FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number 1-09623
IVAX CORPORATION
FLORIDA 16-1003559
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33137
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(Address of principal executive offices) (Zip Code)
(305) 575-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
120,051,087 SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING AS OF
JULY 31, 1998.
<PAGE>
IVAX CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Operations
for the three months and six months ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 166,954 $ 199,235
Accounts receivable, net 96,862 104,994
Inventories 145,961 145,716
Net assets of discontinued operations 28,424 37,820
Other current assets 32,879 22,939
--------- ---------
Total current assets 471,080 510,704
Property, plant and equipment, net 189,024 193,741
Intangible assets, net 52,385 39,458
Other assets 37,737 46,833
--------- ---------
Total assets $ 750,226 $ 790,736
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 2,588 $ 4,025
Current portion of long-term debt 1,024 7,858
Accounts payable 45,456 42,578
Accrued income taxes payable 5,287 9,126
Accrued expenses and other current liabilities 147,268 170,379
--------- ---------
Total current liabilities 201,623 233,966
Long-term debt, net of current portion 94,178 94,193
Other long-term liabilities 12,153 12,600
Minority interest 16,800 14,938
Shareholders' equity:
Common stock, $.10 par value, authorized 250,000 shares,
issued and outstanding 119,916 shares (121,518 in 1997) 11,992 12,152
Capital in excess of par value 501,177 515,234
Retained deficit (72,845) (72,294)
Cumulative translation adjustment and other (14,852) (20,053)
--------- ---------
Total shareholders' equity 425,472 435,039
--------- ---------
Total liabilities and shareholders' equity $ 750,226 $ 790,736
========= =========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
2
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<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
(In thousands, except per share data) 1998 1997 1998 1997
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 158,664 $ 173,809 $ 307,719 $ 340,707
COST OF SALES 98,512 128,101 197,716 246,129
----------- ----------- ----------- ------------
Gross profit 60,152 45,708 110,003 94,578
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Selling 19,108 27,078 39,630 50,079
General and administrative 22,053 27,346 40,905 53,014
Research and development 13,347 13,982 27,096 25,913
Amortization of intangible assets 1,125 968 2,041 1,951
Restructuring costs and asset write-downs - 20,500 696 20,500
Merger expenses - 248 - 2,343
----------- ----------- ----------- ------------
Total operating expenses 55,633 90,122 110,368 153,800
----------- ----------- ----------- ------------
Income (loss) from operations 4,519 (44,414) (365) (59,222)
OTHER INCOME (EXPENSE):
Interest income 2,687 1,214 4,985 1,873
Interest expense (1,792) (5,275) (3,539) (10,920)
Other income (expense), net 523 (492) 4,275 6,587
----------- ----------- ----------- ------------
Total other income (expense) 1,418 (4,553) 5,721 (2,460)
----------- ----------- ----------- ------------
Income (loss) from continuing operations before
income taxes and minority interest 5,937 (48,967) 5,356 (61,682)
PROVISION (BENEFIT) FOR INCOME TAXES 2,397 2,448 5,027 (647)
----------- ----------- ----------- ------------
Income (loss) from continuing operations
before minority interest 3,540 (51,415) 329 (61,035)
MINORITY INTEREST (199) (1,409) (880) (2,881)
----------- ----------- ----------- ------------
Income (loss) from continuing operations 3,341 (52,824) (551) (63,916)
DISCONTINUED OPERATIONS, NET OF TAXES - 7,447 - 10,600
----------- ----------- ----------- ------------
Income (loss) before extraordinary items 3,341 (45,377) (551) (53,316)
EXTRAORDINARY ITEMS - losses on
extinguishment of debt, net of taxes - (2,137) - (2,137)
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ 3,341 $ (47,514) $ (551) $ (55,453)
=========== =========== =========== ============
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE:
Continuing operations $ .03 $ (.43) $ - $ (.53)
Discontinued operations - .06 - .09
Extraordinary items - (.02) - (.02)
----------- ---------- ----------- -----------
Net earnings (loss) $ .03 $ (.39) $ - $ (.46)
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 119,863 121,488 120,418 121,484
=========== =========== =========== ============
Diluted 120,075 121,488 120,418 121,484
=========== =========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
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<TABLE>
<CAPTION>
IVAX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1998 1997
(In thousands) ---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (551) $ (55,453)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Restructuring costs and asset write-downs 696 20,500
Depreciation and amortization 16,142 16,576
Deferred tax provision (benefit) 948 (5,982)
Provision for allowances for doubtful accounts 2,821 3,046
Net losses on disposal of assets 1,771 525
Losses on extinguishment of debt -- 2,137
Minority interest 880 2,881
Income from discontinued operations -- (10,600)
Changes in assets and liabilities:
Decrease in accounts receivable 6,478 33,690
Decrease in inventories 1,426 21,326
(Increase) decrease in other current assets (11,766) 44,387
Decrease in other assets 4,053 890
Decrease in accounts payable, accrued expenses
and other current liabilities (29,210) (22,149)
Increase (decrease) in other long-term liabilities 1,197 (619)
Other, net (668) (840)
Net cash provided by discontinued operations 6,719 25,089
--------- ---------
Net cash provided by operating activities 936 75,404
--------- ---------
Cash flows from investing activities:
Proceeds from divestitures 3,885 320,000
Capital expenditures (17,540) (17,087)
Proceeds from sale of assets 15,406 231
Acquisitions of patents, trademarks, licenses
and other intangibles (12,273) (739)
Acquisitions of businesses and other -- (10,500)
Net investing activities of discontinued operations (202) (13,340)
--------- ---------
Net cash (used for) provided by investing activities (10,724) 278,565
--------- ---------
Cash flows from financing activities:
Borrowings on long-term debt and loans payable 645 46,911
Payments on long-term debt and loans payable (8,929) (386,882)
Issuance of common stock 293 26
Repurchase of common stock (14,509) --
Net financing activities of discontinued operations 11 (93)
--------- ---------
Net cash used for financing activities (22,489) (340,038)
--------- ---------
Effect of exchange rate changes on cash (4) (6,341)
--------- ---------
Net increase (decrease) in cash and cash equivalents (32,281) 7,590
Cash and cash equivalents at the beginning of the year 199,235 80,806
--------- ---------
Cash and cash equivalents at the end of the period $ 166,954 $ 88,396
========= =========
Supplemental disclosures:
Interest payments $ 3,352 $ 13,743
========= =========
Income tax payments (refunds) $ 8,845 $ (48,039)
========= =========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
IVAX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
In management's opinion, the accompanying unaudited condensed
consolidated financial statements of IVAX Corporation and subsidiaries ("IVAX")
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of IVAX as of June 30, 1998,
and the results of its operations for the three and six months ended June 30,
1998 and 1997. The results of operations and cash flows for the six months ended
June 30, 1998 are not necessarily indicative of the results of operations or
cash flows which may be reported for the remainder of 1998.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes to consolidated financial statements included
in IVAX's Annual Report on Form 10-K for the year ended December 31, 1997.
The accounting policies followed for interim financial reporting are
the same as those disclosed in Note 2 of the notes to consolidated financial
statements included in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1997.
Certain amounts presented in the condensed consolidated financial
statements for prior periods have been reclassified to conform to the current
period's presentation.
(2) EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. In the computation of diluted earnings (loss) per share, the weighted
average number of common shares outstanding is adjusted for the effect of all
dilutive potential common stock. In computing diluted earnings (loss) per share,
IVAX has utilized the treasury stock method. All prior periods earnings (loss)
per share data have been restated to conform with SFAS No. 128, EARNINGS PER
SHARE, which was adopted by IVAX in 1997.
For the six months ended June 30, 1998 and 1997 and the three months
ended June 30, 1997, there was no difference between basic and diluted loss per
share as all potential common stock was antidilutive. A reconciliation of the
numerator and the denominator of the basic and diluted earnings per share
computation for income from continuing operations for the three months ended
June 30, 1998 is as follows:
5
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 INCOME SHARES PER SHARE
(In thousands, except per share data) (NUMERATOR) (DENOMINATOR) AMOUNT
-------------- -------------- ---------------
<S> <C> <C> <C>
Basic EPS:
Income from continuing operations $ 3,341 119,863 $ 0.03
==============
Effect of Dilutive Securities:
Stock options - 212
-------------- ---------------
Diluted EPS:
Income from continuing operations
plus assumed conversions $ 3,341 120,075 $ 0.03
============== =============== ==============
</TABLE>
Total potential common stock at June 30, 1998 includes outstanding
options to purchase 9,695,283 shares of common stock and 6 1/2% Convertible
Subordinated Notes due November 2001 which are convertible at the option of the
holders into 2,866,929 shares of common stock at a conversion rate of $31.75 per
share.
(3) RESTRUCTURING COSTS:
During the first quarter of 1998, IVAX continued its ongoing efforts to
reduce costs and enhance operating efficiency by initiating further
restructuring programs at its United Kingdom pharmaceutical operations. IVAX
recorded a pre-tax charge of $.7 million in the first quarter of 1998, comprised
primarily of $.5 million for severance and other employee termination benefits
and $.2 million for the write-down of leasehold improvements associated with the
consolidation of certain packaging operations in the United Kingdom, anticipated
to be completed in the first quarter of 1999. IVAX did not record any
restructuring charges during the second quarter of 1998.
Management anticipates that it will continue to seek opportunities to
improve efficiency and operations. Accordingly, additional restructuring costs
may be recorded in future periods as such opportunities are identified.
(4) DIVESTITURES:
During February 1998, IVAX sold its vacuum pump fluids business, the
only remaining segment of IVAX's specialty chemicals business, for $3.9 million
in cash. IVAX retained certain real estate assets of the specialty chemicals
business which are held for sale.
(5) DISCONTINUED OPERATIONS:
During 1997, IVAX's Board of Directors determined to divest its
intravenous products, personal care products and specialty chemicals businesses.
As a result, IVAX classified these businesses as discontinued operations, and
has included their results of operations in "Discontinued operations, net of
taxes" in the accompanying condensed consolidated statements of operations.
6
<PAGE>
Discontinued operations, net of taxes for the six months ended June
30, 1998 includes the results of operations of the personal care products
business and the vacuum pump fluids segment of the specialty chemicals business
(through its sale in February 1998). The personal care products business, which
generated net revenues of $20.3 million and $38.9 million for the three and six
months ended June 30, 1998, respectively, had break-even operations for the
first and second quarters of 1998. Losses incurred on the sale and operations of
the vacuum pump fluids segment were charged against previously established
reserves. See Note 4, Divestitures.
Income from discontinued operations of $7.4 million and $10.6 million
for the three and six months ended June 30, 1997, respectively, includes the
results of operations of the intravenous products (through its sale effective
May 1997), personal care products and specialty chemicals businesses, as well as
the second quarter 1997 gain on the sale of the intravenous products business.
During the third quarter of 1997, IVAX completed the sale of a significant
portion of the assets of its specialty chemicals business. See Note 5,
Divestitures, in IVAX's Annual Report on Form 10-K for the year ended December
31, 1997.
The net assets of IVAX's remaining discontinued operations (excluding
intercompany assets) at June 30, 1998, as presented in the condensed
consolidated balance sheet, are as follows:
PERSONAL CARE
PRODUCTS
(In thousands) DIVISION
--------------
Current assets $ 21,393
Property, plant and equipment, net 4,678
Other assets 19,069
-------------
Total assets 45,140
-------------
Current liabilities 16,716
Other liabilities -
-------------
Total liabilities 16,716
-------------
Net assets of discontinued operations $ 28,424
=============
During July 1998, IVAX sold its personal care products business. See
Note 11, Subsequent Events, for a description of the transaction.
(6) INCOME TAXES:
The provision (benefit) for income taxes is based on the consolidated
United States entities' and individual foreign companies' estimated tax rates
for the applicable year. IVAX utilizes the asset and liability method, and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial accounting and tax bases of assets and
liabilities under applicable tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax liability
from period to period.
7
<PAGE>
The provision (benefit) for income taxes from continuing operations
consists of the following:
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
(In thousands) 1998 1997 1998 1997
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Current:
United States $ - $ - $ - $ 174
Foreign, including Puerto Rico
and U.S. Virgin Islands 1,931 1,480 4,079 5,161
Deferred 466 968 948 (5,982)
------------- -------------- ------------- --------------
Provision (benefit) for income taxes $ 2,397 $ 2,448 $ 5,027 $ (647)
============= ============== ============= ==============
</TABLE>
As of June 30, 1998, IVAX established $157.0 million in valuation
allowances, primarily against its domestic deferred tax assets generated from
losses incurred by its domestic operations. As a result, the domestic deferred
tax asset is fully reserved as of June 30, 1998. Management expects that IVAX
will recognize additional valuation allowances related to any future deferred
tax assets generated from its domestic operations until such time as sustainable
domestic taxable income is achieved.
As of June 30, 1998, a foreign net deferred tax asset aggregating $18.6
million is included in "Other current assets," "Other assets" and "Other
long-term liabilities" in the accompanying condensed consolidated balance sheet.
Realization of the foreign net deferred tax asset is dependent upon generating
sufficient future foreign taxable income. Although realization is not assured,
management believes it is more likely than not that the foreign net deferred tax
asset will be realized.
(7) SHAREHOLDERS' EQUITY:
In December 1997, IVAX's Board of Directors approved a share repurchase
program authorizing IVAX to repurchase up to 5,000,000 shares of IVAX common
stock. Through June 30, 1998, IVAX repurchased 1,686,800 shares of common stock
at a total cost, including commissions, of $14.5 million. Under Florida law,
repurchased shares constitute authorized but unissued shares.
(8) COMPREHENSIVE INCOME:
In the first quarter of 1998, IVAX adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity of
an enterprise that result from transactions and other economic events in a
period other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. IVAX has elected to
disclose comprehensive income in the consolidated statement of shareholders'
equity in its annual report and within its notes to condensed consolidated
financial statements for interim reporting.
8
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<TABLE>
<CAPTION>
The components of IVAX's comprehensive income (loss) are as follows:
PERIOD ENDED JUNE 30, THREE MONTHS SIX MONTHS
(In thousands) 1998 1997 1998 1997
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ 3,341 $ (47,514) $ (551) $ (55,453)
Unrealized losses on marketable
securities, net of taxes (59) (4,036) (24) (2,100)
Foreign currency translation adjustments 1,292 (6,021) 5,225 (17,928)
------------- -------------- ------------- --------------
Comprehensive income (loss) $ 4,574 $ (57,571) $ 4,650 $ (75,481)
============= ============== ============= ==============
</TABLE>
(9) CONTINGENCIES:
With respect to the case styled ALAN M. HARRIS, YITZCHOK WOLPIN AND
FAUSTO POMBAR V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS,
previously reported in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1997, on May 29, 1998, Plaintiffs filed a Notice of Appeal of the
District Court's dismissal of the action, which was previously reported in
IVAX's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1998.
With respect to the case styled ELI LILLY AND COMPANY V. ROUSSEL CORP.,
ET AL., previously reported in IVAX's Annual Report on Form 10-K for the year
ended December 31, 1997, on June 30, 1998, the United States District Court
dismissed the action with prejudice.
With respect to the case styled BAXTER INTERNATIONAL INC. AND BAXTER
HEALTHCARE CORP. V. MCGAW, INC., previously reported in IVAX's Annual Report on
Form 10-K for the year ended December 31, 1997, on July 1, 1998, the United
States Court of Appeals for the Federal Circuit affirmed the verdict in favor of
McGaw, Inc.
With respect to the case styled SMITH & NEPHEW, INC. V. IVAX
CORPORATION AND SOLOPAK, INC., previously reported in IVAX's Annual Report on
Form 10-K for the year ended December 31, 1997, on July 17, 1998, the District
Court granted IVAX's Motion for Summary Judgment.
The developments discussed above did not have a material effect on
IVAX's financial position or results of operations.
(10) RECENTLY ISSUED ACCOUNTING STANDARDS:
IVAX is required to adopt SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, in the first quarter of 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Management believes that the adoption of SFAS No. 133 will not
have a material impact on IVAX's consolidated financial statements.
9
<PAGE>
(11) SUBSEQUENT EVENTS:
On July 14, 1998, IVAX completed the sale of its personal care products
business to Carson, Inc. for $85.0 million (subject to certain post-closing
adjustments). At closing, IVAX received $35.0 million in cash and a $50.0
million secured note due November 30, 1998, which IVAX is seeking to sell to a
third party. This sale completes the divestiture of IVAX's businesses classified
as discontinued operations.
On July 24, 1998, IVAX and ALZA Corporation ("ALZA") terminated the
research and development cost sharing arrangement established in conjunction
with the sale of certain product rights to ALZA in the third quarter of 1997, as
discussed in Note 6, Sale of Product Rights, in the notes to consolidated
financial statements included in IVAX's Annual Report on Form 10-K for the year
ended December 31, 1997. At the time of the sale, a reserve of $15.0 million was
established for IVAX's obligations under this cost sharing arrangement. As a
result of this termination, the reserve will be reversed in the third quarter of
1998, reflecting an adjustment to increase the previously recognized gain on the
sale of those product rights.
Subsequent to June 30, 1998, IVAX repurchased 1,280,000 shares of IVAX
common stock at a total cost, including commissions, of $11.1 million.
Cumulatively, IVAX has repurchased 2,966,800 shares of IVAX common stock at a
total cost of $25.6 million under the share repurchase program described in Note
7, Shareholders' Equity.
On August 11, 1998, IVAX purchased $1.0 million face value of its 6
1/2% Convertible Subordinated Notes Due 2001.
10
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements, the related notes to consolidated
financial statements and management's discussion and analysis of financial
condition and results of operations included in IVAX's Annual Report on Form
10-K for the year ended December 31, 1997 and the condensed consolidated
financial statements and the related notes to condensed consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q. Except for
historical information contained herein, the matters discussed below are forward
looking statements made pursuant to the safe harbor provisions of the Securities
Litigation Reform Act of 1995. Such statements involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting IVAX's operations, markets, products and prices,
and other factors discussed elsewhere in this report and the documents filed by
IVAX with the Securities and Exchange Commission ("SEC"). These factors may
cause IVAX's results to differ materially from the forward looking statements
made in this report or otherwise made by or on behalf of IVAX.
In May 1998, IVAX announced a series of possible actions to enhance the
performance of its business units and increase shareholder value. Such actions
included a possible name change, the exploration of the feasibility of an
initial public offering of IVAX's United Kingdom subsidiary, Norton Healthcare
Limited ("Norton Healthcare"), and the possible creation of a new business unit
to consist of IVAX's activities in oncology and its United States generic
pharmaceutical operations. At this time, IVAX is continuing to explore whether a
public offering of Norton Healthcare is in the best interest of IVAX
shareholders. In addition, IVAX has determined to use the name "IVX BioScience,
Inc.", in selected contexts, to reflect its focus on proprietary
pharmaceuticals. Management is also considering possible other transactions
involving its United States generic pharmaceutical operations, its oncology
business, its veterinary products business and its diagnostics business. IVAX
will not enter into any such transaction unless, after careful consideration,
IVAX's Board of Directors concludes that such transaction is in the best
interest of IVAX shareholders.
Results for the three and six months ending June 30, 1997 have been
restated to reflect the classification of certain businesses as discontinued
operations. See "Results of Operations - Discontinued Operations" for a further
discussion. Additionally, the diagnostics business' results of operations,
previously reported as part of the "Other operations" segment, are not disclosed
as a separate segment because they are not significant.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
IVAX reported a loss from continuing operations of $.6 million for the
six months ended June 30, 1998, compared to a loss from continuing operations of
$63.9 million for the six months ended June 30, 1997. The net loss for the six
months ended June 30, 1998 was $.6 million, compared to a net loss of $55.5
million for the same period of the prior year. The six months ended June 30,
1997 included a $2.1 million net extraordinary loss relating to the
extinguishment of debt.
