<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997
REGISTRATION NO. 333-23451
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
REVLON WORLDWIDE (PARENT) CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2844 13-3933701
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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625 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 527-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
GLENN P. DICKES, ESQ.
REVLON WORLDWIDE (PARENT) CORPORATION
625 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 527-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
COPIES TO:
STACY J. KANTER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [ ]
------------------
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JUNE 26, 1997
PROSPECTUS
OFFER FOR ALL OUTSTANDING SENIOR SECURED DISCOUNT NOTES DUE 2001
IN EXCHANGE FOR SERIES B SENIOR SECURED DISCOUNT NOTES DUE 2001
OF
REVLON WORLDWIDE (PARENT) CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON 1997, UNLESS EXTENDED
Revlon Worldwide (Parent) Corporation, a Delaware corporation (the
"Issuer"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange an aggregate principal
amount at maturity of up to $770,000,000 of its Series B Senior Secured
Discount Notes due 2001 (the "New Notes") of the Issuer, which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount at maturity of its issued and outstanding
Senior Secured Discount Notes due 2001 (the "Old Notes" and, with the New
Notes, the "Notes") of the Issuer from the holders thereof. The terms of the
New Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old
Notes and except that, if the Exchange Offer is not consummated by September
29, 1997, interest will accrue on the Old Notes (in addition to the accrual
of Original Issue Discount (as defined herein)) from and including such date
until but excluding the date of consummation of the Exchange Offer payable in
cash seminannually in arrears on March 15 and September 15, commencing March
15, 1998, at a rate per annum equal to .50% of the Accreted Value (as defined
herein) of the Old Notes as of the September 15 or March 15 immediately
preceding such interest payment date. The Old Notes were issued at a
substantial discount from their principal amount at maturity, and, except as
set forth above, there will be no periodic payments of interest on the Old
Notes. The Notes will mature on March 15, 2001. The Old Notes were issued
pursuant to an offering (the "Offering"), which was exempt from registration
under the Securities Act, on March 5, 1997.
The Old Notes are, and the New Notes will be, senior secured obligations of
the Issuer and will rank pari passu in right of payment with all future
senior indebtedness of the Issuer, if any, and senior to all future
subordinated indebtedness of the Issuer, if any. AS OF THE DATE HEREOF, THE
ISSUER HAS NO SUBORDINATED INDEBTEDNESS OUTSTANDING AND THERE ARE NO CURRENT
FIRM ARRANGEMENTS BY THE ISSUER TO ISSUE ANY SIGNIFICANT AMOUNT OF
INDEBTEDNESS THAT WILL BE PARI PASSU OR SUBORDINATED IN RIGHT OF PAYMENT TO
THE NOTES. The only outstanding indebtedness of the Issuer (other than the
Non-Recourse Guaranty (as defined herein)) are the Notes, and all of the
Issuer's consolidated liabilities (other than the Notes and certain
liabilities incurred in connection with the Offering) are liabilities of its
subsidiaries. THE ISSUER IS A HOLDING COMPANY AND THEREFORE THE OLD NOTES
ARE, AND THE NEW NOTES WILL BE, EFFECTIVELY SUBORDINATED TO ALL EXISTING AND
FUTURE INDEBTEDNESS AND OTHER LIABILITIES OF THE ISSUER'S SUBSIDIARIES. As of
March 31, 1997, after giving pro forma effect to the Revlon Worldwide Merger
(as defined herein), the outstanding indebtedness and other liabilities of
such subsidiaries would have been approximately $2,137.0 million. Prior to
the Revlon Worldwide Merger, the Old Notes are, and the New Notes will be,
effectively subordinated to the $337,320,000 aggregate principal amount at
maturity of Senior Secured Discount Notes Due 1998 (the "Revlon Worldwide
Notes") of Revlon Worldwide Corporation, a wholly owned subsidiary of the
Issuer ("Revlon Worldwide"). Subject to certain restrictions contained in the
Indenture, the Issuer may incur additional indebtedness that ranks pari passu
with, or is subordinated in right of payment to, the Notes. See "Description
of the Notes." Subject to certain restrictions contained in the Indenture and
in the outstanding debt instruments of the Issuer's subsidiaries, the
Issuer's subsidiaries may incur additional indebtedness. See "Risk Factors --
Substantial Level of Indebtedness," "Description of the Notes" and
"Description of Other Indebtedness." The Old Notes are, and the New Notes
will be, secured by a pledge of 47.1% of the shares of common stock of Revlon
Worldwide and, simultaneously with the Revlon Worldwide Merger, will be
secured by a pledge of 20,000,000 shares of Common Stock (as defined herein)
of Revlon, Inc., a subsidiary of Revlon Worldwide ("Revlon Inc."),
representing approximately 39.1% of the outstanding shares of Common Stock of
Revlon, Inc. See "Description of the Notes."
<PAGE>
The Old Notes were offered by the Issuer to fund, in part, the defeasance of
the Revlon Worldwide Notes. The Revlon Worldwide Notes are secured by a
pledge of approximately 83.1% of the shares (representing approximately 97.4%
of the voting power) of Common Stock of Revlon, Inc. Pursuant to the
indenture governing the Revlon Worldwide Notes, the defeasance of the Revlon
Worldwide Notes will be effective on August 4, 1997, the 124th day after
Revlon Worldwide irrevocably deposited (the "Deposit") in trust government
obligations sufficient to pay the principal amount of the Revlon Worldwide
Notes and any accrued interest thereon due at maturity so long as certain
conditions are satisfied. Following the defeasance of the Revlon Worldwide
Notes (the "Revlon Worldwide Notes Defeasance"), Revlon Worldwide will be
merged with and into the Issuer (the "Revlon Worldwide Merger") and the
Issuer will directly own all the shares of Common Stock of Revlon, Inc. that
are currently pledged to secure the Revlon Worldwide Notes.
The Notes will be redeemable at the option of the Issuer, in whole or in
part, at any time on and after March 15, 2000 at a redemption price equal to
102.6875% of the Accreted Value on the date of redemption. Upon a Change of
Control (as defined herein), the Issuer will have the option to redeem the
Notes in whole at a redemption price equal to the Accreted Value on the date
of redemption plus the Applicable Premium (as defined herein) and, subject to
certain conditions, each holder of the Notes will have the right to require
the Issuer to repurchase all or a portion of such holder's Notes at a price
equal to the Put Amount (as defined herein) on the date of repurchase. There
can be no assurance that the Issuer will have sufficient funds to repurchase
the Notes upon a Change of Control. See "Risk Factors -- Issuer's Ability to
Pay Principal of Notes."
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Original Issue Discount on the New Notes will accrue
from March 5, 1997, the date of original issuance of the Old Notes. Holders
whose Old Notes are accepted for exchange may, in the limited circumstances
described above, have the right to receive, in cash, accrued interest (if
any) thereon to, but not including, the date of consummation of the Exchange
Offer, such interest to be payable on the September 15 or March 15 next
following such date of consummation. Holders of Old Notes accepted for
exchange will be deemed to have waived the right to receive any other
payments or accrued interest on the Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Agreement dated March
5, 1997 among the Issuer and the other signatories thereto (the "Registration
Agreement"). Based on interpretations by the staff of the Securities and
Exchange Commission (the "SEC") as set forth in no action letters issued to
third parties, the Issuer believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
which is an "affiliate" of the Issuer 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 New Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement with any person to participate in the distribution of such New
Notes. However, the Issuer does not intend to request the SEC to consider,
and the SEC has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the SEC
would make a similar determination with respect to the Exchange Offer as in
such other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. Each broker-dealer that receives
New 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 New
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 New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Issuer terminates the Exchange Offer
and does not accept for exchange any Old Notes, the Issuer will promptly
return the Old Notes to the holders thereof. See "The Exchange Offer."
----------------------
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or
the ability of holders of the New Notes to sell their New Notes or the price
at which such holders may be able to sell their New Notes. Chase Securities
Inc. and Smith Barney Inc. (the "Initial Purchasers") have advised the Issuer
that they currently intend to make a market in the New Notes. The Initial
Purchasers are not obligated to do so, however, and any market-making with
respect to the New Notes may be discontinued at any time without notice. The
Issuer does not intend to apply for listing or quotation of the New Notes on
any securities exchange or stock market.
<PAGE>
----------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 18 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the SEC a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act, with respect to the
New Notes being offered by this Prospectus. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Any statements made in this
Prospectus concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement.
The Registration Statement and the exhibits thereto may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the SEC
located at 7 World Trade Center, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Issuer is not currently subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Exchange Offer, the Issuer will become subject to such
requirements, and in accordance therewith will file periodic reports and
other information with the SEC. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants, such as the Issuer, that file electronically with the SEC and
the address of such site is http://www.sec.gov. In the event the Issuer is
not required to be subject to the reporting requirements of the Exchange Act
in the future, the Issuer will be required under the Indenture, dated as of
March 1, 1997 (the "Indenture"), between the Issuer and The Bank of New York,
as trustee (the "Trustee"), pursuant to which the Old Notes have been, and
the New Notes will be, issued, to continue to file with the SEC and to
furnish to holders of the Notes the information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, including reports on
Form 10-K, 10-Q and 8-K, for so long as any Notes are outstanding.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and the notes thereto contained
elsewhere in this Prospectus. Unless otherwise indicated or unless the
context otherwise requires, all references in this Prospectus to (i) the
"Issuer" mean Revlon Worldwide (Parent) Corporation, (ii) the "Company" or
"Revlon" mean Revlon Worldwide (Parent) Corporation and its subsidiaries and
(iii) "Revlon, Inc." mean Revlon, Inc. and its subsidiaries. All market share
and market position data in this Prospectus for the Company's brands and
specific products is based upon retail dollar sales which are derived from
A.C. Nielsen data. A.C. Nielsen measures retail sales volume of products sold
in the United States self-select distribution channel, which is defined as
the following channels of distribution: independent and chain drug stores,
mass-volume retailers, supermarkets and combination supermarket/drug stores.
Such data represents A.C. Nielsen's estimates based upon data gathered by
A.C. Nielsen from market samples. Such data is therefore subject to some
degree of variance.
THE ISSUER
The Issuer is a holding company whose only significant asset is all of the
common stock, par value $1.00 per share, of Revlon Worldwide, a holding
company that owns approximately 83.1% of the shares (representing
approximately 97.4% of the voting power) of common stock of Revlon, Inc. As
such, the Issuer's principal business operations are conducted by Revlon,
Inc. and its subsidiaries. The Issuer is indirectly wholly owned by
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a corporation
wholly owned through Mafco Holdings Inc. ("Mafco Holdings" and, together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman. See
"Relationship with MacAndrews & Forbes" and "Ownership of Common Stock." Upon
the Revlon Worldwide Notes Defeasance, Revlon Worldwide will be merged with
and into the Issuer in the Revlon Worldwide Merger.
THE COMPANY
REVLON is one of the world's best known names in cosmetics and is a
leading mass market cosmetics brand. The Company's vision is to provide
glamour, excitement and innovation through quality products at affordable
prices. To pursue this vision, the Company's management team combines the
creativity of a cosmetics and fashion company with the marketing, sales and
operating discipline of a consumer packaged goods company. The Company
believes that its global brand name recognition, product quality and
marketing experience have enabled it to create one of the strongest consumer
brand franchises in the world, with products sold in approximately 175
countries and territories. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and
ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, REVLON RESULTS, ALMAY
TIME-OFF, ULTIMA II, JEANNE GATINEAU and NATURAL HONEY in skin care; CHARLIE,
FIRE & ICE, CIARA, CHERISH and JONTUE in fragrances; FLEX, OUTRAGEOUS,
AQUAMARINE, MITCHUM, COLORSILK, JEAN NATE, BOZZANO and COLORAMA in personal
care products; and ROUX FANCI-FULL, REALISTIC, CREME OF NATURE, FERMODYL,
VOILA, COLOMER, CREATIVE NAIL DESIGN SYSTEMS and AMERICAN CREW in
professional products. To further strengthen its consumer brand franchises,
the Company markets each core brand with a distinct and uniform global image
including packaging and advertising, while retaining the flexibility to
tailor products to local and regional preferences.
Revlon, Inc. was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in
fashion colors 65 years ago. Today, the Company has leading market positions
in many of its principal product categories in the United States self-select
distribution channel, which the Company believes is the fastest-growing
channel of distribution for cosmetics, skin care, fragrance and personal care
products. The Company's leading market positions for its REVLON brand
products include the number one positions in lip makeup and nail enamel
(which the Company has occupied for the past 20 years), and for 1996 the
number one and two selling brands of lip makeup. The Company's market share
in lip makeup and nail enamel has increased from 24.3% and 21.2%,
respectively, for 1992, to 32.6% and 24.7%, respectively, for 1996. The
Company has the number two position in face makeup (including the number one
and two selling brands of foundation), where its market share has increased
from 10.8% for 1992 to 19.1% for 1996. Propelled by the success of its new
product launches and share gains in its existing product lines, the Company
has captured the number one position overall in color cosmetics (consisting
of lip, eye and face makeup and nail enamel) in the United States self-select
distribution channel, where its market share has increased from 14.7% for
1992 to 21.4% for 1996. The Company also has leading market positions in
several product categories in certain markets outside of the United States,
including in Brazil, Canada, South Africa and Australia.
3
<PAGE>
The Company believes that it is an industry leader in the development of
innovative and technologically advanced consumer and professional products.
In June 1994, the Company launched COLORSTAY lipcolor, which uses patented
transfer-resistant technology that provides long wear. COLORSTAY lip makeup
achieved a 14.5% market share in the United States self-select distribution
channel for 1996, making it the number one selling lip makeup in that
channel, with a market share of more than twice that of any competitor's
brand. The success of COLORSTAY lip makeup boosted the Company's total lip
makeup market share to more than twice the market share of the next largest
competitor. To capitalize on the highly successful launch of COLORSTAY
lipcolor, the Company introduced a collection of COLORSTAY cosmetics in 1995,
including foundation, eye colors, eye liners and lip pencils, and COLORSTAY
lashcolor mascara in 1996. COLORSTAY foundation, which was introduced late in
the third quarter of 1995, was the number one selling foundation in the
United States self-select distribution channel in 1996 and achieved a 9.3%
market share for such period. The Company has also introduced the COLORSTAY
collection in international markets, where it has increased the Company's
color cosmetics sales in such markets. The Company has applied the
proprietary transfer-resistant technology developed by the Company for
COLORSTAY to the ALMAY AMAZING collection, which is part of the Company's
line of hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and
skin care products.
In April 1994, the Company introduced REVLON AGE DEFYING foundation, which
uses proprietary technology designed to meet the needs of women in the over
35 age bracket. REVLON AGE DEFYING foundation was the number two selling
foundation in the United States self-select distribution channel for 1996 and
achieved an 8.2% market share for such period. The Company capitalized on
this highly successful launch by introducing a collection of REVLON AGE
DEFYING color cosmetics, including eye makeup, blush and pressed powder. In
the fourth quarter of 1996, the Company introduced NEW COMPLEXION compact
makeup. With the addition of NEW COMPLEXION compact makeup, NEW COMPLEXION
foundations achieved a 6.8% market share in the United States self-select
distribution channel for the fourth quarter of 1996, giving Revlon the number
one, two and three selling brands of foundation for such period. In 1997, the
Company intends to continue to introduce new products under its COLORSTAY and
REVLON AGE DEFYING brands, including the relaunching in the first quarter of
1997 of COLORSTAY lipcolor with a new and improved formula that delivers
moisture while retaining transfer resistance. In addition, the Company
launched in the second quarter of 1997 ALMAY TIME-OFF REVITALIZER, a skin
care product which uses a proprietary technology to visibly rejuvenate skin.
In 1997, the Company also intends to introduce new products targeted to the
"trend" consumer under its STREETWEAR brand to capitalize on the successful
launch of its STREETWEAR nail enamel in 1996.
In the United States and increasingly in international markets, the
Company's products are sold principally in the expanding self-select
distribution channel. The trend in the cosmetics, skin care and fragrance
industry has been the shift of consumer purchases from the
demonstrator-assisted channel to the self-select distribution channel. The
Company believes that it is well-positioned to continue to take advantage of
the shifting consumer shopping patterns in international markets towards the
self-select distribution channel, particularly in Western Europe, Latin
America and the Far East. The Company also is expanding its presence in the
new and emerging markets of Eastern Europe, Russia, India, China, Thailand,
Vietnam, South Korea and Africa.
In the United States, the self-select distribution channel, in which
consumers select their own purchases without the assistance of an in-store
demonstrator, includes independent drug stores and chain drug stores (such as
Walgreens, CVS Drug stores, Eckerd Drug stores and Revco), mass volume
retailers (such as Wal-Mart, Target Stores and Kmart) and supermarkets and
combination supermarket/ drug stores (such as Pathmark, Albertson's, Kroger's
and Smith's). Internationally, the self-select distribution channel includes
retailers such as Boots in the United Kingdom and Western Europe, and
Shoppers Drug Mart in Canada. The foregoing retailers, among others, sell the
Company's products. See "Business -- Overview."
Business Strategy
The Company's business strategy, which implements its vision and is
intended to continue to improve operating performance, is to:
4
<PAGE>
o Strengthen and broaden its core brands through globalization of
marketing and advertising, product development and manufacturing and
through increasing its emphasis on advertising and promotion.
o Lead the industry in the development and introduction of
technologically advanced innovative products that set new trends.
o Expand the Company's presence in all markets in which the Company
competes and enter new and emerging markets.
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital.
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures. See "Business -- Business
Strategy."
As a result of the implementation of its strategy, the Company has
achieved 14 consecutive quarters of increased net sales, operating income and
EBITDA (as defined herein) compared with the corresponding quarter of the
prior year. Net sales, operating income and EBITDA increased 6.1%, 4.9% and
10.6%, respectively, for the first quarter of 1997 over the comparable period
in 1996, 11.8%, 36.6% and 26.3%, respectively, for 1996 over 1995 and 11.8%,
35.2% and 25.3%, respectively, for 1995 over 1994. Gross profit as a
percentage of net sales was 66.3% for the first quarter of 1997 compared with
67.1% for the first quarter of 1996, 66.5% for 1996 compared with 66.3% for
1995 and 65.5% for 1994. In addition, the Company's net loss decreased from
$191.7 million for 1994 to $139.3 million for 1995 and $86.6 million for 1996
(excluding in 1996 the $187.8 million gain from the Revlon IPO (as defined
herein) and the $6.6 million extraordinary charge incurred in connection with
the repayment of indebtedness with the proceeds therefrom) (the "Adjusted
1996 Net Loss") and decreased from an Adjusted 1996 Net Loss of $55.4 million
in the first quarter of 1996 to $54.9 million in the first quarter of 1997
(excluding in 1997 the $43.8 million extraordinary charge incurred in
connection with the repayment of the Revlon Worldwide Notes) (the "Adjusted
1997 Net Loss"). The Company has also reduced the relative amount of working
capital necessary to support net sales. The ratio of average quarterly
combined inventory and accounts receivable balances to net sales was 32.2%
for the first quarter of 1997 compared with 33.1% for the comparable period
in 1996, and 32.3% for 1996 compared with 33.2% for 1995 and 34.9% for 1994.
The Company has increased its investment in advertising and consumer directed
promotion while decreasing its selling, general and administrative ("SG&A")
expenses as a percentage of net sales to 61.7% for the first quarter of 1997
compared with 63.6% for the comparable period in 1996, and 57.3% for 1996
compared with 58.8% for 1995 and 59.3% for 1994.
Background
On June 24, 1992, Revlon, Inc., through its wholly owned subsidiary Revlon
Consumer Products Corporation ("Products Corporation"), succeeded to assets
and liabilities of the cosmetics and skin care, fragrance and personal care
products business of Revlon Holdings Inc. ("Holdings"). Holdings retained
certain small brands that historically had not been profitable (the "Retained
Brands") and certain other assets and liabilities. Unless the context
otherwise requires, references to the Company or Revlon relating to dates or
periods prior to the formation of Revlon, Inc. mean the cosmetics and skin
care, fragrance and personal care products business of Holdings to which
Revlon, Inc. has succeeded.
On March 5, 1996, Revlon, Inc. completed an initial public offering (the
"Revlon IPO") in which it issued and sold 8,625,000 shares of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), for
$24.00 per share. Revlon, Inc. contributed the net proceeds of $187.8 million
(net of underwriters' discount and related fees and expenses) to Products
Corporation, which in turn used such funds to repay borrowings outstanding
under its then existing credit agreement (the "1995 Credit Agreement") and to
pay fees and expenses related to entering into a new credit agreement (the
"1996 Credit Agreement"), which was subsequently repaid in May 1997 with
borrowings under its existing credit agreement (the "Credit Agreement").
Additionally, the Company recognized a $187.8 million gain in connection with
the Revlon IPO.
The Company's principal executive offices are located at 625 Madison
Avenue, New York, New York 10022, and its telephone number is (212) 527-4000.
The Issuer was incorporated in Delaware in 1997.
5
<PAGE>
The following sets forth a summary organizational chart for the Company.
--------------------------------
| Mafco Holdings Inc. |
| ("Mafco Holdings") |
--------------------------------
| 100%
--------------------------------
| MacAndrews & Forbes |
| Holdings Inc. |
| ("MacAndrews Holdings") |
--------------------------------
| 100%
--------------------------------
| Revlon Holdings Inc. |
| ("Holdings") |
--------------------------------
| 100%
--------------------------------
|Revlon Worldwide Holdings Inc.|
| ("Worldwide Holdings") |
--------------------------------
| 100%
--------------------------------
| REVLON |
| WORLDWIDE (PARENT) |
| CORPORATION |
| (THE "ISSUER") |
--------------------------------
| 100%
--------------------------------
| Revlon |
| Worldwide |
| Corporation |
| ("Revlon Worldwide") |
--------------------------------
| 83.1%*
--------------------------------
| Revlon, Inc. |
| ("Revlon, Inc.") |
--------------------------------
| 100%
--------------------------------
| Revlon Consumer |
| Products Corporation |
| (including operating |
| subsidiaries) |
| ("Products Corporation") |
--------------------------------
- --------------
* Revlon Worldwide beneficially owns 11,250,000 shares of Class A Common
Stock of Revlon, Inc. (representing 56.6% of the outstanding shares of
Class A Common Stock) and all of the outstanding 31,250,000 shares of Class
B Common Stock, par value $.01 per share (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock"), of Revlon,
Inc., which together represent approximately 83.1% of the outstanding
shares of Common Stock and approximately 97.4% of the combined voting power
of the outstanding shares of Common Stock of Revlon, Inc. See "Ownership of
Common Stock."
6
<PAGE>
THE TRANSACTIONS
Prior to the Revlon Worldwide Merger, the Notes will be secured by a
pledge of 47.1% of the shares of common stock of Revlon Worldwide.
Concurrently with the closing of the Offering, the Issuer deposited in escrow
the net proceeds of the Offering and certain other funds provided by
MacAndrews & Forbes. On April 2, 1997, the Issuer contributed escrowed funds,
together with Revlon Worldwide Notes that had been previously delivered to
Revlon Worldwide for cancellation (collectively, the "Capital Contribution"),
to Revlon Worldwide to finance the Revlon Worldwide Notes Defeasance. As a
result of the Deposit being made on April 2, 1997, the Revlon Worldwide Notes
Defeasance will be effective on August 4, 1997 so long as certain events of
bankruptcy, insolvency or reorganization affecting Revlon Worldwide do not
exist on such date.
The Issuer has guaranteed on a non-recourse basis (the "Non-Recourse
Guaranty") the obligations of Mafco Holdings under certain credit facilities.
To secure its obligations under the Non-Recourse Guaranty, the Issuer has
pledged the shares of common stock of Revlon Worldwide that are not pledged
as security for the Notes. Borrowings under such credit facilities were used
to finance a portion of the capital contribution made by MacAndrews & Forbes
to the Issuer. See "Relationship with MacAndrews & Forbes -- Non-Recourse
Guaranty."
The Revlon Worldwide Notes Defeasance will constitute "covenant
defeasance" for purposes of the Revlon Worldwide Notes Indenture. As a
result, following the Revlon Worldwide Notes Defeasance, Revlon Worldwide may
omit to comply with substantially all its covenants and other obligations,
other than payment, under the Revlon Worldwide Notes Indenture. See
"Description of Other Indebtedness -- Revlon Worldwide Notes."
Following the Revlon Worldwide Notes Defeasance, Revlon Worldwide will be
merged with and into the Issuer in the Revlon Worldwide Merger, and the
Issuer will directly own all of the shares of Common Stock of Revlon, Inc.
that are currently owned by Revlon Worldwide and pledged to secure the Revlon
Worldwide Notes. Simultaneously with the Revlon Worldwide Merger, (i) the
Notes will be secured by a pledge of all of the 11,250,000 shares of Class A
Common Stock and 8,750,000 shares of Class B Common Stock, in each case,
owned by Revlon Worldwide, representing in the aggregate approximately 39.1%
of the outstanding shares of Common Stock of Revlon, Inc. and (ii) the
Non-Recourse Guaranty will be secured by a pledge of the remaining shares of
Class B Common Stock of Revlon, Inc., in each case, in substitution for the
respective pledges of the Revlon Worldwide common stock. See "Risk Factors --
Security for Notes; Potential for Diminution." Following the Revlon Worldwide
Notes Defeasance and in connection with the Revlon Worldwide Merger, the
Issuer will assume the obligations of Revlon Worldwide, thereby becoming the
primary obligor under the Revlon Worldwide Notes and the Revlon Worldwide
Notes Indenture. See "Risk Factors -- Substantial Level of Indebtedness."
7
<PAGE>
THE EXCHANGE OFFER
SECURITIES OFFERED ............ Up to $770,000,000 aggregate principal
amount at maturity of Series B Senior
Secured Discount Notes due 2001, which have
been registered under the Securities Act.
The terms of the New Notes and the Old Notes
are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old
Notes and except that, if the Exchange Offer
is not consummated by September 29, 1997,
interest will accrue on the Old Notes (in
addition to the accrual of Original Issue
Discount) from and including such date until
but excluding the date of consummation of
the Exchange Offer payable in cash
semiannually in arrears on March 15 and
September 15, commencing March 15, 1998, at
a rate per annum equal to .50% of the
Accreted Value of the Old Notes as of the
September 15 or March 15 immediately
preceding such interest payment date. See
"--Summary Description of the New Notes" and
"Description of the Notes -- General."
THE EXCHANGE OFFER ............ The New Notes are being offered in exchange
for a like principal amount at maturity of
Old Notes. The issuance of the New Notes is
intended to satisfy obligations of the
Issuer contained in the Registration
Agreement. For procedures for tendering the
Old Notes, see "The Exchange Offer --
Procedures for Tendering Old Notes."
TENDERS; EXPIRATION DATE;
WITHDRAWAL ................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, or such
later date and time to which it is extended.
The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Note
not accepted for exchange for any reason
will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer -- Terms of the Exchange
Offer; Period for Tendering Old Notes" and
"The Exchange Offer -- Withdrawal."
CERTAIN CONDITIONS TO
EXCHANGE OFFER ............... The Issuer shall not be required to accept
for exchange, or to issue New Notes in
exchange for, any Old Notes and may
terminate or amend the Exchange Offer if at
any time before the acceptance of the Old
Notes for exchange or the exchange of the
New Notes for such Old Notes certain events
have occurred, which in the reasonable
judgment of the Issuer, make it inadvisable
to proceed with the Exchange Offer and/or
with such acceptance for exchange or with
such exchange. Such events include (i) any
threatened, instituted or pending action
seeking to restrain or prohibit the Exchange
Offer, (ii) a general suspension of trading
in securities on any national securities
exchange or in the over-the-counter market,
(iii) a general banking moratorium, (iv) the
commencement of a war or armed
8
<PAGE>
hostilities involving the United States and
(v) a material adverse change or development
involving a prospective material adverse
change in the Issuer's business, properties,
assets, liabilities, financial condition,
operations, results of operations or
prospects that may affect the value of the
Old Notes or the New Notes. In addition, the
Issuer will not accept for exchange any Old
Notes tendered, and no New Notes will be
issued in exchange for any such Old Notes,
at any such time any stop order shall be
threatened or in effect with respect to the
Registration Statement of which this
Prospectus constitutes a part or the
qualification of the Indenture under the
Trust Indenture Act of 1939. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES ................. Based upon the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel
to the Issuer, the exchange pursuant to the
Exchange Offer should not result in gain or
loss to the holders or the Issuer for
federal income tax purposes. See "Certain
U.S. Federal Income Tax Considerations."
USE OF PROCEEDS ............... There will be no proceeds to the Issuer from
the exchange pursuant to the Exchange Offer.
See "Use of Proceeds."
EXCHANGE AGENT ................ The Bank of New York is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Issuer does not
currently anticipate that it will register Old Notes under the Securities
Act. See "Description of the Notes -- Registration Rights." Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Issuer believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any holder
which is an "affiliate" of the Issuer 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 New Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of
such New Notes. However, the Issuer does not intend to request the SEC to
consider, and the SEC has not considered, the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the SEC
would make a similar determination with respect to the Exchange Offer as in
such other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate of
the Issuer, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be
acquired pursuant to the Exchange Offer, such holder
9
<PAGE>
(i) could not rely on the applicable interpretations of the staff of the SEC
and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes must acknowledge that such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any
resale of such New 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
New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuer has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." In addition, to comply with the state securities laws, the New
Notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with. The offer
and sale of the New Notes to "qualified institutional buyers" (as such term
is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuer
currently does not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required
and not available. See "The Exchange Offer -- Consequences of Exchanging Old
Notes" and "Description of the Notes -- Registration Rights."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by September 29, 1997, interest will accrue on the Old Notes (in
addition to the accrual of Original Issue Discount) from and including such
date until but excluding the date of consummation of the Exchange Offer
payable in cash semiannually in arrears on March 15 and September 15,
commencing March 15, 1998, at a rate per annum equal to .50% of the Accreted
Value of the Old Notes as of the September 15 or March 15 immediately
preceding such interest payment date.
SECURITIES OFFERED ............ Up to $770,000,000 aggregate principal
amount at maturity of Series B Senior
Secured Discount Notes due 2001, which have
been registered under the Securities Act.
MATURITY DATE ................. March 15, 2001.
YIELD TO MATURITY ............. 10 3/4% per annum (computed on a semiannual
bond equivalent basis) calculated from March
5, 1997.
ORIGINAL ISSUE DISCOUNT ....... The Old Notes were issued on March 5, 1997
at an issue price of $655.90 per $1,000
principal amount at maturity. Because the
New Notes will be treated as a continuation
of the Old Notes, which were issued at an
original issue discount ("Original Issue
Discount") for federal income tax purposes,
the New Notes will have Original Issue
Discount. Prospective holders of the New
Notes should be aware that, although there
will be no periodic payments of interest on
the New Notes, accrued Original Issue
Discount will be includable, periodically,
in a holder's gross income for United States
federal income tax purposes prior to
redemption or other disposition of such
10
<PAGE>
holder's New Notes, whether or not such New
Notes are ultimately redeemed, sold (to the
Company or otherwise) or paid at maturity.
The foregoing discussion of the federal
income tax treatment applicable to the
exchange of Old Notes for New Notes is based
upon the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to the
Issuer. See "Certain U.S. Federal Income Tax
Considerations."
OPTIONAL REDEMPTION ........... The Notes may be redeemed at the option of
the Issuer in whole or from time to time in
part at any time on and after March 15, 2000
at a redemption price equal to 102.6875% of
the Accreted Value on the date of
redemption. See "Description of the Notes --
Optional Redemption."
CHANGE OF CONTROL ............. Upon a Change of Control the Issuer will
have the option to redeem the Notes in whole
at a redemption price equal to the Accreted
Value on the date of redemption plus the
Applicable Premium and, subject to certain
conditions, each holder of the Notes will
have the right to require the Issuer to
repurchase all or a portion of such holder's
Notes at a price equal to the Put Amount on
the date of repurchase. There can be no
assurance that the Issuer will have
sufficient funds to repurchase the Notes
upon a Change of Control. See "Description
of the Notes -- Change of Control" and "Risk
Factors -- Issuer's Ability to Pay Principal
of Notes."
COLLATERAL .................... Prior to the Revlon Worldwide Merger, the
Notes will be secured by a pledge of 47.1%
of the shares of common stock of Revlon
Worldwide. Following the Revlon Worldwide
Notes Defeasance, Revlon Worldwide will be
merged with and into the Issuer and the
Issuer will directly own all of the shares
of common stock of Revlon, Inc. that are
currently pledged to secure the Revlon
Worldwide Notes. Simultaneously with the
Revlon Worldwide Merger, the Notes will be
secured by a pledge of all of the 11,250,000
shares of Class A Common Stock and 8,750,000
shares of Class B Common Stock, in each
case, owned by Revlon Worldwide,
representing in the aggregate approximately
39.1% of the outstanding shares of Common
Stock of Revlon, Inc. No additional shares
of Common Stock of Revlon, Inc. will be
pledged by the Issuer as security for the
Notes irrespective of the value of such
Common Stock at any time.
The Issuer may withdraw shares of Common
Stock of Revlon, Inc. constituting
Collateral (as defined herein), in whole or
in part, by substituting therefor with the
Trustee cash or U.S. Government Obligations
that will be sufficient for the payment at
maturity of the principal on the Notes, or
the pro rata portion thereof, respectively.
In addition, the pro rata portion of shares
of Common Stock of Revlon, Inc. constituting
Collateral may be released following the
delivery of less than all the Notes for
cancellation. There can be no assurance as
to the value of the
11
<PAGE>
Collateral at any time or that the proceeds
from the sale or sales of all such
Collateral would be sufficient to satisfy
the amounts due on the Notes, whether at
maturity or otherwise. In addition, the
ability of the Trustee or the holders of the
Notes to realize upon the Collateral may be
subject to certain limitations, and there
can be no assurance that the Trustee or such
holders would be able to sell the Collateral
at the then current market price of Common
Stock of Revlon, Inc., as sales of
substantial amounts of Common Stock of
Revlon, Inc. could adversely affect market
prices. See "Description of the Notes --
Collateral."
RANKING AND HOLDING COMPANY
STRUCTURE .................... The Old Notes are, and the New Notes will
be, senior secured obligations of the Issuer
and will rank pari passu in right of payment
with all future senior indebtedness of the
Issuer, if any, and senior to all future
subordinated indebtedness of the Issuer, if
any. As of the date hereof, the Issuer has
no subordinated indebtedness outstanding and
there are no current firm arrangements by
the Issuer to issue any significant amount
of indebtedness that will be pari passu or
subordinated in right of payment to the
Notes. The only outstanding indebtedness of
the Issuer (other than the Non-Recourse
Guaranty) are the Notes, and all the
Issuer's consolidated liabilities (other
than the Notes and certain liabilities
incurred in connection with the Offering)
are liabilities of its subsidiaries.
Following the Revlon Worldwide Merger, the
Issuer will also be the primary obligor
under the Revlon Worldwide Notes and the
Revlon Worldwide Notes Indenture until the
defeasance trust is paid out to holders of
the Revlon Worldwide Notes at maturity. The
Issuer is a holding company and therefore
the Old Notes are, and the New Notes will
be, effectively subordinated to all existing
and future indebtedness and other
liabilities of the Issuer's subsidiaries,
including trade payables. As of March 31,
1997, after giving pro forma effect to the
Revlon Worldwide Merger, the outstanding
indebtedness and other liabilities of such
subsidiaries, including trade payables and
accrued expenses, would have been
approximately $2,137.0 million. Prior to the
Revlon Worldwide Merger, the Notes will also
be effectively subordinated to the Revlon
Worldwide Notes. See "Risk Factors --
Substantial Level of Indebtedness," "Risk
Factors -- Holding Company Structure;
Restrictions on Ability of Subsidiaries to
Pay Dividends," "Risk Factors -- Issuer's
Ability to Pay Principal of Notes," "Risk
Factors -- Subordination to Subsidiary
Liabilities" and "Description of the Notes."
CERTAIN COVENANTS ............. The indenture governing the Notes (the
"Indenture") requires the Issuer to hold at
all times the Minimum Collateral Percentage
(as defined herein) of Common Stock of
Revlon, Inc. and to not be or become an
investment company under the Investment
Company Act of 1940, as amended. In
addition, the
12
<PAGE>
Indenture contains covenants that, among
other things, limit (i) the issuance of
additional debt and redeemable stock by the
Issuer, Revlon Worldwide, or Revlon, Inc.
and the issuance of preferred stock by
Revlon, Inc. or Revlon Worldwide, (ii) the
issuance of debt and preferred stock by
Products Corporation and its subsidiaries,
(iii) the payment of dividends on capital
stock of the Issuer and its subsidiaries and
the redemption of capital stock of the
Issuer, (iv) the sale of assets and
subsidiary stock, (v) transactions with
affiliates and (vi) consolidations, mergers
and transfers of all or substantially all
the Issuer's assets. The Indenture also
prohibits certain restrictions on
distributions from subsidiaries. All of
these limitations and prohibitions, however,
are subject to a number of important
qualifications. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS ............... The Issuer will not receive any proceeds
from the Exchange Offer. The Issuer used the
net proceeds of the Offering, which were
approximately $490.4 million, together with
a capital contribution from MacAndrews &
Forbes, to make the Capital Contribution.
Revlon Worldwide used the Capital
Contribution to finance the Revlon Worldwide
Notes Defeasance. See "Use of Proceeds."
EXCHANGE OFFER; REGISTRATION
RIGHTS ....................... Holders of New Notes are not entitled to any
registration rights with respect to the New
Notes. Pursuant to the Registration
Agreement, the Issuer agreed to file, at its
cost, a registration statement with respect
to the Exchange Offer. The Registration
Statement of which this Prospectus is a part
constitutes the registration statement for
the Exchange Offer. See "Description of the
Notes -- Registration Rights."
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under "Risk Factors" before making a decision
to tender their Old Notes in the Exchange Offer.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data for, and as of the end of, each of
the years in the five year period ended December 31, 1996 have been derived
from the audited consolidated financial statements of the Company. The
summary historical financial data for the three months ended March 31, 1996
and 1997 and as of March 31, 1997 have been derived from the unaudited
consolidated financial statements of the Company which reflect, in the
opinion of management of the Company, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial data
for such periods. Results for interim periods are not necessarily indicative
of the results for the full year.
The pro forma statement of operations data for the year ended December 31,
1996 and the three months ended March 31, 1997 give pro forma effect to the
Revlon IPO and the application of the net proceeds therefrom, the Offering,
the purchase and cancellation of $778.4 million principal amount at maturity
of Revlon Worldwide Notes in March 1997, and the extinguishment of the
remaining $337.4 million principal amount at maturity of Revlon Worldwide
Notes to occur on March 15, 1998, as if such transactions had been
consummated on January 1, 1996. The pro forma adjustments are based upon
available information and certain assumptions that management of the Company
believes are reasonable. The pro forma financial data do not purport to
represent the results of operations or the financial position of the Company
that actually would have occurred had the foregoing transactions been
consummated on the aforesaid dates.
The following summary financial data should be read in conjunction with
"--The Transactions," "Capitalization," "Selected Historical and Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1997 1996 1996 (A) 1995 (A) 1994 (A) 1993 (A) 1992
---- ---- -------- -------- -------- -------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Net sales ........................ $ 492.5 $ 464.3 $2,167.0 $1,937.8 $1,732.5 $1,588.3 $1,632.2
Gross profit...................... 326.3 311.4 1,441.3 1,285.7 1,135.2 1,019.5 1,076.8
Selling, general and
administrative expenses ......... 303.8 295.1 1,241.1 1,139.1 1,026.8 969.6 996.7
------- ------- -------- -------- -------- -------- --------
Restructuring charges............. -- -- -- -- -- -- 162.7 (b)
Business consolidation costs .... 5.4 -- -- -- -- -- --
Operating income (loss)........... 17.1 16.3 200.2 146.6 108.4 49.9 (82.6)
Interest expense, net............. 60.7 58.5 236.7 232.6 214.9 171.7 94.0
Amortization of debt issuance
costs............................ 3.4 3.6 12.5 15.2 12.6 11.2 6.7
Other, net........................ 2.5 2.6 12.1 12.7 21.0 39.3 26.0
Gain on sale of subsidiary stock 0.1 187.8 (c) 187.8 (c) -- -- -- --
------- ------- -------- -------- -------- -------- --------
Income (loss) before income
taxes............................ (49.4) 139.4 126.7 (113.9) (140.1) (172.3) (209.3)
Provision for income taxes........ 5.5 7.0 25.5 25.4 22.8 19.0 14.7
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of accounting
changes.......................... (54.9) 132.4 101.2 (139.3) (162.9) (191.3) (224.0)
Extraordinary items--early
extinguishments of debt.......... (43.8) (6.6) (6.6) -- -- (9.5) (2.9)
Cumulative effect of accounting
changes.......................... -- -- -- -- (28.8)(d) (6.0)(e) --
------- ------- -------- -------- -------- -------- --------
Net income (loss)................. $ (98.7) $ 125.8 $ 94.6 $ (139.3) $ (191.7) $ (206.8) $ (226.9)
======= ======= ======== ======== ======== ======== ========
OTHER DATA:
Net cash used for operating
activities....................... $ (75.9) $(100.4) $ (10.2) $ (51.7) $ (1.3) $ (150.5) $ (244.9)
Net cash used for investing
activities....................... (327.6) (12.1) (65.1) (72.5) (51.0) (8.7) (48.1)
Net cash provided by (used for)
financing activities............. 400.9 95.1 78.5 125.2 (48.8) 266.8 286.2
Ratio of earnings to fixed
charges (f) ..................... -- 3.07x 1.47x -- -- -- --
EBITDA (g)........................ $ 39.7 $ 35.9 $ 282.8 $ 224.0 $ 178.8 $ 118.9 $ 150.1
Cash interest expense ............ 39.6 43.7 139.0 148.2 138.5 109.8 110.4
Ratio of EBITDA to interest
expense, net .................... 0.65x 0.61x 1.19x 0.96x 0.83x 0.69x 1.60x
Ratio of EBITDA to cash interest
expense ......................... 1.00x 0.82x 2.03x 1.51x 1.29x 1.08x 1.36x
PRO FORMA DATA (H)(I):
Operating income.................. $ 17.1 $ 200.2
Interest expense, net ............ 46.0 (i) 183.2 (h)
Income (loss) before
extraordinary item .............. (39.7)(i) 155.2 (h)
Ratio of earnings to fixed
charges (j) ..................... -- --
Cash interest expense............. 39.6 136.4
Ratio of EBITDA to cash interest
expense.......................... 1.00x 2.07x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN MILLIONS)
<S> <C>
Balance Sheet Data:
Total assets .................................................................................. $ 1,944.4
Long-term debt, excluding current
portion....................................................................................... 2,245.0
Total stockholder's deficiency................................................................. (1,003.0)
</TABLE>
15
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of its Tarlow Advertising Division
("Tarlow"). Products Corporation assumed substantially all of the
liabilities and obligations of Tarlow. Net liabilities assumed were
approximately $3.4 million. The assets acquired and liabilities assumed
were accounted for at historical cost in a manner similar to that of a
pooling of interests and, accordingly, prior period financial
statements beginning with January 1, 1993 have been restated as if the
acquisition took place at the beginning of such period. In addition to
the liabilities assumed, Products Corporation paid $4.1 million to
Holdings, which payment was accounted for as an increase to capital
deficiency.
(b) Represents restructuring charges of $162.7 million in 1992, which
included (i) consolidation of certain worldwide manufacturing and
warehouse facilities, (ii) consolidation and improvements in management
information systems, (iii) vacating premises under lease, (iv)
personnel reductions and (v) discontinuance of certain product lines.
(c) Represents the gain on sale of subsidiary stock recognized as a result
of the Revlon IPO. On March 5, 1996, Revlon, Inc. issued and sold in
the Revlon IPO 8,625,000 shares of its Class A Common Stock for $24.00
per share. Revlon, Inc. contributed the net proceeds of $187.8 million
(net of underwriters' discount and related fees and expenses) to
Products Corporation, which in turn used such funds to repay borrowings
outstanding under the 1995 Credit Agreement and to pay fees and
expenses related to entering into the 1996 Credit Agreement.
(d) Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The Company
recognized a charge of $28.8 million in the first quarter of 1994 to
reflect the cumulative effect of the accounting change, net of income
tax benefit.
(e) Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," for its retiree benefit plan in the United States.
Accordingly, the Company recognized a charge of $6.0 million in the
1993 first quarter to reflect the cumulative effect of the accounting
change.
(f) Earnings used in computing the ratio of earnings to fixed charges
consist of income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense (including amortization of debt
issuance costs, but not losses relating to the early extinguishment of
debt) and 33% of rental expense (considered to be representative of the
interest factors). Fixed charges exceeded earnings before fixed charges
by $49.4 million for the three months ended March 31, 1997 and by
$113.9 million in 1995, $140.1 million in 1994, $172.3 million in 1993
and $209.3 million in 1992. Excluding the $187.8 million gain on sale
of subsidiary stock in the Revlon IPO from 1996 earnings (the "Adjusted
Earnings"), fixed charges would have exceeded Adjusted Earnings before
fixed charges by $48.4 million for the three months ended March 31,
1996 and by $61.1 million in 1996.
(g) EBITDA is defined as operating income (loss) before restructuring
charges, plus depreciation and amortization other than that relating to
early extinguishment of debt, debt discount and debt issuance costs.
EBITDA is presented here not as a measure of operating results but
rather as a measure of debt service ability. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
from operations prepared in accordance with generally accepted
accounting principles as a measure of the profitability or liquidity of
the Company. EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for
discretionary uses.
(h) The pro forma statement of operations data for the year ended December
31, 1996 reflects a reduction of interest expense of $2.6 million
related to the Revlon IPO, a reduction of interest expense and
amortization of debt issuance costs of $74.4 million and $2.9 million,
respectively, reflecting interest expense and amortization of debt
issuance costs on the $778.4 million principal amount at maturity of
Revlon Worldwide Notes cancelled during March 1997, a reduction of
interest expense and amortization of debt issuance costs of $32.3
million and $1.3 million, respectively,
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reflecting the extinguishment of the remaining $337.4 million principal
amount at maturity of Revlon Worldwide Notes to occur on March 15, 1998
and an increase in interest expense and amortization of debt issuance
costs of $55.8 million and $3.7 million, respectively, to reflect such
expenses as if the Notes, which were used to refinance the Revlon
Worldwide Notes, had been outstanding from the beginning of the
period presented.
(i) The pro forma statement of operations data for the three months ended
March 31, 1997 reflects a reduction of interest expense and
amortization of debt issuance costs of $17.6 million and $0.8 million,
respectively, reflecting $778.4 million principal amount at maturity of
Revlon Worldwide Notes cancelled during March 1997, a reduction of
interest expense and amortization of debt issuance costs of $8.5
million and $0.3 million, respectively, reflecting the extinguishment
of the remaining $337.4 million principal amount at maturity of Revlon
Worldwide Notes to occur on March 15, 1998, and an increase in interest
expense and amortization of debt issuance costs of $11.4 million and
$0.6 million, respectively, to reflect such expenses as if the Notes,
which were used to refinance the Revlon Worldwide Notes, had been
outstanding from the beginning of the period presented.
(j) As adjusted to give pro forma effect to the Revlon IPO and the
application of the net proceeds therefrom, the Offering, the purchase
and cancellation of $778.4 million principal amount at maturity of
Revlon Worldwide Notes in March 1997, and the extinguishment of the
remaining $337.4 million principal amount at maturity of Revlon
Worldwide Notes to occur on March 15, 1998 as if such transactions had
been consummated on January 1, 1996, fixed charges would have exceeded
earnings before fixed charges by $34.2 million for the three months
ended March 31, 1997 and would have exceeded Adjusted Earnings before
fixed charges by $7.1 million in 1996.
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RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate
the following risks before tendering their Old Notes in the Exchange Offer,
although the risk factors set forth below (other than "--Consequences of
Failure to Exchange and Requirements for Transfer of New Notes") are
generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Issuer does not
currently anticipate that it will register Old Notes under the Securities
Act. See "The Exchange Offer -- Consequences of Exchanging Old Notes."
SUBSTANTIAL LEVEL OF INDEBTEDNESS
The Company has a substantial amount of outstanding indebtedness. As of
March 31, 1997, the Issuer's total indebtedness (excluding the Non-Recourse
Guaranty and the $301.7 million accreted value of the Revlon Worldwide Notes)
was approximately $1,975.1 million, consisting of the $508.7 million accreted
value of the Notes and the approximately $1,466.4 million of consolidated
indebtedness of the Issuer's subsidiaries. See "Consolidated Capitalization."
This level of indebtedness could adversely impact the Issuer's ability to
make payments on or to repurchase the Notes. Following the Revlon Worldwide
Merger, the Issuer will also be the primary obligor under the Revlon
Worldwide Notes and the Revlon Worldwide Notes Indenture until the defeasance
trust is paid out to holders of the Revlon Worldwide Notes at maturity. In
addition, subject to the restrictions imposed by the Indenture, the Issuer
may incur from time to time additional indebtedness that ranks pari passu
with, or is subordinated in right of payment to, the Notes. See "Description
of the Notes -- Certain Covenants." Subject to certain limitations contained
in its outstanding debt instruments, the Issuer's subsidiaries may incur
additional indebtedness to finance working capital or capital expenditures,
investments or acquisitions or for other purposes. See "--Restrictions
Imposed by the Terms of the Company's Indebtedness; Consequences of Failure
to Comply" and "Description of Other Indebtedness."
This level of consolidated indebtedness could have important consequences
to the holders of the Notes, including the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of the principal of and interest on such indebtedness and will not be
available for other purposes; (ii) the ability of the Company to obtain
financing in the future for working capital needs, capital expenditures,
acquisitions, investments, general corporate purposes or other purposes may
be materially limited or impaired; and (iii) the Company's level of
indebtedness may reduce the Company's flexibility to respond to changing
business and economic conditions.
ISSUER'S ABILITY TO PAY PRINCIPAL OF NOTES
The Issuer currently anticipates that, in order to pay the principal
amount at maturity of the Notes or upon the occurrence of an Event of Default
or to redeem or repurchase the Notes upon a Change of Control, the Issuer
will be required to adopt one or more alternatives, such as refinancing its
indebtedness, selling its equity securities or the equity securities or
assets of Revlon, Inc., or seeking capital contributions or loans from its
affiliates. None of the affiliates of the Issuer are required to make any
capital contributions, loans or other payments to the Issuer with respect to
the Issuer's obligations on the Notes. There can be no assurance that any of
the foregoing actions could be effected on satisfactory terms, that any of
the foregoing actions would enable the Issuer to pay the principal amount
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of the Notes or that any of such actions would be permitted by the terms of
the Indenture or any other debt instruments of the Issuer or the Issuer's
subsidiaries then in effect. See "--Holding Company Structure; Restrictions
on Ability of Subsidiaries to Pay Dividends," "--Subordination to Subsidiary
Liabilities," "--Restrictions Imposed by the Company's Indebtedness;
Consequences of Failure to Comply," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Other
Indebtedness."
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON ABILITY OF SUBSIDIARIES TO PAY
DIVIDENDS
The Issuer is a holding company with no business operations of its own.
The Issuer's only significant asset is all of the outstanding capital stock
of Revlon Worldwide, a holding company that owns approximately 83.1% of the
shares (representing approximately 97.4% of the voting power) of Common Stock
of Revlon, Inc., through which the Company conducts its business operations.
Accordingly, the Issuer's only source of cash to pay the principal amount at
maturity of the Notes is distributions with respect to its ownership interest
in Revlon, Inc. from the net earnings and cash flow generated by Revlon, Inc.
The Company currently expects that the earnings and cash flow of Revlon, Inc.
will be retained and used in the business of Revlon, Inc., including for debt
service. There can be no assurance that Revlon, Inc. will generate sufficient
cash flow to pay dividends or distribute funds to the Issuer or that
applicable state law and contractual restrictions, including negative
covenants contained in the debt instruments of Products Corporation, the
operating subsidiary of Revlon, Inc., will permit such dividends or
distributions. The terms of the Credit Agreement and three of the four issues
of the Products Corporation Notes (as defined herein) currently restrict
Products Corporation from paying dividends or making distributions, except to
Revlon, Inc. under certain limited circumstances. Accordingly, the Issuer
does not anticipate that it will receive any distributions from Revlon, Inc.
See "--Restrictions Imposed by the Terms of the Company's Indebtedness" and
"Description of Other Indebtedness."
SUBORDINATION TO SUBSIDIARY LIABILITIES
Any right of the Issuer and its creditors, including holders of the Notes,
to participate in the assets of any of the Issuer's subsidiaries upon any
liquidation or reorganization of any such subsidiary will be subject to the
prior claims of that subsidiary's creditors, including trade creditors
(except to the extent the Issuer may itself be a creditor of such
subsidiary). Accordingly, the Notes will be effectively subordinated to
liabilities, including trade payables, of the Issuer's subsidiaries. The
ability of the Issuer's creditors, including the holders of the Notes, to
participate in such assets will also be limited to the extent that the
outstanding shares of Revlon, Inc. Common Stock are not beneficially owned by
the Issuer. The Issuer is a holding company and substantially all of the
Issuer's liabilities (other than the Notes) are liabilities of its
subsidiaries. As of March 31, 1997, after giving pro forma effect to the
Revlon Worldwide Merger, subsidiaries of the Issuer would have had
outstanding indebtedness of $1,466.4 million and other outstanding
liabilities, including trade payables and accrued expenses, of $670.6
million. Prior to the Revlon Worldwide Merger, the Notes will also be
effectively subordinated to the Revlon Worldwide Notes. See "--Substantial
Level of Indebtedness" and "Description of Other Indebtedness."
PRO FORMA NET LOSS AND DEFICIENCY OF EARNINGS TO FIXED CHARGES; ABILITY TO
SERVICE DEBT
As of March 31, 1997, the Company had an accumulated deficit of
approximately $1,003.0 million. The Company's Adjusted 1997 Net Loss was
$54.9 million for the first quarter of 1997, the Company's Adjusted 1996 Net
Loss was $86.6 million in 1996 and the Company experienced net losses of
$139.3 million, $191.7 million, $206.8 million and $226.9 million (in part as
a result of a restructuring charge of $162.7 million) for 1995, 1994, 1993
and 1992, respectively. On a historical basis, the Company's earnings before
fixed charges were insufficient to cover fixed charges by approximately $49.4
million in the first quarter of 1997, the Company's Adjusted Earnings before
fixed charges were insufficient to cover fixed charges by approximately $61.1
million in 1996 and the Company's earnings before fixed charges were
insufficient to cover fixed charges by approximately $113.9 million, $140.1
million, $172.3 million and $209.3 million for 1995, 1994, 1993 and 1992,
respectively. On a pro forma basis, after giving effect to the Revlon IPO and
the application of the net proceeds therefrom, the Offering, the purchase
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and cancellation of $778.4 million principal amount at maturity of Revlon
Worldwide Notes in March 1997, and the extinguishment of the remaining $337.4
million principal amount at maturity of Revlon Worldwide Notes to occur on
March 15, 1998 as if such transactions had been consummated on January 1,
1996, the Company's earnings before fixed charges for the first quarter of
1997 would have been insufficient to cover fixed charges by $34.2 million and
the Company's Adjusted Earnings before fixed charges for the year ended
December 31, 1996 would have been insufficient to cover fixed charges by $7.1
million. As a result, on a historical and a pro forma basis, the Company
would have had to achieve growth in its earnings before fixed charges at
least equal to the amounts of such insufficiencies in order to cover its
fixed charges. Fixed charges consist of interest expense (including
amortization of debt issuance costs but not the losses relating to the early
extinguishment of debt) and 33% of rental expense (considered by the Company
to be representative of the interest factor).
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available subsidiary credit facilities and refinancings of existing
subsidiary indebtedness will be sufficient to enable the Company's
subsidiaries to satisfy their anticipated cash requirements, including debt
service. The Company may borrow additional funds under the Credit Agreement,
subject to certain restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition,
Liquidity and Capital Resources." Other than the Revlon Worldwide Notes
Defeasance and the refinancing of the Company's Japanese yen-denominated
credit agreement (the "Yen Credit Agreement") and the redemption of the 10
7/8% Sinking Fund Debentures due 2010 of Products Corporation (the "Sinking
Fund Debentures"), both of which are permitted with borrowings under the
Credit Agreement, the Issuer does not have any current plans with respect to
the refinancing of its other subsidiary indebtedness, although it believes
that it will be able to refinance such indebtedness upon maturity. However,
there can be no assurance that the Company will be able to refinance such
other indebtedness or that net sales or earnings will grow as a result of the
continued implementation of the Company's business strategy (see
"--Implementation of Business Strategy"). As a result, there can be no
assurance that the Company will be able to satisfy anticipated cash
requirements on a consolidated basis. If the Company is unable to satisfy
such cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures,
restructuring its indebtedness, selling assets or operations, seeking capital
contributions or loans from affiliates of the Company, selling equity
securities of the Issuer or issuing additional shares of Revlon, Inc. capital
stock. There can be no assurance that any of such actions could be effected,
that they would enable the Company to continue to satisfy its capital
requirements or that they would be permitted under the terms of the Company's
various debt instruments then in effect. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition, Liquidity and Capital Resources" and "Description of Other
Indebtedness."
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS; CONSEQUENCES
OF FAILURE TO COMPLY
The terms and conditions of the debt instruments of the Company, including
the Indenture, the Credit Agreement and the four issues of debt securities of
Products Corporation (the "Products Corporation Notes"), and prior to the
Revlon Worldwide Notes Defeasance, the Revlon Worldwide Notes Indenture,
impose restrictions on the ability of the Issuer and its subsidiaries to
incur debt, create liens, pay dividends, sell assets and make investments or
acquisitions. The terms of the Credit Agreement require Products Corporation
to maintain specified financial ratios and meet certain tests, including
minimum interest coverage and a leverage ratio and impose limitations on the
ability of the Issuer and its subsidiaries to make capital expenditures. All
of the capital stock of Products Corporation, substantially all of the
non-real property domestic assets of Products Corporation, Products
Corporation's facility located in Phoenix, Arizona and certain assets outside
the United States are pledged as collateral for the obligations under the
Credit Agreement. See "Description of Other Indebtedness -- Credit
Agreement." In addition, the occurrence of a change of control (as defined in
the relevant agreement) of the Company would be an event of default under the
Credit Agreement and would give
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the holders of three of the four issues of the Products Corporation Notes
and, prior to the Revlon Worldwide Notes Defeasance, the holders of the
Revlon Worldwide Notes, the right to require repurchase of their notes. See
"Description of Other Indebtedness."
The ability of the Issuer and its subsidiaries to comply with the terms of
their respective debt instruments can be affected by events beyond their
control, including events such as prevailing economic conditions, changes in
consumer preferences and changes in the competitive environment, which could
have the effect of impairing the Company's operating performance, and there
can be no assurance that the Issuer and its subsidiaries will be able to
comply with the provisions of their respective debt instruments, including
compliance by Products Corporation with the financial ratios and tests
contained in the Credit Agreement. Breach of any of these covenants or the
failure to fulfill the obligations thereunder and the lapse of any applicable
grace periods would result in an event of default under the applicable debt
instruments, and the holders of such indebtedness could declare all amounts
outstanding under their debt instruments to be due and payable immediately.
There can be no assurance that the assets or cash flow of the Issuer or the
Issuer's subsidiaries, as the case may be, would be sufficient to repay in
full borrowings under their outstanding debt instruments whether upon
maturity or if such indebtedness were to be accelerated upon an event of
default or, in the case of three of the four issues of the Products
Corporation Notes, upon a required repurchase in the event of a change of
control, or that the Company would be able to refinance or restructure its
payments on such indebtedness. In the case of the Credit Agreement, if such
indebtedness were not so repaid, refinanced or restructured, the lenders
could proceed to realize on their collateral. In addition, any event of
default or declaration of acceleration under one debt instrument could also
result in an event of default under one or more of the Company's other debt
instruments including, prior to the Revlon Worldwide Notes Defeasance, the
Revlon Worldwide Notes. See "--Substantial Level of Indebtedness" and
"Description of Other Indebtedness."
SECURITY FOR THE NOTES; POTENTIAL FOR DIMINUTION
The Old Notes are, and the New Notes will be, secured by a pledge of 47.1%
of the common stock of Revlon Worldwide. Following the Revlon Worldwide Notes
Defeasance, Revlon Worldwide will be merged with and into the Issuer in the
Revlon Worldwide Merger and the Issuer will directly own all of the shares of
common stock of Revlon, Inc. that are currently pledged to secure the Revlon
Worldwide Notes. Simultaneously with the Revlon Worldwide Merger, the Notes
will be secured by a pledge of all of the 11,250,000 shares of Class A Common
Stock and 8,750,000 shares of Class B Common Stock, in each case, owned by
Revlon Worldwide, representing in the aggregate approximately 39.1% of the
outstanding shares of Common Stock of Revlon, Inc. The Class A Common Stock
of Revlon, Inc. is currently listed on the NYSE. Since the Revlon IPO, the
high and low reported closing prices were $47 3/8 per share and $23 1/2 per
share, respectively. There is currently no market for the common stock of
Revlon Worldwide. Additionally, because the principal asset of Revlon
Worldwide is approximately 42,500,000 shares of Common Stock of Revlon, Inc.,
all of which have been pledged to secure the Revlon Worldwide Notes prior to
the Revlon Worldwide Notes Defeasance, the value of the Revlon Worldwide
common stock pledged to secure the Notes will depend, in part, upon the
extent, if any, by which the value at any time of such shares of Revlon, Inc.
Common Stock exceeds the accreted value at such time of the Revlon Worldwide
Notes. There can be no assurance that the proceeds from the sale or sales of
all of such collateral would be sufficient to satisfy the amounts due on the
Notes in the event of a default. In addition, the ability of the holders of
the Notes to realize upon the collateral may be subject to certain
limitations and there can be no assurance that the Trustee or the holders of
the Notes would be able to sell the shares (including shares of Revlon, Inc.)
pledged as collateral at the then current market value. Sales of substantial
amounts of the Revlon, Inc. Common Stock (whether by the Trustee or other
secured lenders or otherwise) could adversely affect market prices. See
"Description of the Notes -- Collateral."
If the Trustee under the Indenture or the holders of the Notes or the
lenders to which the remaining shares of common stock of Revlon Worldwide or
Revlon, Inc., as the case may be, are pledged to secure the Non-Recourse
Guaranty, were to foreclose upon the common stock of Revlon Worldwide or
Revlon, Inc., as the case may be, such foreclosure could, under certain
circumstances, constitute a change of
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control under certain debt instruments of Revlon, Inc. and its subsidiaries.
Such occurrence of a change of control would result in an event of default
permitting acceleration under the Credit Agreement and would enable the
holders of three of the four issues of the Products Corporation Notes to
require that Products Corporation repurchase their Products Corporation
Notes. There can be no assurance that the assets of the Issuer's subsidiaries
would be sufficient to repay in full borrowings under such debt instruments
if they became due, and in such event no assets of the subsidiaries of the
Issuer would be available to the holders of the Notes. In such event the
value of the common stock of Revlon Worldwide and Revlon, Inc. that is the
collateral securing the Notes would be substantially diminished or
eliminated. In addition, the stock of Products Corporation and certain of its
subsidiaries is pledged to secure indebtedness and certain guarantees under
the Credit Agreement and other indebtedness of the subsidiaries of the
Issuer. If creditors of the subsidiaries of the Issuer were to foreclose upon
the stock of Products Corporation and its subsidiaries, the value of the
common stock of Revlon Worldwide and Revlon, Inc. would likewise be
substantially diminished or eliminated.
