
By: ________________________________
Sam L. Leopold
President and CEO
By: ________________________________
Richard R. Ross
Secretary
BEAUTY PRODUCTS INC.
By: ________________________________
Sam L. Leopold
President and CEO
By: ________________________________
Richard R. Ross
Secretary
COSMETICS INTERNATIONAL INC.
By: ________________________________
Sam L. Leopold
President and CEO
By: ________________________________
Richard R. Ross
Secretary
E-3
<PAGE> 118
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of ________________, among __________________ (the "Guaranteeing
Subsidiary"), a subsidiary of STYLING TECHNOLOGY CORPORATION (or its permitted
successor), a Delaware corporation (the "Company"), the Company, the other
Guarantors (as defined in the Indenture referred to herein) and STATE STREET
BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company and the Guarantors listed on Schedule I
thereto have heretofore executed and delivered to the Trustee an indenture (the
"Indenture"), dated as of June 23, 1998, providing for the issuance of an
aggregate principal amount of up to $125.0 million of 10 7/8% Senior
Subordinated Notes due 2008 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby
agrees as follows:
(a) Along with all Guarantors named in the Indenture, to
jointly and severally Guarantee to each Holder of a
Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of
the Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that:
<PAGE> 119
(i) the principal of and interest on the Notes
will be promptly paid in full when due,
whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of and interest on the
Notes, if any, if lawful, and all other
obligations of the Company to the holders or
the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in
accordance with the terms hereof and
thereof; and
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other
obligations, that same will be promptly paid
in full when due or performed in accordance
with the terms of the extension or renewal,
whether at stated maturity, by acceleration
or otherwise. Failing payment when due of
any amount so guaranteed or any performance
so guaranteed for whatever reason, the
Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or
enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver
or consent by any Holder of the Notes with respect to
any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce
the same or any other circumstance which might
otherwise constitute a legal or equitable discharge
or defense of a guarantor.
(c) The following is hereby waived: diligence
presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of
the Company, any right to require a proceeding first
against the Company, protest, notice and all demands
whatsoever.
(d) This Note Guarantee shall not be discharged except by
complete performance of the obligations contained in
the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the
Guarantors, or any Custodian, Trustee, liquidator or
other similar official acting in relation to either
the Company or the Guarantors, any amount paid by
either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to
any right of subrogation in relation to the holders
in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
F-2
<PAGE> 120
(g) As between the Guarantors, on the one hand, and the
holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture
for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect
of the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such
obligations as provided in Article 6 of the
Indenture, such obligations (whether or not due and
payable) shall forthwith become due and payable by
the Guarantors for the purpose of this Note
Guarantee.
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture,
after giving effect to any maximum amount
and any other contingent and fixed
liabilities that are relevant under any
applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to
any collections from, rights to receive
contribution from or payments made by or on
behalf of any other Guarantor in respect of
the obligations of such other Guarantor
under Article 11 of the Indenture shall
result in the obligations of such Guarantor
under its Note Guarantee not constituting a
fraudulent transfer or conveyance.
3. Execution and Delivery. Each Guaranteeing Subsidiary
agrees that the Note Guarantees shall remain in full
force and effect notwithstanding any failure to
endorse on each Note a notation of such Note
Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on
Certain Terms.
(a) The Guaranteeing Subsidiary may not consolidate with
or merge with or into (whether or not such Guarantor
is the surviving Person) another corporation, Person
or entity whether or not affiliated with such
Guarantor unless:
(i) subject to Section 10.05 of the Indenture,
the Person formed by or surviving any such
consolidation or merger (if other than a
Guarantor or the Company) unconditionally
assumes all the obligations of such
Guarantor, pursuant to a supplemental
indenture in form and substance reasonably
satisfactory to the Trustee, under the
Notes, the Indenture and the Note Guarantee
on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such
transaction, no Default or Event of Default
exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor
corporation, by supplemental indenture, executed
F-3
<PAGE> 121
and delivered to the Trustee and satisfactory in form
to the Trustee, of the Note Guarantee endorsed upon
the Notes and the due and punctual performance of all
of the covenants and conditions of the Indenture to
be performed by the Guarantor, such successor
corporation shall succeed to and be substituted for
the Guarantor with the same effect as if it had been
named herein as a Guarantor. Such successor
corporation thereupon may cause to be signed any or
all of the Note Guarantees to be endorsed upon all of
the Notes issuable hereunder which theretofore shall
not have been signed by the Company and delivered to
the Trustee. All the Note Guarantees so issued shall
in all respects have the same legal rank and benefit
under the Indenture as the Note Guarantees
theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such Note
Guarantees had been issued at the date of the
execution hereof.
(c) Except as set forth in Articles 4 and 5 of the
Indenture, and notwithstanding clauses (a) and (b)
above, nothing contained in the Indenture or in any
of the Notes shall prevent any consolidation or
merger of a Guarantor with or into the Company or
another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an
entirety or substantially as an entirety to the
Company or another Guarantor.
5. Releases.
(a) In the event of a sale or other disposition of all of
the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other
disposition of all to the capital stock of any
Guarantor, then such Guarantor (in the event of a
sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring
the property (in the event of a sale or other
disposition of all or substantially all of the assets
of such Guarantor) will be released and relieved of
any obligations under its Note Guarantee; provided
that the Net Proceeds of such sale or other
disposition are applied in accordance with the
applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture.
Upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was
made by the Company in accordance with the provisions
of the Indenture, including without limitation
Section 4.10 of the Indenture, the Trustee shall
execute any documents reasonably required in order to
evidence the release of any Guarantor from its
obligations under its Note Guarantee.
(b) Any Guarantor not released from its obligations under
its Note Guarantee shall remain liable for the full
amount of principal of and interest on the Notes and
for the other
F-4
<PAGE> 122
6. No Recourse Against Others. No past, present or future
director, officer, employee, incorporator, stockholder or agent of the
Guaranteeing Subsidiary, as such, shall have any liability for any obligations
of the Company or any Guaranteeing Subsidiary under the Notes, any Note
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. Counterparts. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
F-5
<PAGE> 123
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
[Guaranteeing Subsidiary]
By: _________________________________
Name:
Title:
STYLING TECHNOLOGY CORPORATION
By: _________________________________
Name:
Title:
[EXISTING GUARANTORS]
By: ______________________________
Name:
Title
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
By: ______________________________
Name:
Title:
F-6
<PAGE> 124
SCHEDULE I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the
Indenture as of the Issue Date:
Gena Laboratories, Inc.
J.D.S. Manufacturing Co., Inc.
U. K. ABBA Products, Inc.
European Touch Co., Incorporated
European Touch, Ltd. II
Beauty Products Inc.
Cosmetics International Inc.
<PAGE> 1
Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
by and among
STYLING TECHNOLOGY CORPORATION
as issuer of the 10-7/8% Senior Subordinated Notes due 2008
and
GENA LABORATORIES, INC.
J.D.S. MANUFACTURING CO., INC.
U.K. ABBA PRODUCTS, INC.
EUROPEAN TOUCH CO., INCORPORATED
EUROPEAN TOUCH, LTD II
BEAUTY PRODUCTS INC. and
COSMETICS INTERNATIONAL INC.
as Guarantors
and
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
IMPERIAL CAPITAL, LLC
as Initial Purchasers
DATED AS OF JUNE 23, 1998
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of June 23, 1998, by and among Styling Technology Corporation, a
Delaware corporation (the "Company"), Gena Laboratories, Inc., a Texas
corporation, J.D.S. Manufacturing Co., Inc., a California corporation, U.K. ABBA
Products, Inc., a California corporation, European Touch Co., Incorporated, a
Wisconsin corporation, European Touch, Ltd II, a Wisconsin Corporation, Beauty
Products Inc., a Wisconsin corporation, Cosmetics International Inc., a
Wisconsin corporation, and any other domestic Restricted Subsidiary of the
Company that guarantees the Notes pursuant to the Indenture (together, the
"Guarantors"), and NationsBanc Montgomery Securities LLC, Friedman, Billings,
Ramsey & Co., Inc. and Imperial Capital, LLC (each, an "Initial Purchaser" and,
collectively, the "Initial Purchasers"), each of whom has agreed to purchase the
Company's 10-7/8% Senior Subordinated Notes due 2008 (the "Initial Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
June 18, 1998 (the "Purchase Agreement"), by and among the Company, the
Guarantors and the Initial Purchasers (i) for the benefit of the Initial
Purchasers and (ii) for the benefit of the holders from time to time of the
Notes (including each Initial Purchaser). In order to induce the Initial
Purchasers to purchase the Initial Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 5(h) of the Purchase Agreement. Capitalized terms used and not
defined herein shall have the meaning assigned to them in the Indenture, dated
as of June 23, 1998 (the "Indenture"), among the Company and State Street Bank
and Trust Company, as trustee (the "Trustee"), pursuant to which the Notes are
to be issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Additional Interest Payment Date: With respect to the Initial
Notes, each Interest Payment Date.
Broker-Dealer: Any broker or dealer registered under the
Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i)
the filing and effectiveness under the Securities Act of the Exchange
Offer Registration Statement relating to the Exchange Notes to be
issued in the Exchange Offer, (ii) the maintenance of such Registration
Statement continuously effective and the keeping of the Exchange Offer
open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (iii) the delivery by the Company to the
Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Initial Notes
that were tendered by Holders thereof pursuant to the Exchange Offer.
1
<PAGE> 3
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The 10-7/8% Senior Subordinated Notes due
2008, of the same series under the Indenture as the Initial Notes, to
be issued to Holders in exchange for Transfer Restricted Securities
pursuant to this Agreement.
Exchange Offer: The registration by the Company under the
Securities Act of the Exchange Notes and the guarantees attached
thereto pursuant to a Registration Statement under which the Company
offers the Holders of all outstanding Transfer Restricted Securities
the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Exchange Notes and the guarantees
attached thereto in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the Prospectus
contained therein.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Initial Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the
Securities Act, and to certain institutional "accredited investors," as
such term is defined in Rule 501(a)(1), (2), (3) and (7) of Regulation
D under the Securities Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Initial Purchaser: As defined in the preamble hereto.
Initial Notes: The 10-7/8% Senior Subordinated Notes due 2008,
of the same series under the Indenture as the Exchange Notes, for so
long as such securities constitute Transfer Restricted Securities.
Initial Placement: The issuance and sale by the Company of the
Initial Notes to the Initial Purchasers pursuant to the Purchase
Agreement.
Interest Payment Date: As defined in the Indenture and the
Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Initial Notes and the Exchange Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and
by all other amendments thereto, including post-effective amendments,
and all material incorporated by reference into such Prospectus.
2
<PAGE> 4
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the
Company relating to (a) an offering of Exchange Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement,
which is filed pursuant to the provisions of this Agreement, in each
case, including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Securities Act: The Securities Act of 1933, as amended.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Trust Indenture Act: The Trust Indenture Act of 1939 (15
U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note and guarantee
attached thereto, until the earliest to occur of (a) the date on which
such Note is exchanged in the Exchange Offer and entitled to be resold
to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on
which such Note has been effectively registered under the Securities
Act and disposed of in accordance with a Shelf Registration Statement
and (c) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act or by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange
Offer Registration Statement (including delivery of the Prospectus
contained therein).
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Company and the Guarantors shall (i) cause to be
filed with the Commission as soon as practicable after the Closing Date, but in
no event later than 45 days after the Closing Date, the Exchange Offer
Registration Statement, (ii) use their best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but in
no event later than 90 days after the Closing Date, (iii) in connection with the
foregoing, file (A) all pre-effective amendments to such Registration Statement
as may be necessary in order to cause such Registration Statement to become
effective, (B) if applicable, a post-effective amendment to such Registration
Statement pursuant to Rule 430A under the Securities Act and (C) cause all
necessary filings in connection with the registration and qualification of the
Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer and (iv) upon the
effectiveness of such Registration Statement, commence the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting
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<PAGE> 5
registration of the Exchange Notes to be offered in exchange for the Transfer
Restricted Securities and to permit resales of Notes held by Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 30 days after
the date notice of the Exchange Offer is mailed to the Holders. The Company and
the Guarantors shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Exchange Notes
and the guarantees thereof shall be included in the Exchange Offer Registration
Statement. The Company and the Guarantors shall use their best efforts to cause
the Exchange Offer to be Consummated on or prior to 30 business days after the
date on which the Exchange Offer Registration Statement has become effective.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus forming a part of the Exchange Offer Registration
Statement that any Broker-Dealer who holds Initial Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Initial Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resales of the Exchange Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales by
Broker-Dealers that the Commission may require in order to permit such resales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer
except to the extent required by the Commission as a result of a change in
policy after the date of this Agreement.
The Company and the Guarantors shall use their best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Securities Act and the policies, rules and regulations of
the Commission as announced from time to time, for a period ending on the
earlier of (i) 180 days from the date on which the Exchange Offer Registration
Statement is declared effective and (ii) the date on which a Broker-Dealer is no
longer required to deliver a prospectus in connection with market-making or
other trading activities.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
180-day (or shorter as provided in the foregoing sentence) period in order to
facilitate such resales.