Continuing operations was approximately break-even per share for the
six months ended June 30, 1998, compared to a loss per share from continuing
operations of $.53 for the six months ended June 30, 1997. Net loss per share
was approximately break-even for the first half of 1998, compared to a net loss
per share of $.46 for the same period of the prior year. The net extraordinary
losses recorded in the first half of 1997, relating to the early extinguishment
of debt, resulted in a $.02 loss per share.
11
<PAGE>
NET REVENUES AND GROSS PROFIT
Net revenues for the first half of 1998 totaled $307.7 million, a
decrease of $33.0 million, or 10%, compared to the same period of the prior
year. The $33.0 million decrease is comprised of a decrease of $30.7 million in
net revenues of IVAX's international operations and a decrease of $2.3 million
in net revenues of IVAX's domestic operations.
Domestic net revenues totaled $146.5 million for the first six months
of 1998, compared to $148.8 million for the same period of 1997. The $2.3
million, or 2%, decrease in domestic net revenues was primarily attributable to
lower prices of certain generic pharmaceutical products and lower net revenues
due to the sale of the rights to Elmiron(R) and certain other urology products
in the United States and Canada to ALZA Corporation ("ALZA") during the third
quarter of 1997. This decrease was partially offset by net revenues generated by
certain new generic pharmaceutical products manufactured by IVAX and introduced
into the market during the past twelve months, lower sales returns and
allowances and $6.0 million recognized from the settlement of litigation with
Abbott Laboratories ("Abbott") concerning the marketing of terazosin
hydrochloride, the generic equivalent of Abbott's Hytrin(R). Under the
settlement, IVAX expects to recognize $6.0 million per quarter until the earlier
of February 2000 or the market introduction of a generic version of terazosin
hydrochloride.
During the first six months of 1998 and 1997, IVAX's United States
generic pharmaceutical operations provided reserves which reduced gross sales by
$59.9 million and $69.5 million, respectively. At June 30, 1998 and December 31,
1997, these reserves totaled $115.0 million and $105.4 million, respectively,
and are included in accounts receivable, net and accrued expenses and other
current liabilities in the condensed consolidated balance sheets.
IVAX's international operations generated net revenues of $161.2
million in the first six months of 1998, compared to $191.9 million for the same
period of the prior year. The $30.7 million, or 16%, decrease in international
net revenues was primarily due to decreased sales at IVAX's United Kingdom and
Czech Republic operations. The decrease in sales at IVAX's United Kingdom
operations is primarily due to the following: the discontinuance of certain
contract manufacturing arrangements to provide capacity to manufacture certain
higher margin products for the United States market for which IVAX is awaiting
receipt of regulatory approval; lower net revenues resulting from a license
agreement relating to its breath operated inhaler device; and price declines for
branded and generic products. The decrease in sales at IVAX's Czech Republic
operations is primarily due to lower sales of raw materials primarily resulting
from the loss of a significant customer, the unfavorable impact of foreign
currency fluctuations and, to a lesser extent, a depressed local pharmaceutical
market, partially offset by higher export sales to Russia.
Gross profit for the first half of 1998 increased $15.4 million, or
16%, from the same period of the prior year. Gross profit was $110.0 million
(35.7% of net revenues) for the first half of 1998, compared to $94.6 million
(27.8% of net revenues) for the first half of 1997. The increase in gross profit
percentage is primarily due to lower sales returns and allowances, lower product
costs, lower inventory provisions, the impact of the 1998 launch of a high
margin generic pharmaceutical product and revenues attributable to the Abbott
settlement at IVAX's United States generic pharmaceutical operations.
12
<PAGE>
OPERATING EXPENSES
Selling expenses totaled $39.6 million (12.9% of net revenues) for the
first six months of 1998, compared to $50.1 million (14.7% of net revenues) for
the first six months of 1997. The decrease of $10.5 million was primarily
attributable to reduced sales force and promotional costs of IVAX's United
States proprietary pharmaceutical operations as a result of the sale of the
rights to Elmiron(R) and certain other urology products in the United States and
Canada to ALZA during the third quarter of 1997. The implementation of
previously announced restructuring plans also resulted in reduced selling
expenses at IVAX's domestic generic pharmaceutical operations due to reductions
in sales personnel and promotional costs and at IVAX's United Kingdom operations
due to lower warehousing overhead.
General and administrative expenses totaled $40.9 million (13.3% of net
revenues) for the first six months of 1998, compared to $53.0 million (15.6% of
net revenues) for the first six months of 1997, a decrease of $12.1 million. The
decrease is primarily attributable to lower costs, primarily associated with
reduced headcount, at IVAX's corporate headquarters, its domestic generic
pharmaceutical operations and its United Kingdom operations as a result of the
implementation of previously announced restructuring plans. Lower legal fees at
IVAX's corporate headquarters, domestic generic pharmaceutical operations and
United Kingdom operations and lower bad debt provisions at IVAX's domestic
generic pharmaceutical operations also contributed to the decline.
Research and development expenses for the first six months of 1998
increased $1.2 million, or 5%, compared to the first half of 1997, to a total of
$27.1 million (8.8% of net revenues). The future level of research and
development expenditures will depend on, among other things, the outcome of
clinical testing of products under development, delays or changes in government
required testing and approval procedures, technological and competitive
developments, and strategic marketing decisions.
During the second quarter of 1997, management reevaluated the carrying
value of certain long-lived assets. The reevaluation was performed, primarily,
in conjunction with initiatives to further consolidate facilities of IVAX's
domestic generic pharmaceutical operations in an effort to improve its
efficiency. As a result of these initiatives, a $20.5 million asset write-down
was recognized which primarily represented an initial estimate of the minimum
level of charges associated with expected losses on facility disposals. During
the first quarter of 1998, IVAX continued its ongoing efforts to reduce costs
and enhance operating efficiency by initiating further restructuring programs at
its United Kingdom pharmaceutical operations. IVAX recorded a pre-tax charge of
$.7 million in the first quarter of 1998, comprised primarily of $.5 million for
severance and other employee termination benefits and $.2 million for the
write-down of leasehold improvements associated with the consolidation of
certain packaging operations in the United Kingdom, anticipated to be completed
in the first quarter of 1999.
The $2.3 million of merger expenses incurred for the six months ended
June 30, 1997 were primarily related to a proposed merger with Bergen Brunswig
Corporation, which was terminated in March 1997.
OTHER INCOME (EXPENSE)
Interest income increased $3.1 million for the six months ended June
30, 1998, as compared to the six months ended June 30, 1997. Higher levels of
cash on hand due to proceeds received from the divestiture of certain businesses
classified as discontinued operations and the sale of certain product rights
during 1997 accounted for the increase in interest income. See Note 5,
Divestitures, and Note 6, Sale of
13
<PAGE>
Product Rights, in IVAX's Annual Report on Form 10-K for the year ended December
31, 1997 for further discussion.
Interest expense decreased $7.4 million for the six months ended June
30, 1998, as compared to the six months ended June 30, 1997, primarily due to
the repayment of IVAX's revolving credit facility during the second quarter of
1997.
Other income (expense), net, decreased $2.3 million for the six months
ended June 30, 1998, as compared to the six months ended June 30, 1997. The
decrease is primarily due to $4.0 million in settlement proceeds received in the
first quarter of 1997 related to the recall in the United States of the raw
material for the generic pharmaceutical product cefaclor.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
IVAX reported income from continuing operations of $3.3 million for
the three months ended June 30, 1998, compared to a loss from continuing
operations of $52.8 million for the same period in 1997. Net income for the
three months ended June 30, 1998 was $3.3 million, compared to a net loss of
$47.5 million for the same period in 1997. The period ended June 30, 1997
included a $2.1 million net extraordinary loss from the extinguishment of debt.
Earnings per share from continuing operations was $.03 for the three
months ended June 30, 1998, compared to a loss per share from continuing
operations of $.43 for the three months ended June 30, 1997. Net earnings per
share was $.03 for the three months ended June 30, 1998, compared to a net loss
per share of $.39 for the same period in the prior year. The net extraordinary
losses recorded in the period ended June 30, 1997, relating to the early
extinguishment of debt, resulted in a $.02 loss per share.
NET REVENUES AND GROSS PROFIT
Net revenues for the three months ended June 30, 1998, totaled $158.7
million, a decrease of $15.1 million, or 9%, compared to the same period of the
prior year. The $15.1 million decrease is the result of a decrease of $21.6
million in net revenues from IVAX's international operations, partially offset
by an increase of $6.5 million in net revenues from IVAX's domestic operations.
Domestic net revenues totaled $75.8 million for the three months ended
June 30, 1998, compared to $69.3 million for the same period of the prior year.
The $6.5 million increase was primarily attributable to lower sales returns and
allowances for IVAX's domestic generic pharmaceutical operations, net revenues
generated by certain new generic pharmaceutical products manufactured by IVAX
and introduced into the market during the past twelve months and $3.0 million
recognized from the settlement of litigation with Abbott, partially offset by
lower prices of certain generic pharmaceutical products and lower net revenues
due to the sale of the rights to Elmiron(R) and certain other urology products
in the United States and Canada to ALZA.
IVAX's international operations generated net revenues of $82.9 million
for the three months ended June 30, 1998, compared to $104.5 million for the
same period of the prior year. The $21.6 million decrease in international net
revenues was primarily due to decreased sales at IVAX's United Kingdom
operations and Czech Republic operations. The decrease in sales at IVAX's United
Kingdom operations is primarily due to the following: the discontinuance of
certain contract manufacturing arrangements to provide capacity to manufacture
certain higher margin products for the United States
14
<PAGE>
market for which IVAX is awaiting receipt of regulatory approval; lower net
revenues resulting from a license agreement relating to its breath operated
inhaler device; and price declines for branded and generic products. The
decrease in sales at IVAX's Czech Republic operations is primarily due to lower
sales of raw materials primarily resulting from the loss of a significant
customer, lower export sales mainly to Russia, the unfavorable impact of foreign
currency fluctuations and, to a lesser extent, a depressed local pharmaceutical
market.
Gross profit for the three months ended June 30, 1998 increased $14.4
million, or 32%, compared to the same period in 1997. Gross profit was $60.1
million (37.9% of net revenues) for the 1998 period, compared to $45.7 million
(26.3% of net revenues) for the 1997 period. The improvement in gross profit
percentage was primarily the result of lower sales returns and allowances, lower
product costs, lower inventory provisions, the impact of the 1998 launch of a
high margin generic pharmaceutical product and revenues attributable to the
Abbott settlement at IVAX's United States generic pharmaceutical operations.
OPERATING EXPENSES
Selling expenses totaled $19.1 million (12.0% of net revenues) for the
three months ended June 30, 1998, a decrease of $8.0 million, from $27.1 million
(15.6% of net revenues) for the same period of 1997. The decrease was primarily
attributable to reduced sales force and promotional costs of IVAX's United
States proprietary pharmaceutical operations as a result of the sale of the
rights to Elmiron(R) and certain other urology products in the United States and
Canada to ALZA during the third quarter of 1997. The implementation of
previously announced restructuring plans also resulted in reduced selling
expenses at IVAX's domestic generic pharmaceutical operations due to reductions
in sales personnel and at IVAX's United Kingdom operations due to lower
warehousing overhead.
General and administrative expenses totaled $22.0 million (13.9% of net
revenues) for the three months ended June 30, 1998, compared to $27.3 million
(15.7% of net revenues) for the same period of 1997, a decrease of $5.3 million.
The decrease is primarily attributable to lower costs, primarily related to
reduced headcount, at IVAX's corporate headquarters, its domestic generic
pharmaceutical operations and its United Kingdom operations as a result of the
implementation of previously announced restructuring plans. Lower legal fees at
IVAX's corporate headquarters and domestic generic pharmaceutical operations and
lower bad debt provisions at IVAX's domestic generic pharmaceutical operations
and United Kingdom operations also contributed to the decline. The decline was
partially offset by a one-time payment to an executive pursuant to the terms of
his employment agreement as well as higher consulting fees primarily associated
with IVAX's year 2000 compliance program.
Research and development expenses for the three months ended June 30,
1998 decreased $.6 million, or 5%, compared to the same period of the prior
year, to a total of $13.3 million (8.4% of net revenues).
Refer to the "Results of Operations - Six months ended June 30, 1998
compared to the six months ended June 30, 1997" for a discussion of the $20.5
million asset write-down recognized during the three months ended June 30, 1997.
15
<PAGE>
OTHER INCOME (EXPENSE)
Interest income increased $1.5 million for the three months ended June
30, 1998, as compared to the three months ended June 30, 1997, due to higher
levels of cash on hand. Interest expense decreased $3.5 million for the three
months ended June 30, 1998, compared to the same period of the prior year,
primarily due to the repayment of IVAX's revolving credit facility during the
second quarter of 1997.
DISCONTINUED OPERATIONS
Discontinued operations, net of taxes for the six months ended June
30, 1998 includes the results of operations of the personal care products
business and the vacuum pump fluids segment of the specialty chemicals business
through its sale in February 1998. The personal care products business had
break-even operations for the first and second quarters of 1998, while losses
incurred on the sale and operations of the vacuum pump fluids business were
charged against previously established reserves. Income from discontinued
operations of $7.4 million and $10.6 million for the three and six months ended
June 30, 1997, respectively, includes the results of operations of the
intravenous products, personal care products and specialty chemicals businesses,
as well as the second quarter 1997 gain on the sale of the intravenous products
business. During the third quarter of 1997, IVAX completed the sale of a
significant portion of the assets of its specialty chemicals business. During
February 1998, IVAX sold its vacuum pump fluids business, the only remaining
segment of IVAX's specialty chemicals business. See Note 5, Divestitures, in
IVAX's Annual Report on Form 10-K for the year ended December 31, 1997 and Note
4, Divestitures, in the notes to condensed consolidated financial statements for
further discussion.
CURRENCY FLUCTUATIONS
For the three and six months ended June 30, 1998, approximately 57% of
IVAX's net revenues were attributable to operations which principally generated
revenues in currencies other than the United States dollar, compared to
approximately 67% and 62% for the three and six months ended June 30, 1997,
respectively. Fluctuations in the value of foreign currencies relative to the
United States dollar affect the reported results of operations for IVAX. If the
United States dollar weakens relative to the foreign currency, the earnings
generated in the foreign currency will, in effect, increase when converted into
United States dollars and vice versa. As a result of exchange rate differences,
net revenues decreased by approximately $1.1 million and $4.6 million for the
three and six months ended June 30, 1998, respectively, as compared to the same
periods of the prior year.
INCOME TAXES
IVAX recognized a $5.0 million tax provision for the six months ended
June 30, 1998, which related to foreign operations. The $3.7 million tax benefit
recognized by domestic operations was completely offset by the establishment of
an additional $3.7 million in valuation allowances. As a result, the domestic
deferred tax asset is fully reserved as of June 30, 1998. Management expects
that IVAX will recognize additional valuation allowances related to any future
deferred tax assets generated from its domestic operations until such time as
sustainable domestic taxable income is achieved.
As of June 30, 1998, IVAX had a foreign net deferred tax asset
aggregating $18.6 million. Realization of the foreign net deferred tax asset is
dependent upon generating sufficient future foreign taxable income. Although
realization is not assured, management believes it is more likely than not that
16
<PAGE>
the foreign net deferred tax asset will be realized. Management's estimates of
future taxable income are subject to revision due to, among other things,
regulatory and competitive factors affecting the pharmaceutical industry. Such
factors are further discussed in management's discussion and analysis of
financial condition and results of operations included in IVAX's Annual Report
on Form 10-K for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, IVAX's working capital, excluding net assets of
discontinued operations, was $241.0 million, compared to $238.9 million at
December 31, 1997. Cash and cash equivalents totaled $167.0 million at June 30,
1998, as compared to $199.2 million at December 31, 1997 and $88.4 million at
June 30, 1997.
Net cash of $.9 million was provided by operating activities during the
first six months of 1998, compared to $75.4 million during the same period of
the prior year. The decrease in cash provided by operating activities, as
compared to the first six months of 1997, was primarily the result of IVAX
receiving a $52.5 million refund of federal income taxes paid in prior years
during the second quarter of 1997 as well as reductions in accounts receivable
and inventory during the first six months of 1997 mainly resulting from
increased cash collections, lower net revenues and improved inventory management
at IVAX's United States generic pharmaceutical operations.
Net cash of $10.7 million was used for investing activities during the
first six months of 1998, as compared to $278.6 million in cash provided by
investing activities during the same period of the prior year. The decrease was
primarily attributable to $320.0 million in cash proceeds received for the sale
of IVAX's intravenous products business in the second quarter of 1997. In
February 1998, IVAX sold its vacuum pump fluids business for $3.9 million, the
only remaining segment of its specialty chemicals business. See Note 4,
Divestitures, in the notes to condensed consolidated financial statements.
During the second quarter of 1998, IVAX sold its Kirkland, Canada pharmaceutical
manufacturing facility (acquired in the first quarter of 1997) and its Syosset,
New York pharmaceutical manufacturing facility for a total of $13.3 million
(subject to certain post-closing adjustments). During the first six months of
1998, IVAX paid $9.9 million to NaPro BioTherapeutics, Inc. ("NaPro") as partial
consideration for a license to NaPro's pending patents for a paclitaxel
formulation in the United States, Europe and certain other world markets. In
connection with the license, IVAX and NaPro terminated their paclitaxel
development and marketing agreement.
Net cash of $22.5 million was used for financing activities during the
first six months of 1998, compared to $340.0 million during the same period of
the prior year, primarily reflecting the pay off of IVAX's revolving credit
facility in June 1997. In the first quarter of 1998, IVAX repurchased common
stock for $14.5 million. See Note 7, Shareholders' Equity, and Note 11,
Subsequent Events, in the notes to condensed consolidated financial statements.
IVAX plans to spend substantial amounts of capital in 1998 to continue
the research and development of pharmaceutical products. Total research and
development costs for the first six months of 1998 were $27.1 million. Although
research and development expenditures are expected to be between $50.0 million
and $60.0 million during 1998, actual expenditures will depend on, among other
things, the outcome of clinical testing of products under development, delays or
changes in government required testing and approval procedures, technological
and competitive developments, strategic marketing decisions and liquidity. In
addition, IVAX plans to spend between $50.0 million and $55.0 million in
17
<PAGE>
1998 to improve and expand its pharmaceutical and other related facilities, of
which $17.5 million has been spent during the first half of the year.
IVAX continues to implement its Year 2000 compliance program,
prioritizing required efforts and addressing them in such order. IVAX
anticipates that it will spend up to $15.0 million by the end of 1999 in
connection with its plans to implement required system and equipment
modifications and replacements. IVAX expects to complete the implementation of
its system and equipment modifications or replacements by mid-1999. The expected
costs of the Year 2000 compliance program and the date on which IVAX expects to
complete the implementation of the plan are based on management's best estimates
and involve certain assumptions, and actual results could differ materially from
the estimates set forth herein. There can be no assurance that IVAX's Year 2000
compliance program will be successful. In addition, the implementation of new
information systems and the modification or replacement of equipment involves
risks that the systems and equipment will not perform as expected and that
productivity may suffer until employees are properly trained. No assurance can
be given that any such implementation will not adversely affect IVAX's
operations.
IVAX has not fully determined the extent to which it may be impacted by
third parties' systems, including those of its suppliers, partners, vendors,
service providers and certain agencies and regulatory organizations. While IVAX
has commenced efforts to seek reassurance from certain third parties that their
systems are Year 2000 compliant, there can be no assurance that the systems of
third parties with which IVAX deals or on which IVAX relies will be Year 2000
compliant, or that any failure of a third party's systems to be Year 2000
compliant would not have a material adverse effect on IVAX.
IVAX's principal sources of short term liquidity are existing cash,
including cash generated from the sale of IVAX's personal care products business
in July 1998, and cash generated from the repayment or sale of the $50.0 million
secured note due November 30, 1998 (the "Secured Note"), which IVAX received as
partial consideration for the sale of the personal care products business. IVAX
is seeking to sell the Secured Note to a third party. No assurance can be given
that IVAX will be able to sell the Secured Note or, if IVAX is unable to sell
the Secured Note, that the Secured Note will be repaid in accordance with its
terms. IVAX believes the sources discussed above will be sufficient to meet its
operating needs and anticipated capital expenditures over the short term.