Simultaneously with the Revlon Worldwide Merger, the Notes will be secured
solely by 20,000,000 shares of Common Stock of Revlon, Inc. No additional
shares of Revlon, Inc. Common Stock or other collateral will be pledged
irrespective of the market value of such shares at any time. In addition, the
Indenture permits the Issuer, under certain circumstances, to grant liens on
its assets, if any, other than the shares of Revlon Worldwide or Revlon,
Inc., as the case may be, pledged to secure the Notes. Furthermore, because
the shares of Revlon, Inc. Common Stock pledged to secure the Notes will not
be pledged simultaneously with the issuance of the Notes, but rather
simultaneously with the Revlon Worldwide Merger, in certain circumstances
such pledge could be deemed to have been made in respect of an antecedent
debt and could constitute a preference under the United States Bankruptcy
Code. Under applicable provisions of the United States Bankruptcy Code, if
the Issuer were to become the subject of a bankruptcy case within the 90-day
period following the Revlon Worldwide Notes Defeasance (or within one year
thereof to the extent that a holder of the Notes is deemed to be an insider
of the Issuer), a bankruptcy court could avoid the pledge of some or all of
the Revlon, Inc. Common Stock as a preference (if the Issuer was insolvent at
the time thereof). For these purposes, the Issuer would be presumed insolvent
for the 90 days preceding bankruptcy. There can be no assurance as to the
relative values of the shares of Revlon Worldwide common stock and Revlon,
Inc. Common Stock pledged to secure the Notes on the date of the Revlon
Worldwide Merger. In addition, following the Deposit but prior to the Revlon
Worldwide Defeasance, the funds used to make the deposit could be subject to
the claims of creditors of Revlon Worldwide.
LIMITATIONS ON HOLDERS' CLAIMS
Under the Indenture, in the event of an acceleration of the maturity of
the Notes upon the occurrence of an Event of Default (as defined herein), the
holders of the Notes will be entitled to recover only the amount that may be
declared due and payable pursuant to the Indenture, which will be less than
the principal amount at maturity of such Notes. See "Description of the Notes
- -- Defaults."
If a bankruptcy case is commenced by or against the Issuer under the
United States Bankruptcy Code, the claim of a holder of Notes with respect to
the principal amount thereof may be limited to an amount equal to the sum of
(i) the Issue Price of the Notes and (ii) that portion of the Original Issue
Discount which has been amortized and, therefore, is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code.
Accordingly, holders of the Notes under such circumstances may, even if
sufficient funds are available, receive a lesser amount than they would be
entitled to under the express terms of the Indenture. In addition, there can
be no assurance that a bankruptcy court would compute the accrual of interest
by the same method as that used for the calculation of Original Issue
Discount under federal income tax law and, accordingly, a holder might be
required to recognize gain or loss in the event of a distribution related to
such a bankruptcy case.
OPERATING HISTORY UNDER THE BUSINESS STRATEGY
The Company's business strategy is to (i) strengthen and broaden its core
brands through globalization of marketing and advertising, product
development and manufacturing and through
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increasing its emphasis on advertising and promotion; (ii) lead the industry
in the development and introduction of technologically advanced innovative
products that set new trends; (iii) expand the Company's presence in all
markets in which the Company competes and enter new and emerging markets;
(iv) continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing raw
materials and components and carefully managing working capital; and (v)
continue to expand market share and product lines through possible strategic
acquisitions or joint ventures. See "Business -- Business Strategy." The
Company's ability to continue to implement its strategy successfully will be
dependent on business, financial and other factors, including prevailing
economic conditions, changes in consumer preferences and changes in the
competitive environment, beyond the Company's control. There can be no
assurance that the Company will continue to be successful in the
implementation of its strategy. The inability of the Company to successfully
implement its business strategy could significantly affect the value of the
Common Stock of Revlon, Inc. pledged to secure the Notes. See "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this Offering Memorandum.
COMPETITION
The cosmetics and skin care, fragrance and personal care and professional
products business is highly competitive. The Company competes on the basis of
numerous factors. Brand recognition, together with product quality,
performance and price and the extent to which consumers are educated on
product benefits, have a marked influence on consumer's choices among
competing products and brands. Advertising, promotion, merchandising and
packaging, and the timing of new product introductions and line extensions,
also have a significant impact on buying decisions, and the structure and
quality of the sales force affect product reception, in-store position,
permanent display space and inventory levels in retail outlets. An increase
in the amount of competition faced by the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company competes in selected product categories
against a number of multinational manufacturers, some of which are larger and
have substantially greater resources than the Company. Those competitors that
have greater financial resources may have more flexibility to respond to
changing business and economic conditions than the Company. See "Business --
Competition."
SOCIAL, POLITICAL AND ECONOMIC RISKS AFFECTING FOREIGN OPERATIONS
AND EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS
The Company has operations based in 27 foreign countries and its products
are sold in approximately 175 countries and territories. The Company is
exposed to the risk of changes in social, political and economic conditions
inherent in foreign operations, including changes in the laws and policies
that govern foreign investment in countries where it has operations as well
as, to a lesser extent, changes in United States laws and regulations
relating to foreign trade and investment. In addition, the Company's results
of operations and the value of its foreign assets are affected by
fluctuations in foreign currency exchange rates, which may adversely affect
reported earnings and, accordingly, the comparability of period-to-period
results of operations. Changes in currency exchange rates may affect the
relative prices at which the Company and foreign competitors sell their
products in the same market. For 1996 and 1995, 42.0% and 42.6%,
respectively, of the Company's net sales were outside the United States. In
addition, the cost of certain items required in the Company's operations may
be affected by changes in the value of the relevant currencies. The Company
enters into forward foreign exchange contracts to hedge certain cash flows
denominated in foreign currency (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition,
Liquidity and Capital Resources"). The Company generally does not use
derivative instruments to manage currency fluctuations. The Company recorded
net foreign currency losses of $5.7 million, $10.9 million and $18.2 million
in fiscal 1996, 1995 and 1994, respectively. For a more complete discussion
of foreign currency fluctuations, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations." In addition, the Company's
operations in Brazil (which accounted for approximately 6.1%
23
<PAGE>
of the Company's net sales for 1996) were subject to hyperinflationary
conditions. There can be no assurance as to the future effect of changes in
social, political and economic conditions on the Company's business or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on March 5, 1997 to a small number of institutional
investors and institutional accredited investors and are eligible for trading
in the Private Offering, Resale and Trading through Automated Linkages
(PORTAL) Market, the National Association of Securities Dealers' screenbased,
automated market for trading of securities eligible for resale under Rule
144A. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered Old Notes could be
adversely affected. There is no existing trading market for the New Notes,
and there can be no assurance regarding the future development of a market
for the New Notes, or the ability of holders of the New Notes to sell their
New Notes or the price at which such holders may be able to sell their New
Notes. Although the Initial Purchasers have informed the Issuer that they
currently intend to make a market in the New Notes, they are not obligated to
do so and any such market making may be discontinued at any time without
notice. As a result, the market price of the New Notes could be adversely
affected. The Issuer does not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
CONTROL BY MACANDREWS & FORBES
The Issuer is indirectly owned through MacAndrews & Forbes by Ronald O.
Perelman. As a result MacAndrews & Forbes will be able to direct and control
the policies of the Issuer and its subsidiaries, including mergers, sales of
assets and similar transactions. See "Ownership of Common Stock" and
"Relationship with MacAndrews & Forbes." The shares of common stock of the
Issuer and shares of common stock of intermediate holding companies are or
may from time to time be pledged to secure obligations of MacAndrews & Forbes
or its affiliates. A foreclosure upon any such shares of common stock could
constitute a change of control under the Indenture and certain debt
instruments of the Issuer's subsidiaries. Such occurrence of a change of
control would result in an event of default permitting acceleration under the
Credit Agreement and would enable holders of three of the four issues of the
Products Corporation Notes to require that Products Corporation repurchase
their Products Corporation Notes. See "--Security for the Notes; Potential
for Diminution." In addition, a change of control under the Indenture would
give the holders of the Notes the right to require the Issuer to repurchase
the Notes. See "--Issuer's Ability to Pay Principal of Notes." There can be
no assurance that upon a change of control the assets of the Company would be
sufficient to repay in full the borrowings under the Credit Agreement or to
repurchase the Products Corporation Notes and the Notes. See "--Subordination
to Subsidiary Liabilities" and "--Security for the Notes; Potential for
Diminution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of
management as well as assumptions made by and information currently available
to management. Such forward looking statements are principally contained in
the sections "Prospectus Summary," "Business -- Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
include, without limitation, the Company's expectation and estimates as to
introduction of new products, future financial performance, including growth
in net sales and earnings, cash flows from operations, capital expenditures,
the ability to refinance indebtedness, capital contributions or loans from
affiliates, the sale of assets or additional shares of Revlon, Inc. and the
sale of equity securities of the Issuer. In addition, in those and other
portions of this Prospectus, the words "anticipate," "believe," "estimate,"
"expect," "plans," "intends" and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including the risk
24
<PAGE>
factors described in this Prospectus. In addition to factors that may be
described in this Prospectus, the following factors, among others, could
cause the Company's actual results to differ materially from those expressed
in any forward-looking statements made by the Company: (i) difficulties or
delays in developing and introducing new products or failure of customers to
accept new product offerings; (ii) changes in consumer preferences, including
reduced consumer demand for the Company's color cosmetics and other current
products; (iii) difficulties or delays in the Company's continued expansion
into the self-select distribution channel and development of new markets;
(iv) unanticipated costs or difficulties or delays in completing projects
associated with the Company's strategy to improve operating efficiencies,
including information system upgrades; (v) effects of and changes in economic
conditions, including inflation and monetary conditions, and in trade,
monetary, fiscal and tax policies in countries outside of the United States
in which the Company operates, including Brazil; (vi) actions by competitors,
including business combinations, technological breakthroughs, new product
offerings and marketing and promotional successes; (vii) difficulties or
delays in realizing improved results from business consolidations and in
realizing gains from the sale of certain facilities held for sale; (viii)
combinations among significant customers or the loss, insolvency or failure
to pay its debts by a significant customer or customers; and (ix) the
inability to refinance indebtedness, secure capital contributions or loans
from affiliates or sell assets or additional shares of Revlon, Inc. or equity
securities of the Issuer. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected. The Company does not intend to update these
forward-looking statements.
USE OF PROCEEDS
The Issuer will not receive any proceeds from the Exchange Offer. The
Issuer used the net proceeds of the Offering, which were approximately $490.4
million, together with a capital contribution from MacAndrews & Forbes, to
make the Capital Contribution. Revlon Worldwide used the Capital Contribution
to finance the Revlon Worldwide Notes Defeasance. The Revlon Worldwide Notes
mature on March 15, 1998 and original issue discount thereon accretes at the
rate of 12% per annum, compounded on a semiannual basis. As of December 31,
1996, the accreted value of the Revlon Worldwide Notes was approximately
$969.6 million. See "Description of Other Indebtedness -- Revlon Worldwide
Notes."
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997. This table should be read in conjunction with "Selected
Historical and Pro Forma Financial Data" and the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(DOLLARS IN MILLIONS)
<S> <C>
Short-term borrowings--third parties ........................................ $ 23.4
Current portion of long-term debt--third parties ............................ 8.4
----------
$ 31.8
==========
Long-term debt:
Working capital lines....................................................... $ 278.6
Bank mortgage loan agreement due 1997....................................... 34.9
9 1/2% Senior Notes due 1999................................................ 200.0
9 3/8% Senior Notes due 2001................................................ 260.0
10 1/2% Senior Subordinated Notes due 2003.................................. 555.0
10 7/8% Sinking Fund Debentures due 2010.................................... 79.7
Advances from Holdings ..................................................... 30.4
Senior Secured Discount Notes Due 1998...................................... 301.7 (a)
Senior Secured Discount Notes due 2001...................................... 508.7
Other mortgages and notes payable (8.6%-13.0%) due through 2001 ............ 4.4
----------
Long-term debt including current portion ................................... 2,253.4
Less current portion........................................................ 8.4
----------
Total long-term debt....................................................... 2,245.0 (a)
----------
Stockholder's deficiency:
Common stock, par value $1.00 per share, 1,000 shares authorized, issued
and outstanding........................................................... --
Capital deficiency.......................................................... (410.9)
Accumulated deficit since June 24, 1992..................................... (570.8)
Adjustment for minimum pension liability.................................... (12.4)
Currency translation adjustment............................................. (8.9)
----------
Total stockholder's deficiency............................................. (1,003.0) (a)
----------
Total long-term debt and stockholder's deficiency......................... $ 1,242.0
==========
</TABLE>
- --------------
(a) In accordance with Statement of Financial Accounting Standards No.
125, which is effective for transactions occurring after December 31,
1996, the covenant defeasance of the Revlon Worldwide Notes is not
considered an extinguishment of debt for accounting purposes.
Therefore, the Revlon Worldwide Notes will not be considered
extinguished for accounting purposes until the defeasance trust is
paid out to holders of the Revlon Worldwide Notes upon maturity of
the Revlon Worldwide Notes. Assuming that the Revlon Worldwide Notes
had been repaid as of March 31, 1997 and Revlon Worldwide relieved of
its obligation for such liability, total long-term debt and
stockholders' deficiency would have been $1,943.3 million and
$1,022.1 million, respectively.
26
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK OF REVLON, INC.
Since the Revlon IPO, the Class A Common Stock has been traded on the NYSE
under the symbol "REV." The following table sets forth for the periods
indicated the high and low closing prices per share of the Class A Common
Stock as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1996
- ----
<S> <C> <C>
First Quarter (February 29 to March 31)............... $ 28 1/4 $ 25 1/2
Second Quarter........................................ 31 3/8 24 3/4
Third Quarter......................................... 31 1/8 23 1/2
Fourth Quarter........................................ 36 1/2 28 5/8
1997
- ----
First Quarter......................................... 42 3/8 29 5/8
Second Quarter (through June 25) ..................... 47 3/8 33 1/4
</TABLE>
On June 25, 1997, the last reported sales price of the Class A Common
Stock on the New York Stock Exchange was $46 1/8 per share.
27
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data for, and as of the end of, each of
the years in the five year period ended December 31, 1996 have been derived
from the audited consolidated financial statements of the Company. The
selected historical financial data for the three months ended March 31, 1996
and 1997 and as of March 31, 1997 have been derived from the unaudited
consolidated financial statements of the Company which reflect, in the
opinion of management of the Company, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial data
for such periods. Results for interim periods are not necessarily indicative
of the results for the full year.
The pro forma statement of operations data for the year ended December 31,
1996 and the three months ended March 31, 1997 give pro forma effect to the
Revlon IPO and the application of the net proceeds therefrom, the Offering,
the purchase and cancellation of $778.4 million principal amount at maturity
of Revlon Worldwide Notes in March 1997, and the extinguishment of the
remaining $337.4 million principal amount at maturity of Revlon Worldwide
Notes to occur on March 15, 1998, as if such transactions had been
consummated on January 1, 1996. The pro forma adjustments are based upon
available information and certain assumptions that management of the Company
believes are reasonable. The pro forma financial data do not purport to
represent the results of operations or the financial position of the Company
that actually would have occurred had the foregoing transactions been
consummated on the aforesaid dates.
The following selected financial data should be read in conjunction with
"Prospectus Summary--The Transactions," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company included elsewhere in
this Prospectus.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1997 1996 1996 (A) 1995 (A) 1994 (A) 1993 (A) 1992
---- ---- -------- -------- -------- -------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Net sales ...................... $ 492.5 $ 464.3 $2,167.0 $1,937.8 $1,732.5 $1,588.3 $1,632.2
Gross profit ................... 326.3 311.4 1,441.3 1,285.7 1,135.2 1,019.5 1,076.8
Selling, general and
administrative expenses ....... 303.8 295.1 1,241.1 1,139.1 1,026.8 969.6 996.7
Restructuring charges........... -- -- -- -- -- -- 162.7(b)
------- ------- -------- -------- -------- -------- --------
Business consolidation costs ... 5.4 -- -- -- -- -- --
Operating income (loss) ........ 17.1 16.3 200.2 146.6 108.4 49.9 (82.6)
Interest expense, net .......... 60.7 58.5 236.7 232.6 214.9 171.7 94.0
Amortization of debt issuance
costs ......................... 3.4 3.6 12.5 15.2 12.6 11.2 6.7
Other, net ..................... 2.5 2.6 12.1 12.7 21.0 39.3 26.0
Gain on sale of subsidiary
stock ......................... 0.1 187.8(c) 187.8 (c) -- -- -- --
------- ------- -------- -------- -------- -------- --------
Income (loss) before income
taxes ......................... (49.4) 139.4 126.7 (113.9) (140.1) (172.3) (209.3)
Provision for income taxes .... 5.5 7.0 25.5 25.4 22.8 19.0 14.7
------- ------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
accounting changes ............ (54.9) 132.4 101.2 (139.3) (162.9) (191.3) (224.0)
Extraordinary items--early
extinguishments of debt ....... (43.8) (6.6) (6.6) -- -- (9.5) (2.9)
Cumulative effect of accounting
changes ....................... -- -- -- -- (28.8)(d) (6.0)(e) --
------- ------- -------- -------- -------- -------- --------
Net income (loss) .............. $ (98.7) $ 125.8 $ 94.6 $ (139.3) $ (191.7) $ (206.8) $ (226.9)
======= ======= ======== ======== ======== ======== ========
OTHER DATA:
Net cash used for operating
activities..................... $ (75.9) $(100.4) $ (10.2) $ (51.7) $ (1.3) $ (150.5) $ (244.9)
Net cash used for investing
activities..................... (327.6) (12.1) (65.1) (72.5) (51.0) (8.7) (48.1)
Net cash provided by (used for)
financing activities........... 400.9 95.1 78.5 125.2 (48.8) 266.8 286.2
Ratio of earnings
to fixed charges (f) .......... -- 3.07x 1.47x -- -- -- --
EBITDA (g) ..................... $ 39.7 $ 35.9 $ 282.8 $ 224.0 $ 178.8 $ 118.9 $ 150.1
Cash interest expense .......... 39.6 43.7 139.0 148.2 138.5 109.8 110.4
Ratio of EBITDA to
interest expense, net ......... 0.65x 0.61x 1.19x 0.96x 0.83x 0.69x 1.60x
Ratio of EBITDA to cash
interest expense .............. 1.00x 0.82x 2.03x 1.51x 1.29x 1.08x 1.36x
PRO FORMA DATA (H)(I):
Operating income ............... $ 17.1 $ 200.2
Interest expense, net .......... 46.0 (i) 183.2 (h)
Income (loss) before
extraordinary item ............ (39.7)(i) 155.2 (h)
Ratio of earnings to fixed
charges (j) ................... -- --
Cash interest expense .......... 39.6 136.4
Ratio of EBITDA to cash
interest expense .............. 1.00x 2.07x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
MARCH 31, 1997 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ................... $ 1,944.4 $ 1,626.3 $ 1,544.5 $ 1,431.5 $ 1,566.3 $1,438.3
Long-term debt, excluding
current portion ............... 2,245.0 2,321.8 2,330.4 2,095.5 1,887.3 969.0
Total stockholder's deficiency (1,003.0) (1,461.3) (1,555.7) (1,411.1) (1,221.2) (443.1)
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Data.
29
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of its Tarlow Advertising Division
("Tarlow"). Products Corporation assumed substantially all of the
liabilities and obligations of Tarlow. Net liabilities assumed were
approximately $3.4 million. The assets acquired and abilities assumed
were accounted for at historical cost in a manner similar to that of a
pooling of interests and, accordingly, prior period financial
statements beginning with January 1, 1993 have been restated as if the
acquisition took place at the beginning of such period. In addition to
the liability assumed, Products Corporation paid $4.1 million to
Holdings, which payment was accounted for as an increase to capital
deficiency.
(b) Represents restructuring charges of $162.7 million in 1992, which
included (i) consolidation of certain worldwide manufacturing and
warehouse facilities, (ii) consolidation and improvements in management
information systems, (iii) vacating premises under lease, (iv)
personnel reductions and (v) discontinuance of certain product lines.
(c) Represents the gain on sale of subsidiary stock recognized as a result
of the Revlon IPO. On March 5, 1996, Revlon, Inc. issued and sold in
the Revlon IPO 8,625,000 shares of its Class A Common Stock for $24.00
per share. Revlon, Inc. contributed the net proceeds of $187.8 million
(net of underwriters' discount and related fees and expenses) to
Products Corporation, which in turn used such funds to repay borrowings
outstanding under the 1995 Credit Agreement and to pay fees and
expenses related to entering into the 1996 Credit Agreement.
(d) Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The Company
recognized a charge of $28.8 million in the first quarter of 1994 to
reflect the cumulative effect of the accounting change, net of income
tax benefit.
(e) Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," for its retiree benefit plan in the United States.
Accordingly, the Company recognized a charge of $6.0 million in the
1993 first quarter to reflect the cumulative effect of the accounting
change.
(f) Earnings used in computing the ratio of earnings to fixed charges
consist of income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense (including amortization of debt
issuance costs, but not losses relating to the early extinguishment of
debt) and 33% of rental expense (considered to be representative of the
interest factors). Fixed charges exceeded earnings before fixed charges
by $49.4 million for the three months ended March 31, 1997 and by
$113.9 million in 1995, $140.1 million in 1994, $172.3 million in 1993
and $209.3 million in 1992. Excluding the $187.8 million gain on sale
of subsidiary stock in the Revlon IPO from 1996 earnings (the "Adjusted
Earnings"), fixed charges would have exceeded Adjusted Earnings before
fixed charges by $48.4 million for the three months ended March 31,
1996 and by $61.1 million in 1996.
(g) EBITDA is defined as operating income (loss) before restructuring
charges, plus depreciation and amortization other than that relating to
early extinguishment of debt, debt discount and debt issuance costs.
EBITDA is presented here not as a measure of operating results but
rather as a measure of debt service ability. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
from operations prepared in accordance with generally accepted
accounting principles as a measure of the profitability or liquidity of
the Company. EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for
discretionary uses.
(h) The pro forma statement of operations data for the year ended December
31, 1996 reflects a reduction of interest expense of $2.6 million
related to the Revlon IPO, a reduction of interest expense and
amortization of debt issuance costs of $74.4 million and $2.9 million,
respectively, reflecting interest expense and amortization of debt
issuance costs on the $778.4 million principal amount at maturity of
Revlon Worldwide Notes cancelled during March 1997, a reduction of
interest expense and amortization of debt issuance costs of $32.3
million and $1.3 million, respectively, reflecting the extinguishment
of the remaining $337.4 million principal amount at maturity of Revlon
30
<PAGE>
Worldwide Notes to occur on March 15, 1998 and an increase in interest
expense and amortization of debt issuance costs of $55.8 million and
$3.7 million, respectively, to reflect such expenses as if the Notes,
which were used to refinance the Revlon Worldwide Notes, had been
outstanding from the beginning of the period presented.
(i) The pro forma statement of operations data for the three months ended
March 31, 1997 reflects a reduction of interest expense and
amortization of debt issuance costs of $17.6 million and $0.8 million,
respectively, $778.4 million, respectively, principal amount at
maturity of Revlon Worldwide Notes cancelled during March 1997, a
reduction of interest expense and amortization of debt issuance costs
of $8.5 million and $0.3 million, respectively, reflecting the
extinguishment of the remaining $337.4 million principal amount at
maturity of Revlon Worldwide Notes to occur on March 15, 1998, and an
increase in interest expense and amortization of debt issuance costs of
$11.4 million and $0.6 million, respectively, to reflect such expenses
as if the Notes, which were used to refinance the Revlon Worldwide
Notes, had been outstanding from the beginning of the period
presented.
(j) As adjusted to give pro forma effect to the Revlon IPO and the
application of the net proceeds therefrom, the Offering, the purchase
and cancellation of $778.4 million principal amount at maturity of
Revlon Worldwide Notes in March 1997, and the extinguishment of the
remaining $337.4 million principal amount at maturity of Revlon
Worldwide Notes to occur on March 15, 1998 as if such transactions had
been consummated on January 1, 1996, fixed charges would have exceeded
earnings before fixed charges by $34.2 million for the three months
ended March 31, 1997 and would have exceeded Adjusted Earnings before
fixed charges by $7.1 million in 1996.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus. The Issuer is a holding company with
no independent business operations of its own. Accordingly, except as other
wise indicated, the following discussion of the Company relates to the
operations of Revlon, Inc.
OVERVIEW
The Company operates in a single business segment with many different
products, which include an extensive array of glamorous, exciting and
innovative cosmetics and skin care, fragrance and personal care products, and
professional products, consisting of hair and nail care products for use
principally in and resale by professional salons. In addition, the Company
also operates retail outlet stores and has a licensing group.
In the United States and increasingly in international markets, the
Company's products are sold principally in the self-select distribution
channel, which the Company believes is the fastest-growing channel of
distribution for cosmetics, skin care, fragrance and personal care products.
In addition, the trend in the cosmetics, skin care and fragrance industry has
been the shift of consumer purchases from the demonstrator-assisted channel
to the self-select distribution channel.
The Company's net sales in the United States are made primarily in the
self-select distribution channel, which for 1996 represented approximately
86% of the Company's net sales in the United States. In the United States,
the Company also sells ULTIMA II products in the demonstrator-assisted
distribution channel and consumer and professional products to United States
Government military exchanges and commissaries. Outside the United States,
the Company sells consumer products in the self-select distribution channel
and through department stores and specialty stores, such as perfumeries, and
sells professional products.
The Company is making substantial improvements in its global sourcing,
materials management and distribution capabilities, which have contributed to
an improvement in the Company's gross profit margin. Such improvements
include the utilization of the Company's large purchasing capacity to
maximize cost savings in raw materials and components, improvement in the
percentage of timely order fulfillment and improvement in the timeliness and
accuracy of new product and promotion deliveries. See "Business --
Manufacturing and Related Operations and Raw Materials." The Company
continues to upgrade its management information systems to provide an
integrated system for forecasting, production, inventory management,
distribution, procurement and accounting. The Company is rationalizing and
increasing the efficiency of its manufacturing operations worldwide by
centralizing production of some product categories for sale throughout the
world within designated facilities and by shifting production of certain
other product categories to more cost effective manufacturing sites. Shifts
of production may result in the closing of certain of the Company's less
significant manufacturing facilities, and the Company continually reviews its
needs in this regard. In addition, as part of its efforts to continuously
improve operating efficiencies, the Company attempts to ensure that a
significant portion of its capital expenditures are devoted to improving
operating efficiencies.
The Company has increased its emphasis on advertising and promotion. The
Company increased advertising expenditures by 17.3% for 1996 over 1995 levels
and by 26.2% for 1995 over 1994 levels. The level of advertising expenditures
in any period is based upon the Company's assessment of advertising and
promotional support required by each of the Company's products in light of
expected volume, competitive pressures and the dynamics of the markets for
such products during such period. For 1997, the Company intends to increase
its advertising expenditures over 1996 levels.
The Company has achieved 14 consecutive quarters of increased net sales,
operating income and EBITDA compared with the corresponding quarter of the
prior year. Net sales, operating income and EBITDA increased 6.1%, 4.9% and
10.6%, respectively, for the first quarter of 1997 over the comparable period
in 1996, 11.8%, 36.6% and 26.3%, respectively, for 1996 over 1995 and
increased 11.8%, 35.2% and 25.3%, respectively, for 1995 over 1994. In
addition, the Company's net loss decreased from $191.7 million for 1994 to
$139.3 million for 1995 and an Adjusted 1996 Net Loss of $86.6 million for
1996 and decreased from an Adjusted 1996 Net Loss of $55.4 million in the
first quarter of 1996 to an Adjusted 1997 Net Loss of $54.9 million in the
first quarter of 1997. Through careful management of working
32
<PAGE>
capital, the Company has also reduced the relative amount of working capital
necessary to support net sales. The ratio of average quarterly combined
inventory and accounts receivable balances to net sales was 32.2% for the
first quarter of 1997 compared with 33.1% for the comparable period in 1996,
and 32.3% for 1996 compared with 33.2% for 1995 and 34.9% for 1994.
To reflect the integration of management reporting responsibilities
culminating in the third quarter of 1996, the Company presents its business
geographically as its United States operation, which comprise the Company's
business in the United States, and its International operation, which
comprise its business outside of the United States. The Company previously
presented its business as the Consumer Group, which comprised the Company's
consumer products operations throughout the world (except principally Spain,
Portugal and Italy) and professional products operations in certain markets,
principally in South Africa and Argentina, and the Professional Group, which
comprised the Company's professional products operations throughout the world
(except principally South Africa and Argentina) and consumer products
operations in Spain, Portugal and Italy. The Company has restated the
management's discussion and analysis data for prior periods to conform to the
presentation for 1996.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation for
the first quarter of each of 1997 and 1996 and for each of the last three
years:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- -------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
United States $282.5 $259.6 $1,257.2 $1,113.2 $ 983.2
International 210.0 204.7 909.8 824.6 749.3
------ ------ -------- -------- --------
$492.5 $464.3 $2,167.0 $1,937.8 $1,732.5
====== ====== ======== ======== ========
</TABLE>
The following sets forth certain statements of operations data as a
percentage of net sales for the first quarter of each of 1997 and 1996 and
for each of the last three years:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of sales ...................... 33.7% 32.9% 33.5% 33.7% 34.5%
Gross profit ....................... 66.3 67.1 66.5 66.3 65.5
Selling, general and administrative
expenses .......................... 61.7 63.6 57.3 58.8 59.3
Business consolidation costs ....... 1.1 -- -- -- --
Operating income.................... 3.5 3.5 9.2 7.5 6.2
EBITDA ............................. 8.1 7.7 13.1 11.6 10.3
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996
Net Sales
Net sales were $492.5 million and $464.3 million for the first quarter of
1997 and 1996, respectively, an increase of $28.2 million, or 6.1%, primarily
as a result of successful new product introductions worldwide, increased
demand in the United States, increased distribution internationally into the
expanding self-select distribution channel and the further development of new
international markets.
United States. The United States operation's net sales increased to $282.5
million for the first quarter of 1997 from $259.6 million for the first
quarter of 1996, an increase of $22.9 million, or 8.8%. Net sales improved
for the first quarter of 1997 primarily as a result of continued consumer
acceptance of new product offerings and general improvement in consumer
demand for the Company's color cosmetics in the United States, partially
offset by overall softness in the fragrance industry and lower sales of one
of the Company's prestige brands. The Company improved the dollar share of
its Revlon branded cosmetics in the color cosmetics business in the United
States self-select distribution channel to 21.9%
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<PAGE>
in the first quarter of 1997 from 21.6% in the first quarter of 1996,
continuing as the number one brand in market share. Market share, which is
subject to a number of conditions, can vary from quarter to quarter as a
result of such things as timing of new product introductions and advertising
and promotional spending. New product introductions (including, in 1997,
certain products launched during 1996) generated incremental net sales in the
first quarter of 1997, principally as a result of launches of products in the
COLORSTAY collection, including COLORSTAY foundation, lip makeup, eye makeup,
and blush, launches of products in the ALMAY AMAZING collection, including
lip makeup, eye makeup, face makeup and concealer and launches of REVLON AGE
DEFYING line extensions, STREETWEAR nail enamel and NEW COMPLEXION face
makeup.
International. The International operation's net sales increased to $210.0
million for the first quarter of 1997 from $204.7 million for the first
quarter of 1996, an increase of $5.3 million, or 2.6% on a reported basis or
6.3% on a constant U.S. dollar basis. Net sales improved principally as a
result of successful new product introductions, including the continued
roll-out of the COLORSTAY cosmetics collection and REVLON AGE DEFYING makeup,
increased distribution into the expanding self-select distribution channel,
the further development of new international markets, partially offset, on a
reported basis, by the unfavorable effect on sales of a stronger U.S. dollar
against certain foreign currencies, primarily the Spanish peseta and several
other European currencies, the South African rand and the Japanese yen and
partially offset by sales lost in exiting the unprofitable
demonstrator-assisted channel in Japan. The International operation's sales
are divided into the following geographic areas: Europe, which is comprised
of Europe, the Middle East and Africa (in which net sales increased by 0.2%
to $95.4 million for the first quarter of 1997 as compared to the first
quarter of 1996); the Western Hemisphere, which is comprised of Canada,
Mexico, Central America, South America and Puerto Rico (in which net sales
increased by 12.0% to $74.7 million for the first quarter of 1997 as compared
to the first quarter of 1996); and the Far East (in which net sales decreased
by 6.8% to $39.9 million for the first quarter of 1997 as compared to the
first quarter of 1996). Excluding in both periods the effect of the Company's
strategy of exiting the demonstrator-assisted distribution channel in Japan,
Far East net sales for the first quarter of 1997 would have been at the same
level as those in the first quarter of 1996.
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In
Brazil, net sales, operating income and income before taxes were $34.4
million, $6.8 million and $4.4 million, respectively, for the first quarter
of 1997 compared to $31.6 million, $7.3 million and $6.0 million,
respectively, for the first quarter of 1996. In Mexico, operating results for
the first quarter of 1997 and 1996 were adversely affected by the continued
weakness of the Mexican economy. Effective January 1997, Mexico is considered
a hyperinflationary economy. In Venezuela, operating results for the first
quarter of 1997 and 1996 were adversely affected by high inflation and in the
1996 period by a currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 33.7% for the first
quarter of 1997 compared to 32.9% for the first quarter of 1996,
respectively. The increase in cost of sales as a percentage of net sales is
due primarily to changes in product mix involving an increase in sales of the
Company's higher cost enhanced performance technology-based products, an
increase in export sales, increased sales of lower margin products (such as
those products sold in Brazil), the effect of weaker local currencies on the
cost of imported purchases and competitive pressures on the Company's
toiletries business in certain international markets. This was partially
offset by the benefits of improved overhead absorption against higher
production volumes and more efficient global production and purchasing. The
aforementioned increases in sales that negatively impacted cost of sales as a
percentage of net sales were, however, more profitable to the Company's
overall operating results.
Selling, general & administrative expenses
As a percentage of net sales, SG&A expenses were 61.7% for the first
quarter of 1997, an improvement from 63.6% for the first quarter of 1996.
SG&A expenses other than advertising expense, as a percentage of net sales,
improved to 45.4% for the first quarter of 1997 compared with 47.3% for the
first quarter of 1996 primarily as a result of reduced general and
administrative expenses, improved
34
<PAGE>
productivity and lower distribution costs in the first quarter of 1997
compared with the first quarter of 1996. In accordance with its business
strategy, the Company increased advertising and consumer-directed promotion
in the first quarter of 1997 compared with the first quarter of 1996 to
support growth in existing product lines, new product launches and increased
distribution in the self-select distribution channel in many of the Company's
markets in the International operation. Advertising expense increased by 5.9%
to $80.2 million, or 16.3% of net sales, for the first quarter of 1997
compared to $75.7 million, or 16.3% of net sales, for the first quarter of
1996.
Business consolidation costs
In the first quarter of 1997 the Company incurred business consolidation
costs of approximately $5.4 million in connection with the implementation of
its business strategy to rationalize factory operations. These costs
primarily included severance and other related costs in certain International
operations. These business consolidations are intended to lower the Company's
operating costs and increase efficiency in the future. Facilities relating to
such operations are held for sale, and the Company believes it may realize a
gain based upon current estimated market values.
Operating income
As a result of the foregoing, operating income increased by $0.8 million,
or 4.9%, to $17.1 million for the first quarter of 1997 from $16.3 million
for the first quarter of 1996.
Other expenses/income
Interest expense was $63.1 million for the first quarter of 1997 compared
to $59.5 million for the first quarter of 1996. The increase in interest
expense is attributable to the higher accreted value of Revlon Worldwide
Notes, prior to the cancellation and interest on the Notes, partially offset
by lower average outstanding borrowings under the 1996 Credit Agreement and
lower interest rates under the 1996 Credit Agreement than under the 1995
Credit Agreement.
Foreign currency losses, net, were $1.8 million for the first quarter of
1997 compared to $2.1 million for the first quarter of 1996. The reduction in
the foreign currency loss in the first quarter of 1997 as compared to the
first quarter of 1996 was due to a stable Venezuelan bolivar versus the
devaluation which occurred in the first quarter of 1996, partially offset by
the relatively greater strengthening of the U.S. dollar and U.K. pound
against most foreign currencies.
Gain on issuance of subsidiary stock in the amount of $187.8 million was
recognized as a result of the Revlon IPO in the first quarter of 1996.
Provision for income taxes
The provision for income taxes was $5.5 million and $7.0 million for the
first quarter of 1997 and the first quarter of 1996, respectively. The
decrease was primarily attributable to the implementation of tax planning
involving the utilization of net operating loss carryforwards in certain
International operations, partially offset by higher taxable income in
certain International operations.
Extraordinary item
The extraordinary item in the first quarter of 1997 resulted from the
cancellation of a portion of the Revlon Worldwide Notes as well as the
write-off of the deferred financing costs associated with the cancellation.
The extraordinary item in the first quarter of 1996 resulted from the
write-off of deferred financing costs associated with the extinguishment of
the 1995 Credit Agreement prior to maturity with the net proceeds from the
Revlon IPO and 1996 Credit Agreement.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales
Net sales were $2,167.0 million and $1,937.8 million for 1996 and 1995,
respectively, an increase of $229.2 million, or 11.8%, primarily as a result
of successful new product introductions worldwide, increased demand in the
United States, acquisitions of certain exclusive line professional product
35
<PAGE>
businesses, increased distribution internationally into the expanding
self-select distribution channel and the further development of new
international markets.
United States. The United States operation's net sales increased to
$1,257.2 million for 1996 from $1,113.2 million for 1995, an increase of
$144.0 million, or 12.9%. Net sales improved for 1996 primarily as a result
of continued consumer acceptance of new product offerings, general
improvement in consumer demand for the Company's color cosmetics in the
United States and acquisitions of certain exclusive line professional product
businesses, partially offset by overall softness in the fragrance industry
and lower sales of one of the Company's prestige brands. The Company improved
the dollar share of its REVLON branded cosmetics in the color cosmetics
business in the United States self-select distribution channel to 21.4% for
1996 from 19.8% for 1995, moving into the leading position in market share.
Market share, which is subject to a number of conditions, can vary from
quarter to quarter as a result of such things as timing of new product
introductions and advertising and promotional spending. New product
introductions (including, in 1996, certain products launched during 1995)
generated incremental net sales in 1996, principally as a result of launches
of products in the COLORSTAY collection, including COLORSTAY foundation, lip
makeup, eye makeup and COLORSTAY lashcolor mascara, launches of products in
the ALMAY AMAZING collection, including lip makeup, eye makeup, face makeup
and concealer, and launches of CHERISH fragrance and MITCHUM CLEAR and ALMAY
CLEAR COMPLEXION MAKEUP and TREATMENT line extensions.
International. The International operation's net sales increased to $909.8
million for 1996 from $824.6 million for 1995, an increase of $85.2 million,
or 10.3% on a reported basis or 12.6% on a constant U.S. dollar basis. Net
sales improved principally as a result of successful new product
introductions, including the continued roll-out of the COLORSTAY cosmetics
collection and REVLON AGE DEFYING makeup, increased distribution into the
expanding self-select distribution channel, the further development of new
international markets, partially offset, on a reported basis, by the
unfavorable effect on sales of a stronger U.S. dollar against certain foreign
currencies, primarily the South African rand, Japanese yen, and several
European currencies. The International operation's sales are divided into the
following geographic areas: Europe, which is comprised of Europe, the Middle
East and Africa (in which net sales increased to $404.0 million for 1996 from
$374.6 million for 1995, an increase of $29.4 million, or 7.8%); the Western
Hemisphere, which is comprised of Canada, Mexico, Central America, South
America and Puerto Rico (in which net sales increased to $311.9 million for
1996 from $275.4 million for 1995, an increase of $36.5 million, or 13.3%);
and the Far East (in which net sales increased to $193.9 million for 1996
from $174.6 million for 1995, an increase of $19.3 million, or 11.1%).
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In
Brazil, net sales, operating income and income before taxes were $132.7
million, $25.1 million and $20.0 million, respectively, for 1996 compared to
$118.6 million, $22.8 million and $19.8 million, respectively, for 1995. In
Mexico, net sales for 1996 and 1995 were adversely affected by the December
1994 devaluation of the Mexican peso and related economic weakness.
Additionally, Mexico will be considered a hyperinflationary economy beginning
in 1997. In Venezuela, net sales and income before taxes for 1996 and 1995
were adversely affected by high inflation and in the 1996 period by a
currency devaluation.
Cost of sales
As a percentage of net sales, cost of sales was 33.5% for 1996 compared to
33.7% for 1995, respectively. The improvement for 1996 resulted from the
benefits of improved overhead absorption against higher production volumes
and more efficient global production and purchasing. This improvement was
partially offset by changes in product mix involving an increase in sales of
the Company's higher cost technology-based products, an increase in export
sales, and lower margin products (such as those products sold in Brazil), the
effect of weaker local currencies on the cost of imported purchases and
competitive pressures on the Company's toiletries business in certain
international markets in Europe and the Far East. The aforementioned
increases in sales that negatively impacted cost of sales were, however, more
profitable to the Company's overall operating results.
36
<PAGE>
Selling, general and administrative expenses
As a percentage of net sales, SG&A expenses were 57.3% for 1996, an
improvement from 58.8% for 1995. SG&A expenses other than advertising
expense, as a percentage of net sales, improved to 40.9% for 1996 compared
with 43.2% for 1995 primarily as a result of reduced general and
administrative expenses, improved productivity and lower distribution costs
in 1996 compared with 1995, partially offset by additional costs incurred in
Japan in 1996 in connection with the Company's strategy of exiting the
demonstrator-assisted distribution channel. In accordance with its business
strategy, the Company increased advertising and consumer-directed promotion
in 1996 compared with 1995 to support growth in existing product lines, new
product launches and increased distribution in the self-select distribution
channel in many of the Company's markets in the International operation.
Advertising expense increased by 17.3% to $355.2 million, or 16.4% of net
sales, for 1996 compared to $302.7 million, or 15.6% of net sales, for 1995.
Operating income
As a result of the foregoing, operating income increased by $53.6 million,
or 36.6%, to $200.2 million for 1996 from $146.6 million for 1995.
Other expenses/income
Interest expense was $240.1 million for 1996 compared to $237.5 million
for 1995. The increase was attributable to the higher accretion of the Revlon
Worldwide Notes, partially offset by lower average outstanding borrowings as
a result of the paydown of debt under the 1996 Credit Agreement and under the
1995 Credit Agreement with the use of proceeds from the Revlon IPO in the
1996 period and lower interest rates under the 1996 Credit Agreement than
under the 1995 Credit Agreement.
Foreign currency losses, net, were $5.7 million for 1996 compared to $10.9
million for 1995. The reduction in the foreign currency loss in 1996 as
compared to 1995 was due to lower foreign currency losses primarily in Mexico
and Venezuela and the Company's simplification of its international corporate
structure, which resulted in $2.1 million of gains, previously deferred in
the currency translation account, partially offset by the strengthening of
the U.S. dollar against the Spanish peseta and the strengthening of the U.K.
pound against several European currencies.
Miscellaneous, net was $6.4 million for 1996 compared to $1.8 million for
1995. The increase relates primarily to the Company's continued investment in
certain emerging markets.
Gain on sale of subsidiary stock in the amount of $187.8 million was
recognized as a result of the Revlon IPO.
Extraordinary item
The extraordinary item resulted from the write-off recorded in the first
quarter of 1996 of deferred financing costs associated with the
extinguishment of the 1995 Credit Agreement prior to its maturity with the
net proceeds from the Revlon IPO and borrowings under the 1996 Credit
Agreement.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales
Net sales were $1,937.8 million and $1,732.5 million for 1995 and 1994,
respectively, an increase of $205.3 million, or 11.8%, primarily as a result
of successful new product introductions worldwide, increased demand in the
United States, increased distribution internationally into the expanding
self-select distribution channel, the development of new international
markets and a weaker U.S. dollar versus most foreign currencies.
United States. The United States operation's net sales increased to
$1,113.2 million for 1995 from $983.2 million for 1994, an increase of $130.0
million, or 13.2%. Net sales improved primarily as a result of continued
consumer acceptance of new product offerings and general improvement in
consumer demand for the Company's color cosmetics in the United States,
contributing to the Company's improved
37
<PAGE>
share of the color cosmetics business in the United States self-select
distribution channel, as well as increased net sales at the retail outlet
stores. New product introductions (including, in 1995, certain products
launched during 1994) generated incremental net sales in 1995, principally as
a result of the June 1994 launch of COLORSTAY lipcolor, the 1994 first
quarter launch of REVLON AGE DEFYING makeup, the 1995 second and third
quarter launches of COLORSTAY lip makeup line extensions and eye and face
makeup, respectively, which are part of the COLORSTAY collection, the 1995
second quarter launches of REVLON AGE DEFYING line extensions, CHARLIE WHITE
fragrance and ALMAY CLEAR COMPLEXION MAKEUP, and the 1995 third quarter
launches of ALMAY TIME-OFF line extensions and LASTING fragrance.
International. The International operation's net sales increased to $824.6
million for 1995 from $749.3 million for 1994, an increase of $75.3 million,
or 10.0%. Net sales improved principally as a result of successful new
product introductions, increased distribution into the expanding self-select
distribution channel, the development of new international markets and the
favorable effect on sales of a weaker U.S. dollar versus most foreign
currencies, partially offset by lower unit volume in Mexico and Argentina
resulting from recessionary conditions. Net sales were also favorably
affected by the continued roll-out of COLORSTAY lipcolor, REVLON AGE DEFYING
makeup and CHARLIE WHITE fragrance into various international markets, the
continued expansion during the third quarter of 1994 of the ALMAY cosmetics
line outside the United States and the expansion during the third quarter of
1994 of the CHARLIE RED fragrance outside the United States. Introduction of
the COLORSTAY cosmetics collection began in the fourth quarter of 1995 and
continued in the first part of 1996. The International operation's sales are
divided into the following geographic areas: Europe, which is comprised of
Europe, the Middle East and Africa (in which net sales increased to $374.6
million for 1995 from $334.8 million for 1994, an increase of $39.8 million,
or 11.9%); the Western Hemisphere, which is comprised of Canada, Mexico,
Central America, South America and Puerto Rico (in which net sales increased
to $275.4 million for 1995 from $269.7 million for 1994, an increase of $5.7
million, or 2.1%); and the Far East (in which net sales increased to $174.6
million for 1995 from $144.8 million for 1994, an increase of $29.8 million,
or 20.6%).
The Company's operations in Brazil and Mexico have been subject to
significant political and economic uncertainties. Operations in Brazil were
significantly improved for 1995 over 1994 primarily as a result of higher
unit volume in the first half of 1995. Unit volume in the second half of 1995
declined from the unit volume for the second half of 1994 due to the strong
unit volume in the second half of 1994 as a result of the Brazilian
government's July 1, 1994 introduction of a new economic and monetary policy,
which resulted in increased consumer purchasing. In Brazil, net sales,
operating income and income before taxes were $118.6 million, $22.8 million
and $19.8 million, respectively, for 1995 compared with $108.1 million, $29.5
million and $14.9 million, respectively, for 1994. However, net sales and
operating income for 1994 benefited from the hyperinflationary pricing
component included in these accounts until the Brazilian government's July 1,
1994 introduction of a new economic and monetary policy and related issuance
of a new currency, which significantly reduced inflation. The Company's
income before taxes and cash flow from operations in Brazil for 1994 were not
affected to the same extent as operating income because of a corresponding
charge in the foreign currency translation account. In Mexico, net sales and
operating income were $20.5 million and $1.6 million, respectively, for 1995
compared with $31.1 million and $3.2 million, respectively, for 1994. While
the December 1994 devaluation of the Mexican peso did not have a significant
adverse effect on 1994 operating results in Mexico, 1995 operating results in
Mexico were, and future operating results may continue to be, adversely
affected by this devaluation and other factors such as decreases in unit
volume, limitations on price increases and higher relative costs of products
sourced outside of Mexico. The Company has taken measures to mitigate the
effect of these conditions by increasing prices in line with inflation, where
possible, and efficiently managing its working capital levels.
Cost of sales
As a percentage of net sales, cost of sales was 33.7% for 1995, an
improvement from 34.5% for 1994. This improvement resulted from the benefits
on overhead absorption of higher production volumes allocated over a fixed
manufacturing base, and globalization benefits such as more efficient
production and purchasing performance in 1995 compared with 1994, partially
offset by changes in the product mix involving increases in 1995 compared to
1994 in sales of lower margin products sold in Brazil and by the
38
<PAGE>
Company's retail outlet stores. The first half of 1994 included the benefit
of the inflationary component of pricing in Brazil, partially offset by the
adverse impact of higher transition costs associated with factory
consolidations charged to cost of sales for inventory produced in 1993 and
sold during 1994.
Selling, general and administrative expenses
As a percentage of net sales, SG&A expenses were 58.8% for 1995 and 59.3%
for 1994. SG&A expenses, other than advertising expense, as a percentage of
net sales improved to 43.2% for 1995 compared with 45.4% for 1994, primarily
as a result of reduced general and administrative expenses, including lower
relative costs in Japan in 1995 in connection with the Company's strategy of
exiting the demonstrator-assisted distribution channel, improved productivity
in 1995 compared with 1994, partially offset by higher European regional
headquarters expenses and severance costs in 1995. The Company increased
advertising and consumer directed promotion during 1995 compared with 1994,
principally in the United States and Europe, to support growth in existing
product lines, new product launches and increased distribution in the
self-select distribution channel in Europe in 1995. Advertising expense
increased by 26.2% to $302.7 million, or 15.6% of net sales, for 1995 from
$239.9 million, or 13.8% of net sales, for 1994. In the fourth quarter of
1995, consistent with the management of its business, the Company
reclassified certain advertising expenses for prior periods to conform to the
presentation for 1995.
Operating income
As a result of the foregoing, operating income increased by $38.2 million,
or 35.2%, to $146.6 million for 1995 from $108.4 million for 1994.
Other expenses/income
Interest expense was $237.5 million for 1995 and $221.2 million for 1994,
an increase of $16.3 million, or 7.4%. The increase in 1995 was due to higher
outstanding borrowings under the Company's credit facilities and the higher
accretion of the Revlon Worldwide Notes.
Foreign currency losses, net, were $10.9 million for 1995 and $18.2
million for 1994. Results improved in 1995 primarily as a result of reduced
inflation associated with the Brazilian government's July 1, 1994
introduction of a new economic and monetary policy and related issuance of a
new currency and the January 1995 repayment of approximately $26.9 million
under the Yen Credit Agreement, partially offset by the adverse effect of a
currency devaluation in Venezuela primarily in the fourth quarter of 1995.
Provision for income taxes
The provision for income taxes was $25.4 million and $22.8 million for
1995 and 1994, respectively. The increase in the provision for income taxes
was primarily attributable to higher taxable earnings of certain foreign
operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $75.9 million and $100.4
million for the first quarter of 1997 and 1996, respectively. Net cash used
for operating activities was $10.2 million, $51.7 million and $1.3 million
for 1996, 1995 and 1994, respectively. The decrease in net cash used for
operating activities for the first quarter of 1997 compared with the first
quarter of 1996 resulted primarily from higher operating income, lower taxes
paid, net of refunds, and improved working capital management. The decrease
in net cash used for operating activities for 1996 compared with 1995
resulted primarily from higher operating income, lower restructuring payments
($13.3 million for 1996 compared with $24.2 million for 1995) and improved
management of inventory relative to business growth, partially offset by
higher trade receivable balances as a result of higher net sales and
increased spending on merchandise display units in connection with the
Company's continued expansion into the self-select distribution channel. The
increase in net cash used for operating activities for 1995 compared with
1994 resulted primarily from an increase in inventories associated with
expected sales volume, higher trade receivable balances, increased spending
on merchandise display units in connection with the Company's continued
39
<PAGE>
expansion into the self-select distribution channel and higher income taxes
paid, net of refunds, offset in part by higher operating income, lower
restructuring payments ($24.2 million for 1995 compared with $37.2 million
for 1994) and lower severance payments.
Net cash used for investing activities was $327.6 million and $12.1
million for the first quarter of 1997 and 1996, respectively. Net cash used
for investing activities was $65.1 million, $72.5 million and $51.0 million
for 1996, 1995 and 1994, respectively. Net cash used for investing activities
for the first quarter of 1997, consisted primarily of the purchase of
marketable securities that were deposited in an irrevocable trust to effect
the covenant defeasance of the remaining $337.4 million principal amount at
maturity of the Revlon Worldwide Notes and in the first quarter of 1996 and
for fiscal 1996, 1995 and 1994 consisted primarily of capital expenditures
and in 1996 and 1995 included $7.1 million and $21.2 million, respectively,
used for acquisitions. The Company's capital expenditures for the first
quarter of 1997 and 1996 and for fiscal 1996, 1995 and 1994 were $8.0
million, $11.8 million, $58.0 million, $54.3 million and $52.5 million,
respectively. The increase in capital expenditures through 1996 was primarily
attributable to significant information system enhancements in accordance
with the Company's business strategy. See "Business -- Strategy."
Net cash provided by financing activities was $400.9 million and $95.1
million for the first quarter of 1997 and 1996, respectively. Net cash
provided by (used for) financing activities was $78.5 million, $125.2 million
and $(48.8) million for 1996, 1995 and 1994, respectively. Net cash provided
by financing activities for the first quarter of 1997 included cash drawn
under the 1996 Credit Agreement and net proceeds from the issuance of the
Notes, partially offset by the purchase of the Revlon Worldwide Notes and
repayment of approximately $4.6 million under the Yen Credit Agreement. Net
cash provided by financing activities for 1996 included the net proceeds from
the Revlon IPO, cash drawn under the 1995 Credit Agreement and under the 1996
Credit Agreement, partially offset by the repayment of borrowings under the
1995 Credit Agreement, the payment of fees and expenses related to the 1996
Credit Agreement and repayment of approximately $5.2 million under the Yen
Credit Agreement. Net cash provided by financing activities for 1996 included
the net proceeds from the Revlon IPO, cash drawn under the 1995 Credit
Agreement and under the 1996 Credit Agreement, partially offset by the
repayment of borrowings under the 1995 Credit Agreement, the payment of fees
and expenses related to the 1996 Credit Agreement and repayment of
approximately $5.2 million under the Yen Credit Agreement. Net cash provided
by financing activities for 1995 consisted primarily of borrowings under the
credit agreement of Products Corporation in effect at that time and
borrowings under the 1995 Credit Agreement, partially offset by repayments of
cash drawn under those credit agreements, repayment of $26.9 million under
the Yen Credit Agreement and payment of debt issuance costs under the 1995
Credit Agreement. Net cash used for financing activities for 1994 consisted
primarily of repayments of borrowings under the credit agreement of Products
Corporation in effect at that time and a repayment of $12.0 million under the
Yen Credit Agreement.
In February 1995, Products Corporation entered into the 1995 Credit
Agreement, which provided up to $500.0 million comprised of three senior
secured facilities: a $100.0 million term loan facility, a $225.0 million
revolving credit facility and a $175.0 million multi-currency facility.
Borrowings under the 1995 Credit Agreement were used to refinance Products
Corporation's previous $150.0 million credit agreement, refinance then
existing lines of credit outside of the United States and refinance
approximately $26.9 million paid under the Yen Credit Agreement in January
1995. The 1995 Credit Agreement was scheduled to terminate on June 30, 1997.
The net proceeds of $187.8 million from the Revlon IPO were contributed to
Products Corporation and were used to repay borrowings under the 1995 Credit
Agreement and to pay fees and expenses related to the 1996 Credit Agreement.
In January 1996, Products Corporation entered into the 1996 Credit
Agreement, which became effective upon consummation of the Revlon IPO on
March 5, 1996. The 1996 Credit Agreement provided up to $600 million
comprised of four senior secured facilities: a $130.0 million term loan
facility, a $220.0 million multi-currency facility, a $200.0 million
revolving acquisition facility and a $50.0 million special standby letter of
credit facility. As of March 31, 1997 Products Corporation had approximately
$129.0 million outstanding under the term loan facility, $112.6 million
outstanding under the multi-currency facility, $37.0 million outstanding
under the revolving acquisition facility and $34.5 million outstanding
40
<PAGE>
under the special standby letter of credit facility. In January 1997, the
1996 Credit Agreement was amended to, among other things, permit the merger
of Products Corporation's subsidiary, Prestige Fragrance & Cosmetics, Inc.
("PFC"), which operates 195 retail outlet stores throughout the United
States, with and into The Cosmetic Center, Inc. ("Cosmetic Center") and
generally to exclude Cosmetic Center (as the survivor of the merger) from the
definition of "subsidiary" under the Credit Agreement. See "Business --
Distribution" and Note 7(a) to the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. In accordance with scheduled
reductions, the term loan facility was reduced by $1.0 million on January 31,
1997. The 1996 Credit Agreement was scheduled to terminate on December 31,
2000.
In May 1997, Products Corporation entered into a credit agreement (the
"Credit Agreement") with a syndicate of lenders, whose individual members
change from time to time. The proceeds of loans made under the Credit
Agreement were used for the purpose of repaying the loans outstanding under
the 1996 Credit Agreement and will be used to repurchase or redeem the 10
7/8% Sinking Fund Debentures due 2010 of Products Corporation (the "Sinking
Fund Debentures") and for general corporate purposes or, in the case of the
acquisition facility, the financing of acquisitions.
The Credit Agreement is comprised of five senior secured facilities: a
$115.0 million initial term loan facility, an $85.0 million deferred draw
term loan facility, a $300.0 million multi-currency facility, a $200.0
million revolving acquisition facility, which may be increased to $400
million under certain circumstances with the consent of majority lenders, and
a $50.0 million special standby letter of credit facility. At May 30, 1997,
Products Corporation had approximately $115.0 million outstanding under the
initial term loan facility, zero outstanding under the deferred draw term
loan facility, $184.4 million outstanding under the multi-currency facility,
zero outstanding under the acquisition facility and $34.4 million outstanding
under the special standby letter of credit facility. See "Description of
Other Indebtedness -- Credit Agreement."
In connection with the Credit Agreement, the Company expects to record an
extraordinary item related to the early extinguishment of debt of
approximately $15 million in 1997.
A subsidiary of Products Corporation is the borrower under the Yen Credit
Agreement, which had a principal balance of approximately yen 4.3 billion as of
March 31, 1997 (approximately $34.9 million U.S. dollar equivalent as of
March 31, 1997) and is currently due on December 31, 1997. In May 1997,
Products Corporation received a commitment letter with respect to an extension
of the term of the Yen Credit Agreement. In the event that the documentation
for such extension is not completed, Products Corporation is able and intends
to refinance the Yen Credit Agreement under the Credit Agreement. Accordingly,
Products Corporation's obligation under the Yen Credit Agreement has been
classified as long-term as of March 31, 1997. In accordance with the terms of
the Yen Credit Agreement, approximately yen 2.7 billion (approximately $26.9
million U.S. dollar equivalent) was paid in January 1995 and approximately yen
539 million (approximately $5.2 million U.S. dollar equivalent) was paid in
January 1996. A payment of approximately yen 539 million (approximately $4.6
million U.S. dollar equivalent) was paid in January 1997. See "Description of
Other Indebtedness -- Yen Credit Agreement."
Products Corporation expects to redeem all of the outstanding Sinking Fund
Debentures on or about July 15, 1997 with the proceeds of borrowings under
the Credit Agreement. In the event that they are not redeemed, the $61.0
million aggregate principal amount of Sinking Fund Debentures previously
purchased on the open market by Products Corporation (which was not
previously used for sinking fund payments, including the payment in July
1996) and no longer outstanding will be used to meet future sinking fund
requirements of such issue. If they are not redeemed, $9.0 million aggregate
principal amount of previously purchased Sinking Fund Debentures will be used
for the sinking fund payment due July 15, 1997. $9.0 million aggregate
principal amount of previously purchased Sinking Fund Debentures was used for
the sinking fund payment due July 15, 1996.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings at interest rates more favorable
to Products Corporation than interest rates under the Credit Agreement. No
such borrowings were outstanding as of March 31, 1997.
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In June 1996, $10.9 million in notes due to Products Corporation from
Holdings under the Financing Reimbursement Agreement was offset against an
$11.7 million demand note payable by Products Corporation to Holdings. See
"Relationship with MacAndrews & Forbes --Financing Reimbursement Agreement"
and "Relationship with MacAndrews & Forbes -- Other."
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement and other
existing working capital lines. The Indenture, the Revlon Worldwide Notes
Indenture and the indentures governing three of the four issues of the
Products Corporation Notes contain certain provisions that by their terms
limit the Company's ability to, among other things, incur debt. The Company's
principal uses of funds are expected to be the payment of operating expenses,
working capital and capital expenditure requirements and debt service
payments.
The Company estimates that capital expenditures for 1997 will be
approximately $60 million, including approximately $10 million for upgrades
to the Company's management information systems. Pursuant to tax sharing
agreements, Revlon Worldwide (or the Company following the Revlon Worldwide
Merger) and Revlon, Inc. may be required to make tax sharing payments to
Mafco Holdings as if Revlon Worldwide (or the Company following the Revlon
Worldwide Merger) or Revlon, Inc., as the case may be, were filing separate
income tax returns, except that no payments are required by Revlon, Inc. if
and to the extent that Products Corporation is prohibited under the Credit
Agreement from making tax sharing payments to Revlon, Inc. See "Relationship
with MacAndrews & Forbes --Tax Sharing Agreement." The Credit Agreement
prohibits Products Corporation from making any cash tax sharing payments
other than in respect of state and local income taxes. The Company
anticipates that, with respect to Revlon, Inc. as a result of net operating
tax losses and prohibitions under the Credit Agreement and with respect to
Revlon Worldwide (or the Company following the Revlon Worldwide Merger) as a
result of the absence of business operations or source of income of its own,
no federal tax payments or payments in lieu of taxes pursuant to the tax
sharing agreements will be required for 1997.
As of March 31, 1997, Products Corporation was party to a series of
interest rate swap agreements (which expire at various dates through December
2001) totaling a notional amount of $225.0 million in which Products
Corporation agreed to pay on such notional amount a variable interest rate
equal to the six month London Inter-Bank Offered Rate (6.00% per annum at
April 21, 1997) to its counterparties and the counterparties agreed to pay on
such notional amounts fixed interest rates averaging approximately 6.03% per
annum. Products Corporation entered into these agreements in 1993 and 1994
(and in the first quarter of 1996 extended a portion equal to a notional
amount of $125.0 million through December 2001) to convert the interest rate
on $225.0 million of fixed-rate indebtedness to a variable rate. If Products
Corporation had terminated these agreements, which Products Corporation
considers to be held for other than trading purposes, on March 31, 1997, a
loss of approximately $6.5 million would have been realized. Certain other
swap agreements were terminated in 1993 for a gain of $14.0 million. The
amortization of the realized gain on these agreements for the first quarter
of 1997 was approximately $0.8 million and for fiscal 1996 and 1995 was
approximately $3.2 million in each year. The remaining unamortized gain,
which is being amortized over the original lives of the agreements, is $2.3
million as of March 31, 1997. Although cash flow from the presently
outstanding agreements was slightly positive for the first quarter of 1997
and for fiscal 1996, future positive or negative cash flows from these
agreements will depend upon the trend of short-term interest rates during the
remaining lives of such agreements. Based on current interest rate levels,
Products Corporation expects to have a slightly negative cash flow from these
agreements in 1997, although no assurances can be given that short-term
interest rates will not rise above current levels. In the event of
nonperformance by the counterparties at any time during the remaining lives
of the agreements, Products Corporation could lose some or all of any
possible future positive cash flows from these agreements. However, Products
Corporation does not anticipate nonperformance by such counterparties,
although no assurances can be given.