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SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after compliance with the procedures set forth in Section 6(a)(i) below,
or (ii) any Holder of Transfer Restricted Securities notifies the Company prior
to the 20th day following Consummation of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) it may not resell the Exchange Notes acquired by it in the Exchange Offer
to the public without delivering a prospectus and that the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales or (C) it is a Broker-Dealer and holds Initial Notes acquired
directly from the Company or an affiliate of the Company, then the Company and
the Guarantors shall
(x) file a shelf registration statement pursuant to Rule 415 under
the Securities Act, which may be an amendment to the Exchange Offer Registration
Statement (in either event, the "Shelf Registration Statement") as soon as
practicable but in any event on or prior to 45 days after such filing obligation
arises (such date being the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of the Initial Notes, the Holders of which
shall have provided the information required pursuant to Section 4(b) hereof;
and
(y) use their best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or prior to 90 days
after such obligation arises.
The Company and the Guarantors shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years following the
effective date of such Shelf Registration Statement (or shorter period that will
terminate when all the Notes covered by such Shelf Registration Statement have
been sold pursuant to such Shelf Registration Statement).
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. ADDITIONAL INTEREST
If (i) the Company and the Guarantors fail to file with the Commission
any of the Registration Statements required by this Agreement on or prior to the
date specified for such filing in this Agreement, (ii) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness in this Agreement (the "Effectiveness Target
Date"), (iii) the Exchange Offer has not been Consummated within 30 business
days after the Effectiveness Target Date
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<PAGE> 7
with respect to the Exchange Offer Registration Statement or (iv) any
Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself immediately declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default"), the Company hereby agrees that the
interest rate borne by the Transfer Restricted Securities shall be increased by
0.50% per annum during the 90-day period immediately following the occurrence of
any Registration Default and shall increase by 0.25% per annum at the end of
each subsequent 90-day period, but in no event shall such increase exceed 2.00%
per annum. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the interest rate borne by the
relevant Transfer Restricted Securities will be reduced to the original interest
rate borne by such Transfer Restricted Securities; provided, however, that, if
after any such reduction in interest rate, a different Registration Default
occurs, the interest rate borne by the relevant Transfer Restricted Securities
shall again be increased pursuant to the foregoing provisions.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such Note
shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there is
a question as to whether the Exchange Offer is permitted by applicable law, the
Company and the Guarantors hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Company and the Guarantors
to Consummate an Exchange Offer for such Initial Notes. The Company and the
Guarantors each hereby agree to pursue the issuance of such a decision to the
Commission staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. The Company and the
Guarantors each hereby agree, however, to (A) participate in telephonic
conferences with the Commission, (B) deliver to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursue a favorable resolution by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Company, (B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business. In addition, all such
Holders of Transfer Restricted Securities shall otherwise cooperate in the
Company's preparations for the Exchange Offer. Each Holder hereby acknowledges
and agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to
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<PAGE> 8
participate in a distribution of the securities to be acquired in the Exchange
Offer (1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan Stanley
and Co., Inc. and Exxon Capital Holdings Corporation, as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (which may include any no-action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction and that such a secondary resale transaction should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange for
Initial Notes acquired by such Holder directly from the Company.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company and the Guarantors will as expeditiously as
possible prepare and file with the Commission a Registration Statement relating
to the registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company and the Guarantors shall:
(i) use best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Securities Act or any regulation thereunder,
financial statements of the Guarantors, for the period specified in Section 3 or
4 of this Agreement, as applicable; upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period required
by this Agreement, the Company and the Guarantors shall file promptly an
appropriate amendment to such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case of either clause
(A) or (B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to become
usable for their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as applicable, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Securities Act in a timely manner; and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
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<PAGE> 9
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Securities
Act or of the suspension by any state securities commission of the qualification
of the Transfer Restricted Securities for offering or sale in any jurisdiction,
or the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any statement
of a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company and
the Guarantors shall use their best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
(iv) furnish without charge to each of the Initial Purchasers, each
selling Holder named in any Registration Statement, and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of such
Holders and underwriter(s) in connection with such sale, if any, for a period of
at least five business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by reference)
to which an Initial Purchaser of Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s), if any, shall reasonably object in
writing within five business days after the receipt thereof (such objection to
be deemed timely made upon confirmation of telecopy transmission within such
period). The objection of an Initial Purchaser or underwriter, if any, shall be
deemed to be reasonable if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the Initial Purchasers, each selling Holder named in
any Registration Statement, and to the underwriter(s), if any, make the
Company's representatives and representatives of the Guarantors available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
Initial Purchasers, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant retained
by such Initial Purchasers or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and the
Guarantors and cause the Company's and the Guarantors' officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such Registration
Statement subsequent to the filing thereof and prior to its effectiveness;
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<PAGE> 10
(vii) if requested by any selling Holders or the underwriter(s), if
any, promptly incorporate in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being sold to
such underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of Notes
covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the underwriter(s),
if any, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
financial statements and schedules, all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantors hereby consent to the use
of the Prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by the Prospectus or
any amendment or supplement thereto;
(xi) enter into, and cause the Guarantors to enter into, such
agreements (including an underwriting agreement), and make, and cause the
Guarantors to make, such representations and warranties, and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any Registration
Statement contemplated by this Agreement, all to such extent as may be requested
by any Initial Purchaser or by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an Underwritten
Registration, the Company and the Guarantors shall:
(A) furnish to each Initial Purchaser, each selling Holder and
each underwriter, if any, in such substance and scope as they may
request and as are customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of the Consummation of
the Exchange Offer and, if applicable, the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed by (y) the President or any Vice
President and (z) a principal financial or accounting officer of each
of the Company and the Guarantors, confirming, as of the date thereof,
the matters set forth in paragraphs (i), (ii) and (iii) of Section 5
(e) of the Purchase Agreement and such other matters as such parties
may reasonably request;
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(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Guarantors, covering the matters set forth in paragraph (c) of Section
5 of the Purchase Agreement and such other matters as such parties may
reasonably request, and in any event including a statement to the
effect that such counsel has participated in conferences with officers
and other representatives of the Company, representatives of the
independent public accountants for the Company, the Initial Purchasers'
representatives and the Initial Purchasers' counsel in connection with
the preparation of such Registration Statement and the related
Prospectus and have considered the matters required to be stated
therein and the statements contained therein, although such counsel has
not independently verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that, on the basis of
the foregoing (relying as to materiality to a large extent upon facts
provided to such counsel by officers and other representatives of the
Company and without independent check or verification), no facts came
to such counsel's attention that caused such counsel to believe that
the applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective,
and, in the case of the Exchange Offer Registration Statement, as of
the date of Consummation, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus contained in such Registration Statement as of its date and,
in the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in
any Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered pursuant to Section
5(a) of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified pursuant to said
Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with clause (A)
above and with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company or the Guarantors pursuant to
this clause (xi), if any.
If at any time the representations and warranties of the Company and the
Guarantors contemplated in clause (A)(1) above cease to be true and correct, the
Company or the Guarantors shall so advise the
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Initial Purchasers and the underwriter(s), if any, and each selling Holder
promptly and, if requested by such Persons, shall confirm such advice in
writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with, and cause the Guarantors to cooperate with, the
selling Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such jurisdictions as the
selling Holders or underwriter(s) may request and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the Shelf Registration Statement;
provided, however, that neither the Company nor the Guarantors shall be required
to register or qualify as a foreign corporation where it is not then so
qualified or to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions relating to
the Registration Statement, in any jurisdiction where it is not then so subject;
(xiii) shall issue, upon the request of any Holder of Initial Notes
covered by the Shelf Registration Statement, Exchange Notes, having an aggregate
principal amount equal to the aggregate principal amount of Initial Notes
surrendered to the Company by such Holder in exchange therefor or being sold by
such Holder; such Exchange Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Notes, as the case may be; in return,
the Initial Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) cooperate with, and cause the Guarantors to cooperate with,
the selling Holders and the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the Holders or the underwriter(s), if any, may request at least
two business days prior to any sale of Transfer Restricted Securities made by
such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter(s), if any, to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in clause (viii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement and
provide the Trustee under the Indenture with printed certificates for the
Transfer Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is required
to be retained in accordance with the rules and regulations of the NASD, and use
its reasonable best efforts to cause such Registration Statement to become
effective and
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approved by such governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the Trust Indenture
Act not later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate, and cause
the Guarantors to cooperate with, the Trustee and the Holders of Notes to effect
such changes to the Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the Trust Indenture Act; and to
execute, and cause the Guarantors to execute, and use its best efforts to cause
the Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed if requested by the Holders of
a majority in aggregate principal amount of Initial Notes or the managing
underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and Section
15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice; however, no such extension shall be taken into
account in determining whether Additional Interest is due pursuant to Section 5
hereof or the amount of such Additional Interest, it being agreed that the
Company's option to suspend use of a Registration Statement pursuant to this
paragraph shall be treated as a Registration Default for purposes of Section 5.
12
<PAGE> 14
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company or
the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses (including filings made by any Initial Purchaser or Holder with the
NASD (and, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel that may be required by the rules and regulations
of the NASD)); (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Exchange Notes to be issued in the Exchange Offer
and printing of Prospectuses), messenger and delivery services and telephone;
(iv) all fees and disbursements of counsel for the Company, the Guarantors and,
subject to Section 7(b) below, the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing the Exchange
Notes on a national securities exchange or automated quotation system pursuant
to the requirements thereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company and the Guarantors (including the
expenses of any special audit and comfort letters required by or incident to
such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
____________ or such other counsel as may be chosen by the Holders of a majority
in principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees and the Guarantors, jointly and severally, agree
to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) any Holder (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing, settling, compromising, paying or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder), joint or several, directly or indirectly caused by, related
to, based upon, arising out of or in connection with any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (or any amendment or supplement thereto), or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses
13
<PAGE> 15
are caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein. This indemnity agreement shall be in addition
to any liability which the Company may otherwise have.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company or the Guarantors, such Indemnified Holder (or the Indemnified
Holder controlled by such controlling person) shall promptly notify the Company
and the Guarantors in writing (provided, that the failure to give such notice
shall not relieve the Company or the Guarantors of their respective obligations
pursuant to this Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company and the Guarantors
(regardless of whether it is ultimately determined that an Indemnified Holder is
not entitled to indemnification hereunder). The Company and the Guarantors shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for such Indemnified Holders, which
firm shall be designated by the Holders. The Company shall be liable for any
settlement of any such action or proceeding effected with the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any Indemnified Holder from and
against any loss, claim, damage, liability or expense by reason of any
settlement of any action effected with the written consent of the Company. The
Company shall not, without the prior written consent of each Indemnified Holder,
settle or compromise or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Holder is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Holder from all liability arising out of such action, claim,
litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors and
their respective directors, officers of the Company who sign a Registration
Statement, and any person controlling (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) the Company, and the
respective offices, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company and the Guarantors to each of the Indemnified Holders, but only with
respect to claims and actions based on information relating to such Holder
furnished in writing by such Holder expressly for use in any Registration
Statement. In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder of Transfer Restricted Securities, such
Holder shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by the preceding paragraph. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the proceeds received by such Holder upon the sale of the Securities
giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities, judgments, actions or expenses
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall
14
<PAGE> 16
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, from the
Initial Placement (which in the case of the Issuer shall be deemed to be equal
to the total gross proceeds from the Initial Placement as set forth on the cover
page of the Offering Memorandum), the amount of Additional Interest which did
not become payable as a result of the filing of the Registration Statement
resulting in such losses, claims, damages, liabilities, judgments actions or
expenses, and such Registration Statement, or if such allocation is not
permitted by applicable law, the relative fault of the Company and the
Guarantors on the one hand, and of the Indemnified Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand and
of the Indemnified Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Indemnified Holder and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Guarantor and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, none of the Holders (and its related Indemnified
Holders) shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total discount received by such Holder with respect
to the Initial Notes exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations to contribute pursuant to
this Section 8(c) are several in proportion to the respective principal amount
of Initial Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and the Guarantors each hereby agree with each Holder, for
so long as any Transfer Restricted Securities remain outstanding, to make
available to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Securities Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A.
15
<PAGE> 17
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors each hereby agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agree to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not, and will cause
the Guarantors not to, on or after the date of this Agreement enter into any
agreement with respect to their securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantors have entered into any
agreement granting any registration rights with respect to their securities to
any Person. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered; provided that, with
respect to any matter that directly or indirectly affects the rights of any
Initial Purchaser hereunder, the Company shall obtain the written consent of
each such Initial Purchaser with respect to which such amendment, qualification,
supplement, waiver, consent or departure is to be effective.