For the long term, IVAX intends to utilize principally internally
generated funds, which are anticipated to be derived primarily from the sale of
existing pharmaceutical products, pharmaceutical products currently under
development and pharmaceutical products to be licensed from third parties. No
assurance can be given that IVAX will license existing products or products
under development from third parties, that IVAX will successfully complete the
development of such products or products under development, that IVAX will be
able to obtain regulatory approval for any such product, or that any approved
product may be produced in commercial quantities, at reasonable costs, and be
successfully marketed. In addition, IVAX's 6 1/2% Convertible Subordinated Notes
due 2001 ("the 6 1/2% Notes") are scheduled to mature in November 2001. To the
extent that capital requirements exceed available capital or that IVAX is
required to refinance the 6 1/2% Notes, IVAX will need to seek alternative
sources of financing to fund its operations. IVAX has no existing credit
facility and no assurance can be given that alternative financing will be
available, if at all, in a timely manner, on favorable terms. If IVAX is unable
to obtain satisfactory alternative financing, IVAX may be required to delay or
reduce its proposed expenditures, including expenditures for research and
development, or sell additional assets in order to meet its future obligations.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
With respect to the case styled ALAN M. HARRIS, YITZCHOK WOLPIN AND
FAUSTO POMBAR V. IVAX CORPORATION, PHILLIP FROST AND MICHAEL W. FIPPS,
previously reported in IVAX's Annual Report on Form 10-K for the year ended
December 31, 1997, on May 29, 1998, Plaintiffs filed a Notice of Appeal of the
District Court's dismissal of the action, which was previously reported in
IVAX's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1998.
With respect to the case styled ELI LILLY AND COMPANY V. ROUSSEL CORP.,
ET AL., previously reported in IVAX's Annual Report on Form 10-K for the year
ended December 31, 1997, on June 30, 1998, the United States District Court
dismissed the action with prejudice.
With respect to the case styled BAXTER INTERNATIONAL INC. AND BAXTER
HEALTHCARE CORP. V. MCGAW, INC., previously reported in IVAX's Annual Report on
Form 10-K for the year ended December 31, 1997, on July 1, 1998, the United
States Court of Appeals for the Federal Circuit affirmed the verdict in favor of
McGaw, Inc.
With respect to the case styled SMITH & NEPHEW, INC. V. IVAX
CORPORATION AND SOLOPAK, INC., previously reported in IVAX's Annual Report on
Form 10-K for the year ended December 31, 1997, on July 17, 1998, the District
Court granted IVAX's Motion for Summary Judgment.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At IVAX's annual meeting of shareholders held on June 5, 1998, IVAX's
shareholders elected eight directors. The number of votes cast for and withheld
for each nominee for director were as follows:
DIRECTOR FOR WITHHELD
-------- --- --------
Mark Andrews 101,095,584 1,634,051
Ernst Biekert, Ph.D. 101,035,532 1,694,103
Charles M. Fernandez 101,215,088 1,514,547
Jack Fishman, Ph.D. 101,207,794 1,521,841
Neil W. Flanzraich 101,196,087 1,533,548
Phillip Frost, M.D. 101,160,641 1,568,994
Jane Hsiao, Ph.D. 101,207,206 1,522,429
Isaac Kaye 101,206,847 1,522,788
There were no broker non-votes with respect to the foregoing matter.
19
<PAGE>
<TABLE>
<CAPTION>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C> <C>
(a) EXHIBITS
10.1 Form of Employment Agreement (Change Incorporated by reference to the
in Control), dated as of July 31, 1998 between Form of Employment Agreement
IVAX Corporation and Neil W. Flanzraich (Change in Control) in IVAX's
Form 10-K for the year ended
December 31, 1997.
10.2 Purchase Agreement, dated June 16, 1998, Filed herewith.
by and between IVAX Corporation and Carson,
Inc.*
10.3 Credit Agreement, dated as of July 14, 1998, Filed herewith.
among IVAX Corporation, Carson, Inc. and
Carson Products Company.*
27 Financial Data Schedule Filed herewith.
</TABLE>
(b) REPORTS OF FORM 8-K
No reports on Form 8-K were filed by the registrant during the three
months ended June 30, 1998.
- --------------------------------
*IVAX agrees to furnish a copy of the exhibits and schedules to this
agreement to the Securities and Exchange Commission upon request.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IVAX CORPORATION
Date: August 14, 1998 By: /s/ THOMAS BEIER
----------------- -----------------
Thomas Beier
Senior Vice President-Finance
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.2 Purchase Agreement, cated June 16, 1998, by and between
IVAX Corporation and Carson, Inc.
10.3 Credit Agreement, Dated as of July 14, 1998, among IVAX
Corporation, Carson, Inc. and Carson Products Companu.
27 Financial Data Schedule.
EXHIBIT 10.2
PURCHASE AGREEMENT
by and between
IVAX CORPORATION
and
CARSON, INC.
June 16, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 Purchase and Sale.................................................1
SECTION 1.2 Purchase Price....................................................2
SECTION 1.3 Closing...........................................................2
SECTION 1.4 Purchase Price Adjustment.........................................3
SECTION 1.5 Letter of Credit..................................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 2.1 Organization......................................................6
SECTION 2.2 Capitalization....................................................7
SECTION 2.3 Ownership of Stock................................................8
SECTION 2.4 Authorization; Validity of Agreement..............................8
SECTION 2.5 Consents and Approvals; No Violations.............................8
SECTION 2.6 Financial Statements..............................................9
SECTION 2.7 No Undisclosed Liabilities........................................9
SECTION 2.8 Absence of Certain Changes.......................................10
SECTION 2.9 Employee Benefit Plans; ERISA....................................10
SECTION 2.10 Litigation......................................................13
SECTION 2.11 No Default; Compliance with Applicable Laws.....................13
SECTION 2.12 Taxes...........................................................14
SECTION 2.13 Title to Assets.................................................16
SECTION 2.14 Real Property...................................................16
SECTION 2.15 Company Intellectual Property...................................17
SECTION 2.16 Contracts.......................................................19
SECTION 2.17 Environmental Matters...........................................20
SECTION 2.18 Brokers or Finders..............................................21
SECTION 2.19 Employees; Labor Relations......................................21
SECTION 2.20 Affiliate Transactions..........................................21
SECTION 2.21 Substantial Customers and Suppliers.............................22
SECTION 2.22 Accounts Receivable.............................................22
SECTION 2.23 Inventory.......................................................22
i
<PAGE>
PAGE
----
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 3.1 Organization.....................................................23
SECTION 3.2 Authorization; Validity of Agreement.............................23
SECTION 3.3 Consents and Approvals; No Violations............................24
SECTION 3.4 Acquisition for Investment.......................................24
SECTION 3.5 Financing........................................................24
SECTION 3.6 Brokers or Finders...............................................24
SECTION 3.7 Investigation by Buyer...........................................25
SECTION 3.8 Capital Adequacy; Solvency.......................................26
ARTICLE IV
COVENANTS
SECTION 4.1 Interim Operations of Seller.....................................26
SECTION 4.2 Access to Information............................................28
SECTION 4.3 Tax Matters......................................................29
SECTION 4.4 Employee Matters.................................................33
SECTION 4.5 Publicity........................................................34
SECTION 4.6 Approvals and Consents; Cooperation; Notification................35
SECTION 4.7 Non-Competition..................................................36
SECTION 4.8 Use of "IVAX" Name...............................................38
SECTION 4.9 Affiliate Transactions...........................................38
SECTION 4.10 Further Assurances..............................................38
SECTION 4.11 Post-Closing Purchase Transactions..............................39
ARTICLE V
INDEMNIFICATION
SECTION 5.1 Indemnification by Seller........................................43
SECTION 5.2 Indemnification by Buyer.........................................43
SECTION 5.3 Survival of Representations and Warranties.......................44
SECTION 5.4 Notice and Opportunity to Defend.................................44
SECTION 5.5 Adjustment for Insurance and Taxes...............................45
SECTION 5.6 Mitigation of Loss. ............................................45
SECTION 5.7 Subrogation. ...................................................46
SECTION 5.8 Tax Indemnification..............................................46
ii
<PAGE>
PAGE
----
SECTION 5.9 Set-Off.........................................................46
SECTION 5.10 Exclusive Remedy................................................46
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Closing......47
SECTION 6.2 Conditions to the Obligations of Buyer...........................47
SECTION 6.3 Conditions to the Obligations of Seller..........................48
ARTICLE VII
TERMINATION
SECTION 7.1 Termination.....................................................49
SECTION 7.2 Procedure and Effect of Termination.............................50
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Governing Laws and Consent to Jurisdiction......................50
SECTION 8.2 Amendment and Modification......................................51
SECTION 8.3 Notices.........................................................51
SECTION 8.4 Interpretation..................................................52
SECTION 8.5 Counterparts....................................................53
SECTION 8.6 Entire Agreement; Third-Party Beneficiaries.....................53
SECTION 8.7 Severability....................................................54
SECTION 8.8 Service of Process..............................................54
SECTION 8.9 Specific Performance............................................54
SECTION 8.10 Assignment......................................................54
SECTION 8.11 Expenses........................................................54
SECTION 8.12 Waivers.........................................................55
SECTION 8.13 No Double Recovery..............................................55
ANNEXES
Index of Defined Terms Annex A
Procedures for Calculating Working Capital Annex B
iii
<PAGE>
INDEX TO DISCLOSURE SCHEDULE
TITLE SECTION
- ----- -------
Organization.................................................................2.1
Capitalization...............................................................2.2
Consents and Approvals; No Violations........................................2.5
No Undisclosed Liabilities...................................................2.7
Absence of Certain Changes...................................................2.8
Employee Benefit Plans; ERISA................................................2.9
Litigation..................................................................2.10
No Default; Compliance with Applicable Law..................................2.11
Taxes.......................................................................2.12
Real Property...............................................................2.14
Company Intellectual Property...............................................2.15
Contracts ..................................................................2.16
Environmental Matters.......................................................2.17
Employees; Labor Relations..................................................2.19
Affiliate Transactions......................................................2.20
Substantial Customers and Suppliers.........................................2.21
Accounts Receivable.........................................................2.22
Inventory...................................................................2.23
General Disclosure...........................................................3.7
Employee Matters.............................................................4.4
Affiliate Transactions.......................................................4.9
iv
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of June 16, 1998 (this "AGREE
MENT"), by and between IVAX Corporation, a Florida corporation ("SELLER"), and
Carson, Inc., a Delaware corporation ("BUYER").
WHEREAS, Seller is the owner of all of the outstanding shares
of capital stock (the "SHARES") of Johnson Products Co., Inc., a Florida
corporation and a wholly-owned subsidiary of Seller (the "COMPANY");
WHEREAS, Buyer has granted Seller the right to arrange for an
unaffiliated third party to purchase the Dermablend Business (as defined herein)
following the Closing (as defined herein);
WHEREAS, Buyer has granted Seller the right to purchase or
arrange for the purchase of, and Seller, if requested by Buyer, agrees to
purchase or arrange for the purchase of, the National Cosmetics Business (as
defined herein) and the Iman Business (as defined herein) following the Closing;
and
WHEREAS, Buyer desires to purchase from Seller, and Seller
desires to sell to Buyer, all of the Shares, subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing Seller shall sell,
assign, transfer and deliver to Buyer, and Buyer shall purchase from Seller, the
Shares, free and clear of all options, pledges, security interests, liens or
other encumbrances or restrictions on voting or transfer ("ENCUMBRANCES"), other
than restrictions imposed by federal or state securities laws.
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SECTION 1.2 PURCHASE PRICE.
(a) On the Closing Date (as defined herein) and subject to the
terms and conditions set forth in this Agreement in consideration of the sale,
assign ment, transfer and delivery of the Shares, Buyer shall pay to Seller (i)
$85 million by wire transfer of immediately available funds to an account or
accounts designated by Seller (the "PURCHASE PRICE") PROVIDED, HOWEVER, for
purposes of this Agreement, after the Closing Date the term "Purchase Price"
will refer to an amount equal to $85 million reduced by the funds received by
Buyer in accordance with Section 4.11.
(b) In addition, Buyer will cause the Company promptly to pay
to Seller all net proceeds received by the Company in connection with the
settlement or final adjudication of the litigation and other proceedings
involving JOHNSON PRODUCTS CO., INC. V. PRO-LINE CORPORATION, Docket No. 94 C
3555 (the "PRO-LINE LITIGATION"). Buyer will cause the Company to allow Seller
to assume complete control of the Pro-Line Litigation and to cause the Company
not to interfere with Seller's prosecution of the Pro-Line Litigation on behalf
of the Company. Seller shall bear the costs of prosecuting the Pro-Line
Litigation. Seller shall not have any obligation to become a substituted or
additional party to the litigation. Buyer will cause the Company to cause such
of its personnel as may be reasonably requested by Seller, including, without
limitation, Adu Darkwa, to be available for consultation, testimony, acting as a
Company representative at trial on the matter and related matters, and shall
cooper ate in other ways as Seller reasonably requests, in connection with the
conduct of the Pro-Line Litigation. Seller will reimburse Buyer for the
reasonable out-of-pocket costs of providing such personnel and cooperation.
Seller will provide updates on the status of the Pro-Line Litigation to Buyer as
and when reasonably requested. Buyer will cause the Company to agree to any
settlement or voluntary dismissal of any part of the Pro-Line Litigation
proposed by Seller, PROVIDED that such settlement does not impose any costs or
any ongoing obligations or restrictions on the Company and its Subsidiaries.
Buyer acknowledges and agrees that only Seller will have the right, subject to
the preceding sentence, to agree to any settlement or dismissal of the Pro-Line
Litigation.
SECTION 1.3 CLOSING.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "CLOSING") to be held at the
offices of Skadden, Arps, Slate, Meagher & Flom (Illinois) at 9:00 a.m. Chicago
time on a date not later than the second business day following the satisfaction
of the condition set
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forth in Section 6.1(b) (but in no event earlier than August 15, 1998 or such
earlier date selected by Seller) or at such other place or at such other time or
on such other date as Seller and Buyer mutually agree upon in writing (the day
on which the Closing takes place being the "CLOSING DATE").
(b) At the Closing, Seller shall deliver or cause to be
delivered to Buyer (i) stock certificates evidencing the Shares duly endorsed in
blank or accompa nied by stock powers duly executed in blank and (ii) all other
previously undelivered certificates and other documents required to be delivered
by Seller to Buyer at or prior to the Closing Date in connection with the
transactions contemplated hereby.
(c) At the Closing, Buyer shall deliver to Seller (i) the
Purchase Price by wire transfer in immediately available funds to an account or
accounts designated by Seller and (ii) all other previously undelivered
certificates and other documents required to be delivered by Buyer to Seller at
or prior to the Closing Date in connection with the transactions contemplated
hereby.
SECTION 1.4 PURCHASE PRICE ADJUSTMENT.
(a) As soon as practicable but not later than 60 days
following the Closing Date, Seller shall prepare and deliver to Buyer a working
capital statement of the Company as of the close of business on the Closing Date
(the "CLOSING STATEMENT") setting forth the current assets minus the current
liabilities of the Company (the "WORKING CAPITAL") on the basis described in
Annex B, accompanied by a report from Arthur Andersen LLP; PROVIDED, HOWEVER, if
the transactions contemplated in Section 4.11(a) or (b) occur, the Closing
Statement will be prepared as if the Com pany did not own the Dermablend
Business or the National Cosmetics Business and the Iman Business as of the
Closing Date, as the case may be; PROVIDED FURTHER that if Buyer retains the
Dermablend Business and, pursuant to Section 4.11(b), sells the National
Cosmetics Business and the Iman Business, the Dermablend Business will also
include the net accounts receivable (other than the Designated Receivables (as
defined in Section 4.11)), bank overdraft, accounts payable and accrued expenses
related to the National Cosmetics Business and the Iman Business. Seller and its
authorized representatives shall have reasonable access to all relevant books
and records and employees of the Company following the Closing Date to the
extent required to complete preparation of the Closing Statement, including,
without limitation, preparation of any financial reports or schedules needed to
complete the Closing Statement. Seller and Buyer shall split equally the cost of
preparing and delivering the Closing Statement.
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(b) After receipt of the Closing Statement, Buyer shall have
15 days to review it. Buyer and its authorized representatives shall have
reasonable access to Seller's accountants to the extent required to complete
their review of the Closing Statement, including, without limitation, the
accountants' work papers used in preparation thereof. Unless Buyer delivers
written notice to Seller on or prior to the 15th day after receipt of the
Closing Statement specifying in reasonable detail its objections to the Closing
Statement on the grounds that the Closing Statement (i) was not prepared in
accordance with this Section 1.4 or (ii) contained arithmetic errors, the
parties shall be deemed to have accepted and agreed to the Closing Statement. If
Buyer so notifies Seller of such an objection to the Closing Statement, the
parties shall within 15 days following the date of such notice (the "RESOLUTION
PERIOD") attempt to resolve their differences.
(c) At the conclusion of the Resolution Period, any amounts
remaining in dispute shall, at the election of either party, be submitted to
Price Waterhouse (the "NEUTRAL AUDITOR"). The Neutral Auditor shall be engaged
within five days after an election by either party to submit its objections to
the Neutral Auditor, and each party agrees to execute, if requested by the
Neutral Auditor, a reasonable engagement letter. All fees and expenses of the
Neutral Auditor shall be borne equally by Seller and Buyer. The Neutral Auditor
shall act as an arbitrator to determine, based solely on the written
presentations by Seller and Buyer made within 15 days of the Neutral Auditor's
engagement or such other reasonable period of time to which the parties agree,
and not by independent review, only those issues still in dispute. The Neutral
Auditor's determination shall be made within 30 days after Seller's and Buyer's
written presentations have been made, shall be set forth in a written statement
delivered to Seller and Buyer and shall be final, binding, conclusive and
nonappealable. The term "FINAL CLOSING STATEMENT" shall mean the definitive
Closing Statement agreed to by Seller and Buyer in accordance with Section
1.4(b) or the definitive Closing Statement resulting from the determination made
by the Neutral Auditor in accordance with this Section 1.4(c) (in addition to
those items theretofore agreed to by Seller and Buyer).
(d) On a date or dates mutually agreeable to Seller and Buyer
within ten days of the Closing Date, Seller and its accountants will take a
physical inventory, observed by Buyer and/or its representatives. All inventory
reflected on the Closing Statement shall be as of the Closing Date and based
upon this physical inventory. For purposes of the Closing Statement, the
inventory shall include all finished goods, work-in-process, raw materials and
promotional materials calculated in accordance with the procedures set forth in
Annex B.
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(e) The Purchase Price shall be (i) increased
dollar-for-dollar to the extent the Working Capital as reflected on the Final
Closing Statement is greater than the March Target Amount (as defined below) and
(ii) decreased dollar-for-dollar to the extent the Working Capital as reflected
on the Closing Statement is less than the December Target Amount. There shall be
no adjustment to the Purchase Price pursuant to this Section 1.4(e) if the
Working Capital is equal to or greater than the December Target Amount and less
than or equal to the March Target Amount. The amount of any such change in the
Purchase Price pursuant to this Section 1.4(e) shall be paid by Buyer to Seller,
in the case of an increase, or by Seller to Buyer, in the case of a decrease,
plus interest on such amount from the Closing Date through the date of payment
at the Prime Rate, within five business days after the Closing Statement is
agreed to by Seller and Buyer or is determined by the Neutral Auditor. The
"PRIME RATE" means the prime lending rate announced by THE WALL STREET JOURNAL
as in effect from time to time. Any amount paid pursuant to this Section 1.4(e)
will be paid by wire transfer of immediately available funds to an account or
accounts designated by Buyer or Seller, as the case may be. The "DECEMBER TARGET
AMOUNT" means $11.95 million and the "MARCH TARGET AMOUNT" means $12.78 million;
PROVIDED that (x) if Buyer sells the National Cosmetics Business and the Iman
Business pursuant to Section 4.11(b) and Buyer retains the Dermablend Business,
the December Target Amount shall be $12.49 million and the March Target Amount
shall equal $14.00 million less the amount of the Designated Receivables, if
any, (y) if Buyer sells the Dermablend Business, the National Cosmetics Business
and the Iman Business pursuant to Sections 4.11(a) and (b), the December Target
Amount shall be $10.63 million and the March Target Amount shall be $10.75
million and (z) if Buyer sells the Dermablend Business pursuant to Section
4.11(a) and Buyer retains the National Cosmetics Business and the Iman Business,
Buyer and Seller will negotiate in good faith to establish the Target Amount in
a manner consistent with setting of the foregoing amounts.