Products Corporation enters into forward foreign exchange contracts from
time to time to hedge certain cash flows denominated in foreign currencies.
At March 31, 1997, Products Corporation had forward foreign exchange
contracts denominated in various currencies, predominantly the U.K. pound, of
approximately $67.5 million (U.S. dollar equivalent). If Products Corporation
had terminated these contracts on March 31, 1997, no material gain or loss
would have been realized.
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available subsidiary credit facilities and refinancings of existing
subsidiary indebtedness will be sufficient to enable the Company to meet its
anticipated cash requirements for the
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foreseeable future, including debt service of its subsidiaries. However,
there can be no assurance that cash flow will be sufficient to meet the
Company's cash requirements on a consolidated basis. If the Company is unable
to satisfy such cash requirements from these sources, the Company could be
required to adopt one or more alternatives, such as reducing or delaying
capital expenditures, restructuring subsidiary indebtedness, selling assets
or operations, selling its equity securities, seeking capital contributions
or loans from affiliates of the Company or selling additional shares of
capital stock of Revlon, Inc. There can be no assurance that any of such
actions could be effected, that they would enable the Issuer's subsidiaries
to continue to satisfy their capital requirements or that they would be
permitted under the terms of the Company's various debt instruments then in
effect. The Issuer, as a holding company, will be dependent on distributions
with respect to its approximately 83.1% indirect ownership interest in
Revlon, Inc. from the net earnings generated by Products Corporation to pay
its expenses and to pay the principal amount at maturity of the Notes. The
terms of the Credit Agreement, the Senior Subordinated Notes, the 1999 Senior
Notes and the Senior Notes generally restrict Products Corporation from
paying dividends or making distributions, except that Products Corporation is
permitted to pay dividends and make distributions to Revlon, Inc., among
other things, to enable Revlon, Inc. to pay expenses incidental to being a
public holding company, including, among other things, professional fees such
as legal and accounting, regulatory fees such as SEC filing fees and other
miscellaneous expenses related to being a public holding company, and to pay
dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under the Revlon, Inc. 1996
Stock Plan (the "Revlon, Inc. Stock Plan"), provided that the aggregate
amount of such dividends and distributions taken together with any purchases
of Revlon, Inc. common stock on the market to satisfy matching obligations
under an excess savings plan may not exceed $6.0 million per annum.
The Revlon Worldwide Notes mature in March 1998 and funds have been
deposited in an irrevocable trust to effect the covenant defeasance of the
remaining $337.4 million principal amount at maturity of the Revlon Worldwide
Notes not previously delivered to the Trustee for cancellation. The covenant
defeasance of the Revlon Worldwide Notes is expected to be effected on August
4, 1997, the 124th day following the Deposit.
The Issuer currently anticipates that cash flow generated from operations
will be insufficient to pay the principal amount at maturity of the Notes.
Accordingly, the Issuer currently anticipates that it will be required to
adopt one or more alternatives to pay the principal amount at maturity of the
Notes, such as refinancing its indebtedness, selling its equity securities or
the equity securities or assets of Revlon, Inc. or seeking capital
contributions or loans from its affiliates. There can be no assurance that
any of the foregoing actions could be effected on satisfactory terms, that
any of the foregoing actions would enable the Issuer to pay the principal
amount at maturity of the Notes or that any of such actions would be
permitted by the terms of the Indenture or any other debt instruments of the
Issuer and the Issuer's subsidiaries then in effect. See "Risk Factors --
Holding Company Structure; Restrictions on Ability of Subsidiaries to Pay
Dividends" and "Risk Factors -- Issuer's Ability to Pay Principal of Notes."
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to the Company during the
past three years in the United States or foreign non-hyperinflationary
countries. The Company operates in certain countries around the world, such
as Brazil, that have experienced hyperinflation in the past three years. This
hyperinflation has had a material effect on the Company's results of
operations in Brazil and may, in the future, have a material effect on
results of operations in Mexico. Mexico will be considered a
hyperinflationary economy beginning in 1997. In hyperinflationary foreign
countries, the Company attempts to mitigate the effects of inflation by
increasing prices in line with inflation, where possible, and efficiently
managing its working capital levels. See "Risk Factors -- Social, Political
and Economic Risks Affecting Foreign Operations and Effects of Foreign
Currency Fluctuations."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1997; provided, however, that if the Issuer,
in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $770,000,000 aggregate principal amount
at maturity of the Old Notes was outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about , 1997, to
all holders of Old Notes known to the Issuer. The Issuer's obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth below under "--Certain Conditions to the
Exchange Offer."
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Issuer.
Any Old Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not therefore accepted
for exchange, upon the occurrence of any of the events specified below under
"--Certain Conditions to the Exchange Offer." The Issuer will give oral or
written notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Notes as promptly as practicable, such notice in the
case of any extension to be issued by means of a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and
subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to The
Bank of New York, as Exchange Agent, at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
ISSUER.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined herein). 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 guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Old Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Old
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Issuer in its sole discretion, duly executed by,
the registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Issuer or
its counsel, be unlawful. The Issuer also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Issuer shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange must be cured within such reasonable period
of time as the Issuer shall determine. Neither the Issuer, the Exchange Agent
nor any other person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of Old Notes for exchange,
nor shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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 Issuer, proper evidence satisfactory to the Issuer of their authority to
so act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, and that neither the holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the case of a holder
that is not a broker-dealer, each such holder, by tendering, will also
represent to the Issuer that such holder is not engaged in, or intends to
engage in, a distribution of the New Notes. If any holder or any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Issuer, or is engaged in or intends to engage in or has an arrangement or
understanding with any person to participate in a distribution of such New
Notes to be acquired pursuant to the Exchange Offer, such holder or any such
other person (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old 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 New Notes. See "Plan of Distribution." 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.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Issuer will accept, promptly after the Expiration Date, all Old
Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Issuer has given oral or written notice thereof to the Exchange Agent, with
written confirmation of any oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Original Issue Discount on the New Notes will accrue
from March 5, 1997, the date of original issuance of the Old Notes. If the
Exchange Offer is not consummated by the 180th day following the Deposit Date
(or if such day is not a business day, the first business day thereafter),
interest will accrue on the Old Notes (in addition to the accrual of Original
Issue Discount) from and including such date until but excluding the date of
consummation of the Exchange Offer payable in cash semiannually in arrears on
March 15 and September 15 commencing September 15, 1997, at a rate per annum
equal to .50% of the Accreted Value of the Old Notes as of the September 15
or March 15 immediately preceding such interest payment date. Payments of
such interest, if any, on Old Notes in exchange for which the New Notes were
issued will be made to the persons who, at the close of business on March 1
or September 1 next preceding the interest payment date, are registered
holders of such Old Notes if such record date occurs prior to such exchange,
or are registered holders of the New Notes if such record date occurs on or
after the date of such exchange, even if Notes are cancelled after the record
date and on or before the interest payment date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount at maturity than the holder desired to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering
holder thereof (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of
the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Issuer (by
telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of
the person having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the principal amount of such Old Notes), and
(where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the
withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of
such certificates the withdrawing holder must also submit the serial numbers
of the particular certificates to be withdrawn and signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any
Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures
for Tendering Old Notes" above at any time on or prior to the Expiration
Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such Old Notes for exchange or the
exchange of the New Notes for such Old Notes, any of the following events
shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been issued
by, any court or governmental agency or other
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governmental regulatory or administrative agency or commission, (i) seeking
to restrain or prohibit the making or consummation of the Exchange Offer or
any other transaction contemplated by the Exchange Offer, or assessing or
seeking any damages as a result thereof, or (ii) resulting in a material
delay in the ability of the Issuer to accept for exchange or exchange some
or all of the Old Notes pursuant to the Exchange Offer; or any statute,
rule, regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of the
Issuer might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable judgment of
the Issuer, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the SEC referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer and its subsidiaries taken as a whole that, in the
reasonable judgment of the Issuer, is or may be adverse to the Issuer, or
the Issuer shall have become aware of facts that, in the reasonable judgment
of the Issuer, have or may have adverse significance with respect to the
value of the Old Notes or the New Notes;
which in the reasonable judgment of the Issuer in any case, and regardless of
the circumstances (including any action by the Issuer) giving rise to any
event described above, makes it inadvisable to proceed with the Exchange
Offer and/or with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any
such condition or may be waived by the Issuer in whole or in part at any time
and from time to time in its sole discretion. The failure by the Issuer at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
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<PAGE>
Delivery To: The Bank of New York, Exchange Agent
By Mail: By Overnight Courier or Hand:
The Bank of New York The Bank of New York
101 Barclay Street--(7 East) 101 Barclay Street--(7 East)
Reorganization Section Reorganization Section
New York, New York 10286 Corporate Trust Services Window
Attention: Arwen Gibbons New York, New York 10286
Attention: Arwen Gibbons
By Facsimile:
(212) 571-3080
Confirm by Telephone:
(212) 815-6333
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
$650,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct the Issuer to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Issuer does not
currently anticipate that it will register Old Notes under the Securities
Act. See "Description of the Notes -- Registration Rights." Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Issuer believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Issuer 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 New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate
in the distribution of such New Notes. However, the Issuer does not intend to
49
<PAGE>
request the SEC to consider, and the SEC has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is
an affiliate of the Issuer, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old 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 New Notes.
See "Plan of Distribution." In addition, to comply with the state securities
laws, the New Notes may not be offered or sold in any state unless they have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with. The offer
and sale of the New Notes to "qualified institutional buyers" (as such term
is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuer
currently does not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required
and not available.
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BUSINESS
OVERVIEW
REVLON is one of the world's best known names in cosmetics and is a
leading mass market cosmetics brand. The Company's vision is to provide
glamour, excitement and innovation through quality products at affordable
prices. To pursue this vision, the Company's management team combines the
creativity of a cosmetics and fashion company with the marketing, sales and
operating discipline of a consumer packaged goods company. The Company
believes that its global brand name recognition, product quality and
marketing experience have enabled it to create one of the strongest consumer
brand franchises in the world, with products sold in approximately 175
countries and territories. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and
ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, REVLON RESULTS, ALMAY
TIME-OFF, ULTIMA II, JEANNE GATINEAU and NATURAL HONEY in skin care; CHARLIE,
FIRE & ICE, CIARA, CHERISH and JONTUE in fragrances; FLEX, OUTRAGEOUS,
AQUAMARINE, MITCHUM, COLORSILK, JEAN NATE, BOZZANO and COLORAMA in personal
care products; and ROUX FANCI-FULL, REALISTIC, CREME OF NATURE, FERMODYL,
VOILA, COLOMER, CREATIVE NAIL DESIGN SYSTEMS and AMERICAN CREW in
professional products. To further strengthen its consumer brand franchises,
the Company markets each core brand with a distinct and uniform global image
including packaging and advertising, while retaining the flexibility to
tailor products to local and regional preferences.
Revlon, Inc. was founded by Charles Revson, who revolutionized the
cosmetics industry by introducing nail enamels matched to lipsticks in
fashion colors 65 years ago. Today, the Company has leading market positions
in many of its principal product categories in the United States self-select
distribution channel, which the Company believes is the fastest-growing
channel of distribution for cosmetics, skin care, fragrance and personal care
products. The Company's leading market positions for its REVLON brand
products include the number one positions in lip makeup and nail enamel
(which the Company has occupied for the past 20 years), and for 1996 the
number one and two selling brands of lip makeup. The Company's market share
in lip makeup and nail enamel has increased from 24.3% and 21.2%,
respectively, for 1992, to 32.6% and 24.7%, respectively, for 1996. The
Company has the number two position in face makeup (including the number one
and two selling brands of foundation), where its market share has increased
from 10.8% for 1992 to 19.1% for 1996. Propelled by the success of its new
product launches and share gains in its existing product lines, the Company
has captured the number one position overall in color cosmetics (consisting
of lip, eye and face makeup and nail enamel) in the United States self-select
distribution channel, where its market share has increased from 14.7% for
1992 to 21.4% for 1996. The Company also has leading market positions in
several product categories in certain markets outside of the United States,
including in Brazil, Canada, South Africa and Australia.
The Company believes that it is an industry leader in the development of
innovative and technologically advanced consumer and professional products.
In June 1994, the Company launched COLORSTAY lipcolor, which uses patented
transfer-resistant technology that provides long wear. COLORSTAY lip makeup
achieved a 14.5% market share in the United States self-select distribution
channel for 1996, making it the number one selling lip makeup in that
channel, with a market share of more than twice that of any competitor's
brand. The success of COLORSTAY lip makeup boosted the Company's total lip
makeup market share to more than twice the market share of the next largest
competitor. To capitalize on the highly successful launch of COLORSTAY
lipcolor, the Company introduced a collection of COLORSTAY cosmetics in 1995,
including foundation, eye colors, eye liners and lip pencils, and COLORSTAY
lashcolor mascara in 1996. COLORSTAY foundation, which was introduced late in
the third quarter of 1995, was the number one selling foundation in the
United States self-select distribution channel in 1996 and achieved a 9.3%
market share for such period. The Company has also introduced the COLORSTAY
collection in international markets, where it has increased the Company's
color cosmetics sales in such markets. The Company has applied the
proprietary transfer-resistant technology developed by the Company for
COLORSTAY to the ALMAY AMAZING collection, which is part of the Company's
line of hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and
skin care products.
In April 1994, the Company introduced REVLON AGE DEFYING foundation, which
uses proprietary technology designed to meet the needs of women in the over
35 age bracket. REVLON AGE DEFYING foundation was the number two selling
foundation in the United States self-select distribution channel for
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1996 and achieved an 8.2% market share for such period. The Company
capitalized on this highly successful launch by introducing a collection of
REVLON AGE DEFYING color cosmetics, including eye makeup, blush and pressed
powder. In the fourth quarter of 1996, the Company introduced NEW COMPLEXION
compact makeup. With the addition of NEW COMPLEXION compact makeup, NEW
COMPLEXION foundations achieved a 6.8% market share in the United States
self-select distribution channel for the fourth quarter of 1996, giving
Revlon the number one, two and three selling brands of foundation for such
period. In 1997, the Company intends to continue to introduce new products
under its COLORSTAY and REVLON AGE DEFYING brands, including a relaunching of
COLORSTAY lipcolor with a new and improved formula that delivers moisture
while retaining transfer resistance. In addition, the Company intends to
launch in the second quarter of 1997 ALMAY TIME-OFF REVITALIZER, a skin care
product which uses a proprietary technology to rejuvenate skin. In 1997, the
Company also intends to introduce new products targeted to the "trend"
consumer under its STREETWEAR brand to capitalize on the successful launch of
its STREETWEAR nail enamel in 1996.
In the United States and increasingly in international markets, the
Company's products are sold principally in the expanding self-select
distribution channel. The trend in the cosmetics, skin care and fragrance
industry has been the shift of consumer purchases from the
demonstrator-assisted channel to the self-select distribution channel. The
Company believes that it is well-positioned to continue to take advantage of
the shifting consumer shopping patterns in international markets towards the
self-select distribution channel, particularly in Western Europe, Latin
America and the Far East. The Company also is expanding its presence in the
new and emerging markets of Eastern Europe, Russia, India, China, Thailand,
Vietnam, South Korea and Africa.
The self-select distribution channel, in which consumers select their own
purchases without the assistance of an in-store demonstrator, includes in the
United States independent drug stores and chain drug stores (such as
Walgreens, CVS Drug stores, Eckerd Drug stores and Revco), mass volume
retailers (such as Wal-Mart, Target Stores and Kmart) and supermarkets and
combination supermarket/ drug stores (such as Pathmark, Albertson's, Kroger's
and Smith's). Internationally, the self-select distribution channel includes
retailers such as Boots in the United Kingdom and Western Europe and Shoppers
Drug Mart in Canada. The foregoing retailers, among others, sell the
Company's products.
BUSINESS STRATEGY
The Company's business strategy, which implements its vision and is
intended to continue to improve operating performance, is to:
o Strengthen and broaden its core brands through globalization of
marketing and advertising, product development and manufacturing and
through increasing its emphasis on advertising and promotion.
o Lead the industry in the development and introduction of
technologically advanced innovative products that set new trends.
o Expand the Company's presence in all markets in which the Company
competes and enter new and emerging markets.
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital.
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
As a result of the implementation of its strategy, the Company has
achieved 14 consecutive quarters of increased net sales, operating income and
EBITDA compared with the corresponding quarter of the prior year. Net sales,
operating income and EBITDA increased 6.1%, 4.9% and 10.6%, respectively, for
the first quarter of 1997 over the comparable period in 1996, 11.8%, 36.6%
and 26.3%, respectively, for 1996 over 1995 and increased 11.8%, 35.2% and
25.3%, respectively, for 1995 over 1994. Gross profit as a percentage of net
sales was 66.3% for the first quarter of 1997 compared with 67.1% for the
first quarter of 1996, 66.5% for 1996, compared with 66.3% for 1995 and 65.5%
for 1994. In addition, the
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Company's net loss decreased from $191.7 million for 1994 to $139.3 million
for 1995 and an Adjusted 1996 Net Loss of $86.6 million for 1996 and
decreased from an Adjusted 1996 Net Loss of $55.4 million in the first
quarter of 1996 to an Adjusted 1997 Net Loss of $54.9 million in the first
quarter of 1997. The Company has also reduced the relative amount of working
capital necessary to support net sales. The ratio of average quarterly
combined inventory and accounts receivable balances to net sales was 32.2%
for the first quarter of 1997 compared with 33.1% for the comparable period
in 1996, and 32.3% for 1996 compared with 33.2% for 1995 and 34.9% for 1994.
The Company has increased its investment in advertising and consumer directed
promotion while decreasing its SG&A expenses as a percentage of net sales to
61.7% for the first quarter of 1997 compared with 63.6% for the comparable
period in 1996, and 57.3% for 1996 compared with 58.8% for 1995 and 59.3% for
1994.
Key steps in implementing the Company's business strategy are as follows:
Strengthen and Broaden Core Brands. The Company believes that its brand
names are widely recognized among consumers and retailers throughout the
world. The Company intends to continue to strengthen and broaden its
portfolio of core brands, including REVLON, COLORSTAY, REVLON AGE DEFYING,
ALMAY, ULTIMA II, CHARLIE, FLEX, OUTRAGEOUS and MITCHUM, by, among other
things, continuing to globalize its marketing and advertising, product
development and manufacturing to provide a uniform image and product
throughout the world. Each core brand is marketed with a distinct and uniform
global image, including packaging and advertising. The Company has formed
Global Marketing Committees, consisting of managers from the Company's
marketing, research and development, operations, advertising and finance
departments from the United States and abroad, which develop strategies for
the Company's current and new brands and products. The Global Marketing
Committees coordinate the Company's globalization efforts while allowing
sufficient flexibility to tailor the Company's products to local and regional
preferences. As part of the Company's globalizing efforts, major United
States product successes, such as COLORSTAY and REVLON AGE DEFYING, are
introduced into international markets, and major international product
successes, such as CHARLIE RED and CHARLIE WHITE, are introduced into the
United States.
As part of the strategy to strengthen and broaden its core brands, the
Company has increased its investment in advertising and promotion. The
Company increased advertising expenditures by 17.3% for 1996 over 1995 levels
and by 26.2% for 1995 over 1994 levels. In 1997, the Company intends to
increase its advertising expenditures over 1996 levels. The Company intends
to target the increased advertising and promotion to support new product
introductions as well as certain of the Company's existing brands. The
Company also has developed unique marketing materials such as the "Revlon
Report," a glossy color pamphlet distributed in magazines and on
merchandising units, available in 30 countries and 16 languages, which
highlights seasonal and other fashion and color trends, describes the
Company's products that address those trends and contains coupons, rebate
offers and other promotional material to encourage consumers to try the
Company's products. The Company has created two Color Mobiles, which are
on-the-road beauty sampling and information vehicles patterned on the
innovative vehicles that launched COLORSTAY lipstick, that travel to major
retailers in the United States, at which Company trainers educate consumers
on the COLORSTAY and REVLON AGE DEFYING collections and the latest product
and shade offerings. In addition, the uniform global image of the Company's
core brands is reinforced through the visibility of Halle Berry, Cindy
Crawford, Daisy Fuentes, Melanie Griffith and Vendela, among others, who act
as celebrity spokespersons for the Company's brands throughout the world in
all areas of the Company's marketing efforts, including appearing in the
Company's print and television advertisements.
Lead the Industry in Product Innovation and Trends. The Company intends to
continue to lead the industry in developing and marketing trend-setting
products that incorporate proprietary technologies. The Company's recent
product introductions include the breakthrough COLORSTAY makeup, which uses
proprietary transfer-resistant technology that provides long wear. COLORSTAY
has effectively created an entirely new product category -long wearing,
transfer-resistant lip makeup -that has driven substantially all growth in
lip makeup sales in the United States self-select distribution channel since
its introduction. In 1996, a number of the Company's competitors began
producing long wearing, transfer-resistant lipcolor. In the first quarter of
1997, the Company relaunched COLORSTAY lipcolor with
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a new and improved formula that delivers moisture while retaining transfer
resistance. Launched in June 1994, COLORSTAY achieved a 13.6% and 14.5%
market share in the United States self-select distribution channel for 1995
and 1996, respectively, making it the number one selling lip makeup in that
channel, with a market share of more than twice that of any competitor's
brand. The success of COLORSTAY lip makeup boosted the Company's total lip
makeup market share to 32.6%, more than twice the market share of the next
largest competitor. To capitalize on the highly successful launch of
COLORSTAY lipcolor, the Company introduced a collection of COLORSTAY
cosmetics, including foundation, eye colors, eye liners and lip pencils,
which address consumers' desire for cosmetic products that can be applied
once and will remain fresh during the entire day, and introduced COLORSTAY
lashcolor mascara in 1996. COLORSTAY foundation, which was introduced late in
the third quarter of 1995, was the number one selling foundation in the
United States self-select distribution channel in 1996 and achieved a 9.3%
market share for that period. The Company introduced REVLON AGE DEFYING
foundation which uses proprietary technology that does not settle in but
instead conceals fine facial lines and is designed to meet the needs of women
in the over 35 age bracket. Launched in April 1994, REVLON AGE DEFYING
foundation achieved an 8.2% market share in the United States self-select
distribution channel for 1996, making it the number two selling foundation in
that channel. The Company capitalized on this highly successful launch by
introducing a collection of REVLON AGE DEFYING color cosmetics, including eye
makeup, blush and pressed powder. The Company has introduced new fragrances,
such as FIRE & ICE and CHARLIE RED in 1994 followed by CHARLIE WHITE in 1995.
The launch of CHARLIE RED and CHARLIE WHITE returned the CHARLIE fragrance
collection to a leading position in market share in the self-select
distribution channel in the United States. In addition, the Company launched
the new fragrance CHERISH in 1996 and the new fragrances FIRE & ICE COOL,
CHARLIE SUNSHINE and STREETWEAR SCENTS in the first quarter of 1997. Other
innovative product introductions include MITCHUM CLEAR roll-on
anti-perspirant and NEW COMPLEXION compact makeup. In the second quarter of
1997, the Company introduced ALMAY TIME-OFF REVITALIZER, a skin care product
which uses a proprietary technology to visibly rejuvenate skin. In 1997, the
Company intends also to introduce new products targeted to the "trend"
consumer under its STREETWEAR brand to capitalize on the successful launch of
its STREETWEAR nail enamel in 1996.
Expand Presence in All Markets. The Company believes that the self-select
distribution channel in the United States represents the fastest-growing
channel of distribution for cosmetics, skin care, fragrance and personal care
products. The Company intends to capitalize on its established presence and
experience in marketing into the self-select distribution channel to increase
market share in this channel. The Company believes that it can attract
consumers from department stores and specialty stores, existing consumers in
the self-select distribution channel and new cosmetics consumers by providing
them with glamour, excitement and innovation through quality products at
affordable prices. The Company reinforces this effort with its unique
marketing materials such as the "Revlon Report"; the Color Mobiles, which
create consumer and retail excitement about the Company's new products and
encourage trial and purchase by consumers; and magazine inserts containing
samples of the Company's newest products, trial size products and "shade
samplers," a collection of trial size products in different shades, which
allow the consumer to sample the Company's newest face, eye and lip makeup
and nail enamel in coordinated colors. The Company also provides
point-of-sale testers on the Company's display units which provide
information about the Company's products and permit consumers to test the
products, thereby achieving the benefits of an in-store demonstrator without
the corresponding cost. The Company develops jointly with retailers carefully
tailored advertising, point of purchase and other focused marketing programs.
The Company believes that strong relationships with retailers and consumer
traffic generated by its innovative marketing programs will enable the
Company to increase its presence in the expanding self-select distribution
channel by, among other things, increasing the permanent display space
devoted to the Company's products.
The Company intends to capitalize on its experience in the self-select
distribution channel in the United States to realize growth opportunities in
the international markets for cosmetics and skin care, fragrance and personal
care products. The Company believes that the worldwide recognition of the
REVLON name, the Company's existing international presence and the Company's
strengths in the self-select distribution channel are platforms from which to
gain further significant international penetration. Pursuant to its strategy,
the Company introduced the COLORSTAY collection in international
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markets and as a result increased its color cosmetics sales in such markets.
In addition, the Company intends to achieve growth through increasing
distribution into the expanding self-select distribution channels in Western
Europe, Latin America and the Far East, expanding the distribution of certain
regional international brands and entering new and emerging markets. Such new
and emerging markets include Eastern Europe; Thailand; South Korea; Vietnam;
India; and China; and northern and central Africa, where the Company intends
to expand the distribution of its products by capitalizing on its market
strengths in South Africa.
The Company intends to strengthen its professional products business by
introducing a portfolio of innovative, technologically advanced professional
products for exclusive salon use under the REVLON brand, such as
REVLONISSIMO, VOILA hair color and PERFECT PERM permanent wave and line
extensions of the SYNAPLEX, FERMODYL and SENSOR PERM brands. The Company has
strengthened its exclusive line professional distributor network and intends
to capitalize on this strength to develop a line of home use maintenance
products for purchase in salons. The Company will also further strengthen its
leadership position in the supply of professional and retail ethnic hair care
products through, among other things, the introduction of new products
tailored to the specific needs of the ethnic customer, such as the HERBA RICH
hair relaxer system and the AROSCI line of hair care products. The Company
has recently entered the new markets of Scandinavia, South Korea, Japan,
Turkey and Greece. In addition, the Company intends to expand its presence in
existing markets, such as the Caribbean, United Kingdom and Africa. In
Africa, the Company has established distributors with direct sales forces.
As part of its business strategy, the Company acquired in 1995 Creative
Nail, a leading United States designer, manufacturer and supplier of nail
care and other products, including nail care treatment, nail extensions and
hand creams and lotions for the professional nail industry. In April 1996,
the Company acquired American Crew, Inc. ("American Crew"), which
manufactures and distributes men's shampoos, conditioners, gels and other
hair care products for use and resale by professional salons. The Company
believes that these acquisitions have broadened the Company's professional
products range and enhanced its distribution capabilities.
Improve Operating Efficiencies. The Company is rationalizing and
increasing the efficiency of its manufacturing operations worldwide by
centralizing production of some product categories for sale throughout the
world within designated facilities and by shifting production of certain
other product categories to more cost effective manufacturing sites. The
Company is making substantial improvements in its global sourcing, materials
management and distribution capabilities, which have contributed to an
improvement in the Company's gross profit margin. The Company intends to
continue to globally source raw materials and components from accredited
vendors, which allows the Company to utilize its large purchasing capacity to
maximize cost savings and ensure the quality of its raw materials and
components. The Company continues to upgrade its management information
systems to provide an integrated system for forecasting, production,
inventory management, distribution, procurement and accounting. As part of
its efforts to continuously improve operating efficiencies, the Company
attempts to ensure that a significant portion of its capital expenditures are
devoted to improving operating efficiencies. Improvements in manufacturing,
sourcing and systems have contributed to improved customer service levels,
improved product quality, an increase in gross profit as a percentage of net
sales and improved management of working capital, as evidenced by the
reduction in the relative amount of working capital necessary to support the
Company's net sales. Gross profit as a percentage of net sales was 66.5% for
1996 compared with 66.3% for 1995 and 65.5% for 1994. The ratio of average
quarterly combined inventory and accounts receivable balances to net sales
was 32.3% for 1996 compared with 33.2% for 1995 and 34.9% for 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company also measures the improvement in operating
performance by tracking key performance indicators, such as the percentage of
timely order fulfillment which was approximately 99% for the Company's major
United States facilities in 1996.
Strategic Acquisitions. The Company intends to pursue acquisitions of
brands and businesses which expand the Company's market share and product
lines.
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PRODUCTS
The Company's products include consumer products consisting of cosmetics
and skin care, fragrance and personal care products, and professional
products consisting of hair care products principally for use in and resale
by professional salons. The Company manufactures and markets a variety of
products worldwide. The following table sets forth the Company's principal
brands.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PERSONAL CARE PROFESSIONAL
BRAND COSMETICS SKIN CARE FRAGRANCES PRODUCTS PRODUCTS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVLON Revlon, ColorStay, Moon Drops, Revlon Charlie, Charlie Flex, Flex Balsam, Revlon Professional,
Revlon Age Defying, Results, Eterna 27 Red, Charlie White, Outrageous, Roux Fanci-full,
Super Lustrous, Moon Charlie Sunshine, Aquamarine, Mitchum, Realistic, Creme of
Drops, Velvet Touch, Fire & Ice, Fire & Lady Mitchum, Hi & Nature, Arosci, Sensor
New Complexion, Touch Ice Cool, Cherish, Dri, Colorsilk, Frost Perm, Perfect Perm,
& Glow, Lashful, Lasting, Jontue, & Glow, Revlon Fermodyl, Perfect
Lengthwise, Naturally StreetWear Scents, Shadings, Jean Nate, Touch, Salon
Glamorous, Custom Ciara Roux Fanci-full, Perfection,
Eyes, Softstroke Realistic, Creme of Revlonissimo, Voil|fa,
Timeliner, Nature, Herba Rich, Young Color, Creative
StreetWear, Revlon Fabu-laxer Nail Design Systems,
Implements Contours, American
Crew,
R PRO,
True Cystem
ALMAY Almay, Time-Off, Time-Off, Moisture Almay
Almay Clear Balance, Moisture
Complexion Makeup, Renew, Almay Clear
Amazing, One Coat Complexion Treatment,
ULTIMA II Ultima II, Ultima II, Madly, UII
Wonderwear, The Interactives, CHR
Nakeds
SIGNIFICANT Colorama(b), Jeanne Gatineau(b), Floid(b), Bozzano(b), Colomer(b),
REGIONAL Juvena(b), Natural Honey Versace(a), Juvena(b), Intercosmo(b),
BRANDS Jeanne Gatineau(b) Charlie Gold, Geniol(b), Personal Bio Point,
Myrurgia(a) Colorama(b), Natural Wonder,
Llongueras(b), Llongueras(b)
Bain de Soleil(b),
ZP-11
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) License held for distribution outside the United States.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics and
skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and
face makeup and skin care products such as lotions, cleansers, creams, toners
and moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
The Company markets several different lines of REVLON lip makeup (which
includes lipstick, lipcolor and liner), and has the number one and two
selling brands of lip makeup in the United States self-select distribution
channel. The Company's breakthrough COLORSTAY lipcolor, which uses patented
transfer-resistant technology that provides long wear, is produced in 40
shades and is the number one brand in the United States self-select
distribution channel. SUPER LUSTROUS, the Company's flagship lipstick brand,
is produced in 57 shades and is the number two brand in the United States
self-select distribution channel. MOON DROPS, a moisturizing lipstick, is
also produced in 57 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel
is produced in 85 shades and uses a patented formula that provides consumers
with improved wear, application, shine and gloss in a toluene-free and
formaldehyde-free formula. REVLON nail enamel is the number one brand in the
United States self-select distribution channel. STREETWEAR nail enamel
launched in August 1996 is produced in 19 shades targeted
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at the "trend" consumer. STRONG WEAR is a patented strengthening nail enamel
formula produced in 19 shades, which contains ingredients that provide
protection against splitting, chipping and breaking. The Company sells nail
strengtheners, hardeners and fortifiers and quick dry nail products,
including CALCIUM GEL NAIL BUILDER strengthener and TOP SPEED quick dry base
coat and top coat.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted to women in the over 35 age bracket; COLORSTAY foundation,
introduced late in the third quarter of 1995, which uses proprietary
transfer-resistant technology that provides long wear; and NEW COMPLEXION,
for consumers in the 25 to 49 age bracket. COLORSTAY foundation was the
number one selling foundation in the United States self-select distribution
channel in 1996. REVLON AGE DEFYING was the number two foundation in the
United States self-select distribution channel for 1996. The Company was
number two in sales of face makeup in the United States self-select
distribution channel with a 19.1% share for 1996.
The Company's eye makeup products include mascaras, eye shadows and
liners. COLORSTAY Eyecolor, COLORSTAY lashcolor mascara, LASHFUL and
LENGTHWISE mascaras, SOFTSTROKE eyeliners and CUSTOM EYES and OVERTIME SHADOW
eye shadows are targeted towards women in the 18 to 49 age bracket, and
REVLON AGE DEFYING eye color is targeted to women over 35. For 1996, the
Company had a 12.7% market share in eye makeup for the United States
self-select distribution channel.
The Company's ALMAY brand consists of a complete line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skin care products
targeted to consumers who want "healthy looking skin." The Company positions
the ALMAY brand as the clean, natural and healthy choice. ALMAY products
include lip makeup, nail color and nail care products, eye and face makeup,
skin care products, and sunscreen lotions and creams, including TIME-OFF skin
care and makeup, the AMAZING collection, which uses long wear
transfer-resistant technology and includes AMAZING LASH mascara, ALMAY
AMAZING eye makeup, ALMAY AMAZING LASTING makeup and ALMAY CLEAR COMPLEXION
MAKEUP and TREATMENT and ALMAY EASY-TO-WEAR eyecolor and ONE COAT mascara.
The Company targets ALMAY to value conscious consumers by offering benefits
equal or superior to higher priced products, such as Clinique, at affordable
prices. ALMAY is the leading brand in the hypo-allergenic market in the
United States self-select distribution channel. The Company launched in the
second quarter of 1997 ALMAY TIME-OFF REVITALIZER, a skin care product which
uses a proprietary technology to visibly rejuvenate skin.
The Company sells implements which include nail and eye grooming tools
such as clippers, scissors, files, tweezers and eye lash curlers. The
Company's implements are sold individually and in sets under the REVLON brand
name and are the number one brand in the United States self-select
distribution channel with a market share of 36.4% for 1996, which is more
than two times that of the next largest competitor.
The Company also sells cosmetics in international markets under regional
brand names including COLORAMA, which is the top selling popular priced
cosmetics line in Brazil, and JUVENA.
The Company's skin care products, including moisturizers, are sold under
the brand names ETERNA 27, MOON DROPS and REVLON RESULTS. In addition, the
Company sells skin care products in international markets under
internationally recognized brand names and under regional brands, including
NATURAL HONEY.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, the Company's flagship premium priced brand
sold throughout the world, and the JEANNE GATINEAU brand name, which is sold
outside the United States. The ULTIMA II line includes the WONDERWEAR
collection, which includes a long wearing foundation that uses proprietary
technology, cheek and eyecolor products that use patented technology and
WONDERWEAR LIPSEXXXY lipstick, which uses patented transfer-resistant
technology that provides long wear, and THE NAKEDS makeup, a trend-setting
line of makeup emphasizing neutral colors.
Fragrances. The Company sells a selection of moderately priced and premium
priced fragrances, including perfumes, eau de toilettes and colognes. The
Company's portfolio includes fragrances such as CHARLIE, FIRE & ICE, JONTUE,
and CIARA; highly successful line extensions such as CHARLIE RED and CHARLIE
WHITE and new additions such as CHERISH, CHARLIE SUNSHINE, FIRE & ICE COOL
and STREETWEAR SCENTS. The Company's CHARLIE fragrance has been a market
leader since the mid-1970's and, the
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Company believes, one of the top selling fragrances worldwide. CHARLIE
fragrances are currently the number two women's fragrance collection in the
United States self-select distribution channel. In international markets, the
Company distributes under license certain brands including VERSACE, VAN GILS
and MYRURGIA.
Personal Care Products. The Company sells a broad line of personal care
consumer products which complements its core cosmetics lines and enables the
Company to meet the consumer's broader beauty care needs. In the self-select
distribution channel, the Company sells haircare, anti-perspirant and other
personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE
haircare lines throughout the world and the COLORAMA, JUVENA, LLONGUERAS and
NATURAL HONEY brands outside the United States; the COLORSILK, REVLON
SHADINGS, FROST & GLOW and ROUX FANCI-FULL hair coloring lines in the United
States; and the MITCHUM, LADY MITCHUM and HI & DRI anti-perspirant brands
throughout the world. Certain hair care products, including ROUX FANCI-FULL
hair coloring and PERFECT TOUCH and SALON PERFECTION home permanents, were
originally developed for professional use. The Company also markets
hypo-allergenic personal care products, including sunscreens, moisturizers
and anti-perspirants, under the ALMAY brand.
Professional Products. The Company sells a comprehensive line of salon
products, including permanent wave preparations, hair relaxers, temporary and
permanent hair coloring products, shampoos, conditioners, styling products
and hair conditioners, to professional salons and beauty supply stores under
the REVLON brand as well as other brand names such as ROUX FANCI-FULL,
REALISTIC, FERMODYL, VOIL|fa, REVLONISSIMO, CREME OF NATURE, COLOMER,
FABULAXER, LOTTABODY, NATURAL WONDER, SENSOR and INTERCOSMO. Most of the
Company's salon products in the United States currently are distributed in
the non-exclusive distribution channels, in contrast to those products that
are distributed exclusively to professional salons. The Company is developing
several new, exclusive salon lines, the first of which, VOILA, was introduced
in 1995. R PRO, launched in 1996, is a professionally targeted cosmetic line
being distributed through open line channels. Through Creative Nail, which
was acquired in November 1995, the Company sells nail enhancement systems and
nail color and treatment products and services for use by the professional
salon industry under the brand name of CREATIVE NAIL DESIGN SYSTEMS. Through
American Crew, which was acquired in April 1996, the Company sells men's
shampoos, conditioners, gels, and other hair care products for use by
professional salons under the brand name of AMERICAN CREW. The Company also
sells retail hair care products under the LLONGUERAS, PERSONAL BIO POINT,
GENIOL, FIXPRAY and LANOFIL brands outside the United States. The Company
markets in salons, beauty supply stores and the self-select distribution
channel several lines of hair relaxers, styling products, hair conditioners
and other hair care products under such names as FABU-LAXER and CREME OF
NATURE designed for the particular needs of ethnic consumers. The Company has
also developed a new exclusive line of ethnic products, AROSCI, which was
successfully launched in 1996. The Company also sells wigs and hair pieces to
retail outlets and certain professional salons under the REVLON brand and,
pursuant to a license, under the ADOLFO brand.
MARKET SHARE
The Company has leading market positions for its REVLON brand products in
many of its principal product categories in the United States self-select
distribution channel, including the number one position in lip makeup and
nail enamel (which the Company has occupied for the past 20 years), and for
1996 the number one and two selling brands of lip makeup. The Company's
market share in lip makeup and nail enamel has increased from 24.3% and
21.2%, respectively, for 1992, to 32.6% and 24.7%, respectively, for 1996.
The Company has the number two position in face makeup (including the number
one and two selling brands of foundation), where its market share has
increased from 10.8% for 1992 to 19.1% for 1996. Propelled by the success of
its new product launches and share gains in its existing product lines, the
Company has captured the number one position overall in color cosmetics
(consisting of lip, eye and face makeup and nail enamel) in the United States
self-select distribution channel, where its market share has increased from
14.7% for 1992 to 21.4% for 1996.
The trend in the cosmetics and skin care and fragrance industry has been
the shift of consumer purchases from department and specialty stores
(demonstrator-assisted distribution channels) to the self-select distribution
channel. The Company anticipated this trend and shifted its distribution
accordingly.
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The market for color cosmetics in the United States self-select
distribution channel was approximately $2.6 billion in 1996. The Company's
REVLON brand had the number one position in color cosmetics in 1996 and its
market share for 1994, 1995 and 1996 is as follows:
COLOR COSMETICS
[GRAPHIC OMITTED]
The market for lip makeup in the United States self-select distribution
channel was approximately $689.0 million in 1996. The Company's REVLON brand
had the number one position in lip makeup in 1996 and its market share for
1994, 1995 and 1996 is as follows:
LIP MAKEUP
[GRAPHIC OMITTED]
The market for nail enamel in the United States self-select distribution
channel was approximately $285.3 million in 1996. The Company's REVLON brand
had the number one position in nail enamel in 1996 and its market share for
1994, 1995 and 1996 is as follows:
NAIL ENAMEL
[GRAPHIC OMITTED]
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The market for face makeup (which includes foundation) in the United
States self-select distribution channel was approximately $916.6 million in
1996. The Company's REVLON brand had the number two position in face makeup
in 1996 and its market share for 1994, 1995 and 1996 is as follows:
FACE MAKEUP
[GRAPHIC OMITTED]
The market for foundation in the United States self-select distribution
channel was approximately $467.8 million in 1996. The Company's REVLON brand
had the number two position in foundation in 1996 and its market share for
1994, 1995 and 1996 is as follows:
FOUNDATION
[GRAPHIC OMITTED]
The market for eye makeup in the United States self-select distribution
channel was approximately $760.1 million in 1996. The Company's REVLON brand
had the number three position in eye makeup in 1996 and its market share for
1994, 1995 and 1996 is as follows:
EYE MAKEUP
[GRAPHIC OMITTED]
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The Company's growth in retail sales in the United States self-select
distribution channel for all of its color cosmetics and for its lip makeup,
face makeup, nail enamel and eye makeup compared with the overall growth in
retail sales in such product categories for 1996, compared with 1995, is as
follows:
GROWTH IN REVLON BRAND RETAIL SALES VERSUS CATEGORY
[GRAPHIC OMITTED]
The market for implements in the United States self-select distribution
channel was approximately $215.3 million in 1996. The Company's REVLON brand
had the number one position in implements in 1996 and its market share for
1994, 1995 and 1996 is as follows:
IMPLEMENTS
[GRAPHIC OMITTED]
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ALMAY is the leading brand in color cosmetics in the hypo-allergenic
market in the United States self-select distribution channel. The ALMAY brand
was the number five brand in the overall color cosmetics market in the United
States self-select distribution channel for 1996 with a 6.0% market share.
MARKETING
The Company's vision is to provide glamour, excitement and innovation
through quality products at affordable prices. The Company's marketing
efforts are designed to implement this vision. The Company has formed Global
Marketing Committees, consisting of managers from the Company's marketing,
research and development, operations, advertising and finance departments
from the United States and abroad, which develop strategies for the Company's
current and new brands and products. The Global Marketing Committees
coordinate the Company's globalization efforts while allowing sufficient
flexibility to tailor the Company's products to local and regional
preferences.
Consumer Products. The Company markets extensive consumer product lines at
a range of retail prices primarily through the self-select distribution
channel and markets select premium lines through demonstrator-assisted
channels. Each line is distinctively positioned and is marketed globally with
consistently recognizable logos, packaging and advertising designed to
differentiate it from other brands. The Company's existing consumer product
lines are carefully segmented, and new product lines are developed, to target
specific consumer needs as measured by focus groups and other market research
techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company has shifted a
significant portion of its marketing to appeal to a broader audience and has
increased media advertising, particularly national television advertising.
The Company increased advertising expenditures by 17.3% for 1996 over 1995
levels and by 26.2% for 1995 over 1994 levels. In 1997, the Company intends
to increase its advertising expenditures over 1996 levels. The Company's
marketing emphasizes a uniform global image and product for its portfolio of
core brands, including REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY, ULTIMA
II, FLEX, CHARLIE, OUTRAGEOUS and MITCHUM. The Company coordinates
advertising campaigns with in-store promotional and other marketing
activities. The Company develops jointly with retailers carefully tailored
advertising, point-of-purchase and other focused marketing programs. The
Company has devoted greater resources to promotional sales of its permanent
line of products and reduced the number of promotional sales of non-recurring
products, which historically have had a higher cost of sales and resulted in
larger sales returns. In addition, Halle Berry, Cindy Crawford, Daisy
Fuentes, Melanie Griffith and Vendela, among others, act as celebrity
spokespersons for the Company's brands throughout the world in all areas of
the Company's marketing efforts, including appearing in the Company's print
and television advertising. The visibility of such spokespersons reinforces
the global image of the Company's core brands. In the self-select
distribution channel, the Company uses network and spot television
advertising, national cable advertising and print advertising in major
general interest, women's fashion and women's service magazines, as well as
coupons, magazine inserts and point-of-sale testers. In the
demonstrator-assisted distribution channel, the Company principally uses
cooperative advertising programs with retailers, supported by Company-paid or
Company-subsidized demonstrators and coordinated in-store promotions and
displays.
The Company also has developed unique marketing materials such as the
"Revlon Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in 30 countries and 16 languages, which
highlights seasonal and other fashion and color trends, describes the
Company's products that address those trends and contains coupons, rebate
offers and other promotional material to encourage consumers to try the
Company's products. The Company has created two Color Mobiles, which are
on-the-road beauty sampling and information vehicles patterned on the
innovative vehicles that launched COLORSTAY lipcolor, that travel to major
retailers in the United States, at which Company trainers educate consumers
on the COLORSTAY and REVLON AGE DEFYING collections and the latest product
and shade offerings. The Color Mobiles create consumer and retail excitement
about the Company's new products and encourage trial and purchase by
consumers. Other marketing materials designed to introduce the Company's
newest products to consumers and encourage trial and
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purchase include point-of-sale testers on the Company's display units that
provide information about the Company's products and permit consumers to test
the products, thereby achieving the benefits of an in-store demonstrator
without the corresponding cost, magazine inserts containing samples of the
Company's newest products, trial size products and "shade samplers," which
are collections of trial size products in different shades. Additionally, the
Company has its own website which features current product and promotional
information.
Professional Products. Professional products are marketed through
educational seminars on their application and benefits and advertising,
displays and samples to communicate to professionals and consumers the
quality and performance characteristics of such products. The shift to
exclusive line distributors will significantly reinforce the Company's
marketing and educational efforts with salon professionals. The Company
believes that its presence in the professional markets benefits its consumer
products business since the Company is able to anticipate consumer trends in
hair, nail and skin care which often appear first in salons.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and technologically-advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's Advanced Concept Group consists of a select group of researchers
that conducts research on a wide range of areas to develop new and innovative
technology. The Company independently develops substantially all of its new
products. The Company also has entered into joint research projects with
major university and commercial laboratories to develop advanced
technologies.
The Company believes that its Edison, New Jersey facility is one of the
most extensive cosmetics research and development facilities in the United
States. The Edison facility is responsible for all new product research
worldwide. The Edison facility performs research for new products, ideas,
concepts and packaging. Research and development for consumer products is
also conducted at manufacturing facilities in Brazil. Research and
development for professional products is conducted principally at the Edison
facility.
The research and development group at the Edison facility performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
In certain instances, proprietary technology developed for use in products
and packaging is available for licensing to third parties. The Company
received the Innovation Award from the Coalition of NorthEast Governors
("CONEG") for its ENVIROGLUV glass decorating technology (which resulted in
significant cost reductions in decorating REVLON AGE DEFYING and COLORSTAY
makeup bottles and REVLON nail enamel bottles in 1996 and which is being
offered for licensing to qualified glass decorators). The CONEG challenge
awards program is a nationwide competition to publicly recognize companies
which make significant contributions to environmental issues relating to
packaging and source reduction.
As of December 31, 1996, the Company employed approximately 200 people in
its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 1996, 1995 and 1994, the Company spent
approximately $26.3 million, $22.3 million and $19.7 million, respectively,
on research and development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is rationalizing its worldwide manufacturing operations which
is intended to lower costs and improve customer service and product quality.
The globalization of the Company's core brands allows it to centralize
production of some product categories for sale throughout the world within
designated facilities and shift production of certain other product
categories to more cost effective
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manufacturing sites to reduce production costs. Shifts of production may
result in the closing of certain of the Company's less significant
manufacturing facilities, and the Company continually reviews its needs in
this regard. In addition, as part of its efforts to continuously improve
operating efficiencies, the Company attempts to ensure that a significant
portion of its capital expenditures are devoted to improving operating
efficiencies.
In the United States, the Company manufactures REVLON brand color
cosmetics, personal care products and fragrances for sale in the United
States, Japan and most of the countries in Latin America and Southeast Asia
at its Phoenix, Arizona facility. The Company manufactures ULTIMA II
cosmetics and skin treatment products for sale in the United States and most
of the countries in Latin America and Southeast Asia, personal care products
for sale in the United States and ALMAY brand products for sale throughout
the world at its Oxford, North Carolina facility. Nail care and other
implements for sale throughout the world are manufactured at the Company's
Irvington, New Jersey facility and Vista, California facility. The Company
manufactures salon and retail professional products and personal care
consumer products for sale in the United States and Canada at the Company's
Jacksonville, Florida facility. The Phoenix facility has been ISO-9002
certified. ISO-9002 certification is an internationally recognized standard
for manufacturing facilities, which signifies that the manufacturing facility
has achieved and maintains certain performance and quality commitment
standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of the countries of Europe at its Maesteg, South
Wales facility. Local production of cosmetics and personal care products
takes place at the Company's facilities in Spain, Canada, Venezuela, Mexico,
New Zealand, Brazil, Australia and South Africa. The manufacture of
professional products for sale by retailers outside the United States has
been centralized principally at the Company's facilities in Ireland, Spain
and Italy. Production of color cosmetics for Japan and Mexico has been
shifted to the United States while production of personal care products for
Argentina has been centralized in Brazil. The Maestag facility has been
certified by the British equivalent of ISO-9002.
The Company purchases raw materials and components throughout the world.
The Company continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not
anticipate any significant shortages of, or difficulty in obtaining, such
materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment at the Company's
manufacturing sites in Oxford, North Carolina, Phoenix, Arizona, Irvington,
New Jersey and Maesteg, South Wales, and the timeliness and accuracy of new
product and promotion deliveries. The Company measures the improvement in
operating performance by tracking key performance indicators, such as the
percentage of timely order fulfillment which was approximately 99% for the
Company's major United States facilities in 1996. To promote the Company's
understanding of and responsiveness to the needs of its retail customers, the
Company assigns members of senior operations management to lead
inter-departmental teams that visit significant accounts, and has provided
retail accounts with a designated customer service representative. As a
result of these efforts, accompanied by stronger and more customer-focused
management, the Company has developed strong relationships with its
retailers.
The Company emphasizes safety and increased training of employees
resulting in an improved safety record. The Company anticipates that the
globalization of, and continued improvement in, the quality of its
manufacturing operations will result in lower manufacturing costs.
BUSINESS PROCESS ENHANCEMENTS
The Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business. The
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Company's expenditures on improvements to its management information systems
were approximately $13 million for 1996. The Company intends to continue to
upgrade management information systems in 1997. The Company's expenditures on
improvements to its management information systems are anticipated to be
approximately $10 million for 1997. Systems improvements have been and the
Company anticipates that they will continue to be instrumental in
contributing to the reduction of the time from order entry to shipment,
improved forecasting of demand and improved operating efficiencies.
DISTRIBUTION
As a result of its improved customer service and consumer traffic
generated by its products and innovative marketing programs, the Company
believes that its relationships with self-select distribution cosmetic
retailers are the best in the cosmetics industry. The Company's products are
sold in approximately 175 countries and territories. The Company's worldwide
sales force had approximately 2,100 people as of December 31, 1996, including
a dedicated sales force for cosmetics, skin care and fragrance products in
the self-select distribution channel, for the demonstrator-assisted
distribution channel, for personal care products distribution and for salon
distribution. In addition, the Company utilizes sales representatives and
independent distributors to serve specialized markets and related
distribution channels.
United States. The United States operation's net sales accounted for
approximately 58.0% of the Company's 1996 net sales. Of these net sales,
approximately 86% were made in the self-select distribution channel. However,
the Company intends to use premium products such as ULTIMA II to maintain its
presence in the demonstrator-assisted distribution channel. The Company also
sells a broad range of consumer and retail professional products to United
States Government military exchanges and commissaries. The Company licenses
its trademarks to select manufacturers for products that the Company believes
have the potential to extend the Company's brand names and image. As of
December 31, 1996, 19 licenses were in effect relating to 23 product
categories to be marketed in the self-select distribution channel. Pursuant
to the licenses, the Company retains strict control over product design and
development, product quality, advertising and use of its trademarks. These
licensing arrangements offer opportunities for the Company to generate
revenues and cash flow through earned royalties, royalty advances and, in
some cases, up-front licensing fees. Products designed for professional use
or resale by beauty salons are sold through wholesale beauty supply
distributors and directly to professional salons. Various hair care products,
such as ethnic hair relaxers, scalp conditioners, shampoos and hair coloring
products and wigs and hairpieces are sold directly and through wholesalers to
chain drug stores and mass volume retailers. Wigs and hairpieces are also
sold through mail order direct marketing, retail outlet malls, salons and
certain department stores.
The Company also operates retail stores through Cosmetic Center and
Prestige Fragrance & Cosmetics, divisions of The Cosmetic Center, Inc.
("Cosmetic Center Inc."). See "--Cosmetic Center Merger." Cosmetic Center
consists of 68 specialty retail stores in the middle Atlantic region and in
Chicago, which offer a broad range of brand name prestige and mass
merchandised cosmetics products at value prices. Prestige Fragrance &
Cosmetics consists of 195 retail outlet stores throughout the United States
in factory outlet malls, rural areas and other similar locations that are not
disruptive to the Company's principal distribution channels. In these stores,
the Company sells its first quality, first quality excess, returned and
refurbished, and discontinued consumer products and retail professional
products, as well as similar products of competing cosmetics companies.
International. The International operation's net sales accounted for
approximately 42.0% of the Company's 1996 net sales. The International
operation's ten largest countries in terms of these sales, which include
Brazil, Japan, the United Kingdom, Australia, South Africa, Canada and Spain
accounted for approximately 30.7% of the Company's net sales in 1996, with
Brazil accounting for approximately 6.1% of the Company's net sales. The
International operation is increasing distribution through the expanding
self-select distribution channels outside the United States, such as drug
stores/chemists, hypermarkets/mass volume retailers and variety stores, as
these channels gain importance. The International operation also distributes
through department stores and specialty stores such as perfumeries. The
International operation's professional products are sold directly to beauty
salons by the
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Company's direct sales force in Spain, France, Germany, Portugal, Italy,
Mexico and Ireland and through distributors in other countries. The Company
actively sells its products through wholly owned subsidiaries in 27 countries
outside of the United States, through joint ventures in India and Indonesia,
and through a large number of distributors and licensees elsewhere around the
world. The Company continues to pursue strategies to establish its presence
in new emerging markets. Such new and emerging markets include Eastern
Europe; South Korea; Southeast Asia; Chile; the Middle East; India; and
China, where in 1996 the Company established a subsidiary with a local
minority partner. In addition, the Company is building a franchise through
local distributorships in northern and central Africa, where the Company
intends to expand the distribution of its products by capitalizing on its
market strengths in South Africa.
COSMETIC CENTER MERGER
Pursuant to an Agreement and Plan of Merger dated November 27, 1996 and
amended as of February 20, 1997 and March 20, 1997 among Cosmetic Center,
Inc., Products Corporation and Prestige Fragrance & Cosmetic, Inc., a
subsidiary of Products Corporation ("PFC"), PFC was merged with and into
Cosmetic Center, Inc. (the "Cosmetic Center Merger") effective April 25, 1997
with Cosmetic Center, Inc. surviving as a subsidiary of Products Corporation.
As a result of the Cosmetic Center Merger, Products Corporation received
8,479,335 shares of newly issued Cosmetic Center, Inc. Class C common stock
in exchange for its one share of PFC common stock outstanding prior to the
Cosmetic Center Merger. As a result of the Cosmetic Center Merger, Cosmetic
Center, Inc. stockholders received for each share of Cosmetic Center, Inc.
Class A or Class B common stock they held one share of Cosmetic Center, Inc.
Class C common stock or for those stockholders who so elected (and subject to
a limitation) $7.63 in cash (the "Cash Election"). As a result of the
Cosmetic Center Merger and the Cash Election, Products Corporation holds
approximately 85% of Cosmetic Center, Inc.'s outstanding common stock. For
its fiscal year ended September 27, 1996, Cosmetic Center, Inc. had net sales
of approximately $133.8 million.
CUSTOMERS
The Company's principal customers include chain drug stores and large mass
volume retailers, including such well known retailers as Wal-Mart, Walgreens,
Kmart, Target, CVS Drug Stores, Drug Emporium, American Drug Stores, Eckerd
Drug stores, Revco and Thrifty Payless in the self-select distribution
channel, J.C. Penney in the demonstrator-assisted distribution channel,
Sally's Beauty Company for professional products, Shoppers Drug Mart in
Canada and Boots in the United Kingdom and Western Europe. The foregoing
principal customers (i.e., customers that each accounted for 1% or more of
the Company's net sales in 1996) are representative of the Company's
customers. Wal-Mart and its affiliates accounted for approximately 10.1% of
the Company's 1996 consolidated net sales. Wal-Mart was the only customer of
the Company to account for more than 10% of the Company's net sales in 1996.
Although the loss of Wal-Mart as a customer could have an adverse effect on
the Company, the Company believes that its relationship with Wal-Mart is
satisfactory and the Company has no reason to believe that Wal-Mart will not
continue as a customer.
COMPETITION
The cosmetics and skin care, fragrance, personal care and professional
products business is characterized by vigorous competition throughout the
world. Brand recognition, together with product quality, performance and
price and the extent to which consumers are educated on product benefits,
have a marked influence on consumers' choices among competing products and
brands. Advertising, promotion, merchandising and packaging, and the timing
of new product introductions and line extensions, also have a significant
impact on buying decisions, and the structure and quality of the sales force
affect product reception, in-store position, permanent display space and
inventory levels in retail outlets. The Company competes in most of its
product categories against a number of companies, some of which have
substantially greater resources than the Company. In addition to products
sold in the self-select and demonstrator-assisted distribution channels, the
Company's products also compete with similar products sold door-to-door or
through mail order or telemarketing by representatives of direct
66
<PAGE>
sales companies. The Company's principal competitors include L'Oreal S.A.,
The Procter & Gamble Company, Helene Curtis Industries, Inc., and Joh A.
Benckiser GmbH in the self-select distribution channel; L'Oreal S.A.,
Unilever N.V., Estee Lauder, Inc. and Joh A. Benckiser GmbH in the
demonstrator-assisted distribution channel; and L'Oreal S.A. and Matrix
Essentials, Inc., which is owned by Bristol-Myers Squibb Company, in
professional products.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations, with
net sales in the second half of the year generally benefiting from increased
retailer purchases in the United States for the back-to-school and Christmas
selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
many other countries, and the Company considers trademark protection to be
very important to its business. Significant trademarks include REVLON,
COLORSTAY, REVLON AGE DEFYING, FLEX, MITCHUM, ETERNA 27, ULTIMA II, ALMAY,
CHARLIE, JEAN NATE, REVLON RESULTS, COLORAMA, FIRE & ICE, MOON DROPS, SUPER
LUSTROUS and WONDERWEAR LIPSEXXXY for consumer products and REVLON, ROUX
FANCI-FULL, REALISTIC, FERMODYL, COLOMER, CREATIVE NAIL, AMERICAN CREW, R PRO
and INTERCOSMO for professional products.
The Company utilizes certain proprietary or patented technologies in the
formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, FLEX & GO shampoo, LENGTHWISE mascara,
REVLON nail enamel, REVLON AGE DEFYING foundation and cosmetics, NEW
COMPLEXION makeup, WONDERWEAR foundation, WONDERWEAR LIPSEXXXY lipstick, DAY
INTO NIGHT eyeshadows, ALMAY TIME-OFF skin care and makeup, OUTRAGEOUS
shampoo, FLEX hairspray and various professional products, including FERMODYL
shampoo and conditioners. The Company also protects certain of its packaging
and component concepts through design patents. The Company considers its
proprietary technology and patent protection to be important to its business.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission and
the Food and Drug Administration (the "FDA") in the United States, as well as
various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such
as sunscreens. Compliance with federal, state, local and foreign laws and
regulations pertaining to discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is
not anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations
in the United States that are designed to protect consumers or the
environment have an increasing influence on product claims, contents and
packaging.
WOMEN'S HEALTH INITIATIVES
The Company vigorously supports research, advocacy and public education on
women's health through a range of ongoing programs. In 1993, the Company
co-led with the National Breast Cancer Coalition (the "NBCC") the successful
campaign to deliver more than 2.6 million signatures to President Clinton,
which prompted the President to declare breast cancer a national health
priority. In 1996, Revlon and the NBCC launched a similar campaign which is
expected to culminate in 1997 in Washington D.C. and generate increased
federal funding for breast cancer research. Since 1994, a Canadian subsidiary
has sponsored the "Kiss for the Cure" campaign, in which one dollar from the
sale of each "KISS FOR THE CURE" lipstick is donated to Canada's Breast
Cancer Foundation. In 1995, a "Kiss for the Cure" campaign was launched in
Argentina. Since 1994, the Company has sponsored the annual Revlon Run/Walk
for Women, which, through 1996, has raised more than $3.2 million for breast
and ovarian cancer research and related community service programs. The
proceeds have gone to the Revlon/UCLA Women's
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<PAGE>
Cancer Research Program, the Wellness Community and the Watts Health
Foundation. In 1996, more than 25,000 people participated in this event. The
Company also helps to raise funds for the Revlon/UCLA Women's Cancer Research
Program through the annual Fire and Ice Ball.
The Company sponsors the annual SHARE walk. SHARE is a self-help group for
women with breast or ovarian cancer. The Company sponsors women's health
seminars and supports a variety of women's health organizations. The
Company's award winning video entitled "Once a Year . . . For a Lifetime"
emphasizes the importance of education and early detection in the fight
against breast cancer and is made available at no cost to hospitals,
universities and community groups. In 1995, the Company received the 1995
Pink Ribbon Award, which is given each year by Self Magazine in recognition
of a commitment to the fight against breast cancer, and was also honored by
Health Watch for its women's health efforts particularly geared to women of
color. In addition, the Company was honored for its commitment to the fight
against breast and ovarian cancer at the Dreamball, the annual benefit for
the American Cancer Society and the Look Good . . . Feel Better program, a
joint program of the American Cancer Society, the Cosmetics, Toiletries &
Fragrance Association and the National Cosmetology Association that helps
women cancer patients contend with chemotherapy's appearance-related side
effects. The Company also focuses its health initiatives on its employees,
providing free mammography screenings as well as on-site workshops and
lectures on health issues.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single business segment. Certain information
concerning geographic segments of the Company is set forth in Note 15 of the
Notes to Consolidated Financial Statements of the Company included elsewhere
in this Offering Memorandum.