16
<PAGE> 18
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
2390 East Camelback Rd., Suite 435
Phoenix, AZ 85016
Facsimile: (602) 955-3383
Attention: Richard R. Ross, Chief Financial Officer
With a copy to:
O'Connor Cavanagh
One East Camelback Road, Suite 1100
Phoenix, AZ 85012
Facsimile: (602) 263-2900
Attention: Robert S. Kant, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and
17
<PAGE> 19
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
18
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STYLING TECHNOLOGY CORPORATION
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
GENA LABORATORIES, INC.
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
J.D.S. MANUFACTURING CO., INC.
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
<PAGE> 21
U. K. ABBA PRODUCTS, INC.
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
EUROPEAN TOUCH CO., INCORPORATED
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
EUROPEAN TOUCH, LTD II
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
<PAGE> 22
BEAUTY PRODUCTS INC.
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
COSMETICS INTERNATIONAL INC.
By: /s/ Sam L. Leopold
-----------------------------------------------
Sam L. Leopold
President
By: /s/ Richard R. Ross
-----------------------------------------------
Richard R. Ross
Secretary
<PAGE> 23
The foregoing Registration Rights Agreement is hereby
confirmed and accepted as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
IMPERIAL CAPITAL, LLC
BY: NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ David G. Martin
-------------------
David G. Martin
<PAGE> 1
Exhibit 10.25
STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 3, 1998
AMONG
STYLING TECHNOLOGY CORPORATION,
KEVIN T. WEIR,
CAROL M. WEIR,
AND
DENNIS M. KATAWCZIK
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1 PURCHASE OF STOCK......................................................................... 1
1.1 Purchase of Stock.................................................................... 1
SECTION 2 PURCHASE PRICE............................................................................ 1
2.1 Purchase Price....................................................................... 1
SECTION 3 REPRESENTATIONS AND WARRANTIES............................................................ 1
3.1 Representations and Warranties of Shareholders....................................... 1
(a) Due Incorporation, Good Standing, and Qualification.................................. 1
(b) Capital Stock........................................................................ 2
(c) Options, Warrants, and Rights........................................................ 2
(d) Subsidiaries......................................................................... 2
(e) Books and Records.................................................................... 2
(f) Directors, Officers, and Bank Accounts............................................... 2
(g) Financial Statements................................................................. 2
(h) Actions in the Ordinary Course of Business........................................... 3
(i) No Material Change................................................................... 3
(j) Title to Properties.................................................................. 3
(k) Condition of Assets and Properties................................................... 3
(l) Real Estate.......................................................................... 3
(m) Litigation........................................................................... 4
(n) Rights and Licenses.................................................................. 4
(o) Taxes................................................................................ 4
(p) Accounts Receivable.................................................................. 4
(q) Contracts............................................................................ 4
(r) Compliance with Law and Other Regulations............................................ 5
(s) Employee Benefit and Employment Matters.............................................. 5
(t) Insurance............................................................................ 6
(u) No Payments to Directors, Officers, Shareholders, or Others.......................... 6
(v) Intellectual Property................................................................ 6
(w) Inventories.......................................................................... 7
(x) Consents and Approvals............................................................... 7
(y) Agreement Not in Breach of Other Instruments Affecting Company....................... 7
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(z) Accuracy of Statements............................................................... 7
3.2 Representations and Warranties of Buyer.............................................. 7
(a) Due Incorporation, Good Standing, and Qualification................................. 7
(b) Corporate Authority.................................................................. 8
(c) Subsidiaries......................................................................... 8
(d) Financial Statements................................................................. 8
(e) No Material Change................................................................... 8
(f) No Violation......................................................................... 8
(g) SEC Reports.......................................................................... 8
(h) Accuracy of Statements............................................................... 9
(i) No View to Distribution.............................................................. 9
3.3 Further Representations and Warranties of Shareholders............................... 9
(a) Ownership of Capital Stock of Company................................................ 9
(b) Rights To Acquire Shares............................................................. 9
(c) Power of Shareholders to Execute Agreement........................................... 9
(d) Agreement Not in Breach of Other Instruments Affecting Shareholders.................. 9
(e) Participation in Business of Company................................................. 9
SECTION 4 THE CLOSING............................................................................... 10
4.1 Closing.............................................................................. 10
4.2 Deliveries by Shareholders........................................................... 10
(a) Stock Certificates................................................................... 10
(b) Resignation of Officers and Directors................................................ 10
(c) General Releases..................................................................... 10
(d) Bill of Sale and Assignment.......................................................... 10
(e) Opinion of Counsel of Company and Shareholders....................................... 10
4.3 Deliveries by Buyer.................................................................. 10
(a) Purchase Price....................................................................... 10
(b) Consents and Approvals............................................................... 10
(c) Opinion of Counsel of Buyer.......................................................... 10
(d) Special Indemnity.................................................................... 10
(e) Release.............................................................................. 10
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.4 Directors and Officers............................................................... 10
4.5 Further Assurances................................................................... 11
SECTION 5 NON-COMPETITION........................................................................... 11
5.1 Non-competition...................................................................... 11
5.2 Duration and Extent of Restriction................................................... 11
5.3 Restrictions with Respect to Customers............................................... 11
5.4 Remedies for Breach.................................................................. 12
SECTION 6 INDEMNIFICATION........................................................................... 12
6.1 Indemnification by Shareholders...................................................... 12
6.2 Indemnification by Buyer............................................................. 12
6.3 Notice and Right to Defend Third-Party Claims........................................ 12
6.4 Limitations Related to Indemnity..................................................... 13
6.5 Remedy for Core Breach............................................................... 14
SECTION 7 GENERAL................................................................................... 14
7.1 Indemnity Against Finders............................................................ 14
7.2 Controlling Law...................................................................... 14
7.3 Notices.............................................................................. 15
7.4 Binding Nature of Agreement; No Assignment........................................... 15
7.5 Entire Agreement..................................................................... 15
7.6 Paragraph Headings................................................................... 15
7.7 Gender............................................................................... 15
7.8 Counterparts......................................................................... 16
7.9 Time of the Essence.................................................................. 16
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
AGREEMENT dated August 3, 1998 ("Agreement") among STYLING TECHNOLOGY
CORPORATION, a Delaware corporation ("Buyer"); and KEVIN T. WEIR, CAROL M. WEIR,
AND DENNIS M. KATAWCZIK (such individuals individually called "Shareholder" and
together called "Shareholders").
Shareholders collectively own 157,880 shares of Common Stock, no par
value, of Ft. Pitt Acquisition, Inc., a Pennsylvania corporation ("Company"),
comprising 58.6 percent of the outstanding shares of capital stock of such
company on a fully diluted basis (hereinafter sometimes called the "Stock").
Shareholders also collectively own an undivided interest in 492 shares of the
Company through ownership of partnership interests in Ft. Pitt Partners I, a
Pennsylvania general partnership (the "Partnership Interests"). Unless the
context otherwise requires, for purposes of Section 3.1 and Section 5, the term
"Company" includes Ft. Pitt Acquisition, Inc. and Ft. Pitt-Framesi, Ltd.
("Framesi of USA, Inc.") ("Subsidiary").
Buyer and Shareholders desire that Buyer acquire the Stock and the
Partnership Interests on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth herein, the parties, intending to be legally bound,
agree as follows:
SECTION 1
PURCHASE OF STOCK
1.1 PURCHASE OF STOCK. Each Shareholder hereby sells, conveys, transfers,
and assigns to Buyer, free and clear of all liens, pledges, claims, and
encumbrances of every kind, nature, and description, and Buyer hereby purchases
and accepts from each Shareholder, the shares of Stock set forth beside the
signature of each Shareholder to this Agreement and the Partnership Interests.
SECTION 2
PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price for the Stock and the Partnership
Interests sold pursuant to Section 1 above shall be $30.0 million of which $25.0
million shall be payable at the Closing and approximately $1.667 million shall
be payable (together with interest on the unpaid principal balance at a rate
equal to six percent per annum) on each of the first three annual anniversary
dates of the Closing, in each case payable to Shareholders pursuant to their
written instructions in accordance with their proportionate share ownerships set
forth beside their respective signatures to this Agreement.
SECTION 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Except as otherwise
set forth in Shareholders' Disclosure Schedule heretofore delivered by
Shareholders to Buyer, Shareholders jointly and severally represent and warrant
to Buyer as follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its
<PAGE> 6
incorporation with all requisite corporate power and authority to own, operate,
and lease its assets and properties and to carry on its business as now being
conducted. Company is not subject to any material disability by reason of the
failure to be duly qualified as a foreign corporation for the transaction of
business or to be in good standing under the laws of any jurisdiction. Schedule
3.1(a) hereto constitutes a list setting forth, as of the date of this
Agreement, each jurisdiction in which Company is qualified to do business.
(b) CAPITAL STOCK. As of the date hereof, Company has an authorized
capital stock consisting of 315,586 shares of Common Stock, no par value, of
which 255,639 shares are issued and outstanding. All of the issued and
outstanding shares of capital stock of Company have been duly authorized and
validly issued and are fully paid and nonassessable.
(c) OPTIONS, WARRANTS, AND RIGHTS. Company does not have outstanding
any options, warrants, or other rights to purchase, or securities or other
obligations convertible into or exchangeable for, or contracts, commitments,
agreements, arrangements, or understandings, to issue, any shares of its capital
stock or other securities.
(d) SUBSIDIARIES. Company owns ninety percent of the issued and
outstanding capital stock of Subsidiary free and clear of all claims, liens,
charges, and encumbrances. All of the issued and outstanding shares of capital
stock of Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable. Company does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest in any corporation or other business,
other than with respect to its subsidiary.
(e) BOOKS AND RECORDS. The books of account and other corporate
records of Company are complete and accurate in all material respects and have
been maintained in accordance with good business practices, and the matters
contained therein are appropriately reflected in Company's financial statements.
The minute books and stock records of Company previously provided to Buyer are
complete and accurate in all material respects and all signatures included
therein are the genuine signatures of the persons whose signatures are required.
Company has delivered to Buyer true and complete copies of its charter and
bylaws as currently in effect.
(f) DIRECTORS, OFFICERS, AND BANK ACCOUNTS. Schedule 3.1(f) is a
correct and complete list of all directors and officers of Company, all bank
accounts and safe deposit boxes of Company, and all persons authorized to sign
checks drawn on such accounts and to have access to such safe deposit boxes.
(g) FINANCIAL STATEMENTS. The Consolidated Balance Sheets of Company
as of December 31, 1996 and December 31, 1997 as well as the Consolidated
Statements of Earnings, the Consolidated Statements of Stockholders' Equity, and
the Consolidated Statements of Cash Flows of Company for the three years ended
December 31, 1997, and all related schedules and notes to the foregoing, have
been reported on by Deloitte & Touche LLP, independent public accountants, and
the Consolidated Balance Sheet of Company as of March 31, 1998 and the
Consolidated Statement of Earnings, the Consolidated Statement of Shareholders'
Equity, and the Consolidated Statement of Cash Flows of Company for the three
months ended March 31, 1998 have been prepared by Company without audit. All of
the foregoing financial statements have been prepared in accordance with
generally accepted accounting principles (subject, in the case of the March 31,
1998 financial statements, to normal year-end adjustments and the absence of
footnotes), which were applied on a consistent basis (except as defined therein)
and present fairly, in all material respects, the financial position, results of
operations, and changes in financial
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position of Company as of their respective dates and for the periods indicated.
Company has no material liabilities or obligations of a type that would be
included in a balance sheet prepared in accordance with generally accepted
accounting principles, except as and to the extent disclosed or reflected in the
Consolidated Balance Sheet of Company as of March 31, 1998 ("Company's Base
Balance Sheet") or incurred since the date of that balance sheet in the ordinary
course of business.
(h) ACTIONS IN THE ORDINARY COURSE OF BUSINESS. Since the date of
Company's Base Balance Sheet, Company (i) has not taken any action outside the
ordinary and usual course of business; (ii) has not borrowed any money or become
contingently liable for any obligation or liability of another; (iii) has not
failed to pay any of its debts and obligations as they become due; (iv) has not
incurred any debt, liability, or obligation of any nature to any party, except
for obligations arising from the purchase of goods or the rendition of services
in the ordinary course of business; and (v) has not failed to use its best
efforts to preserve its business organization intact, to keep available the
services of its employees and independent contractors, and to preserve its
relationships with its customers, suppliers, and others with which it deals.
(i) NO MATERIAL CHANGE. Since the date of Company's Base Balance
Sheet, there has not been and there is not threatened (i) any material adverse
change in the financial condition, business, assets, properties, or operating
results of Company other than as would affect the hair care product industry
generally, (ii) any loss or damage (whether or not covered by insurance) to any
of the assets or properties of Company, which materially affects or impairs its
ability to conduct its business, or (iii) any mortgage or pledge of any assets
or properties of Company, or any indebtedness incurred by Company, other than
indebtedness, not material in the aggregate, incurred in the ordinary course of
business.