SECTION 1.5 LETTER OF CREDIT. In the event that following the
Closing, Seller publicly announces its intention on or prior to the second
anniversary of the Closing Date to (i) complete a liquidation of Seller or (ii)
distribute by way of extraordinary dividend or stock repurchase all or
substantially all of Seller's assets, Seller shall deliver to Buyer an
irrevocable letter of credit to secure Seller's obliga tions under this
Agreement, in a form reasonably satisfactory to Buyer, issued by a commercial
bank having combined capital and surplus of at least $100 million in favor of
Buyer. Such letter of credit, if issued on or prior to the end of the eighteenth
month after the Closing Date (the "CUT-OFF DATE"), shall be in the initial
principal amount of 25% of the Purchase Price, PROVIDED that the amount of any
such letter of credit outstanding at the Cut-Off Date will be reduced to equal
the dollar value of all
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pending claims for indemnification made by Buyer pursuant to Sections 4.3 and
5.1 as of the Cut-Off Date. Any such letter of credit issued after the Cut-Off
Date shall be in the initial principal amount equal to the dollar value of all
then pending claims for indemnification made by Buyer pursuant to Sections 4.3
and 5.1. Any such letter of credit shall have a term of two years and shall be
subject to automatic renewal for successive six-month periods to the extent that
claims for indemnification by Buyer under Section 5.1 remain unresolved. After
the second, but before the sixth anniver sary of the Closing Date, if Seller
sells all or substantially all of its assets, Seller shall cause the buyer of
such assets to assume Seller's obligations under this Agreement, in which event
the obligation to issue a letter of credit pursuant to this Section 1.5 will
terminate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
SECTION 2.1 ORGANIZATION. Seller, the Company and the
Company's Subsidiaries each is a corporation or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Company Material Adverse Effect (as defined herein). The Company and each of
its Subsidiaries are duly qualified, licensed or admitted to do business and are
in good standing in those jurisdictions specified in Section 2.1 of the written
statement delivered by Seller to Buyer at or prior to the execution of this
Agreement (the "DISCLOSURE SCHEDULE"), which, except as disclosed in Section 2.1
of the Disclosure Schedule, are the only jurisdictions in which the ownership,
use or leasing of the Company's and its Subsidiaries' properties, or the conduct
or nature of their businesses, may make such qualification, licensing or
admission necessary, except where the failure to be so organized, existing and
in good standing or to have such power and authority would not have a Company
Material Adverse Effect. Before Closing, Seller will have delivered to Buyer a
complete and correct copy of the certificate of incorporation, bylaws,
certificate of formation, operating agreement or similar organizational
documents of Seller, the Company and the Company's Subsidiaries. As used in this
Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means any material adverse change
in, or material adverse effect on, the business, financial
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condition or operations of the Company and its Subsidiaries, taken as a whole;
PROVIDED, HOWEVER, that, the effects of changes that are generally applicable to
(i) the industries or markets in which the Company and its Subsidiaries operate,
(ii) the United States economy or (iii) the United States securities markets
shall be excluded from the determination of Company Material Adverse Effect;
PROVIDED FURTHER, that any adverse effect on the Company or its Subsidiaries
resulting from the execution and the announcement of this Agreement and the
transactions contemplated hereby shall also be excluded from the determination
of Company Material Adverse Effect. As used in this Agreement, "SUBSIDIARY"
means, with respect to any party, any corporation, partnership or other entity
or organization, whether incorporated or unincorporated, of which (i) such party
or any subsidiary of such party is a general partner (excluding such
partnerships where such party or any subsidiary of such party does not have a
majority of the voting interest in such partnership) or (ii) at least a majority
of the securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
subsidiaries. Section 2.1 of the Disclosure Schedule lists the name of each
Subsidiary and all lines of business in which each Subsidiary is participating
or engaged. Except for interests in the Subsidiaries of the Company and as
disclosed in Section 2.2 of the Disclosure Schedule, neither the Company nor any
of its Subsidiaries owns, directly or indirectly, any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
SECTION 2.2 CAPITALIZATION. Section 2.2 of the Disclosure
Sched ule sets forth the authorized, issued and outstanding capital stock of the
Company. All the outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Section 2.2 of the Disclosure Schedule lists for each Subsidiary the
amount of its authorized capital stock, the amount of its outstanding capital
stock and the record owners of such outstanding capital stock. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid and nonassessable. There are no existing
(i) options, warrants, calls, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating Seller, the
Company or its Subsidiaries to issue, transfer or sell any shares of capital
stock or other equity interest in the Company or its Subsidiaries or securi ties
convertible into or exchangeable for such shares or equity interests, (ii)
contrac tual obligations of the Company or its Subsidiaries to repurchase,
redeem or other wise acquire any capital stock of Seller, the Company or the
Company's Subsidiaries
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or (iii) voting trusts or similar agreements to which Seller, the Company or its
Subsidiaries is a party with respect to the voting of the capital stock of the
Company or its Subsidiaries.
SECTION 2.3 OWNERSHIP OF STOCK. The Shares are owned benefi
cially and of record by Seller, and the shares of each of the Company's
Subsidiaries are owned of record and beneficially by the Company, in each case
free and clear of all Encumbrances, other than restrictions imposed by Federal
and state securities laws. Upon the consummation of the transactions
contemplated hereby, Buyer will acquire title to the Shares, free and clear of
all Encumbrances, other than restrictions imposed by Federal and state
securities laws.
SECTION 2.4 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has
full power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery by Seller of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate proceedings, and no
other corporate action on the part of Seller or its stockholders is necessary to
authorize the execution and delivery by Seller of this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Seller (and assuming due and valid
authorization, execution and delivery hereof by Buyer) is a valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
disclosed in Section 2.5 of the Disclosure Schedule and except for (a) filings
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"), (b) applicable requirements under corporation or "blue sky"
laws of various states and (c) matters specifically described in this Agreement,
neither the execution and delivery of this Agreement by Seller nor the
consummation by Seller of the transactions contemplated hereby will (i) violate
any provision of the certificate of incorporation, bylaws or other
organizational documents of Seller, the Company or the Company's Subsidiaries,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or
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provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Seller, the Company or the
Company's Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iii) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation applicable to Seller, the
Company, the Company's Subsidiaries or any of their properties or assets or (iv)
require on the part of Seller, the Company or the Company's Subsidiaries any
filing or registration with, notification to, or authori zation, consent or
approval of, any court, legislative, executive or regulatory authority or agency
(a "GOVERNMENTAL ENTITY"), except in the case of clauses (ii), (iii) or (iv) for
such violations, breaches or defaults which, or filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain, would (A) not have a Company Material Adverse Effect and would not
materially adversely affect the ability of Seller to consummate the transactions
contemplated by this Agreement or (B) become applicable as a result of the
business or activities in which Buyer is or proposes to be engaged or as a
result of any acts or omissions by, or the status of any facts pertaining to,
Buyer.
SECTION 2.6 FINANCIAL STATEMENTS. Seller has delivered to
Buyer (i) the audited consolidated balance sheets (including the related notes)
of the Company for the fiscal years ended December 31, 1997, 1996 and 1995, and
the related audited consolidated statements of income, shareholder's equity and
cash flows (including the notes thereto) for each of the three years in the
period ended December 31, 1997, together with a true and correct copy of the
report on such audited information by Arthur Andersen LLP, (ii) management
letters to the Company from such accountants with respect to the results of such
audits and (iii) the unaudited balance sheet of the Company as of March 31,
1998, and the related unaudited consolidated statement of income for the
three-month period ended March 31, 1998 (the "UNAUDITED FINANCIAL STATEMENTS"
and together with (i), the "FINANCIAL STATEMENTS"). The Financial Statements
present fairly, in all material respects, the financial position of the Com pany
as of the respective dates or for the respective periods set forth therein in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered, except that the
Unaudited Financial Statements lack footnotes and are subject to normal
year-end adjustments.
SECTION 2.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in
Section 2.7 of the Disclosure Schedule and except for liabilities and
obligations (a) incurred in the ordinary course of business after December 31,
1997, (b) disclosed in the Financial Statements or (c) incurred in connection
with the transactions contemplated hereby or otherwise as contemplated by this
Agreement, since
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December 31, 1997, the Company and its Subsidiaries have not incurred any
liabilities or obligations that would be required to be reflected or reserved
against in a consoli dated balance sheet of the Company, prepared in accordance
with GAAP as applied in preparing the audited consolidated balance sheets of the
Company included in the Financial Statements, and that would constitute a
Company Material Adverse Effect.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 2.8 of the Disclosure Schedule or in the Financial Statements and except
as contemplated by this Agreement (including Section 4.1), since December 31,
1997, the Company has not (i) suffered any change constituting a Company
Material Adverse Effect, (ii) amended its certificate of incorporation or bylaws
or other organizational documents, (iii) split, combined or reclassified the
Shares, (iv) materi ally changed its accounting principles, practices or
methods, except as required by GAAP or applicable law or (v) entered into any
transaction or activity which would require the prior written consent of Buyer
pursuant to Section 4.1(b)-(m) if entered into after the date hereof.
SECTION 2.9 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 2.9(a) of the Disclosure Schedule contains a
complete list and description of each of the material Benefit Plans. Neither the
Company nor any of its Subsidiaries has scheduled or agreed upon future material
increases of benefit levels (or creations of new material benefits) with respect
to any Benefit Plan.
(b) Neither the Company nor any of its Subsidiaries maintains
or is obligated to provide benefits under any life, medical or health plan
(other than as incidental benefit under a Qualified Plan) which provides
benefits to retirees or other terminated employees, excluding benefit
continuation rights under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(c) None of the Company, any of its Subsidiaries, any ERISA
Affiliate or any other corporation or organization controlled by or under common
control with any of the foregoing within the meaning of Section 4001 of ERISA
has at any time within the past six years (i) sponsored, maintained or
contributed to any Defined Benefit Plan or (ii) contributed to any
"multiemployer plan," as that term is defined in Section 4001 ERISA.
(d) Each of the Benefit Plans is, and its administration and
opera tion has been, in all material respects in compliance with, and there is
no outstanding claim or notice that any such Benefit Plan is not in compliance
with, all applicable
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laws and orders, including, without limitation, the requirements of ERISA and
the Code, except for such failures to be in compliance which would not have a
Company Material Adverse Effect. Each Qualified Plan has received a
determination letter from the Internal Revenue Service stating that it is so
qualified.
(e) All contributions and other payments required to be made
by Seller, the Company or any Subsidiary to any Benefit Plan with respect to any
period ending before or upon the Closing Date have been made or reserves
adequate for such contributions or other payments have been or will be set aside
therefor and have been or will be reflected in financial statements of Seller in
accordance with GAAP.
(f) To the knowledge of Seller, no event has occurred, and
there exists no condition or set of circumstances in connection with any Benefit
Plan, under which Buyer, the Company or any Subsidiary, directly or indirectly
(through any indemnification agreement or otherwise), could reasonably be
expected to be subject to any risk of material liability pursuant to Section 409
of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the
Code.
(g) No transaction contemplated by this Agreement will result
in material liability to the PBGC under Section 302(c)(11), 4062, 4063, 4064 or
4069 of ERISA with respect to Buyer, the Company, any Subsidiary or any
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA, and no event or
condition exists or has existed in respect of any Benefit Plan which could
reasonably be expected to result in any such material liability with respect to
the Buyer, the Company, any of its Subsid iaries or any such corporation or
organization.
(h) Except as disclosed in Section 2.9 of the Disclosure
Schedule, no benefit under any Benefit Plan, including, without limitation, any
severance or parachute payment plan or agreement, will be established or become
triggered, accelerated, vested, funded or payable, directly or indirectly, by
reason of any transaction contemplated by or under this Agreement, either alone
or upon the occurrence of any additional or subsequent events.
(i) There are no pending or, to the knowledge of Seller,
threat ened claims by or on behalf of any Benefit Plan, by any person covered
thereby, or otherwise, which allege violations of law which could reasonably be
expected to result in material liability on the part of Buyer, the Company, any
Subsidiary or any such Benefit Plan.
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(j) Except as set forth in Section 2.9(j) of the Disclosure
Sched ule, no spin-off of assets and liabilities or other similar division or
transfer of rights will be required with respect to a Benefit Plan as a result
of transactions contemplated by this Agreement.
(k) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "BENEFIT PLAN" means any Plan established by the
Company or any of its Subsidiaries or Affiliates of any of the
foregoing, to which the Company or any of its Subsidiaries contributes
or has contributed, or under which any employee, former employee or
director of the Company or any of its Subsidiaries or any beneficiary
thereof is covered, is eligible for coverage or has benefit rights.
(ii) "DEFINED BENEFIT PLAN" means each Benefit Plan
which is subject to Part 3 of Title I of ERISA, Section 412 of the Code
or Title IV of ERISA.
(iii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
(iv) "ERISA AFFILIATE" means any person or entity who
is in the same controlled group of corporations or who is under common
control with Seller or, before the Closing, the Company or any of its
Subsidiaries (within the meaning of Section 414 of the Code).
(v) "PBGC" means the Pension Benefit Guaranty
Corporation established under ERISA.
(vi) "PLAN" means any bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock
purchase, stock option, stock ownership, stock appreciation rights,
phantom stock, cafeteria, life, health, accident, disability or other
insurance, severance, separation or other employee benefit plan,
practice, policy or arrangement of any kind, whether written or oral,
including, but not limited to, any "employee benefit plan" within the
meaning of Section 3(3) of ERISA.
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(vii) "QUALIFIED PLAN" means each Benefit Plan which
is intended to qualify under Section 401 of the Code.
SECTION 2.10 LITIGATION.
(a) Except as disclosed in Section 2.10 of the Disclosure
Schedule, there is no action, suit, proceeding (other than any action, suit or
proceeding resulting from or arising out of this Agreement or the transactions
contemplated hereby) or, to the knowledge of Seller, investigation pending or,
to the knowledge of Seller, action, suit, proceeding or investigation
threatened, involving the Company or its Subsidiaries by or before any
Governmental Entity or by any third party that, individually or in the
aggregate, is reasonably likely to have a Company Material Adverse Effect.
(b) Except as disclosed in Section 2.10 of the Disclosure
Schedule, the Company is not subject to any continuing order of, consent decree,
settlement agreement, or other similar written agreement with any Governmental
Entity, or any judgment, order, writ, injunction, decree, or award of any
Governmental Entity, court, or arbitrator.
SECTION 2.11 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.
(a) Except as disclosed in Section 2.11 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is in default or
violation of any term, condition or provision of (i) its certificates of
incorporation, bylaws or similar organizational documents, (ii) any Material
Agreement (as defined herein) or (iii) any applicable law (including statutes,
laws, rules, regulations, judgments, decrees, orders or arbitration awards) or
licenses, permits, consents, approvals and authorizations of any Governmental
Entity ("PERMITS"), excluding defaults or violations which would not reasonably
be expected to have a Company Material Adverse Effect or which become applicable
as a result of the business or activities in which Buyer is or proposes to be
engaged or as a result of any acts or omissions by, or the status of any facts
pertaining to, Buyer.
(b) The Company and its Subsidiaries have all material Permits
necessary to conduct their businesses in the manner and in the areas in which
they are presently being conducted. All such Permits are valid and in full force
and effect, except where the failure to have such Permits or the invalidity or
ineffectiveness thereof would not, individually or in the aggregate, have a
Company Material Adverse Effect.
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SECTION 2.12 TAXES.
(a) Except as disclosed in Section 2.12 of the Disclosure
Schedule, the Company and each of its Subsidiaries has (i) timely filed or
caused to be filed all Tax Returns (as defined herein) required to be filed by
it other than those Tax Returns the failure of which to file would not have a
Company Material Adverse Effect and (ii) paid all material Taxes (as defined
herein) shown to be due on such Tax Returns other than such Taxes that are being
contested in good faith by the Company and its Subsidiaries.
(b) Except as disclosed in Section 2.12 of the Disclosure
Schedule, none of Seller, the Company or any of the Company's Subsidiaries has
received written notice of any ongoing federal, state, local or foreign audits
or examinations of any Tax Return of the Company or any of its Subsidiaries.
(c) Except as disclosed in Section 2.12 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has waived any statute
of limitations in respect of income taxes or agreed to any extension of time
with respect to the assessment of any Taxes.
(d) Except as disclosed in Section 2.12 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(e) Except as disclosed in Section 2.12 of the Disclosure
Schedule, the Company and its Subsidiaries have complied with all applicable
laws, rules and regulations relating to the withholding of Taxes and payment of
withheld taxes (including withholding and reporting requirements under Code
ss.ss. 1441 through 1464, 3401 through 3406, 6041 and 6049 and similar
provisions under any other laws) and have, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all required amounts.
(f) Except as disclosed in Section 2.12 of the Disclosure
Schedule, no deficiency for Taxes has been asserted in writing against the
Company and its Subsidiaries that has not been resolved and paid in full or is
being contested in good faith.
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(g) Except as disclosed in Section 2.12 of the Disclosure
Schedule, no power of attorney currently in force has been granted by or on
behalf of the Company or any of its Subsidiaries concerning any Tax matter.
(h) Except as disclosed in Section 2.12 of the Disclosure
Schedule, none of Seller, the Company or any of the Company's Subsidiaries has
received any written ruling of a taxing authority relating to Taxes of the
Company or any of its Subsidiaries or any other written and legally binding
agreement with a taxing author ity relating to any Taxes that would have
continuing effect after the Closing.
(i) Except as disclosed in Section 2.12 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has filed a consent
pursuant to Code /section/ 341(f) or agreed to have Code /section/ 341(f)(2)
apply to any disposition of a subsection (f) asset.
(j) Except as disclosed in Section 2.12 of the Disclosure
Schedule, no property of the Company or any of its Subsidiaries is property that
is or will be required to be treated as being owned by another person pursuant
to the provisions of Code /section/ 168(f)(8) (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property" within
the meaning of Code /section/ 168.
(k) Except as disclosed in Section 2.12 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is required to include
in income any adjustment pursuant to Code /section/ 481(a) by reason of a
voluntary change in accounting method initiated by or on behalf of the Company
or any of its Subsidiaries, and the Internal Revenue Service has not proposed an
adjustment or change in accounting method.
(l) Except as disclosed in Section 2.12 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Code /section/ 280G as a result of the transactions contemplated by this
Agreement.
(m) "TAXES" shall mean any and all taxes, charges, fees,
levies or other similar assessments, including, without limitation, income,
gross receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, value added, license, net
worth, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by any taxing authority (whether domestic or foreign including, without
limitation, any federal, state, local or foreign govern-
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ment or any subdivision or taxing agency thereof (including a United States
posses sion)), whether computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any interest, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments and any out-of-pocket
expenses incurred in connection with the determination, settlement or litigation
of any Tax liability. "TAX RETURN" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes. "CODE"
shall mean the Internal Revenue Code of 1986, as amended.