EMPLOYEES
As of December 31, 1996, the Company employed the equivalent of
approximately 14,300 full-time persons. Approximately 2,100 of such employees
in the United States at the end of 1996 were covered by collective bargaining
agreements. The agreement covering employees in Jacksonville, Florida expires
in 1997. In addition, the Company will be negotiating collective bargaining
agreements or portions thereof covering employees in twelve countries outside
of the United States during 1997 (consisting of Australia, Brazil, England,
France, Germany, Ireland, Israel, Italy, Japan, Mexico, South Africa and
Spain). The Company expects that such agreements will be renewed in the
ordinary course of negotiations, and further believes that its employee
relations are satisfactory. Although the Company has experienced minor work
stoppages of limited duration in the past in the ordinary course of business,
such work stoppages have not had a material impact on the Company's results of
operations or financial condition.
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<PAGE>
PROPERTIES
The following table sets forth as of December 31, 1996 the Company's major
manufacturing, research and warehouse/distribution facilities all of which
are owned except where otherwise noted.
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
LOCATION USE SQ. FT.
- -------- --- -------
<S> <C> <C>
Oxford, North Carolina............... Manufacturing, warehousing, distribution 1,012,000
and office
Phoenix, Arizona..................... Manufacturing, warehousing, distribution 706,000
and office (partially leased)
Holmdel, New Jersey.................. Warehousing, distribution and office 540,000
Jacksonville, Florida................ Manufacturing, warehousing, distribution, 526,000
research and office
Mississauga, Canada.................. Manufacturing, warehousing, distribution 245,000
and office
Edison, New Jersey................... Research and office (leased) 133,000
Irvington, New Jersey................ Manufacturing, warehouse and office 96,000
Sao Paulo, Brazil.................... Manufacturing, warehousing, distribution, 408,000
office and research
Maesteg, South Wales, United Manufacturing, distribution and office 316,000
Kingdom.............................
Santa Maria, Spain................... Manufacturing and warehousing 173,000
Barcelona, Spain..................... Manufacturing, warehousing, research 152,000
and office
Caracas, Venezuela................... Manufacturing, distribution and office 145,000
Argenteuil, France................... Warehousing and distribution (leased) 73,000
Kempton Park, South Africa........... Warehousing, distribution and office 127,000
(leased)
Canberra, Australia.................. Warehousing, distribution and office 125,000
(leased)
Isando, South Africa................. Manufacturing, warehousing, distribution 94,000
and office
Rydalmere, Australia................. Manufacturing, warehousing, distribution 93,000
and office
Bologna, Italy....................... Manufacturing, warehousing, distribution, 60,000
office and research
</TABLE>
In addition to the facilities described above, additional facilities are
owned and leased in various areas throughout the world, including the lease
for the Company's executive offices in New York, New York (345,000 square
feet, of which 85,000 square feet are currently sublet to affiliates of the
Company). Management considers the Company's facilities to be well-maintained
and satisfactory for the Company's operations, and believes that the
Company's facilities provide sufficient capacity for its current and expected
production requirements. Products Corporation leases from Holdings on arms'
length terms its research and development facility located in Edison, New
Jersey. See "Relationship with MacAndrews & Forbes -- Other."
LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. The Company believes that the outcome of
all pending legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition of the
Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Issuer
The following table sets forth certain information (ages as of June 4,
1997) concerning the Directors and executive officers of the Issuer. Each
Director holds office until his successor is duly elected and qualified or
until his resignation or removal, if earlier.
NAME AGE POSITION
- ---- --- --------
Ronald O. Perelman 54 Chairman of the Board and Director
Howard Gittis 63 Vice Chairman of the Board and Director
Irwin Engelman 63 Executive Vice President and Chief Financial Officer
Barry F. Schwartz 48 Executive Vice President and General Counsel
Revlon, Inc.
The Company conducts its business through Revlon, Inc., Products
Corporation and Products Corporation's subsidiaries. The following table sets
forth certain information (ages as of June 4, 1997) concerning the Directors
and executive officers of Revlon, Inc. Each Director holds office until his
successor is duly elected and qualified or until his resignation or removal,
if earlier.
NAME AGE POSITION
- ---- --- --------
Ronald O. Perelman 54 Chairman of the Executive Committee of the Board
and Director
Jerry W. Levin 53 Chairman of the Board and Director
George Fellows 54 President, Chief Executive Officer and Director
William J. Fox 40 Senior Executive Vice President, Chief Financial
Officer and Director
Carlos Colomer 52 Executive Vice President
Ronald H. Dunbar 59 Senior Vice President, Human Resources
M. Katherine Dwyer 47 Senior Vice President
Wade H. Nichols III 54 Senior Vice President and General Counsel
Donald G. Drapkin 49 Director
Meyer Feldberg 55 Director
Howard Gittis 63 Director
Vernon E. Jordan 61 Director
Henry A. Kissinger 74 Director
Edward J. Landau 67 Director
Linda G. Robinson 44 Director
Terry Semel 54 Director
Martha Stewart 55 Director
Mr. Perelman has been Chairman of the Board and a Director of the Issuer
since its formation in 1997 and of Revlon Worldwide since its formation in
1993. Mr. Perelman has been Chairman of the Board and Chief Executive Officer
of MacAndrews Holdings and various of its affiliates since 1980. Mr. Perelman
also is Chairman of the Board of Andrews Group Incorporated ("Andrews
Group"), Consolidated Cigar Holdings Inc. ("Cigar Holdings"), Mafco
Consolidated Group Inc. ("Mafco Consolidated"), Meridian Sports Incorporated
("Meridian") and M&F Worldwide Corp. ("MFW") and is the Chairman of the
Executive Committees, of the Boards of Directors of Revlon, Inc., Products
Corporation and The Coleman Company, Inc. ("Coleman") and Marvel
Entertainment Group, Inc. ("Marvel"). Mr. Perelman is a Director of the
following corporations which file reports pursuant to the Exchange Act:
Andrews Group, California Federal Bank, A Federal Savings Bank ("California
Federal"), Coleman, Coleman Holdings Inc. ("Coleman Holdings"), Coleman
Worldwide Corporation ("Coleman Worldwide"), Cigar Holdings, Consolidated
Cigar Corporation ("Consolidated Cigar"), The Cosmetic Center, Inc.
("Cosmetic Center"), First Nationwide Holdings Inc. ("FN Holdings"), First
Nationwide (Parent) Holdings Inc. ("FN Parent"), Mafco Consolidated, Marvel,
Marvel (Parent) Holdings Inc. ("Marvel Parent"), Marvel III Holdings Inc.
("Marvel III"), Meridian, MFW, Pneumo Abex Corporation ("Pneumo Abex"),
Products Corporation,
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<PAGE>
Revlon, Inc., Revlon Worldwide and Toy Biz, Inc. ("Toy Biz"). (On December
27, 1996, Marvel Holdings Inc. ("Marvel Holdings"), of which Mr. Perelman was
a director, Marvel Parent, Marvel III and Marvel and several of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code).
Mr. Gittis has been Vice Chairman of the Board of the Issuer since March
1997 and a Director of the Issuer and of Revlon Worldwide since their
respective formations in 1997 and 1993. He has been Vice Chairman of
MacAndrews Holdings and various of its affiliates since 1985. Mr. Gittis is a
Director of the following corporations which file reports pursuant to the
Exchange Act: Andrews Group, California Federal, Cigar Holdings, Consolidated
Cigar, Cosmetic Center, FN Holdings, FN Parent, Mafco Consolidated, MFW,
Pneumo Abex, Products Corporation, Revlon, Inc., Revlon Worldwide, Jones
Apparel Group, Inc., Loral Space & Communications Ltd. and Rutherford-Moran
Oil Corporation.
Mr. Engelman has been Executive Vice President and Chief Financial Officer
of the Issuer since March 1997. He has been Executive Vice President and
Chief Financial Officer of MacAndrews Holdings and various of its affiliates
since 1992. He was Executive Vice President and Chief Financial Officer of
GAF Corporation from 1990 to 1991; Director, President and Chief Operating
Officer of Citytrust Bancorp Inc. from 1988 to 1990; Executive Vice President
of the Blackstone Group LP from 1987 to 1988; and Director and Executive Vice
President of General Foods Corporation for more than five years prior to
1987. Mr. Engelman is a Director of the following corporation which files
reports pursuant to the Exchange Act: Products Corporation. (On December 27,
1996, Marvel Parent, Marvel III, of which Mr. Engelman is an executive
officer, and Marvel Holdings, of which Mr. Engelman was an executive officer,
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code.)
Mr. Schwartz has been Executive Vice President and General Counsel of the
Issuer since March 1997. He has been Executive Vice President and General
Counsel of MacAndrews Holdings and various of its affiliates since 1993. Mr.
Schwartz was Senior Vice President of MacAndrews & Forbes from 1989 to 1993.
(On December 27, 1996, Marvel Parent, Marvel III, of which Mr. Schwartz is an
executive officer, and Marvel Holdings, of which Mr. Schwartz was an
executive officer, filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code.)
Mr. Levin was President, Chief Executive Officer, Chief Operating Officer
and a Director of the Issuer and of Revlon Worldwide from their respective
formations in 1997 and 1993 to March 1997. Mr. Levin has been Chairman of the
Board of Revlon, Inc. and of Products Corporation since November 1995 and a
Director of Revlon, Inc. and of Products Corporation since their respective
formations in 1992. Mr. Levin was Chief Executive Officer of Revlon, Inc. and
of Products Corporation from their respective formations in 1992 to January
1997 and President of Revlon, Inc. and of Products Corporation from their
respective formations in 1992 to November 1995. He has been the President and
a Director of Holdings since 1991 and Chief Executive Officer since March
1992. Mr. Levin has been Executive Vice President of MacAndrews Holdings
since March 1989. Mr. Levin has been Chairman and Chief Executive Officer of
Coleman since February 1997. For 15 years prior to joining MacAndrews
Holdings, he held various senior executive positions with The Pillsbury
Company. Mr. Levin is a Director of the following corporations which file
reports pursuant to the Exchange Act: Coleman, Coleman Holdings, Coleman
Worldwide, Cosmetic Center, Ecolab, Inc., First Bank System, Inc., Meridian,
Products Corporation, Revlon, Inc. and Revlon Worldwide.
Mr. Fellows has been President and Chief Executive Officer of Revlon, Inc.
and of Products Corporation since January 1997. He was President and Chief
Operating Officer of Revlon, Inc. and Products Corporation from November 1995
until January 1997, and has been a Director of Revlon, Inc. since November
1995 and a Director of Products Corporation since 1994. Mr. Fellows was
Senior Executive Vice President of Revlon, Inc. and of Products Corporation
and President and Chief Operating Officer of the Consumer Group from February
1993 to November 1995. From 1989 through January 1993, he was a senior
executive officer of Mennen Corporation and then Colgate-Palmolive Company
which acquired Mennen Corporation in 1992. From 1986 to 1989, he was Senior
Vice President of Holdings. Prior to 1986, he was President of Holdings'
Domestic Beauty Group.
Mr. Fox was Executive Vice President and Chief Financial Officer of the
Issuer and of Revlon Worldwide from their respective formations in 1997 and
1993 to March 1997. Mr. Fox has been Senior
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<PAGE>
Executive Vice President and Chief Financial Officer of Revlon, Inc. and of
Products Corporation since January 1997. Mr. Fox was Executive Vice President
and Chief Financial Officer of Revlon, Inc. and of Products Corporation since
their respective formations in 1992 until January 1997. Mr. Fox was elected
as a Director of Revlon, Inc. in November 1995 and of Products Corporation in
September 1994. He has been Executive Vice President and Chief Financial
Officer of Holdings since November 1991 and prior to such time had been a
Vice President of Holdings since 1987. He has been Senior Vice President of
MacAndrews Holdings since August 1990. He was Vice President of MacAndrews
Holdings from February 1987 to August 1990 and was Treasurer of MacAndrews
Holdings from February 1987 to September 1992. Prior to February 1987 he was
Vice President and Assistant Treasurer of MacAndrews Holdings. Mr. Fox joined
MacAndrews & Forbes Group, Incorporated in 1983 as Assistant Controller prior
to which time he was a certified public accountant at the international
auditing firm of Coopers & Lybrand. Mr. Fox is a Director of the following
corporations which file reports pursuant to the Exchange Act: Cosmetic Center
and The Hain Food Group, Inc.
Mr. Colomer has been Executive Vice President of Revlon, Inc. and of
Products Corporation since August 1993. Prior to August 1993, he served as
President and General Manager of various of Revlon, Inc.'s and Holdings'
international subsidiaries. Mr. Colomer joined Holdings in 1979 when Henry
Colomer, S.A., the haircare and cosmetics company which was founded by his
father, was acquired by Holdings, and has held positions of increasing
responsibility since that date.
Mr. Dunbar has been Senior Vice President, Human Resources of Revlon, Inc.
and of Products Corporation since their respective formations in 1992. He was
elected Senior Vice President, Human Resources of Holdings in July 1991. Mr.
Dunbar was Vice President and General Manager of Arnold Menn and Associates,
a career management consulting and executive outplacement firm, from 1989 to
1991 and Executive Vice President and Chief Human Resources Officer of Ryder
System Inc., a highway transportation firm, from 1978 to 1989. Prior to that,
Mr. Dunbar served in senior executive human resources positions at Xerox
Corporation and Ford Motor Company.
Ms. Dwyer was elected as Senior Vice Presient of Revlon, Inc. and of
Products Corporation in November 1996. Prior to that she served in various
appointed officer positions for Revlon, Inc. and for Products Corporation,
including President of Products Corporation's United States Cosmetics Unit
from November 1995 to November 1996 and Executive Vice President and General
Manager of Products Corporation's Mass Cosmetics Unit from June 1993 to
November 1995. From 1991 to 1993, Ms. Dwyer was Executive Vice President and
General Manager for Victoria Creations. Prior to 1991, she served in various
senior positions for Avon Products Inc., Cosmair, Inc. and Gillette.
Mr. Nichols was Senior Vice President and General Counsel of the Issuer
and of Revlon Worldwide from their respective formations in 1997 and 1993 to
March 1997. Mr. Nichols has been Senior Vice President and General Counsel of
Revlon, Inc. and of Products Corporation since their respective formations in
1992. He was elected Senior Vice President and General Counsel of Holdings in
March 1992. He was Vice President and Secretary of Holdings from 1984 to 1992
and Secretary from 1981 to 1984. He joined Holdings in 1978. Mr. Nichols has
been Vice President-Law of MacAndrews Holdings since 1988. Mr. Nichols is a
Director of Cosmetic Center, which files reports pursuant to the Exchange
Act.
Mr. Drapkin was a Director of the Issuer and of Revlon Worldwide from
their respective formations in 1997 and 1993 to March 1997. He has been Vice
Chairman of MacAndrews Holdings and various of its affiliates since 1987. Mr.
Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
for more than five years prior to March 1987. Mr. Drapkin is a Director of
the following corporations which file reports pursuant to the Exchange Act:
Algos Pharmaceutical Corporation, Andrews Group, Coleman, Coleman Holdings,
Coleman Worldwide, Cigar Holdings, Consolidated Cigar, Marvel, Marvel Parent,
Marvel III, Products Corporation, Revlon, Inc., Revlon Worldwide, Toy Biz and
VIMRx Pharmaceuticals Inc. (On December 27, 1996, Marvel Holdings, of which
Mr. Drapkin was a director, Marvel Parent, Marvel III and Marvel and several
of its subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code).
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<PAGE>
Dr. Feldberg has been a Director of Revlon, Inc. since February 1997. Dr.
Feldberg has been the Dean of Columbia University Business School for more
than the past five years. Dr. Feldberg is a Director of the following
corporations which file reports pursuant to the Exchange Act: Federated
Department Stores, Inc., Paine Webber Group, Inc. (certain funds) and KIII
Communications Corporation.
Mr. Jordan has been a Director of Revlon, Inc. since June 1996. Mr. Jordan
is a Senior Partner in the Washington, D.C. law firm of Akin, Gump, Strauss,
Hauer & Feld, LLP where he has practiced law since 1982. He is a Director of
the following corporations which file reports pursuant to the Exchange Act:
American Express Company, Bankers Trust Company, Bankers Trust New York
Company, Corning Incorporated, Dow Jones & Company, Inc., J.C. Penney
Company, Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation. He is also trustee of the Ford Foundation
and Howard University.
Dr. Kissinger has been a Director of Revlon, Inc. since June 1996. Dr.
Kissinger has been Chairman of the Board and Chief Executive Officer of
Kissinger Associates, Inc., an international consulting firm since 1982. Dr.
Kissinger is an Advisor to the Board of Directors of American Express
Company, serves as Counselor to The Chase Manhattan Bank and is a member of
its International Advisory Committee. He is Chairman of the International
Advisory Board of American International Group, Inc. and is a Director of
Continental Grain Company, Hollinger International Inc. and Freeport-McMoran,
Inc., all of which file reports pursuant to the Exchange Act.
Mr. Landau has been a Director of Revlon, Inc. since June 1996. Mr. Landau
has been a Senior Partner in the New York law firm of Lowenthal, Landau,
Fischer & Bring, P.C. for more than the past five years. He has been a
Director of Products Corporation since June 1992 and was a Director of
Holdings from 1989 until April 1993. Mr. Landau is a Director of Offitbank
Investment Fund, Inc., which files reports pursuant to the Exchange Act.
Ms. Robinson has been a Director of Revlon, Inc. since June 1996. Ms.
Robinson has been Chairman and Chief Executive Officer of Robinson Lerer &
Montgomery, LLC, a strategic communications consulting firm, since May 1996.
For more than five years prior to that she was Chairman and Chief Executive
Officer of Robinson Lerer Sawyer Miller Group, or its predecessors. Ms.
Robinson is a Director of VIMRx Pharmaceuticals, Inc. which files reports
pursuant to the Exchange Act, and is a trustee of New York University Medical
Center.
Mr. Semel has been a Director of Revlon, Inc. since June 1996. Mr. Semel
has been Chairman and Co-Executive Officer of the Warner Bros. Division of
Time Warner Entertainment LP ("Warner Brothers") since March 1994 and of
Warner Music Group since November 1995. For more than ten years prior to that
he was President of Warner Brothers or its predecessor Warner Bros. Inc.
Ms. Stewart has been a Director of Revlon, Inc. since June 1996. Ms.
Stewart is the Chairman of Martha Stewart Living Omnimedia LLC. She has been
an author, founder of the magazine Martha Stewart Living, creator of a
syndicated television series, a syndicated newspaper column and a catalog
company and a lifestyle consultant and lecturer for more than the past five
years.
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EXECUTIVE COMPENSATION
The Company conducts its business through Revlon Inc., Products
Corporation and Products Corporation's subsidiaries. For 1996, the Company's
executive officers were compensated by Products Corporation for services
rendered to the Company and its subsidiaries, participated in benefit plans
sponsored by Products Corporation and did not receive compensation from the
Issuer or from Revlon, Inc. other than grants of options under the Revlon,
Inc. Stock Plan. The following table sets forth certain compensation awarded
to, earned by or paid to the Chief Executive Officer and the four most highly
paid executive officers, other than the Chief Executive Officer, who served
as executive officers of Revlon, Inc. as of December 31, 1996 (collectively,
the "Named Executive Officers"), for services rendered in all capacities to
the Company and its subsidiaries during 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (A) AWARDS
------------------------------------------- ------------
OTHER ALL
ANNUAL SECURITIES OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS ($)
-------------------- ---- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Levin (b)
Chairman of the Board .......... 1996 1,500,000 1,500,000 93,801 170,000 307,213
1995 1,450,000 1,450,000 42,651 0 308,002
1994 1,300,000 1,300,000 39,184 0 540,177
George Fellows(c)
President and Chief Executive
Officer........................ 1996 1,025,000 870,000 15,242 120,000 4,500
1995 841,667 531,700 68,559 0 4,500
1994 745,833 449,200 11,625 0 104,500
William J. Fox (d)
Senior Executive Vice President
and Chief Financial Officer ... 1996 750,000 598,600 50,143 50,000 56,290
1995 660,000 455,000 54,731 0 56,290
1994 601,333 329,900 59,143 0 56,290
Carlos Colomer
Executive Vice President........ 1996 700,000 192,600 -- 37,000 --
1995 600,000 135,200 -- 0 --
1994 550,000 280,200 -- 0 --
M. Katherine Dwyer (e)
Senior Vice President........... 1996 500,000 326,100 90,029 45,000 4,500
</TABLE>
- --------------
(a) The amounts shown in Annual Compensation for 1996, 1995 and 1994
reflect salary, bonus and other annual compensation awarded to,
earned by or paid to the persons listed for services rendered to the
Company and its subsidiaries. Products Corporation has a bonus plan
(the "Executive Bonus Plan") in which executives participate
(including the Chief Executive Officer and the other Named Executive
Officers). The Executive Bonus Plan provides for payment of cash
compensation upon the achievement of predetermined individual and
corporate performance goals during the calendar year.
(b) Mr. Levin was Chief Executive Officer of Revlon, Inc. during 1994,
1995 and 1996. The amount shown for Mr. Levin under Other Annual
Compensation for 1996 includes $26,400 in respect of personal use of
a company-provided automobile and payments in respect of gross ups
for taxes on imputed income arising out of personal use of a
company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by Products Corporation in respect
of
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<PAGE>
life insurance. The amount shown for Mr. Levin under All Other
Compensation for 1996 reflects $302,713 in respect of life insurance
premiums and $4,500 in respect of matching contributions under the
Revlon Employees' Savings and Investment Plan (the "401(k) Plan").
The amount shown for Mr. Levin under Other Annual Compensation for
1995 reflects payments in respect of gross ups for taxes on imputed
income arising out of personal use of a company-provided automobile
and for taxes on imputed income arising out of premiums paid or
reimbursed by Products Corporation in respect of life insurance. The
amount shown for Mr. Levin under All Other Compensation for 1995
reflects $303,502 in respect of life insurance premiums and $4,500 in
respect of matching contributions under the 401(k) Plan. The amount
shown for Mr. Levin under Other Annual Compensation for 1994 reflects
payments in respect of gross ups for taxes on imputed income arising
out of personal use of a company-provided automobile and for taxes on
imputed income arising out of premiums paid or reimbursed by Products
Corporation in respect of life insurance. The amounts shown for Mr.
Levin under All Other Compensation for 1994 reflect payments in
respect of life insurance premiums and certain relocation expenses
and matching contributions under the 401(k) Plan. In connection with
such relocation, Products Corporation purchased for face value a
$525,000 purchase money note made by the purchaser of Mr. Levin's
home secured by a mortgage on such home.
(c) Mr. Fellows became Chief Executive Officer of Revlon, Inc. in January
1997. The amount shown for Mr. Fellows under Other Annual
Compensation for 1996 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by Products Corporation in respect
of life insurance. The amount shown for Mr. Fellows under All Other
Compensation for 1996 reflects matching contributions under the
401(k) Plan. The amount shown for Mr. Fellows under Other Annual
Compensation for 1995 includes $43,251 in respect of membership fees
and related expenses for personal use of a health and country club
and $9,458 in respect of gross ups for taxes on imputed income
arising out of personal use of a company-provided automobile. The
amount shown for Mr. Fellows under All Other Compensation for 1995
reflects matching contributions under the 401(k) Plan. The amount
shown for Mr. Fellows under Other Annual Compensation for 1994
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a company-provided automobile. The
amounts shown for Mr. Fellows under All Other Compensation for 1994
reflect matching contributions under the 401(k) Plan and
reimbursement for long-term compensation and other benefits under
plans of his prior employer, which Mr. Fellows forfeited by accepting
employment with Products Corporation.
(d) Mr. Fox became Senior Executive Vice President of Revlon, Inc. in
January 1997. The amount shown for Mr. Fox under Other Annual
Compensation for 1996 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by Products Corporation in respect
of life insurance. The amount shown for Mr. Fox under All Other
Compensation for 1996 reflects $51,790 in respect of life insurance
premiums and $4,500 in respect of matching contributions under the
401(k) Plan. The amount shown for Mr. Fox under Other Annual
Compensation for 1995 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by Products Corporation in respect
of life insurance. The amount shown for Mr. Fox under All Other
Compensation for 1995 reflects $51,790 in respect of life insurance
premiums and $4,500 in respect of matching contributions under the
401(k) Plan. The amount shown for Mr. Fox under Other Annual
Compensation for 1994 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
company-provided automobile and for taxes on imputed income arising
out of premiums paid or reimbursed by Products Corporation in respect
of life insurance for Mr. Fox. The amounts shown for Mr. Fox under
All Other Compensation for 1994 reflect payments in respect of life
insurance premiums and matching contributions under the 401(k) Plan.
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(e) Ms. Dwyer became an executive officer of Revlon, Inc. on December 17,
1996. The amount shown for Ms. Dwyer under Other Annual Compensation
for 1996 reflects $57,264 in expense reimbursements and payments in
respect of gross up for taxes on imputed income arising out of
personal use of a company-provided automobile. The amount shown for
Ms. Dwyer under All Other Compensation for 1996 reflects matching
contributions under the 401(k) Plan.
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1996, the following grants of stock options were made pursuant to
the Revlon, Inc. Stock Plan to the executive officers named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
GRANT DATE
VALUE
INDIVIDUAL GRANTS (A) (B)
--------------------------- ----------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OF BASE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED (#) YEAR ($/SH) DATE VALUE $
---- ----------- ---- ------ ---- -------
<S> <C> <C> <C> <C> <C>
Jerry W. Levin
Chairman (c).............. 170,000 17% 24.00 2/28/06 1,885,079
George Fellows
President and Chief
Executive Officer (c) .... 120,000 12% 24.00 2/28/06 1,330,644
William J. Fox
Senior Executive Vice
President and Chief
Financial Officer (c) ... 50,000 5% 24.00 2/28/06 554,435
Carlos Colomer
Executive Vice President . 37,000 4% 24.00 2/28/06 410,282
M. Katherine Dwyer
Senior Vice President
(c)....................... 45,000 5% 24.00 2/28/06 498,992
</TABLE>
- --------------
(a) Prior to the consummation of the Revlon IPO, the Board of Directors
made initial grants under the Revlon, Inc. Stock Plan of
non-qualified options having a term of 10 years to purchase shares of
Class A Common Stock at an exercise price equal to the initial public
offering price. The grants to Messrs. Levin, Fellows, Fox and Colomer
and Ms. Dwyer will not vest as to any portion until the third
anniversary of the grant date and will thereupon become 100% vested,
except that upon termination of employment by Revlon, Inc. other than
for "cause", death or "disability" under the applicable employment
agreement, such options will vest with respect to 50% of the shares
subject thereto (if the termination is between the second and third
anniversaries of the grant).
(b) Present values were calculated using the Black-Scholes option pricing
model. The model as applied used the grant date of February 29, 1996,
and the exercise price per share specified in the table above was
equal to the fair market value per share of Class A Common Stock on
the date of grant. The model also assumes (i) risk-free rate of
return of 5.99%, which was the rate as of the grant date for the U.S.
Treasury Zero Coupon Bond issues with a remaining term similar to the
expected term of the options, (ii) stock price volatility of 31%
based upon the peer group average, (iii) a constant dividend rate of
zero percent and (iv) that the options normally would be exercised on
the final day of their seventh year after grant. No discount from the
theoretical value was taken to reflect the waiting period, if any,
prior to vesting of the stock options, the restrictions on the
transfer of the stock options and the likelihood that the stock
options will be exercised in advance of the final day of their term.
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<PAGE>
(c) Mr. Levin served as Chief Executive Officer of Revlon, Inc. during
1996. Mr. Fellows was elected Chief Executive Officer of Revlon, Inc.
in January 1997. Mr. Fox was elected Senior Executive Vice President
of Revlon, Inc. in January 1997. Ms. Dwyer became an executive
officer of Revlon, Inc. in December 1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following chart shows the number of stock options exercised during
1996 and the 1996 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
SHARES VALUE YEAR-END (#) EXERCISABLE/
ACQUIRED ON REALIZED EXERCISABLE/ UNEXERCISABLE
NAME EXERCISE (#) ($) UNEXERCISABLE (A)($)
---- ------------ --- ------------- ------
<S> <C> <C> <C> <C>
Jerry W. Levin
Chairman (b)................. 0 0 0/170,000 0/998,750
George Fellows
President and
Chief Executive Officer (b) 0 0 0/120,000 0/705,000
William J. Fox
Senior Executive Vice
President and
Chief Financial Officer (b) . 0 0 0/50,000 0/293,750
Carlos Colomer
Executive Vice President .... 0 0 0/37,000 0/217,375
M. Katherine Dwyer
Senior Vice President (b) ... 0 0 0/45,000 0/264,375
</TABLE>
- --------------
(a) Amounts shown represent the market value of the underlying shares of
Class A Common Stock at year-end calculated using the December 31,
1996 New York Stock Exchange (the "NYSE") closing price per share of
Class A Common Stock of $29.875 minus the exercise price of the stock
option. The actual value, if any, an executive may realize is
dependent upon the amount by which the market price of shares of
Class A Common Stock exceeds the exercise price per share when the
stock options are exercised. The actual value realized may be greater
or less than the value shown in the table.
(b) Mr. Levin served as Chief Executive Officer during 1996. Mr. Fellows
was elected Chief Executive Officer in January 1997. Mr. Fox was
elected Senior Executive Vice President in January 1997. Ms. Dwyer
became an executive officer of Revlon, Inc. in December 1996.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of the Named Executive Officers has entered into an executive
employment agreement with Products Corporation (except in the case of Mr.
Colomer, who has entered into an Executive Employment Agreement with a
subsidiary of Products Corporation), which became effective upon consummation
of the Revlon IPO, providing for their continued employment. Effective
January 1, 1997, Mr. Fellows' Employment Agreement was amended to provide
that he will serve as the President and Chief Executive Officer of Products
Corporation at a base salary of $1,250,000 for 1997; $1,350,000 for 1998;
$1,450,000 for 1999; $1,550,000 for 2000 and $1,700,000 for 2001. At any time
after January 1, 2001, Products Corporation may terminate the term of Mr.
Fellows' agreement by 12 months prior notice of non-renewal. The agreements
for Messrs. Levin, Fox and Colomer and Ms. Dwyer provide for base salary of
not less than $1,500,000, $1,650,000, and $1,800,000 during 1996, 1997 and
1998 and thereafter, respectively, in the case of Mr. Levin, and $750,000,
$700,000 and $500,000 (or any greater amount to which such base salary
amounts may be increased) in the case of Messrs. Fox and Colomer
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<PAGE>
and Ms. Dwyer, respectively, and further provide that at any time on or after
the second anniversary of the effective date of the relevant agreement,
Products Corporation may terminate the term by 12 months prior notice of
non-renewal. All the agreements provide for participation in the Executive
Bonus Plan, continuation of life insurance and executive medical insurance
coverage in the event of permanent disability, the provision of
post-retirement life insurance coverage in the amount of two times base
salary in certain circumstances, and participation in other executive benefit
plans on a basis equivalent to senior executives of Products Corporation
generally. The agreements with Messrs. Fellows and Colomer and Ms. Dwyer
provide for company-paid supplemental term life insurance during employment
in the amount of three times base salary, while the agreements with Messrs.
Levin and Fox provide that, in lieu of any participation in company-paid
pre-retirement life insurance coverage, Products Corporation will pay
premiums and gross ups for taxes thereon in respect of, in the case of Mr.
Levin, whole life insurance policies on his life in the amount of $14,100,000
under a split dollar arrangement pursuant to which Products Corporation would
be repaid the amount of premiums it paid up to the cash surrender value of
the policies from insurance proceeds payable under the policies and, in the
case of Mr. Fox, a whole life insurance policy on his life in the amount of
$5,000,000 under an arrangement providing for all insurance proceeds to be
paid to the designated beneficiary under such policy. The agreements also
require that management recommend to the Compensation Committee that Messrs.
Levin, Fellows, Fox and Colomer and Ms. Dwyer be granted options to purchase
170,000, 170,000, 50,000, 37,000, and 45,000 (in first year and 30,000
thereafter) shares of Class A Common Stock, respectively, each year during
the term of the relevant executive employment agreement. The agreements
provide that in the event of termination of the term of the relevant
executive employment agreement by Products Corporation otherwise than for
"good reason" as defined in the Executive Severance Policy or failure of the
Compensation Committee to adopt and implement the recommendations of
management with respect to stock option grants, the executive would be
entitled to severance pursuant to the Executive Severance Policy as in effect
on January 1, 1996 (see "--Executive Severance Policy"). In addition, the
employment agreement with Mr. Fellows provides that if he remains
continuously employed with Products Corporation or its affiliates until age
60, then upon any subsequent retirement he will be entitled to a supplemental
pension benefit in a sufficient amount so that his annual pension benefit
from all qualified and non-qualified pension plans of Products Corporation
and its affiliates (expressed as a straight life annuity) equals $500,000.
Upon any earlier retirement with Products Corporation's consent or any
earlier termination of employment by Products Corporation otherwise than for
"good reason" (as defined in the Executive Severance Policy), Mr. Fellows
will be entitled to a reduced annual payment in an amount equal to the
product of multiplying $28,540 by the number of anniversaries, as of the date
of retirement or termination, of Mr. Fellows' fifty-third birthday (but in no
event more than would have been payable to Mr. Fellows under the foregoing
provision had he retired at age 60). In each case, Products Corporation
reserves the right to treat Mr. Fellows as having deferred payment of pension
for purposes of computing such supplemental payments.
As of December 31, 1996, 1995 and 1994, Mr. Colomer had a loan outstanding
from Revlon, Inc.'s subsidiary in Spain in the amount of 25.0 million Spanish
pesetas (approximately $205,000 U.S. dollar equivalent as of December 31,
1996) dating from 1991 pursuant to a management retention program
grandfathered under a 1992 change in the Spanish tax law which currently
covers certain executives of such subsidiary, including Mr. Colomer. Pursuant
to this management retention program, outstanding loans do not bear interest
but an amount equal to the one-year government bond interest rate in effect
at the beginning of the year is deducted from the executives' annual
compensation, and loans must be repaid in full upon termination of
employment. The amount deducted from Mr. Colomer's compensation was 2.15
million Spanish pesetas (approximately $16,988 U.S. dollar equivalent as of
December 31, 1996) for 1996; 2.25 million Spanish pesetas (approximately
$18,097 U.S. dollar equivalent as of December 31, 1995) for 1995 and 2.25
million Spanish pesetas (approximately $17,094 U.S. dollar equivalent as of
December 31, 1994) for 1994.
EXECUTIVE SEVERANCE POLICY
Products Corporation's Executive Severance Policy, as amended effective
January 1, 1996, provides that upon termination of employment of eligible
executive employees, including the Named
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Executive Officers, other than voluntary resignation, retirement or
termination by Products Corporation for good reason, in consideration for the
execution of a release and confidentiality agreement and Revlon, Inc.'s
standard Employee Agreement as to Confidentiality and Non-Competition (the
"Non-Competition Agreement"), the eligible executive will be entitled to
receive, in lieu of severance under any employment agreement then in effect
or under Products Corporation's basic severance plan, a number of months of
severance pay in semi-monthly installments based upon such executive's grade
level and years of service reduced by the amount of any compensation from
subsequent employment, unemployment compensation or statutory termination
payments received by such executive during the severance period, and, in
certain circumstances, by the actuarial value of enhanced pension benefits
received by the executive as well as continued participation in medical and
certain other benefit plans for the severance period (or in lieu thereof,
upon commencement of subsequent employment, a lump sum payment equal to the
then present value of 50% of the amount of base salary then remaining payable
through the balance of the severance period, not to exceed six months' base
salary). Pursuant to the Executive Severance Policy, upon meeting the
conditions set forth therein, Messrs. Levin, Fellows, Colomer and Fox and Ms.
Dwyer would be entitled to severance pay equal to two years of base salary at
the rate in effect on the date of employment termination plus continued
participation in the medical and dental plans for two years on the same terms
as active employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits payable
(as of December 31, 1996) at normal retirement age (65) to a person retiring
with the indicated average compensation and years of credited service, on a
straight life annuity basis, after Social Security offset, under the Revlon
Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below:
<TABLE>
<CAPTION>
HIGHEST CONSECUTIVE
FIVE-YEAR AVERAGE
COMPENSATION ESTIMATED ANNUAL STRAIGHT LIFE BENEFITS AT RETIREMENT
DURING FINAL TEN YEARS WITH INDICATED YEARS OF CREDIT SERVICE (A)
- ----------------------- -----------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 600,000.............. $152,022 $202,696 $253,370 $304,044 $304,044
700,000................ 178,022 237,363 296,703 356,044 356,044
800,000................ 204,022 272,029 340,037 408,044 408,044
900,000................ 230,022 306,696 383,370 460,044 460,044
1,000,000.............. 256,022 341,363 426,703 500,000 500,000
1,100,000.............. 282,022 376,029 470,037 500,000 500,000
1,200,000.............. 308,022 410,696 500,000 500,000 500,000
1,300,000.............. 334,022 445,363 500,000 500,000 500,000
1,400,000.............. 360,022 480,029 500,000 500,000 500,000
1,500,000.............. 386,022 500,000 500,000 500,000 500,000
2,000,000.............. 500,000 500,000 500,000 500,000 500,000
2,500,000.............. 500,000 500,000 500,000 500,000 500,000
</TABLE>
- --------------
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a life annuity.
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having
30 years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary)
during the five consecutive calendar years in which base salary and bonus
(but not any part of bonuses in excess of 50% of base salary) were highest
out of the last 10 years prior to retirement or earlier termination. Except
as otherwise indicated, credited service only includes all periods of
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<PAGE>
employment with Revlon, Inc. or a subsidiary prior to retirement. The base
salaries and bonuses of each of the Named Executive Officers are set forth in
the Summary Compensation Table under columns entitled "Salary" and "Bonus,"
respectively.
The Employee Retirement Income Security Act of 1974, as amended, places
certain maximum limitations upon the annual benefit payable under all
qualified plans of an employer to any one individual. In addition, the
Omnibus Budget Reconciliation Act of 1993 limits the annual amount of
compensation that can be considered in determining the level of benefits
under qualified plans. The Pension Equalization Plan, as amended effective
January 1, 1996, is a non-qualified benefit arrangement designed to provide
for the payment by Revlon, Inc. of the difference, if any, between the amount
of such maximum limitations and the annual benefit that would be payable
under the Retirement Plan but for such limitations, up to a combined maximum
annual straight life annuity benefit at age 65 under the Retirement Plan and
the Pension Equalization Plan of $500,000. Benefits provided under the
Pension Equalization Plan are conditioned on the participant's compliance
with his or her Non-Competition Agreement and, in any case, on the
participant not competing with Products Corporation for one year after
termination of employment.
The number of years of credited service under the Retirement Plan and the
Pension Equalization Plan as of January 1, 1997 for Mr. Levin is seven years
(which includes credit for service with MacAndrews Holdings), for Mr. Fellows
is eight years (which includes credit for prior service with Holdings), for
Mr. Fox is 13 years (which includes credit for service with MacAndrews
Holdings) and for Ms. Dwyer is 3 years. Mr. Colomer does not participate in
the Retirement Plan or the Pension Equalization Plan. Mr. Colomer
participates in the Revlon Foreign Service Employees Pension Plan (the
"Foreign Pension Plan"). The Foreign Pension Plan is a non-qualified defined
benefit plan. The plan is designed to provide an employee with 2% of final
average salary for each year of credited service, up to a maximum of 30
years, reduced by the sum of all other Revlon, Inc. provided retirement
benefits and social security or other government provided retirement
benefits. Credited service includes all periods of employment with Revlon,
Inc. or a subsidiary prior to retirement. Final average salary is defined as
average annual base salary during the five consecutive calendar years in
which base salary was highest out of the last 10 years prior to retirement.
The normal form of payment under the Foreign Pension Plan is a life annuity.
Mr. Colomer's credited service as of January 1, 1997 under the Foreign
Pension Plan is 17 years (which includes credit for service with Holdings).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of Revlon, Inc. (made up of Messrs. Gittis and
Drapkin and from and after June 6, 1996 Mr. Semel) determined compensation of
executive officers of Products Corporation, from and after the Revlon IPO.
Revlon, Inc. has used an airplane which was owned by a corporation of
which Messrs. Gittis, Drapkin and Levin were the sole stockholders. As of
December 31, 1996, Mr. Levin no longer holds an ownership interest in the
corporation that owns the airplane. See "Relationship with MacAndrews and
Forbes."
OWNERSHIP OF COMMON STOCK
Ronald O. Perelman, 35 East 62nd Street, New York, New York 10021, through
MacAndrews & Forbes, beneficially owns all of the outstanding shares of
Common Stock of the Issuer. No other director, executive officer or other
person beneficially owns any shares of common stock of the Issuer. MacAndrews
& Forbes, through Revlon Worldwide, beneficially owns 11,250,000 shares of
Class A Common Stock of Revlon, Inc. (representing 56.6% of the outstanding
shares of Class A Common Stock) and all of the outstanding 31,250,000 shares
of Class B Common Stock of Revlon, Inc., which together represent
approximately 83.1% of the outstanding shares of Common Stock and
approximately 97.4% of the combined voting power of the outstanding shares of
Common Stock of Revlon, Inc. All of the shares of Common Stock of Revlon,
Inc. owned by Revlon Worldwide are currently pledged by Revlon Worldwide to
secure its obligations under the Revlon Worldwide Notes. Following the Revlon
Worldwide
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Notes Defeasance, Revlon Worldwide will be merged with and into the Issuer.
All of the shares of Common Stock of Revlon, Inc. then held by the Issuer
will be pledged either to secure the Notes or the Non-Recourse Guaranty. The
shares of common stock of the Issuer and shares of common stock of
intermediate holding companies are or may from time to time be pledged to
secure obligations of MacAndrews & Forbes or its affiliates.
The Class A Common Stock and Class B Common Stock of Revlon, Inc. are
substantially identical except that each share of Class A Common Stock
entitles the holder thereof to one vote and each share of Class B Common
Stock entitles the holder to ten votes on all matters submitted to a vote of
stockholders. Each share of Class B Common Stock is convertible at the
holder's option into one share of Class A Common Stock. Upon any transfer of
shares of Class B Common Stock other than to a Permitted Transferee
(generally defined to include affiliates of the holder of the Class B Common
Stock), including upon a foreclosure on pledged shares, such shares of Class
B Common Stock are automatically converted into shares of Class A Common
Stock.
RELATIONSHIP WITH MACANDREWS & FORBES
MacAndrews & Forbes beneficially owns all shares of common stock of the
Issuer. As a result, MacAndrews & Forbes is able to elect the entire Board of
Directors of the Company and control the vote on all matters submitted to a
vote of the Company's stockholders, including extraordinary transactions such
as mergers, sales of all or substantially all of the Company's assets or
going private transactions. MacAndrews & Forbes is wholly owned by Ronald O.
Perelman, who is Chairman of the Board and a Director of the Issuer. Messrs.
Perelman, Levin, Fox and Nichols, each of whom is an executive officer of the
Issuer, have been, and are expected to continue to be, officers of MacAndrews
& Forbes and certain of its affiliates.
MacAndrews & Forbes is a diversified holding company with interests in
several industries. Through the Company, MacAndrews & Forbes is engaged in
the cosmetics and skin care, fragrance and personal care products business.
MacAndrews & Forbes owns 83% of Coleman, which is engaged in the manufacture
and marketing of recreational outdoor products, portable generators,
power-washing equipment, spas and hot tubs and 65% of Meridian, a
manufacturer and marketer of specialized boats and watersports equipment.
Through its 85% ownership of Mafco Consolidated, MacAndrews & Forbes is
engaged in the manufacture and distribution of cigars and pipe tobacco and
through Mafco Consolidated's 36% ownership of MFW, MacAndrews & Forbes is in
the business of processing of licorice and other flavors. MacAndrews & Forbes
is also in the financial services business through its 80% ownership of
California Federal. In addition, MacAndrews & Forbes has an investment in
Marvel, a youth entertainment company, which is currently the subject of a
Chapter 11 bankruptcy case. The principal executive offices of MacAndrews &
Forbes are located at 35 East 62nd Street, New York, New York 10021.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the
"Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements on
June 24, 1992, Holdings transferred assets to Products Corporation and
Products Corporation assumed all the liabilities of Holdings, other than
certain specifically excluded assets and liabilities. The assets transferred
to Products Corporation included all the operating assets and manufacturing
and other facilities of Holdings. Holdings, however, retained the Retained
Brands and other intangible assets, its investment in Laboratory Corporation
of America Holdings (formerly known as National Health Laboratories Holdings,
Inc.) ("LabCorp."), and certain nonoperating assets, including $37.0 million
in cash. Products Corporation did not assume (i) liabilities associated with
the Retained Brands to the extent such liabilities were not reflected on the
books and records of Holdings or, if so reflected, exceeded the reserves
recorded on Holdings' books, (ii) certain income tax liabilities arising
prior to January 1, 1992 to the extent such liabilities exceeded the reserves
81
<PAGE>
recorded on Holdings' books as of January 1, 1992 or were not of the nature
reserved for, (iii) other tax liabilities to the extent such liabilities are
related to the businesses and assets retained by Holdings, (iv) certain
liabilities related to agreements pursuant to which Holdings acquired or sold
certain of its businesses except to the extent such liabilities relate to
assets transferred to Products Corporation and (v) liabilities associated
with certain self-funded risks related to LabCorp. to the extent that such
liabilities exceeded the reserves recorded on Holdings' books immediately
prior to the transfer ((i) through (v) are collectively, the "Excluded
Liabilities"). In connection with the Transfer Agreements, substantially all
employees of Holdings became employees of Products Corporation. Holdings
agreed to indemnify Revlon, Inc. and Products Corporation against losses
arising from the Excluded Liabilities, and Revlon, Inc. and Products
Corporation agreed to indemnify Holdings against losses arising from the
liabilities assumed by Products Corporation. The amounts reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1996, 1995
and 1994 were $1.4 million, $4.0 million and $7.4 million, respectively.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Products Corporation and Revlon, Inc. entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which
Products Corporation assumed all rights, liabilities and obligations under
all of Holdings' benefit plans, arrangements and agreements, including
obligations under the Revlon Employees' Retirement Plan and the Revlon
Employees' Savings and Investment Plan. Products Corporation was substituted
for Holdings as sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered into
an operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services Agreement") pursuant to which Products
Corporation manufactures, markets, distributes, warehouses and administers,
including the collection of accounts receivable, the Retained Brands for
Holdings. Pursuant to the Operating Services Agreement, Products Corporation
is reimbursed an amount equal to all of its and Revlon, Inc.'s direct and
indirect costs incurred in connection with furnishing such services, net of
the amounts collected by Products Corporation with respect to the Retained
Brands, payable quarterly. The net amounts reimbursed by Holdings to Products
Corporation for such direct and indirect costs for 1996, 1995 and 1994 were
$5.1 million, $8.6 million and $11.5 million, respectively. Holdings also
pays Products Corporation a fee equal to 5% of the net sales of the Retained
Brands, payable quarterly. The fees paid by Holdings to Products Corporation
pursuant to the Operating Services Agreement for services with respect to the
Retained Brands for 1996, 1995 and 1994 were approximately $0.6 million, $1.7
million and $1.9 million, respectively. The Operating Services Agreement may
be terminated by either party on 90 days' notice; provided, however, that
Revlon, Inc. may not terminate the Operating Services Agreement during such
time as any contracts with third parties relating to the Retained Brands
entered into with the consent of Revlon, Inc. or Products Corporation remain
in effect. As part of the Operating Services Agreement, Holdings has granted
Products Corporation a right of first refusal with respect to any proposed
sale or other disposition by Holdings of any of the Retained Brands.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered
into reimbursement agreements (the "Reimbursement Agreements") pursuant to
which (i) MacAndrews Holdings is obligated to provide certain professional
and administrative services, including employees, to Revlon, Inc. and its
subsidiaries, including Products Corporation, and purchase services from
third party providers, such as insurance and legal and accounting services,
on behalf of Revlon, Inc. and its subsidiaries, including Products
Corporation, to the extent requested by Products Corporation, and (ii)
Products Corporation is obligated to provide certain professional and
administrative services, including employees, to MacAndrews Holdings and
purchase services from third party providers, such as insurance and legal and
accounting services, on behalf of MacAndrews Holdings to the extent requested
by MacAndrews Holdings, provided that in each case the performance of such
services does not cause an unreasonable burden to MacAndrews Holdings or
Products Corporation, as the case may be. Products Corporation
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reimburses MacAndrews Holdings for the allocable costs of the services
purchased for or provided to Products Corporation and for reasonable
out-of-pocket expenses incurred in connection with the provision of such
services. MacAndrews Holdings reimburses Products Corporation for the
allocable costs of the services purchased for or provided to MacAndrews
Holdings and for the reasonable out-of-pocket expenses incurred in connection
with the purchase or provision of such services. In addition, in connection
with certain insurance coverage provided by MacAndrews Holdings, Products
Corporation obtained letters of credit under the standby letter of credit
facility (which aggregated approximately $26.4 million as of December 31,
1996) to support certain self-funded risks of MacAndrews Holdings and its
affiliates, including Revlon, Inc., associated with such insurance coverage.
The costs of such letters of credit are allocated among, and paid by, the
affiliates of MacAndrews Holdings, including Revlon, Inc., which participate
in the insurance coverage to which the letters of credit relate. The Company
expects that these self-funded risks will be paid in the ordinary course and,
therefore, it is unlikely that such letters of credit will be drawn upon.
MacAndrews Holdings has agreed to indemnify Revlon, Inc. and Products
Corporation to the extent amounts are drawn under any of such letters of
credit with respect to claims for which Products Corporation is not
responsible. The net amounts reimbursed by MacAndrews Holdings to Products
Corporation for the services provided under the Reimbursement Agreements for
1996, 1995 and 1994 were $2.2 million, $3.0 million and $1.6 million,
respectively. Each of Revlon, Inc. and Products Corporation, on the one hand,
and MacAndrews Holdings on the other, has agreed to indemnify the other party
for losses arising out of the provision of services by it under the
Reimbursement Agreements other than losses resulting from its willful
misconduct or gross negligence. The Reimbursement Agreements may be
terminated by either party on 90 days' notice. The Company does not expect
Revlon, Inc. to request services under the Reimbursement Agreements unless
their costs would be at least as favorable to Revlon, Inc. as could be
obtained from unaffiliated third parties.
In March 1993, Revlon Worldwide and MacAndrews Holdings entered into a
reimbursement agreement pursuant to which MacAndrews Holdings agreed to
provide third party services to Revlon Worldwide on the same basis as it
provides services to Revlon, Inc., and Revlon Worldwide agreed to indemnify
MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to
indemnify MacAndrews Holdings under the Reimbursement Agreements. There were
no services provided and no payments made pursuant to this agreement during
1996, 1995 or 1994.
TAX SHARING AGREEMENT
Holdings, Revlon Worldwide, Revlon, Inc. and Products Corporation are for
federal income tax purposes included in the affiliated group of which Mafco
Holdings is the common parent, and the Company's, Revlon Worldwide's, Revlon,
Inc.'s and Product Corporation's federal taxable income and loss will be
included in such group's consolidated tax return filed by Mafco Holdings. The
Issuer, Revlon Worldwide, Revlon, Inc. and Products Corporation also may be
included in certain state and local tax returns of Mafco Holdings or its
subsidiaries.
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain of
its subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "1992 Tax Sharing Agreement"), pursuant to which
Mafco Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
against federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings
other than Revlon, Inc. or Products Corporation and its subsidiaries) is the
common parent for taxable periods beginning on or after January 1, 1992
during which Revlon, Inc., Products Corporation or a subsidiary of Products
Corporation is a member of such group. Pursuant to the 1992 Tax Sharing
Agreement, for all taxable periods beginning on or after January 1, 1992,
Revlon, Inc. will pay to Holdings amounts equal to the taxes that Revlon,
Inc. would otherwise have to pay if it were to file separate federal, state
or local income tax returns (including any amounts determined to be due as a
result of a redetermination arising from an audit or otherwise of the
consolidated or combined tax liability relating to any such period which is
attributable to Revlon, Inc.), except that Revlon, Inc. will not be entitled
to carry back any losses to taxable periods ending prior to January 1, 1992.
No payments are required by Revlon, Inc. if and to the extent Products
Corporation is
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prohibited under the Credit Agreement from making tax sharing payments to
Revlon, Inc. The Credit Agreement prohibits Products Corporation from making
cash tax sharing payments other than in respect of state income taxes.
In March 1993, Revlon Worldwide and Mafco Holdings entered into a tax
sharing agreement (the "1993 Tax Sharing Agreement" and, together with the
1992 Tax Sharing Agreement, the "Tax Sharing Agreements") pursuant to which,
for all taxable periods beginning on or after January 1, 1993, Revlon
Worldwide will pay to Mafco Holdings amounts equal to the taxes that Revlon
Worldwide would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability
relating to any such period which is attributable to Revlon Worldwide).
Since the payments to be made by Revlon, Inc. under the 1992 Tax Sharing
Agreement and by Revlon Worldwide under the 1993 Tax Sharing Agreement will
be determined by the amount of taxes that Revlon, Inc. or Revlon Worldwide,
as the case may be, would otherwise have to pay if it were to file separate
federal, state or local income tax returns, the Tax Sharing Agreements will
benefit Mafco Holdings to the extent Mafco Holdings can offset the taxable
income generated by Revlon, Inc. or Revlon Worldwide against losses and tax
credits generated by Mafco Holdings and its other subsidiaries. There were no
cash tax payments made by Revlon, Inc. or Revlon Worldwide pursuant to the
Tax Sharing Agreements for 1996, 1995 or 1994.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing reimbursement
agreement (the "Financing Reimbursement Agreement") in 1992 pursuant to which
Holdings agreed to reimburse Products Corporation for Holdings' allocable
portion of (i) the debt issuance cost and advisory fees related to the
capital restructuring of Holdings and (ii) interest expense attributable to
the higher cost of funds paid by Products Corporation under the credit
agreement in effect at that time as a result of additional borrowings for the
benefit of Holdings in connection with the assumption of certain liabilities
by Products Corporation under the Asset Transfer Agreement and the repurchase
of Original Senior Subordinated Notes from affiliates. The amount of interest
reimbursed by Holdings for 1994 was approximately $0.8 million and was
evidenced by noninterest-bearing promissory notes originally due and payable
on June 30, 1995. In connection with the execution of the 1995 Credit
Agreement in February 1995, the $13.3 million in notes payable by Holdings to
Products Corporation under the Financing Reimbursement Agreement was offset
against the $25.0 million advance (the "Advance") payable by Products
Corporation to Holdings (see "--Other Related Transactions") and Holdings
agreed not to demand payment under the resulting $11.7 million note payable
by Products Corporation so long as any indebtedness remained outstanding
under the 1995 Credit Agreement. In connection with the execution of the 1995
Credit Agreement in February 1995, the Financing Reimbursement Agreement was
amended and extended to provide that Holdings would reimburse Products
Corporation for a portion of the debt issuance costs and advisory fees
related to the 1995 Credit Agreement (which portion was approximately $4.7
million and was evidenced by a noninterest-bearing promissory note payable on
June 30, 1996) and 1 1/2% per annum of the average balance outstanding under
the 1995 Credit Agreement and the average balance outstanding under working
capital borrowings from affiliates through June 30, 1996 (see "--Other
Related Transactions"), and such amounts were evidenced by a
noninterest-bearing promissory note payable on June 30, 1996. The amount of
interest reimbursed by Holdings for 1995 was approximately $4.2 million (see
"--Other Related Transactions"). As of December 31, 1995 the aggregate amount
of notes payable by Holdings under the Financing Reimbursement Agreement was
$8.9 million. In June 1996, $10.9 million in notes due to Products
Corporation, which included $2.0 million of interest reimbursement in 1996,
under the Financing Reimbursement Agreement from Holdings was offset against
a $11.7 million demand note payable by Products Corporation to Holdings. The
Financing Reimbursement Agreement expired on June 30, 1996.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of the Revlon IPO, Revlon, Inc. and Revlon
Worldwide entered into the Registration Rights Agreement pursuant to which
Revlon Worldwide and certain transferees of Common
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Stock held by Revlon Worldwide (the "Revlon, Inc. Holders") have the right to
require Revlon, Inc. to register all or part of the Class A Common Stock
owned by such Revlon, Inc. Holders and the Class A Common Stock issuable upon
conversion of the Class B Common Stock owned by such Revlon, Inc. Holders
under the Securities Act (a "Demand Registration"); provided that Revlon,
Inc. may postpone giving effect to a Demand Registration up to a period of 30
days if Revlon, Inc. believes such registration might have a material adverse
effect on any plan or proposal by Revlon, Inc. with respect to any financing,
acquisition, recapitalization, reorganization or other material transaction,
or Revlon, Inc. is in possession of material non-public information that, if
publicly disclosed, could result in a material disruption of a major
corporate development or transaction then pending or in progress or in other
material adverse consequences to Revlon, Inc. Revlon Worldwide does not have
any present intention to request any such registration. In addition, the
Revlon, Inc. Holders will have the right to participate in registrations by
Revlon, Inc. of its Class A Common Stock (a "Piggyback Registration"). The
Revlon, Inc. Holders will pay all out-of-pocket expenses incurred in
connection with any Demand Registration. The Company will pay any expenses
incurred in connection with a Piggyback Registration, except for underwriting
discounts, commissions and expenses attributable to the shares of Class A
Common Stock sold by such Revlon, Inc. Holders.
NON-RECOURSE GUARANTY
Pursuant to its Non-Recourse Guaranty, the Issuer has guaranteed, on a
non-recourse basis, the obligations of Mafco Holdings, as guarantor, under
$650 million term and revolving credit facilities. Such credit facilities are
provided by a group of lenders, whose individual members change from time to
time, to Mafco Finance Corp., a wholly owned subsidiary of Mafco Holdings and
an affiliate of the Issuer. Each credit facility terminates on March 20, 1999
and borrowings thereunder bear interest, at the borrower's option, at (i) a
base rate plus 2.5% or (ii) a Eurodollar rate plus 4.5%.
To secure its obligations under the Non-Recourse Guaranty, the Issuer has
pledged 529 shares of common stock of Revlon Worldwide (representing 52.9% of
the outstanding shares) and, after the Revlon Worldwide Merger, will pledge
22,500,000 shares of Class B Common Stock of Revlon, Inc. (representing
approximately 44.0% of the outstanding shares of Revlon, Inc. Common Stock),
in each case, that are owned by the Issuer and are not pledged as security
for the Notes. See "Risk Factors -- Control by MacAndrews & Forbes."
Borrowings under such credit facilities were used to finance a portion of
the capital contribution made by MacAndrews & Forbes to the Issuer.
OTHER RELATED TRANSACTIONS
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility
for a term of up to 10 years with an annual rent of $1.4 million and certain
shared operating expenses payable by Products Corporation which, together
with the annual rent are not to exceed $2.0 million per year. Pursuant to an
assumption agreement dated February 18, 1993, Holdings agreed to assume all
costs and expenses of the ownership and operation of the Edison facility as
of January 1, 1993, other than (i) the operating expenses for which Products
Corporation is responsible under the Edison Lease and (ii) environmental
claims and compliance costs relating to matters which occurred prior to
January 1, 1993 up to an amount not to exceed $8.0 million (the amount of
such claims and costs for which Products Corporation is responsible, the
"Environmental Limit"). In addition, pursuant to such assumption agreement,
Products Corporation agreed to indemnify Holdings for environmental claims
and compliance costs relating to matters which occurred prior to January 1,
1993 up to an amount not to exceed the Environmental Limit and Holdings
agreed to indemnify Products Corporation for environmental claims and
compliance costs relating to matters which occurred prior to January 1, 1993
in excess of the Environmental Limit and all such claims and costs relating
to matters occurring on or after January 1, 1993. Pursuant to an occupancy
agreement, during 1996 and 1995 Products Corporation rented a portion of the
administration building located at the Edison facility and space for a retail
store of Products Corporation. Products Corporation provides certain
administrative services, including accounting, for Holdings with respect to
the Edison facility pursuant to
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which Products Corporation pays on behalf of Holdings costs associated with
the Edison facility and is reimbursed by Holdings for such costs, less the
amount owed by Products Corporation to Holdings pursuant to the Edison Lease
and the occupancy agreement. The net amount reimbursed by Holdings to
Products Corporation for such costs with respect to the Edison facility for
1996, 1995 and 1994 was $1.1 million, $1.2 million and $2.1 million,
respectively.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow. Products Corporation assumed
substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4 million. The assets acquired and
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, prior period financial
statements have been restated as if the acquisition took place at the
beginning of the earliest period. In addition to the liabilities assumed,
Products Corporation paid $4.1 million to Holdings, which payment was
accounted for as an increase in capital deficiency. Credit Suisse First
Boston Corporation, a nationally recognized investment banking firm, rendered
its written opinion that the terms of the purchase are fair from a financial
standpoint to Products Corporation.
Effective January 1, 1994, Products Corporation sold the inventory,
contracts, dedicated tools, dies and molds, intellectual property and a
license agreement relating to the NEW ESSENTIALS brand to Holdings for $2.2
million (representing the net book value of such brand which Products
Corporation believes approximated its fair market value at the time of sale),
and the Operating Services Agreement was amended to include NEW ESSENTIALS as
a "Retained Brand."
During 1996, 1995 and 1994, Products Corporation leased certain facilities
to MacAndrews & Forbes or its affiliates pursuant to occupancy agreements and
leases including space at Products Corporation's New York headquarters and at
Products Corporation's offices in London and Tokyo. The rent paid by
MacAndrews & Forbes or its affiliates to Products Corporation for 1996, 1995
and 1994 was $4.6 million, $5.3 million and $4.1 million, respectively.
During 1992, Holdings made the Advance of $25.0 million to Products
Corporation. The Advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under its then existing credit agreement.
The note was reduced to $11.7 million as a result of the offset against it of
amounts owed to Products Corporation by Holdings under the Financing
Reimbursement Agreement and in June 1996, amounts due under the Financing
Reimbursement Agreement were offset against the note. Holdings agreed not to
demand payment under the note so long as any indebtedness remained
outstanding under the 1995 Credit Agreement.
In October 1993, Products Corporation borrowed from Holdings approximately
$23.2 million, as adjusted and subject to further adjustment for expenses,
representing certain amounts received by Holdings from an escrow account
relating to the sale by Holdings of certain of its businesses. In July 1995,
Products Corporation borrowed from Holdings approximately $0.8 million,
representing certain amounts received by Holdings relating to an arbitration
arising out of the sale by Holdings of certain of its businesses. In 1995,
Products Corporation borrowed from Holdings approximately $5.6 million,
representing certain amounts received by Holdings from the sale by Holdings
of certain of its businesses. Such amounts are evidenced by
noninterest-bearing promissory notes. Holdings agreed not to demand payment
under such notes so long as any indebtedness remains outstanding under the
Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees from
Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1996. The interest rates for such borrowings
are more favorable to Products Corporation than interest rates under the
Credit
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Agreement and, for borrowings occurring prior to the execution of the Credit
Agreement, the credit facility in effect at the time of such borrowing. The
amount of interest paid by Products Corporation for such borrowings for 1996,
1995 and 1994 was $0.5 million, $1.2 million and $1.1 million, respectively.