(j) TITLE TO PROPERTIES. Company has good and marketable title to
all of its real and personal assets and properties, including all assets and
properties reflected in Company's Base Balance Sheet or acquired subsequent to
the date of Company's Base Balance Sheet, except assets or properties disposed
of subsequent to the date of Company's Base Balance Sheet in the ordinary course
of business. Such assets and properties are subject to no mortgage, indenture,
pledge, lien, claim, encumbrance, charge, security interest or title retention,
or other security arrangement, except for liens for the payment of federal,
state, and other taxes, the payment of which is neither delinquent nor subject
to penalties, and except for other liens and encumbrances incidental to the
conduct of the business of Company or the ownership of its assets or properties,
which were not incurred in connection with the borrowing of money or the
obtaining of advances and which do not in the aggregate materially detract from
the value of the assets or properties of Company or materially impair the use
thereof in the operation of its business, except in each case as disclosed in
Company's Base Balance Sheet. All leases pursuant to which Company leases any
substantial amount of real or personal property are valid and effective in
accordance with their respective terms.
(k) CONDITION OF ASSETS AND PROPERTIES. The buildings, equipment,
machinery, fixtures, furniture, furnishings, office equipment, and all other
tangible personal assets and properties of Company presently used in, or
necessary for the operation of, Company's business, do not require any repairs
other than normal maintenance and are in good operating condition and in a state
of reasonable maintenance and repair, except for ordinary wear and tear.
(l) REAL ESTATE. Company has no interest as owner, lessor, lessee,
or otherwise in any real estate, except as set forth in Schedule 3.1(l).
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(m) LITIGATION. There are no actions, suits, proceedings, or other
litigation pending or, to Shareholders' knowledge , threatened against Company,
at law or in equity, or before or by any federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or instrumentality
that, if determined adversely to Company, would individually or in the aggregate
have a material adverse effect on the business, assets, properties, operations,
operating results, prospects, or condition, financial or otherwise, of Company.
(n) RIGHTS AND LICENSES. To Shareholders' knowledge, Company is not
subject to any material disability or liability by reason of its failure to
possess any patent, patent right, trademark, trademark right, trade name, trade
name right, or license. Company has all licenses, permits, approvals, and
authorizations of whatever kind and type, government or private, applied for or
pending (collectively "Licenses and Permits") necessary for the conduct of the
business conducted by it and the ownership and use of its assets and properties
and the premises occupied by it, and the conduct of its business as presently
conducted. Schedule 3.1(n) hereto contains a true, correct, and complete list of
all Licenses and Permits used in the conduct of Company's business.
(o) TAXES. Company has duly filed in correct form all Tax Returns
relating to the activities of Company required or due to be filed (with regard
to applicable extensions) on or prior to the date hereof. All such Tax Returns
are complete and accurate in all material respects, and Company has paid or made
provision for the payment of all Taxes that have been incurred or are due or
claimed to be due from Company by federal, state, or local taxing authorities
for all periods ending on or before the date hereof, other than Taxes or other
charges that are not delinquent or are being contested in good faith and have
not been finally determined and have been disclosed to Buyer. The amounts set up
as reserves for Taxes on the books of Company are sufficient in the aggregate
for the payment of all accrued and unpaid Taxes (including any interest or
penalties thereon). No claims for Taxes or assessments are being asserted) or,
to Shareholders' knowledge, threatened against Company. Company has furnished to
Buyer a list of all Tax Returns filed for it. For purposes of this Agreement,
the term "Taxes" shall mean all taxes, charges, fees, levies, or other
assessments, including, without limitation, income, gross receipts, excise,
property, sales, transfer, license, payroll, and franchise taxes, imposed by the
United States, or any state, local, or foreign government or subdivision or
agency thereof; and such term shall include any interest, penalties, or
additions to tax attributable to such assessments or to the failure to file any
Tax Return; and the term "Tax Return" shall mean any report, return, or other
information required to be supplied to a taxing authority or required by a
taxing authority to be supplied to any other person.
(p) ACCOUNTS RECEIVABLE. The accounts receivable of Company have
been acquired in the ordinary course of business, are valid and enforceable, and
are subject to no defenses, deductions, set-offs, or counterclaims, except to
the extent of the reserve reflected in Company's Base Balance Sheet (in
accordance with generally accepted accounting principles consistently applied)
or in such other amount that is not material in the aggregate.
(q) CONTRACTS. Except as disclosed in Schedule 3.1(q), Company is
not a party to (i) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, or profit
sharing, (ii) any collective bargaining or other contract or agreement with any
labor union, (iii) any lease, installment purchase agreement, or other contract
with respect to any real or personal property used or proposed to be used in its
operations, excepting, in each case, items included within aggregate amounts
disclosed or reflected in Company's Base Balance Sheet, (iv) any employment
agreement or other similar arrangement not terminable by it upon 30 days or less
notice without material penalty to it, (v) any contract or agreement for the
purchase of any commodity,
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<PAGE> 9
material, fixed asset, or equipment in excess of $100,000, (vi) any contract or
agreement creating an obligation of $100,000 or more, (vii) any contract,
agreement, mortgage, or lease, which by its terms is not terminable by Company
without material penalty to it, (viii) any loan agreement, indenture, promissory
note, conditional sales agreement, or other similar type of arrangement, or (ix)
any material license agreement. All mortgages, leases, contracts, agreements,
and other arrangements (including any contracts, agreements, and other
arrangements with S.r.1 Framesi, an Italian company, or Roberto Franchina
(collectively, the "Franchina Agreements")) to which Company is a party are
valid and enforceable in accordance with their terms; Company and, to the
knowledge of Shareholders, all other parties to each of the foregoing have
performed all material obligations required to be performed to date; neither
Company nor, to Shareholders' knowledge, any such other party is in material
default or in material arrears under the terms of any of the foregoing; and, to
the knowledge of Shareholders, no condition exists or event has occurred that,
with the giving of notice or lapse of time or both, would constitute a material
default under any of them.
(r) COMPLIANCE WITH LAW AND OTHER REGULATIONS. Company is in
compliance in all material respects with all requirements (including those
relating to environmental matters) of federal, state, or local law and all
requirements of all governmental bodies and agencies having jurisdiction over
it, the conduct of its business, the use of its assets and properties, and all
premises occupied by it. To Shareholders' knowledge, there is no environmental
contamination, toxic waste, or other discharge, spill, construction component,
structural element or condition, adversely affecting any of the properties of
Company, nor has Company received any official notice or citation that any of
its properties in any material way contravene any federal, state, or local law
or regulation relating to environmental, health, or safety matters, including
without limitation any requirements of the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or OSHA requirements. Without limiting
the foregoing, Company has properly filed all reports, paid all monies, and
obtained all licenses, permits, certificates, and authorizations needed or
required for the conduct of its business and the use of its assets and
properties and the premises occupied by it in connection therewith and is, to
Shareholders' knowledge, in compliance in all material respects with all
conditions, restrictions, and provisions of all of the foregoing. Company has
not received any notice from any federal, state, or local authority or any
insurance or inspection body that any of its assets, properties, facilities,
equipment, or business procedures or practices fails to comply with any
applicable law, ordinance, regulation, building, or zoning law or requirement of
any public authority or body.
(s) EMPLOYEE BENEFIT AND EMPLOYMENT MATTERS. Company has fulfilled
its obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974 ("ERISA") and
the regulations and published interpretations thereunder with respect to each
"plan" (as defined in Section 3(3) of ERISA and such regulations and published
interpretations) in which employees of Company are eligible to participate and
each such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations. Company has not incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of ERISA. The employment of
each employee of Company is terminable at will without material cost to Company.
Company has complied in all material respects with all other applicable federal,
state, and local laws relating to the employment of labor including, but not
limited to, the provisions thereof relative to wages, hours, collective
bargaining, working conditions, and payment of taxes of any kind, and Company is
not liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing or has any obligations for any vacation, sick
leave, or other compensatory time. All officers and independent contractors of
Company are paid salaries or other compensation in accordance with the amounts
set forth in Shareholders' Disclosure
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Schedule, and Shareholders' Disclosure Schedule correctly and accurately sets
forth all salaries, expenses, and personal benefits paid to or accrued for all
directors, officers, and principal shareholders of Company as of the date of
this Agreement, all of which are reflected as appropriate in Company's Base
Balance Sheet.
(t) INSURANCE. Company maintains in full force and effect insurance
coverage on its assets, properties, premises, operations, and personnel in such
amounts as Company deems appropriate. Schedule 3.1(t) hereto contains a
description (identifying insurer, coverage, premiums, named insured,
deductibles, and expiration date) of all policies of fire, liability, and other
forms of insurance that currently are, or at any time within the past five years
have been, maintained in force by or for the account of Company with respect to
the business and assets of Company (such policies are hereinafter referred to as
the "Policies"). Company has been continuously, and is presently, insured by
insurers unaffiliated with Company with respect to its property and the conduct
of its business in such amounts and against such risks as Company has reasonably
deemed adequate to protect its business and assets, including, without
limitation, liability insurance. The insurance coverage provided by the Policies
presently in force will not in any material respect be affected by, and will not
terminate or lapse by reason of, the transactions contemplated hereby.
(u) NO PAYMENTS TO DIRECTORS, OFFICERS, SHAREHOLDERS, OR OTHERS.
Since the date of Company's Base Balance Sheet, there has not been any purchase
or redemption of any shares of capital stock of Company or any transfer,
distribution, or payment by Company, directly or indirectly, of any assets or
properties to any director, officer, shareholder, or other person other than the
payment of compensation for services actually rendered at rates not in excess of
the rates prevailing on the date of Company's Base Balance Sheet and dividend
distributions in the ordinary course of business consistent with past practices.
(v) INTELLECTUAL PROPERTY. Company owns or holds all of the rights
to use all intellectual property rights that are used in the operation of the
business of Company, including, without limitation, all patents and applications
therefor, know how, unpatented inventions, trade secrets, product formulas,
packaging styles and methods, business and marketing plans, ideas for products
or production developed or used by the Company, copyrights and applications
therefor, trademarks and applications therefor, service marks and applications
therefor, trade names and applications therefor, and all names, logos, and
slogans used by Company (collectively "Intellectual Property"), including the
Intellectual Property set forth on Schedule 3.1(v). Schedule 3.1(v) hereto sets
forth a true, complete, and correct list of all material Intellectual Property
owned or used by Company or any of its subsidiaries. Except as set forth in
Schedule 3.1(v), Company owns all rights with respect to, and has good and
marketable title to, all of the trademarks and formulas that are used in the
Business. Except as set forth in Schedule 3.1(v), Company is not, and following
the Closing, neither Buyer nor Company will be, obligated to pay any royalty or
other payment with respect to any of such formulas. To the knowledge of
Shareholders, none of the matters covered by the Intellectual Property, nor any
of the products or services sold or provided by Company, nor any of the
processes used or the business practices followed by Company, infringes or has
infringed upon any trademark, trade name, trade secret, fictitious name, service
mark, patent, or copyright owned by any person or entity (or any application
with respect thereto), or constitutes unfair competition. Except as set forth in
Schedule 3.1(v), Company is not, and following the Closing neither Buyer nor
Company will be, obligated to pay any royalty or other payment with respect to
any of the Intellectual Property. To the knowledge of Shareholders, except as
disclosed in Schedule 3.1(v), no person or entity is producing, providing,
selling, or using products or services that would constitute an infringement of
any of the Intellectual Property.
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(w) INVENTORIES. The Inventories are in good and merchantable
condition and are stated at not more than the lower of cost or market, with
adequate adjustments for obsolete or obsolescent items. Since the date of
Company's Base Balance Sheet, there have not been and there are not required to
be any write-downs in the value of the Company's Inventories or write-offs with
respect to such Inventories. The raw materials, work in progress, and finished
goods inventory of Company are all in good condition and are usable and
currently being used in the present production and sales activities of Company,
and Company does not have on hand or on order any raw materials, work in
progress, or finished goods inventory materially in excess of its normal
requirements (based upon sales experience for the last 12 months) for products
that are included in its current line and for which Company is now taking
orders. Without limiting the foregoing, (i) Company does not have more than a
normal supply of raw materials, work in progress or finished goods inventory,
and (ii) all work in progress and finished goods inventory are in accordance
with past practices.
(x) CONSENTS AND APPROVALS. Shareholders have obtained all necessary
consents and approvals of other persons to the performance by Shareholders of
the transactions contemplated by this Agreement, including any required consents
or approvals from S.r.1. Framesi ("Framesi Italy") and Roberto Franchina
("Franchina"). Company does not need any such consents.
(y) AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS AFFECTING COMPANY.
The execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, and the fulfillment of the terms hereof, will
not violate any provision of the articles of incorporation or bylaws of Company,
nor will they result in the breach of any term or provision of, or result in the
termination or modification of, or constitute a default under, or permit any
party to modify or terminate, any loan agreement, note, debenture, indenture,
mortgage, deed of trust, lease, contract, agreement, or other material
obligation of any description (including any contracts, agreements, and other
arrangements with S.r.1. Framesi, an Italian company, or Roberto Franchina) to
which Company is a party or by which it is bound, or any judgment, decree,
order, or award of any court, government body, or arbitration, or any applicable
law, rule, or regulation.