SECTION 2.13 TITLE TO ASSETS. On December 31, 1997 the Company
and its Subsidiaries had and, except with respect to assets disposed of since
December 31, 1997, in the ordinary course of business, the Company and its
Subsidiaries have, good and valid title to, or a valid leasehold interest in,
all material tangible properties and assets (other than real property) owned or
used by the Company and its Subsid iaries and reflected on the balance sheet of
the Company dated as of December 31, 1997 included in the Financial Statements
(the "BALANCE SHEET"), or which would have been reflected on the Balance Sheet
if acquired prior to December 31, 1997, free and clear of all Encumbrances of
any nature except for (i) Encumbrances that secure indebtedness or obligations
which are properly reflected on the Balance Sheet (all of which shall be
released and dissolved at or prior to the Closing), (ii) liens for Taxes not yet
payable or any Taxes being contested in good faith and reserved for on the
Balance Sheet, (iii) liens arising as a matter of law in the ordinary course of
business, PROVIDED that the obligations secured by such liens are not delinquent
or are being contested in good faith and (iv) such imperfections of title and
Encumbrances, if any, as do not, individually or in the aggregate, materially
interfere with the present use of any of the Company's or its Subsidiaries'
properties and assets subject thereto (the "PERMITTED ENCUMBRANCES"). All such
material tangible property and assets used in the operation of the Company and
its Subsidiaries are, in all material respects, in good operating condition and
repair, wear and tear excepted in light of the age of such material tangible
property.
SECTION 2.14 REAL PROPERTY.
(a) With respect to each parcel of real property owned by the
Company and its Subsidiaries, the common address of which is included in Section
2.14 of the Disclosure Schedule, and except for matters which would not have a
Company Material Adverse Effect, (i) the identified owner has good and valid
title to the parcel of real property, free and clear of any Encumbrance,
easement, covenant,
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or other restriction, except for installments of special assessments not yet
delinquent, recorded easements, covenants, conditions and other restrictions,
and utility ease ments, building restrictions, zoning restrictions, and other
easements and restrictions existing generally with respect to properties of a
similar character, (ii) there are no leases, subleases, licenses, concessions,
or other agreements granting any party the right of use or occupancy of any
portion of the parcel of real property and (iii) there are no outstanding
options or rights of first refusal to purchase the parcel of real property or
any portion thereof or interest therein.
(b) Except as set forth in Sections 2.14(b) and 2.11 of the
Disclo sure Schedule, with respect to each parcel of real property owned by the
Company and its Subsidiaries, neither the Company nor any of its Subsidiaries
has received any written notice from any governmental entity, and Seller does
not have any knowledge, that any of its real property, buildings, structures,
facilities, fixtures or other improve ments, or the use thereof, contravenes or
violates any building, zoning or administra tive law (whether or not permitted
on the basis of prior nonconforming use, waiver or variance), except where such
violation would not have a Company Material Adverse Effect. The improvements
located on each parcel of real property owned by the Company and its
Subsidiaries are adequate and suitable for the purposes for which they are
presently being used (ordinary wear and tear excepted in light of the age of
such improvements) and, to the knowledge of Seller, there are no condemnation or
appropriation proceedings pending or threatened against any of such real
property or the improvements thereon.
(c) Seller has delivered to Buyer correct and complete copies
of the leases and subleases for all real property leased or subleased to any of
the Com pany and its Subsidiaries. Each such lease or sublease is legal, valid,
binding, enforce able and in full force and effect, except where the illegality,
invalidity, nonbinding nature, unenforceability or ineffectiveness would not
have a Company Material Adverse Effect.
SECTION 2.15 COMPANY INTELLECTUAL PROPERTY.
(a) Section 2.15(a) of the Disclosure Schedule sets forth a
list of all registrations and applications for copyrights, patents, trademarks
and service marks and, to the Company's knowledge, unregistered copyrights,
patents, trade marks and service marks ("INTELLECTUAL PROPERTY RIGHTS"), owned
by the Company or any of its Subsidiaries that individually are material to the
business of the Company or any of its Subsidiaries (collectively, along with the
Intellectual Property Rights licensed to the Company or Subsidiaries from third
parties the "COMPANY INTELLECTUAL
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PROPERTY RIGHTS"), specifying as to each item owned by the Company or any Subsid
iary, as applicable: (i) the nature of such Intellectual Property Right; (ii)
the jurisdic tions by or in which such Intellectual Property Right has been
issued or registered or an application for issuance or registration thereof has
been filed; and (iv) the registra tion or application numbers for each such
Intellectual Property Right.
(b) Section 2.15(b) of the Disclosure Schedule sets forth a
list of all material licenses, sublicenses and other agreements to which the
Company or any of its Subsidiaries is a party and pursuant to which the Company
or any of its Subsid iaries is permitted to use any Intellectual Property Rights
owned or controlled by a third party (excluding off-the-shelf software licenses)
or any person is authorized to use any Company Intellectual Property Right,
including (i) the identity of all parties thereto and (ii) a description of the
nature and subject matter thereof.
(c) Except as set forth in Section 2.15(a), (b) or (c) of the
Disclosure Schedule (i) the Company and its Subsidiaries own or have the right
to use all Company Intellectual Property Rights, as well as, to the Company's
knowledge, any trade secrets and inventions, in each case material to the
operations of the Company and its Subsidiaries, free and clear of any
Encumbrances (other than Permitted Encumbrances) or, with respect to items of
Intellectual Property owned by the Company or any of its Subsidiaries, to the
Company's knowledge, any other claim of ownership or, right to use by or of any
other person, except pursuant to the license agreements set forth in Section
2.15(b) of the Disclosure Schedule and (ii) to the Company's knowledge, each
Company Intellectual Property Right owned by the Company which is the subject of
a registration is in full force and effect and to the Company's knowledge, is
valid and enforceable. To the knowledge of Seller, neither the Company nor any
of its Subsidiaries is, or has received any written notice that it is, in
default under any license or agreement pursuant to which it uses any Company
Intellectual Property Rights, except for defaults which are not reasonably
expected to have a Company Material Adverse Effect.
(d) Except as set forth in Section 2.15(d) of the Disclosure
Schedule or except for actions or claims which would not have a Company Material
Adverse Effect: neither the Company nor any of its Subsidiaries is a defendant
in any action, suit, investigation or proceeding relating to, or otherwise has
been notified of, any alleged claim of infringement by the Company or any of its
Subsidiaries of any third party's Intellectual Property Right, and Seller has no
knowledge of any other such infringement by the Company or any of its
Subsidiaries, and there is no outstand ing claim or suit brought by the Company
or its Subsidiaries for, and Seller has no knowledge of, any continuing
infringement by any other person of any Company
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Intellectual Property Rights. Except as set forth in Section 2.15(c) of the
Disclosure Schedule, no Company Intellectual Property Right owned by the Company
or any Subsidiary is subject to any outstanding judgment, injunction, order,
decree or agreement restricting the use or transfer thereof by the Company or
any of its Subsidiaries or restricting the licensing thereof by the Company or
any of its Subsid iaries to any person, except as may be contained in the
license agreements set forth in Sections 2.15(a) and (b) of the Disclosure
Schedule and under other non-material licenses.
(e) To the Company's knowledge and except as may be determined
in connection with the claims set forth in Section 2.15(c) of the Disclosure
Schedule, none of the products manufactured, nor any process or know-how used,
by the Company or any of its Subsidiaries infringes any Intellectual Property
Right of any other person, except for infringements which would not have a
Company Material Adverse Effect.
SECTION 2.16 CONTRACTS. Section 2.16 of the Disclosure
Schedule contains a true and complete list of all Material Agreements. Except as
set forth in Section 2.16 of the Disclosure Schedule, each Material Agreement is
in full force and effect, is a valid and enforceable agreement of the Company
and its Subsidiary and, to the knowledge of Seller, the other parties thereto in
accordance with its terms. As used in this Agreement, "MATERIAL AGREEMENT" means
each agreement, arrangement, instrument, bond, commitment, franchise, indemnity,
indenture, lease, license or understanding to which the Company or any of its
Subsidiaries is a party or to which the Company, any of its Subsidiaries or any
of their respective properties is subject that (i) obligates the Company or any
of its Subsidiaries to pay an amount in excess of $100,000 in any twelve-month
period beginning after December 31, 1997 other than purchase orders entered into
in the ordinary course of business, (ii) provides for the extension of credit
(excluding trade credit issued in the ordinary course of business), (iii)
provides for a guaranty by the Company or any of its Subsidiaries of obligations
of others in excess of $100,000, (iv) constitutes an employment agreement or
personal service contract not terminable on less than sixty (60) days' notice
without penalty, (v) expressly limits, in any material respect, the ability of
the Company or any of its Subsidiaries to engage in any line of business,
compete with any person or expand the nature or geographic scope of its
business, (vi) includes a partnership, joint venture or shareholders'
arrangement, (vii) relates to the future dispositions or acquisitions of assets
or properties other than in the ordinary and usual course of business consistent
with past practice, or any merger or business combination, (viii) includes any
collective bargaining or similar labor agreement or (ix) includes arrange-
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ments with distributors, dealers, manufacturer's representatives, sales agencies
or franchisees not terminable on less than sixty (60) days' notice without
penalty.
SECTION 2.17 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 2.17 of the Disclosure
Schedule, Seller and the Company have not, as of the date hereof, received any
written notice alleging the violation of, or liability under, any applicable
Environmental Laws, which violation or liability would be reasonably likely to
result in a Company Material Adverse Effect and, to the knowledge of Seller, (i)
the Company and its Subsidiaries are in compliance with all Environmental Laws,
(ii) the Company and its Subsidiaries have obtained and are in compliance with
all Permits received pursuant to applicable Environmental Laws with respect to
the business as currently conducted, (iii) no hazardous waste or Hazardous
Substance has been stored, treated or disposed of by the Company or its
Subsidiaries on the real estate owned or leased by the Company or its
Subsidiaries except in compliance with applicable Environmental Laws, (iv) the
Company and its Subsidiaries have lawfully disposed of their hazardous waste
with respect to the operations of their businesses and (v) there have been no
"Releases" (as such term is defined in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. /section/ 9601, ET SEQ.) of Hazardous
Substances at any of the real estate owned or operated by the Company or its
Subsidiaries, except, in each case referred to in clauses (i) through (v) above,
where such failure to comply with applicable Environmental Laws and Permits or
to obtain Permits or to store, treat or dispose of hazardous waste or hazardous
substances would not have a Company Material Adverse Effect.
(b) For purposes of this Agreement, the term "ENVIRONMENTAL
LAWS" means all foreign, federal, state and local laws, regulations, rules and
ordi nances relating to pollution or protection of the environment, including,
without limitation, laws relating to Releases or threatened Releases of
Hazardous Substances into the environment (including, without limitation,
ambient air, surface water, groundwater, land, surface and subsurface strata) or
otherwise relating to the manu facture, processing, distribution, use,
treatment, storage, Release, transport or handling of Hazardous Substances and
all laws and regulations with regard to record keeping, notification, disclosure
and reporting requirements respecting Hazardous Substances, and all laws
relating to endangered or threatened species of fish, wildlife and plants and
the management or use of natural resources. The term "HAZARDOUS SUBSTANCES"
means any toxic, hazardous, radioactive, caustic, or dangerous sub stances,
pesticides, wastes, pollutants or contaminants, or any other substances that
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are defined as any of the above by or regulated as such under, any Environmental
Law, including, without limitation, petroleum and asbestos.
(c) The representations and warranties set forth in this
Section 2.17 shall be the sole and exclusive representations and warranties with
respect to environmental matters made by Seller in this Agreement.
SECTION 2.18 BROKERS OR FINDERS. Seller represents, as to
itself and the Company, that, except for A.G. Edwards & Sons, Inc., no agent,
broker, invest ment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement.
Seller acknowledges that it is responsible for the payment of the fees of A.G.
Edwards & Sons, Inc. in connection with the transactions contemplated by this
Agreement.
SECTION 2.19 EMPLOYEES; LABOR RELATIONS. Seller has delivered
to Buyer prior of this Agreement a list identifying each employee of the Company
and its Subsidiaries with yearly base salary in excess of $50,000, the position
and rate of compensation of each such employee and copies of contracts entered
into between the Company and its Subsidiaries and such employee, if any. Except
as disclosed in Section 2.19 of the Disclosure Schedule, (a) to the knowledge of
Seller, there are no threatened or contemplated attempts to organize for
collective bargaining purposes any of the employees of the Company and its
Subsidiaries and (b) no unfair labor practice complaint or sex, age, race or
other discrimination claim has been brought since January 1, 1997 against the
Company and its Subsidiaries with respect to the conduct of their businesses
before the National Labor Relations Board, the Equal Employment Opportunity
Commission or any other Governmental Entity. Since January 1, 1997, the Company
and its Subsidiaries have complied in all material respects with all applicable
laws relating to the employment of labor, including those relating to wages,
hours and collective bargaining.
SECTION 2.20 AFFILIATE TRANSACTIONS. Except as disclosed in
Section 2.20 of the Disclosure Schedule, (a) there are no intercompany
liabilities between the Company or any of its Subsidiaries, on the one hand, and
Seller or any officer, director or Affiliate of Seller (other than the Company
and its Subsidiaries), on the other; (b) neither Seller nor any such officer,
director or Affiliate provides or causes to be provided any assets, services or
facilities to the Company or any of its Subsid iaries; (c) neither the Company
nor any of its Subsidiaries provides or causes to be provided any assets,
services or facilities to Seller or any such officer, director or Affiliate; and
(iv) neither the Company nor any of its Subsidiaries beneficially owns,
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directly or indirectly, any debt or equity securities issued by Seller or any
such officer, director or Affiliate. Except as disclosed in Section 2.20 of the
Disclosure Schedule, since December 31, 1997, all settlements of intercompany
liabilities between the Company or any Subsidiary, on the one hand, and Seller
or any such officer, director or Affiliate, on the other, have been made, and
all allocations of intercompany expenses have been applied, in the ordinary and
usual course of business consistent with past practice.
SECTION 2.21 SUBSTANTIAL CUSTOMERS AND SUPPLIERS. Section 2.21
of the Disclosure lists the ten largest customers of the Company and its
Subsidiaries, on the basis of revenues for goods sold or services provided for
the year ended Decem ber 31, 1997 and the four month period ended April 30,
1998. Section 2.21 of the Disclosure Schedule lists the ten largest suppliers of
the Company and its Subsidiar ies, on the basis of cost of goods or services
purchased for the year ended December 31, 1997 and the four month period ended
April 30, 1998. As of the date hereof, except as disclosed on Section 2.21 of
the Disclosure Schedule, since April 30, 1998, neither the Company nor any of
its Subsidiaries has received written notice that there has been or will be any
material change in the business relationship of the Company with any of such
customers or suppliers.
SECTION 2.22 ACCOUNTS RECEIVABLE. Except as set forth in
Section 2.22 of the Disclosure Schedule, the accounts and notes receivable of
the Company and its Subsidiaries reflected on the Financial Statements, and all
accounts and notes receivable arising subsequent to December 31, 1997, (i) arose
from BONA FIDE sales transactions in the ordinary and usual course of business
and are payable on ordinary trade terms, (ii) are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their terms
(PROVIDED that such representation is not intended to be a representation as to
collectability and in no way guarantees the collectability of such accounts and
notes receivable), (iii) are not subject to any valid set-off or counterclaim
(other than rights of return in the ordinary course of business) and (iv) as of
the date hereof, are not the subject of any actions or proceedings brought by or
on behalf of the Company or any of its Subsidiaries (other than as fully
reserved in the Closing Balance Sheet or arising in the ordinary course of
business).
SECTION 2.23 INVENTORY. Except as set forth on Section 2.23 of
the Disclosure Schedule, no clearance or extraordinary sale of inventory has
been conducted since December 31, 1997. The Company and its Subsidiaries have
not committed to acquire inventory for sale which is not of a quantity usable in
the ordinary and usual course of the business within a reasonable period of time
and consistent with past practices. Section 2.23 of the Disclosure Schedule sets
forth a
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complete list of the addresses of the warehouses and other facilities in which
the inventory is located as of the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 3.1 ORGANIZATION. Buyer is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization and has all requisite
corporate power and author ity to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power and
authority would not have a Buyer Material Adverse Effect. As used in this
Agreement, "BUYER MATERIAL ADVERSE EFFECT" means any material adverse change in,
or material adverse effect on, the business, financial condition or operations
of Buyer and its Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that the
effects of changes that are generally applicable to (i) the industries or
markets in which Buyer and its Subsidiaries operate, (ii) the United States econ
omy, or (iii) the United States securities markets shall be excluded from the
determi nation of Buyer Material Adverse Effect; and PROVIDED, FURTHER, that any
adverse effect on Buyer and its Subsidiaries resulting from the execution and
the announce ment of this Agreement and the transactions contemplated hereby
shall also be excluded from the determination of Buyer Material Adverse Effect.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Buyer has
full power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery by Buyer of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate proceedings, and no
other corporate action on the part of Buyer is necessary to authorize the
execution and delivery by Buyer of this Agreement and the consummation by it of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer (and assuming due and valid authorization, execution and
delivery hereof by Seller) is a valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally and (ii) the remedy of
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specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
(a) filings pursuant to the HSR Act and (b) matters specifically described in
this Agreement, neither the execution and delivery of this Agreement by Buyer
nor the consummation by Buyer of the transactions contemplated hereby will (i)
violate any provision of the articles of incorporation, bylaws or other
organizational documents of Buyer, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instru ment or obligation to which
Buyer or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound, (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Buyer, any of its Subsidiaries or any of their properties or assets or (iv)
require on the part of Buyer any filing or registration with, notification to,
or authorization, consent or approval of, any Governmental Entity; except in the
case of clauses (ii), (iii) or (iv) for such violations, breaches or defaults
which, or filings, registrations, notifications, authorizations, consents or
approvals the failure of which to obtain, would not have a Buyer Material
Adverse Effect and would not materially adversely affect the ability of Buyer to
consummate the transactions contemplated by this Agreement.
SECTION 3.4 ACQUISITION FOR INVESTMENT. Buyer is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of such Shares. The Shares will not be transferred except in a
transaction registered or exempt from registration under the Securities Act of
1933, as amended.
SECTION 3.5 FINANCING. Buyer has available existing credit
facilities (including an acquisition line of credit and a revolving credit
facility) which, together with Buyer's cash on hand as of the Closing Date, will
be sufficient to enable Buyer to pay the full amount of the Purchase Price at
the Closing.
SECTION 3.6 BROKERS OR FINDERS. Buyer represents, as to
itself, its Subsidiaries and its Affiliates, that other than PaineWebber
Incorporated (whose fee Buyer will pay), no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agree ment. As used in this Agreement, the
term "AFFILIATE(S)" shall have the meaning set
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forth in Rule l2b-2 of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT").
SECTION 3.7 INVESTIGATION BY BUYER. In entering into this
Agreement, Buyer:
(a) acknowledges that, except for the specific representations
and warranties of Seller contained in Article II, none of Seller, the Company,
the Com pany's Subsidiaries or any of their respective directors, officers,
employees, Affiliates, controlling persons, agents, advisors or representatives,
makes or shall be deemed to have made any representation or warranty, either
express or implied, as to the accuracy or completeness of any of the information
(including, without limitation, any estimates, projections, forecasts or other
forward-looking information) provided or otherwise made available to Buyer or
any of its directors, officers, employees, Affiliates, controlling persons,
agents, advisors or representatives (including, without limitation, in any
management presentations, information or offering memorandum, supplemental
information or other materials or information with respect to any of the above).