In November 1993, Products Corporation assigned to Holdings a lease for
warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of Ronald O. Perelman. The N.J. Warehouse had become vacant as a result of
divestitures and restructuring of Products Corporation. The lease has annual
lease payments of approximately $2.3 million and terminates on June 30, 2005.
In consideration for Holdings assuming all liabilities and obligations under
the lease, Products Corporation paid Holdings $7.5 million (for which a
liability was previously recorded) in three installments of $2.5 million each
in January 1994, January 1995 and January 1996. Credit Suisse First Boston
Corporation, a nationally recognized investment banking firm, rendered its
written opinion that the terms of the lease transfer were fair from a
financial standpoint to Products Corporation. During 1996, 1995 and 1994,
Products Corporation paid certain costs associated with the N.J. Warehouse on
behalf of Holdings and was reimbursed by Holdings for such amount. The
amounts reimbursed by Holdings to Products Corporation for such costs were
$0.2 million, $0.2 million and $0.3 million for 1996, 1995 and 1994,
respectively.
During 1996, 1995 and 1994, Products Corporation used an airplane which
was owned by a corporation of which Messrs. Gittis, Drapkin and Levin were
the sole stockholders. Products Corporation paid approximately $0.2 million,
$0.4 million and $0.5 million for the usage of the airplane in 1996, 1995 and
1994, respectively. As of December 31, 1996, Mr. Levin no longer holds an
ownership interest in the corporation that owned the airplane.
Consolidated Cigar, an affiliate of Products Corporation, assembles
lipstick cases for Products Corporation. Products Corporation paid
approximately $1.0 million, $1.0 million and $0.6 million for such services
in 1996, 1995 and 1994, respectively.
In the fourth quarter of 1996, Products Corporation and certain of its
subsidiaries purchased an inactive subsidiary from an affiliate for net cash
consideration of approximately $3.0 million in a series of transactions in
which Products Corporation expects to realize certain tax benefits in future
years.
During 1994, the Company was retained by an affiliate, Meridian, to act as
licensing agent for Meridian's trademarks. The Company will receive a
percentage of any royalties generated by such licenses. No royalties were
earned by Meridian for 1996, 1995 or 1994. However, Meridian paid Products
Corporation approximately $0.1 million in 1994 for reimbursement of expenses
incurred in connection with such licensing activities.
In January 1995, Products Corporation agreed to license certain of its
trademarks to Guthy-Renker Corporation ("Guthy-Renker"), a corporation in
which an affiliate of MacAndrews & Forbes held a 37.5% equity interest, to be
used by Guthy-Renker in connection with the marketing and sale of hair
extensions and hair pieces. The amount paid by Guthy-Renker to Products
Corporation pursuant to such license for 1995 was less than $60,000. In
connection with this licensing arrangement, Guthy-Renker agreed to use
Products Corporation as its exclusive supplier of hair extensions and hair
pieces. Guthy-Renker purchased $1.1 million of wigs from Products Corporation
during 1995. Products Corporation terminated the license with Guthy-Renker
during 1995.
The Company believes, and the Board of Directors of Revlon, Inc. or
Products Corporation, as applicable, has determined that the terms of the
foregoing transactions are at least as favorable to Revlon, Inc. or Products
Corporation, as applicable, as those that could be obtained from unaffiliated
third parties.
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DESCRIPTION OF THE NOTES
The New Notes will be issued under the Indenture dated as of March 1, 1997
between the Issuer and The Bank of New York, as trustee (the "Trustee"), a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part. The following summary, which describes
certain provisions of the Indenture and the Notes, does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and all the
provisions of the Indenture and the Notes, including the definitions therein
of terms not defined in this Prospectus. Certain terms used herein are
defined below under "Certain Definitions." The New Notes are identical in all
material respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except
that, if the Exchange Offer is not consummated by September 29, 1997,
interest will accrue on the Old Notes (in addition to the accrual of Original
Issue Discount) from and including such date until but excluding the date of
consummation of the Exchange Offer payable in cash semiannually in arrears on
March 15 and September 15, commencing March 15, 1998, at a rate per annum
equal to .50% of the Accredited Value of the Old Notes as of the September 15
or March 15 immediately preceding such interest payment date.
GENERAL
The Notes will mature on March 15, 2001. The Trustee authenticated and
delivered Old Notes for original issue in an aggregate principal amount at
maturity of $770 million.
The Old Notes were offered at a substantial discount from their principal
amount. See "Certain U.S. Federal Income Tax Considerations." There will be
no periodic cash payments of interest, except as described below. The New
Notes will be treated as a continuation of the Old Notes, which were issued
at an Original Issue Discount (the difference between the original issue
price of the Notes and their principal amount at maturity). The calculation
of the accrual of Original Issue Discount in the period during which a New
Note remains outstanding will be on a semi-annual bond equivalent basis using
a 360-day year composed of twelve 30-day months; such accrual will commence
from the date of original issue of the Notes. The aggregate principal amount
at maturity of the Notes represents a yield to maturity of 10.75%, without
giving effect to any periodic payments of interest described below.
Redemption or purchase by the Issuer of a Note may cause the Original Issue
Discount and interest, if any, to cease to accrue on such Note, under the
terms and subject to the conditions of the Indenture.
If by September 29, 1997 neither (i) the Exchange Offer is consummated nor
(ii) a shelf registration statement with respect to the resale of the Old
Notes (the "Shelf Registration Statement") is declared effective, interest
will accrue (in addition to the accrual of Original Issue Discount) on the
Old Notes from and including such date until but excluding the earlier of (i)
the consummation of the Exchange Offer and (ii) the effective date of such
Shelf Registration Statement. In each case such interest will be payable in
cash semi-annually in arrears on March 15 and September 15, commencing March
15, 1998, at a rate per annum equal to .50% of the Accreted Value of the
Notes as of the Semi-Annual Accrual Date (as defined) immediately preceding
the interest payment date. Payments of such interest, if any, on Old Notes in
exchange for which the New Notes were issued will be made to the persons who,
at the close of business on March 1 or September 1 next preceding the
interest payment date, are registered holders of such Old Notes if such
record date occurs prior to such exchange, or are registered holders of the
New Notes if such record date occurs on or after the date of such exchange,
even if Notes are cancelled after the record date and on or before the
interest payment date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Holders of Old Notes accepted for exchange will
be deemed to have waived the right to receive any other payments or accrued
interest on the Old Notes.
Principal and interest will be payable at the office of the Trustee, but,
at the option of the Issuer, interest may be paid by check mailed to the
registered holders of the Notes at their registered addresses. The Notes will
be transferable and exchangeable at the office of the Trustee and will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and any integral multiple thereof. Wherever it is provided that the
Accreted Value, the Put Amount, the Due Amount or the principal amount at
maturity with respect to a Note will be paid, such provision will be deemed
to require the simultaneous payment of accrued and unpaid interest (if any)
on such Note.
Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the New Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
OPTIONAL REDEMPTION
On and after March 15, 2000, the Notes may be redeemed at the option of
the Issuer in whole, or from time to time in part, at 102.6875% of the
Accreted Value thereof at the time of redemption (subject
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to the right of holders of record on the relevant record date to receive
interest due (if any) on the relevant interest payment date). In addition,
the Notes may be redeemed at the option of the Issuer in connection with the
occurrence of a Change of Control as a whole at a redemption price equal to
the sum of the Accreted Value thereof plus the Applicable Premium thereon at
the time of redemption (subject to the right of holders of record on the
relevant record date to receive interest due (if any) on the relevant
interest payment date).
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------ --------------
March 5, 1997 ......................................... $ 655.90
March 15, 1997......................................... 657.81
September 15, 1997 .................................... 693.17
March 15, 1998 ........................................ 730.42
September 15, 1998 .................................... 769.68
March 15, 1999 ........................................ 811.06
September 15, 1999 .................................... 854.65
March 15, 2000 ........................................ 900.59
September 15, 2000 .................................... 948.99
March 15, 2001 ........................................ 1,000.00
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (A) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (B) an amount equal to the
product of (i) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date and (ii) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date to
the Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180 (or, if the Semi-Annual Accrual Date immediately
preceding the Specified Date is March 5, 1997, the denominator of which is
10).
Notice of redemption will be mailed at least 30 days but not more than 60
days before any redemption date to each holder of Notes to be redeemed at its
registered address. Notes in denominations larger than $1,000 principal
amount at maturity may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued
interest (if any) on all Notes (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the
redemption date, on and after such date Accreted Value ceases to increase and
interest (if any) ceases to accrue on such Notes (or such portions thereof)
called for redemption.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to a Note at any time, the
greater of (i) 1.0% of the Accreted Value of such Note at such time and (ii)
the excess of (A) the present value at such time of the principal amount at
maturity plus any required interest payments due on such Note, computed using
a discount rate equal to the Treasury Rate plus 100 basis points, over (B)
the Accreted Value of such Note at such time.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for repayment or, in the case of defeasance, prior to the date of
deposit (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining average life to Stated Maturity) of the Notes; provided, however,
that if the average life to Stated Maturity of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United
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States Treasury securities for which such yields are given, except that if
the average life to Stated Maturity of the Notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
COLLATERAL
During the period from the Issue Date through the time of the Merger, the
Notes will be secured by a security interest in and a pledge by the Issuer of
all its right, title and interest in and to (i) 471 shares of Revlon
Worldwide Common Stock (representing 47.1% of the outstanding shares of
Revlon Worldwide Common Stock) plus 47.1% of any additional shares of Revlon
Worldwide Common Stock issued after the date of the Indenture and prior to
the Merger (collectively, the "Revlon Worldwide Pledged Shares") and (ii) all
dividends, cash, instruments and other property and proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any of the foregoing (the "Revlon Worldwide Collateral").
After the Merger, the Notes will be secured by a security interest in and
a pledge by the Issuer of all its right, title and interest in and to (i) a
number of shares of Common Stock of Revlon, Inc. equal to the Revlon, Inc.
Collateral Number (collectively, the "Revlon, Inc. Pledged Shares," which
term shall exclude any Withdrawn Shares but shall include any Other Revlon
Shares (as defined below); and the Revlon, Inc. Pledged Shares, together with
the Revlon Worldwide Pledged Shares, are referred to as the "Pledged Shares")
and (ii) all dividends, cash, instruments and other property and proceeds
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any of the Revlon, Inc. Pledged Shares (clauses (i) and
(ii) collectively, the "Revlon, Inc. Collateral," which term shall exclude
any Withdrawn Collateral). The Indenture will permit the Issuer, so long as
no Default has occurred and is continuing and so long as the Class A shares
of Common Stock of Revlon, Inc. and the Class B shares of Common Stock of
Revlon, Inc. are substantially identical except with respect to voting
rights, to withdraw Revlon, Inc. Pledged Shares of either class of Common
Stock of Revlon, Inc., in whole or in part, by substituting therefor with the
Trustee an equal number of shares of the other class of Common Stock of
Revlon, Inc. (such other shares, the "Other Revlon Shares").
The Indenture also will permit the Issuer to release Revlon, Inc.
Collateral in whole or in part by substituting therefor with the Trustee cash
or U.S. Government Obligations sufficient for the payment of principal at
maturity or redemption of, and interest (if any) on, all the Notes or the
applicable pro rata portion thereof and by satisfying certain other
conditions, including the delivery to the Trustee of a certificate of an
independent accounting firm as to the sufficiency of such cash and U.S.
Government Obligations (such cash and U.S. Government Obligations, the
"Substitute Collateral"). The Revlon, Inc. Pledged Shares to be withdrawn
will consist of Class A shares of Revlon, Inc. Common Stock and Class B
shares of Revlon, Inc. Common Stock in such proportions as the Issuer shall
elect. If less than all of the Revlon, Inc. Collateral is to be released, the
Issuer will be required to deliver an Officer's Certificate to the Trustee
stating that the ratio of (x) the Market Value of the remaining Revlon, Inc.
Collateral, after giving effect to such release and all prior releases of
Revlon, Inc. Collateral, to (y) the aggregate Accreted Value of that portion
of the outstanding Notes not covered by cash or U.S. Government Obligations
(the "Revlon, Inc.-Secured Portion"), after giving effect to such release, is
at least equal to such ratio immediately prior to such release; provided,
however, that no such release shall be permitted if (x) such ratio, after
giving effect to the release, would be less than 1.5 to 1.0 or (y) the Market
Value of the remaining Revlon, Inc. Collateral would be less than the
aggregate principal amount at maturity of the Revlon, Inc.-Secured Portion,
after giving effect to such release.
After the Merger, in connection with or after a redemption of the Notes in
part or upon delivery from time to time by the Issuer of less than all the
Notes for cancellation, the Indenture will permit the Issuer to request a
release of a portion of the Revlon, Inc. Collateral, so long as (x) the ratio
of the Market Value of the remaining Revlon, Inc. Collateral to the aggregate
Accreted Value of the Notes not so redeemed
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or delivered and not covered by cash or U.S. Government Obligations, is at
least equal to such ratio immediately prior to such release; provided,
however, that no such release shall be permitted if (x) such ratio, after
giving effect to the release, would be less than the 1.5 to 1.0 or (y) the
Market Value of the remaining Revlon, Inc. Collateral would be less than the
aggregate principal amount at maturity of the Revlon, Inc.-Secured Portion,
after giving effect to such release. The Revlon, Inc. Pledged Shares to be
withdrawn will consist of Class A shares of Revlon, Inc. Common Stock and
Class B shares of Revlon, Inc. Common Stock in such proportions as the Issuer
shall elect. In addition, in connection with a redemption of Notes, or with a
purchase of Notes pursuant to the provisions described under "Change of
Control," or with the payment at maturity of the principal amount of the
Notes, the Indenture permits the Issuer to request, subject to certain
conditions, a release of Substitute Collateral to the extent necessary to pay
the redemption price, purchase price or principal amount at maturity, as the
case may be.
The Revlon Worldwide Collateral, the Revlon, Inc. Collateral and the
Substitute Collateral are referred to herein as the "Collateral."
The security interest in the Revlon Worldwide Collateral and the Revlon,
Inc. Collateral will be a first priority security interest. However, absent
any Default, the Issuer will be able to vote, as it sees fit in its sole
discretion, the Revlon Worldwide Pledged Shares, prior to the Merger, and the
Revlon, Inc. Pledged Shares, after the Merger, provided that no vote may be
cast, and no consent, waiver or ratification given or action taken, which
would be inconsistent with or violate any provision of the Indenture or the
Notes.
Notwithstanding anything to the contrary in the six preceding paragraphs,
upon satisfaction by the Issuer after the Merger of the conditions to its
legal defeasance option or its covenant defeasance option or the discharge of
the Indenture, the Lien of the Indenture on all the Collateral will terminate
and all the Collateral will be released without any further action by the
Trustee or any other person.
There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indenture following an Event of Default would be sufficient
to satisfy payments due on the Notes. In addition, the ability of the holders
of Notes to realize upon the Collateral may be subject to certain bankruptcy
law limitations in the event of a bankruptcy.
If an Event of Default occurs under the Indenture, the Trustee, on behalf
of the holders of the Notes, in addition to any rights or remedies available
to it under the Indenture, may take such action as it deems advisable to
protect and enforce its rights in the Collateral, including the institution
of foreclosure proceedings. The proceeds received by the Trustee from any
foreclosure will be applied by the Trustee first to pay the expenses of such
foreclosure and fees and other amounts then payable to the Trustee under the
Indenture and, thereafter, to pay the Default Amount (as defined) on the
Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require the Issuer to
repurchase all or any part of such holder's Notes at a purchase price equal
to their Put Amount as of the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest due (if
any) on the relevant interest payment date):
(i) prior to the earlier to occur of the first public offering of Voting
Stock of Parent or the first public offering of Voting Stock of the Issuer,
the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person will be
deemed to have "beneficial ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of the Issuer,
whether as a result of issuance of securities of the Issuer, any merger,
consolidation, liquidation or dissolution of the Issuer, any direct or
indirect transfer of securities by Parent or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders will be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as the Permitted Holders "beneficially own," directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of the
parent corporation);
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(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the "beneficial owner," directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Issuer; provided, however,
that the Permitted Holders "beneficially own," directly or indirectly, in
the aggregate a lesser percentage of the total voting power of the Voting
Stock of the Issuer than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Issuer (for the
purposes of this clause (ii), such other person will be deemed to
"beneficially own" any Voting Stock of a specified corporation held by a
parent corporation, if such other person "beneficially owns," directly or
indirectly, more than 35% of the voting power of the Voting Stock of such
parent corporation and the Permitted Holders "beneficially own," directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of such parent corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Issuer
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Issuer was
approved by a vote of 66 2/3% of the directors of the Issuer then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Issuer
then in office; or
(iv) a "Change of Control," as defined in any Products Corporation
Indenture, shall have occurred as a result of a pledgee (or pledgees) or
their transferees following foreclosure of shares of Common Stock of Revlon,
Inc. becoming the "beneficial owner" (as defined in such Products
Corporation Indenture) of such shares.
Within 45 days following any Change of Control, the Issuer will mail a
notice to each holder stating (i) that a Change of Control has occurred and
that such holder has the right to require the Issuer to repurchase all or any
part of such holder's Notes at a purchase price in cash equal to their Put
Amount as of the date of purchase (subject to the right of holders of record
on the relevant record date to receive interest due (if any) on the relevant
interest payment date); (ii) the circumstances and relevant facts regarding
such Change of Control; (iii) the repurchase date (which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions, determined by the Issuer consistent with the
Indenture, that a holder must follow in order to have its Notes repurchased.
Subject to the limitations contained in the Credit Agreement and certain
other debt instruments of the Company's subsidiaries, the Company could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that could increase the amount of
indebtedness outstanding at such time or otherwise affect the Company's
capital structure or credit ratings. If such a transaction did not constitute
a Change of Control, the holders of the Notes would not have the protection
afforded by the right to require repurchase of the Notes. If such a
transaction did constitute a Change of Control, however, the holders would
have the right to require repurchase of the Notes as described above. See
"Risk Factors -- Issuer's Ability to Pay Principal of Notes," "Risk Factors
- -- Security for Notes; Potential for Diminution" and "Risk Factors -- Control
by MacAndrews & Forbes."
The provisions relating to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes. The Company may not waive the right of the holders to
require the Company to repurchase the Notes or any of the other provisions
discussed below without such consent of the holders.
The Issuer's ability to pay cash to holders of Notes upon a purchase may
be limited by the Issuer's then existing financial resources. The Issuer will
comply with any tender offer rules under the Exchange Act which may then be
applicable, including Rule 14e-1, in connection with any offer required to be
made by the Issuer to repurchase the Notes as a result of a Change of
Control.
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The provisions relative to the Issuer's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount at maturity of the Notes.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt of the Issuer, Revlon Worldwide and Revlon, Inc.;
Limitation on Preferred Stock of Revlon Worldwide, Revlon, Inc. and Products
Corporation. (a) The Issuer will not, and will not permit (i) Revlon, Inc.
or (ii) prior to the Merger, Revlon Worldwide, to, issue any Debt; provided,
however, that the foregoing shall not prohibit the issuance of the following
Debt:
(1) the Notes and Debt issued by the Issuer in exchange for, or the
proceeds of which are used to Refinance, any Debt permitted by this
clause (1); provided, however, that in the case of any Debt (other than
any New Notes) issued in connection with a Refinancing, (i) the Debt so
issued does not provide for any payment of principal or interest in cash
prior to the Stated Maturity of the Notes, (ii) the principal amount (or,
in the case of Debt issued at a discount, the accreted value) of the Debt
so issued as of the date of the Stated Maturity of the Debt being
Refinanced will not exceed the sum of (A) the principal amount (or if the
Debt being Refinanced was issued at a discount, the accreted value) of
the Debt being Refinanced as of the date of the Stated Maturity of the
Debt being Refinanced and (B) any Refinancing Costs thereof, and (iii)
the Stated Maturity of the Debt so issued is later than the Stated
Maturity of the Notes;
(2) Debt owed to and held by Products Corporation or a Wholly Owned
Recourse Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Recourse Subsidiary ceasing to be a Wholly Owned Recourse Subsidiary or
any subsequent transfer of such Debt (other than to Products Corporation
or a Wholly Owned Recourse Subsidiary) will be deemed, in each case, to
constitute the issuance of such Debt by the Issuer, Revlon Worldwide or
Revlon, Inc., as the case may be;
(3) Debt of Revlon, Inc. outstanding on the Issue Date consisting of a
guarantee of Products Corporation's obligations under or in respect of
the Credit Agreement and any Debt issued in the form of a guarantee of
any other Debt of Products Corporation and its Subsidiaries permitted to
be issued as described under "Limitation on Debt of Products Corporation
and its Subsidiaries" below;
(4) the Revlon Worldwide Notes;
(5) any Secured Non-Recourse Guarantee;
(6) Debt of the Issuer acquired as a result of the Merger; and
(7) Debt of the Issuer that is not secured by a Lien on any assets,
property or Capital Stock owned by the Issuer or any of its Subsidiaries,
the proceeds of which Debt are used solely for deposit (or the purchase
of U.S. Government Obligations to be deposited) with the Escrow Agent in
an aggregate principal amount not to exceed the amount necessary,
together with the net proceeds of this Offering, to comply with the
Issuer's obligations described in the first paragraph under "--Escrow of
Proceeds and Other Amounts; Special Mandatory Redemption."
(b) The Issuer will not permit (i) Revlon, Inc. or Products Corporation
or (ii) prior to the Merger, Revlon Worldwide to issue any Preferred Stock;
provided, however, that Revlon, Inc. or Products Corporation may issue the
following Preferred Stock:
(1) Preferred Stock outstanding on the Issue Date and Preferred Stock
issued to Refinance any Preferred Stock permitted by this clause (1);
provided, however, that in the case of a Refinancing, the liquidation
value of the Preferred Stock so issued does not exceed the liquidation
value of the Preferred Stock so Refinanced plus any Refinancing Costs
thereof;
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(2) Preferred Stock (other than Preferred Stock described in clause
(1)) of Revlon, Inc. issued to and held by the Issuer and Preferred Stock
(other than Preferred Stock described in clause (1)) of Products
Corporation issued to and held by the Issuer or Revlon, Inc.; provided,
however, that any subsequent transfer of such Preferred Stock (other than
to the Issuer or a wholly owned Subsidiary of the Issuer), will be
deemed, in each case, to constitute the issuance of such Preferred Stock
by Revlon, Inc. or Products Corporation, as the case may be; and
(3) Preferred Stock (other than Preferred Stock described in clauses
(1) and (2) but including Preferred Stock described in the proviso to
clause (2)) issued by Products Corporation; provided, however, that the
liquidation value of any Preferred Stock issued pursuant to this clause
(3) will constitute Debt of Products Corporation for purposes of the
covenant described under "Limitation on Debt of Products Corporation and
its Subsidiaries" below and dividends on such Preferred Stock will be
included in determining Consolidated Interest Expense for purposes of
calculating the Consolidated EBITDA Coverage Ratio under the provision
described in the first paragraph of "Limitation on Debt of Products
Corporation and its Subsidiaries" below.
Limitation on Debt of Products Corporation and its Subsidiaries. The
Issuer will not permit Products Corporation or any Subsidiary of Products
Corporation to issue, directly or indirectly, any Debt; provided, however,
that Products Corporation and its Subsidiaries will be permitted to issue
Debt if, at the time of such issuance, the Consolidated EBITDA Coverage Ratio
for the period of the most recently completed four consecutive fiscal
quarters ending at least 45 days prior to the date such Debt is issued
exceeds the ratio of 2.50 to 1.0.
Notwithstanding the foregoing, Products Corporation and its Subsidiaries
may issue the following Debt:
(1) Debt issued pursuant to the Credit Agreement, any Refinancing
Agreement or any other credit agreement, indenture or other agreement, in an
aggregate principal amount not to exceed $600 million outstanding at any one
time;
(2) Debt (other than Debt described in clause (1) above) issued for
working capital and general corporate purposes in an aggregate principal
amount at the time of such issue which, when taken together with the
aggregate principal amount then outstanding of all other Debt issued
pursuant to this clause (2), will not exceed the sum of (i) 50% of the book
value of the inventory of Products Corporation and its consolidated
Subsidiaries and (ii) 80% of the book value of the accounts receivable of
Products Corporation and its consolidated Subsidiaries, in each case as
determined in accordance with GAAP;
(3) Debt (other than Debt described in clauses (1) and (2) above) in
respect of the undrawn portion of the face amount of or unpaid reimbursement
obligations in respect of letters of credit for the account of Products
Corporation or any of its Subsidiaries in an aggregate amount at any time
outstanding not to exceed the excess of (i) $150 million over (ii) the
undrawn portion of the face amount of or unpaid reimbursement obligations in
respect of letters of credit issued under the Credit Agreement, any
Refinancing Agreement or any other credit agreement, indenture or other
agreement pursuant to clause (1) above;
(4) Debt of Products Corporation issued to and held by a Wholly Owned
Recourse Subsidiary and Debt of a Subsidiary of Products Corporation issued
to and held by Products Corporation or a Wholly Owned Recourse Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock that results in any such Wholly Owned Recourse Subsidiary ceasing to
be a Wholly Owned Recourse Subsidiary or any subsequent transfer of such
Debt (other than to Products Corporation or a Wholly Owned Recourse
Subsidiary) will be deemed, in each case, to constitute the issuance of such
Debt by Products Corporation or of such Debt by such Subsidiary;
(5) the Debt Issued pursuant to each of the Products Corporation
Indentures and Debt issued to Refinance any Debt permitted by this clause
(5); provided, however, that, in the case of a Refinancing, the principal
amount of the Debt so issued may not exceed the principal amount of the Debt
so Refinanced plus any Refinancing Costs thereof;
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(6) Debt (other than Debt described in clause (1), (2), (3), (4) or (5)
above or (11) below) outstanding on the Issue Date and Debt issued to
Refinance any Debt permitted by this clause (6), or by the first paragraph
of this covenant; provided, however, that, in the case of a Refinancing, the
principal amount of the Debt so issued may not exceed the principal amount
of the Debt so Refinanced plus any Refinancing Costs thereof;
(7) Debt issued and arising out of purchase money obligations for
property acquired in an amount not to exceed, for the period through June
30, 1997, $15 million, plus for each period of twelve consecutive months
ending on June 30 thereafter, $15 million; provided, however, that any such
amounts which are available to be utilized during any 12-month period and
are not so utilized may be utilized during any succeeding period;
(8) Debt of a Subsidiary of Products Corporation issued and outstanding
on or prior to the date on which such Subsidiary was acquired by Products
Corporation (other than Debt issued as consideration in, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary of Products Corporation or was acquired by
Products Corporation);
(9) Debt issued to Refinance Debt referred to in the foregoing clause (8)
or this clause (9); provided, however, that the principal amount of such
Debt so issued may not exceed the principal amount of the Debt so Refinanced
plus any Refinancing Costs thereof;
(10) Non-Recourse Debt of a Non-Recourse Subsidiary; provided, however,
that if any such Debt thereafter ceases to be Non-Recourse Debt of a
Non-Recourse Subsidiary, then such event will be deemed to constitute the
issuance of such Debt by the issuer thereof;
(11) Permitted Affiliate Debt; and
(12) Debt (other than Debt described in clauses (1) through (11) above
and in the first paragraph of this covenant) in an aggregate principal
amount outstanding at any time not to exceed $150 million.
To the extent Products Corporation or any Subsidiary of Products
Corporation guarantees any Debt of Products Corporation or of a Subsidiary of
Products Corporation, such guarantee and such Debt will be deemed to be the
same indebtedness and only the amount of the indebtedness will be deemed to
be outstanding.
Limitation on Restricted Payments. (a) The Issuer will not, and will not
permit (i) Revlon, Inc., Products Corporation or any Subsidiary of Products
Corporation (other than a Non-Recourse Subsidiary), directly or indirectly,
or (ii) prior to the Merger, Revlon Worldwide, directly or indirectly, to
make any Restricted Payment if, at the time such Restricted Payment is made:
(1) a Default has occurred or is continuing (or would result therefrom);
or
(2) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (i) 50% of
Consolidated Net Income (or, if such aggregate Consolidated Net Income is a
deficit, minus 100% of such deficit) of the Issuer accrued during the period
(treated as one accounting period) from January 1, 1997, to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment and (ii) the aggregate Net Cash Proceeds from sales of
Capital Stock of the Issuer (other than Redeemable Stock or Exchangeable
Stock) or cash capital contributions (other than the Issuer Capital
Contribution) made to the Issuer.
(b) The preceding paragraph will not prohibit the following (none of which
will be included in the calculation of the amount of Restricted Payments,
except to the extent expressly provided in clause (v) below):
(i) so long as no Default has occurred and is continuing or would result
from such transaction, any Restricted Payment to the extent it consists of
Unrestricted Assets;
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(ii) any purchase, repurchase, redemption, defeasance or other
acquisition by a Non-Recourse Subsidiary of Non-Recourse Debt of such
Non-Recourse Subsidiary;
(iii) dividends or distributions made by Revlon Worldwide, Revlon, Inc.
or Products Corporation to the Issuer, Revlon Worldwide, or Revlon, Inc.
and, if Revlon, Inc. (or, after any merger or consolidation of Revlon, Inc.
and Products Corporation with each other, Products Corporation) is not
wholly owned, to its other stockholders on a pro rata basis;
(iv) dividends or distributions made by a Subsidiary of Products
Corporation to the Issuer, Revlon Worldwide, Revlon, Inc., Products
Corporation or a Subsidiary of Products Corporation and, if a Subsidiary of
Products Corporation is not wholly owned, to its other stockholders to the
extent they are not Affiliates of the Issuer;
(v) dividends paid within 60 days after the date of declaration thereof,
or Restricted Payments made within 60 days after the making of a binding
commitment in respect thereof, if at such date of declaration or commitment
such dividend or other Restricted Payment would have complied with this
covenant; provided, however, that at the time of payment of such dividend or
the making of such Restricted Payment no other Default has occurred or is
continuing (or will result therefrom); provided further, however, that such
dividend or other Restricted Payment shall be included in the calculation of
the amount of Restricted Payments; and
(vi) so long as no Default under the Products Corporation Indentures has
occurred and is continuing or would result from such transaction, amounts
paid or property transferred pursuant to the Permitted Transactions.
(c) The Issuer, Revlon Worldwide, Revlon, Inc., Products Corporation or
any Subsidiary of Products Corporation may take actions to make a Restricted
Payment in anticipation of the occurrence of any of the events described in
clause (b) of this covenant; provided, however, that the making of such
Restricted Payment will be conditioned upon the occurrence of such event.
Limitation on Restrictions on Distributions from Subsidiaries. (a) The
Issuer will not, and will not permit (i) Revlon, Inc. or (ii) prior to the
Merger, Revlon Worldwide, to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of
Revlon, Inc. to (x) pay dividends or make any other distributions on its
Capital Stock or pay any Debt owed to the Issuer or, prior to the Merger,
Revlon Worldwide, (y) make any loans or advances to the Issuer or, prior to
the Merger, Revlon Worldwide, or (z) transfer any of its property or assets
to the Issuer or, prior to the Merger, Revlon Worldwide, except: (1) any
encumbrance or restriction pursuant to an agreement in effect at or entered
into on the Issue Date; (2) any encumbrance or restriction with respect to
Revlon, Inc. pursuant to an agreement effecting a guarantee of Bank Debt or a
Refinancing of any Debt issued pursuant to an agreement referred to in clause
(1) above or this clause (2) or contained in any amendment to an agreement
referred to in clause (1) above or this clause (2); provided, however, that
any such encumbrance or restriction with respect to Revlon, Inc. is no less
favorable to the holders of Notes than the least favorable of the
encumbrances and restrictions with respect to Revlon, Inc. contained in the
agreements referred to in clause (1) above; and (3) any encumbrance or
restriction relating to Unrestricted Assets.
(b) The Issuer will not, and will not permit Products Corporation or any
Subsidiary of Products Corporation to, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of Products Corporation or any Subsidiary of Products Corporation to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Debt owed to the Issuer, (ii) make any loans or advances to the Issuer or
Revlon Worldwide or (iii) transfer any of its property or assets to the
Issuer or Revlon Worldwide, except as follows:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Subsidiary of
Products Corporation pursuant to an agreement relating to any Debt issued by
such Subsidiary on or prior to the date on
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which such Subsidiary was acquired by Products Corporation (other than
Debt issued as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Subsidiary became a
Subsidiary of Products Corporation or was acquired by Products
Corporation) and outstanding on such date;
(3) any encumbrance or restriction with respect to Products Corporation
or any Subsidiary of Products Corporation pursuant to an agreement effecting
an issuance of Bank Debt or a Refinancing of any other Debt issued pursuant
to an agreement referred to in clause (1) or (2) above or this clause (3)
(or in the case of Products Corporation, an issuance of any other Debt
permitted to be issued under the Indenture) or contained in any amendment to
an agreement referred to in clause (1) or (2) above or this clause (3);
provided, however, that any such encumbrance or restriction with respect to
Products Corporation or any Subsidiary of Products Corporation, as the case
may be, is no less favorable to the holders of the Notes than the least
favorable of the encumbrances and restrictions with respect to Products
Corporation or such Subsidiary of Products Corporation, as the case may be,
contained in the agreements referred to in clause (1) or (2) above;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease;
(5) in the case of clause (iii) above, restrictions contained in security
agreements securing Debt of Products Corporation or a Subsidiary of Products
Corporation (other than security agreements securing Debt of a Subsidiary of
Products Corporation issued in connection with any agreement referred to in
clause (1), (2) or (3) above) and restrictions contained in agreements
relating to a disposition of property of Products Corporation or a
Subsidiary of Products Corporation, to the extent such restrictions restrict
the transfer of the property subject to such agreements;
(6) any encumbrance or restriction binding on a Foreign Subsidiary
contained in an agreement pursuant to which such Foreign Subsidiary has
issued Debt consisting of working capital borrowings; and
(7) any encumbrance or restriction relating to a Non-Recourse Subsidiary.
Limitation on Liens and Sales of Assets and Subsidiary Stock. (a) The
Issuer will not, and will not permit (i) Revlon, Inc. or (ii) prior to the
Merger, Revlon Worldwide, to, make any Asset Disposition. The Issuer will not
create, incur or suffer to exist a Lien on the Collateral (other than the
Lien of the Indenture or the Escrow Agreement) or on any Unrestricted Assets
(other than a Lien to secure a Secured Non-Recourse Guarantee).
(b) The Issuer will not permit Products Corporation or any Subsidiary of
Products Corporation (other than a Non-Recourse Subsidiary) to make any Asset
Disposition unless (i) Products Corporation or such Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the
fair market value, as determined in good faith by the Board of Directors of
Products Corporation, the determination of which will be conclusive and
evidenced by a resolution of the Board of Directors of Products Corporation
(including as to the value of all non-cash consideration), of the Capital
Stock and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration consists of cash, cash equivalents, readily marketable
securities which Products Corporation intends, in good faith, to liquidate
promptly after such Asset Disposition or the assumption of liabilities
(including, in the case of the sale of the Capital Stock of a Subsidiary of
Products Corporation, liabilities of such Subsidiary) (provided, however,
that in respect of an Asset Disposition, more than 25% of the consideration
may consist of consideration other than cash, cash equivalents, such readily
marketable securities or such assumed liabilities if (x) such Asset
Disposition is approved by a majority of those members of the Board of
Directors of Products Corporation having no personal stake in such Asset
Disposition and (y) if such Asset Disposition involves aggregate
consideration in excess of $10 million (with the value of any non-cash
consideration being determined by a majority of those members of the Board of
Directors of Products Corporation having no personal stake in such Asset
Disposition), such Asset Disposition has been determined, in the written
opinion of a nationally recognized investment banking firm, to be fair from
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a financial point of view to Products Corporation or such Subsidiary, as the
case may be); and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by Products Corporation (or such
Subsidiary, as the case may be) at Products Corporation's election (1) to the
prepayment, repayment or repurchase of Debt of Products Corporation or Debt
of a Wholly Owned Recourse Subsidiary or, additionally in the case of an
Asset Disposition by a Subsidiary that is not a Wholly Owned Recourse
Subsidiary, Debt of such Subsidiary (in each case other than Debt owed to (i)
an Unrestricted Subsidiary, (ii) a Non-Recourse Subsidiary or (iii) an
Affiliate of the Issuer which is not a Subsidiary of the Issuer) (whether or
not the related loan commitment is permanently reduced in connection
therewith), (2) to the investment by Products Corporation or such Wholly
Owned Recourse Subsidiary (or, additionally in the case of an Asset
Disposition by a Subsidiary that is not a Wholly Owned Recourse Subsidiary,
the investment by such Subsidiary) in (x) assets to replace the assets that
were the subject of such Asset Disposition, (y) assets that (as determined by
the Board of Directors of Products Corporation, the determination of which
will be conclusive and evidenced by a resolution of such Board of Directors)
will be used in the businesses of Products Corporation and its Wholly Owned
Recourse Subsidiaries (or, additionally in the case of an Asset Disposition
by a Subsidiary that is not a Wholly Owned Recourse Subsidiary, the
businesses of such Subsidiary) existing on the Issue Date or in businesses
reasonably related thereto or (z) Temporary Cash Investments or (3) to make a
Restricted Payment to Revlon, Inc., Revlon Worldwide or the Issuer.
Notwithstanding the foregoing, Products Corporation and its Subsidiaries
will not be required to apply any Net Available Cash in accordance with this
paragraph (b) except to the extent that the aggregate Net Available Cash from
all Asset Dispositions made by Products Corporation and its Subsidiaries
which are not applied in accordance with this paragraph (b) exceed $10
million.
Limitation on Transactions with Affiliates. The Issuer will not, and will
not permit (i) Revlon, Inc., Products Corporation or any Subsidiary of
Products Corporation (other than a Non-Recourse Subsidiary) or (ii) prior to
the Merger, Revlon Worldwide, to conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Issuer or any legal or beneficial owner of 10% or more of
the voting power of the Voting Stock of the Issuer or with an Affiliate of
any such owner.
The provisions of the preceding paragraph will not prohibit (i) any
Restricted Payment permitted to be paid as described under "Limitation on
Restricted Payments" above, (ii) any transaction between the Issuer and any
of its Subsidiaries; provided, however, that no portion of any minority
interest in any such Subsidiary is owned by (x) any Affiliate (other than the
Issuer, Revlon Worldwide, Revlon, Inc., Products Corporation or a Wholly
Owned Recourse Subsidiary) of the Issuer or (y) any legal or beneficial owner
of 10% or more of the voting power of the Voting Stock of the Issuer or any
Affiliate of such owner (other than the Issuer, Revlon Worldwide, Revlon,
Inc., Products Corporation or any Wholly Owned Recourse Subsidiary), (iii)
any transaction between Subsidiaries of the Issuer; provided, however, that
no portion of any minority interest in any such Subsidiary is owned by (x)
any Affiliate (other than the Issuer, Revlon Worldwide, Revlon, Inc.,
Products Corporation or a Wholly Owned Recourse Subsidiary) of the Issuer or
(y) any legal or beneficial owner of 10% or more of the voting power of the
Voting Stock of the Issuer or any Affiliate of such owner (other than the
Issuer, Revlon Worldwide, Revlon, Inc., Products Corporation or any Wholly
Owned Recourse Subsidiary), (iv) any transaction between Revlon, Inc.,
Products Corporation or a Subsidiary of Products Corporation and its own
employee stock ownership plan, (v) any transaction with an officer or
director of Products Corporation or any Subsidiary of Products Corporation
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such officer or director); provided,
however, such officer holds, directly or indirectly, no more than 10% of the
outstanding Capital Stock of the Issuer, (vi) any Permitted Transaction,
(vii) the Merger, and (viii) with respect to Products Corporation and its
Subsidiaries, any transaction permitted by the first paragraph of the
covenant limiting transactions with Affiliates of any of the Products
Corporation Indentures.
Limitation on Other Business Activities. The Issuer will not (i) prior to
the Merger, engage in any trade or business other than (A) the ownership of
the Capital Stock of Revlon Worldwide and (B) the ownership of the Capital
Stock of one or more Unrestricted Subsidiaries and (ii) thereafter, engage in
any
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trade or business other than (A) the ownership of the Capital Stock of
Revlon, Inc., and (B) the ownership of the Capital Stock of one or more
Unrestricted Subsidiaries. The Issuer will not permit any Unrestricted
Subsidiary to engage in any business other than the ownership of Capital
Stock of one or more Unrestricted Subsidiaries and the ownership of
Unrestricted Assets. Unless Revlon, Inc. and Products Corporation have merged
with each other or have otherwise consolidated with each other, the Issuer
will not permit Revlon, Inc. to (i) engage in any trade or business other
than the ownership of the Capital Stock of Products Corporation or (ii) fail
to own 100% of the Capital Stock of Products Corporation. After any such
merger or consolidation, the covenants described herein under "Certain
Covenants" restricting the activities of Revlon, Inc. (but not Products
Corporation) will not be applicable to the surviving corporation.
The Merger. The Issuer shall cause the Merger to occur as promptly as
practicable after August 4, 1997 but in any event not later than August 11,
1997.
Minimum Collateral Percentage. The Issuer shall not at any time after the
Merger permit the number of Revlon, Inc. Pledged Shares to constitute less
than the Minimum Collateral Percentage of the number of shares of Common
Stock of Revlon, Inc. outstanding at such time (treating all shares of Common
Stock of all classes as a single class). The "Minimum Collateral Percentage"
at any time shall equal 25% multiplied by (i) the principal amount at
maturity of the then outstanding Revlon, Inc.-Secured Portion divided by (ii)
$770 million.
Maintenance of Non-Investment Company Status. The Issuer will not at any
time be or become an "investment company" registered or required to become so
registered under the Investment Company Act of 1940 or any successor law,
rule or regulation.
SEC Reports. Notwithstanding that the Issuer may not be required to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, from and after the earlier of (such date, the "reporting date") (i) the
effectiveness of the Shelf Registration Statement (as defined herein) or the
Exchange Offer Registration Statement (as defined herein) or (ii) the Merger,
the Issuer will file or cause to be filed with the SEC and provide the
Trustee and holders of the Notes with the information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) specified in Sections 13 and 15(d) of the
Exchange Act. Prior to the reporting date, the Issuer shall provide the
Trustee and holders of the Notes information that is substantially similar to
that required to be provided to such persons after the reporting date. The
Issuer also will comply with the other provisions of TIA Section 314(a).
SUCCESSOR ISSUER
The Issuer may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person unless:
(i) the resulting, surviving or transferee person (if not the Issuer) is
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and such person expressly assumes
by a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Issuer under the
Indenture and the Notes; (ii) except in the case of the Merger, immediately
after giving effect to such transaction (and treating any Debt which becomes
an obligation of the resulting, surviving or transferee person or any of its
Subsidiaries as a result of such transaction as having been issued by such
person or such Subsidiary at the time of such transaction), no Default has
happened and is continuing; (iii) except in the case of the Merger,
immediately after giving effect to such transaction, the resulting, surviving
or transferee person has a Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Issuer immediately prior to such
transaction and (iv) the Issuer delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The resulting, surviving or transferee person will be the
successor company and thereafter, except in the case of a lease, the Issuer
will be discharged from all obligations and covenants under the Indenture and
the Notes.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest (if any) on the Notes when due, continued for 30 days,
(ii) a default in the payment of principal of any Note when due at its Stated
Maturity, upon redemption, upon required purchase, upon declaration or
otherwise, (iii) (1) the failure by the Issuer to comply with its obligations
described under "Successor Issuer" above, (2) the failure by the Issuer to
comply with its obligations described under "--Escrow Release and the
Merger," "Minimum Collateral Percentage" or "Maintenance of Non-Investment
Company Status" above, or (3) the Trustee fails to have a perfected security
interest in the Revlon Worldwide Collateral or the Revlon, Inc. Collateral
(the "continued perfection provision"), (iv) the failure by the Issuer to
comply for 30 days after notice with any of its obligations under the
covenants described under "Limitation on Debt of the Issuer, Revlon Worldwide
and Revlon, Inc.; Limitation on Preferred Stock of Revlon Worldwide, Revlon,
Inc. and Products Corporation," "Limitation on Debt of Products Corporation
and its Subsidiaries," "Limitation on Restricted Payments," "Limitation on
Restrictions on Distributions from Subsidiaries," "Limitation on Liens and
Sales of Assets and Subsidiary Stock," "Limitation on Transactions with
Affiliates," "Limitation on Other Business Activities," "SEC Reports," or
"Change of Control" (other than a failure to purchase Notes), (v) the failure
by the Issuer to comply for 60 days after notice with its other agreements
contained in the Indenture, the Escrow Agreement or the Notes or with certain
representations and warranties given in relation to the grant of the security
interest described under "Collateral" above, (vi) Debt of the Issuer or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default
and the total principal amount of the portion of such Debt that is unpaid or
accelerated exceeds $25 million or its foreign currency equivalent and such
default continues for 10 days after notice (the "cross acceleration
provision"), (vii) certain events of bankruptcy, insolvency or reorganization
of the Issuer or a Significant Subsidiary (the "bankruptcy provisions") or
(viii) any judgment or decree for the payment of money in excess of $25
million is entered against the Issuer or a Significant Subsidiary and is not
discharged and either (A) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree or (B) there is a period of 60 days
following the entry of such judgment or decree during which such judgment or
decree is not discharged, waived or the execution thereof stayed and, in the
case of (B), such default continues for 10 days after the notice specified in
the next sentence (the "judgment default provision"). However, a default
under clauses (iv), (v), (vi) and (viii)(B) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount at
maturity of the outstanding Notes notify the Issuer of the default and the
Issuer does not cure such default within the time specified after receipt of
such notice.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount at maturity of the outstanding
Notes may declare the Accreted Value of and accrued interest (if any) on all
the Notes as of the date of declaration to be due and payable (the "Default
Amount"). Upon such a declaration, such Default Amount will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Issuer occurs, the Default
Amount on all the Notes as of the date of such Event of Default will ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under
certain circumstances, the holders of a majority in principal amount at
maturity of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes
unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest (if any) when
due, no holder of a Note may pursue any remedy with respect to the Indenture
or the Notes unless (i) such holder has previously given the Trustee notice
that an Event of Default is continuing, (ii) holders of at least 25% in
principal amount at maturity of the outstanding Notes have requested the
Trustee to pursue the remedy, (iii) such holders have offered the Trustee
reasonable security or indemnity against
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any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt thereof and the offer of security or
indemnity and (v) the holders of a majority in principal amount at maturity
of the outstanding Notes have not given the Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain restrictions,
the holders of a majority in principal amount at maturity of the outstanding
Notes are given the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or of exercising any
trust or power conferred on the Trustee. The Trustee, however, may refuse to
follow any direction that conflicts with law or the Indenture or that the
Trustee determines is unduly prejudicial to the rights of any other holder of
a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes
notice of the Default within 90 days after it occurs. Except in the case of a
Default in the payment of principal of or interest, if any, on any Note, the
Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interest
of the holders of the Notes. In addition, the Issuer is required to deliver
to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Issuer also is required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what
action the Issuer is taking or proposes to take in respect thereof.
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or
supplemented with the consent of the holders of a majority in principal
amount at maturity of the Notes then outstanding and any past default or
noncompliance with any provisions may be waived with the consent of the
holders of a majority in principal amount at maturity of the Notes then
outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the principal
amount at maturity of Notes whose holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest (if any) on any
Note, (iii) reduce the principal of or extend the Stated Maturity of any Note
or reduce the Accreted Value, Put Amount, Due Amount or Default Amount of any
Note, (iv) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"Optional Redemption" above, (v) make any Note payable in money other than
that stated in the Note, (vi) impair the rights of any holder of the Notes to
receive payment of principal of and interest (if any) on such holder's Notes
on or after the due dates therefor or to institute suit for the enforcement
of any such payment on or with respect to such holder's Notes, (vii) make any
change to the provisions regarding security and the pledge of collateral that
adversely affects such holder, (viii) make certain changes to the Issuer's
obligation to redeem Notes in a Special Mandatory Redemption or (ix) make any
change in the amendment provisions which require each holder's consent or in
the waiver provisions.
Without the consent of or notice to any holder of the Notes, the Issuer
and the Trustee may amend or supplement the Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Issuer under the Indenture if
in compliance with the provisions described under "Successor Issuer" above,
to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code), to add guarantees with respect to the Notes or to secure (or
provide additional security for) the Notes, to add to the covenants of the
Issuer for the benefit of the holders of the Notes or to surrender any right
or power conferred upon the Issuer, to provide for issuance of the Exchange
Notes under the Indenture (including to provide for treatment of the Exchange
Notes and the Notes as a single class of securities) in connection with the
Exchange Offer, to make any change that does not adversely affect the rights
of any holder of the Notes or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the TIA.
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The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
A consent to any amendment or waiver under the Indenture by any holder of
Notes given in connection with a tender of such holder's Notes will not be
rendered invalid by such tender.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of
transfer. The Issuer may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges. See "Book Entry; Delivery and Form."
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Issuer at any time may terminate its obligations under the
covenants described under "Certain Covenants," "Change of Control" and
"Collateral," above and the operation of the continued perfection provision,
the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"Defaults" above and the limitations contained in clause (iii) described
under "Successor Issuer" above ("covenant defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Issuer exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iii)(2) and (3), (iv),
(vi), (vii) (with respect only to Significant Subsidiaries) or (viii) under
"Defaults" above, or because of the failure of the Issuer to comply with
clause (iii) described under "Successor Issuer" above, or with its
obligations under "Collateral" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest (if any) on
the Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including (unless the Notes will mature or be
redeemed within 40 days) delivering to the Trustee an Opinion of Counsel to
the effect that holders of the Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been in the case if such deposit
and defeasance had not occurred (and, in the case of legal defeasance only,
such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to the
Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Affiliate" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director
or officer (A) of such specified person, (B) of any subsidiary of such
specified person or (C) of any person described in clause (i) above. For
purposes of this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Note at any time, the
greater of (i) 1.0% of the Accreted Value of such Note at such time and (ii)
the excess of (A) the present value at such time of the principal amount at
maturity plus any required interest payments due on such Note, computed using
a discount rate equal to the Treasury Rate plus 100 basis points, over (B)
the Accreted Value of such Note at such time.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary of the Issuer (other than directors' qualifying
shares and other than Capital Stock of an Unrestricted Subsidiary or a
Non-Recourse Subsidiary), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Issuer or any of its
Subsidiaries (other than an Unrestricted Subsidiary or a Non-Recourse
Subsidiary) (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Subsidiary of Products
Corporation to Products Corporation or by Products Corporation or a
Subsidiary of Products Corporation to a Wholly Owned Recourse Subsidiary,
(ii) a disposition of property or assets by Products Corporation or its
Subsidiaries at fair market value in the ordinary course of business, (iii) a
disposition by Products Corporation or its Subsidiaries of obsolete assets in
the ordinary course of business, (iv) a disposition subject to or permitted
by the provisions described under "Limitation on Restricted Payments" above,
(v) a disposition by the Issuer of any Unrestricted Assets, (vi) a Revlon,
Inc. Primary Issuance, (vii) a disposition of (A) Capital Stock of Revlon
Worldwide to the Issuer, (B) Capital Stock of Revlon, Inc. to the Issuer or
Revlon Worldwide or (C) Capital Stock of Products Corporation to Revlon,
Inc., (viii) an issuance of employee stock options, (ix) a merger of Revlon,
Inc. with or into Products Corporation or the Issuer, (x) the Merger and (xi)
a disposition by Products Corporation or any of its Subsidiaries in which
Products Corporation or its Subsidiaries receive as consideration Capital
Stock of (or similar interests in) a person engaged in, or assets that will
be used in, the businesses of Products Corporation and its Wholly Owned
Recourse Subsidiaries, or additionally, in the case of a disposition by a
Subsidiary that is not a Wholly Owned Recourse Subsidiary, the business of
such Subsidiary, existing on the Issue Date or in businesses reasonably
related thereto, as determined by the Board of Directors of Products
Corporation, the determination of which will be conclusive and evidenced by a
resolution of the Board of Directors of Products Corporation.
"Bank Debt" means any and all amounts payable by Products Corporation or
any Subsidiary of Products Corporation under or in respect of the Credit
Agreement or any Refinancing Agreement, or any other agreements with lenders
party to the foregoing, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Products Corporation), fees,
charges, expenses, reimbursement obligations, guarantees and all other
amounts payable thereunder or in respect thereof; provided, however, that
nothing in this definition shall permit Products Corporation or any
Subsidiary of Products Corporation to issue any Debt that is not permitted
pursuant to the provisions described under "Limitation on Debt of Products
Corporation and its Subsidiaries" above.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such person prepared in accordance
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with GAAP; the amount of such obligation shall be the capitalized amount
thereof, determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without payment of a penalty.
"Capital Stock" of any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any
Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity.
"Closing Price" on any Trading Day with respect to the per share price of
any Capital Stock means the last reported sales price regular way or, in case
no such reported sale takes place on such Trading Day, the average of the
reported closing bid and asked prices regular way, on the principal national
securities exchange on which such Capital Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, on the National Association of Securities Dealers Automated
Quotations National Market System or, if such Capital Stock is not listed or
admitted to trading on any national securities exchange or quoted on such
National Market System, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Issuer for that purpose
and is reasonably acceptable to the Trustee.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated EBITDA Coverage Ratio" for any period means the ratio of (i)
the aggregate amount of EBITDA for such period to (ii) Consolidated Interest
Expense for such period; provided, however, that (1) if Products Corporation
or any Subsidiary of Products Corporation has issued any Debt since the
beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio
is an issuance of Debt, or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a pro forma basis to
such Debt as if such Debt had been issued on the first day of such period and
the discharge of any other Debt Refinanced or otherwise discharged with the
proceeds of such new Debt as if such discharge had occurred on the first day
of such period, (2) if since the beginning of such period Products
Corporation or any Subsidiary of Products Corporation will have made any
Asset Disposition, EBITDA for such period will be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Disposition for such period, or increased by an amount
equal to the EBITDA (if negative), directly attributable thereto for such
period and Consolidated Interest Expense for such period will be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Debt of Products Corporation or any Subsidiary of Products Corporation
Refinanced or otherwise discharged with respect to Products Corporation and
its continuing Subsidiaries in connection with such Asset Dispositions for
such period (or if the Capital Stock of any Subsidiary of Products
Corporation is sold, the Consolidated Interest Expense for such period
directly attributable to the Debt of such Subsidiary to the extent Products
Corporation and its continuing Subsidiaries are no longer liable for such
Debt after such sale) and (3) if since the beginning of such period Products
Corporation or any Subsidiary of Products Corporation (by merger or
otherwise) will have made an Investment in any Subsidiary of Products
Corporation (or any person which becomes a Subsidiary of Products
Corporation) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period will be calculated after
giving pro forma effect thereto, as if such Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the
amount of income or earnings relating thereto, and the amount of Consolidated
Interest Expense associated with any Debt issued in connection therewith, the
pro forma calculations will be determined in good faith by a responsible
financial or accounting Officer of Products Corporation. If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
on such Debt will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period.
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"Consolidated Interest Expense" means, for any period, the sum of (a) the
interest expense of Products Corporation and its consolidated Subsidiaries
(other than Non-Recourse Subsidiaries) for such period as determined in
accordance with GAAP consistently applied, plus (b) Preferred Stock dividends
in respect of Preferred Stock of Products Corporation or any Subsidiary of
Products Corporation (other than a Non-Recourse Subsidiary) held by persons
other than Products Corporation or a Wholly Owned Recourse Subsidiary, plus
(c) the cash contributions to an employee stock ownership plan of Products
Corporation and its Subsidiaries (other than Non-Recourse Subsidiaries) to
the extent such contributions are used by an employee stock ownership plan to
pay interest.
"Consolidated Net Income" means with respect to any person, for any
period, the consolidated net income (or loss) of such person and its
consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted to the extent included in calculating such net income (or
loss), by excluding (i) all extraordinary gains or losses; (ii) the portion
of net income (or loss) of such person and its consolidated Subsidiaries
attributable to minority interests in unconsolidated persons except to the
extent that, in the case of net income, cash dividends or distributions have
actually been received by such person or one of its consolidated Subsidiaries
(subject, in the case of a dividend or distribution received by a Subsidiary
of such person, to the limitations contained in clause (v) below) and, in the
case of net loss, such person or any Subsidiary of such person has actually
contributed, lent or transferred cash to such unconsolidated person; (iii)
net income (or loss) of any other person attributable to any period prior to
the date of combination of such other person with such person or any of its
Subsidiaries on a "pooling of interests" basis; (iv) net gains or losses in
respect of dispositions of assets by such person or any of its Subsidiaries
(including pursuant to a sale-and-leaseback arrangement) other than in the
ordinary course of business; (v) the net income of any Subsidiary of such
person to the extent that the declaration of dividends or distributions by
that Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulations applicable to that Subsidiary or its shareholders; (vi) any net
income or loss of any Non-Recourse Subsidiary, except that such person's
equity in the net income of any such Non-Recourse Subsidiary for such period
will be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Non-Recourse Subsidiary during such
period to such person as a dividend or other distribution, and (vii) the
cumulative effect of a change in accounting principles; provided, however,
that in using Consolidated Net Income for purposes of calculating the
Consolidated EBITDA Coverage Ratio at any time, net income of a Subsidiary of
the type described in clause (v) of this definition will not be excluded;
provided further, however, that in calculating Consolidated Net Income of the
Issuer, net income of a Subsidiary of the type described in clause (v) of
this definition will not be excluded.
"Consolidated Net Worth" of any person means, at any date, all amounts
which would, in conformity with GAAP, be included under shareholders' equity
on a consolidated balance sheet of such person as at such date, less (x) any
amounts attributable to Redeemable Stock and (y) any amounts attributable to
Exchangeable Stock.
"Credit Agreement" means the Amended and Restated Credit Agreement dated
as of January 24, 1996, by and among Products Corporation, The Chase
Manhattan Bank, N.A., Chemical Bank and Citibank, N.A., as agents, and the
Banks named therein, as the same may be amended or restated from time to
time.
"Debt" of any person means, without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of such person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is responsible or
liable; (ii) all Capital Lease Obligations of such person; (iii) all
obligations of such person issued or assumed as the deferred purchase price
of property, all conditional sale obligations of such person and all
obligations of such person under any title retention agreement (but excluding
trade accounts payable and other accrued current liabilities arising in the
ordinary course of business); (iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such person
to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such person of a demand
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for reimbursement following payment on the letter of credit); (v) the amount
of all obligations of such person with respect to the redemption, repayment
(including liquidation preference) or other repurchase of, in the case of a
Subsidiary of Products Corporation, any Preferred Stock and, in the case of
any other person, any Redeemable Stock (but excluding in each case any
accrued dividends); (vi) all obligations of the type referred to in clauses
(i) through (v) of other persons and all dividends of other persons for the
payment of which, in either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including
guarantees of such obligations and dividends; and (vii) all obligations of
the type referred to in clauses (i) through (vi) of other persons secured by
any Lien on any property or asset of such person (whether or not such
obligation is assumed by such person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Due Amount" as of any date means with respect to each $1,000 principal
amount at maturity of Notes, the Accreted Value thereof on such date plus any
premium due and payable thereon.
"EBITDA" for any period means the Consolidated Net Income of Products
Corporation for such period, plus the following to the extent included in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) all other noncash charges (excluding any noncash charge to the
extent that it requires an accrual of or a reserve for cash disbursements for
any future period) and (vi) foreign currency gains or losses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock of a person which by its
terms or otherwise is required to be exchanged or converted or is
exchangeable or convertible at the option of the holder into another security
(other than Capital Stock of such person which is neither Exchangeable Stock
nor Redeemable Stock).
"Foreign Subsidiary" means any Subsidiary of Products Corporation which
(i) is organized under the laws of any jurisdiction outside of the United
States, (ii) is organized under the laws of Puerto Rico or the U.S. Virgin
Islands, (iii) has substantially all its operations outside of the United
States, or (iv) has substantially all its operations in Puerto Rico or the
U.S. Virgin Islands.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect from time
to time, except that for purposes of calculating Consolidated EBITDA Coverage
Ratio, it shall mean generally accepted accounting principles in the United
States as in effect on the Issue Date.
"guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Debt or other obligation of any other
person and any obligation, direct or indirect, contingent or otherwise, of
such person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such other person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, however, that the
term "guarantee" will not include endorsements for collection or deposit in
the ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Investment" in any person means any loan or advance to, any net payment
on a guarantee of, any acquisition of Capital Stock, equity interest,
obligation or other security of, or capital contribution or other investment
in, such person. Investments shall exclude advances to customers and
suppliers in the ordinary course of business. The term "Invest" has a
corresponding meaning. For purposes of the definitions of "Non-Recourse
Subsidiary," "Unrestricted Subsidiary" and "Restricted Payment" and for
purposes of the "Limitation on Restricted Payments" covenant, (i)
"Investment" shall include a designation after the Issue Date of a Subsidiary
as a Non-Recourse Subsidiary, and such Investment
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shall be valued at an amount equal to the portion (proportionate to the
Issuer's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time that such Subsidiary is designated
a Non-Recourse Subsidiary; and (ii) any property transferred to or from a
Non-Recourse Subsidiary or an Unrestricted Subsidiary shall be valued at its
fair market value at the time of such transfer, in each case as determined in
good faith by the Board of Directors of the Issuer (or of Products
Corporation in the case of a Non-Recourse Subsidiary), and if such property
so transferred (including in a series of related transactions) has a fair
market value, as so determined by such Board of Directors, in excess of $10
million, such determination shall be confirmed by an independent appraiser.
"issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a person existing
at the time such person becomes a Subsidiary of another person (whether by
merger, consolidation, acquisition or otherwise) will be deemed to be issued
by such Subsidiary at the time it becomes a Subsidiary of such other person.
"Issue Date" means the date of original issue of the Notes.
"Issuer" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained therein and required by the TIA, each other obligor on
the indenture securities.
"Issuer Capital Contribution" means the capital contribution to the Issuer
referred to in the second paragraph of "Transactions" above.
"Legal Holiday" means a Saturday, a Sunday, or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Market Value" means as of any date the sum of (i) in respect of Revlon,
Inc. Pledged Shares, an amount equal to the product of (x) the average of the
Closing Prices per share of the Class A Common Stock of Revlon, Inc. during
the five Trading Days ending immediately prior to such date and (y) the
number of Revlon, Inc. Pledged Shares, (ii) as to Collateral consisting of
cash, the amount of such cash, (iii) as to any other Collateral having a
purported value equal to or less than $5 million, the fair market value
thereof as of such date as determined by the Board of Directors of the Issuer
(the determination of which will be conclusive and will be evidenced by a
resolution of such Board of Directors), and (iv) as to any other Collateral
having a purported value more than $5 million, the fair market value thereof
as of such date as determined by an independent appraiser.
"Merger" means the merger of Revlon Worldwide with and into the Issuer.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring person of Debt or other obligations
relating to such properties or assets or received in any other noncash form)
therefrom, in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required or estimated in good
faith to be required to be accrued as a liability under generally accepted
accounting principles, as a consequence of such Asset Disposition, (ii) all
payments made on any Debt which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from or in
connection with such Asset Disposition and (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition; provided, however, that
in connection with an Asset Disposition to a Subsidiary of Products
Corporation (other than a Wholly Owned Recourse Subsidiary), Net Available
Cash will be deemed to be a percentage of Net Available Cash (as calculated
above) equal to (A) 100% minus (B) Products Corporation's percentage
ownership in such Subsidiary.