(z) ACCURACY OF STATEMENTS. Neither this Agreement nor Shareholders'
Disclosure Schedule contains or will contain an untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein, in light of circumstances in which they
are made, not misleading.
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Except as otherwise set forth
in the Buyer Disclosure Schedule heretofore delivered by Buyer to Shareholders,
and except as disclosed in any document previously filed with the Securities and
Exchange Commission ("SEC"), Buyer represents and warrants to Shareholders as
follows:
(a) DUE INCORPORATION, GOOD STANDING, AND QUALIFICATION. Each of
Buyer and its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation with
all requisite corporate power and authority to own, operate, and lease its
assets and properties and to carry on its business as now being conducted.
Neither Buyer nor any of its subsidiaries is subject to any material disability
by reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction. As used in this Agreement with reference to Buyer, the term
"subsidiaries" shall include all direct or indirect subsidiaries of Buyer other
than Company.
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<PAGE> 12
(b) CORPORATE AUTHORITY. Buyer has the corporate power and authority
to enter into this Agreement and carry out the transactions contemplated hereby.
This Agreement has been duly executed and delivered by and constitutes a legal,
valid, and binding agreement of Buyer, enforceable against it in accordance with
its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors' rights, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought.
(c) SUBSIDIARIES. The outstanding shares of capital stock of the
subsidiaries of Buyer owned by Buyer or any of its subsidiaries are owned free
and clear of all claims, liens, charges, and encumbrances. Buyer does not own,
directly or indirectly, any capital stock or other equity securities of any
corporation or have any direct or indirect equity or ownership interest in any
corporation or other business, other than with respect to its subsidiaries.
(d) FINANCIAL STATEMENTS. The Consolidated Balance Sheet of Buyer
and its subsidiaries as of December 31, 1997, as well as the Consolidated
Statements of Income, the Consolidated Statements of Stockholders' Equity, and
the Consolidated Statements of Cash Flows of Buyer and its subsidiaries for the
period ended December 31, 1997, and all related schedules and notes to the
foregoing, have been reported on by Arthur Andersen LLP, independent public
accountants. All of the foregoing financial statements have been prepared in
accordance with generally accepted accounting principles which were applied on a
consistent basis (except as described therein), and present fairly, in all
material respects the financial position, results of operations, and changes of
financial position of Buyer and its subsidiaries as of their respective dates
and for the periods indicated. Neither Buyer nor any of its subsidiaries has any
material liabilities or obligations of a type that would be included in a
balance sheet prepared in accordance with generally accepted accounting
principles, except as and to the extent disclosed or reflected in the
Consolidated Balance Sheet of Buyer and its subsidiaries as of March 31, 1998
("Buyer's Base Balance Sheet"), or incurred since March 31, 1998 in the ordinary
course of business.
(e) NO MATERIAL CHANGE. Since the date of Buyer's Base Balance
Sheet, there has not been and there is not threatened (i) any material adverse
change in the financial condition, business, properties, assets, or operating
results of Buyer and its subsidiaries taken as a whole, or (ii) any loss or
damage (whether or not covered by insurance) to any of the assets or properties
of Buyer or its subsidiaries, which materially affects or impairs their ability
to conduct their business
(f) NO VIOLATION. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not violate or
result in a breach by Buyer or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Buyer
or any of its subsidiaries is subject or by which Buyer or any of its
subsidiaries is bound.
(g) SEC REPORTS. Buyer's Form 10-K Report for the year ended
December 31, 1997, and all subsequent reports and proxy statements filed by
Buyer thereafter with the SEC pursuant to Section 13(a) or 14(a) of the
Securities Exchange Act of 1934, do not contain a misstatement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the
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statements therein not misleading as of the time the document was filed. No
report, proxy statement, or other document has been required to be filed by
Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934
that has not been filed.
(h) ACCURACY OF STATEMENTS. Neither this Agreement nor the Buyer
Disclosure Schedule contains or will contain an untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
(i) NO VIEW TO DISTRIBUTION. Buyer is not purchasing the Stock or
the Partnership Interests with a view to distribution.
3.3 FURTHER REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each
Shareholder represents, warrants, and acknowledges individually for such
Shareholder to Buyer as follows:
(a) OWNERSHIP OF CAPITAL STOCK OF COMPANY. Such Shareholder owns the
number of shares of Common Stock of Company set forth next to such Shareholder's
signature to this Agreement and their respective Partnership Interests. Such
Shareholder has good, marketable, and unencumbered title to such stock and their
respective Partnership Interests, and there are no restrictions on such
Shareholder's right to transfer such stock or their respective Partnership
Interests to Buyer pursuant to this Agreement.
(b) RIGHTS TO ACQUIRE SHARES. Such Shareholder does not have any
outstanding options, warrants, or other rights to purchase or subscribe to, or
contracts or commitments to sell, or any interests, instruments, evidences of
indebtedness, or other securities convertible in any manner into, shares of
Company's capital stock.
(c) POWER OF SHAREHOLDERS TO EXECUTE AGREEMENT. Such Shareholder has
the full power and authority to execute, deliver, and perform this Agreement,
and this Agreement is the legal and binding obligation of such Shareholder and
is enforceable against such Shareholder in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(d) AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS AFFECTING
SHAREHOLDERS. The execution and delivery of this Agreement, the consummation of
the transactions hereby contemplated, and the fulfillment of the terms hereof
will not result in the breach of any term or provision of, or constitute a
default under, or conflict with, or cause the acceleration of any obligation
under any agreement or other instrument of any description to which such
Shareholder is a party or by which such Shareholder is bound, or any judgment,
decree, order, or award of any court, governmental body, or arbitrator, or any
applicable law, rule, or regulation.
(e) PARTICIPATION IN BUSINESS OF COMPANY. Such Shareholder is
actively involved in the business of Company; is familiar with its business,
affairs, and financial condition; and serves as an officer, director, or both of
Company.
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SECTION 4
THE CLOSING
4.1 CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement is taking place at the offices of Kirkpatrick & Lockhart LLP,
1500 Oliver Building, Pittsburgh, Pennsylvania on August 3, 1998 at 11:00 a.m.,
Pittsburgh time, which date is referred to herein as the "Closing Date."
4.2 DELIVERIES BY SHAREHOLDERS. At the Closing, Shareholders shall
deliver:
(a) STOCK CERTIFICATES. Certificates for 157,880 shares of Company's
Common Stock endorsed in blank, or with stock powers executed in blank attached.
(b) RESIGNATION OF OFFICERS AND DIRECTORS. Their written resignations
as directors and officers of Company and Subsidiary.
(c) GENERAL RELEASES. General releases to Company and Subsidiary by
each Shareholder in the form of Schedule 4.2(c).
(d) BILL OF SALE AND ASSIGNMENT. Bills of Sale and Assignment executed
by Shareholders to sell, assign, and set over to Buyer all of their respective
rights, title, and interests as a partner in Ft. Pitt Partners I, a Pennsylvania
general partnership.
(e) OPINION OF COUNSEL OF COMPANY AND SHAREHOLDERS. The opinion of
Kirkpatrick & Lockhart LLP covering the matters specified in Schedule 4.2(e).
All assignments, consents, certificates, and other documents delivered by
Shareholders shall be in form reasonably satisfactory to counsel for Buyer.
4.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver:
(a) PURCHASE PRICE. Payment of the purchase price payable at the
Closing as provided for in Section 2 in immediately available funds by cashier's
check or wire transfer.
(b) CONSENTS AND APPROVALS. Written evidence of all required consents
and approvals of the transactions contemplated hereby.
(c) OPINION OF COUNSEL OF BUYER The opinion of counsel for Buyer
covering the matters specified in Schedule 4.3(c).
(d) SPECIAL INDEMNITY. The Special Indemnity of Buyer to Shareholders
in the form of Schedule 4.3(d).
(e) RELEASE. A release of Shareholders in the form of Schedule 4.3(e).
All certificates and other documents delivered by Buyer shall be in form
reasonably satisfactory to counsel for Shareholders.
4.4 DIRECTORS AND OFFICERS. At the Closing, representatives of Buyer shall
be elected as directors and officers of Company.
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4.5 FURTHER ASSURANCES. Shareholders and Buyer shall execute and deliver
all such other instruments and take all such other action as any party may
reasonably request from time to time, after the Closing, in order to effectuate
the transactions provided for herein. The parties shall cooperate with each
other and with their respective counsel and accountants in connection with any
steps to be taken as a part of their respective obligations under this
Agreement, including the preparation of financial statements. Shareholders agree
to cooperate fully with Buyer and Arthur Andersen LLP, including making any
standard representations and signing any standard audit representations letters
and agree to use their best efforts to cause Deloitte & Touche LLP to cooperate
fully with Buyer and Arthur Andersen LLP, in order to complete any audit that
may be required under applicable rules and regulations of the Securities and
Exchange Commission, as determined by Arthur Andersen LLP.
SECTION 5
NON-COMPETITION
5.1 NON-COMPETITION. Because of the importance of Shareholders to the
development and operation of the business of Company, as well as their knowledge
of and reputation in Company's industry, Buyer is unwilling to enter into and
perform this Agreement unless Shareholders all enter into the non-competition
agreement contained in this Section 5. To induce Buyer to enter into this
Agreement and for the benefit of Buyer, each Shareholder agrees as follows:
5.2 DURATION AND EXTENT OF RESTRICTION. Such Shareholder shall not, for a
period ending five years after the Closing Date, within the United States or
foreign countries, engage in a business (a) the same as, substantially similar
to, or in general competition with the business being currently conducted by
Company, at or within 12 months prior to the Closing Date or (b) pursue a
"roll-up" or "consolidation" business strategy involving salon products. The
term "engage in" shall include, but shall not be limited to, activities, whether
direct or indirect, as proprietor, partner, shareholder, principal, agent,
employee, consultant or lender; provided, however, that the ownership of not
more than 5% in the aggregate by such Shareholder of the stock of a publicly
held corporation shall not be included in such term.
5.3 RESTRICTIONS WITH RESPECT TO CUSTOMERS. In furtherance of, and without
in any way limiting the restriction in Section 5.1, for the period specified in
Section 5.2, no Shareholder shall, directly or indirectly,
(a) request any past, present, or future customers of Company to
curtail or cancel their business with Buyer or any of its subsidiaries;
(b) disclose the identity of any past, present, or future customers of
Company, Buyer, or any subsidiary of Buyer to any other person, firm or
corporation engaged in a business the same as, substantially similar to, or in
general competition with the business being conducted by Company, as defined in
the recitals of this Agreement;
(c) solicit, canvas, or accept, or authorize any other person to
solicit, canvas, or accept, from any past, present, or future customers of
Company, Buyer or any subsidiary of Buyer, any business for any other person,
firm, or corporation engaged in a business the same as, substantially similar
to, or in general competition with the business being conducted by Company, as
defined in the recitals of this Agreement; or
11
<PAGE> 16
(d) induce or attempt to influence any employee of Company to
terminate his or her employment with Company, Buyer, or any subsidiary of Buyer.
As used in this Section 5.3 "future customer" shall mean a customer with
whom business will have been transacted between the date hereof and the end of
the term specified in Section 5.2.
5.4 REMEDIES FOR BREACH. Each Shareholder acknowledges that the
restrictions contained in this Section 5, in view of the nature of the business
in which Company is engaged, are reasonable and necessary to protect the
legitimate interests of Buyer and that any violation of these restrictions would
result in irreparable injury to Buyer. Each Shareholder agrees that, in the
event of a violation of any of such restrictions, Buyer shall be entitled to
preliminary and permanent injunctive relief as well as an equitable accounting
of all earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Buyer may be entitled. In the event of a violation by any Shareholder (a
"Defaulting Shareholder"), such a violation in and of itself shall not
constitute a violation by any other Shareholder and Buyer may only exercise its
remedies for such a violation against a Defaulting Shareholder. In the event of
a violation by a Defaulting Shareholder, the period of non-competition referred
to in Section 5.2 for such Defaulting Shareholder shall be extended by a period
of time equal to that period beginning when such violation commenced and ending
when the activities constituting such violation shall have been finally
terminated.
SECTION 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY SHAREHOLDERS. Shareholders, jointly and severally,
covenant and agree to defend, indemnify, and hold Buyer harmless for, from, and
against any and all damages, losses, liabilities (absolute and contingent),
fines, penalties, costs, and expenses (including, without limitation, reasonable
counsel fees and costs and expenses incurred in the investigation, defense, or
settlement of any claim covered by this indemnity) resulting from any demand,
claim, proceeding, action, or cause of action that Buyer may suffer or incur by
reason of (a) the material inaccuracy of any of the representations or
warranties of any Shareholder contained in this Agreement (except the
representations and warranties contained in Section 3.3, for which only the
breaching Shareholder(s) shall be obligated); or (b) the failure to comply with,
or the breach, or the default by any Shareholder of any of the covenants,
warranties, or agreements made by any Shareholder contained in this Agreement.