With respect to any such estimate, projection or forecast delivered by or on
behalf of Seller to Buyer, Buyer acknowledges that (A) there are uncertainties
inherent in attempting to make such projections and forecasts, (B) it is
familiar with such uncertainties, (C) it is taking full responsibility for
making its own evaluation of the adequacy and accuracy of all such projections
and forecasts so furnished to it, (D) it is not acting in reliance on any such
projection or forecast so furnished to it and (E) it shall have no claim against
any such person with respect to any such projection or forecast; and
(b) agrees, to the fullest extent permitted by law, that
Seller and its directors, officers, employees, Affiliates, controlling persons,
agents, advisors or representatives shall not have any liability or
responsibility whatsoever to Buyer or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives on any
basis (including, without limitation, in contract or tort, under federal or
state securities laws or otherwise) based upon any information provided or
otherwise made available, or statements made, (or omissions to so provide, make
available or state) to Buyer or any of its directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives, including,
without limitation, in respect of the specific representations and warranties of
Seller set forth in Article II, except as and only to the extent expressly set
forth herein with respect to such representations and warranties and subject to
the limitations and restrictions contained herein and in the Disclosure Schedule
(including Section 3.7 thereof).
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SECTION 3.8 CAPITAL ADEQUACY; SOLVENCY. Buyer represents that
immediately after the sale of the Shares and the other transactions contemplated
herein, Buyer (and any successor corporation) will have a positive net worth
(calcu lated in accordance with GAAP) and will not be insolvent (as defined
under the federal Bankruptcy Code (the "BANKRUPTCY CODE") and in equity) and
that the sale of the Shares and other transactions contemplated hereby and any
borrowing by Buyer in connection with such transactions will not have the effect
of hindering, delaying or defrauding any creditors of Buyer (or any successor
corporation). Buyer further represents that (A) upon consummation of the sale of
the Shares and within the meaning of Sections 544 and 548 of the Bankruptcy Code
and comparable state statutes, the Company (and any successor corporations) will
not (i) be insolvent or rendered insolvent, (ii) have an unreasonably small
capital with respect to the business or transactions engaged in or to be engaged
in, (iii) incur debts that would be beyond the ability of Buyer or any successor
corporation's ability to pay as such debts mature, and (B) the Purchase Price is
a reasonably equivalent value in exchange for the Shares.
ARTICLE IV
COVENANTS
SECTION 4.1 INTERIM OPERATIONS OF SELLER. Seller covenants and
agrees that, except (i) as contemplated by this Agreement, (ii) entering into
new warehousing/distribution arrangements to replace the agreement with Cosmetic
Essence, Inc., PROVIDED that Seller has consulted with Buyer as to the terms
with respect to such new arrangements prior to entering into any definitive
agreement related thereto and that any such definitive agreement (A) has an
initial term of 24 months or less and (B) is on terms no less favorable in the
aggregate in any material respect than the current arrangement, based on 1997
sales volume and product mix, (iii) the continuation of the Affiliate
transactions in Section 2.20 of the Disclosure Schedule, (iv) that Seller will
have the right to delay payment of accounts payable by an amount not in excess
of (A) $120,000, if Seller and/or its designees elect to purchase, and Buyer
sells, the Dermablend Business, the National Cosmetics Business and the Iman
Business pursuant to Sections 4.11 (a) and (b) or (B) $1,500,000, if Buyer
retains the Dermablend Business but Seller and/or its designees elect to
purchase, and Buyer sells, the National Cosmetics Business and the Iman Business
pursuant to Section 4.11(b) or (v) with the prior written consent of Buyer,
after the date hereof and prior to the Closing Date, Seller will cause:
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(a) the Company and its Subsidiaries to conduct their
businesses in the ordinary and usual course of business;
(b) the Company and its Subsidiaries not to amend their
certifi cates of incorporation or bylaws or similar organizational documents;
(c) the Company not to (i) split, combine or reclassify the
Shares, (ii) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Shares, (iii) issue or
sell any additional shares of, or securities convertible into or exchangeable
for, or options, warrants, calls, commit ments or rights of any kind to acquire,
the Shares or (iv) redeem, purchase or otherwise acquire directly or indirectly
any of its capital stock;
(d) the Company and its Subsidiaries not to (i) adopt any new
employee benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend any existing employee benefit plan in any material
respect, except as may be required by applicable law or (ii) materially increase
any compensation or enter into or amend any employment, severance, termination
or similar agreement with any of its present or future officers or directors;
(e) the Company and its Subsidiaries not to, except as may be
required or contemplated by this Agreement or in the ordinary and usual course
of business, acquire, sell, lease or dispose of any assets which in the
aggregate are material to the Company and its Subsidiaries taken as a whole;
(f) the Company and its Subsidiaries not to (i) incur or
assume any long-term or short-term debt or issue any debt securities except for
borrowings under existing lines of credit in the ordinary course of business
consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the material obligations of any other person except in the ordinary and usual
course of business consistent with past practice in an amount not material to
the Company and its Subsidiaries taken as a whole, (iii) make any material
loans, advances or capital contributions to, or investments in, any other person
other than in the ordinary and usual course of business consistent with past
practice, (iv) pledge or otherwise encumber the Shares or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create any material
Encumbrance of any kind with respect to any such asset;
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(g) the Company and its Subsidiaries not to acquire (by
merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or any equity
interest therein;
(h) the Company and its Subsidiaries not to authorize any new
capital expenditure of capitalized items which, individually, is in excess of
$50,000 or, in the aggregate, are in excess of $250,000;
(i) the Company and its Subsidiaries not to enter into or
amend any contract, agreement, commitment or arrangement providing for the
taking of any action which would be prohibited hereunder;
(j) the Company and its Subsidiaries not to adopt plan of
complete or partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization;
(k) the Company not to materially change any of the accounting
policies used by it in preparing the Financial Statements unless required by
GAAP or applicable law;
(l) the Company and its Subsidiaries not to settle or
compromise any claim (including arbitration) or litigation, which after
insurance reimbursement is material to the Company taken as a whole, without the
prior written consent of Buyer, which consent will not be unreasonably withheld;
(m) the Company and its Subsidiaries not to enter into any
transac tion with Seller or any officer, director or Affiliate (other than the
Company or any of its Subsidiaries) of Seller (i) outside the ordinary and usual
course of business consistent with past practice or (ii) other than on an
arm's-length basis, other than pursuant to any arrangement disclosed in Section
2.20 of the Disclosure Schedule; and
(n) the Company and its Subsidiaries not to authorize or enter
into an agreement to do any of the foregoing.
SECTION 4.2 ACCESS TO INFORMATION. Seller shall cause the
Company to afford Buyer's officers, employees, accountants, counsel and other
authorized representatives full and complete access during normal business hours
throughout the period prior to the Closing Date or the date of termination of
this Agreement, to its
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and its offices, properties, contracts, commitments, tax and accounting work
papers, books and records (including but not limited to Tax Returns) and any
material report, schedule or other document filed or received by it during such
period pursuant to the requirements of Federal or state securities laws and to
use all reasonable efforts to cause its representatives to furnish promptly to
Buyer such additional material financial and operating data and other
information as to its businesses and properties as Buyer or its duly authorized
representatives may from time to time reasonably request; PROVIDED, HOWEVER,
that nothing herein shall require Seller or the Company to disclose any
information to Buyer if such disclosure (i) would cause significant competitive
harm to Seller, the Company, the Company's Subsidiaries or their Affiliates if
the transactions contemplated by this Agreement were not consummated or (ii)
would violate applicable laws or regulations or the provisions of any confidenti
ality agreement to which Seller, the Company, the Company's Subsidiaries or
their Affiliates is a party. Buyer will hold any such information which is
nonpublic in confidence in accordance with the provisions of the Confidentiality
Agreement between Seller and Buyer, dated as of October 28, 1997 (the
"CONFIDENTIALITY AGREEMENT").
SECTION 4.3 TAX MATTERS.
(a) CODE /SECTION/ 338(H)(10) ELECTION. Seller and Buyer shall
jointly make all available elections described in Code /section/ 338(h)(10) and
any corresponding elections under applicable state and local tax laws (the
"ELECTIONS") for the Company and its Subsidiaries. Seller and Buyer agree to
report the transactions under this Agreement consistently with the Elections.
Buyer will prepare all forms required to be filed in connection with the
Elections ("CODE /SECTION/ 338 FORMS"), and Buyer and Seller shall each execute
an Internal Revenue Service Form 8023 for the Company and each of its
Subsidiaries at Closing. All Code /section/ 338 Forms shall be filed by the
party required to file such forms under applicable law. Each party shall
promptly execute and deliver to the other party all documentation reasonably
requested by such other party, including the completed Code /section/ 338 Forms.
Within 150 days after the Closing, Buyer will compute the Modified Aggregate
Deemed Sale Price ("MADSP") of the assets of the Company and its Subsidiaries
(pursuant to applicable Treasury Regulations) and will notify Seller of its
allocation of the MADSP among the assets. After receipt of Buyer's calculation
of the MADSP, Seller shall have 30 days to review such calculation. Unless
Seller delivers written notice to Buyer on or prior to the thirtieth day after
receipt of the MADSP calculation specifying in reasonable detail its objection
to the MADSP calculation, such calculation shall be deemed final and binding
between Buyer and Seller. In the event Seller has provided a timely notice of
objections to the MADSP calculation with which Buyer does not agree, the Neutral
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Auditor shall resolve such dispute in accordance with the provisions of Section
1.4(c) subject to Section 4.11(f). Buyer and Seller each agrees to act in
accordance with these allocations in any relevant Tax Returns. Notwithstanding
anything to the contrary contained in this Section 4.3, all income Taxes imposed
as a result of the transactions contemplated by this Agreement, including as
result of the Elections, shall be the responsibility of Seller.
(b) SELLER INDEMNIFICATION. Seller shall be liable for, and
shall indemnify and hold Buyer harmless against, all Taxes of the Company,
including income Taxes imposed on the Company as a result of the Elections,
payable for any taxable year or taxable period ending on or before the Closing
Date (other than Taxes imposed as a result of actions outside the ordinary
course of business occurring after the Closing on the Closing Date). To
appropriately apportion any income Taxes relating to any taxable year or period
beginning before and ending after the Closing Date by a closing of the Company's
books as of the end of the day on the Closing Date, the parties shall apportion
such income Taxes to the portion of the taxable period ending on or before the
Closing Date by a closing of the Company's books at the end of the day on the
Closing Date except that (i) exemptions, allowances or deductions that are
calculated on a time basis, such as the deduction for depreciation, shall be
apportioned on a time basis and (ii) all Taxes relating to actions outside the
ordinary course of business occurring after the Closing on the Closing Date
(other than income Taxes imposed as a result of the Elections) shall be
apportioned to the period ending after the Closing Date. To appropriately
apportion any non-income Taxes relating to any taxable year beginning before and
ending after the Closing Date, the parties shall apportion such non-income Taxes
to the portion of the taxable period ending on or before the Closing Date as
follows: (x) AD VALOREM Taxes (including, without limitation, real and personal
property Taxes) shall be accrued on a daily basis over the period for which such
Taxes are levied, or if it cannot be determined over the period such Taxes are
being levied, over the fiscal period of the relevant taxing authority, in each
case irrespective of the lien or assessment date of such Taxes, (y) all Taxes
relating to actions outside the ordinary course of business occurring on or
after the Closing on the Closing Date (other than income Taxes imposed as a
result of the Elections) shall be apportioned to the period ending after the
Closing Date and (z) franchise and other privilege Taxes not measured by income
shall be accrued on a daily basis over the period to which the privilege
relates. Seller's obligations under this paragraph shall not be limited or
affected by any disclosures made by Seller in or pursuant to Article II.
(c) BUYER AND COMPANY INDEMNIFICATION. Except as otherwise
provided in (b) above, Buyer and the Company shall be liable for, and shall
indemnify
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and hold Seller and any of its Affiliates harmless against, any and all Taxes
imposed on the Company relating or apportioned to any taxable year or portion
thereof ending after the Closing Date, including, without limitation, Taxes
imposed as a result of actions outside the ordinary course of business occurring
after the Closing on the Closing Date (other than income Taxes imposed as a
result of the Elections).
(d) TAX SHARING AGREEMENT. Any Tax sharing agreements,
settlement agreements, arrangements, policies or guidelines, formal or informal,
express or implied, that may exist between the Company or any of its
Subsidiaries on the one hand, and Seller or any other affiliate of Seller, on
the other hand (a "TAX SHARING AGREEMENT"), shall terminate as of the Closing
Date and, except as specifi cally provided herein, any obligation to make
payments under any Tax Sharing Agreement shall be cancelled as of the Closing
Date. Seller shall not amend any Tax Sharing Agreement prior to its termination
pursuant to this Section 4.3(d).
(e) PRE-CLOSING TAXES. Seller shall cause the Company and its
Subsidiaries, and the Company and its Subsidiaries shall consent, to join for
all taxable periods ending on or before the Closing Date in Seller's
consolidated federal income Tax Return and in any required state or local
consolidated or combined income or franchise Tax Returns that include the
Company and its Subsidiaries ("PRE-CLOSING CONSOLIDATED TAX RETURNS"). Seller's
Consolidated Group shall timely prepare and file all Pre-Closing Consolidated
Tax Returns that include the Company and its Subsidiar ies. Seller's
Consolidated Group shall timely prepare and file (or cause to be so prepared and
filed) all Tax Returns required by law, other than Pre-Closing Consoli dated Tax
Returns, covering the Company and its Subsidiaries for all taxable periods
ending on or before the Closing Date ("PRE-CLOSING SEPARATE TAX RETURNS";
together with Pre-Closing Consolidated Tax Returns, "PRE-CLOSING TAX RETURNS").
Seller shall prepare all Tax Returns in accordance with the Tax accruals on the
books and records of the Company and its Subsidiaries. Seller will not amend any
Pre-Closing Tax Returns without the consent of Buyer (which consent shall not be
unreasonably withheld) if such amended Tax Return would affect the amount of
Taxes for which Buyer is liable under this Agreement. Seller's Consolidated
Group shall timely pay or cause to be paid all Taxes related to Pre-Closing Tax
Returns.
(f) TRANSFER TAXES. Buyer shall pay all sales, use, transfer,
real property transfer, recording, gains, stock transfer and other similar Taxes
and fees ("TRANSFER TAXES") arising out of or in connection with the
transactions effected pursuant to this Agreement, and shall indemnify, defend,
and hold harmless Seller and the Company and its Subsidiaries on an after-Tax
basis with respect to all Transfer
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Taxes. Buyer shall file all necessary documentation and Tax Returns with respect
to such Transfer Taxes.
(g) TAX RETURNS FOR STUB PERIOD. To the extent that the
taxable period for any Tax of the Company or any of its Subsidiaries does not
end on the Closing Date, Seller and Buyer will, to the extent permitted by
applicable law, elect with the relevant state and local taxing authorities to
close the taxable period of the Company and its Subsidiaries on the Closing
Date. In any case where applicable law does not permit the Company or any of its
Subsidiaries to close its taxable year on the Closing Date, Buyer will cause to
be prepared and duly filed all Tax Returns relating to Taxes of the Company and
its Subsidiaries for any taxable period that includes and ends after the Closing
Date. At least 30 days prior to the due date of any such Tax Return Buyer shall
provide copies of such Tax Return to Seller for Seller's review and approval,
which approval shall not be unreasonably withheld. The Taxes shown as due on
such Tax Returns shall be apportioned between Seller and Buyer in accordance
with Section 4.3(b).
(h) REFUNDS OR CREDITS. Buyer or the Company shall promptly
pay to Seller any refunds or credits (including interest thereon) relating to
Taxes for which Seller may be liable under this Section 4.3. For purposes of
this Section 4.3(h), the terms "refund" and "credit" shall include a reduction
in Taxes and the use of an overpayment of Taxes as an audit or other Tax offset.
Receipt of a refund shall occur upon the filing of a Tax Return or an adjustment
thereto using such reduction, overpayment or offset, or upon the receipt of
cash. Upon the reasonable request of Seller, Buyer shall prepare and file, or
cause to be prepared and filed, all claims for refunds relating to such Taxes;
PROVIDED, HOWEVER, that Buyer shall not be required to file such claims for
refund to the extent such claims for refund would have a Company Material
Adverse Effect in future periods or to the extent the claims for refund relate
to a carryback of an item. Buyer shall be entitled to all other refunds and
credits of Taxes; PROVIDED, HOWEVER, Buyer will not allow the amendment of any
Tax Return relating to any Taxes for a period (or portion thereof) ending on or
prior to the Closing Date or the carryback of an item to a period ending prior
to Closing without Seller's consent.
(i) MUTUAL COOPERATION. As soon as practicable, but in any
event within 15 days after either Seller's or Buyer's request, as the case may
be, Buyer shall deliver to Seller or Seller shall deliver to Buyer, as the case
may be, such information and other data relating to the Tax Returns and Taxes of
the Company (and shall provide such other assistance as may reasonably be
requested), to cause the completion and filing of all Tax Returns or to respond
to audits by or litigation with any
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taxing authorities with respect to any Tax Returns or taxable periods or to
otherwise enable Seller, Buyer or the Company to satisfy their accounting or Tax
requirements. For a period of five years from and after the Closing, Buyer and
Seller shall, and shall cause their Affiliates to, maintain and make available
to the other party, on such other party's reasonable request, copies of any and
all information, books and records referred to in this Section 4.3(i). After
such five-year period, Buyer or Seller may dispose of such information, books
and records, PROVIDED that prior to such disposi tion, Buyer or Seller shall
give the other party the opportunity to take possession of such information,
books and records.
(j) CONTESTS. Whenever any taxing authority asserts a claim,
makes an assessment, or otherwise disputes the amount of Taxes for which Seller
is or may be liable under this Agreement, Buyer shall, if informed of such an
assertion, promptly inform Seller within 5 business days, and Seller shall have
the right to control any resulting proceedings and to determine whether and when
to settle any such claim, assessment or dispute to the extent such proceedings
or determinations affect the amount of Taxes for which Seller may be liable
under the Agreement, PROVIDED that Seller shall have agreed in writing to assume
all costs and expenses of any such contest and shall have recognized its
obligation to indemnify Buyer under this Agreement for any such Taxes. Whenever
any taxing authority asserts a claim, makes an assessment or otherwise disputes
the amount of Taxes for which Buyer is liable under this Agreement, Buyer shall
have the right to control any resulting proceedings and to determine whether and
when to settle any such claim, assessment or dispute, except to the extent such
proceedings affect the amount of Taxes for which Seller are liable under this
Agreement.
SECTION 4.4 EMPLOYEE MATTERS.
(a) As of the Closing Date, Buyer shall cause the Company and
its Subsidiaries to continue to employ all persons who, immediately prior to the
Closing Date, were employees (the "COMPANY EMPLOYEES") of the Company or its
Subsidiaries on terms no less favorable in the aggregate (including with respect
to position, duties, responsibilities, location, compensation, incentives and
Benefit Plans, (as defined herein)) than those in effect on the date hereof with
respect to such Company Employees. Buyer agrees that, for a period of at least
two years following the Closing, Buyer shall provide the Company Employees with
employee benefits that are generally comparable in the aggregate than those
provided to the Company Employees immediately prior to the date hereof. With
respect to any employee benefits that are provided to the Company Employees
under any of Buyer's employee benefit plans, programs, policies and
arrangements, including vacation policies ("BUYER PLANS"), service accrued by
the Company Employees during employment with Seller, the
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Company and the Company's Subsidiaries prior to the Closing Date shall be recog
nized for all purposes, except to the extent necessary to prevent duplication of
benefits. Without limiting the generality of the foregoing, Buyer agrees to
maintain the Company's general severance policy as described in Section 4.4(a)
of the Disclo sure Schedule for a period of one year following the Closing Date.
(b) Buyer agrees to assume and honor, and cause the Company
and its Subsidiaries to assume and honor, without modification, the employment,
severance, retention, other incentive agreements and arrangements, as amended
through the date hereof (each, an "EMPLOYEE ARRANGEMENT") for the benefit of the
employees of the Company or its Subsidiaries as described in Section 4.4(b) of
the Disclosure Schedule. Seller shall indemnify Buyer for any severance payments
the Company owes to any Company employee other than as described in Section
4.4(b) of the Disclosure Schedule or to any former Company employees whose
employment with the Company terminates prior to the Closing to the extent any
such amounts are not accrued for on the Final Closing Statement.