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"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or estimated in
good faith to be payable as a result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation,
any non-convertible Capital Stock of such corporation and any Capital Stock
of such corporation convertible solely into non-convertible common stock of
such corporation; provided, however, that Non-Convertible Capital Stock will
not include any Redeemable Stock or Exchangeable Stock.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
neither Products Corporation nor its Subsidiaries (other than a Non-Recourse
Subsidiary) (A) provide credit support (including any undertaking, agreement
or instrument which would constitute Debt), (B) is directly or indirectly
liable or (C) constitute the lender and (ii) no default with respect to which
(including any rights which the holders thereof may have to take enforcement
action against the assets of a Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of Products
Corporation or its Subsidiaries (other than Non-Recourse Subsidiaries) to
declare a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of Products Corporation (i)
which has been designated as such by Products Corporation, (ii) which has no
Debt other than Non-Recourse Debt and (iii) which is in the same line of
business as Products Corporation and its Wholly Owned Recourse Subsidiaries
existing on the Issue Date or in businesses reasonably related thereto.
"Obligations" means (a) the full and punctual payment of principal of and
interest on the Notes when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Issuer
under the Indenture and the Notes and (b) the full and punctual performance
of all other obligations of the Issuer under the Indenture and the Notes.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Issuer.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Vice Chairman, the President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, an Assistant Treasurer,
Secretary or an Assistant Secretary, of the Issuer, and delivered to the
Trustee. The principal executive, financial or accounting officer of the
Issuer will be one of the Officers signing an Officers' Certificate given
pursuant to (i) the requirement for a Compliance Certificate as described in
the last paragraph under "Defaults" above, (ii) the requirement for an
Officers' Certificate as described in the fourth paragraph under "Escrow of
Proceeds and Other Amounts; Special Mandatory Redemption" above or (iii) the
requirement for an Officers' Certificate described in the third paragraph
under "Collateral" above.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer (or its Parent or one of its Subsidiaries) or the
Trustee.
"Parent" means Revlon Holdings Inc. and any other person which acquires or
owns directly or indirectly 80% or more of the voting power of the Voting
Stock of the Issuer.
"Permitted Affiliate Debt" means (i) Debt of Products Corporation issued
to the Issuer or an Affiliate of the Issuer representing amounts owing by
Products Corporation pursuant to the Tax Sharing Agreements described under
clauses (i) and (iii) of the definition of "Tax Sharing Agreements" and (ii)
Debt of Products Corporation issued to the Issuer or an Affiliate of the
Issuer to the extent of cash actually received by Products Corporation, which
cash either is required to be advanced or contributed to Products Corporation
pursuant to the terms of the Credit Agreement or any Refinancing Agreement
or, if not advanced or contributed to Products Corporation, would lead to a
default under the Credit Agreement or any Refinancing Agreement.
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"Permitted Holders" means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee
or other personal representative (collectively, "heirs")) or any person
controlled, directly or indirectly, by Ronald O. Perelman or his heirs.
"Permitted Transactions" means any transaction or series of similar
transactions (including the purchase, sale, lease or exchange of any property
or the rendering of any service) between the Issuer, Revlon Worldwide,
Revlon, Inc., Products Corporation or any Subsidiary of Products Corporation,
on the one hand, and any Affiliate of the Issuer or any legal or beneficial
owner of 10% or more of the voting power of Voting Stock of the Issuer or an
Affiliate of any such owner, on the other hand, existing on, or pursuant to
an agreement in effect on, the Issue Date and disclosed in a Schedule to the
Indenture and any Tax Sharing Agreement.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"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" of a Note as of any date means the Accreted Value of the Note
as of such date plus the premium, if any, payable on the Note which is due or
overdue or is to become due at the relevant time.
"principal amount at maturity" of a Note means the amount specified as
such on the face of such Note.
"Products Corporation Indentures" means the Indenture, dated as of
February 15, 1993, the Indenture dated as of April 1, 1993, and the Indenture
dated as of June 1, 1993, each between Products Corporation and the trustee
thereunder, and in each case as in effect on the Issue Date; provided,
however, for purposes of interpreting provisions of the Indenture that refer
to the Products Corporation Indentures, the provisions of the Products
Corporation Indentures (but not the Debt issued thereunder) will be deemed to
be in effect whether or not such Indentures have been discharged.
"Put Amount" as of any date means, with respect to each $1,000 principal
amount at maturity of Notes, 101% of the Accreted Value thereof as of the
date of repurchase.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Refinancing Agreement" means any credit agreement, indenture or other
agreement pursuant to which Products Corporation or any Subsidiary of
Products Corporation Refinances, in whole or in part, Debt of Products
Corporation or any Subsidiary of Products Corporation issued pursuant to the
provisions described under clause (1) of the second paragraph of "Limitation
on Debt of Products Corporation and its Subsidiaries" above; provided,
however, that the principal amount of the Refinancing Debt issued pursuant to
such Refinancing Agreement may exceed the principal amount of the Debt so
Refinanced, but, to the extent such Refinancing Debt is issued pursuant to
the provisions described under clause (1) of the second paragraph of
"Limitation on Debt of Products Corporation and its Subsidiaries," such
Refinancing Debt does not in any event exceed, after taking into account all
other Debt outstanding under the Credit Agreement and all other Refinancing
Agreements (to the extent such other outstanding Debt was issued pursuant to
the provisions described under such clause (1)), $600 million.
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"Refinancing Costs" means, with respect to any Debt or Preferred Stock
being Refinanced, any premium actually paid thereon and reasonable costs and
expenses, including underwriting discounts, in connection with such
Refinancing; provided, that if any Debt issued in connection with such a
Refinancing is issued at a discount, Refinancing Costs shall be an amount
equal to the accreted value (as of the Stated Maturity of the Debt being
Refinanced) of the portion of such Debt used to pay such premiums, costs and
expenses.
"Registration Agreement" means the Registration Agreement dated March 5,
1997, between the Issuer and certain other parties.
"Restricted Payment" means, as to any person making a Restricted Payment,
(i) any dividend or any distribution on or in respect of the Capital Stock of
such person (including any payment in connection with any merger or
consolidation involving such person) or to the holders of the Capital Stock
of such person (except dividends or distributions payable solely in the
Non-Convertible Capital Stock of such person or in options, warrants or other
rights to purchase the Non-Convertible Capital Stock of such person), (ii)
any purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Issuer or of any direct or indirect parent of the Issuer
or (iii) any Investment in (A) any Affiliate of the Issuer other than a
Subsidiary of the Issuer and other than an Affiliate of the Issuer which will
become a Subsidiary of the Issuer as a result of any such Investment, or (B)
a Non-Recourse Subsidiary or (C) an Unrestricted Subsidiary.
"Revlon, Inc. Collateral Number" means 20,000,000; provided, however, that
in the event, prior to the Merger, of (i) the distribution of a dividend upon
shares of Revlon, Inc. in shares of Revlon, Inc., (ii) the combination of
shares of Common Stock of Revlon, Inc. into a smaller number of shares or
other units, (iii) the subdivision of outstanding shares of Common Stock of
Revlon, Inc., (iv) the conversion or reclassification of shares of Common
Stock of Revlon, Inc. by issuance or exchange of other securities or (v) a
consolidation, merger or binding shares exchange, the Revlon, Inc. Collateral
Number in effect immediately before such action shall be adjusted to equal
the number of shares of Common Stock of Revlon, Inc. that would have
constituted Revlon, Inc. Pledged Shares had the Merger occurred immediately
prior to such action.
"Revlon, Inc. Nonpledged Shares" means the Capital Stock of Revlon, Inc.
that does not constitute Revlon, Inc. Collateral.
"Revlon, Inc. Primary Issuance" means any primary issuance of Capital
Stock of Revlon, Inc.
"Revlon Worldwide" means Revlon Worldwide Corporation, a Delaware
corporation which is the immediate parent corporation of Revlon, Inc. and the
wholly owned direct subsidiary of the Issuer on the Issue Date, and its
successors.
"Revlon Worldwide Indenture" means the Indenture dated as of March 15,
1993, between Revlon Worldwide and the trustee thereunder, pursuant to which
the Revlon Worldwide Notes were issued, as such agreement may be amended and
in effect from time to time.
"Revlon Worldwide Notes" means the Series B Senior Secured Discount Notes
Due 1998 of Revlon Worldwide.
"Revlon Worldwide Notes Defeasance" means the termination of certain
obligations under the covenant defeasance provisions of the Revlon Worldwide
Indenture.
"Secured Non-Recourse Guarantee" means any Guarantee by the Issuer or an
Unrestricted Subsidiary of obligations of any other Person in respect of
which Guarantee the holders thereof have no recourse to any assets of the
Issuer or its Subsidiaries, other than Unrestricted Assets.
"Shelf Registration Statement" has the meaning ascribed thereto in the
Registration Agreement.
"Significant Subsidiary" means (i) prior to the Merger, Revlon Worldwide,
(ii) any Subsidiary (other than a Non-Recourse Subsidiary and other than an
Unrestricted Subsidiary) of the Issuer which at the time of determination
either (A) had assets which, as of the date of Products Corporation's most
recent quarterly consolidated balance sheet, constituted at least 5% of
Products Corporation's total assets on a consolidated basis as of such date,
in each case determined in accordance with generally accepted accounting
principles, or (B) had revenues for the 12-month period ending on the date of
Products
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Corporation's most recent quarterly consolidated statement of income which
constituted at least 5% of Products Corporation's total revenues on a
consolidated basis for such period, or (iii) any Subsidiary of the Issuer
(other than a Non-Recourse Subsidiary and other than an Unrestricted
Subsidiary) which, if merged with all Defaulting Subsidiaries (as defined
below) of the Issuer, would at the time of determination either (A) have had
assets which, as of the date of Products Corporation's most recent quarterly
consolidated balance sheet, would have constituted at least 10% of Products
Corporation's total assets on a consolidated basis as of such date or (B)
have had revenues for the 12-month period ending on the date of Products
Corporation's most recent quarterly consolidated statement of income which
would have constituted at least 10% of Products Corporation's total revenues
on a consolidated basis for such period (each such determination being made
in accordance with generally accepted accounting principles). "Defaulting
Subsidiary" means any Subsidiary of the Issuer (other than a Non-Recourse
Subsidiary and other than an Unrestricted Subsidiary) with respect to which
an event described under clause (vi), (vii) or (viii) of "Defaults" above has
occurred and is continuing.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision
(but excluding any provision providing for the repurchase of such security at
the option of the holder thereof upon the happening of any contingency).
"Subsidiary" means, with respect to any person, any corporation,
association, partnership or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) 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, directly or indirectly, by (i) such
person, (ii) such person and one or more Subsidiaries of such person or (iii)
one or more Subsidiaries of such person.
"Tax Sharing Agreements" means (i) that certain agreement dated June 24,
1992, as amended to the Issue Date, among Holdings, Products Corporation,
certain of its Subsidiaries, Revlon, Inc. and Mafco Holdings, (ii) that
certain agreement dated March 17, 1993, as amended to the Issue Date, between
Revlon Worldwide and Mafco Holdings and (iii) any other tax allocation
agreement between the Issuer or any of its Subsidiaries with the Issuer,
Revlon Worldwide, Revlon, Inc., Products Corporation or any direct or
indirect shareholder of the Issuer with respect to consolidated or combined
tax returns including the Issuer or any of its Subsidiaries but only to the
extent that amounts payable from time to time by the Issuer or any such
Subsidiary under any such agreement do not exceed the corresponding tax
payments that the Issuer or such Subsidiary would have been required to make
to any relevant taxing authority had the Issuer or such Subsidiary not joined
in such consolidated or combined returns, but instead had filed returns
including only the Issuer or its Subsidiaries (provided that any such
agreement may provide that, if the Issuer or any such Subsidiary ceases to be
a member of the affiliated group of corporations of which Mafco Holdings is
the common parent for purposes of filing a consolidated federal income tax
return (such cessation, a "Deconsolidation Event"), then the Issuer or such
Subsidiary will indemnify such direct or indirect shareholder with respect to
any federal, state or local income, franchise or other tax liability
(including any related interest, additions or penalties) imposed on such
shareholder as the result of an audit or other adjustment with respect to any
period prior to such Deconsolidation Event that is attributable to the
Issuer, such Subsidiary or any predecessor business thereof (computed as if
the Issuer, such Subsidiary or such predecessor business, as the case may be,
were a stand-alone entity that filed separate tax returns as an independent
corporation), but only to the extent that any such tax liability exceeds any
liability for taxes recorded on the books of the Issuer or such Subsidiary
with respect to any such period).
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or
any agency thereof, in each case, maturing within 360 days of the date of
acquisition thereof, (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company (including the Trustee)
which is organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States having
capital, surplus and undivided profits aggregating in excess of $250,000,000
and whose debt is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the
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Securities Act) or any money-market fund sponsored by any registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term
of not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper,
maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Issuer) organized
and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of "P-2" (or higher)
according to Moody's Investors Service, Inc. or "A-2" (or higher) according
to Standard and Poor's Corporation, (v) securities with maturities of six
months or less from the date of acquisition backed by standby or direct pay
letters of credit issued by any bank satisfying the requirements of clause
(ii) above and (vi) securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's
Corporation or "A" by Moody's Investors Service, Inc.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
other than a day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Assets" means (i) the Revlon, Inc. Nonpledged Shares, (ii)
Capital Stock of Unrestricted Subsidiaries and (iii) all dividends, cash and
other property and proceeds (including proceeds of sale) from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any of the foregoing.
"Unrestricted Subsidiary" means a Subsidiary of the Issuer, other than
Revlon, Inc. or any of its Subsidiaries, which (i) is acquired or organized
by the Issuer or any other Unrestricted Subsidiary (or any combination of the
foregoing), (ii) is capitalized only with Unrestricted Assets and (iii) does
not have any Debt (A) which is held by the Issuer, (B) as to which the Issuer
or any of its Subsidiaries (other than an Unrestricted Subsidiary) have
provided credit support (other than any Secured Non-Recourse Guarantee) or
(C) any default as to which would permit any holder (whether upon notice,
after lapse of time or both) of any Debt of the Issuer or any of its
Subsidiaries (other than an Unrestricted Subsidiary) to declare a default on
such Debt or to cause the payment thereof to be accelerated prior to its
Stated Maturity.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Recourse Subsidiary" means a Subsidiary of Products
Corporation (other than a Non-Recourse Subsidiary) all the Capital Stock of
which (other than directors' qualifying shares) is owned by Products
Corporation or another Wholly Owned Recourse Subsidiary.
"Withdrawn Collateral" means any Withdrawn Shares, together with any cash,
instruments or other Collateral which are released from the Lien of the
Indenture.
"Withdrawn Shares" means any Pledged Shares which are released from the
Lien of the Indenture as provided under "Collateral" above.
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REGISTRATION RIGHTS
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. The Issuer has entered into a registration
agreement (the "Registration Agreement") with the Initial Purchasers, for the
benefit of the holders of the Old Notes, pursuant to which the Issuer has
agreed that it will, at its cost, by September 1, 1997, use its best efforts
to cause a registration statement (the "Registration Statement") to be
declared effective under the Securities Act. The Registration Statement of
which this Prospectus is a part constitutes the registration statement for
the Exchange Offer. Upon the Registration Statement being declared effective,
the Issuer will offer the New Notes in exchange for surrender of the Old
Notes. The Issuer will keep the Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Notes. For each Old Note
surrendered to the Issuer pursuant to the Exchange Offer, the holder of such
Old Note will receive a New Note having a principal amount at maturity equal
to that of the surrendered Old Note. Because the New Notes will be treated as
a continuation of the Old Notes, Original Issue Discount on each New Note
will accrue from March 5, 1997, the date of original issuance of the Old
Notes. Under existing SEC interpretations, the New Notes would in general be
freely transferable after the Exchange Offer without further registration
under the Securities Act; provided, however, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act
be delivered as required. The Issuer has agreed for a period of 180 days
after consummation of the Exchange Offer to make available a prospectus
meeting the requirements of the Securities Act to any broker-dealer for use
in connection with any resale of any such New Notes acquired as described
below. A broker-dealer which delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Registration Agreement (including certain indemnification
rights and obligations).
In the event that applicable interpretations of the staff of the SEC do
not permit the Issuer to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated by September 29, 1997, the
Issuer will, at its cost, (a) as promptly as practicable, file a shelf
registration statement with respect to the resale of the Old Notes (the
"Shelf Registration Statement") covering resales of the Old Notes, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until two years after its
effective date. The Issuer will, in the event of the Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus,
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Old Notes has become effective
and take certain other actions as are required to permit unrestricted resales
of the Old Notes. A holder of Old Notes who sells such Old Notes pursuant to
the Shelf Registration Statement generally would be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Agreement which are applicable to such a
holder (including certain indemnification obligations).
If by September 29, 1997, neither (i) the Exchange Offer is consummated
nor (ii) the Shelf Registration Statement is declared effective, interest
will accrue (in addition to the accrual of Original Issue Discount) on the
Notes from and including such date, until but excluding the earlier of (i)
the consummation of the Exchange Offer and (ii) the effective date of a Shelf
Registration Statement. In each case, such interest will be payable in cash
semiannually in arrears on March 15 and September 15, commencing March 15,
1998, at a rate per annum equal to .50% of the Accreted Value of the Old
Notes as of the September 15 and March 15 immediately preceding such interest
payment date.
The summary herein of certain provisions of the Registration Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part.
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DESCRIPTION OF OTHER INDEBTEDNESS
Each of the following summaries of certain indebtedness of the Company is
subject to and qualified in its entirety by reference to the detailed
provisions of the respective agreements and instruments to which each summary
relates. Copies of such agreements and instruments are filed as exhibits to
the Registration Statement of which this Prospectus constitutes a part.
Capitalized terms used below and not defined have the meanings set forth in
the respective agreements.
REVLON WORLDWIDE NOTES
On March 25, 1993, Revlon Worldwide issued and sold $1,115.8 million
principal amount of senior secured discount notes (the "Original Revlon
Worldwide Notes") having terms substantially identical in all material
respects to the Revlon Worldwide Notes. The Original Revlon Worldwide Notes
were sold to the initial purchasers thereof pursuant to the Section 4(2)
exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Original Revlon Worldwide Notes were
issued at a substantial discount from their principal amount at maturity
representing a yield to maturity of approximately 12% per annum calculated at
March 25, 1993. On June 15, 1993, Revlon Worldwide consummated a registered
exchange offer whereby holders of the Original Revlon Worldwide Notes
exchanged such notes for the Revlon Worldwide Notes. There are no periodic
payments on the Revlon Worldwide Notes. At December 31, 1996, the accreted
value of the Revlon Worldwide Notes was $969.6 million.
The Revlon Worldwide Notes are secured by a pledge of all of the Common
Stock of Revlon, Inc. owned by Revlon Worldwide, a portion of which may be
released upon the occurrence of certain events as specified in the indenture
relating to the Revlon Worldwide Notes (the "Revlon Worldwide Notes
Indenture"). The Revlon Worldwide Notes are senior secured obligations of
Revlon Worldwide and mature on March 15, 1998.
The Revlon Worldwide Notes may be redeemed at the option of Revlon
Worldwide in whole or from time to time in part at any time at 100% of their
principal amount at maturity. The Revlon Worldwide Notes may be redeemed in
whole or in part upon the occurrence of other events specified in the Revlon
Worldwide Notes Indenture at the prices and under the conditions specified
therein, such as upon a Change of Control (as defined in the Revlon Worldwide
Notes Indenture). In addition, upon a Change of Control (as defined in the
Revlon Worldwide Notes Indenture), and subject to certain conditions, each
holder of Revlon Worldwide Notes will have the right to require Revlon
Worldwide to repurchase all or a portion of such holder's Revlon Worldwide
Notes at the accreted value on the date of repurchase plus 1% of the accreted
value thereof as of the date specified in the Revlon Worldwide Notes
Indenture.
The Revlon Worldwide Notes Indenture contains various material restrictive
covenants that limit (i) the issuance of additional debt and redeemable stock
by Revlon Worldwide and Revlon, Inc. and the issuance of preferred stock by
Revlon, Inc., (ii) the issuance of debt and preferred stock by Products
Corporation and its subsidiaries, (iii) the payment of dividends on capital
stock of Revlon Worldwide and its subsidiaries and the redemption of capital
stock of Revlon Worldwide or investments in affiliates, (iv) the sale of
assets and subsidiary stock, (v) transactions with affiliates, (vi) the
business activities of Revlon Worldwide and Revlon, Inc. and (vii)
consolidations, mergers and transfers of all or substantially all Revlon
Worldwide's assets. The Revlon Worldwide Notes Indenture also prohibits
certain restrictions on distributions from subsidiaries and requires that
shares of Revlon, Inc. pledged as collateral to secure the Revlon Worldwide
Notes constitute at least a majority of the voting stock of Revlon, Inc. All
of these limitations and prohibitions, however, are subject to a number of
important qualifications.
Events of default under the Revlon Worldwide Notes Indenture include,
among other things, (i) a default continuing for 30 days in payment of
interest (if any) when due, (ii) a default in the payment of any principal
when due at maturity, upon redemption, upon required purchase, upon
declaration or otherwise, (iii) failure to comply with the covenants in the
Revlon Worldwide Notes Indenture, such as the covenant that the pledged
shares constitute a majority of the voting stock of Revlon, Inc. (the
"majority ownership provision"), subject in certain instances to grace
periods, (iv) the failure to have a perfected security interest in the
collateral (the "continued perfection provision"), (v) failure to pay other
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indebtedness of Revlon Worldwide or any Significant Subsidiary (as defined in
the Revlon Worldwide Notes Indenture) in excess of $25 million upon final
maturity or as a result of acceleration and such default continues for 10
days after notice (the "cross-acceleration provision"), (v) certain events of
bankruptcy, insolvency or reorganization of Revlon Worldwide or a Significant
Subsidiary (the "bankruptcy provisions") and (vi) failure to pay any judgment
in excess of $25 million against Revlon Worldwide or a Significant Subsidiary
(the "judgment default provision").
Revlon Worldwide at any time may terminate all its obligations under the
Revlon Worldwide Notes and the Revlon Worldwide Notes Indenture ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain
a registrar and paying agent in respect of the Notes. Pursuant to the Revlon
Worldwide Notes Indenture, Revlon Worldwide at any time may terminate its
obligations under the covenants described above, the provisions relating to
the Revlon, Inc. stock securing the Revlon Worldwide Notes and the operation
of the majority ownership provision, the continued perfection provision, the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision and the financial
net worth test required to be met for mergers involving Revlon Worldwide
("covenant defeasance"). The Revlon Worldwide Notes Defeasance will
constitute "covenant defeasance" for purposes of the Revlon Worldwide Notes
Indenture.
Following the Revlon Worldwide Notes Defeasance, payment of the Revlon
Worldwide Notes may not be accelerated because of an Event of Default arising
with respect to the majority ownership provision, the continued perfection
provision, the breach of certain covenants, the cross-acceleration provision,
the bankruptcy provisions, (with respect only to Significant Subsidiaries) or
the judgment default provisions, or because of the failure of Revlon
Worldwide to comply with the financial net worth condition for mergers
provisions, or its obligations to secure the Revlon Worldwide Notes.
On April 2, 1997, the Issuer contributed escrowed funds, together with
Revlon Worldwide Notes that had been previously delivered to Revlon Worldwide
for cancellation, to Revlon Worldwide to finance the Revlon Worldwide Notes
Defeasance. As a result of the Deposit being made on April 2, 1997, the
Revlon Worldwide Notes Defeasance will be effective on August 4, 1997 so long
as certain events of bankruptcy, insolvency or reorganization affecting
Revlon Worldwide do not exist on such date.
CREDIT AGREEMENT
In May 1997, Products Corporation entered into the Credit Agreement. The
proceeds of loans made under the Credit Agreement were used for the purpose
of repaying the loans outstanding under the 1996 Credit Agreement and will be
used to repurchase or redeem the Sinking Fund Debentures and for general
corporate purposes or, in the case of the Acquisition Facility (as defined
herein), the financing of acquisitions.
The Credit Agreement is comprised of five senior secured facilities: a
$115.0 million initial term loan facility (the "Term Loan Facility"), an
$85.0 million deferred draw term loan facility (the "Deferred Draw Term Loan
Facility"), a $300.0 million multi-currency facility (the "Multi-Currency
Facility"), a $200.0 million revolving acquisition facility which may be
increased to $400 million under certain circumstances with the consent of
majority of the lenders (the "Acquisition Facility") and a $50.0 million
special standby letter of credit facility (the "Special LC Facility" and
together with the Term Loan Facility, the Deferred Draw Term Loan Facility,
the Multi-Currency Facility and the Acquisition Facility, the "Credit
Facilities"). The Multi-Currency Facility is available (i) to Products
Corporation, in revolving credit loans denominated in U.S. dollars (the
"Revolving Credit Loans"), (ii) to Products Corporation, in standby and
commercial letters of credit denominated in U.S. dollars (the "Operating
Letters of Credit") and (iii) to Products Corporation and certain of its
international subsidiaries designated from time to time in revolving credit
loans and bankers' acceptances denominated in U.S. Dollars and other
currencies (the "Local Loans"). The Credit Facilities (other than loans in
foreign currencies) bear interest at a rate equal to, at Products
Corporation's option, either (A) the Alternate Base Rate plus 1/2 of 1% (or 1
1/2% for Local Loans); or (B) the Eurodollar Rate plus 1 1/2%. Loans in
foreign currencies bear interest at a rate equal to the Eurocurrency Rate or,
in the case of Local Loans, the local lender rate, in each case plus 1 1/2%.
The
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applicable margin is reduced (or increased, but not above 3/4 of 1% for
Alternate Base Rate Loans not constituting Local Loans and 1 3/4% for other
loans) in the event Products Corporation attains (or fails to attain) certain
leverage ratios. Products Corporation pays the Lender a commitment fee of 3/8
of 1% of the unused portion of the Credit Facilities, subject to reduction
(or increase, but not above 1/2 of 1%) based on certain leverage ratios.
Products Corporation also paid certain facility and other fees to the lenders
and agents upon closing of the Credit Agreement. Prior to its termination
date, the commitments under the Credit Facilities will be reduced by: (i) the
net proceeds in excess of $10.0 million each year received during such year
from sales of assets by Holdings (or certain of its subsidiaries), Products
Corporation or any of its subsidiaries (and $25.0 million with respect to
certain specified dispositions), subject to certain limited exceptions, (ii)
certain proceeds from the sales of collateral security granted to the
lenders, (iii) the net proceeds from the issuance by Holdings, Products
Corporation or any of its subsidiaries of certain additional debt, (iv) 50%
of the excess cash flow of Products Corporation and its subsidiaries (unless
certain leverage ratios are attained) and (v) certain scheduled reductions in
the case of the Term Loan Facilities, which commence on May 31, 1998 in the
aggregate amount of $1.0 million annually over the remaining life of the
Credit Agreement, and the Acquisition Facility, which will commence on
December 31, 1999 in the amount of $25 million, $60 million during 2000, $90
million during 2001 and $25 million during 2002 (which reductions will be
proportionately increased if the Acquisition Facility is increased). The
Credit Agreement will terminate on May 30, 2002. As of May 30, 1997, Products
Corporation had approximately $115.0 million outstanding under the Term Loan
Facility, zero outstanding under the Deferred Draw Term Loan Facility, $184.4
million outstanding under the Multi-Currency Facility, none outstanding under
the Acquisition Facility and $34.4 million outstanding under the Special LC
Facility. The weighted average interest rates on the Term Loan Facility and
the Multi-Currency Facility were 9.0%, and 7.4% per annum, respectively, as
of May 30, 1997.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Holdings and certain of its subsidiaries,
Revlon, Inc., Products Corporation and the domestic subsidiaries of Products
Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are
secured, subject to certain limitations, by (i) mortgages on Holdings'
Edison, New Jersey and Products Corporation's Phoenix, Arizona facilities;
(ii) the capital stock of Products Corporation and its domestic subsidiaries
and 66% of the capital stock of its first tier foreign subsidiaries and the
capital stock of certain subsidiaries of Holdings; (iii) domestic
intellectual property and certain other domestic intangibles of (x) Products
Corporation and its domestic subsidiaries (other than Cosmetic Center) and
(y) certain subsidiaries of Holdings; (iv) domestic inventory and accounts
receivable of (x) Products Corporation and its domestic subsidiaries (other
than Cosmetic Center) and (y) certain subsidiaries of Holdings; and (v) the
assets of certain foreign subsidiary borrowers under the Multi-Currency
Facility (to support their borrowings only). The Credit Agreement provides
that the liens on the stock and personal property referred to above may be
shared from time to time with specified types of other obligations incurred
or guaranteed by Products Corporation, such as interest rate hedging
obligations, working capital lines and the Yen Credit Agreement.
The Credit Agreement contains various material restrictive covenants
prohibiting Products Corporation and its subsidiaries from (i) incurring
additional indebtedness or guarantees, with certain exceptions, (ii) making
dividend, tax sharing (see "Relationship with MacAndrews & Forbes -- Tax
Sharing Agreement") and other payments or loans to Revlon, Inc. or other
affiliates, with certain exceptions, including among others, permitting
Products Corporation to pay dividends and make distributions to Revlon, Inc.,
among other things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things, professional
fees such as legal and accounting, regulatory fees such as SEC filing fees
and other miscellaneous expenses related to being a public holding company,
and to pay dividends or make distributions in certain circumstances to
finance the purchase by Revlon, Inc. of its common stock in connection with
the delivery of such common stock to grantees under any stock option plan,
provided that the aggregate amount of such dividends and distributions taken
together with any purchases of Revlon, Inc. common stock on the market to
satisfy matching obligations under an excess savings plan may not exceed $6.0
million per annum, (iii) creating
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liens or other encumbrances on their assets or revenues, granting negative
pledges or selling or transferring any of their assets except in the ordinary
course of business, all subject to certain limited exceptions, (iv) with
certain exceptions, engaging in merger or acquisition transactions, (v)
prepaying indebtedness, subject to certain limited exceptions, (vi) making
investments, subject to certain limited exceptions and (vii) entering into
transactions with affiliates of Products Corporation other than upon terms no
less favorable to Products Corporation or its subsidiaries than it would
obtain in an arms' length transaction. In addition to the foregoing, the
Credit Agreement contains financial covenants requiring Products Corporation
and its subsidiaries to maintain minimum interest coverage, and covenants
which limit the leverage ratio of Products Corporation and its subsidiaries
and the amount of capital expenditures.
"Events of Default" under the Credit Agreement include (i) a default in
the payment when due of any principal of the loans under the Credit
Agreement, (ii) a default in the payment of interest on the loans, or any
other amounts payable under the Credit Agreement for five days after the due
date thereof, (iii) the failure to comply with the covenants in the Credit
Agreement or the ancillary security documents, subject in certain instances
to grace periods, (iv) the institution of any bankruptcy, insolvency or
similar proceeding by or against Products Corporation or any of its
subsidiaries, (v) a default by Revlon, Inc. or any of its subsidiaries under
any debt instruments in excess of $5.0 million, if the effect of such default
is to cause or permit the acceleration of the maturity of the obligation
under such instruments, (vi) the agreements by certain affiliates of Products
Corporation providing that such affiliates will not demand payment of or
retain proceeds of any payment on account of certain indebtedness of Products
Corporation held by such affiliates, ceasing to be valid and enforceable or
if an affiliate which holds indebtedness of Products Corporation fails to
execute such agreement, (vii) the acceleration of, or failure to pay
principal or interest when due under, any of Revlon Worldwide's or Revlon
Worldwide Parent's debt instruments in excess of $500,000, (viii) failure to
pay any judgment in excess of $5.0 million and such judgment shall not have
been vacated, stayed, satisfied or bonded pending appeal within 60 days from
the entry thereof, (ix) the occurrence of a change of control such that (x)
Revlon, Inc. shall cease to own 100% of the capital stock of Products
Corporation, (y) in the event that Ronald O. Perelman (and heirs and
affiliates) shall cease to control Products Corporation, any other person
either (A) controls Products Corporation or (B) owns more than 25% of the
voting stock of Products Corporation or (z) the directors of Products
Corporation in May 1997 (or other directors nominated by at least two-thirds
of such continuing directors) shall cease to constitute at least two-thirds
of the Board of Directors of Products Corporation, (x) the failure of
Products Corporation to have received from Revlon, Inc. any cash capital
contributions in the amount equal to the net proceeds of certain equity
offerings of certain parents of Products Corporation, (xi) Products
Corporation or any of its subsidiaries paying any amount in respect of
federal capital gains taxes other than pursuant to a promissory note for the
amount of such capital gains, (xii) any representation or warranty of the
borrower, any guarantor or any pledgor failing to be correct in all material
respects when made or confirmed, and (xiii) Revlon, Inc. having any
meaningful assets or indebtedness (with certain exceptions) or Revlon, Inc.
conducting any meaningful business other than those that are customary for a
publicly traded holding company which is not itself an operating company.
1999 SENIOR NOTES
On June 4, 1993, Products Corporation issued and sold $200.0 million
principal amount of 1999 Senior Notes. The 1999 Senior Notes were sold in a
registered offering under the Securities Act and applicable state securities
laws. The 1999 Senior Notes bear interest at 9 1/2% per annum, payable
semiannually on each June 1 and December 1. The 1999 Senior Notes are senior
unsecured obligations of Products Corporation and mature on June 1, 1999.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a Change
of Control (as defined in the indenture pursuant to which the 1999 Senior
Notes were issued (the "1999 Senior Note Indenture")), and subject to certain
conditions, each holder of 1999 Senior Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's 1999
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. In
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addition, under certain circumstances in the event of an Asset Disposition
(as defined in the 1999 Senior Note Indenture), Products Corporation will be
obligated to make offers to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various material restrictive
covenants that limit (i) the issuance of additional debt and redeemable stock
by Products Corporation, (ii) the issuance of debt and preferred stock by
Products Corporation's subsidiaries, (iii) the incurrence of liens on the
assets of Products Corporation and its subsidiaries which do not equally and
ratably secure the 1999 Senior Notes, (iv) the payment of dividends on and
redemption of capital stock of Products Corporation and its subsidiaries,
investments in affiliates and the redemption of certain subordinated
obligations of Products Corporation, except that the 1999 Senior Note
Indenture permits Products Corporation to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among
other things, professional fees such as legal and accounting, regulatory fees
such as SEC filing fees and other miscellaneous expenses related to being a
public holding company, and to pay dividends or make distributions up to $5.0
million per annum in certain circumstances to finance the purchase by Revlon,
Inc. of its Class A Common Stock in connection with the delivery of such
Class A Common Stock to grantees under the Revlon, Inc. Stock Plan, (v) the
sale of assets and subsidiary stock, (vi) transactions with affiliates and
(vii) consolidations, mergers and transfers of all or substantially all
Products Corporation's assets. The 1999 Senior Note Indenture also prohibits
certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
Events of default under the 1999 Senior Note Indenture include, among
other things, (i) a default continuing for 30 days in the payment of interest
when due, (ii) a default in the payment of any principal when due, (iii) the
failure to comply with the covenants in the 1999 Senior Note Indenture,
subject in certain instances to grace periods, (iv) a failure to pay other
indebtedness of Products Corporation or a Significant Subsidiary (as defined
in the 1999 Senior Note Indenture) in excess of $25 million upon final
maturity or as a result of such indebtedness becoming accelerated and such
default continues for a period of 10 days after notice thereof, (v) certain
events of bankruptcy, insolvency or reorganization of Products Corporation or
a Significant Subsidiary and (vi) the failure to pay any judgment in excess
of $25 million.
SENIOR NOTES
On April 6, 1993, Products Corporation issued and sold $260.0 million
principal amount of senior notes (the "Original Senior Notes") having terms
substantially identical in all material respects to Products Corporation's
$260.0 million principal amount of 9 3/8% Senior Notes Due 2001 (together
with the Original Senior Notes, the "Senior Notes"). The Original Senior
Notes were sold to the initial purchasers thereof pursuant to the Section
4(2) exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Original Senior Notes bore interest at
9 7/8% per annum until the consummation of an offer to exchange the Senior
Notes for a like principal amount of such notes, at which time the interest
on the Senior Notes permanently decreased to 9 3/8% per annum. On June 15,
1993, Products Corporation consummated a registered exchange offer whereby
holders of the Original Senior Notes exchanged such notes for registered
Senior Notes. Interest is payable semiannually on each April 1 and October 1.
The Senior Notes are senior unsecured obligations of Products Corporation and
mature on April 1, 2001.
The Senior Notes may be redeemed at the option of Products Corporation in
whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth therein, plus accrued and unpaid interest, if any, to the
date of redemption. Upon a Change of Control (as defined in the indenture
pursuant to which the Senior Notes were issued (the "Senior Note
Indenture")), Products Corporation will have the option to redeem the Senior
Notes in whole at a redemption price equal to the principal amount thereof
plus the Applicable Premium (as defined in the Senior Note Indenture), plus
accrued and unpaid interest, if any, to the date of redemption, and, subject
to certain conditions, each holder of Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. In
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addition, under certain circumstances in the event of an Asset Disposition
(as defined in the Senior Note Indenture), Products Corporation will be
obligated to make offers to purchase the Senior Notes.
The Senior Note Indenture contains various material restrictive covenants
that limit (i) the issuance of additional indebtedness and redeemable stock
by Products Corporation, (ii) the issuance of indebtedness and preferred
stock by Products Corporation's subsidiaries, (iii) the incurrence of liens
on the assets of Products Corporation and its subsidiaries which do not
equally and ratably secure the Senior Notes, (iv) the payment of dividends on
capital stock of Products Corporation and its subsidiaries, investments in
affiliates and the redemption of capital stock and certain subordinated
obligations of Products Corporation, except that the Senior Note Indenture
permits Products Corporation to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as SEC
filing fees and other miscellaneous expenses related to being a public
holding company, and to pay dividends or make distributions up to $5.0
million per annum in certain circumstances to finance the purchase by Revlon,
Inc. of its Class A Common Stock in connection with the delivery of such
Class A Common Stock to grantees under the Revlon, Inc. Stock Plan, (v) the
sale of assets and subsidiary stock, (vi) transactions with affiliates and
(vii) consolidations, mergers and transfers of all or substantially all of
Products Corporation's assets. The Senior Note Indenture also prohibits
certain restrictions on distributions from subsidiaries of Products
Corporation. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
Events of default under the Senior Note Indenture include, among other
things, (i) a default continuing for 30 days in the payment of interest when
due, (ii) a default in the payment of any principal when due, (iii) the
failure to comply with the covenants in the Senior Note Indenture, subject in
certain instances to grace periods, (iv) failure to pay other indebtedness of
Products Corporation or a Significant Subsidiary (as defined in the Senior
Note Indenture) in excess of $25 million upon final maturity or as a result
of such indebtedness becoming accelerated and such default continues for a
period of 10 days after notice thereof, (v) certain events of bankruptcy,
insolvency or reorganization of Products Corporation or a Significant
Subsidiary and (vi) the failure to pay any judgment in excess of $25 million.
SENIOR SUBORDINATED NOTES
On February 25, 1993, Products Corporation issued and sold $555.0 million
principal amount of senior subordinated notes (the "Original Senior
Subordinated Notes") having terms substantially identical in all material
respects with Products Corporation's $555.0 million principal amount of 10
1/2% Senior Subordinated Notes Due 2003 (together with the Original Senior
Subordinated Notes, the "Senior Subordinated Notes"). The Original Senior
Subordinated Notes were sold to the initial purchasers thereof pursuant to
the Section 4(2) exemption from the registration requirements of the
Securities Act and applicable state securities laws. The Original Senior
Subordinated Notes bore interest at 11% per annum until the consummation of
an offer to exchange the Senior Subordinated Notes for a like principal
amount of such notes, at which time the interest rate on the Senior
Subordinated Notes permanently decreased to 10 1/2% per annum. On June 15,
1993, Products Corporation consummated a registered exchange offer whereby
holders of Original Senior Subordinated Notes exchanged such notes for
registered Senior Subordinated Notes. Interest is payable semiannually on
each February 15 and August 15. The Senior Subordinated Notes are unsecured
senior subordinated obligations of Products Corporation and are subordinated
in right of payment to all existing and future Senior Debt (as defined in the
indenture pursuant to which the Senior Subordinated Notes were issued (the
"Senior Subordinated Note Indenture")). The Senior Subordinated Notes mature
on February 15, 2003.
The Senior Subordinated Notes may be redeemed at the option of Products
Corporation in whole or in part at any time on or after February 15, 1998 at
the redemption prices set forth therein, plus accrued and unpaid interest, if
any, to the date of redemption. Upon a Change of Control (as defined in the
Senior Subordinated Note Indenture), Products Corporation will have the
option to redeem the "Senior Subordinated Notes in whole or in part at a
redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined in the Senior Subordinated Note Indenture), plus accrued
and unpaid interest, if any, to the date of redemption, and subject to
certain conditions, each
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holder of Senior Subordinated Notes will have the right to require Products
Corporation to repurchase all or a portion of such holder's Senior
Subordinated Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under
certain circumstances in the event of an Asset Disposition (as defined in the
Senior Subordinated Note Indenture), Products Corporation will be obligated
to make offers to purchase the Senior Subordinated Notes.
The Senior Subordinated Note Indenture contains various material
restrictive covenants that limit (i) the issuance of additional indebtedness
and redeemable stock by Products Corporation and the issuance of any other
senior subordinated indebtedness of Products Corporation that is senior to
the Senior Subordinated Notes, (ii) the issuance of indebtedness and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence
of liens on the assets of Products Corporation and its subsidiaries to secure
debt other than Senior Debt (as defined in the Senior Subordinated Note
Indenture) or debt of a subsidiary unless the Senior Subordinated Notes are
equally and ratably secured, (iv) the payment of dividends on capital stock
of Products Corporation and its subsidiaries, investments in affiliates and
the redemption of capital stock and certain subordinated obligations of
Products Corporation, except that the Senior Subordinated Note Indenture
permits Products Corporation to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as SEC
filing fees and other miscellaneous expenses related to being a public
holding company, and to pay dividends or make distributions up to $5.0
million per annum in certain circumstances to finance the purchase by Revlon,
Inc. of its Class A Common Stock in connection with the delivery of such
Class A Common Stock to grantees under the Revlon, Inc. Stock Plan, (v) the
sale of assets and subsidiary stock, (vi) transactions with affiliates and
(vii) consolidations, mergers and transfers of all or substantially all of
Products Corporation's assets. The Senior Subordinated Note Indenture also
prohibits certain restrictions on distributions from subsidiaries of Products
Corporation. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
Events of default under the Senior Subordinated Note Indenture include,
among other things, (i) a default continuing for 30 days in the payment of
interest when due, (ii) a default in the payment of any principal when due,
(iii) the failure to comply with the covenants in the Senior Subordinated
Note Indenture, subject in certain instances to grace periods, (iv) failure
to pay other indebtedness of Products Corporation or a Significant Subsidiary
(as defined in the Senior Subordinated Note Indenture) in excess of $25
million upon final maturity or as a result of such indebtedness becoming
accelerated and such default continues for a period of 10 days after notice
thereof, (v) certain events of bankruptcy, insolvency or reorganization of
Products Corporation or a Significant Subsidiary and (vi) the failure to pay
any judgment in excess of $25 million.
SINKING FUND DEBENTURES
In connection with the transfer to Products Corporation of the cosmetics
and skin care, fragrance and personal care products business of Holdings,
Products Corporation assumed all obligations of Holdings under the indenture
pursuant to which the Sinking Fund Debentures were issued (the "Sinking Fund
Debentures Indenture"). The Sinking Fund Debentures were originally sold to
the initial purchasers thereof pursuant to the Section 4(2) exemption from
the registration requirements of the Securities Act and applicable state
securities laws. The Sinking Fund Debentures bear interest at the rate of 10
7/8% per annum, payable semiannually on each January 15 and July 15, and
mature on July 15, 2010. The aggregate principal amount of Sinking Fund
Debentures outstanding as of December 31, 1996 was $85.0 million face amount
(net of repurchases) ($79.6 million carrying value).
On each July 15 until maturity, Products Corporation will be required to
make a mandatory sinking fund payment for the redemption of $9.0 million
aggregate principal amount of Sinking Fund Debentures, at 100% of their
principal amount, together with accrued but unpaid interest to the date fixed
for redemption subject to reduction for certain prior redemptions. In May
1982 and May 1984, Holdings surrendered to the trustee for the Sinking Fund
Debentures $40 million and $75 million, in principal amount, respectively, of
Sinking Fund Debentures for cancellation and for application to mandatory
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sinking fund payments. As of December 31, 1996, Products Corporation had
approximately $61.0 million aggregate principal amount of such surrendered
Sinking Fund Debentures available to be used to satisfy sinking fund payment
obligations. Products Corporation also may at its option on each July 15
until maturity make an optional sinking fund payment for the redemption of up
to an additional $13.5 million aggregate principal amount of Sinking Fund
Debentures, at 100% of their principal amount, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, the Sinking Fund
Debentures may be redeemed at any time, at the option of Products
Corporation, at 101.95% of their principal amount for the year beginning July
15, 1996 and thereafter at a premium that declines annually until July 15,
2000 to 100% of their principal amount, in each case plus accrued and unpaid
interest, if any, to the date of redemption.
The Sinking Fund Debentures Indenture contains various restrictive
covenants prohibiting (with certain exceptions) Products Corporation and its
subsidiaries from (i) incurring indebtedness in excess of 5% of the
consolidated net tangible assets, where such indebtedness is secured by any
manufacturing plant or warehouse in the United States owned or leased by
Products Corporation or any of its subsidiaries, the book value of which
exceeds 2% of the consolidated net tangible assets of Products Corporation,
unless the Sinking Fund Debentures are equally and ratably secured, (ii)
entering into certain sale and leaseback transactions or (iii) consolidating
or merging with or into, or selling or transferring all or substantially all
of their properties and assets to, another corporation, unless certain
conditions are satisfied. Events of default under the Sinking Fund Debentures
Indenture include, among other things, (i) a default in the payment of any
principal when due (including any sinking fund payment), (ii) a default
continuing for 60 days in the payment of any interest or a failure to comply
with any covenant continuing for 60 days after notice thereof, (iii) a
default under other indebtedness in excess of $10 million resulting in such
indebtedness becoming accelerated and remaining unpaid for a period of 10
days after notice thereof and (iv) certain events of bankruptcy, insolvency
or reorganization of Products Corporation. The Credit Agreement provides that
the Sinking Fund Debentures are equally and ratably secured by the Phoenix,
Arizona facility.
Products Corporation expects to redeem the Sinking Fund Debentures on or
about July 15, 1997 with borrowings under the Credit Agreement. See "--Credit
Agreement."
YEN CREDIT AGREEMENT
The Pacific Finance & Development Corp., a subsidiary of Products
Corporation ("Pacific Finance"), is the borrower under the Yen Credit
Agreement, which had a principal balance of approximately yen 4.8 billion as
of December 31, 1996 (approximately $41.7 million U.S. dollar equivalent as
of December 31, 1996). In accordance with the terms of the Yen Credit
Agreement, approximately yen 2.7 billion (approximately $26.9 million U.S.
dollar equivalent) was paid in January 1995 and approximately yen 539 million
(approximately $5.2 million U.S. dollar equivalent) was paid in January 1996.
A payment of approximately yen 539 million (approximately $4.6 million U.S.
dollar equivalent as of December 31, 1996) was paid in January 1997. The
balance of the Yen Credit Agreement of approximately yen 4.3 billion
(approximately $37.1 million U.S. dollar equivalent as of December 31, 1996)
is currently due on December 31, 1997. The interest rate on the outstanding
principal balance was 3.1% per annum as of May 30, 1997. As described below,
Products Corporation has received a commitment letter with respect to an
extension of the term of the Yen Credit Agreement. In the event that the
documentation for such extension is not completed, Products Corporation is
able and intends to refinance the Yen Credit Agreement under the Credit
Agreement. Accordingly, Products Corporation's obligation under the Yen
Credit Agreement has been classified as long-term as of December 31, 1996.
The applicable interest rate at December 31, 1996 under the Yen Credit
Agreement was the Euro-Yen rate plus 2.5% which approximated 3.1%. The
interest rate at December 31, 1995, applicable to the remaining balance, was
the Euro-Yen rate plus 3.5%, which approximated 4.1%.
Borrowings under the Yen Credit Agreement are secured by a first mortgage
on certain real property in Tokyo, Japan owned by Revlon Real Estate K.K., a
pledge of all of the common stock of Revlon Real
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Estate K.K., a pledge of a note payable by Products Corporation to Pacific
Finance and a pledge of all of the common stock of Cosmetic Center owned by
Products Corporation. In addition, Products Corporation has guaranteed the
obligations of Pacific Finance to repay any amounts due under the Yen Credit
Agreement.
The Yen Credit Agreement contains certain material restrictive covenants
prohibiting Pacific Finance from (with certain limited exceptions) incurring
material obligations, creating liens, engaging in any new activities or
consolidating with, or merging into, any other entity or selling, leasing or
otherwise transferring or permitting the transfer of all or any substantial
part of its assets to any other entity. Events of default under the Yen
Credit Agreement include, among other things, (i) a default in the payment of
all or any principal when due, (ii) a default continuing for three days in
the payment of interest or a failure to comply with any covenant (subject to
grace periods in certain instances), (iii) a default under any indebtedness
of Products Corporation, Pacific Finance or Revlon Real Estate K.K. in excess
of $10.0 million beyond the period of cure provided under such indebtedness,
(iv) a judgment in excess of $5.0 million being entered against Products
Corporation or certain subsidiaries of Products Corporation, including
Pacific Finance, which is not covered by insurance and which remains
unsatisfied for 30 days and (v) change of control and certain events of
bankruptcy, insolvency or reorganization relating to Products Corporation or
certain subsidiaries of Products Corporation.
In May 1997, Products Corporation received a commitment letter pursuant to
which the Yen Credit Agreement will be amended to (i) extend its maturity to
March 31, 1999 (or December 31, 2000 if the 1999 Senior Notes are refinanced
on or prior to March 31, 1999 and no default is continuing under the Yen
Credit Agreement on such date), (ii) revise the amortization schedule in
light of the extended maturity, (iii) revise the applicable margin to match
that for Eurodollar Loans under the Credit Agreement (but in no event less
than 0.75%), (iv) provide for certain fees payable at closing and on March
31, 1998 and (v) provide for financial covenants substantially the same as in
the Credit Agreement. The closing for these amendments, which is expected to
occur on or about June 30, 1997, is subject to a number of conditions
precedent, including no material adverse change in the business and
operations of Products Corporation, Pacific Finance and Revlon Real Estate
K.K.
OTHER INDEBTEDNESS
The Company also maintains working capital lines in various countries
outside the United States for use in its international operations. As of
December 31, 1996, the aggregate amount outstanding under these lines was
approximately $27.1 million having a weighted average interest rate of 5.7%,
converted into U.S. dollars at the applicable exchange rates on such date.
Most of these working capital lines are short-term facilities that contain
customary events of default and few restrictive covenants. In addition, a
mortgage on the Company's Oxford, North Carolina facility secures a $4.6
million borrowing which matures on January 1, 1998. The obligations under
several of these foreign working capital lines are guaranteed by Products
Corporation.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Issuer,
has advised the Issuer that the following discussion, except as otherwise
indicated, expresses their opinion as to the material federal income tax
considerations applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquire the New
Notes pursuant to the Exchange Offer. This discussion is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion does not cover all aspects of federal taxation that
may be relevant to, or the actual tax effect that any of the matters
described herein will have on, particular holders, and does not address
state, local, foreign or other tax laws. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
taxpayers subject to the alternative minimum tax and foreign partners) may be
subject to special rules not discussed below. The description assumes that
holders of the New Notes will hold the New Notes as "capital assets"
(generally, property held for investment purposes) within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR IN DETERMINING THE FEDERAL,
STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES.
EXCHANGE OF NOTES
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for federal income tax purposes
because the New Notes do not differ materially in kind or extent from the Old
Notes, and because the exchange will occur by operation of the terms of the
Old Notes. Rather the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of such holder. As a result, no
gain or loss will be recognized on the exchange of Old Notes for New Notes
pursuant to the Exchange Offer.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued on March 5, 1997 and have Original Issue
Discount for federal income tax purposes. Because the New Notes will be
treated as a continuation of the Old Notes, which were issued with Original
Issue Discount, the New Notes will have Original Issue Discount for federal
income tax purposes, and holders of the New Notes will be required to
recognize such Original Issue Discount as ordinary income in advance of the
receipt of the cash payments to which such income is attributable (regardless
of the holder's regular method of accounting).
The total amount of Original Issue Discount with respect to a New Note
will be equal to the excess of the "stated redemption price at maturity" of
such New Note over its "issue price." The "stated redemption price at
maturity" of a New Note will be equal to the stated principal amount due at
maturity. The "issue price" of all the New Notes will be equal to the issue
price of the Old Notes. Holders of New Notes are required to include Original
Issue Discount in income as it accrues in accordance with a constant yield
method based on compounding at the end of each accrual period (regardless of
a holder's regular method of accounting). In general, the amount of Original
Issue Discount that is includable in income is determined by allocating to
each day in an accrual period the ratable portion of Original Issue Discount
allocable to the accrual period. The amount of Original Issue Discount that
is allocable to an accrual period is generally an amount equal to the product
of the adjusted issue price of a Note at the beginning of such accrual period
(the issue price of the Notes determined as described above, generally
increased by all prior accruals of Original Issue Discount with respect to
the Notes) and the yield to maturity (the discount rate, which when applied
to all payments under the Notes results in a present value equal to the issue
price) less any qualified stated interest (interest that is unconditionally
payable in cash or property at least annually at a single fixed rate)
allocable to the accrual period.
DISPOSITION OF NEW NOTES
A holder's tax basis in a New Note will be increased by the amount of
Original Issue Discount that is includable in such holder's income. If a New
Note is redeemed, sold or otherwise disposed of, the
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holder thereof will generally recognize gain or loss equal to the difference
between the amount realized on the redemption, sale or other disposition of
such New Note and the holder's adjusted basis in the New Note. Subject to the
market discount rules discussed below, such gain or loss will be capital gain
or loss and will be long-term capital gain or loss if, on the date of the
sale, a holder has a holding period for the New Notes (which would include
the holding period of the Old Notes) of more than one year.
Under the market discount rules of the Code, an exchanging holder (other
than a holder who made the election described below) who purchased an Old
Note with "market discount" (generally defined as the amount by which the
adjusted issue price of the Old Note on the holder's date of purchase exceeds
the holder's purchase price) will be required to treat any gain recognized on
the redemption, sale or other disposition of the New Note received in the
exchange as ordinary income to the extent of the market discount that accrued
during the holding period of such New Note (which would include the holding
period of the Old Note). A holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not, however, be required to treat any gain recognized as
ordinary income under these rules. Holders should consult their tax advisors
as to the portion of any gain that would be taxable as ordinary income under
these provisions.
INFORMATION REPORTING
Each New Note will contain a legend stating that it has Original Issue
Discount and setting forth the issue date, the issue price, the amount of
Original Issue Discount and the yield to maturity. The Issuer will report
annually to the IRS and to each holder (other than holders not subject to the
information reporting requirements) the amount of Original Issue Discount
accrued with respect to such New Note and any interest paid with respect to
the Old Notes as described above under "Description of the Notes --
Registration Rights."
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited with, or on behalf of, DTC
and registered in the name of Cede & Co., as nominee of DTC, or will remain
in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between DTC and the Trustee.
DTC has advised the Issuer that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the
Federal Reserve System, (iii) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to
hold securities for its participation (collectively, the "Participants") and
facilitates the clearance and settlement of securities transactions between
Participants through electronic book-entry changes to the accounts of its
Participants, thereby eliminating the need for physical transfer and delivery
of certificates. DTC's Participants include securities brokers and dealers
(including the Initial Purchasers), banks and 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 (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Holders who are not Participants may beneficially own securities
held by or on behalf of the Depository only through Participants or Indirect
Participants.
The Issuer expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with
respect to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interest in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer Notes or to pledge the Notes as collateral will be limited to such
extent. For certain other restrictions on the transferability of the Notes,
see "Notice to Investors."
So long as DTC or its nominee is the registered owner of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of certificated securities (the "Certificated Securities"),
and will not be considered the owners or Holders thereof under the Indenture
for any purpose, including with respect to giving of any directions,
instruction or approval to the Trustee thereunder. As a result, the ability
of a person having a beneficial interest in Notes represented by a Global
Note to pledge or transfer such interest to persons or entities that do not
participate in DTC's system or to otherwise take action with respect to such
interest, may be affected by the lack of a physical certificate evidencing
such interest.
Accordingly, each holder owning a beneficial interest in a Global Note
must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through
which such holder owns its interest, to exercise any rights of a holder of
Notes under the Indenture or such Global Note. The Issuer understands that
under existing industry practice, in the event the Issuer requests any action
of holders of Notes or a holder that is an owner of a beneficial interest in
a Global Note desires to take any action that DTC, as the holder of such
Global Note, is entitled to take, DTC would authorize the Participants to
take such action and the Participant would authorize holders owning through
such Participants to take such action or would otherwise act upon the
instruction of such holders. Neither the Issuer nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or
its nominee on the applicable record date will be
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payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Issuer and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payment and for any and all other purposes whatsoever. Consequently, neither
the Issuer nor the Trustee has or will have any responsibility or liability
for the payment of such amounts to beneficial owners of interest in the
Global Note (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Global Note as shown on the records of
DTC. Payments by the Participants and the Indirect Participants to the
beneficial owners of interests in the Global Note will be governed by
standing instructions and customary practice and will be the responsibility
of the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Issuer notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Issuer is unable to locate a
qualified successor within 90 days, (ii) the Issuer, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Notes. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Issuer nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the related Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New Notes. 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 New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer 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 any
such resale. In addition, until , 1997, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sale of New Notes by
broker-dealers. New 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 New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New 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 New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions
126
<PAGE>
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 Issuer will
promptly send additional copies of the Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
document in the Letter of Transmittal. The Issuer has agreed to pay all
expenses incident to the Exchange Offer 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 with respect to the validity of the issuance of the
New Notes will be passed upon for the Issuer by Paul, Weiss, Rifkind, Wharton
& Garrison, New York, New York and, with respect to certain federal income
tax considerations, by Skadden, Arps, Slate, Meagher & Flom LLP, New York,
New York. Skadden, Arps, Slate, Meagher & Flom LLP has acted as counsel for
the Issuer in connection with the Exchange Offer. Skadden, Arps, Slate,
Meagher & Flom LLP and Paul, Weiss, Rifkind, Wharton & Garrison have from
time to time represented, and may continue to represent, MacAndrews & Forbes
and certain of its affiliates (including the Issuer and Revlon, Inc.) in
connection with certain legal matters. Joseph H. Flom, a partner in the firm
of Skadden, Arps, Slate, Meagher & Flom LLP, is a director of Revlon Group
Incorporated, a wholly owned subsidiary of MacAndrews & Forbes.
EXPERTS
The financial statements and schedule of the Company and subsidiaries as
of December 31, 1995 and 1996 and for each of the years in the three-year
period ended December 31, 1996, included herein and elsewhere in the
Registration Statement have been audited and reported on by KPMG Peat Marwick
LLP, independent certified public accountants. Such financial statements and
schedule have been included herein and in the Registration Statement in
reliance upon the reports of KPMG Peat Marwick LLP, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
127
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............................ F-3
Consolidated Statements of Operations for each of the years in the three-year period
ended December 31, 1996................................................................ F-4
Consolidated Statements of Stockholder's Deficiency for each of the years in the
three-year period ended December 31, 1996.............................................. F-5
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended December 31, 1996................................................................ F-6
Notes to Consolidated Financial Statements.............................................. F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets as of March 31, 1997 and December 31, 1996 ....... F-35
Consolidated Condensed Statements of Operations for each of the three months ended
March 31, 1997 and 1996................................................................ F-36
Consolidated Condensed Statements of Cash Flows for each of the three months ended
March 31, 1997 and 1996................................................................ F-37
Notes to Unaudited Consolidated Condensed Financial Statements.......................... F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Revlon Worldwide (Parent) Corporation:
We have audited the accompanying consolidated balance sheets of Revlon
Worldwide (Parent) Corporation and its subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, cash flows
and stockholder's deficiency for each of the years in the three-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Revlon
Worldwide (Parent) Corporation and its subsidiaries as of December 31, 1996
and 1995 and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits."
KPMG PEAT MARWICK LLP
New York, New York
January 28, 1997
F-2
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 38.6 $ 36.3
Trade receivables, less allowances of $24.9 and
$23.7, respectively.................................. 426.3 363.1
Inventories........................................... 281.0 277.8
Prepaid expenses and other............................ 74.5 62.4
--------- ---------
Total current assets................................. 820.4 739.6
Property, plant and equipment, net..................... 381.1 367.1
Other assets........................................... 144.2 152.1
Intangible assets related to businesses acquired, net . 280.6 285.7
--------- ---------
Total assets......................................... $ 1,626.3 $ 1,544.5
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings--third parties.................. $ 27.1 $ 22.7
Current portion of long-term debt--third parties ..... 8.8 9.2
Accounts payable...................................... 161.9 151.6
Accrued expenses and other............................ 365.2 370.6
--------- ---------
Total current liabilities............................ 563.0 554.1
Long-term debt--third parties.......................... 2,291.4 2,289.1
Long-term debt--affiliates............................. 30.4 41.3
Other long-term liabilities............................ 202.8 215.7
Stockholder's deficiency:
Common stock, par value $1.00 per share; 1,000 shares
authorized, issued and outstanding................... -- --
Capital deficiency.................................... (971.0) (967.0)
Accumulated deficit since June 24, 1992............... (472.1) (566.7)
Adjustment for minimum pension liability.............. (12.4) (17.0)
Currency translation adjustment....................... (5.8) (5.0)
--------- ---------
Total stockholder's deficiency....................... (1,461.3) (1,555.7)
--------- ---------
Total liabilities and stockholder's deficiency ...... $ 1,626.3 $ 1,544.5
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................... $2,167.0 $1,937.8 $1,732.5
Cost of sales....................................... 725.7 652.1 597.3
-------- -------- --------
Gross profit...................................... 1,441.3 1,285.7 1,135.2
Selling, general and administrative expenses ....... 1,241.1 1,139.1 1,026.8
-------- -------- --------
Operating income.................................. 200.2 146.6 108.4
Other expenses (income):
Interest expense .................................. 240.1 237.5 221.2
Interest and net investment income ................ (3.4) (4.9) (6.3)
Amortization of debt issuance costs................ 12.5 15.2 12.6
Foreign currency losses, net....................... 5.7 10.9 18.2
Miscellaneous, net................................. 6.4 1.8 2.8
Gain on sale of subsidiary stock .................. (187.8) -- --
-------- -------- --------
Other expenses, net............................... 73.5 260.5 248.5
-------- -------- --------
Income (loss) before income taxes .................. 126.7 (113.9) (140.1)
Provision for income taxes.......................... 25.5 25.4 22.8
-------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting change ............ 101.2 (139.3) (162.9)
Extraordinary item--early extinguishment of debt ... (6.6) -- --
Cumulative effect of accounting change:
Postemployment benefits, net of income tax benefit
of $1.3............................................ -- -- (28.8)
-------- -------- --------
Net income (loss)................................... $ 94.6 $ (139.3) $ (191.7)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CURRENCY
CAPITAL ACCUMULATED OTHER TRANSLATION
DEFICIENCY DEFICIT (A) ADJUSTMENTS ADJUSTMENT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994.......... $(967.2) $(235.7) $(13.9) $(4.4)
Net loss......................... (191.7)(b)
Capital contribution from
parent........................... 0.2
Adjustment for minimum pension
liability....................... 3.0
Currency translation adjustment . (1.4)
------- ------- ------ ------
Balance, December 31, 1994........ (967.0) (427.4) (10.9) (5.8)
Net loss......................... (139.3)
Adjustment for minimum pension
liability....................... (6.1)
Currency translation adjustment . 0.8
------- ------- ------ ------
Balance, December 31, 1995........ (967.0) (566.7) (17.0) (5.0)
Net income....................... 94.6
Capital contribution from
parent........................... 0.1
Adjustment for minimum pension
liability....................... 4.6
Currency translation adjustment . (0.8)(d)
Acquisition of business.......... (4.1)(c)
------- ------- ------ ------
Balance, December 31, 1996........ $(971.0) $(472.1) $(12.4) $(5.8)
======= ======= ====== ======
</TABLE>
- --------------
(a) Represents net loss since June 24, 1992, the effective date of the
transfer agreements referred to in Note 12.