6.2 INDEMNIFICATION BY BUYER. Buyer covenants and agrees to defend,
indemnify, and hold Shareholders harmless for, from, and against any and all
damages, losses, liabilities (absolute and contingent), fines, penalties, costs,
and expenses (including, without limitation, reasonable counsel fees and costs
and expenses incurred in the investigation, defense or settlement of any claim
covered by this indemnity) resulting from any demand, claim, proceeding, action,
or cause of action that any Shareholder may suffer or incur by reason of (a) the
material inaccuracy of any of the representations or warranties of Buyer
contained in this Agreement; or (b) the failure to comply with, the breach or
the default by Buyer of any of the covenants, warranties, or agreements made by
Buyer in this Agreement.
6.3 NOTICE AND RIGHT TO DEFEND THIRD-PARTY CLAIMS. Promptly upon receipt
of notice of any claim, demand, or assessment or the commencement of any suit,
action, or proceeding with respect to which indemnity may be sought pursuant to
this Agreement, the party seeking to be indemnified or held harmless (the
"Indemnitee") shall notify in writing, if possible, within sufficient time to
respond to such claim or answer or otherwise plead in such action (but in any
event within ten days, the party from
12
<PAGE> 17
whom indemnification is sought (the "Indemnitor"). In case any claim, demand, or
assessment shall be asserted, or suit, action, or proceeding commenced against
the Indemnitee, the Indemnitor shall be entitled, at the Indemnitor's expense,
to participate therein, and, to the extent that it may wish, to assume the
defense, conduct, or settlement thereof, at its own expense, with counsel
reasonably satisfactory to the Indemnitee, whose consent to the selection of
counsel shall not be unreasonably withheld or delayed, provided that the
Indemnitor confirms to the Indemnitee that it is a claim to which its rights of
indemnification apply. The Indemnitor shall have the right to settle or
compromise monetary claims without the consent of Indemnitee; however, as to any
other claim, the Indemnitor shall first obtain the prior written consent from
the Indemnitee, which consent shall be exercised in the sole discretion of the
Indemnitee. After notice from the Indemnitor to the Indemnitee of Indemnitor's
intent so to assume the defense, conduct, settlement, or compromise of such
action, the Indemnitor shall not be liable to the Indemnitee for any legal or
other expenses (including, without limitation, settlement costs) subsequently
incurred by the Indemnitee in connection with the defense, conduct, or
settlement of such action while the Indemnitor is diligently defending,
conducting, settling, or compromising such action. The Indemnitor shall keep the
Indemnitee apprised of the status of the suit, action, or proceeding and shall
make Indemnitor's counsel available to the Indemnitee, at the Indemnitor's
expense, upon the request of the Indemnitee. The Indemnitee shall cooperate with
the Indemnitor in connection with any such claim and shall make personnel, books
and records and other information relevant to the claim available to the
Indemnitor to the extent that such personnel, books and records and other
information are in the possession and/or control of the Indemnitee. If the
Indemnitor decides not to participate, the Indemnitee shall be entitled, at the
Indemnitor's sole cost and expense, to defend, conduct, settle or compromise
such matter with counsel satisfactory to the Indemnitor, whose consent to the
selection of counsel shall not be unreasonably withheld or delayed.
6.4 LIMITATIONS RELATED TO INDEMNITY. Notwithstanding anything to the
contrary herein:
(a) Each Shareholder shall be individually responsible for
indemnification arising out of any breach of a representation and warranty made
pursuant to Section 3.3 as to such Shareholder and the other Shareholders shall
not be jointly or severally liable for such indemnification obligations;
(b) Except as set forth in Section 6.4(a) above, each Shareholder's
responsibility for any indemnification under this Section 6 shall be limited to
the result obtained by multiplying the total indemnity by the proportionate
ownership interest each Shareholder had in the Stock, as set forth beside their
respective signatures to this Agreement;
(c) Shareholders shall have no obligation to indemnify any loss by
Buyer under this Agreement, unless, and only to the extent that all such losses
in the aggregate exceed $700,000;
(d) Buyer shall have no obligation to indemnify any loss by
Shareholders under this Agreement, unless, and only to the extent that all such
losses in the aggregate exceed $700,000 (except that this Section 6.4(d) shall
not apply in the event of Buyer's failure to pay the deferred portion of the
Purchase Price in accordance with Section 2.1);
(e) In no event shall the aggregate liabilities of the Shareholders
under this Agreement exceed $12,500,000;
(f) In no event shall the aggregate liabilities of Buyer under this
Agreement exceed $12,500,000; and
13
<PAGE> 18
(g) Except as provided in Section 6.5 hereof, the obligations of the
Shareholders under this Section 6 shall expire on the date that their
representations and warranties shall expire, which shall be the first
anniversary of the Closing Date (the "Indemnification Period").
6.5 REMEDY FOR CORE BREACH. Notwithstanding the provisions of Sections
6.1, 6.3, and 6.4 hereof, (a) in the event that Buyer alleges a breach by
Shareholders of the representations in the last sentence of Section 3.1(q)
hereof as it relates to the Franchina Agreements or a breach by Shareholders of
the representations in Section 3.1(x) with respect to consents of Framesi Italy
or Franchina (as defined therein) (each a "Core Breach") and that as a result of
such alleged Core Breach, Buyer has sustained damages in excess of $500,000,
Buyer's sole and exclusive remedy under this Agreement shall be to notify
Shareholders of the existence of such alleged Core Breach within 30 days of the
Closing Date (the "Core Breach Notice"), which Core Breach Notice shall set
forth in detail the nature of the alleged Core Breach, the nature of the
investigation conducted by Buyer with respect to the Core Breach, and the basis
for Buyer's conclusion that a Core Breach has occurred. Shareholders shall have
a period of 30 days from actual receipt of the Core Breach Notice (the "Core
Breach Cure Period") in which to attempt to cure the alleged Core Breach
described therein, and, if such cure is effected within the Core Breach Cure
Period, the Core Breach Notice shall be deemed to be rescinded. If Shareholders
do not cure such alleged Core Breach during such Core Breach Cure Period, then
on the tenth day following the conclusion of the Core Breach Cure Period (the
"Rescission Implementation Period"), (a) Buyer shall immediately return the
Stock and Partnership Interests to Shareholders, free and clear of all liens and
encumbrances, and Buyer shall immediately cause Company and its assets to be
released from any agreements and security interests related to borrowed money
which the Company may become a party to during the period which Buyer holds the
Stock (excluding those agreements described in subparts (i), (ii), and (iii) of
the next sentence), and (b) Shareholders shall return the Purchase Price to
Buyer, whereupon this Agreement and the transactions contemplated hereby shall
be rescinded except for the provisions in the remainder of this Section 6.5. In
the case of such recission, Shareholders shall cause Company to repay to Buyer
within 90 days of the date of the last day of the Rescission Implementation
Period any loans from Buyer to Company the proceeds of which were used by
Company to repay (i) amounts owed by Company to the National Bank of Canada as
of the Closing Date, (ii) amounts owned by the Company under the Fuhrer Notes
and Fuhrer Royalty Agreement (as such terms are defined in the Disclosure
Schedules), and (iii) amounts (up to $500,000) loaned by Buyer to Company as
reasonably required to satisfy Company's short-term working capital needs. In
the event that after such rescission is completed it is determined by a court of
competent jurisdiction that Shareholders were not in breach of the
representations and warranties described in the Core Breach Notice, Buyer shall
(i) reimburse Shareholders for all fees and expenses incurred by Shareholders in
responding to the alleged Core Breach, including legal fees and expenses, and
(ii) shall pay to Shareholders the greater of (x) actual damages incurred by
Shareholders as a result of such rescission or (y) $1,000,000 (with such amount
in (y) being liquidated minimum damages and an amount agreed to among Buyer and
Shareholders as a reasonable estimation of minimum damages suffered by
Shareholders in such a case).
SECTION 7
GENERAL
7.1 INDEMNITY AGAINST FINDERS. Each party hereto shall indemnify and hold
the other parties harmless against any claim for finders' fees based on alleged
retention of a finder by it.
7.2 CONTROLLING LAW. This Agreement, and all questions relating to its
validity, interpretation, performance, and enforcement, shall be governed by and
construed in accordance with the laws of Delaware, notwithstanding any Delaware
or other conflict-of-law provisions to the contrary.
14
<PAGE> 19
7.3 NOTICES. Except to the extent otherwise set forth herein, all notices,
requests, demands, and other communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given, made
and received when personally delivered or when deposited in the United States
mails, first class postage prepaid, return receipt requested, or when sent by
overnight express delivery with a signature required upon receipt, addressed as
set forth below:
If to Buyer: If to Shareholders:
Styling Technology Company Dennis M. Katawczik
2390 East Camelback Road, Suite 435 5324 Ellsworth Avenue
Phoenix, Arizona 85016 Pittsburgh, Pennsylvania 15232
Phone: (602) 955-3353 Phone: (412) 682-1505
Fax: (602) 955-3383 Fax: (412) 683-7866
Attention: Sam Leopold
Kevin T. Weir
640 Pine Road
Sewickley, Pennsylvania 15143
Phone: (412) 741-1542
Fax: (412) 741-5782
with a copy, given in with a copy, given in
the manner prescribed above, to: the manner prescribed above, to:
O'Connor, Cavanagh, Anderson, Kirkpatrick & Lockhart LLP
Killingsworth & Beshears, P.A. 1500 Oliver Building
One East Camelback, Suite 1100 Pittsburgh, Pennsylvania 15222-2312
Phoenix, Arizona 85012 Phone: (412) 355-6500
Phone: (602) 263-2606 Fax: (412) 355-6501
Fax: (602) 263-2900 Attention: Charles E. Harris, Esq.
Attention: Robert S. Kant, Esq.
Any party may alter the address to which communications or copies are to
be sent by giving notice to such other parties of change of address in
conformity with the provisions of this paragraph for the giving of notice.
7.4 BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no party may assign, delegate, or transfer
its rights or obligations under this Agreement without the prior written consent
of the other parties hereto. Any assignment, delegation, or transfer made in
violation of this Section 6.4 shall be null and void.
7.5 ENTIRE AGREEMENT. This Agreement, the Schedules hereto, and the
Disclosure Schedules contain the entire understanding among the parties hereto
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing.
15
<PAGE> 20
7.6 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
7.7 GENDER. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
7.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
7.9 TIME OF THE ESSENCE. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
16
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
STYLING TECHNOLOGY CORPORATION
By: /s/ Richard R. Ross
----------------------------------------
Richard R. Ross
NUMBER OF SHARES SHAREHOLDERS:
/s/ Kevin T. Weir
1,623.5 -------------------------------------------
Individually Kevin T. Weir
77,316.5
Jointly with Carol M. Weir
/s/ Carol M. Weir
0 -------------------------------------------
Individually Carol M. Weir
77,316.5
Jointly with Kevin T. Weir
/s/ Dennis M. Katawczik
78,940 -------------------------------------------
Individually Dennis M. Katawczik
17
<PAGE> 1
Ratio of Earnings to Fixed Charges
Exhibit 12
STYLING TECHNOLOGY CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(000 omitted)
<TABLE>
<CAPTION>
Three Months Ended
November 27, Year Ended March 31,
1996 to December 31, ------------------
December 31, 1996 1997 1997 1998
----------------- ------------ ------- --------
<S> <C> <C> <C> <C>
Income (Loss) Before Income Taxes........ (151) 7,304 1,787 2,524
Fixed Charges:
Actual Interest Expense and
amortization of debt issuance costs.... -- 1,847 60 1,264
Total Fixed Charges............. -- 1,847 60 1,264
Net Income (Loss) As Adjusted............ $ (151) $ 9,151 $ 1,847 $ 3,788
Ratio.................................... N/A 5.0x 30.1x 3.0x
------- ------- ------- -------
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---- ----------------------
<S> <C>
Gena Laboratories, Inc. Texas
JDS Manufacturing Co., Inc. California
U.K. ABBA Products, Inc. California
Styling (UK) Limited England
European Touch Co., Incorporated Wisconsin
European Touch, Ltd. II Wisconsin
Beauty Products Inc. Wisconsin
Cosmetics International Inc. Wisconsin
Ft. Pitt Acquisition, Inc. Pennsylvania
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona
July 6, 1998
<PAGE> 1
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) /X/
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
United States 06-1143380
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)
Lynda A. Vogel, Senior Vice President and Managing Director
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(213) 362-7399
(Name, address and telephone number of agent for service)
STYLING TECHNOLOGY CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 75-2665378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2390 EAST CAMELBACK ROAD, SUITE 435
PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip Code)
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
(TYPE OF SECURITIES)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of the Currency, Western District Office, 50
Fremont Street, Suite 3900, San Francisco, California, 94105-2292
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Bank and Trust Company.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange Commission as
Exhibits with corresponding exhibit numbers to the Form T-1of Western
Digital Corporation, filed pursuant to Section 305(b)(2) of the Act, on
May 12, 1998 (Registration No. 333-52463), and are incorporated herein
by reference.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A Certificate of Corporate Existence (with fiduciary powers)
from the Comptroller of the Currency, Administrator of National Banks
is on file with the Securities and Exchange Commission as Exhibits with
corresponding exhibit numbers to the Form T-1 of Western Digital
Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12,
1998 (Registration No. 333-52463), and are incorporated herein by
reference.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
Authorization of the Trustee to exercise fiduciary powers
(included in Exhibits 1 and 2; no separate instrument).