(c) Buyer shall cause each Buyer Plan to waive any (i)
pre-existing condition restriction which was waived under the terms of any
analogous Benefit Plan immediately prior to the Closing and (ii) waiting period
limitation which would otherwise be applicable to a Company Employee on or after
the Closing to the extent such Company Employee had satisfied any similar
waiting period limitation under an analogous Benefit Plan prior to the Closing.
The Company Employees shall also be given credit for any deductible or
co-payment amounts paid in respect of the Benefit Plan year in which the Closing
occurs, to the extent that, following the Closing, they participate in any Buyer
Plan for which deductibles or co-payments are required. For purposes of this
Agreement, "Company Employees" shall include those Company Employees who, as of
immediately prior to the Closing Date, are on lay-off, disability or leave of
absence, paid or unpaid.
SECTION 4.5 PUBLICITY. The initial press releases with respect
to the execution of this Agreement shall be reasonably acceptable to Buyer and
Seller. Thereafter, so long as this Agreement is in effect, neither Buyer nor
Seller nor any of their respective Affiliates shall issue or cause the
publication of any press release with respect to the transactions contemplated
hereby or this Agreement without the prior agreement of the other party, except
as may be required by law or by any listing agreement with a national securities
exchange.
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SECTION 4.6 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION.
(a) The parties shall use all reasonable efforts and cooperate
with each other to obtain as promptly as practicable all Permits and third-party
consents necessary or advisable to consummate the transactions contemplated by
this Agree ment. Each party shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby. Buyer
and Seller shall have the right to review in advance, and shall consult with the
other on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to Seller, the Company, the Company's
Subsidiaries or Buyer, as the case may be, and any of their respective
Affiliates, which appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement, PROVIDED, HOWEVER, that nothing
contained herein shall be deemed to provide any party with a right to review any
information provided to any Governmental Entity on a confidential basis in
connection with the transactions contemplated hereby. The party responsible for
any such filing shall promptly deliver to the other party evidence of the filing
of all applications, filings, registrations and notifications relating thereto
(except for any confidential portions thereof) and any supplement, amendment or
item of additional information in connection therewith (except for any
confidential portions thereof). The party responsible for a filing shall also
promptly deliver to the other parties a copy of each material notice, order,
opinion and other item or correspondence received by such filing party from any
Governmental Entity in respect of any such application (except for any
confidential portions thereof).
(b) Seller and Buyer shall take all actions necessary to file
as soon as practicable all notifications, filings and other documents required
to obtain all governmental authorizations, approvals, consents or waivers,
including, without limitation, under the HSR Act, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection therewith. Without limiting
the generality of the foregoing, the parties agree to file any applications
required under the HSR Act within three business days after the date hereof.
(c) Buyer and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
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Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
(d) Seller shall give prompt notice to Buyer of the occurrence
of any Company Material Adverse Effect, and Buyer shall give prompt notice to
Seller of the occurrence of any Buyer Material Adverse Effect. Seller and Buyer
each shall give prompt notice to the other of the occurrence or failure to occur
of an event that would, or with the lapse of time would, cause any condition to
the consummation of the transactions contemplated hereby not to be satisfied.
SECTION 4.7 NON-COMPETITION.
(a) Seller agrees that neither Seller nor any of its
Affiliates shall, directly or indirectly, at any time within the four year
period immediately following the Closing Date:
(i) engage for its own account or the account of
others, or have any ownership, management, employment, agency,
consultancy or other interest in, or provide financing to, any person
or entity that engages in the sale, distribution, packaging,
manufacture or marketing of any (i) Afrocentric hair care products,
(ii) in the event that Seller or its designees do not acquire the
National Cosmetics Business after the Closing, ethnic cosmetics or
(iii) in the event that Seller or its designees do not acquire the
Dermablend Business after the Closing, corrective cosmetics (other than
corrective cosmetics sold through the medical channels) (the
"PROHIBITED ACTIVITIES"), or assist any other person or entity to do
so, except that Seller and its Affiliates may (x) own, directly or
indirectly, solely as an investment, securities of any entity engaged
in the Prohibited Activities that are publicly traded if Seller and its
Affiliates do not, directly or indirectly, beneficially own,
collectively, five percent (5%) or more of any class of securities of
such entity or (y) have an ownership interest otherwise prescribed by
this Section 4.7 during such period if such ownership interest arises
as a result of the acquisition of a business entity not principally
engaged in the Prohibited Activities; PROVIDED that Seller or its
Affiliate uses commercially reasonable efforts to sell the competing
portion as soon as reasonably practicable;
(ii) for its own account or for the account of
others, attempt to or assist any other person or entity in attempting
to do any of the following with respect to the Prohibited Activities:
(w) solicit to employ any
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director, officer or employees of Buyer or its Affiliates or encourage
any such person to terminate such relationship with Buyer or its
Affiliates, (x) encour age any customer, client, supplier or other
business relationship of Buyer or its Affiliates to terminate or alter
such relationship, whether contractual or otherwise, to the
disadvantage of Buyer or its Affiliates, as the case may be, (y)
encourage any customer or supplier not to enter into a business
relation ship with Buyer or its Affiliates or (z) impair or attempt to
impair any relation ship, contractual or otherwise, between Buyer or
its Affiliates or any of their customers, suppliers or other business
relationships. As used in this Agreement, the term "solicit to employ"
shall not include general solicitations not specifically directed
toward employees of Buyer or its Affiliates; or
(iii) the provisions of clauses (i) and (ii) above
will not apply in the event of a change in control of Seller, including
as a result of a merger resulting in Seller's then-current stockholders
owning less than a majority of the outstanding voting securities of the
entity resulting from such merger, or sale of all or substantially all
of the assets or outstanding voting securities of Seller, if the entity
which takes control of Seller derived, immediately prior to such
change\ in control, substantial revenues from Prohibited Activities.
(b) The parties agree that damages at law for violation of the
provisions of this Section 4.7 may not be an adequate remedy and that if Seller
or its Affiliates violate any of the provisions thereof, in addition to any
other available rights or remedies, Buyer, its Affiliates and their successors
and assigns, shall be entitled to seek temporary or permanent injunctive relief
with regard to such violation. The parties recognize that laws and public
policies of the jurisdictions may differ as to the validity and enforceability
of covenants similar to those set forth in this Section 4.7. It is the intention
of the parties that the provisions of this Section 4.7 be enforced to the
fullest extent permissible under the laws and policies of each jurisdiction in
which enforcement of this Section 4.7 may be sought, and that the
unenforceability (or the modification to conform to such laws or policies) of
any provisions of this Section 4.7 shall not render unenforceable, or impair,
the remainder of the provisions of this Section 4.7. Accordingly, if any
provision of this Section 4.7 shall be determined to be invalid or
unenforceable, such invalidity or unenforceability shall be deemed to apply only
with respect to the operation of such provision in the particular jurisdiction
in which such determination is made and not with respect to any other provision
or jurisdiction.
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SECTION 4.8 USE OF "IVAX" NAME. Buyer agrees and agrees to
cause the Company or its Subsidiaries not to use the "IVAX" name, trademark
(including the "double equilateral triangle design"), tradename or logo
(including the hourglass logo) at any time after the Closing Date.
SECTION 4.9 AFFILIATE TRANSACTIONS. Except as set forth in
Section 4.9 of the Disclosure Schedule, immediately prior to the Closing, all
indebtedness and other amounts owing under any arrangement between Seller or any
officer, director or Affiliate (other than the Company or any of its
Subsidiaries) of Seller, on the one hand, and the Company or any of its
Subsidiaries, on the other, will be paid in full, and Seller will terminate and
will cause any such officer, director or Affiliate to terminate each such
arrangement with the Company or any of its Subsidiaries.
SECTION 4.10 FURTHER ASSURANCES.
(a) Prior to Closing, each party agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations or as reasonably requested by the other party to consummate and make
effective the transactions contemplated by this Agreement. At any time or from
time to time after the Closing, Seller shall execute and deliver to Buyer such
other documents and instruments, provide such materials and information, and
take such other action as Buyer may reasonably request to make effective the
transactions contemplated by this Agreement.
(b) Seller shall use all reasonable efforts to assist Buyer,
Deloitte & Touche LLP and Arthur Andersen LLP, at Buyer's cost and expense, in
the preparation of historical financial statements of the Company and its
Subsidiaries which Buyer may be required to file in a current report on Form 8-K
pursuant to the requirements of the Exchange Act including, without limitation,
the unaudited balance sheet of the Company as of March 31, 1997 and the related
unaudited statements of income and cash flow for the three-month period ended
March 31, 1997, the statement of cash flow for the three-month period ended
March 31, 1998, and the unaudited balance sheets of the Company as of June 30,
1998 and 1997 and the related unaudited statements of income and cash flow for
the three- and six-month periods ended June 30, 1998 and 1997.
(c) After the Closing Date, Buyer shall execute and deliver to
Seller such other documents and instruments, provide such materials and
information,
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and take such other action as Seller or its designees may reasonably request to
make effective the transactions contemplated in Section 4.11.
SECTION 4.11 POST-CLOSING PURCHASE TRANSACTIONS.
(a) Seller or its designees shall have an option to arrange
for a third party not affiliated with Seller, including without limitation, a
trust or similar escrow agent, (the "THIRD PARTY PURCHASER") to purchase the
Dermablend Business from Buyer for a payment to Buyer of $15 million (it being
understood that any amount paid by the Third Party Purchaser exceeding $15
million will be paid to Seller), PROVIDED that the Seller has delivered written
notice to Buyer of its election to arrange for the purchase the Dermablend
Business at least two business days prior to the Closing Date. Following the
delivery of such written notice, the Third Party Purchaser shall purchase, and
Buyer will sell, the Dermablend Business on the Closing Date immediately
following the Closing. At such closing, either the Third Party Purchaser or
Seller on behalf of the Third Party Purchaser will deliver to Buyer $15 million
by cashier's check or wire transfer of immediately available funds to an account
designated by Buyer in exchange for the transfer of the Dermablend Business,
free and clear of all Encumbrances created by Buyer. The Dermablend Business may
be transferred, at Seller's election, either in the form of (i) the transfer of
all of the stock of Flori Roberts Inc. if the Dermablend Business is transferred
together with the National Cosmetics Business; (ii) an asset sale by Flori
Roberts Inc.; (iii) a transfer by Flori Roberts Inc. of all of the membership
interests of a new limited liability company (a "LLC") that may be formed prior
to Closing pursuant to Section 4.11(c) or (iv) such other form of transfer
reasonably acceptable to Buyer.
The "DERMABLEND BUSINESS" means all the rights, title and
interest to all of the assets (including contracts and leases) used or held for
use in connection with the operation of the business of selling corrective
cosmetics under the brand name "Dermablend," including, without limitation, all
associated intellectual property used primarily in such business to the extent
not material to the Company's business to be retained by Buyer, and all
associated liabilities, PROVIDED that if Buyer retains the Dermablend Business
and, pursuant to Section 4.11(b), sells the National Cosmetics Business and the
Iman Business, the Dermablend Business will also include the net accounts
receivable (other than the Designated Receivables (as defined below)), bank
overdraft, accounts payable and accrued expenses related to the National
Cosmetics Business and the Iman Business as of the Closing Date.
(b) Buyer shall have the option to require Seller or its
designees to purchase, and Seller or its designees shall have the option to
purchase, the National
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Cosmetics Business (as defined) and the Iman Business (as defined) together and
not separately PROVIDED that either party has delivered written notice to the
other party of its election to have Seller or its designees purchase the
National Cosmetics Business and the Iman Business at least two business days
prior to Closing. Following the delivery of such written notice by either party,
Seller or its designees shall purchase, and Buyer will sell to Seller or its
designees, the National Cosmetics and Iman Businesses on the Closing Date
immediately following the Closing. At such closing, Seller or its designees, as
the case may be, shall deliver to Buyer $1 by check in exchange for the transfer
of the National Cosmetics Business and Iman Business, in each case free and
clear of all Encumbrances created by Buyer. The National Cosmetics Business may
be transferred, at Seller's election, either in the form of (i) the transfer of
all of the stock of Flori Roberts Inc. if the National Cosmetics Business is
transferred together with the Dermablend Business; (ii) an asset sale by Flori
Roberts Inc.; (iii) a transfer by Flori Roberts Inc. of all of the membership
interests of a new LLC that may be formed prior to Closing pursuant to Section
4.11(c) or (iv) such other form of transfer reasonably acceptable to Buyer. The
Iman Business may be transferred, at Seller's election, in the form of (i) the
transfer of all of the stock of Flori Roberts Inc. if the Iman Business is both
contributed to Flori Roberts Inc. and the Iman Business is transferred together
with the Dermablend Business; (ii) an asset sale by the Company; (iii) a
transfer by the Company of all of the membership interests of a new LLC that may
be formed prior to Closing pursuant to Section 4.11(c) or (iv) such other form
of transfer reasonably acceptable to Buyer. Notwithstanding the foregoing, if
the National Cosmetics Business and the Iman Business are transferred together
with the Dermablend Business, to the extent practicable, such transfer will be
accomplished by (x) a transfer of the Iman Business to Flori Roberts Inc.
followed by (y) a transfer of all of the stock of Flori Roberts Inc., subject to
there being no adverse tax or economic consequences (with adverse tax
consequences meaning taxes incremental to those incurred by using another method
of structuring such transfers) to Buyer or Seller or their affiliates therefrom.
The "NATIONAL COSMETICS BUSINESS" means all the rights, title
and interest to all of the assets (including contracts and leases) used or held
for use in connection with the operation of the business of selling ethnic
cosmetics under the brand names "Flori Roberts,""Patti LaBelle" and "Wu-Tang",
all associated intellectual property used primarily in such business to the
extent not material to the Company's business to be retained by Buyer, PROVIDED
that if Buyer retains the Dermablend Business and, pursuant to Section 4.11(b),
sells the National Cosmetics Business and the Iman Business, the net accounts
receivable (other than the Designated Receivables), bank overdraft, accounts
payable and accrued expenses related to the National Cosmetics Business will be
retained by the Buyer as part of the
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Dermablend Business. The "IMAN BUSINESS" means all the rights, title and
interest to all of the assets (including contracts and leases) used or held for
use in connection with the operation of the business of selling cosmetics under
the "IMAN" brand name, all associated intellectual property used primarily in
such business to the extent not material to the Company's business to be
retained by Buyer and all associated liabilities, PROVIDED that if Buyer retains
the Dermablend Business and, pursuant to Section 4.11(b), sells the National
Cosmetics Business and the Iman Business, the net accounts receivable (other
than the Designated Receivables), bank overdraft, accounts payable and accrued
expenses related to the Iman Business will be retained by the Buyer as part of
the Dermablend Business.
The "DESIGNATED RECEIVABLES" means a group of net receivables
of the National Cosmetics Business and/or the Iman Business with aggregate net
value of not more than $1,500,000 which, prior to Closing, will be specifically
designated by Seller in a manner reasonably acceptable to Buyer according to
customer, invoice number or other means of identification and which may be
purchased by Seller or its designees for $1.00 if Buyer retains the Dermablend
Business and, pursuant to Section 4.11(b), sells the National Cosmetics Business
and the Iman Business. If the Designated Receivables include accounts receivable
from customers that also owe to Buyer accounts receivable retained by Buyer
after the Closing, Buyer will control the collections from such customers
pursuant to the transition service agreement contemplated by Section 4.11(c).
Seller agrees that the Designated Receivables will be selected in a manner so
that weighted average age of the Designated Receivables will not be less, in any
material respect, from the weighted average age of the accounts receivable
retained by Buyer after the Closing Date.
(c) Notwithstanding the provisions of Section 4.1, Seller will
have the right (i) to restructure the Company prior to the Closing to (A)
transfer the Dermablend Business to a new single member LLC to be held by Flori
Roberts Inc., (B) transfer the National Cosmetics Business to a new single
member LLC to be held by Flori Roberts Inc. and (C) transfer the Iman Business
to Flori Roberts Inc. or to a newly formed LLC to be held by the Company or
Flori Roberts Inc. and (ii) to take such other steps as may be necessary to
facilitate the transactions contemplated by this Section 4.11, including,
without limitation, entering into reasonable contracts to (x) sell (either
directly or by selling the options described in Sections 4.11(a) and (b)) the
National Cosmetics Business, the Iman Business or the Dermablend Business, (y)
provide transition services to any purchasers of such businesses at cost
(including, without limitation, collection of accounts receivable and trades
payable processing services) and (z) license on a non-exclusive, royalty-free
basis certain Company Intellectual Property Rights to the Buyer and the
purchasers of any such business to
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allow such entities to continue to use such Company Intellectual Property Rights
in manner consistent with past practice. Buyer agrees to maintain the legal
entity status of each such business as it exists at the Closing for purposes of
completing any sale pursuant to Section 4.11(a) or (b).
(d) If written notice has been delivered pursuant to Section
4.11(a) or (b) (each referred to as a "PURCHASE NOTICE"), then during the period
between Closing and the transfer of the applicable business, Buyer will (i)
operate the business to be transferred to Seller or its designees in the
ordinary course of business, (ii) not take any actions that would be prohibited
under Section 4.1 with regard to the Dermablend Business, National Cosmetics
Business or Iman Business as if all reference to the "Company" in Section 4.1
referred to the applicable business and "Seller" referred to Buyer in Section
4.1, (iii) not sell, transfer, assign, or take any action that would result in
the creation of an Encumbrance other than Permitted Encumbrances on (A) any of
the assets of any of the Dermablend Business, the National Cosmetics Business
and the Iman Business; (B) the membership interests of any LLC created pursuant
to Section 4.11(c) or (C) the stock of Flori Roberts Inc. and (iv) not take any
other action that will inhibit the transactions contemplated by this Section
4.11 in any material respect.
(e) Seller and Buyer agree that the transfer documents used to
complete the purchases referred to in Section 4.11(a) and (b) and the transfers
referred to in Section 4.11(c) shall (i) be in forms mutually acceptable to
Seller and Buyer to ensure that such purchases will not result in (A) any
adverse tax conse quences for Buyer or Seller or their affiliates (with adverse
tax consequences meaning taxes incremental to those incurred by using another
method of structuring such transfers), (B) the making of any representations or
warranties by Buyer except for customary representations regarding due
authorization to enter into and perform the transaction or (B) the granting of
any indemnities or liabilities to the purchasers of such businesses by the
Company, Buyer, or Buyer's affiliates and (ii) expressly state that the buyers
of the businesses waive any rights that they may have against the Company, Buyer
or Buyer's affiliates arising out of or relating to the condition or operation
of the business, PROVIDED that such statement will not render or impair any
rights Seller has against Buyer and its affiliates hereunder.
(f) Notwithstanding the provisions of Section 4.3(a), Buyer
and Seller agree that (i) the amount of MADSP to be allocated to the Dermablend
Business shall be equal to $15 million plus the amount of the liabilities to be
assumed by the purchasers of such business pursuant to Section 4.11(a) and (ii)
the amount of the MADSP to be allocated to the National Cosmetics Business and
the Iman
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Business shall be equal to an amount of the liabilities to be assumed by the
purchaser of such businesses pursuant to Section 4.11(b).