(b) Includes cumulative effect of change to new accounting standard for
postemployment benefits as of January 1, 1994.
(c) Represents amounts paid to Revlon Holdings Inc. for the Tarlow
Advertising Division ("Tarlow"). See Note 12.
(d) Includes $2.1 of gains related to the Company's simplification of its
international corporate structure.
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ 94.6 $(139.3) $(191.7)
Adjustments to reconcile net income (loss) to net cash (used
for) provided by operating activities:
Depreciation and amortization................................... 95.1 92.6 83.0
Amortization of debt discount................................... 106.7 94.9 84.5
Gain on sale of subsidiary stock................................ (187.8) -- --
Extraordinary item.............................................. 6.6 -- --
Gain on sale of business interests and certain fixed assets,
net............................................................ -- (2.2) --
Cumulative effect of accounting change.......................... -- -- 28.8
Change in assets and liabilities:
Increase in trade receivables.................................. (67.5) (44.5) (22.1)
(Increase) decrease in inventories............................. (5.5) (15.3) 14.1
(Increase) decrease in prepaid expenses and other
current assets................................................ (7.2) 4.5 19.1
Increase in accounts payable................................... 10.8 10.2 23.4
Decrease in accrued expenses and other current liabilities ... (10.2) (12.2) (22.8)
Other, net .................................................... (45.8) (40.4) (17.6)
------- ------- -------
Net cash used for operating activities........................... (10.2) (51.7) (1.3)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (58.0) (54.3) (52.5)
Proceeds from the sale of business interests and certain fixed
assets.......................................................... -- 3.0 4.6
Acquisition of businesses, net of cash acquired.................. (7.1) (21.2) (3.1)
------- ------- -------
Net cash used for investing activities........................... (65.1) (72.5) (51.0)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings--third parties . 5.8 (122.9) (5.8)
Proceeds from the issuance of long-term debt--third parties ..... 266.4 493.7 157.6
Repayment of long-term debt--third parties....................... (366.6) (236.3) (197.8)
Net proceeds from initial public offering........................ 187.8 -- --
Proceeds from the issuance of debt--affiliates................... 115.0 157.4 141.7
Repayment of debt--affiliates.................................... (115.0) (151.0) (141.7)
Net contribution from parent..................................... 0.1 -- 0.2
Acquisition of business from affiliate........................... (4.1) -- --
Payment of debt issuance costs................................... (10.9) (15.7) (3.0)
------- ------- -------
Net cash provided by (used for) financing activities ............ 78.5 125.2 (48.8)
------- ------- -------
Effect of exchange rate changes on cash.......................... (0.9) (0.1) 0.9
------- ------- -------
Net increase (decrease) in cash and cash equivalents ........... 2.3 0.9 (100.2)
Cash and cash equivalents at beginning of period................ 36.3 35.4 135.6
------- ------- -------
Cash and cash equivalents at end of period...................... $ 38.6 $ 36.3 $ 35.4
======= ======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 139.0 $ 148.2 $ 138.5
Income taxes, net of refunds................................... 15.4 18.8 3.9
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired.................................. $ 9.7 $ 27.3 $ 3.3
Cash paid...................................................... (7.2) (21.6) (3.1)
------- ------- -------
Liabilities assumed............................................ $ 2.5 $ 5.7 $ 0.2
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Revlon Worldwide (Parent) Corporation ("Revlon Worldwide (Parent)" and
together with its subsidiaries, the "Company") is a holding company, formed
in 1997, that conducts its business exclusively through its indirect
subsidiary, Revlon Consumer Products Corporation ("Products Corporation") and
its subsidiaries. The Company operates in a single business segment with many
different products, which include an extensive array of glamorous, exciting
and innovative cosmetic and skin care, fragrance and personal care products,
and professional products (products for use in and resale by professional
salons). In the United States and increasingly in international markets, the
Company's products are sold principally in the self-select distribution
channel. The Company also sells certain products in the demonstrator-assisted
distribution channel, sells consumer and professional products to United
States military exchanges and commissaries, operates retail outlet stores and
has a licensing group. Outside the United States, the Company also sells
consumer products through department stores and specialty stores, such as
perfumeries.
Products Corporation was formed in April 1992 and, on June 24, 1992,
succeeded to assets and liabilities of the cosmetic and skin care, fragrance
and personal care products business of its then parent company whose name was
changed from Revlon, Inc. to Revlon Holdings Inc. ("Holdings"). Certain
consumer products lines sold in demonstrator-assisted distribution channels
considered not integral to the Company's business and which historically had
not been profitable (the "Retained Brands") and certain other assets and
liabilities are retained by Holdings. Revlon Worldwide (Parent) has had no
business operations of its own and its only material asset is its ownership
of all of the common stock of Revlon Worldwide Corporation ("Revlon
Worldwide"), which in turn has as its only material asset 83.1% of the
outstanding shares of capital stock of Revlon, Inc. (which represents
approximately 97.4% of the voting power of those outstanding shares), which,
in turn, owns all of the capital stock of Products Corporation. As such for
the years ended December 31, 1996, 1995 and 1994 its net income (loss) has
consisted almost entirely of its equity in the net income (loss) of Revlon,
Inc., and accretion of interest expense and amortization of debt issuance
costs related to Revlon Worldwide's Senior Secured Discount Notes Due 1998
(the "Senior Secured Discount Notes"). For such years, Revlon Worldwide has
had no cash flows of its own other than capital contributions from its parent
in 1994 and 1996.
The Consolidated Financial Statements of the Company presented herein
relate to the business to which the Company succeeded and include the assets,
liabilities and results of operations of such business. Assets, liabilities,
revenues, other income, costs and expenses which were identifiable
specifically to the Company are included herein and those identifiable
specifically to the retained and divested businesses of Holdings have been
excluded. Amounts which were not identifiable specifically to either the
Company or Holdings are included herein to the extent applicable to the
Company pursuant to a method of allocation generally based on the respective
proportion of the business of the Company to the applicable total of the
businesses of the Company and Holdings. The operating results of the Retained
Brands and divested businesses of Holdings have not been reflected in the
Consolidated Financial Statements of the Company. Management of the Company
believes that the basis of allocation and presentation is reasonable.
Although the Retained Brands were not transferred to Products Corporation
when the cosmetic and skin care, fragrance and personal care products
business of Holdings was transferred to Products Corporation, Products
Corporation's bank lenders required that all assets and liabilities relating
to such Retained Brands existing on the date of transfer (June 24, 1992),
other than the brand names themselves and certain other intangible assets, be
transferred to Products Corporation. Any assets and liabilities that had not
been disposed of or satisfied by December 31 of the applicable year have been
F-7
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reflected in the Company's consolidated financial position as of such dates.
However, any new assets or liabilities generated by such Retained Brands
since the transfer date and any income or loss associated with inventory that
has been transferred to Products Corporation relating to such Retained Brands
have been and will be for the account of Holdings. In addition, certain
assets and liabilities relating to divested businesses were transferred to
Products Corporation on the transfer date and any remaining balances as of
December 31 of the applicable year have been reflected in the Company's
Consolidated Balance Sheets as of such dates. At December 31, 1996 and 1995,
the amounts reflected in the Company's Consolidated Balance Sheets aggregated
a net liability of $23.6 and $31.2, respectively, of which $5.2 and $6.8,
respectively, are included in accrued expenses and other and $18.4 and $24.4,
respectively, are included in other long-term liabilities, respectively.
The Consolidated Financial Statements include the accounts of Revlon
Worldwide (Parent) and its subsidiaries after elimination of all material
intercompany balances and transactions. Further, the Company has made a
number of estimates and assumptions relating to the reporting of assets and
liabilities, the disclosure of liabilities and the reporting of revenues and
expenses to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Revlon Worldwide (Parent) is a partially direct and partially indirect
wholly owned subsidiary of Holdings and an indirect wholly owned subsidiary
of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a corporation
wholly owned through Mafco Holdings Inc. ("Mafco Holdings" and, together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to
50 years; machinery and equipment, 3 to 17 years; and office furniture and
fixtures, 2 to 12 years. Leasehold improvements are amortized over their
estimated useful lives or the terms of the leases, whichever is shorter.
Repairs and maintenance are charged to operations as incurred, and
expenditures for additions and improvements are capitalized.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, which is being amortized on a straight-line basis over 40 years.
The Company evaluates, when circumstances warrant, the recoverability of its
intangible assets on the basis of undiscounted cash flow projections and
through the use of various other measures, which include, among other things,
a review of its image, market share and business plans. Accumulated
amortization aggregated $94.2 and $84.2 at December 31, 1996 and 1995,
respectively.
F-8
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net sales
comprise gross revenues less expected returns, trade discounts and customer
allowances. Cost of sales is reduced for the estimated net realizable value
of expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
The Company is included in the affiliated group of which Mafco Holdings is
the common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax return filed by Mafco Holdings. The
Company also may be included in certain state and local tax returns of Mafco
Holdings or its subsidiaries. For all periods presented, federal, state and
local income taxes are provided as if the Company filed its own income tax
returns. On June 24, 1992, Holdings, Products Corporation and certain of its
subsidiaries, Revlon, Inc. and Mafco Holdings entered into a tax sharing
agreement and on March 17, 1993 Revlon Worldwide and Mafco Holdings entered
into a tax sharing agreement, each of which is described in Note 9.
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation sponsors pension and other retirement plans in
various forms covering substantially all employees who meet eligibility
requirements. For plans in the United States, the minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually. Various subsidiaries outside the United States have
retirement plans under which funds are deposited with trustees or reserves
are provided.
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires the Company to
accrue for benefits such as severance, disability and health insurance
provided to former employees prior to their retirement, if estimable. The
cumulative effect of this change was an after-tax charge of $28.8 principally
for severance related to benefits previously recorded on an as and when paid
basis. Such benefits generally are vested and accumulate over employees'
service periods. Effective January 1, 1994, the Company accounts for such
benefits on a terminal basis in accordance with the provisions of SFAS No. 5,
"Accounting for Contingencies," as amended by SFAS No. 112, which requires
companies to accrue for postemployment benefits when it is probable that a
liability has been incurred and the amount of such liability can be
reasonably estimated, which is generally when an employee is terminated. The
Company does not believe such liabilities can be reasonably estimated prior
to termination.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1996, 1995 and 1994 were $26.3, $22.3 and
$19.7, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated into
United States dollars at the rates of exchange in effect at the balance sheet
date. Income and expense items are generally translated at the weighted
average exchange rates prevailing during each period presented. Gains and
losses resulting from foreign currency transactions are included in the
results of operations. Gains and losses
F-9
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
resulting from translation of financial statements of foreign subsidiaries
and branches operating in non-highly inflationary economies are recorded as a
component of stockholder's deficiency. Foreign subsidiaries and branches
operating in highly inflationary economies translate nonmonetary assets and
liabilities at historical rates and include translation adjustments in the
results of operations.
ISSUANCE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on issuances of subsidiary stock
in its Consolidated Statements of Operations.
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation plans using the intrinsic value method
prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of Revlon, Inc.'s stock at the date of the grant over the
amount an employee must pay to acquire the stock. See Note 11.
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company maintains a control
environment which includes policies and procedures for risk assessment and
the approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial
instruments for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts
as adjustment to interest expense. Gains and losses on terminations of
interest rate contracts designated as hedges are deferred and amortized into
interest expense over the remaining life of the original contracts.
Unrealized gains and losses on outstanding contracts designated as hedges are
not recognized.
Gains and losses on contracts to hedge identifiable foreign currency
commitments are deferred and accounted for as part of the related foreign
currency transaction. Gains and losses on all other forward exchange
contracts are included in income currently. Transaction gains and losses have
not been material.
2. INVENTORIES
DECEMBER 31,
--------------
1996 1995
------ ------
Raw materials and supplies ............................... $ 76.6 $ 84.8
Work-in-process .......................................... 19.4 27.9
Finished goods ........................................... 185.0 165.1
------ ------
$281.0 $277.8
====== ======
F-10
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
3. PREPAID EXPENSES AND OTHER
DECEMBER 31,
--------------
1996 1995
------ ------
Prepaid expenses ............................................ $43.1 $36.5
Other ....................................................... 31.4 25.9
----- -----
$74.5 $62.4
===== =====
4. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
------------------
1996 1995
-------- --------
Land and improvements .................................. $ 37.5 $ 39.4
Buildings and improvements ............................ 207.6 203.2
Machinery and equipment ............................... 194.9 192.8
Office furniture and fixtures .......................... 59.4 47.8
Leasehold improvements ................................. 37.5 33.6
Construction-in-progress .............................. 43.7 41.4
------- -------
580.6 558.2
Accumulated depreciation .............................. (199.5) (191.1)
------- -------
$ 381.1 $ 367.1
======= =======
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was $39.1, $38.6 and $34.7, respectively.
5. ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Advertising and promotional costs and accrual for
sales returns ............................................ $136.4 $127.8
Compensation and related benefits ......................... 95.5 100.7
Interest .................................................. 36.7 37.9
Taxes, other than federal income taxes .................... 35.0 33.8
Restructuring costs ....................................... 6.9 15.2
Net liabilities assumed from Holdings ..................... 5.2 6.8
Other ..................................................... 49.5 48.4
------ ------
$365.2 $370.6
====== ======
</TABLE>
6. SHORT-TERM BORROWINGS
Products Corporation maintained short-term bank lines of credit at
December 31, 1996 and 1995 aggregating approximately $72.7 and $69.0,
respectively, of which approximately $27.1 and $22.7 were outstanding at
December 31, 1996 and 1995, respectively. Compensating balances at December
31, 1996 and 1995 were approximately $7.4 and $7.2, respectively. Interest
rates on amounts borrowed under such short-term lines at December 31, 1996
and 1995 varied from 2.2% to 12.1% and 2.0% to 13.4%, respectively.
F-11
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT
DECEMBER 31,
------------------
1996 1995
-------- --------
Working capital lines (a) ............................... $ 187.2 $ 277.5
Bank mortgage loan agreement due 1997 (b) .............. 41.7 52.4
9 1/2% Senior Notes due 1999 (c) ........................ 200.0 200.0
9 3/8% Senior Notes due 2001 (d) ........................ 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e) .......... 555.0 555.0
10 7/8% Sinking Fund Debentures due 2010 (f) ........... 79.6 79.2
Advances from Holdings (g) .............................. 30.4 41.3
Senior Secured Discount Notes Due 1998, net of
unamortized discount of $146.2 and $252.9 (h) .......... 969.6 862.9
Other mortgages and notes payable (8.6%-13.0%)
due through 2001 ....................................... 7.1 11.3
-------- --------
2,330.6 2,339.6
Less current portion .................................... (8.8) (9.2)
-------- --------
$2,321.8 $2,330.4
======== ========
- --------------
(a) The credit agreement in effect at December 31, 1995 (the "Former Credit
Agreement"), which was subsequently amended, provided up to $500.0 comprised
of three senior secured facilities: a $100.0 term loan facility, a $225.0
revolving credit facility and a $175.0 multi-currency facility. Products
Corporation complied with each of the financial covenants contained in the
Former Credit Agreement, as of and for the defined measurement periods ended
December 31, 1995. The Former Credit Agreement was scheduled to expire on
June 30, 1997.
In connection with repayments of indebtedness under the Former Credit
Agreement in 1996, the commitments thereunder were extinguished, representing
an early extinguishment of a portion of such facilities. Consequently, in
1996, the Company recognized a loss of approximately $6.6 representing the
then unamortized debt issuance costs, which have been reported in the
Consolidated Statements of Operations as an extraordinary item.
Loans that were outstanding under the Former Credit Agreement's revolving
credit facility and term loan facility bore interest initially at a rate
equal to, at Products Corporation's option, either (A) the alternate base
rate, defined to mean the highest of (i) the prime rate, (ii) the secondary
market rate for certificates of deposit plus 1% and (iii) the federal funds
rate plus 1/2%; in each case plus 2-1/2% or (B) the Eurodollar Rate plus
3-1/2%. The multi-currency facility bore interest at a rate equal to the
Eurocurrency Rate, the local lender rate or the alternate base rate, in each
case plus 3-1/2%.
In January 1996, Products Corporation entered into a credit agreement (the
"Credit Agreement"), which became effective upon consummation of Revlon,
Inc.'s initial public equity offering (the "Offering") on March 5, 1996. The
Credit Agreement includes, among other things, (i) an extension of the term
of the facilities from June 30, 1997 to December 31, 2000 (subject to earlier
termination in certain circumstances), (ii) a reduction of the interest
rates, (iii) an increase in the amount of the credit facilities from $500.0
to $600.0 (subject to reduction as described below) and (iv) the release of
security interests in assets of certain foreign subsidiaries of Products
Corporation which were then pledged.
The Credit Agreement is comprised of four senior secured facilities: a
$130.0 term loan facility (the "Term Loan Facility"), a $220.0 multi-currency
facility (the "Multi-Currency Facility"), a $200.0 revolving
F-12
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
acquisition facility (the "Acquisition Facility") and a $50.0 standby letter
of credit facility (the "Special LC Facility" and together with the Term Loan
Facility, the Multi-Currency Facility and the Acquisition Facility, the
"Credit Facilities"). The Multi-Currency Facility is available (i) to
Products Corporation, in revolving credit loans denominated in U.S. dollars
(the "Revolving Credit Loans"), (ii) to Products Corporation, in standby and
commercial letters of credit denominated in U.S. dollars (the "Operating
Letters of Credit") and (iii) to Products Corporation and certain of its
international subsidiaries designated from time to time in revolving credit
loans and bankers' acceptances denominated in U.S. dollars and other
currencies (the "Local Loans"). The Credit Facilities (other than loans in
foreign currencies) bear interest at a rate equal to, at Products
Corporation's option, either (A) the Alternate Base Rate plus 1.5% (or 2.5%
for Local Loans); or (B) the Eurodollar Rate plus 2.5%. Loans in foreign
currencies bear interest at a rate equal to the Eurocurrency Rate or, in the
case of Local Loans, the local lender rate, in each case plus 2.5%. The
applicable margin is reduced (or increased, but not above 2% for Alternate
Base Rate Loans not constituting Local Loans and 3% for other loans) in the
event Products Corporation attains (or fails to attain) certain leverage
ratios. Products Corporation pays the Lender a commitment fee of 1/2 of 1% of
the unused portion of the Credit Facilities. Products Corporation also paid
certain facility and other fees to the lenders and agents upon closing of the
Credit Agreement. Prior to its termination date, the commitments under the
Credit Facilities will be reduced by: (i) the net proceeds in excess of $10.0
each year received during such year from sales of assets by Holdings (or
certain of its subsidiaries), Products Corporation or any of its subsidiaries
(and $25.0 with respect to certain specified dispositions), subject to
certain limited exceptions, (ii) certain proceeds from the sales of
collateral security granted to the lenders, (iii) the net proceeds from the
issuance by Holdings, Products Corporation or any of its subsidiaries of
certain additional debt, (iv) 50% of the excess cash flow of Products
Corporation and its subsidiaries and (v) certain scheduled reductions in the
case of the Term Loan Facility, which commence on January 31, 1997 in the
amount of $1.0 annually over the remaining life of the Credit Agreement, and
the Acquisition Facility, which will commence on December 31, 1997 in the
amount of $20.0, $50.0 in 1998, $60.0 in 1999 and $70.0 in 2000. In addition,
the Credit Agreement requires that the net proceeds from any sale of equity
securities of any parent of Products Corporation which has the assets of
Products Corporation or certain of its subsidiaries as its only substantial
assets be contributed to Products Corporation (except to the extent that such
proceeds are applied to repay or refinance the Senior Secured Discount Notes
of Revlon Worldwide or are deposited with the trustee under the Indenture
covering such notes) and that Products Corporation use 50% of such proceeds,
in certain circumstances, to reduce commitments under the Credit Agreement.
The Credit Agreement will terminate on December 31, 2000 (subject to earlier
termination on March 31, 1999 if Products Corporation has not refinanced its
9-1/2% Senior Notes due 1999 (the "1999 Senior Notes") before March 31, 1999
or if an alternative plan for the refinancing of the 1999 Senior Notes has
not been approved by the majority lenders prior to March 15, 1999). As of
December 31, 1996, Products Corporation had approximately $130.0 outstanding
under the Term Loan Facility, $57.2 outstanding under the Multi-Currency
Facility, none outstanding under the Acquisition Facility and $33.5
outstanding under the Special LC Facility.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Holdings and certain of its subsidiaries,
Revlon, Inc. and the domestic subsidiaries of Products Corporation. The
obligations of Products Corporation under the Credit Facilities and the
obligations under the aforementioned guarantees are secured, subject to
certain limitations, by (i) mortgages on Holdings' Edison, New Jersey and
Products Corporation's Phoenix, Arizona facilities; (ii) the capital stock of
Products Corporation and its domestic subsidiaries and 66% of the capital
stock of its first tier foreign subsidiaries and the capital stock of certain
subsidiaries of Holdings; (iii) domestic intellectual property and certain
other domestic intangibles of (x) Products Corporation and its domestic
subsidiaries and (y) certain subsidiaries of Holdings; (iv) domestic
inventory and accounts receivable of (x) Products
F-13
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
Corporation and its domestic subsidiaries and (y) certain subsidiaries of
Holdings; and (v) the assets of certain foreign subsidiary borrowers under
the Multi-Currency Facility (to support their borrowings only). The Credit
Agreement provides that the liens on the stock and personal property referred
to above may be shared from time to time with specified types of other
obligations incurred or guaranteed by Products Corporation that were not
included in the Former Credit Agreement, such as interest rate hedging
obligations, working capital lines and the Yen Credit Agreement (as defined
below).
The Credit Agreement contains various restrictive covenants prohibiting
Products Corporation and its subsidiaries from, among other things, (i)
incurring additional indebtedness, with certain exceptions, (ii) making
dividend, tax sharing (see Note 9 "Income Taxes") and other payments or loans
to the Company or other affiliates, with certain exceptions, including among
others, permitting Products Corporation to pay dividends and make
distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to
pay expenses incidental to being a public holding company, including, among
other things, professional fees such as legal and accounting, regulatory fees
such as Securities and Exchange Commission ("Commission") filing fees and
other miscellaneous expenses related to being a public holding company, and
to pay dividends or make distributions up to $5.0 per annum in certain
circumstances to finance the purchase by Revlon, Inc. of its common stock in
connection with the delivery of such common stock to grantees under any stock
option plan, (iii) creating liens or other encumbrances on their assets or
revenues, granting negative pledges or selling or transferring any of their
assets except in the ordinary course of business, all subject to certain
limited exceptions, (iv) with certain exceptions, engaging in merger or
acquisition transactions, (v) prepaying indebtedness, subject to certain
limited exceptions, (vi) making investments, subject to certain limited
exceptions and (vii) entering into transactions with affiliates of Products
Corporation other than upon terms no less favorable to Products Corporation
or its subsidiaries than it would obtain in an arms' length transaction. In
addition to the foregoing, the Credit Agreement contains certain financial
covenants including, among other things, covenants requiring Products
Corporation and its subsidiaries to maintain minimum consolidated adjusted
net worth, minimum EBITDA (defined as earnings before interest, taxes,
depreciation and amortization and certain other charges), minimum interest
coverage, and covenants which limit the amount of total indebtedness of
Products Corporation and the amount of capital expenditures.
In January 1997, the Credit Agreement was amended to, among other things,
(i) permit the merger of Prestige Fragrance & Cosmetics, Inc. ("PFC"), a
wholly owned subsidiary of Products Corporation, into The Cosmetic Center,
Inc. ("Cosmetic Center") and to generally exclude Cosmetic Center (as the
survivor of the merger) from the definition of "subsidiary" under the Credit
Agreement, (ii) increase the amount of permitted dividends and distributions
to finance the purchase by Revlon, Inc. if its common stock in connection
with the delivery of such common stock to grantees under any stock option
plan to $6.0 per annum, and (iii) permit Products Corporation to purchase
capital stock of Revlon, Inc. for purposes of making matching contributions
under a proposed Non-Qualified Excess Savings Plan for Key Executives.
(b) The Pacific Finance & Development Corp., a subsidiary of Products
Corporation, is the borrower under a yen denominated credit agreement (the
"Yen Credit Agreement"), which had a principal balance of approximately yen
4.8 billion as of December 31, 1996 (approximately $41.7 U.S. dollar
equivalent as of December 31, 1996). In accordance with the terms of the Yen
Credit Agreement, approximately yen 2.7 billion (approximately $26.9 U.S.
dollar equivalent) was paid in January 1995 and approximately yen 539 million
(approximately $5.2 U.S. dollar equivalent) was paid in January 1996. A
payment of approximately yen 539 million (approximately $4.6 U.S. dollar
equivalent as of December 31, 1996) was paid in January 1997. The balance of
the Yen Credit Agreement of approximately yen 4.3 billion (approximately
$37.1 U.S. dollar equivalent as of December 31, 1996) is currently due on
December 31, 1997. Products
F-14
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
Corporation is currently renegotiating an extension of the term of the Yen
Credit Agreement. In the event that such extension is not obtained, Products
Corporation is able and intends to refinance the Yen Credit Agreement under
existing long-term credit facilities. Accordingly, the obligation under the
Yen Credit Agreement has been classified as long-term as of December 31,
1996. The applicable interest rate at December 31, 1996 under the Yen Credit
Agreement was the Euro-Yen rate plus 2.5% which approximated 3.1%. The
interest rate at December 31, 1995, applicable to the remaining balance, was
the Euro-Yen rate plus 3.5%, which approximated 4.1%.
(c) The 1999 Senior Notes are senior unsecured obligations of Products
Corporation and rank pari passu in right of payment to all existing and
future Senior Debt (as defined in the indenture relating to the 1999 Senior
Notes (the "1999 Senior Note Indenture")). The 1999 Senior Notes bear
interest at 9-1/2% per annum. Interest is payable on June 1 and December 1.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a Change
of Control (as defined in the 1999 Senior Note Indenture) and subject to
certain conditions, each holder of 1999 Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
1999 Senior Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under
certain circumstances in the event of an Asset Disposition (as defined in the
1999 Senior Note Indenture), Products Corporation will be obligated to make
offers to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various restrictive covenants
that, among other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence
of liens on the assets of Products Corporation and its subsidiaries which do
not equally and ratably secure the 1999 Senior Notes, (iv) the payment of
dividends on and redemption of capital stock of Products Corporation and its
subsidiaries and the redemption of certain subordinated obligations of
Products Corporation, except that the 1999 Senior Note Indenture permits
Products Corporation to pay dividends and make distributions to Revlon, Inc.,
among other things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things, professional
fees such as legal and accounting, regulatory fees such as Commission filing
fees and other miscellaneous expenses related to being a public holding
company, and to pay dividends or make distributions up to $5.0 per annum in
certain circumstances to finance the purchase by Revlon, Inc. of its Class A
Common Stock in connection with the delivery of such Class A Common Stock to
grantees under any stock option plan, (v) the sale of assets and subsidiary
stock, (vi) transactions with affiliates and (vii) consolidations, mergers
and transfers of all or substantially all of Products Corporation's assets.
The 1999 Senior Note Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of important qualifications.
(d) The 9 3/8% Senior Notes due 2001 (the "Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the Senior Notes (the "Senior Note Indenture")). The Senior Notes
bear interest of 9 3/8% per annum. Interest is payable on April 1 and October 1.
The Senior Notes may be redeemed at the option of Products Corporation in
whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth therein, plus accrued and unpaid interest, if any, to the
date of redemption. Upon a Change of Control (as defined in the Senior Note
Indenture), Products Corporation will have the option to redeem the Senior
Notes in whole or in part at a redemption price equal to the principal amount
thereof plus the Applicable Premium (as defined in the Senior Note
Indenture), plus accrued and unpaid interest, if any, to the date of
redemption, and, subject to certain
F-15
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
conditions, each holder of Senior Notes will have the right to require
Products Corporation to repurchase all or a portion of such holder's Senior
Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the Senior
Note Indenture), Products Corporation will be obligated to make offers to
purchase the Senior Notes.
The Senior Note Indenture contains various restrictive covenants that,
among other things, limit (i) the issuance of additional indebtedness and
redeemable stock by Products Corporation, (ii) the issuance of indebtedness
and preferred stock by Products Corporation's subsidiaries, (iii) the
incurrence of liens on the assets of Products Corporation and its
subsidiaries which do not equally and ratably secure the Senior Notes, (iv)
the payment of dividends on capital stock of Products Corporation and its
subsidiaries and the redemption of capital stock and certain subordinated
obligations of Products Corporation, except that the Senior Note Indenture
permits Products Corporation to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as
Commission filing fees and other miscellaneous expenses related to being a
public holding company, and to pay dividends or make distributions up to $5.0
per annum in certain circumstances to finance the purchase by Revlon, Inc. of
its Class A Common Stock in connection with the delivery of such Class A
Common Stock to grantees under any stock option plan, (v) the sale of assets
and subsidiary stock, (vi) transactions with affiliates and (vii)
consolidations, mergers and transfers of all or substantially all of Products
Corporation's assets. The Senior Note Indenture also prohibits certain
restrictions on distributions from subsidiaries of Products Corporation. All
of these limitations and prohibitions, however, are subject to a number of
important qualifications.
(e) The Senior Subordinated Notes are unsecured obligations of Products
Corporation and are subordinated in right of payment to all existing and
future Senior Debt (as defined in the indenture relating to the Senior
Subordinated Notes (the "Senior Subordinated Note Indenture")). The Senior
Subordinated Notes bear interest of 10 1/2% per annum. Interest is payable on
February 15 and August 15.
The Senior Subordinated Notes may be redeemed at the option of Products
Corporation in whole or in part at any time on or after February 15, 1998 at
the redemption prices set forth therein, plus accrued and unpaid interest, if
any, to the date of redemption. Upon a Change of Control (as defined in the
Senior Subordinated Note Indenture), Products Corporation will have the
option to redeem the Senior Subordinated Notes in whole or in part at a
redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined in the Senior Subordinated Note Indenture), plus accrued
and unpaid interest, if any, to the date of redemption, and, subject to
certain conditions, each holder of Senior Subordinated Notes will have the
right to require Products Corporation to repurchase all or a portion of such
holder's Senior Subordinated Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase. In
addition, under certain circumstances in the event of an Asset Disposition
(as defined in the Senior Subordinated Note Indenture), Products Corporation
will be obligated to make offers to purchase the Senior Subordinated Notes.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness and redeemable stock by Products Corporation, (ii) the issuance
of indebtedness and preferred stock by Products Corporation's subsidiaries,
(iii) the incurrence of liens on the assets of Products Corporation and its
subsidiaries to secure debt other than Senior Debt (as defined in the Senior
Subordinated Note Indenture) or debt of a subsidiary, unless the Senior
Subordinated Notes are equally and ratably secured, (iv) the payment of
dividends on capital
F-16
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
stock of Products Corporation and its subsidiaries and the redemption of
capital stock and certain subordinated obligations of Products Corporation,
except that the Senior Subordinated Note Indenture permits Products
Corporation to pay dividends and make distributions to Revlon, Inc., among
other things, to enable Revlon, Inc. to pay expenses incidental to being a
public holding company, including, among other things, professional fees such
as legal and accounting, regulatory fees such as Commission filing fees and
other miscellaneous expenses related to being a public holding company, and
to pay dividends or make distributions up $5.0 per annum in certain
circumstances to finance the purchase by Revlon, Inc. of its Class A Common
Stock in connection with the delivery of such Class A Common Stock to
grantees under any stock option plan, (v) the sale of assets and subsidiary
stock, (vi) transactions with affiliates and (vii) consolidations, mergers
and transfers of all or substantially all of Products Corporation's assets.
The Senior Subordinated Note Indenture also prohibits certain restrictions on
distributions from subsidiaries of Products Corporation. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
(f) Holdings' 10 7/8% Sinking Fund Debentures due 2010 (face value of
$85.0, net of repurchases) (the "Sinking Fund Debentures") are redeemable, in
whole or in part, at 101.96% of the principal amount for the year beginning
July 15, 1996, decreasing evenly each year on July 15, to par by July 15,
2000. Mandatory sinking fund redemptions of $9.0 per year commenced in 1991.
Optional sinking fund redemptions of up to an additional $13.5 per year may
be made annually and may be applied to reduce any subsequent mandatory
sinking fund redemption. Interest is payable on January 15 and July 15.
Holdings purchased $115.0 of the Sinking Fund Debentures in the open market
prior to 1985, $9.0 of which had been used in each of the years 1991 through
1996 to satisfy sinking fund payment obligations and approximately $61.0 of
which is creditable to future sinking fund requirements. The indenture
relating to the Sinking Fund Debentures contains various restrictive
covenants prohibiting Products Corporation and its subsidiaries from (i)
incurring indebtedness in excess of 5% of the consolidated net tangible
assets, where such indebtedness is secured by any manufacturing plant in the
United States owned or leased by Products Corporation, the book value of
which exceeds 2% of the consolidated net tangible assets of Products
Corporation, unless the Sinking Fund Debentures are equally and ratably
secured, (ii) entering into certain sale and leaseback transactions or (iii)
consolidating or merging with or into, or selling or transferring all or
substantially all of their properties and assets to, another corporation,
unless certain conditions are satisfied.
(g) During 1992, Holdings made an advance of $25.0 to Products
Corporation. This advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under the credit agreement in effect at
that time. Holdings agreed not to demand payment under the note so long as
any indebtedness remained outstanding under the credit agreement in effect at
that time. In February 1995, the $13.3 in notes due to Products Corporation
under the Financing Reimbursement Agreement, referred to in Note 12, was
offset against the $25.0 note and Holdings agreed not to demand payment under
the resulting $11.7 note so long as indebtedness remains outstanding under
the Credit Agreement. In October 1993, Products Corporation borrowed from
Holdings approximately $23.2 (as adjusted and subject to further adjustment
for certain expenses) representing amounts received by Holdings from an
escrow account relating to divestiture by Holdings of certain of its
predecessor businesses. In July 1995, Products Corporation borrowed from
Holdings approximately $0.8, representing certain amounts received by
Holdings relating to an arbitration arising out of the sale by Holdings of
certain of its businesses. In 1995, Products Corporation borrowed from
Holdings approximately $5.6, representing certain amounts received by
Holdings from the sale by Holdings of certain of its businesses. In June
1996, $10.9 in notes due to Products Corporation under the Financing
Reimbursement Agreement from Holdings was offset
F-17
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
against the $11.7 demand note (referred to above) payable by Products
Corporation to Holdings. In accordance with the Credit Agreement, such
amounts, as adjusted, are evidenced by noninterest-bearing promissory notes
payable to Holdings that are subordinated to Products Corporation's
obligations under the Credit Agreement.
(h) The Senior Secured Discount Notes were issued by Revlon Worldwide on
March 25, 1993 in the aggregate principal amount of $1,115.8. The Senior
Secured Discount Notes were issued at a substantial discount from their
principal amount at maturity representing a yield to maturity of
approximately 12% per annum calculated at March 25, 1993. There are no
periodic interest payments on the Senior Secured Discount Notes.
The Senior Secured Discount Notes are secured by a pledge of all of the
common stock of Revlon, Inc. owned by Revlon Worldwide, a portion of which
may be released upon the occurrence of certain events as specified in the
indenture relating to the Senior Secured Discount Notes (the "Senior Secured
Discount Notes Indenture"). The Senior Secured Discount Notes are senior debt
of Revlon Worldwide and rank pari passu in right of payment with any future
senior debt of Revlon Worldwide. Revlon Worldwide is a holding company and
substantially all of its liabilities (other than the Senior Secured Discount
Notes) are liabilities of subsidiaries. The Senior Secured Discount Notes are
effectively subordinated to all liabilities of Revlon Worldwide's
subsidiaries, including trade payables.
The Senior Secured Discount Notes may be redeemed at the option of Revlon
Worldwide in whole or from time to time in part at any time at 100% of their
principal amount at maturity. The Senior Secured Discount Notes may be
redeemed in whole or in part upon the occurrence of other events specified in
the Senior Secured Discount Notes Indenture at the prices and under the
conditions specified therein, such as upon a Change of Control (as defined in
the Senior Secured Discount Notes Indenture).
The Senior Secured Discount Notes Indenture contains covenants that, among
other things, limit (i) the issuance of other debt and redeemable stock by
Revlon Worldwide and Revlon, Inc. and the issuance of preferred stock by
Revlon, Inc., (ii) the issuance of debt and preferred stock by Products
Corporation and its subsidiaries, (iii) the payment of dividends on capital
stock of Revlon Worldwide and its subsidiaries and the redemption of capital
stock of Revlon Worldwide, (iv) the sale of assets and subsidiary stock, (v)
transactions with affiliates, and (vi) consolidations, mergers and transfers
of all or substantially all Revlon Worldwide's assets. The Senior Secured
Discount Notes Indenture also prohibits certain restrictions on distributions
from subsidiaries. All of these limitations and prohibitions, however, are
subject to a number of important qualifications.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings at interest rates more favorable
to Products Corporation than the rate under the Credit Agreement. No such
borrowings were outstanding at December 31, 1996 or 1995.
The aggregate amounts of long-term debt maturities and sinking fund
requirements (at December 31, 1996), in the years 1997 through 2001 are $8.8,
$1,010.2, $201.2, $214.9 and $260.9, respectively, and $634.6 thereafter.
8. FINANCIAL INSTRUMENTS
As of December 31, 1996, Products Corporation was party to a series of
interest rate swap agreements (which expire at various dates through December
2001) totaling a notional amount of $225.0 in which Products Corporation
agreed to pay on such notional amount a variable interest rate equal to the
six month London Inter-Bank Offered Rate (5.6875% per annum at January 24,
1997) to its counterparties and the counterparties agreed to pay on such
notional amounts fixed interest rates
F-18
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
8. FINANCIAL INSTRUMENTS (CONTINUED)
averaging approximately 6.03% per annum. Products Corporation entered into
these agreements in 1993 and 1994 (and in the first quarter of 1996 extended
a portion equal to a notional amount of $125.0 through December 2001) to
convert the interest rate on $225.0 of fixed-rate indebtedness to a variable
rate. If Products Corporation had terminated these agreements, which Products
Corporation considers to be held for other than trading purposes, on December
31, 1996, a loss of approximately $3.5 would have been realized. Certain
other swap agreements were terminated in 1993 for a gain of $14.0. The
amortization of the realized gain on these agreements for 1996 and 1995 was
approximately $3.2 in each of the years. The remaining unamortized gain,
which is being amortized over the original lives of the agreements, is $3.1
as of December 31, 1996. Although cash flow from the presently outstanding
agreements was positive for 1996, future positive or negative cash flows from
these agreements will depend upon the trend of short-term interest rates
during the remaining lives of such agreements. In the event of nonperformance
by the counterparties at any time during the remaining lives of the
agreements, Products Corporation could lose some or all of any possible
future positive cash flows from these agreements. However, Products
Corporation does not anticipate nonperformance by such counterparties,
although no assurances can be given.
Products Corporation enters into forward foreign exchange contracts from
time to time to hedge certain cash flows denominated in foreign currencies.
At December 31, 1996, Products Corporation had forward foreign exchange
contracts denominated in various currencies, predominantly the U.K. pound of
approximately $62.0 (U.S. dollar equivalent). If Products Corporation had
terminated these contracts on December 31, 1996, no material gain or loss
would have been realized. Products Corporation had similar contracts
outstanding at December 31, 1995 in the amount of $8.0 (U.S. dollar
equivalent).
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair
value of long-term debt at December 31, 1996 was approximately $35.6 more
than the carrying value of $2,330.6. Because considerable judgment is
required in interpreting market data to develop estimates of fair value, the
estimates are not necessarily indicative of the amounts that could be
realized or would be paid in a current market exchange. The effect of using
different market assumptions or estimation methodologies may be material to
the estimated fair value amounts.
Products Corporation also maintains standby and trade letters of credit
with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $40.9 were outstanding at
December 31, 1996. Included in this amount are $26.4 in standby letters of
credit which support Products Corporation's self-insurance programs. See Note
12. The estimated liability under such programs is accrued by Products
Corporation.
The carrying amounts of cash and cash equivalents, trade receivables,
accounts payable and short-term borrowings approximate their fair values.
9. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain of
its subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "1992 Tax Sharing Agreement"), pursuant to which
Mafco Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
against federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings
other than Revlon, Inc. or Products Corporation and its subsidiaries) is the
common parent for taxable periods beginning on or after January 1, 1992
during which Revlon, Inc., Products Corporation or a subsidiary of Products
Corporation is a member of
F-19
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
such group. Pursuant to the 1992 Tax Sharing Agreement, for all taxable
periods beginning on or after January 1, 1992, Revlon, Inc. will pay to
Holdings amounts equal to the taxes that Revlon, Inc. would otherwise have to
pay if it were to file separate federal, state or local income tax returns
(including any amounts determined to be due as a result of a redetermination
arising from an audit or otherwise of the consolidated or combined tax
liability relating to any such period which is attributable to Revlon, Inc.),
except that Revlon, Inc. will not be entitled to carry back any losses to
taxable periods ending prior to January 1, 1992. No payments are required by
Revlon, Inc. if and to the extent Products Corporation is prohibited under
the Credit Agreement from making cash tax sharing payments to Revlon, Inc.
The Credit Agreement prohibits Products Corporation from making such cash tax
sharing payments other than in respect of state and local income taxes.
In March 1993, Revlon Worldwide and Mafco Holdings entered into a tax
sharing agreement (the "1993 Tax Sharing Agreement" and, together with the
1992 Tax Sharing Agreement, the "Tax Sharing Agreements") pursuant to which,
for all taxable periods beginning on or after January 1, 1993, Revlon
Worldwide will pay to Mafco Holdings amounts equal to the taxes that Revlon
Worldwide would otherwise have to pay if it were to file separate federal,
state and local income tax returns for itself, excluding Revlon, Inc. and its
subsidiaries (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the tax liability
relating to any such period which is attributable to Revlon Worldwide).
Since the payments to be made by Revlon, Inc. under the 1992 Tax Sharing
Agreement and by Revlon Worldwide under the 1993 Tax Sharing Agreement will
be determined by the amount of taxes that Revlon, Inc. or Revlon Worldwide,
as the case may be, would otherwise have to pay if it were to file separate
federal, state or local income tax returns, the Tax Sharing Agreements will
benefit Mafco Holdings to the extent Mafco Holdings can offset the taxable
income generated by Revlon, Inc. or Revlon Worldwide against losses and tax
credits generated by Mafco Holdings and its other subsidiaries. As a result
of the net operating tax losses and prohibitions under the Credit Agreement,
no federal tax payments or payments in lieu of taxes pursuant to the 1992 Tax
Sharing Agreement were required by Revlon, Inc. for 1996, 1995 or 1994 and
with respect to Revlon Worldwide as a result of the absence of business
operations or source of income of its own, no federal tax payments or
payments in lieu of taxes pursuant to the 1993 Tax Sharing Agreement were
required for 1996, 1995 or 1994.
Pursuant to the asset transfer agreement referred to in Note 12, Products
Corporation assumed all tax liabilities of Holdings other than (i) certain
income tax liabilities arising prior to January 1, 1992 to the extent such
liabilities exceeded reserves on Holdings' books as of January 1, 1992 or
were not of the nature reserved for and (ii) other tax liabilities to the
extent such liabilities are related to the business and assets retained by
Holdings.
F-20
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
The Company's income (loss) before income taxes and the applicable
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic ......................................... $ 86.2 $(137.5) $(156.9)
Foreign .......................................... 40.5 23.6 16.8
------ ------- -------
$126.7 $(113.9) $(140.1)
====== ======= =======
Provision (benefit) for income taxes:
Federal .......................................... $ -- $ -- $ --
State and local .................................. 1.2 3.4 2.8
Foreign .......................................... 24.3 22.0 $ 20.0
------ ------- -------
$ 25.5 $ 25.4 $ 22.8
====== ======= =======
Current .......................................... $ 22.7 $ 37.1 $ 40.5
Deferred ......................................... 6.6 3.0 1.4
Benefits of operating loss carryforwards ........ (4.7) (15.4) (18.1)
Carryforward utilization applied to goodwill .... 1.0 0.8 --
Effect of enacted change of tax rates ............ (0.1) (0.1) --
Beginning-of-year valuation allowance adjustment -- -- (1.0)
------ ------- -------
$ 25.5 $ 25.4 $ 22.8
====== ======= =======
</TABLE>
The effective tax rate on income (loss) before income taxes is reconciled
to the applicable statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate ....................... 35.0% (35.0)% (35.0)%
State and local taxes, net of federal income tax benefit 0.6 1.9 1.3
Foreign and U.S. tax effects attributable to operations
outside the U.S. ....................................... 14.3 12.1 10.1
Nondeductible amortization expense ...................... 2.3 2.2 1.8
U.S. loss without benefit ............................... 19.8 41.1 38.1
Nontaxable gain on issuance of subsidiary stock ........ (51.9) -- --
----- ----- -----
Effective rate .......................................... 20.1% 22.3% 16.3%
===== ===== =====
</TABLE>
F-21
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to doubtful accounts .... $ 3.9 $ 3.7
Inventories ................................................... 12.5 12.8
Net operating loss carryforwards .............................. 395.4 357.3
Restructuring and related reserves ............................ 10.2 13.4
Employee benefits ............................................. 31.7 36.3
State and local taxes ......................................... 12.8 12.8
Self-insurance ................................................ 3.6 3.9
Advertising, sales discounts and returns and coupon
redemptions .................................................. 23.6 19.1
Other ......................................................... 23.9 19.7
------- -------
Total gross deferred tax assets .............................. 517.6 479.0
Less valuation allowance ..................................... (473.2) (444.2)
------- -------
Net deferred tax assets ...................................... 44.4 34.8
Deferred tax liabilities:
Plant, equipment and other assets ............................. (43.0) (34.6)
Inventories ................................................... (0.2) (0.2)
Other ......................................................... (7.2) (6.3)
------- -------
Total gross deferred tax liabilities ......................... (50.4) (41.1)
------- -------
Net deferred tax liability ................................... $ (6.0) $ (6.3)
======= =======
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1996 was
$444.2. The valuation allowance increased by $29.0 during the year ended
December 31, 1996 and increased by $53.9 during the year ended December 31,
1995.
During 1996, 1995 and 1994, certain of the Company's foreign operations
generated taxable income as to which the related tax liability was offset by
the utilization of operating loss carryforwards generated in prior years.
Accordingly, credits of $4.7, $15.4 and $18.1 representing the reduction of
current foreign taxes payable for the years ended December 31, 1996, 1995 and
1994, respectively, have been recognized in the Consolidated Statements of
Operations. Certain other foreign operations generated losses during the
years 1996, 1995 and 1994 for which the potential tax benefit was reduced by
a valuation allowance as it is more likely than not that such benefit will
not be realized. At December 31, 1996, the Company had foreign tax loss
carryforwards of approximately $332.2 which expire in future years as
follows: 1997-$53.3; 1998-$30.0; 1999-$33.0; 2000-$12.1; 2001 and
beyond-$30.4; unlimited-$173.4. The Company will receive a benefit only to
the extent it has taxable income during the carryforward periods in the
applicable foreign jurisdictions.
Appropriate United States and foreign income taxes have been accrued on
foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $16.1 at December 31, 1996, excluding those
amounts which, if remitted in the near future, would not result in
significant additional taxes under tax statutes currently in effect.
F-22
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
10. POSTRETIREMENT BENEFITS
PENSIONS:
The Company uses a September 30 date for measurement of Plan obligations
and assets.
The following tables reconcile the funded status of all of the Company's
significant pension plans with the respective amounts recognized in the
Consolidated Balance Sheets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1996, includes vested benefits of $286.9 ........... $(163.7) $(131.4) $(295.1)
======= ======= =======
Projected benefit obligation as of September 30,
1996 for service rendered to date .................. $(198.1) $(141.4) $(339.5)
Fair value of plan assets as of September 30, 1996 .. 173.3 81.6 254.9
------- ------- -------
Plan assets less than projected benefit obligation .. (24.8) (59.8) (84.6)
Amounts contributed to plans during fourth quarter
1996 ................................................ 0.2 0.5 0.7
Unrecognized net (assets) obligation ................. (1.5) 0.2 (1.3)
Unrecognized prior service cost ...................... 5.2 3.9 9.1
Unrecognized net loss ................................ 20.2 20.5 40.7
Adjustment to recognize additional minimum liability -- (15.3) (15.3)
------- ------- -------
Accrued pension cost ............................. $ (0.7) $ (50.0) $ (50.7)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1995, includes vested benefits of $269.1 ............ $(18.8) $(257.2) $(276.0)
====== ======= =======
Projected benefit obligation as of September 30, 1995
for service rendered to date ........................ $(21.9) $(294.1) $(316.0)
Fair value of plan assets at September 30, 1995 ...... 26.3 185.0 211.3
------ ------- -------
Plan assets in excess of (less than) projected benefit
obligation ........................................... 4.4 (109.1) (104.7)
Amounts contributed to plans during fourth quarter
1995 ................................................. 0.2 0.9 1.1
Unrecognized net (assets) obligation .................. (1.3) 0.2 (1.1)
Unrecognized prior service cost ....................... 0.3 9.9 10.2
Unrecognized net loss ................................. 1.9 45.2 47.1
Adjustment to recognize additional minimum liability . -- (19.9) (19.9)
------ ------- -------
Prepaid (accrued) pension cost .................... $ 5.5 $ (72.8) $ (67.3)
====== ======= =======
</TABLE>
The weighted-average discount rate assumed was 7.75% for 1996 and 1995 for
domestic plans. For foreign plans, the weighted-average discount rate was
7.9% and 7.6% for 1996 and 1995, respectively. The rate of future
compensation increases was 5.25% for 1996 and 1995 for domestic plans and was
a weighted-average of 5.05% and 4.81% for 1996 and 1995, respectively, for
foreign plans. The expected long-term rate of return on assets was 9.0% for
1996 and 1995 for domestic plans and a weighted-average of 10.4% for 1996 and
1995 for foreign plans.
F-23
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
10. POSTRETIREMENT BENEFITS (CONTINUED)
Plan assets consist primarily of common stock, mutual funds and fixed
income securities, which are stated at fair market value and cash equivalents
which are stated at cost, which approximates fair market value.
In accordance with the provisions of SFAS No. 87, "Employers' Accounting
for Pensions," the Company recorded an additional liability to the extent
that, for certain U.S. plans, the unfunded accumulated benefit obligation
exceeded recorded liabilities. At December 31, 1996, the additional liability
was recognized by recording an intangible asset to the extent of unrecognized
prior service costs of $1.8, a due from affiliates of $1.1 and a charge to
stockholder's deficiency of $12.4. At December 31, 1995, the additional
liability was recognized by recording an intangible asset to the extent of
unrecognized prior service costs of $1.6, a due from affiliates of $1.3, and
a charge to stockholder's deficiency of $17.0.
Net periodic pension cost for the pension plans consisted of the following
components
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
Service cost-benefits earned during the period $ 10.6 $ 8.2 $ 9.1
Interest cost on projected benefit obligation . 24.3 21.7 20.8
Actual (return) loss on plan assets ............ (30.4) (27.3) 2.7
Net amortization and deferrals ................. 15.1 13.4 (14.4)
------ ------ ------
19.6 16.0 18.2
Portion allocated to Holdings .................. (0.3) (0.3) (0.3)
------ ------ ------
Net periodic pension cost of the Company ...... $ 19.3 $ 15.7 $ 17.9
====== ====== ======
A substantial portion of the Company's employees in the United States are
covered by defined benefit retirement plans. To the extent that aggregate
pension costs could be identified as relating to the Company or to Holdings,
such costs have been so apportioned. The components of the net periodic
pension cost applicable solely to the Company are not presented as it is not
practical to segregate such information between Holdings and the Company. In
1996 and 1995, there was a settlement loss of $0.3 and $0.1, respectively,
and a curtailment loss of $1.0 and $0.1, respectively, resulting from
workforce reductions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
During 1996, 1995 and 1994, the Company sponsored an unfunded retiree
benefit plan, which provides death benefits payable to beneficiaries of
certain key employees. Participation in this plan is limited to participants
enrolled as of December 31, 1993. Net periodic postretirement benefit cost
for each of the years ended December 31, 1996, 1995 and 1994 was $0.7 which
consists primarily of interest on the accumulated postretirement benefit
obligation. The Company's date of measurement of Plan obligations is
September 30. At December 31, 1996 and 1995, the portion of accumulated
benefit obligation attributable to retirees was $6.9 and $6.7, respectively,
and to other fully eligible participants, $1.3 and $1.0, respectively. The
amount of unrecognized gain at December 31, 1996 and 1995 was $1.2 and $1.7,
respectively. At December 31, 1996 and 1995, the accrued postretirement
benefit obligation recorded on the Company's Consolidated Balance Sheets was
$9.4. Of these amounts, $2.0 and $2.2 was attributable to Holdings and was
recorded as a receivable from affiliates at December 31, 1996 and 1995,
respectively. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation at September 30, 1996 and 1995
was 7.75%.
F-24
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
11. STOCK COMPENSATION PLAN
At December 31, 1996, Revlon, Inc. has a stock-based compensation plan
(the "Plan"), which is described below. The Company applies APB Opinion No.
25 and related Interpretations in accounting for the Plan. Under APB Opinion
No. 25, because the exercise price of Revlon, Inc.'s employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation cost has been recognized. Had compensation cost for Revlon,
Inc.'s Plan been determined consistent with SFAS No. 123, the Company's net
income for 1996 of $94.6 would have been reduced to the pro forma amount of
$91.4. The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of future amounts.
Under the Plan, Revlon, Inc. may grant options to its employees for up to
an aggregate of 5.0 million shares of Class A Common Stock. Non-qualified
options granted under the Plan have a term of 10 years during which the
holder can purchase shares of Class A Common Stock at an exercise price which
must be not less than the market price on the date of the grant. Options
granted in 1996 to certain executive officers will not vest as to any portion
until the third anniversary of the grant date and will thereupon become 100%
vested, except that upon termination of employment by Revlon, Inc. other than
for "cause", death or "disability" under the applicable employment agreement,
such options will vest with respect to 25% of the shares subject thereto (if
the termination is between the first and second anniversaries of the grant)
and 50% of the shares subject thereto (if the termination is between the
second and third anniversaries of the grant). All other initial option grants
will vest 25% each year beginning on the first anniversary of the date of
grant and will become 100% vested on the fourth anniversary of the date of
grant. The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for option grants in 1996: no dividend
yield; expected volatility of 31%; risk-free interest rate of 5.99%; and an
expected average life of seven years for the Plan's options. At December 31,
1996 there were no options exercisable under the Plan.
A summary of the status of the Plan as of December 31, 1996, and changes
during the year then ended is presented below:
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
-------- ----------------
Outstanding at beginning of year .............. -- --
Granted ....................................... 1,010.2 $24.33
Exercised ..................................... -- --
Fortfeited .................................... (119.1) 24.00
------
Outstanding at end of year ................... 891.1 24.37
======
The weighted average fair value of each option granted during 1996
approximated $11.00.
The following table summarizes information about the Plan's options
outstanding at December 31, 1996:
WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE
EXERCISE OUTSTANDING YEARS EXERCISE
PRICES (000) REMAINING PRICE
----------------- ----------- --------- --------
$24.00 to $29.88. 855.1 9.16 $24.06
31.00 to 33.88 .. 36.0 9.79 31.88
-----
24.00 to 33.88 .. 891.1 9.19 24.37
=====
F-25
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the
"Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements on
June 24, 1992, Holdings transferred assets to Products Corporation and
Products Corporation assumed all the liabilities of Holdings, other than
certain specifically excluded assets and liabilities (the liabilities
excluded are referred to as the "Excluded Liabilities"). Holdings retained
certain small brands that historically had not been profitable ("Retained
Brands"). Holdings agreed to indemnify Revlon, Inc. and Products Corporation
against losses arising from the Excluded Liabilities, and Revlon, Inc. and
Products Corporation agreed to indemnify Holdings against losses arising from
the liabilities assumed by Products Corporation. The amounts reimbursed by
Holdings to Products Corporation for the Excluded Liabilities for 1996, 1995
and 1994 were $1.4, $4.0 and $7.4, respectively.
BENEFIT PLANS ASSUMPTION AGREEMENT
Holdings, Revlon, Inc. and Products Corporation entered into a benefit
plans assumption agreement dated as of July 1, 1992 pursuant to which
Products Corporation assumed all rights, liabilities and obligations under
all of Holdings' benefit plans, arrangements and agreements, including
obligations under the Revlon Employees' Retirement Plan and the Revlon
Employees' Savings and Investment Plan. Products Corporation was substituted
for Holdings as sponsor of all such plans theretofore sponsored by Holdings.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered into
an operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services Agreement") pursuant to which Products
Corporation manufactures, markets, distributes, warehouses and administers,
including the collection of accounts receivable, the Retained Brands for
Holdings. Pursuant to the Operating Services Agreement, Products Corporation
is reimbursed an amount equal to all of its and Revlon, Inc.'s direct and
indirect costs incurred in connection with furnishing such services, net of
the amounts collected by Products Corporation with respect to the Retained
Brands, payable quarterly. The net amounts reimbursed by Holdings to Products
Corporation for such direct and indirect costs for 1996, 1995 and 1994 were
$5.1, $8.6 and $11.5, respectively. Holdings also pays Products Corporation a
fee equal to 5% of the net sales of the Retained Brands, payable quarterly.
The fees paid by Holdings to Products Corporation pursuant to the Operating
Services Agreement for services with respect to the Retained Brands for 1996,
1995 and 1994 were approximately $0.6, $1.7 and $1.9, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered
into reimbursement agreements (the "Reimbursement Agreements") pursuant to
which (i) MacAndrews Holdings is obligated to provide certain professional
and administrative services, including employees, to Revlon, Inc.and its
subsidiaries, including Products Corporation, and purchase services from
third party providers, such as insurance and legal and accounting services,
on behalf of Revlon, Inc. and its subsidiaries, including Products
Corporation, to the extent requested by Products Corporation, and (ii)
Products Corporation is
F-26
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
obligated to provide certain professional and administrative services,
including employees, to MacAndrews Holdings and purchase services from third
party providers, such as insurance and legal and accounting services, on
behalf of MacAndrews Holdings to the extent requested by MacAndrews Holdings,
provided that in each case the performance of such services does not cause an
unreasonable burden to MacAndrews Holdings or Products Corporation, as the
case may be. Products Corporation reimburses MacAndrews Holdings for the
allocable costs of the services purchased for or provided to Products
Corporation and for reasonable out-of-pocket expenses incurred in connection
with the provision of such services. MacAndrews Holdings reimburses Products
Corporation for the allocable costs of the services purchased for or provided
to MacAndrews Holdings and for the reasonable out-of-pocket expenses incurred
in connection with the purchase or provision of such services. In addition,
in connection with certain insurance coverage provided by MacAndrews
Holdings, Products Corporation obtained letters of credit under the Special
LC Facility (which aggregated approximately $26.4 as of December 31, 1996) to
support certain self-funded risks of MacAndrews Holdings and its affiliates,
including Revlon, Inc., associated with such insurance coverage. The costs of
such letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including Revlon, Inc., which participate in the
insurance coverage to which the letters of credit relate. Revlon Worldwide
expects that these self-funded risks will be paid in the ordinary course and,
therefore, it is unlikely that such letters of credit will be drawn upon.
MacAndrews Holdings has agreed to indemnify Revlon, Inc. and Products
Corporation to the extent amounts are drawn under any of such letters of
credit with respect to claims for which Revlon, Inc. and Products Corporation
are not responsible. The net amounts reimbursed by MacAndrews Holdings to
Products Corporation for the services provided under the Reimbursement
Agreements for 1996, 1995 and 1994 were $2.2, $3.0 and $1.6, respectively.
Each of Revlon, Inc. and Products Corporation, on the one hand, and
MacAndrews Holdings, on the other, has agreed to indemnify the other party
for losses arising out of the provision of services by it under the
Reimbursement Agreements other than losses resulting from its willful
misconduct or gross negligence. The Reimbursement Agreements may be
terminated by either party on 90 days' notice. Revlon Worldwide does not
expect Revlon, Inc. to request services under the Reimbursement Agreements
unless their costs would be at least as favorable to Revlon, Inc. as could be
obtained from unaffiliated third parties.
In March 1993, Revlon Worldwide and MacAndrews Holdings entered into a
reimbursement agreement pursuant to which MacAndrews Holdings agreed to
provide third party services to Revlon Worldwide on the same basis as it
provides services to Revlon, Inc., and Revlon Worldwide agreed to indemnify
MacAndrews Holdings on the same basis as Revlon, Inc. is obligated to
indemnify MacAndrews Holdings under the Reimbursement Agreements. There were
no services provided pursuant to this agreement during 1996, 1995 or 1994.
TAX SHARING AGREEMENTS
Holdings, Revlon Worldwide, Products Corporation and certain of its
subsidiaries, Revlon, Inc. and Mafco Holdings are parties to the Tax Sharing
Agreements which are described in Note 9. Since the payments to be made by
Revlon, Inc. under the 1992 Tax Sharing Agreement and by Revlon Worldwide
under the 1993 Tax Sharing Agreement will be determined by the amount of
taxes that Revlon, Inc. or Revlon Worldwide, as the case may be, would
otherwise have to pay if it were to file separate federal, state and local
income tax returns, the Tax Sharing Agreements will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by Revlon,
Inc. or Revlon Worldwide against losses and tax credits generated by Mafco
Holdings and its other subsidiaries.