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibits with
corresponding exhibit numbers to the Form T-1 of Western Digital
Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12,
1998 (Registration No. 333-52463), and are incorporated herein by
reference.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a part
hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of California,
NATIONAL ASSOCIATION, organized and existing under the laws of the United States
of America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Los
Angeles, and State of California, on the 30th of July, 1998.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /S/ Scott C. Emmons
------------------------
Scott C. Emmons
Assistant Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by STYLING
TECHNOLOGY CORPORATION of its 10 7/8% SENIOR SUBORDINATED NOTES DUE 2008, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /S/ Scott C. Emmons
-------------------
Scott C. Emmons
Assistant Vice President
Dated: July 30, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition and Income for A Bank With Domestic Offices
Only and Total Assets of Less Than $100 Million of State Street Bank and Trust
Company of California, a national banking association duly organized and
existing under and by virtue of the laws of the United States of America, at the
close of business March 31, 1998, published in accordance with a call made by
the Federal Deposit Insurance Corporation pursuant to the required law: 12
U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember
banks); and 12 U.S.C. Section 161 (National banks).
<TABLE>
<CAPTION>
Thousands
ASSETS of Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................................... 6,852
Interest-bearing balances............................................................... 0
Securities.............................................................................. 38
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................................................. 0
Loans and lease financing receivables:
Loans and leases, net of unearned income .............................. 0
Allowance for loan and lease losses ................................... 0
Allocated transfer risk reserve........................................ 0
Loans and leases, net of unearned income and allowances ................................ 0
Assets held in trading accounts......................................................... 0
Premises and fixed assets............................................................... 253
Other real estate owned................................................................. 0
Investments in unconsolidated subsidiaries.............................................. 0
Customers' liability to this bank on acceptances outstanding............................ 0
Intangible assets....................................................................... 0
Other assets............................................................................ 814
-----
Total assets............................................................................ 7,957
=====
LIABILITIES
Deposits:
In domestic offices..................................................................... 0
Noninterest-bearing ................................................... 0
Interest-bearing ...................................................... 0
In foreign offices and Edge subsidiary ................................................. 0
Noninterest-bearing ................................................... 0
Interest-bearing ...................................................... 0
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary................................................... 0
Demand notes issued to the U.S. Treasury and Trading Liabilities........................ 0
Other borrowed money.................................................................... 0
Subordinated notes and debentures....................................................... 0
Bank's liability on acceptances executed and outstanding................................ 0
Other liabilities....................................................................... 4,356
Total liabilities....................................................................... 4,356
-----
EQUITY CAPITAL
Perpetual preferred stock and related surplus........................................... 0
Common stock............................................................................ 500
Surplus................................................................................. 750
Undivided profits and capital reserves/Net unrealized holding gains (losses)............ 2,352
Cumulative foreign currency translation adjustments..................................... 0
Total equity capital.................................................................... 3,602
-----
Total liabilities and equity capital.................................................... 7,958
=====
</TABLE>
4
<PAGE> 6
I, Kevin R. Wallace, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition and Income for this report date
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true to the best of my knowledge
and belief.
Kevin R. Wallace
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
Lynda A. Vogel
James A. Quale
Stephen Rivero
5
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1022832
<NAME> STYLING TECHNOLOGY CORP.
[LEGEND]
THE FOLLOWING SUMMARY FINANCIAL INFORMATION IS DERIVED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS. THIS SUMMARY FINANCIAL INFORMATION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENT AND NOTES THERETO.
[/LEGEND]
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,063
<SECURITIES> 0
<RECEIVABLES> 14,296
<ALLOWANCES> 1,032
<INVENTORY> 10,951
<CURRENT-ASSETS> 30,430
<PP&E> 2,640
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,489
<CURRENT-LIABILITIES> 16,544
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 28,567
<TOTAL-LIABILITY-AND-EQUITY> 92,489
<SALES> 38,108
<TOTAL-REVENUES> 38,108
<CGS> 16,756
<TOTAL-COSTS> 28,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,847
<INCOME-PRETAX> 7,304
<INCOME-TAX> 3,097
<INCOME-CONTINUING> 9,151
<DISCONTINUED> 0
<EXTRAORDINARY> 1,377
<CHANGES> 0
<NET-INCOME> 2,830
<EPS-PRIMARY> 0.72<F1>
<EPS-DILUTED> 0.69<F1>
<FN>
<F1>BASIC EPS BEFORE THE EXTRAORDINARY ITEM WAS $1.07.
DILUTED EPS BEFORE THE EXTRAORDINARY ITEM WAS $1.02.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1022832
<NAME> STYLING TECHNOLOGY CORP.
[LEGEND]
THE FOLLOWING RESTATED SUMMARY FINANCIAL INFORMATION IS DERIVED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS. THIS SUMMARY FINANCIAL INFORMATION
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENT AND NOTES THERETO. RESTATED FOR SFAS 128 ONLY.
[/LEGEND]
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-1-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 2,294 1,679 1,389
<SECURITIES> 0 0 0
<RECEIVABLES> 4,171 5,667 8,596
<ALLOWANCES> 427 427 427
<INVENTORY> 3,378 4,854 4,601
<CURRENT-ASSETS> 10,278 13,020 15,894
<PP&E> 1,196 1,457 1,559
<DEPRECIATION> 31 0 0
<TOTAL-ASSETS> 33,688 58,420 61,333
<CURRENT-LIABILITIES> 5,036 6,455 8,900
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 1 1 1
<OTHER-SE> 26,361 27,812 28,640
<TOTAL-LIABILITY-AND-EQUITY> 33,688 58,420 61,333
<SALES> 7,479 14,916 25,585
<TOTAL-REVENUES> 7,479 14,916 25,585
<CGS> 3,234 6,480 11,347
<TOTAL-COSTS> 5,632 11,211 19,652
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 60 174 951
<INCOME-PRETAX> 1,787 3,531 4,982
<INCOME-TAX> 733 1,446 2,069
<INCOME-CONTINUING> 1,847 3,531 4,982
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,054 2,085 2,913
<EPS-PRIMARY> .27 0.53 0.74
<EPS-DILUTED> .26 0.51 0.71
</TABLE>
<PAGE> 1
EXHIBIT 99
LETTER OF TRANSMITTAL
STYLING TECHNOLOGY CORPORATION
OFFER TO EXCHANGE 10 7/8% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
FOR
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED
, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., E.D.T., ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED
DELIVER TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
(THE "EXCHANGE AGENT")
<TABLE>
<S> <C>
State Street Bank and Trust Company By facsimile transmission
of California, N.A. (for eligible institutions only)
633 West Fifth Street, 12th floor (213) 362-7357
Los Angeles, California 90071 Confirm by Telephone:
Attention: Corporate Trust Administration (213) 362-7300
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Styling Technology Corporation, a
Delaware corporation (the "Company"), and this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange up to
an aggregate principal amount of $100,000,000 of its 10 7/8% Senior Subordinated
Notes due 2008 (the "Exchange Notes," which have been registered under the
Securities Act, pursuant to a Registration Statement of which the Prospectus is
a part), for a like principal amount of its outstanding 10 7/8% Senior
Subordinated Notes due 2008 (the "Outstanding Notes" and together with the
Exchange Notes, the "Notes"). Capitalized terms used but not defined herein have
the meanings given to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS RELATING TO THE PROCEDURE FOR TENDERING AND REQUESTS FOR ADDITIONAL
COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT. QUESTIONS RELATING TO THE EXCHANGE OFFER AND REQUESTS FOR
ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF
TRANSMITTAL MAY BE DIRECTED TO THE COMPANY.
<PAGE> 2
This Letter of Transmittal is to be completed by a holder of Outstanding
Notes if (i) certificates are to be forwarded herewith, (ii) delivery of
Outstanding Notes is to be made by book-entry transfer to an account maintained
by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility"), pursuant to the procedures set forth in "The Exchange Offer --
Procedures for Tendering" in the Prospectus or (iii) tender of the Outstanding
Notes is to be made according to the guaranteed delivery procedures described in
the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures." See Instruction 2. Delivery of documents to a book-entry transfer
facility does not constitute delivery to the Exchange Agent. It is understood
that participants in the Book-Entry Transfer Facility's book-entry system will,
in accordance with the Book-Entry Transfer Facility's Automated Tender Offer
Program procedures and in lieu of physical delivery to the Exchange Agent of a
Letter of Transmittal, electronically acknowledge receipt of, and agreement to
be bound by, the terms of this Letter of Transmittal.
Unless the context otherwise requires, the term "Holder" as used herein
with respect to the Exchange Offer means any person in whose name Outstanding
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder. The
undersigned has completed, executed, and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Outstanding Notes must complete this
Letter of Transmittal in its entirety.
Listed below are the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
principal amounts should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
EXACTLY AS NAME(S) APPEAR(S) ON
NOTES (PLEASE FILL IN)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
CERTIFICATE REPRESENTED BY PRINCIPAL AMOUNT
NUMBERS* OUTSTANDING NOTES TENDERED**
<S> <C> <C> <C>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Outstanding Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Outstanding Notes. All
tenders must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
-------------------------------------------------
Account Number
----------------------------------------------------------------
Transaction Code Number
-------------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver their
Notes and all other documents required hereby to the Exchange Agent on or prior
to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
<PAGE> 3
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
-----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------------
Name of Eligible Institution that Guaranteed Delivery
-------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
----------------------------------------------------------------
Transaction Code Number
-------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
--------------------------------------------------------------------------
Address
-----------------------------------------------------------------------
<PAGE> 4
------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if the Exchange Notes and/or Outstanding Notes
not exchanged are to be issued in the name of and sent to someone other
than the undersigned, or if Outstanding Notes delivered by book-entry
transfer which are not accepted for exchange or Exchange Notes are to be
returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue Exchange Notes and/or Outstanding Notes to:
Name(s):
---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
-----------------------------------------------------------
-----------------------------------------------------------
(INCLUDING ZIP CODE)
-----------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
[ ] Credit unexchanged Outstanding Notes and/or Exchange Notes delivered
by book-entry transfer to the Book-Entry Transfer Facility account set
forth below.
------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if the Exchange Notes and/or Outstanding Notes
not exchanged are to be sent to someone other than the undersigned, or to
the undersigned at an address other than that shown under "Description of
Outstanding Notes Tendered Hereby." Mail Exchange Notes and/or Outstanding
Notes to:
Name(s):
-----------------------------------------------------------
(PLEASE TYPE OR PRINT)
-------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
-----------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OUTSTANDING NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., E.D.T., ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE> 5
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of such Outstanding Notes tendered hereby, the
undersigned hereby exchanges, sells, assigns, and transfers to, or upon the
order of, the Company all right, title, and interest in and to such Outstanding
Notes as are being tendered hereby, including all rights to accrued and unpaid
interest thereon. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent its true and lawful agent and attorney-in-fact with full
power of substitution (with full knowledge that said Exchange Agent acts as the
agent of the Company in connection with the Exchange Offer) to cause the
Outstanding Notes to be assigned, sold, transferred, and exchanged. The Power of
Attorney granted in this paragraph shall be deemed irrevocable from and after
the Expiration Date and coupled with an interest.