F-27
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing reimbursement
agreement (the "Financing Reimbursement Agreement") in 1992 pursuant to which
Holdings agreed to reimburse Products Corporation for Holdings' allocable
portion of (i) the debt issuance cost and advisory fees related to the
capital restructuring of Holdings, and (ii) interest expense attributable to
the higher cost of funds paid by Products Corporation under the credit
agreement in effect at that time as a result of additional borrowings for the
benefit of Holdings in connection with the assumption of certain liabilities
by Products Corporation under the Asset Transfer Agreement and the repurchase
of Old Senior Subordinated Notes from affiliates. The amount of interest to
be reimbursed by Holdings for 1994 was approximately $0.8 and was evidenced
by noninterest-bearing promissory notes originally due and payable on June
30, 1995. In February 1995, the $13.3 in notes then payable by Holdings to
Products Corporation under the Financing Reimbursement Agreement was offset
against a $25.0 note payable by Products Corporation to Holdings and Holdings
agreed not to demand payment under the resulting $11.7 note payable by
Products Corporation so long as any indebtedness remained outstanding under
the Former Credit Agreement. In February 1995, the Financing Reimbursement
Agreement was amended and extended to provide that Holdings would reimburse
Products Corporation for a portion of the debt issuance costs and advisory
fees related to the Former Credit Agreement (which portion was approximately
$4.7 and is evidenced by a noninterest-bearing promissory note payable on
June 30, 1996), and 1 1/2% per annum of the average balance outstanding under
the Former Credit Agreement and the average balance outstanding under working
capital borrowings from affiliates through June 30, 1996 and such amounts
were evidenced by a noninterest-bearing promissory note payable on June 30,
1996. The amount of interest to be reimbursed by Holdings for 1995 was
approximately $4.2. As of December 31, 1995, the aggregate amount of notes
payable by Holdings under the Financing Reimbursement Agreement was $8.9. In
June 1996, $10.9 in notes due to Products Corporation, which included $2.0 of
interest reimbursement in 1996, under the Financing Reimbursement Agreement
from Holdings was offset against an $11.7 demand note payable by Products
Corporation to Holdings. The Financing Reimbursement Agreement expired on
June 30, 1996.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of the Offering, Revlon, Inc. and Revlon
Worldwide, entered into the Registration Rights Agreement pursuant to which
Revlon Worldwide and certain transferees of Common Stock held by Revlon
Worldwide (the "Holders") have the right to require Revlon, Inc. to register
all or part of the Class A Common Stock owned by such Holders and the Class A
Common Stock issuable upon conversion of the Class B Common Stock owned by
such Holders under the Securities Act (a "Demand Registration"); provided
that Revlon, Inc. may postpone giving effect to a Demand Registration up to a
period of 30 days if Revlon, Inc. believes such registration might have a
material adverse effect on any plan or proposal by Revlon, Inc. with respect
to any financing, acquisition, recapitalization, reorganization or other
material transaction, or Revlon, Inc. is in possession of material non-public
information that, if publicly disclosed, could result in a material
disruption of a major corporate development or transaction then pending or in
progress or in other material adverse consequences to Revlon, Inc. In
addition, the Holders have the right to participate in registrations by
Revlon, Inc. of its Class A Common Stock (a "Piggyback Registration"). The
Holders will pay all out-of-pocket expenses incurred in connection with any
Demand Registration. Revlon, Inc. will pay any expenses incurred in
connection with a Piggyback Registration, except for underwriting discounts,
commissions and expenses attributable to the shares of Class A Common Stock
sold by such Holders.
F-28
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility
for a term of up to 10 years with an annual rent of $1.4 and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent are not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January
1, 1993, other than (i) the operating expenses for which Products Corporation
is responsible under the Edison Lease and (ii) environmental claims and
compliance costs relating to matters which occurred prior to January 1, 1993
up to an amount not to exceed $8.0 (the amount of such claims and costs for
which Products Corporation is responsible, the "Environmental Limit"). In
addition, pursuant to such assumption agreement, Products Corporation agreed
to indemnify Holdings for environmental claims and compliance costs relating
to matters which occurred prior to January 1, 1993 up to an amount not to
exceed the Environmental Limit and Holdings agreed to indemnify Products
Corporation for environmental claims and compliance costs relating to matters
which occurred prior to January 1, 1993 in excess of the Environmental Limit
and all such claims and costs relating to matters occurring on or after
January 1, 1993. Pursuant to an occupancy agreement, during 1996 and 1995
Products Corporation rented a portion of the administration building located
at the Edison facility and space for a retail store of Products Corporation.
Products Corporation provides certain administrative services, including
accounting, for Holdings with respect to the Edison facility pursuant to
which Products Corporation pays on behalf of Holdings costs associated with
the Edison facility and is reimbursed by Holdings for such costs, less the
amount owed by Products Corporation to Holdings pursuant to the Edison Lease
and the occupancy agreement. The net amount reimbursed by Holdings to
Products Corporation for such costs with respect to the Edison facility for
1996, 1995 and 1994 was $1.1, $1.2 and $2.1, respectively.
In the fourth quarter of 1996, Products Corporation and certain of its
subsidiaries purchased an inactive subsidiary from an affiliate for net cash
consideration of approximately $3.0 in a series of transactions in which
Products Corporation expects to realize foreign tax benefits in future years.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4. The assets acquired and
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, prior period financial
statements have been restated as if the acquisition took place at the
beginning of the earliest period. Products Corporation paid $4.1 to Holdings
which was accounted for as an increase in capital deficiency. A nationally
recognized investment banking firm rendered its written opinion that the
terms of the purchase are fair from a financial standpoint to Products
Corporation.
Effective January 1, 1994, Products Corporation sold the inventory,
contracts, dedicated tools, dies and molds, intellectual property and a
license agreement relating to the NEW ESSENTIALS brand to Holdings for $2.2
(representing the net book value of such brand which Products Corporation
believes approximated its fair market value at the time of sale), and the
Operating Services Agreement was amended to include NEW ESSENTIALS as a
Retained Brand.
During 1996, 1995 and 1994, Products Corporation leased certain facilities
to MacAndrews & Forbes or its affiliates pursuant to occupancy agreements and
leases including space at Products Corporation's New York headquarters and at
Products Corporation's offices in London and Tokyo. The rent paid by
MacAndrews & Forbes or its affiliates to Products Corporation for 1996, 1995
and 1994 was $4.6, $5.3 and $4.1, respectively.
F-29
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
In July 1995, Products Corporation borrowed from Holdings approximately
$0.8, representing certain amounts received by Holdings relating to an
arbitration arising out of the sale by Holdings of certain of its businesses.
In 1995, Products Corporation borrowed from Holdings approximately $5.6,
representing certain amounts received by Holdings from the sale by Holdings
of certain of its businesses. Such amounts are evidenced by
noninterest-bearing promissory notes. Holdings agreed not to demand payment
under such notes so long as any indebtedness remains outstanding under the
Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees from
Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1996, 1995 or 1994. The interest rates for
such borrowings are more favorable to Products Corporation than interest
rates under the Credit Agreement and, for borrowings occurring prior to the
execution of the Credit Agreement, the credit facility in effect at the time
of such borrowing. The amount of interest paid by Products Corporation for
such borrowings for 1996, 1995 and 1994 was $0.5, $1.2 and $1.1,
respectively.
In November 1993, Products Corporation assigned to Holdings a lease for
warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of the Chairman of the Executive Committee. The N.J. Warehouse had become
vacant as a result of divestitures and restructuring of Products Corporation.
The lease has annual lease payments of approximately $2.3 and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 (for
which a liability was previously recorded) in three installments of $2.5 each
in January 1994, January 1995 and January 1996. A nationally recognized
investment banking firm rendered its written opinion that the terms of the
lease transfer were fair from a financial standpoint to Products Corporation.
During 1996, 1995 and 1994, Products Corporation paid certain costs
associated with the N.J. Warehouse on behalf of Holdings and was reimbursed
by Holdings for such amounts. The amounts reimbursed by Holdings to Products
Corporation for such costs were $0.2, $0.2 and $0.3 for 1996, 1995 and 1994,
respectively.
During 1996, 1995 and 1994, Products Corporation used an airplane which
was owned by a corporation of which Messrs. Gittis, Drapkin and Levin were
the sole stockholders. Products Corporation paid approximately $0.2, $0.4 and
$0.5 for the usage of the airplane for 1996, 1995 and 1994, respectively. As
of December 31, 1996, Mr. Levin no longer holds an ownership interest in the
corporation that owned the airplane.
Consolidated Cigar, an affiliate of Products Corporation, assembles
lipstick cases for Products Corporation. Products Corporation paid
approximately $1.0, $1.0 and $0.6 for such services for 1996, 1995 and 1994,
respectively.
During 1994, Products Corporation was retained by an affiliate, Meridian,
to act as licensing agent for Meridian's trademarks. Products Corporation
will receive a percentage of any royalties generated by such licenses. No
royalties were earned by Meridian for 1994, 1995 or 1996. However, Meridian
paid Products Corporation approximately $0.1 in 1994 for reimbursement of
expenses incurred in connection with such licensing activities.
In January 1995, Products Corporation agreed to license certain of its
trademarks to Guthy-Renker Corporation ("Guthy-Renker"), a corporation in
which an affiliate of MacAndrews & Forbes held a 37.5%
F-30
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
equity interest, to be used by Guthy-Renker in connection with the marketing
and sale of hair extensions and hair pieces. The amount paid by Guthy-Renker
to Products Corporation pursuant to such license for 1995 was less than $0.1.
In connection with this licensing arrangement, Guthy-Renker agreed to use
Products Corporation as its exclusive supplier of hair extensions and hair
pieces. Guthy-Renker purchased $1.1 of wigs from Products Corporation during
1995. Products Corporation terminated the license with Guthy-Renker during
1995.
13. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including research
and development, and sales facilities and various types of equipment under
operating lease agreements. Rental expense was $51.7, $49.3 and $51.0 for the
years ended December 31, 1996, 1995 and 1994, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to
idled facilities and the Edison research and development facility, with
remaining lease terms in excess of one year from December 31, 1996 aggregated
$230.0; such commitments for each of the five years subsequent to December
31, 1996 are $37.9, $36.4, $31.2, $28.6 and $25.6, respectively. Such amounts
exclude the minimum rentals to be received in the future under noncancelable
subleases of $16.1.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect
on the Company's consolidated financial condition or results of operations.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................... $464.3 $517.9 $571.1 $613.7
Gross profit ............................ 311.4 347.2 378.1 404.6
Income (loss) before extraordinary item . 132.4(a) (26.1) (6.7) 1.6
Net income (loss) ....................... 125.8(b) (26.1) (6.7) 1.6
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 (C)
----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................... $412.2 $452.6 $514.5 $558.5
Gross profit ........................... 270.6 299.0 346.8 369.3
Net loss ................................ (57.0) (38.6) (21.5) (22.2)
</TABLE>
- --------------
(a) Includes the gain on issuance of subsidiary stock of $187.8 that was
recognized in connection with the Offering. See Note 16.
(b) Includes a charge of $6.6 resulting from the write-off of deferred
financing costs associated with the extinguishment of the Former Credit
Agreement prior to maturity.
(c) Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations
F-31
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
of Tarlow. Net liabilities assumed were approximately $3.4. The assets
acquired and liabilities assumed were accounted for at historical cost in a
manner similar to that of a pooling of interests and, accordingly, prior
period financial statements presented have been restated as if the
acquisition took place at the beginning of the earliest period. Products
Corporation paid $4.1 to Holdings which was accounted for as an increase to
capital deficiency.
15. GEOGRAPHIC SEGMENTS
The Company operates in a single business segment. The Company has
operations based in 26 foreign countries and its products are sold throughout
the world. The Company is exposed to the risk of changes in social, political
and economic conditions inherent in foreign operations and the Company's
results of operations and the value of its foreign assets are affected by
fluctuations in foreign currency exchange rates. The Company enters into
forward foreign exchange contracts to hedge certain cash flows denominated in
foreign currency. In addition, the Company's operations in Brazil (which
accounted for approximately 6.1% of the Company's net sales for 1996) are
subject to hyperinflationary conditions. There can be no assurance as to the
future effect of changes in social, political and economic conditions on the
Company's business or financial condition. During 1996, one customer
accounted for approximately 10.1% of the Company's consolidated net sales.
Information related to the Company's geographic segments for each of the
years in the three-year period ended December 31, 1996 with respect to
operating results, and as of December 31, 1996 and 1995 with respect to
identifiable assets, is presented below.
Operating profit (loss), as presented below, is operating income, net
foreign currency translation (gains) losses and identifiable miscellaneous
income and expense; it excludes general corporate income and expenses, net
interest and investment income and expense, including amortization of debt
issuance costs, and income taxes. Export sales, including those to
affiliates, are not significant. Export sales to non-affiliates and related
operating profits are reflected in their geographic area of origin.
Identifiable assets, as presented below, are those assets used in each
geographic area. Corporate assets are principally cash and cash equivalents,
certain property and equipment and nonoperating assets.
F-32
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
15. GEOGRAPHIC SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
Net Sales:
United States ................................. $1,282.2 $1,155.8 $1,019.8
Europe, Middle East and Africa ................ 404.1 357.1 320.7
Latin America, Canada and Puerto Rico ......... 297.2 259.5 253.4
Far East, Australia and other areas of the
world ......................................... 183.5 165.4 138.6
-------- -------- --------
$2,167.0 $1,937.8 $1,732.5
======== ======== ========
Operating profit (loss):
United States ................................. $ 163.9 $ 121.7 $ 85.7
Europe, Middle East and Africa ................ 9.9 7.6 16.2
Latin America, Canada and Puerto Rico ......... 23.3 14.9 18.3
Far East, Australia and other areas of the
world ......................................... 7.5 7.8 (3.7)
-------- -------- --------
204.6 152.0 116.5
Unallocated expenses (income):
Interest expense .............................. 240.1 237.5 221.2
Interest and net investment income ............ (3.4) (4.9) (6.3)
Amortization of debt issuance costs ........... 12.5 15.2 12.6
Corporate expenses and miscellaneous, net ..... 16.5 18.1 29.1
Gain on issuance of subsidiary stock .......... (187.8) -- --
-------- -------- --------
Income (loss) before income taxes ............. $ 126.7 $ (113.9) $ (140.1)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Identifiable assets:
United States .................................... $ 944.1 $ 897.6
Europe, Middle East and Africa ................... 287.6 268.3
Latin America, Canada and Puerto Rico ............ 198.7 167.8
Far East, Australia and other areas of the world 130.6 127.0
Corporate ........................................ 65.3 83.8
-------- --------
$1,626.3 $1,544.5
======== ========
</TABLE>
F-33
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
15. GEOGRAPHIC SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
SKIN CARE,
COSMETICS PERSONAL CARE
AND AND
FRAGRANCES PROFESSIONAL TOTAL
---------- ------------ -----
<S> <C> <C> <C>
CLASSES OF SIMILAR PRODUCTS (UNAUDITED):
1996 ................................. $1,263.9 903.1 $2,167.0
% of net sales ....................... 58% 42% 100%
1995 ................................. $1,075.2 862.6 1,937.8
% of net sales ....................... 55% 45% 100%
1994 ................................. $ 884.8 847.7 1,732.5
% of net sales ....................... 51% 49% 100%
</TABLE>
16. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
On March 5, 1996, Revlon, Inc. completed an initial public offering in
which it issued and sold 8,625,000 shares of its Class A Common Stock for
$24.00 per share. The proceeds, net of underwriter's discount and related
fees and expenses, of $187.8 were contributed to Products Corporation and
were used by Products Corporation to repay borrowings outstanding under
Products Corporation's credit agreement in effect at that time and to pay
fees and expenses related to the Credit Agreement.
17. PENDING ACQUISITION
On November 27, 1996, Products Corporation and PFC entered into an
Agreement and Plan of Merger with Cosmetic Center pursuant to which PFC will
merge with and into Cosmetic Center, with Cosmetic Center surviving the
merger (the "Merger"). In the Merger, Products Corporation would receive
newly issued common stock of Cosmetic Center constituting between 74% and 84%
of the outstanding common stock. The Merger is subject to a number of
significant conditions, including obtaining financing for Cosmetic Center and
approval of the transaction by Cosmetic Center stockholders, among other
conditions.
F-34
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 35.6 $ 38.6
Trade receivables, less allowances of $22.3 and
$24.9, respectively................................. 394.5 426.3
Inventories.......................................... 305.9 281.0
Prepaid expenses and other........................... 78.0 74.5
--------- ---------
Total current assets................................ 814.0 820.4
Property, plant and equipment, net.................... 374.0 381.1
Other assets.......................................... 157.1 144.2
Restricted marketable securities...................... 319.6 --
Intangible assets related to businesses acquired,
net.................................................. 279.7 280.6
--------- ---------
Total assets........................................ $ 1,944.4 $ 1,626.3
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings--third parties................. $ 23.4 $ 27.1
Current portion of long-term debt--third parties .... 8.4 8.8
Accounts payable..................................... 146.8 161.9
Accrued expenses and other........................... 321.4 365.2
--------- ---------
Total current liabilities........................... 500.0 563.0
Long-term debt--third parties......................... 2,214.6 2,291.4
Long-term debt--affiliates............................ 30.4 30.4
Other long-term liabilities........................... 202.4 202.8
Stockholder's deficiency:
Common Stock, par value $1.00 per share; 1,000
shares authorized, issued and outstanding........... -- --
Capital deficiency................................... (410.9) (971.0)
Accumulated deficit since June 24, 1992.............. (570.8) (472.1)
Adjustment for minimum pension liability............. (12.4) (12.4)
Currency translation adjustment...................... (8.9) (5.8)
--------- ---------
Total stockholder's deficiency...................... (1,003.0) (1,461.3)
--------- ---------
Total liabilities and stockholder's deficiency ..... $ 1,944.4 $ 1,626.3
========= =========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-35
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales......................................... $492.5 $ 464.3
Cost of sales..................................... 166.2 152.9
------ -------
Gross profit.................................... 326.3 311.4
Selling, general and administrative expenses ..... 303.8 295.1
Business consolidation costs...................... 5.4 --
------ -------
Operating income................................ 17.1 16.3
------ -------
Other expenses (income):
Interest expense................................. 63.1 59.5
Interest and net investment income............... (2.4) (1.0)
Amortization of debt issuance costs.............. 3.4 3.6
Foreign currency losses, net..................... 1.8 2.1
Miscellaneous, net............................... 0.7 0.5
Gain on issuance of subsidiary stock............. (0.1) (187.8)
------ -------
Other expenses (income), net.................... 66.5 (123.1)
------ -------
(Loss) income before income taxes................. (49.4) 139.4
Provision for income taxes........................ 5.5 7.0
------ -------
(Loss) income before extraordinary item........... (54.9) 132.4
Extraordinary item--early extinguishment of debt . (43.8) (6.6)
------ -------
Net (loss) income................................. $(98.7) $ 125.8
====== =======
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-36
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
-------- --------
<S> <C> <C>
Net (loss) income................................................ $ (98.7) $ 125.8
Adjustments to reconcile net (loss) income to net cash (used
for) provided by operating activities:
Depreciation and amortization.................................. 26.0 23.2
Amortization of debt discount.................................. 29.8 25.2
Gain on issuance of subsidiary stock........................... (0.1) (187.8)
Business consolidation costs................................... 5.4 --
Extraordinary item............................................. 43.8 6.6
Change in assets and liabilities:
Decrease in trade receivables................................. 26.0 3.7
Increase in inventories....................................... (27.9) (36.4)
Increase in prepaid expenses and other current assets ........ (5.4) (9.8)
Decrease in accounts payable.................................. (12.4) (8.7)
Decrease in accrued expenses and other current liabilities ... (44.9) (31.3)
Other, net.................................................... (17.5) (10.9)
------- -------
Net cash used for operating activities........................... (75.9) (100.4)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (8.0) (11.8)
Purchase of marketable securities................................ (319.6) --
Other, net....................................................... -- (0.3)
------- -------
Net cash used for investing activities........................... (327.6) (12.1)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings--third parties . (2.4) 0.4
Proceeds from the issuance of long-term debt--third parties ..... 643.2 140.3
Repayment of long-term debt--third parties....................... (225.4) (222.5)
Net proceeds from issuance of subsidiary common stock ........... 0.1 187.8
Proceeds from the issuance of debt--affiliates................... 33.9 19.4
Repayment of debt--affiliates.................................... (33.9) (19.4)
Payment of debt issuance costs................................... (14.6) (10.9)
------- -------
Net cash provided by financing activities........................ 400.9 95.1
------- -------
Effect of exchange rate changes on cash and cash equivalents .... (0.4) (0.5)
------- -------
Net decrease in cash and cash equivalents...................... (3.0) (17.9)
------- -------
Cash and cash equivalents at beginning of period............... 38.6 36.3
------- -------
Cash and cash equivalents at end of period..................... $ 35.6 $ 18.4
======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest....................................................... $ 39.6 $ 43.7
Income taxes, net of refunds................................... 2.9 5.0
Supplemental schedule of noncash financing activities:
Noncash contribution from parent to cancel Revlon Worldwide
Senior Secured Discount Notes.................................. $ 560.1 $ --
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-37
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
Revlon Worldwide (Parent) Corporation ("Revlon Worldwide (Parent)" and
together with its subsidiaries, the "Company") is a holding company formed in
1997, that conducts its business exclusively through its indirect subsidiary,
Revlon Consumer Products Corporation ("Products Corporation") and its
subsidiaries. Products Corporation was formed in April 1992 and, on June 24,
1992, succeeded to assets and liabilities of the cosmetic and skin care,
fragrances and personal care products business of its then parent company,
whose name was changed from Revlon, Inc. to Revlon Holdings Inc.
("Holdings"). Revlon Worldwide (Parent) has had no business operations of its
own and its only material asset is its ownership of all of the common stock
of Revlon Worldwide Corporation ("Revlon Worldwide"), which, in turn, has as
its only material asset 83.1% of the outstanding shares of capital stock of
Revlon, Inc. (which represents approximately 97.4% of the voting power of
those outstanding shares), which, in turn, owns all of the capital stock of
Products Corporation. The Company is an indirect wholly owned subsidiary of
Holdings and an indirect wholly owned subsidiary of MacAndrews & Forbes
Holdings Inc., a corporation wholly owned by Mafco Holdings Inc.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany
balances and transactions. Further, the Company has made a number of
estimates and assumptions relating to the assets and liabilities, the
disclosure of contingent assets and liabilities and the reporting of revenues
and expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
The Company recognizes gains and losses on issuances of subsidiary stock
in its Statements of Operations.
The Company accounts for investments in marketable securities, consisting
of U.S. Treasury Bills, in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year, due, in part, to seasonal fluctuations which are
normal for the Company's business.
The Company matches advertising and promotion expenses with sales revenues
for interim reporting purposes. Advertising and promotion expenses estimated
for a full year are charged to earnings for interim reporting purposes in
proportion to the relationship that net sales for such period bear to
estimated full year net sales. As a result, in the first quarter of 1997 and
1996, disbursements and commitments for advertising and promotion exceeded
advertising and promotion expenses by $22.2 and $14.9, respectively, and such
amounts were deferred.
(2) INVENTORIES
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
Raw materials and supplies....................... $ 94.2 $ 76.6
Work-in-process.................................. 21.4 19.4
Finished goods................................... 190.3 185.0
------ ------
$305.9 $281.0
====== ======
F-38
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(3) GAIN ON ISSUANCE OF SUBSIDIARY STOCK
On March 5, 1996, Revlon, Inc. completed an initial public offering (the
"Revlon IPO") in which it issued and sold 8,625,000 shares of its Class A
Common Stock for $24.00 per share. The proceeds, net of underwriter's
discount and related fees and expenses, of $187.8 were contributed to
Products Corporation and were used to repay borrowings outstanding under the
credit agreement in effect at that time (the "Former Credit Agreement") and
to pay fees and expenses related to the credit agreement which became
effective on March 5, 1996 (the "Credit Agreement").
As a result of the Revlon IPO, the Company's ownership in Revlon, Inc. was
reduced to 83.1% of Revlon, Inc.'s outstanding common stock (with the Company
having approximately 97.4% of the voting power of the outstanding shares of
Revlon, Inc. common stock) from 100% prior to the Revlon IPO. Additionally,
the Company recognized a $187.8 gain on this transaction in the first quarter
of 1996.
(4) EXTRAORDINARY ITEM
The extraordinary item in the first quarter of 1997 resulted from the
cancellation of a portion of Revlon Worldwide's Senior Secured Discount Notes
due 1998 (the "Revlon Worldwide Notes") (See Note 7). The extraordinary item
in the first quarter of 1996 resulted from the write-off of deferred
financing costs associated with the extinguishment of the Former Credit
Agreement prior to maturity with the net proceeds from the Revlon IPO and
Credit Agreement.
(5) BUSINESS CONSOLIDATIONS
In the first quarter of 1997 the Company incurred business consolidation
costs of approximately $5.4 in connection with the implementation of its
business strategy to rationalize factory operations. These costs primarily
included severance and other related costs in certain International
operations. As of March 31, 1997 substantially all of the costs were included
in accrued expenses and other.
(6) MERGER OF SUBSIDIARY
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc., a wholly owned
subsidiary of Products Corporation ("PFC"), and The Cosmetic Center, Inc.
("Cosmetic Center") completed the merger of PFC with and into Cosmetic
Center, with Cosmetic Center surviving the merger (the "Cosmetic Merger"). In
the Cosmetic Merger, Products Corporation received in exchange for all of the
capital stock of PFC newly issued Class C common stock of Cosmetic Center
constituting approximately 85% of the outstanding common stock. Accordingly,
the Cosmetic Merger will be accounted for as a reverse acquisition using the
purchase method of accounting and PFC will be considered the acquiring entity
for accounting purposes, even though Cosmetic Center is the surviving legal
entity.
(7) PURCHASE OF THE REVLON WORLDWIDE NOTES
During March 1997, $778.4 principal amount at maturity (accreted value of
$694.0) of the Revlon Worldwide Notes was delivered to the Trustee under the
Indenture for cancellation. On April 2, 1997, funds were deposited in an
irrevocable trust to effect the covenant defeasance of the remaining balance
of $337.4 principal amount at maturity of the Revlon Worldwide Notes. In
connection with the Revlon Worldwide Notes that were canceled the Company
recorded a capital contribution of $560.1 and recorded an extraordinary loss
of $43.8, which included the write-off of deferred financing costs, in the
first quarter of 1997.
The covenant defeasance of the Revlon Worldwide Notes is expected to be
effected on August 4, 1997, the 124th day following the deposit. Upon such
effectiveness of the covenant defeasance, Revlon Worldwide may omit to comply
with substantially all of its covenants and other obligations, other than
payment, under the indenture governing the Revlon Worldwide Notes.
F-39
<PAGE>
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(7) PURCHASE OF THE REVLON WORLDWIDE NOTES (CONTINUED)
Following the covenant defeasance, Revlon Worldwide will be merged with
and into the Company with the Company surviving (the "Merger"), and the
Company will directly own all of the shares of Common Stock of Revlon, Inc.
that are currently owned by Revlon Worldwide and are currently pledged to
secure the Revlon Worldwide Notes. Following the Merger, 20 million shares of
Revlon, Inc. Common Stock will be pledged to secure the indebtedness of the
Company and the balance to secure the obligations of an affiliate (See Note
8).
(8) ISSUANCE OF SENIOR SECURED DISCOUNT NOTES DUE 2001
On March 5, 1997, the Company consummated a private placement offering of
$770.0 aggregate principal amount at maturity of its Senior Secured Discount
Notes due 2001 (the "New Notes"). The New Notes were issued at a discount
from their principal amount at maturity representing a yield to maturity of
10 3/4% per annum calculated from March 5, 1997. The Company has filed a
registration statement under the Securities Act of 1933, as amended relating
to an offer to exchange the New Notes for a like principal amount of notes
with substantially identical terms. The indenture governing the New Notes
(the "Indenture") requires the Company to hold at all times a minimum
percentage of Common Stock of Revlon, Inc. pledged to secure the New Notes.
In addition, the Indenture contains covenants that, among other things, limit
(i) the issuance of additional debt and redeemable stock by the Company,
Revlon Worldwide, or Revlon, Inc. and the issuance of preferred stock by
Revlon, Inc. or Revlon Worldwide, (ii) the issuance of debt and preferred
stock by Products Corporation and its subsidiaries, (iii) the payments of
dividends on capital stock of the Company and its subsidiaries and the
redemption of capital stock of the Company, (iv) the sale of assets and
subsidiary stock, (v) transactions with affiliates and (vi) consolidations,
mergers and transfers of all or substantially all of the Company's assets.
The Indenture also prohibits certain restrictions on distributions from
subsidiaries. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
F-40
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Available Information................................................... 2
Prospectus Summary...................................................... 3
Risk Factors ........................................................... 18
Use of Proceeds ........................................................ 25
Capitalization ......................................................... 26
Price Range of Class A Common Stock of Revlon, Inc. ................... 27
Selected Historical and Pro Forma Financial Data ....................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations ......................................................... 32
The Exchange Offer...................................................... 44
Business ............................................................... 51
Management ............................................................. 70
Ownership of Common Stock .............................................. 80
Relationship with MacAndrews & Forbes........................... ....... 81
Description of the Notes................................................ 88
Description of Other Indebtedness ..................................... 114
Certain U.S. Federal Income Tax Considerations ......................... 123
Book-Entry; Delivery and Form ......................................... 125
Plan of Distribution.................................................... 126
Legal Matters .......................................................... 127
Experts................................................................. 127
Index to Consolidated Financial Statements ............................. F-1
UNTIL 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
$770,000,000
REVLON WORLDWIDE
(PARENT) CORPORATION
SERIES B SENIOR SECURED DISCOUNT
NOTES DUE 2001
[REVLON LOGO]
----------------
PROSPECTUS
----------------
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the SEC registration fee and estimates of
all other expenses to be incurred in connection with the issuance and
distribution of the securities described in this Registration Statement:
SEC registration fee............................................ $153,044
Printing and engraving
expenses....................................................... $165,000
Legal fees and expenses......................................... $250,000
Accounting fees and expenses ................................... $ 50,000
Miscellaneous................................................... $ 31,956
--------
Total......................................................... $650,000
========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was unlawful. A Delaware corporation may indemnify officers and
directors against expenses (including attorneys' fees) in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
Article VIII of the By-laws of the Registrant, a copy of which is filed as
Exhibit 3.2 to this Registration Statement, allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or
was a director or officer of the Registrant or such person who serves or
served as a director, officer, employee or agent, of another corporation,
partnership or other enterprise at the request of the Registrant. Article
VIII of the Registrant's By-Laws provides for indemnification of the officers
and directors of the Registrant to the fullest extent permitted by applicable
law.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
Sixth of the Certificate of Incorporation of the Registrant, a copy of which
is filed as Exhibit 3.1 to this Registration Statement, provides that no
director of the Registrant shall be personally liable to the Registrant or
its shareholders for monetary damages for any breach of his fiduciary duty as
a director; provided, however, that such clause shall not apply to any
liability of a director (1) for any breach of the Director's duty of loyalty
to the Registrant or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law, (3) pursuant to Section 174 of the Delaware Corporation Law, or (4) for
any transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the organization of the Registrant, on February 24,
1997, National Health Care Group, Inc., Revlon Holdings Inc. and Charles of
the Ritz Group Ltd. contributed, respectively, 750, 230 and 20 shares of
common stock of Revlon Worldwide Corporation to the Registrant in exchange
for, respectively, 750, 230 and 20 shares of common stock of the Registrant.
On March 5, 1997, the Registrant sold $770,000,000 aggregate principal amount
at maturity of the Old Notes to Chase Securities Inc. and Smith Barney Inc.
(collectively, the "Initial Purchasers") for $505,043,000 less a discount to
the Initial Purchasers of $12,626,075. Such transactions were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") in reliance on section 4(2) of such Act on the basis that
such transactions did not involve a public offering. In accordance with the
agreement pursuant to which the Initial Purchasers purchased the Old Notes,
such initial purchasers agreed to offer and sell such notes only to
"qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) and to a limited number of institutional "accredited
investors" (as defined in Rule 501(A)(1), (2), (3) or (7) under the
Securities Act). Except for the transactions described above there have not
been any recent sales of unregistered securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
*3.1 Certificate of Incorporation of Registrant.
*3.2 By-Laws of Registrant.
4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING
INDENTURES.
*4.1 Indenture, dated as of March 1, 1997, between the Registrant and
The Bank of New York, as Trustee, relating to the Senior Secured
Discount Notes due 2001 and the Series B Senior Secured Discount
Notes due 2001.
4.2 Indenture, dated as of July 15, 1980, between Holdings and The
Chase Manhattan Bank, N.A., as Trustee, relating to the 10 7/8%
Sinking Fund Debentures due 2010 (the "Debentures Indenture").
(Incorporated by reference to Exhibit 4.1 to the Form S-1 of
Revlon, Inc. filed with the Securities and Exchange Commission on
May 22, 1992, File No. 33-47100 (the "Revlon 1992 Form S-1")).
4.3 First Supplemental Indenture, dated as of August 15, 1986, to the
Debentures Indenture. (Incorporated by reference to Exhibit 4.2
to the Revlon 1992 Form S-1).
4.4 Instrument of Appointment and Acceptance of Successor Trustee and
Appointment of Agent dated as of November 19, 1987, to appoint
First National Bank of Minneapolis, as Trustee, relating to the
Debentures Indenture. (Incorporated by reference to Exhibit 4.3
to the Revlon 1992 Form S-1).
4.5 Second Supplemental Indenture, dated as of June 24, 1992, among
Holdings, Revlon, Inc. and First National Bank of Minneapolis, as
Trustee, to the Debentures Indenture. (Incorporated by reference
to Exhibit 4.4 to the Amendment No. 1 to the Revlon Form S-1
filed with the Securities and Exchange Commission on June
29,1992, File No. 33-47100 (the "Revlon 1992 Amendment No. 1")).
4.6 Third Supplemental Indenture, dated as of June 24, 1992, among
Revlon, Inc., Products Corporation and First National Bank of
Minneapolis, as Trustee, to the Debentures Indenture.
(Incorporated by reference to Exhibit 4.5 to the Revlon 1992
Amendment No. 1).
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.7 Indenture, dated as of February 15, 1993, between Products
Corporation and The Bank of New York, as Trustee, relating to
Products Corporation's 10 1/2% Series B Senior Subordinated Notes
Due 2003. (Incorporated by reference to Exhibit 4.31 to the
Registration Statement on Form S-1 of Products Corporation filed
with the Securities and Exchange Commission on March 17, 1993,
File No. 33-59650).
4.8 Indenture, dated as of April 1, 1993, between Products
Corporation and NationsBank of Georgia, National Association, as
Trustee, relating to Products Corporation's 9 3/8% Senior Notes
Due 2001 and Products Corporation's 9 3/8% Series B Senior Notes
Due 2001. (Incorporated by reference to Exhibit 4.28 to the
Amendment No. 1 to the Registration Statement on Form S-1 of
Products Corporation as filed with the Securities and Exchange
Commission on April 13, 1993, File No. 33-59650).
4.9 Indenture dated as of June 1, 1993, between Products Corporation
and NationsBank of Georgia, National Association, as Trustee,
relating to Products Corporation's 9 1/2% Senior Notes Due 1999.
(Incorporated by reference to Exhibit 4.31 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1993
of Products Corporation).
4.10 Financing Reimbursement Agreement by and between Holdings and
Products Corporation dated February 28, 1995. (Incorporated by
reference to Exhibit 4.30 to the Annual Report on Form 10-K for
the year ended December 31, 1994 of Products Corporation (the
"Products Corporation 1994 10-K")).
4.11 Amendment to the Financing Reimbursement Agreement by and between
Holdings and Products Corporation dated May 3, 1996.
(Incorporated by reference to Exhibit 4.10 to the Annual Report
on Form 10-K for the year ended December 31, 1996 of Revlon, Inc.
(the "Revlon, Inc. 1996 10-K")).
4.12 Second Amended and Restated Credit Agreement dated as of December
22, 1994, between Pacific Finance & Development Corp. and the
Long-Term Credit Bank of Japan, Ltd. (the "Yen Credit
Agreement"). (Incorporated by reference to Exhibit 4.32 to the
Products Corporation 1994 10-K).
4.13 Credit Agreement, dated as of February 28, 1995 among Products
Corporation, Chemical Bank, Citibank N.A. and the lenders party
thereto (the "Former Credit Agreement"). (Incorporated by
reference to Exhibit 4.33 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995 of Products
Corporation (the "Products Corporation First Quarter 10-Q")).
4.14 First Amendment, dated as of February 28, 1995, with respect to
the Former Credit Agreement. (Incorporated by reference to
Exhibit 4.34 to the Products Corporation First Quarter 10-Q).
4.15 Second Amendment, dated as of February 28, 1995, with respect to
the Former Credit Agreement. (Incorporated by reference to
Exhibit 4.35 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 of Products Corporation).
4.16 Third Amendment, dated as of October 30, 1995, with respect to
the Former Credit Agreement. (Incorporated by reference to
Exhibit 4.17 to the Registration Statement on Form S-1 of Revlon,
Inc. filed with the Securities and Exchange Commission on
November 17,1995 (File No. 33-99558)(the "Revlon 1995 Form
S-1")).
4.17 Amended and Restated Credit Agreement, dated as of January
24,1996, among Products Corporation, Chemical Bank, Citibank
N.A., Chemical Securities Inc. and the lenders party thereto.
(Incorporated by reference to Exhibit 4.18 to the Amendment No. 3
to the Revlon 1995 Form S-1 filed with the Securities and
Exchange Commission on February 5, 1996 (the "Revlon 1995
Amendment No. 3")).
4.18 First Amendment and Consent Number 1 dated as of January 9, 1997
to the Credit Agreement. (Incorporated by reference to Exhibit
4.18 to the Revlon, Inc. 1996 10-K).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.19 Indenture dated as of March 15, 1993, between Revlon Worldwide
and the First National Bank of Boston, as Trustee, relating to
the Senior Secured Discount Notes due 1998 and the Series B
Senior Secured Discount Notes Due 1998. (Incorporated by
reference to Exhibit 4.28 to the Worldwide Form S-1).
*4.20 Registration Agreement, dated March 5, 1997, among the Registrant
and the Initial Purchasers.
4.21 First Amendment and Consent, dated as of March 10, 1997, with
respect to the Yen Credit Agreement. (Incorporated by reference
to Exhibit 4.8 to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 of Revlon, Inc. (the
"Revlon, Inc. March 31, 1997 Form 10-Q")).
4.22 Defeasance Trust Agreement dated April 1, 1997 between Revlon
Worldwide Corporation and State Street Bank and Trust Company, as
Successor Trustee, under the Indenture dated as of March 15, 1993
between Revlon Worldwide Corporation and the First National Bank
of Boston, as Trustee, relating to the Senior Secured Discount
Notes due 1998 and the Series B Senior Secured Discount Notes due
1998. (Incorporated by reference to Exhibit 4.20 to the Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1997
of Revlon Worldwide Corporation.)
*4.23 Amended and Restated Credit Agreement, dated as of May 30, 1997,
among Products Corporation, The Chase Manhattan Bank, Citibank
N.A., Lehman Commercial Paper Inc., Chase Securities Inc. and the
lenders party thereto.
5. OPINIONS.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, special
counsel to the Registrant.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Registrant.
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and between
Products Corporation and Holdings, each dated as of February 18,
1993, relating to the Edison, New Jersey facility. (Incorporated
by reference to Exhibit 4.22 to the Annual Report on Form 10-K
for the year ended December 31, 1992 of Products Corporation (the
"Products Corporation 1992 10-K")).
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among
Holdings, National Health Care Group, Inc., Charles of the Ritz
Group Ltd., Products Corporation and Revlon, Inc. (Incorporated
by reference to Exhibit 10.1 to the Revlon 1992 Amendment No. 1).
10.3 Real Property Asset Transfer Agreement, dated as of June 24,1992,
among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.2 to the Revlon 1992
Amendment No. 1).
10.4 Assumption Agreement relating to the Edison facility by and
between Products Corporation and Holdings, each dated as of
February 18, 1993, relating to the Edison, New Jersey facility.
(Incorporated by reference to Exhibit 4.23 to the Products
Corporation 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco
Holdings, Revlon, Inc., Products Corporation and certain
subsidiaries of Products Corporation (the "Tax Sharing
Agreement"). (Incorporated by reference to Exhibit 10.5 to the
Revlon 1992 Amendment No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the Tax
Sharing Agreement. (Incorporated by reference to Exhibit 10.5 to
the Products Corporation 1994 10-K).
10.7 Second Amendment, dated as of January 1, 1997, to the Tax Sharing
Agreement. (Incorporated by reference to Exhibit 10.7 to the
Revlon, Inc. 1996 10-K).
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8 Second Amended and Restated Operating Services Agreement by and
among Holdings, Revlon, Inc. and Products Corporation, as of
January 1, 1996. (Incorporated by reference to Exhibit 10.8 to
the Revlon, Inc. 1996 10-K).
10.9 Employment Agreement dated as of January 1, 1996 between Products
Corporation and Jerry W. Levin. (Incorporated by reference to
Exhibit 10.10 to the Annual Report on Form 10-K for the year
ended December 31, 1995 of Products Corporation (the "Products
Corporation 1995 10-K")).
10.10 Employment Agreement dated as of January 1, 1997 between Products
Corporation and George Fellows. (Incorporated by reference to
Exhibit 10.10 to the Revlon, Inc. 1997 10-Q).
10.11 Employment Agreement dated as of January 1, 1996 between Products
Corporation and William J. Fox. (Incorporated by reference to
Exhibit 10.12 to the Products Corporation 1995 10-K).
10.12 Employment Agreement dated as of January 1, 1996 between RIROS
Corporation and Carlos Colomer Casellas. (Incorporated by
reference to Exhibit 10.13 to the Products Corporation 1995
10-K).
10.13 Employment Agreement dated as of January 1, 1996 between Products
Corporation and M. Katherine Dwyer. (Incorporated by reference to
Exhibit 10.13 to the Revlon, Inc. 1996 10-K).
10.14 Revlon Employees' Savings and Investment Plan effective as of
January 1, 1996. (Incorporated by reference to Exhibit 10.15 to
the Products Corporation 1995 10-K).
10.15 Revlon Employees' Retirement Plan as amended and restated
December 19, 1994. (Incorporated by reference to Exhibit 10.15 to
the Products Corporation 1994 10-K).
10.16 Amended and Restated Revlon Pension Equalization Plan, effective
January 1, 1996. (Incorporated by reference to Exhibit 10.17 to
the Revlon 1995 Amendment No. 4).
10.17 Executive Supplemental Medical Expense Plan Summary dated July
1991. (Incorporated by reference to Exhibit 10.18 to the Revlon
1992 Form S-1).
10.18 Description of Post Retirement Life Insurance Program for Key
Executives. (Incorporated by reference to Exhibit 10.19 to the
Revlon 1992 Form S-1).
10.19 Benefit Plans Assumption Agreement dated as of July 1, 1992, by
and among Holdings, Revlon, Inc. and Products Corporation.
(Incorporated by reference to Exhibit 10.25 to the Products
Corporation 1992 10-K).
10.20 Revlon Executive Bonus Plan effective January 1, 1997.
(Incorporated by reference to Exhibit 10.20 to the Revlon, Inc.
1996 10-K).
10.21 Revlon Executive Deferred Compensation Plan, amended as of
October 15, 1993. (Incorporated by reference to Exhibit 10.25 to
the Products Corporation 1993 10-K).
10.22 Revlon Executive Severance Policy effective January 1, 1996.
(Incorporated by reference to Exhibit 10.23 to the Revlon 1995
Amendment No. 3).
10.23 Revlon, Inc. 1996 Stock Plan, amended and restated as of December
17, 1996. (Incorporated by reference to Exhibit 10.23 to the
Revlon, Inc. 1996 10-K).
10.24 Tax Sharing Agreement, dated as of March 17, 1993, between Revlon
Worldwide and Mafco Holdings Inc. (Incorporated by reference to
Exhibit 10.30 to the Worldwide Form S-1).
10.25 Indemnity Agreement, dated March 25, 1993, between Revlon
Worldwide and Holdings. (Incorporated by reference to Exhibit
10.32 to the Worldwide Form S-1).
10.26 Form of Registration Rights Agreement. (Incorporated by reference
to Exhibit 10.1 to the Annual Report on Form 10-K for the year
ended December 31, 1995 of Revlon Worldwide).
II-5
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
12. RATIO OF EARNINGS TO FIXED CHARGES.
*12.1 Statement regarding the computation of ratio of earnings to fixed
charges for the Registrant.
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
23. CONSENTS.
23.1 Consent of KPMG Peat Marwick LLP and Report on Schedule.
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison, special
counsel to the Registrant (included in Exhibit 5.1).
*23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Registrant (included in Exhibit 8.1).
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney executed by Ronald O. Perelman.
*24.2 Power of Attorney executed by Howard Gittis.
*24.3 Power of Attorney executed by Irwin Engelman.
*24.4 Power of Attorney executed by Lawrence E. Kreider.
25. FORM T-1.
*25.1 Statement of Eligibility and Qualification on Form T-1 of The
Bank of New York, as Trustee under the Indenture relating to the
Registrant's Series B Senior Secured Discount Notes due 2001.
27. FINANCIAL DATA SCHEDULE.
*27.1 Financial Data Schedule for the period ended December 31, 1996.
*27.2 Financial Data Schedule for the period ended March 31, 1997.
99. MISCELLANEOUS.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
*99.4 Form of Letter to Clients.
- --------------
* Previously filed.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
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 Securities 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 whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on June 26, 1997.
REVLON WORLDWIDE (PARENT)
CORPORATION
By /s/ Glenn P. Dickes
---------------------------------
Glenn P. Dickes
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board and June 26, 1997
----------------------- Director (Principal Executive
Ronald O. Perelman Officer)
* Vice Chairman of the Board and June 26, 1997
----------------------- Director
Howard Gittis
* Executive Vice President and June 26, 1997
----------------------- Chief Financial Officer
Irwin Engelman (Principal Financial Officer)
* Senior Vice President, Controller June 26, 1997
----------------------- and Chief Accounting Officer
Lawrence E. Kreider (Principal Accounting Officer)
*Joram C. Salig, by signing his name hereto, does hereby execute this
Amendment No. 2 to the Registration Statement on behalf of the directors and
officers of the Registrant indicated above by asterisks, pursuant to powers
of attorney duly executed by such directors and officers and filed as
exhibits to the Registration Statement.
By /s/ Joram C. Salig
---------------------------------
Joram C. Salig
Attorney-in-Fact
II-8
<PAGE>
SCHEDULE II
REVLON WORLDWIDE (PARENT) CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Applied against asset accounts:
Allowance for doubtful accounts ..... $13.6 $ 7.1 $ (7.8)(1) $12.9
Allowance for volume and early
payment discounts ................... $10.1 $43.8 $(41.9)(2) $12.0
YEAR ENDED DECEMBER 31, 1995:
Applied against asset accounts:
Allowance for doubtful accounts ..... $11.1 $ 5.5 $ (3.0)(1) $13.6
Allowance for volume and early
payment discounts ................... $10.6 $33.3 $(33.8)(2) $10.1
YEAR ENDED DECEMBER 31, 1994:
Applied against asset accounts:
Allowance for doubtful accounts ..... $14.6 $ 4.6 $ (8.1)(1) $11.1
Allowance for volume and early
payment discounts ................... $ 9.7 $26.0 $(25.1)(2) $10.6
</TABLE>
- --------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C>
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
*3.1 Certificate of Incorporation of Registrant.
*3.2 By-Laws of Registrant.
4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES.
*4.1 Indenture, dated as of March 1, 1997, between the Registrant and The Bank of New York, as
Trustee, relating to the Senior Secured Discount Notes due 2001 and the Series B Senior Secured
Discount Notes due 2001.
4.2 Indenture, dated as of July 15, 1980, between Holdings and The Chase Manhattan Bank, N.A., as
Trustee, relating to the 10 7/8% Sinking Fund Debentures due 2010 (the "Debentures Indenture").
(Incorporated by reference to Exhibit 4.1 to the Form S-1 of Revlon, Inc. filed with the
Securities and Exchange Commission on May 22, 1992, File No. 33-47100 (the "Revlon 1992 Form
S-1")).
4.3 First Supplemental Indenture, dated as of August 15, 1986, to the Debentures Indenture.
(Incorporated by reference to Exhibit 4.2 to the Revlon 1992 Form S-1).
4.4 Instrument of Appointment and Acceptance of Successor Trustee and Appointment of Agent dated as
of November 19, 1987, to appoint First National Bank of Minneapolis, as Trustee, relating to the
Debentures Indenture. (Incorporated by reference to Exhibit 4.3 to the Revlon 1992 Form S-1).
4.5 Second Supplemental Indenture, dated as of June 24, 1992, among Holdings, Revlon, Inc. and First
National Bank of Minneapolis, as Trustee, to the Debentures Indenture. (Incorporated by
reference to Exhibit 4.4 to the Amendment No. 1 to the Revlon Form S-1 filed with the Securities
and Exchange Commission on June 29,1992, File No. 33-47100 (the "Revlon 1992 Amendment No. 1")).
4.6 Third Supplemental Indenture, dated as of June 24, 1992, among Revlon, Inc., Products
Corporation and First National Bank of Minneapolis, as Trustee, to the Debentures Indenture.
(Incorporated by reference to Exhibit 4.5 to the Revlon 1992 Amendment No. 1).
4.7 Indenture, dated as of February 15, 1993, between Products Corporation and The Bank of New York,
as Trustee, relating to Products Corporation's 10 1/2% Series B Senior Subordinated Notes Due
2003. (Incorporated by reference to Exhibit 4.31 to the Registration Statement on Form S-1 of
Products Corporation filed with the Securities and Exchange Commission on March 17, 1993, File
No. 33-59650).
4.8 Indenture, dated as of April 1, 1993, between Products Corporation and NationsBank of Georgia,
National Association, as Trustee, relating to Products Corporation's 9 3/8% Senior Notes Due
2001 and Products Corporation's 9 3/8% Series B Senior Notes Due 2001. (Incorporated by
reference to Exhibit 4.28 to the Amendment No. 1 to the Registration Statement on Form S-1 of
Products Corporation as filed with the Securities and Exchange Commission on April 13, 1993,
File No. 33-59650).
4.9 Indenture dated as of June 1, 1993, between Products Corporation and NationsBank of Georgia,
National Association, as Trustee, relating to Products Corporation's 9 1/2% Senior Notes Due
1999. (Incorporated by reference to Exhibit 4.31 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1993 of Products Corporation).
4.10 Financing Reimbursement Agreement by and between Holdings and Products Corporation dated
February 28, 1995. (Incorporated by reference to Exhibit 4.30 to the Annual Report on Form 10-K
for the year ended December 31, 1994 of Products Corporation (the "Products Corporation 1994
10-K")).
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
4.11 Amendment to the Financing Reimbursement Agreement by and between Holdings and Products
Corporation dated May 3, 1996. (Incorporated by reference to Exhibit 4.10 to the Annual Report
on Form 10-K for the year ended December 31, 1996 of Revlon, Inc. (the "Revlon, Inc. 1996
10-K")).
4.12 Second Amended and Restated Credit Agreement dated as of December 22, 1994, between Pacific
Finance & Development Corp. and the Long-Term Credit Bank of Japan, Ltd. (the "Yen Credit
Agreement"). (Incorporated by reference to Exhibit 4.32 to the Products Corporation 1994 10-K).
4.13 Credit Agreement, dated as of February 28, 1995 among Products Corporation, Chemical Bank,
Citibank N.A. and the lenders party thereto (the "Former Credit Agreement"). (Incorporated by
reference to Exhibit 4.33 to the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1995 of Products Corporation (the "Products Corporation First Quarter 10-Q")).
4.14 First Amendment, dated as of February 28, 1995, with respect to the Former Credit Agreement.
(Incorporated by reference to Exhibit 4.34 to the Products Corporation First Quarter 10-Q).
4.15 Second Amendment, dated as of February 28, 1995, with respect to the Former Credit Agreement.
(Incorporated by reference to Exhibit 4.35 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 of Products Corporation).
4.16 Third Amendment, dated as of October 30, 1995, with respect to the Former Credit Agreement.
(Incorporated by reference to Exhibit 4.17 to the Registration Statement on Form S-1 of Revlon,
Inc. filed with the Securities and Exchange Commission on November 17,1995 (File No.
33-99558)(the "Revlon 1995 Form S-1")).
4.17 Amended and Restated Credit Agreement, dated as of January 24,1996, among Products Corporation,
Chemical Bank, Citibank N.A., Chemical Securities Inc. and the lenders party thereto.
(Incorporated by reference to Exhibit 4.18 to the Amendment No. 3 to the Revlon 1995 Form S-1
filed with the Securities and Exchange Commission on February 5, 1996 (the "Revlon 1995
Amendment No. 3")).
4.18 First Amendment and Consent Number 1 dated as of January 9, 1997 to the Credit Agreement.
(Incorporated by reference to Exhibit 4.18 to the Revlon, Inc. 1996 10-K).
4.19 Indenture dated as of March 15, 1993, between Revlon Worldwide and the First National Bank of
Boston, as Trustee, relating to the Senior Secured Discount Notes due 1998 and the Series B
Senior Secured Discount Notes Due 1998. (Incorporated by reference to Exhibit 4.28 to the
Worldwide Form S-1).
*4.20 Registration Agreement, dated March 5, 1997, among the Registrant and the Initial Purchasers.
4.21 First Amendment and Consent, dated as of March 10, 1997, with respect to the Yen Credit
Agreement. (Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997 of Revlon, Inc. (the "Revlon, Inc. March 31, 1997 Form
10-Q")).
4.22 Defeasance Trust Agreement dated April 1, 1997 between Revlon Worldwide Corporation and State
Street Bank and Trust Company, as Successor Trustee, under the Indenture dated as of March 15,
1993 between Revlon Worldwide Corporation and the First National Bank of Boston, as Trustee,
relating to the Senior Secured Discount Notes due 1998 and the Series B Senior Secured Discount
Notes due 1998. (Incorporated by reference to Exhibit 4.20 to the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997 of Revlon Worldwide Corporation.)
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
*4.23 Amended and Restated Credit Agreement, dated as of May 30, 1997, among Products Corporation, The
Chase Manhattan Bank, Citibank N.A., Lehman Commercial Paper Inc., Chase Securities Inc. and the
lenders party thereto.
5. OPINIONS.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to the Registrant.
*8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Registrant.
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and between Products Corporation and
Holdings, each dated as of February 18, 1993, relating to the Edison, New Jersey facility.
(Incorporated by reference to Exhibit 4.22 to the Annual Report on Form 10-K for the year ended
December 31, 1992 of Products Corporation (the "Products Corporation 1992 10-K")).
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among Holdings, National Health Care Group,
Inc., Charles of the Ritz Group Ltd., Products Corporation and Revlon, Inc. (Incorporated by
reference to Exhibit 10.1 to the Revlon 1992 Amendment No. 1).
10.3 Real Property Asset Transfer Agreement, dated as of June 24,1992, among Holdings, Revlon, Inc.
and Products Corporation. (Incorporated by reference to Exhibit 10.2 to the Revlon 1992
Amendment No. 1).
10.4 Assumption Agreement relating to the Edison facility by and between Products Corporation and
Holdings, each dated as of February 18, 1993, relating to the Edison, New Jersey facility.
(Incorporated by reference to Exhibit 4.23 to the Products Corporation 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco Holdings, Revlon, Inc., Products
Corporation and certain subsidiaries of Products Corporation (the "Tax Sharing Agreement").
(Incorporated by reference to Exhibit 10.5 to the Revlon 1992 Amendment
No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the Tax Sharing Agreement. (Incorporated by
reference to Exhibit 10.5 to the Products Corporation 1994 10-K).
10.7 Second Amendment, dated as of January 1, 1997, to the Tax Sharing Agreement. (Incorporated by
reference to Exhibit 10.7 to the Revlon, Inc. 1996 10-K).
10.8 Second Amended and Restated Operating Services Agreement by and among Holdings, Revlon, Inc. and
Products Corporation, as of January 1, 1996. (Incorporated by reference to Exhibit 10.8 to the
Revlon, Inc. 1996 10-K).
10.9 Employment Agreement dated as of January 1, 1996 between Products Corporation and Jerry W.
Levin. (Incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K for the
year ended December 31, 1995 of Products Corporation (the "Products Corporation 1995 10-K")).
10.10 Employment Agreement dated as of January 1, 1997 between Products Corporation and George
Fellows. (Incorporated by reference to Exhibit 10.10 to the Revlon, Inc. 1997 10-Q).
10.11 Employment Agreement dated as of January 1, 1996 between Products Corporation and William J.
Fox. (Incorporated by reference to Exhibit 10.12 to the Products Corporation 1995 10-K).
10.12 Employment Agreement dated as of January 1, 1996 between RIROS Corporation and Carlos Colomer
Casellas. (Incorporated by reference to Exhibit 10.13 to the Products Corporation 1995 10-K).
10.13 Employment Agreement dated as of January 1, 1996 between Products Corporation and
M. Katherine Dwyer. (Incorporated by reference to Exhibit 10.13 to the Revlon, Inc. 1996 10-K).
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.14 Revlon Employees' Savings and Investment Plan effective as of January 1, 1996. (Incorporated by
reference to Exhibit 10.15 to the Products Corporation 1995 10-K).
10.15 Revlon Employees' Retirement Plan as amended and restated December 19, 1994. (Incorporated by
reference to Exhibit 10.15 to the Products Corporation 1994 10-K).
10.16 Amended and Restated Revlon Pension Equalization Plan, effective January 1, 1996. (Incorporated
by reference to Exhibit 10.17 to the Revlon 1995 Amendment No. 4).
10.17 Executive Supplemental Medical Expense Plan Summary dated July 1991. (Incorporated by reference
to Exhibit 10.18 to the Revlon 1992 Form S-1).
10.18 Description of Post Retirement Life Insurance Program for Key Executives. (Incorporated by
reference to Exhibit 10.19 to the Revlon 1992 Form S-1).
10.19 Benefit Plans Assumption Agreement dated as of July 1, 1992, by and among Holdings, Revlon, Inc.
and Products Corporation. (Incorporated by reference to Exhibit 10.25 to the Products
Corporation 1992 10-K).
10.20 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated by reference to Exhibit
10.20 to the Revlon, Inc. 1996 10-K).
10.21 Revlon Executive Deferred Compensation Plan, amended as of October 15, 1993. (Incorporated by
reference to Exhibit 10.25 to the Products Corporation 1993 10-K).
10.22 Revlon Executive Severance Policy effective January 1, 1996. (Incorporated by reference to
Exhibit 10.23 to the Revlon 1995 Amendment No. 3).
10.23 Revlon, Inc. 1996 Stock Plan, amended and restated as of December 17, 1996. (Incorporated by
reference to Exhibit 10.23 to the Revlon, Inc. 1996 10-K).
10.24 Tax Sharing Agreement, dated as of March 17, 1993, between Revlon Worldwide and Mafco Holdings
Inc. (Incorporated by reference to Exhibit 10.30 to the Worldwide Form S-1).
10.25 Indemnity Agreement, dated March 25, 1993, between Revlon Worldwide and Holdings. (Incorporated
by reference to Exhibit 10.32 to the Worldwide Form S-1).
10.26 Form of Registration Rights Agreement. (Incorporated by reference to Exhibit 10.1 to the Annual
Report on Form 10-K for the year ended December 31, 1995 of Revlon Worldwide).
12. RATIO OF EARNINGS TO FIXED CHARGES.
*12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Registrant.
21. SUBSIDIARIES.
*21.1 Subsidiaries of the Registrant.
23. CONSENTS.
23.1 Consent of KPMG Peat Marwick LLP and Report on Schedule.
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to the Registrant (included
in Exhibit 5.1).
*23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Registrant (included
in Exhibit 8.1).
24. POWERS OF ATTORNEY.
*24.1 Power of Attorney executed by Ronald O. Perelman.
*24.2 Power of Attorney executed by Howard Gittis.
*24.3 Power of Attorney executed by Irwin Engelman.
*24.4 Power of Attorney executed by Lawrence E. Kreider.
25. FORM T-1.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
*25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as Trustee under
the Indenture relating to the Registrant's Series B Senior Secured Discount Notes due 2001.
27. FINANCIAL DATA SCHEDULE.
*27.1 Financial Data Schedule for the period ended December 31, 1996.
*27.2 Financial Data Schedule for the period ended March 31, 1997.
99. MISCELLANEOUS.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------
* Previously filed.
<PAGE>
[Paul, Weiss, Rifkind, Wharton & Garrison Letterhead]
June 18, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Revlon Worldwide (Parent) Corporation
Registration Statement on
Form S-1 (File No. 333-23451)
-----------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement on Form
S-1 (the "Registration Statement") filed by Revlon Worldwide (Parent)
Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations thereunder (the "Securities
Act Rules"), we have been requested to render our opinion as to the legality of
the securities being registered thereunder. The Registration Statement covers
<PAGE>
Securities and Exchange Commission 2
$770,000,000 aggregate principal amount at maturity of the Company's Series B
Senior Secured Discount Notes due 2001 (the "Exchange Notes") to be issued
pursuant to the Indenture, dated as of March 1, 1997 (the "Indenture"), between
the Company and The Bank of New York, a New York banking corporation ("The Bank
of New York"), as Trustee, and as contemplated by the Registration Agreement,
dated March 5, 1997, by and among the Company and the signatories thereto.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the (i) Registration
Statement; (ii) Indenture and (iii) form of the Exchange Notes which is set
forth as Exhibit B to the Indenture (collectively, the "Documents").
In addition, we have examined such corporate records and other
instruments as we have deemed necessary or appropriate and such other
certificates, agreements and documents as we deemed relevant and necessary as a
basis for the opinions hereinafter expressed.
In our examination of the aforesaid documents, we have assumed,
without independent investigation, the genuineness of all signatures, the
enforceability of the Documents against all parties thereto (other than the
Company in the case of the Indenture and the Exchange Notes), the authenticity
of all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as certified, photostatic,
reproduced or conformed copies of valid existing agreements
<PAGE>
Securities and Exchange Commission 3
and other documents, the authenticity of all such latter documents and the
legal capacity of all individuals who have executed any of the documents.
In expressing the opinions set forth herein, we have assumed that the
Exchange Notes will be in the form of Exhibit B to the Indenture and any
information omitted from such form and indicated as such by a blank space have
been properly added. In addition, we have relied upon the factual matters
contained in the representations and warranties of the Company made in any of
the Documents and upon certificates of public officials and officers of the
Company.
The opinions expressed herein are limited to the laws of the State of
New York and the General Corporation Law of the State of Delaware. Please be
advised that no member of this firm is admitted to practice in the State of
Delaware. Our opinion is rendered only with respect to the laws, and the rules,
regulations and orders thereunder, which are currently in effect.
Based upon the foregoing, and subject to the assumptions, exceptions
and qualifications set forth herein, we are of the opinion that the Exchange
Notes to be issued pursuant to the Indenture, when issued, authenticated and
delivered in accordance with the terms of the Indenture and as contemplated by
the Registration Statement, will be validly issued and delivered and will
constitute valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except as enforceability thereof
may be subject to (a) bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or other similar laws
<PAGE>
Securities and Exchange Commission 4
now or hereafter in effect affecting creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
We hereby consent to the use of our name in the Registration Statement
and in the related Prospectus as the same appears in the caption "Legal
Matters" and to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required by the Securities Act or the
Securities Act Rules.
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS AND REPORT ON SCHEDULE
The Board of directors
Revlon Worldwide (Parent) Corporation:
The audits referred to in our report dated January 28, 1997, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1996, included in the Registration Statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
New York, New York
June 24, 1997