The undersigned represents and warrants that it has full power and
authority to tender, sell, exchange, assign, and transfer the Outstanding Notes
and to acquire Exchange Notes issuable upon the exchange of such tendered
Outstanding Notes, and that when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Outstanding Notes, free
and clear of all liens, restrictions, charges, and encumbrances and not subject
to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person is engaged in, or intends to engage in, or has an arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such Exchange Notes. If the undersigned or the
person receiving the Exchange Notes covered hereby is a broker-dealer that is
receiving the Exchange Notes for its own account in exchange for Outstanding
Notes that were acquired as a result of market-making activities or other
trading activities, the undersigned acknowledges that it or such other person
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The undersigned and any such
other person acknowledge that, if they are participating in the Exchange Offer
for the purpose of distributing the Exchange Notes, (i) they cannot rely on the
position of the staff of the Securities and Exchange Commission enunciated in
Exxon Capital Holdings Corporation (available April 13, 1989) or similar no-
action letters and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with the resale transaction and (ii) failure to comply with such
requirements in such instance could result in the undersigned or any such other
person incurring liability under the Securities Act for which such persons are
not indemnified by the Company. If the undersigned or the person receiving the
Exchange Notes covered by this letter is an affiliate (as defined under Rule 405
of the Securities Act) of the Company, the undersigned represents to the Company
that the undersigned understands and acknowledges that such Exchange Notes may
not be offered for resale, resold, or otherwise transferred by the undersigned
or such other person without registration under the Securities Act or an
exemption therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of tendered Outstanding Notes or transfer ownership of such Outstanding
Notes on the account books maintained by a Book-Entry Transfer Facility. The
undersigned further agrees that acceptance of any tendered Outstanding Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company shall have no further
obligations or liabilities thereunder for the registration of the Outstanding
Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions, including those set
forth in the Prospectus under the caption "The Exchange Offer." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Outstanding Notes
tendered hereby and, in such event, the Outstanding Notes not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
<PAGE> 6
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors,
assigns, executors, administrators, trustees in bankruptcy, and legal
representatives of the undersigned. Tendered Outstanding Notes may be withdrawn
at any time prior to the Expiration Date only in accordance with the terms set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" above, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Outstanding Notes for any Outstanding Notes
not exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Outstanding Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" above, please
send the Exchange Notes (and, if applicable, substitute certificates
representing Outstanding Notes for any Outstanding Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of
Outstanding Notes Tendered Hereby."
IF OUTSTANDING NOTES ARE SURRENDERED BY HOLDER(S) THAT HAVE COMPLETED
EITHER THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR THE BOX ENTITLED
"SPECIAL DELIVERY INSTRUCTIONS" IN THIS LETTER OF TRANSMITTAL, SIGNATURE(S) ON
THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (SEE
INSTRUCTION 4).
<PAGE> 7
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(IN ADDITION COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF REGISTERED HOLDER(S))
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation, or other person
acting in a fiduciary capacity, please provide the following information (please
print or type):
Name and Capacity (full title):
-------------------------------------------------
Address (including zip):
--------------------------------------------------------
Area Code and Telephone Number:
-------------------------------------------------
Dated:
-----------------------
SIGNATURE GUARANTEE
(IF REQUIRED -- SEE INSTRUCTION 4)
Authorized Signature:
-----------------------------------------------------------
(SIGNATURE OF REPRESENTATIVE OF SIGNATURE GUARANTOR)
Name and Title:
-----------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Area Code and Telephone Number:
-------------------------------------------------
(PLEASE PRINT OR TYPE)
Dated:
----------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Outstanding Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at a Book-Entry Transfer
Facility of Outstanding Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date (as defined in the Prospectus).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES, AND
ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED.
No alternative, conditional, irregular, or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Outstanding Notes for exchange.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH HEREIN, OR INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH HEREIN, WILL NOT CONSTITUTE A VALID DELIVERY.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Outstanding Notes, but whose Outstanding
Notes are not immediately available and thus cannot deliver their Outstanding
Notes, the Letter of Transmittal, or any other required documents to the
Exchange Agent (or comply with the procedures for book-entry transfer) prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail, or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Outstanding Notes and the principal amount of Outstanding
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five Nasdaq Stock Market trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof), together
with the Outstanding Notes (or a confirmation of book-entry transfer of
such Outstanding Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Outstanding Notes in proper
form for transfer (or a confirmation of book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five Nasdaq Stock
Market trading days after the Expiration Date.
<PAGE> 9
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above. Any holder who wishes to tender
Outstanding Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Outstanding Notes prior to the Expiration Date. Failure to
complete the guaranteed delivery procedures outlined above will not, of itself,
affect the validity or effect a revocation of any Letter of Transmittal form
properly completed and executed by a Holder who attempted to use the guaranteed
delivery procedures.
3. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS.
If less than the entire principal amount of Outstanding Notes evidenced by
a submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Outstanding Notes Tendered Hereby." A newly
issued Outstanding Note for the principal amount of Outstanding Notes submitted
but not tendered will be sent to such holder as soon as practicable after the
Expiration Date. All Outstanding Notes delivered to the Exchange Agent will be
deemed to have been tendered in full unless otherwise indicated. Tenders of
Outstanding Notes will be accepted only in integral multiples of $1,000.
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date, after which tenders of Outstanding
Notes are irrevocable. To be effective, a written, telegraphic, or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify
the Outstanding Notes to be withdrawn (including the registration number(s) and
principal amount of such Outstanding Notes, or, in the case of Outstanding Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on this Letter of Transmittal
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Outstanding Notes
register the transfer of such Outstanding Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Outstanding
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form, and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Outstanding Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Outstanding
Notes so withdrawn are validly retendered. Any Outstanding Notes that have been
tendered but not accepted for exchange will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender, or termination of the Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder(s) of the Outstanding Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificates
without alteration or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the Holder of the Outstanding Notes.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are
tendered, it will be necessary to complete, sign, and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Outstanding Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the
Outstanding Notes tendered hereby are tendered (i) by a registered holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
<PAGE> 10
If this Letter of Transmittal is signed by the registered holder or holders
of Outstanding Notes (which term, for the purposes described herein, shall
include a participant in the Book-Entry Transfer Facility whose name appears on
a security listing as the holder of the Outstanding Notes) listed and tendered
hereby, no endorsements of the tendered Outstanding Notes or separate written
instruments of transfer or exchange are required. In any other case, the
registered holder (or acting Holder) must either properly endorse the
Outstanding Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
holder(s) appear(s) on the Outstanding Notes, and, with respect to a participant
in the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Outstanding Notes, exactly as the name of the
participant appears on such security position listing), with the signature on
the Outstanding Notes or bond power guaranteed by an Eligible Institution
(except where the Outstanding Notes are tendered for the account of an Eligible
Institution).
If this Letter of Transmittal, any certificates, or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Book-Entry Transfer Facility) in which the Exchange
Notes or substitute Outstanding Notes for principal amounts not tendered or not
accepted for exchange are to be issued (or deposited), if different from the
names and addresses or accounts of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification number or social security number of the person named must also be
indicated and the tendering Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any Outstanding Notes
not tendered or not accepted) will be issued in the name of and sent to the
acting Holder of the Outstanding Notes or deposited at such Holder's account at
the Book-Entry Transfer Facility.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Outstanding Notes to it or its order pursuant to the
Exchange Offer. If a transfer tax is imposed for any other reason other than the
transfer and exchange of Outstanding Notes to the Company or its order pursuant
to the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered Holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exception therefrom
is not submitted herewith, the amount of such transfer taxes will be billed
directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Outstanding Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part, any
of the conditions to the Exchange Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES.
Any Holder whose Outstanding Notes have been mutilated, lost, stolen, or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
<PAGE> 11
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Company at 2390 East Camelback Road,
Suite 435, Phoenix, Arizona 85016, Attention: Richard R. Ross (telephone: (602)
955-3353).
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of tendered Outstanding Notes and withdrawal of
tendered Outstanding Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Outstanding Notes not properly tendered
or any Outstanding Notes the Company's acceptance of which would, in the opinion
of counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities, or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent, nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders as soon as practicable following the Expiration
Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Outstanding Notes is
required to provide the Exchange Agent with such Holder's correct TIN on
Substitute Form W-9 below. If such Holder is an individual, the TIN is the
Holder's social security number. The Certificate of Awaiting Taxpayer
Identification Number should be completed if the tendering Holder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the Exchange Agent is not provided with the correct TIN, the
Holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, payments that are made to such Holder with respect to tendered
Outstanding Notes may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign individuals and foreign entities) are not subject to these backup
withholding and reporting requirements. In order for such a Holder to qualify as
an exempt recipient, that holder must submit to the Exchange Agent a properly
completed Internal Revenue Service Form W-8, signed under penalties of perjury,
attesting to that Holder's exempt status. Such forms can be obtained from the
Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Outstanding Notes tendered for exchange, the Holder is required to
notify the Exchange Agent of his or her correct TIN by completing the form
herein certifying that the TIN provided on Substitute Form W-9 is correct (or
that such Holder is awaiting a TIN) and that (i) such Holder has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the Internal Revenue Service has notified such Holder that he or she is no
longer subject to backup withholding.
<PAGE> 12
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the
Outstanding Notes. If Outstanding Notes are in more than one name or are not in
the name of the actual Holder, consult the Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 included herewith for
additional guidance on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE THEREOF
(TOGETHER WITH OUTSTANDING NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or
entity whose number you enter in Part 1 below. See instructions if your
name has changed.)
-------------------------------------------------------------------------------
Address
SUBSTITUTE
FORM W-9 ---------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY City, State, and Zip Code
INTERNAL REVENUE SERVICE ---------------------------------------------------------------------------
List account number(s) here (optional)
---------------------------------------------------------------------------
PART 1 -- PLEASE PROVIDE YOUR TAXPAYER Social Security
IDENTIFICATION NUMBER ("TIN") IN THE BOX Number or TIN
AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW -------------------------------
-------------------------------------------------------------------------------
PART 2 -- Check the box if you are NOT subject to backup withholding under
PAYER'S REQUEST FOR the provisions of section 3408(a)(1)(C) of the Internal Revenue Code
TAXPAYER IDENTIFICATION because (1) you have not been notified that you are subject to backup
NUMBER (TIN) withholding as a result of failure to report all interest of dividends or
(2) the Internal Revenue Service has notified you that you are no longer
subject to backup withholding.
[ ]
---------------------------------------------------------------------------
-------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT
AND COMPLETE.
SIGNATURE ---------------- DATE --------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Name (if joint names, list first an person or entity whose number you enter
in Part 1 below. See instructions if your name has changed.)
-------------------------------------------------------------------------------
Address
SUBSTITUTE
FORM W-9 ---------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY City, State, and Zip Code
INTERNAL REVENUE SERVICE ---------------------------------------------------------------------------
List account number(s) here (optional)
---------------------------------------------------------------------------
PART 2 -- Check the box if you are NOT PART 3 -- Awaiting TIN [ ]
PAYER'S REQUEST FOR subject to backup withholding under the
TAXPAYER IDENTIFICATION provisions of section 3408(a)(1)(C) of
NUMBER (TIN) the Internal Revenue Code because (1)
you have not been notified that you are
subject to backup withholding as a
result of failure to report all interest
of dividends or (2) the Internal Revenue
Service has notified you that you are no
longer subject to backup withholding.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9:
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the Exchange Agent
within 60 days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number to the Exchange Agent.
- -------------------------------------------- ---------------------------------
Signature Date
<PAGE> 15
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------------------
1. An individual's account........... The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
Individuals(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of or guardian The ward, minor,
or committee designated ward, incompetent
minor, or incompetent person person(3)
7. a The usual revocable savings The grantor-
trust account (grantor is also trustee(1)
trustee)
b So-called trust account that is The actual owner(1)
not a legal or valid trust under
State law
8. Sole proprietorship account The owner(4)
- ------------------------------------------------------------
- ------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
9. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other tax- The organization
exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's, or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 510(a), or an individual
retirement plan, or a custodial account under section 403(6)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a)
- An exempt charitable remainder trust under section 664, or a non-exempt
trust described in section 4947.
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
- A future commission merchant registered with the Commodity Futures Trading
Commission.
- A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to the payer.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see section 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of your return. Payers must be given
the numbers whether or not recipients are required to file tax returns. Payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 17
FORM OF GUARANTEED DELIVERY
NOTICE OF GUARANTEED DELIVERY FOR
STYLING TECHNOLOGY CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Styling Technology Corporation, a Delaware corporation (the
"Company"), made pursuant to the Prospectus, dated August , 1998 (the
"Prospectus"), if certificates for Outstanding Notes of the Company are not
immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Company prior to 5:00 p.m., E.D.T., on the Expiration Date of the
Exchange Offer. Such form may be delivered or transmitted by facsimile
transmission, mail, or hand delivery to State Street Bank and Trust Company of
California, N.A., (the "Exchange Agent") as set forth below. Capitalized terms
used but not defined herein have the meanings given to them in the Prospectus.
DELIVER TO: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A.
633 West Fifth Street, 12th Floor
Los Angeles, California 90071
Attention: Corporate Trust Administration
By Facsimile:
(213) 362-7357
Confirm by Telephone:
(213) 362-7300
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 18
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Outstanding Notes set forth below, pursuant to
the guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Outstanding Notes Tendered:*
<TABLE>
<S> <C>
$ If the Outstanding Notes will be delivered by book-
- ------------------------------------------------------- entry transfer to the Depository Trust Company, provide
account number.
Certificate Nos. (if available):-----------------------
Account Number -------------------------------------
Total Principal Amount Represented
by Outstanding Notes: $ -------------------------------
</TABLE>
- ---------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
<TABLE>
<S> <C>
X ------------------------------------------------------ --------------------------------------------------------
X ------------------------------------------------------ --------------------------------------------------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
-----------------------------------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Outstanding Notes as their name(s)
appear(s) on certificates for Outstanding Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer, or the person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