ARTICLE V
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION BY SELLER. Subject to the limits
set forth in this Article V, Seller agrees to indemnify, defend and hold Buyer,
its officers, directors, agents and Affiliates, harmless from and in respect of
any and all losses, damages, costs and reasonable expenses (including, without
limitation, reasonable expenses of investigation and defense fees and
disbursements of counsel and other professionals), in each case in excess of
$2,500 (collectively, "LOSSES"), (i) that they may incur arising out of or due
to the inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of Seller contained in this Agreement or the
Disclosure Schedule (determined, without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein other than with
respect to the use of such qualifications in Sections 2.5, 2.7 and 2.8, the last
sentence of Section 2.21 and the use of the terms "Material Agreement" and
"Company Intellectual Property Rights" each of which includes materiality
qualifiers); (ii) that arise out of the Pro-Line Litigation; (iii) that arise
out of the operation or condition of the Dermablend Business or relate to the
liabilities of the Dermablend Business, if Buyer has sold such business pursuant
to Section 4.11; (iv) that arise out of the operation or condition of the
National Cosmetics Business or the Iman Business or relate to the liabilities of
the National Cosmetics Business or Iman Business if Buyer has sold such business
pursuant to Section 4.11; and (v) that arise out of the operation or condition
of Flori Roberts Inc. prior to the Closing or relate to liabilities of Flori
Roberts Inc. immediately prior to the Closing, if Flori Roberts Inc. remains a
subsidiary of the Company following the sale of the Dermablend Business, the
National Cosmetics Business and the Iman Business pursuant to Sections 4.11(a)
and (b), except for liabilities arising out of or relating to the operation of
the hair care and Posner businesses retained by Buyer; PROVIDED, HOWEVER, that
the indemnification pursuant to Sections 5.1 (iii), (iv) or (v) will not be
available to the extent such Losses or liabilities arise out of a violation by
Buyer of Section 4.11(d).
SECTION 5.2 INDEMNIFICATION BY BUYER. Subject to the limits
set forth in this Article V, Buyer agrees to indemnify, defend and hold Seller,
its officers, directors, agents and Affiliates, harmless from and in respect of
any and all Losses that they may incur arising out of or due to any inaccuracy
of any representation or
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the breach of any warranty, covenant, undertaking or other agreement of Buyer
contained in this Agreement (determined without giving effect to any limitation
as to "materiality" or "material adverse effect" set forth therein).
SECTION 5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
several representations and warranties of the parties contained in this
Agreement or in any instrument delivered pursuant hereto will survive the
Closing Date and will remain in full force and effect thereafter for a period of
eighteen months from the Closing Date (the "CUT-OFF DATE"); PROVIDED, HOWEVER,
that the representations and warranties contained in Section 2.12 shall survive
the Closing Date for 90 days following the expiration of all applicable statutes
of limitations (including extensions); PROVIDED, FURTHER, that such
representations or warranties shall survive (if at all) beyond such period with
respect to any inaccuracy therein or breach thereof, notice of which shall have
been duly given within such applicable period in accordance with Section 5.4.
Anything to the contrary contained herein notwithstanding, neither party shall
be entitled to recover from the other unless and until the total of all claims
for indemnity or damages with respect to any inaccuracy or breach of any such
represen tations or warranties or breach of any covenants, undertakings or other
agreements set forth in Section 4.1 and whether such claims are brought under
this Article V or otherwise, exceeds three percent (3%) of the Purchase Price
and then only for the amount by which such claims for indemnity or damages
exceeds three percent (3%) of the Purchase Price; PROVIDED, HOWEVER, that no
party shall be entitled to recover from the other more than twenty-five percent
(25%) of the Purchase Price in the aggregate pursuant to this Article V for
indemnity or damages with respect to any inaccuracy or breach of any such
representations or warranties or any breach of the covenants, undertakings or
other agreements set forth in Section 4.1.
SECTION 5.4 NOTICE AND OPPORTUNITY TO DEFEND. If an event
occurs which a party asserts is an indemnifiable event pursuant to Section 5.1
or 5.2, the party seeking indemnification shall promptly notify the other party
obligated to provide indemnification (the "INDEMNIFYING PARTY"), PROVIDED,
HOWEVER, that the failure to provide prompt notice as provided herein will
relieve the Indemnifying Party of its obligations hereunder only to the extent
that such failure prejudices the Indemnifying Party hereunder. If such event
involves (i) any claim or (ii) the commencement of any action or proceeding by a
third person, the party seeking indemnification will give such Indemnifying
Party prompt written notice of such claim or the commencement of such action or
proceeding, PROVIDED, HOWEVER, that the failure to provide prompt notice as
provided herein will relieve the Indemnifying Party of its obligations hereunder
only to the extent that such failure prejudices the Indemnifying Party
hereunder. In case any such action shall be brought against any party seeking
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indemnification and it shall notify the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate therein and, to
the extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such party seeking indemnification, PROVIDED that the
Indemnifying Party will be deemed to have waived any right to dispute its
liability under this Agreement with respect to such action to the party seeking
indemnification for such action. After notice from the Indemnifying Party to
such party seeking indemnification of such election so to assume the defense
thereof, the Indemnifying Party shall not be liable to the party seeking
indemnification hereunder for any legal expenses of other counsel or any other
expenses subsequently incurred by such party in connection with the defense
thereof. The party seeking indemnification agrees to cooperate fully with the
Indemnifying Party and its counsel in the defense against any such asserted
liability. The party seeking indemnification shall have the right to participate
at its own expense in the defense of such asserted liability. In no event shall
an Indemnifying Party, or the party being indemnified, be liable for any
settlement effected without its consent which will not be unreasonably withheld.
SECTION 5.5 ADJUSTMENT FOR INSURANCE AND TAXES. The amount
which an Indemnifying Party is required to pay to, for or on behalf of the other
party (hereinafter referred to as an "INDEMNITEE") pursuant to this Article V
and Section 4.3 shall be adjusted (including, without limitation, retroactively)
(i) by any insurance proceeds actually recovered by or on behalf of such
Indemnitee in reduction of the related indemnifiable loss (the "INDEMNIFIABLE
LOSS") and (ii) to take account of any Tax benefit realized as a result of any
Indemnifiable Loss. Amounts required to be paid, as so reduced, are hereinafter
sometimes called an "INDEMNITY PAYMENT." If an Indemnitee has received or has
had paid on its behalf an Indemnity Payment for an Indemnifiable Loss and
subsequently receives insurance proceeds for such Indemnifiable Loss, or realize
any Tax benefit as a result of such Indemnifiable Loss, then the Indemnitee
shall promptly (i) notify the Indemnifying Party of the amount and nature of
such proceeds and benefits and (ii) pay to the Indemnifying Party the amount of
such insurance proceeds or Tax benefit or, if lesser, the amount of the
Indemnity Payment.
SECTION 5.6 MITIGATION OF LOSS. Each Indemnitee is obligated
to use all reasonable efforts to mitigate, to the fullest extent practicable,
the amount of any Loss for which it is entitled to seek indemnification
hereunder (including, without limitation, seeking reimbursement for losses
pursuant to contractual rights with vendors). The Indemnifying Party shall not
be required to make any payment to an Indemnitee in respect of such Loss to the
extent such Indemnitee failed to comply with the foregoing obligation.
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SECTION 5.7 SUBROGATION. Upon making any Indemnity Payment,
the Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to which
the payment relates; PROVIDED, HOWEVER, that until the Indemnitee recovers full
payment of its Loss, any and all claims of the Indemnifying Party against any
such third party on account of such payment are hereby made expressly
subordinated and subjected in right of payment of the Indemnitee's rights
against such third party. Without limiting the generality of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above
described subrogation and subordination rights.
SECTION 5.8 TAX INDEMNIFICATION. None of the provisions of
this Article V, with the exception of Sections 5.5 and 5.10, shall apply to the
claims, obligations, liabilities, covenants and representations under Section
4.3, which shall be governed solely by the terms thereof, PROVIDED that Buyer
may seek indemnity for Losses under this Article V with respect to a breach of
the representations and warranties of Seller contained in Section 2.12 to the
extent such Losses are not covered by Section 4.3. The terms of Section 4.3
shall supercede the terms of this Article V where such terms conflict.
SECTION 5.9 SET-OFF. Neither Seller nor Buyer shall have any
right to set-off any Losses against any payments to be made by such party or
parties pursuant to this Agreement, except as otherwise expressly provided
herein.
SECTION 5.10 EXCLUSIVE REMEDY. Following the Closing, the
indemnities provided for in Section 4.3 and this Article V shall be the sole and
exclusive remedies of the parties and their respective officers, directors,
employees, Affiliates, agents, representatives, successors and assigns for any
breach of or inaccuracy in any representation or warranty or any breach,
nonfulfillment or default in the performance of any of the covenants or
agreements contained in this Agreement (but not any such covenants or agreements
to the extent they are by their terms to be performed after the Closing Date).
The parties shall not be entitled to a recission of this Agreement or to any
further indemnification rights or claims of any nature whatsoever in respect
thereof (whether by contract, common law, statute, law, regulation or otherwise,
including without limitation, under the Racketeer Influence and Corrupt
Organizations Act of 1970, as amended) all of which the parties hereby waive,
PROVIDED, HOWEVER, that nothing herein is intended to waive any claims for
fraud.
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ARTICLE VI
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE CLOSING. The obligations of Seller, on the one hand, and Buyer, on the other
hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of the
following conditions:
(a) no arbitrator or Governmental Entity shall have issued any
order, decree or ruling, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the material
transactions contemplated by this Agreement, PROVIDED that the parties will
have used all reasonable efforts to cause any such order, decree, ruling,
statute, rule or regulation to be vacated or lifted;
(b) any waiting period applicable to the transactions
contemplated hereby under the HSR Act shall have expired or been terminated; and
(c) all authorizations, approvals or consents from any
Governmen tal Entity required to permit the consummation of the transactions
contemplated hereby shall have been obtained and be in full force and effect,
except where the failure to have obtained any such authorizations, approvals or
consents would not have a Company Material Adverse Effect or a Buyer Material
Adverse Effect, as the case may be.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Buyer) of the following conditions:
(a) the representations and warranties of Seller shall be true
and accurate as of the Closing Date as if made at and as of such time (other
than those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need to
be true and accurate only as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein), would not have a Company Material
Adverse Effect; PROVIDED, that a Company Material Adverse Effect relating to the
Dermablend Business, the National Cosmetics Business or the Iman Business will
not be deemed a Company Material Adverse Effect for purposes of this
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Section 6.2(a) if Buyer is to sell such business pursuant to Sections 4.11(a) or
(b), as applicable.
(b) Seller shall have performed in all material respects the
obligations hereunder required to be performed by it at or prior to the Closing
Date;
(c) Buyer shall have received a certificate signed on behalf
of Seller by one executive officer of Seller, dated as of the Closing Date, to
the effect that, the conditions set forth in Section 6.2(a) and Section 6.2(b)
have been satisfied;
(d) all authorizations, approvals or consents from any third
party (other than a Governmental Entity) required to permit the consummation of
the transactions contemplated hereby shall have been obtained and be in full
force and effect, except where the failure to have obtained any such
authorizations, approvals or consents would not have a Company Material Adverse
Effect;
(e) if required pursuant to Section 4.11(b), Seller or its
designees are reasonably prepared and able to purchase the National Cosmetics
Business and the Iman Business from Buyer immediately following the Closing; and
(f) any director of the Company or any of its Subsidiaries
whose resignation shall have been requested by Buyer shall have submitted his or
her resignation to Buyer effective as of the Closing Date.
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The
obligations of Seller to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Seller) of the following further
conditions:
(a) The representations and warranties of Buyer shall be true
and accurate as of the Closing Date as if made at and as of such time (other
than those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need to
be true and accurate only as of such date or with respect to such period),
except where the failure of such representa tions and warranties to be so true
and accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) would not have a Buyer Material
Adverse Effect;
(b) Buyer shall have performed in all material respects all of
the obligations hereunder required to be performed by Buyer, at or prior to the
Closing Date; and
48
<PAGE>
(c) Seller shall have received a certificate signed on behalf
of Buyer by one executive officer of Buyer, dated as of the Closing Date, to the
effect that the conditions set forth in Section 6.3(a) and Section 6.3(b) have
been satisfied.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing Date:
(a) by the mutual consent of Seller and Buyer;
(b) by Seller or Buyer:
(i) if the Closing shall not have occurred on or
prior to September 15, 1998 (or October 30, 1998 if the only condition
remaining unfilled at September 15, 1998 is approval by any required
Governmental Entity, and Seller and Buyer are continuing to seek to
obtain such approval); PROVIDED, HOWEVER, that the right to terminate
this Agreement under this Section 7.1(b)(i) shall not be available to
any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Closing to
occur on or prior to such date; or
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties shall use their best efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the material transactions contemplated by this Agreement,
and such order, decree, ruling or other action shall have become final
and non-appealable;
(c) by Seller if Buyer (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect and such breach would have a Buyer Material Adverse Effect, in
each case such that the conditions set forth in Section 6.1 or Section 6.3 would
not be satisfied; PROVIDED, HOWEVER, that if any such breach is curable by Buyer
through the exercise of Buyer's
49
<PAGE>
best efforts and for so long as Buyer shall so use its best efforts to cure such
breach, Seller may not terminate this Agreement pursuant to this Section 7.1(c);
or
(d) by Buyer if Seller (x) breaches or fails in any material
respect to perform or comply with any of their material covenants and agreements
contained herein or (y) breaches its representations and warranties in any
material respect and such breach would have a Company Material Adverse Effect,
in each case such that the conditions set forth in Section 6.1 or Section 6.2
would not be satisfied; PROVIDED, HOWEVER, that if any such breach is curable by
Seller through the exercise of Seller's best efforts and for so long as Seller
shall so use its best efforts to cure such breach, Buyer may not terminate this
Agreement pursuant to this Section 7.1(d).
SECTION 7.2 PROCEDURE AND EFFECT OF TERMINATION. In the event
of the termination and abandonment of this Agreement by Seller or Buyer pursuant
to Section 7.1, written notice thereof shall forthwith be given to the other
party. If the transactions contemplated by this Agreement are terminated as
provided herein:
(a) each party will return all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by either party with
respect to the business of any other party or its subsidiaries or Affiliates
shall be treated in accordance with the provisions of the Confidentiality
Agreement, which shall survive the termination of this Agreement; and
(c) neither party will have any liability under this Agreement
to the other except (i) as stated in subparagraphs (a) and (b) of this Section
7.2, (ii) for any willful breach of any provision of this Agreement and (iii) as
provided in the Confidentiality Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION. The
laws of the state of Illinois (irrespective of its choice of law principles)
shall govern all issues concerning the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties. Each party
50
<PAGE>
irrevocably submits to the exclusive jurisdiction of the federal courts of the
United States of America for the Northern District of Illinois located in
Chicago (and the Federal courts having jurisdiction over appeals therefrom) in
respect of the transactions contemplated by this Agreement, the other agreements
and documents referred to herein and the transactions contemplated by this
Agreement and such other documents and agreements.
SECTION 8.2 AMENDMENT AND MODIFICATION. Subject to applicable
law, this Agreement may be amended, modified and supplemented in any and all
respects by written agreement of the parties at any time prior to the Closing
Date with respect to any of the terms contained herein.
SECTION 8.3 NOTICES. All notices, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand or by FedEx or a similar overnight
courier, (b) five days after being deposited in any United States Post Office
enclosed in a postage prepaid, registered or certified envelope addressed or (c)
when successfully transmitted by telecopier (with a confirming copy of such
communication to be sent as provided in clause (a) or (b) above), to the
receiving party at the address or telecopier number set forth below (or at such
other address or telecopier number for a party as shall be specified by like
notice, PROVIDED, HOWEVER, that any notice of change of address or telecopier
number shall be effective only upon receipt):
(a) if to Buyer, to:
Carson, Inc.
c/o Morningside Capital Group, L.L.C.
One Morningside Drive North, Suite 200
Westport, CT 06880
Telephone No.: (203) 226-7664
Telecopy No.: (203) 226-8011
Attention: Vincent A. Wasik
and to:
Carson Products Company
P.O. Box 22309
Savannah, GA 31403
Telephone No.: (912) 651-3808
Telecopy No.: (912) 651-3990
51
<PAGE>
Attention: Robert W. Pierce
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Telephone No.: (212) 530-5000
Telecopy No.: (212) 530-5219
Attention: Lawrence Lederman, Esq.
and Robert S. Reder, Esq.
(b) if Seller, to:
IVAX Corporation
4400 Biscayne Boulevard
Miami, FL 33137
Telephone : (305) 575-6000
Telecopy No: (305) 575-6298
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: (312) 407-0700
Telecopy No.: (312) 407-0411
Attention: Peter C. Krupp, Esq.
SECTION 8.4 INTERPRETATION.
(a) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified. The words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. The phrase "to the knowledge
52
<PAGE>
of" or any similar phrase shall mean such facts and other information which as
of the date of determination are actually known to James M. Millsap, Chief
Executive Officer of the Company; Thomas Polke, Chief Operating Officer of the
Company; Sharon Boone, Vice President, Sales and Marketing of the Company;
Robert Kavanaugh, Vice President, Finance and Administration of the Company;
James Harbert, Vice President, Operations of the Company; or Joseph P. Diebold.
The phrase "made available" in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. The phrases "the date of this Agreement,"
"the date hereof" and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to June 16, 1998. As used in this Agreement,
the term "BUSINESS DAY" means a day, other than a Saturday or a Sunday, on which
banking institutions in The City of New York are required to be open. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement.
(b) The Disclosure Schedule shall be construed with and as an
integral part of this Agreement as if the same had been set forth verbatim
herein. Any matter disclosed pursuant to the Disclosure Schedule shall be deemed
to be disclosed for all purposes under this Agreement, but such disclosure shall
not be deemed to be an admission or representation as to the materiality of the
item so disclosed.
(c) Headings are for convenience of the parties only and shall
be given no substantive or interpretative effect whatsoever.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, all of which shall together be considered one and the
same agreement.
SECTION 8.6 ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement and the Disclosure Schedule (i) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and (ii),
except as provided herein, are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
53
<PAGE>
SECTION 8.7 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 SERVICE OF PROCESS. Each party irrevocably
consents to the service of process outside the territorial jurisdiction of the
courts referred to in Section 8.1 in any such action or proceeding by mailing
copies thereof by registered United States mail, postage prepaid, return receipt
requested, to its address as specified in or pursuant to Section 8.3. However,
the foregoing shall not limit the right of a party to effect service of process
on the other party by any other legally available method.
SECTION 8.9 SPECIFIC PERFORMANCE. Each party acknowledges and
agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties will (a) waive, in
any action for specific performance, the defense of adequacy of a remedy at law
and (b) be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement
in any action instituted in accordance with Section 8.1.
SECTION 8.10 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
(whether by operation of law or otherwise) without the prior written consent of
the other party; PROVIDED, HOWEVER, that (i) Buyer may assign its rights
hereunder to any direct or indirect wholly-owned Subsidiary of Buyer or to any
person or entity which acquires, in one or a series of transactions, all of the
assets and properties of the Company and its Subsidiaries, provided such person
or entity agrees to assume Buyer's obligations hereunder in a form reasonably
acceptable to Seller and (ii) Seller may assign this Agreement to any person or
entity that acquires, in one or a series of transactions, all or substantially
all of the assets or shares of Seller, including through a merger or a share
exchange. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective permitted successors and assigns.
SECTION 8.11 EXPENSES. Except as otherwise provided herein,
all costs and expenses incurred in connection with the transactions contemplated
hereby, this Agreement and the consummation of the transactions contemplated
hereby shall
54
<PAGE>
be paid by the party incurring such costs and expenses, whether or not the
transac tions contemplated hereby is consummated, PROVIDED that Buyer shall pay
all fees associated with any filings made under the HSR Act in connection with
the transac tions contemplated by this Agreement.
SECTION 8.12 WAIVERS. Except as otherwise provided in this
Agreement, any failure of either party to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
SECTION 8.13 NO DOUBLE RECOVERY. Notwithstanding anything
herein to the contrary, neither party shall be entitled to indemnification or
reimburse ment under any provision of this Agreement for any amount to the
extent such party has been indemnified or reimbursed for such amount under any
other provision of this Agreement or otherwise.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
IVAX CORPORATION
By:
---------------------------------------------
Name: James M. Millsap
Title: Senior VP, Corporate Development
CARSON, INC.
By:
---------------------------------------------
Name: Vincent A. Wasik
Title: Chief Executive Officer
<PAGE>
ANNEX A
INDEX OF DEFINED TERMS
DEFINED IN
TERMS SECTION
- ----- -------
Affiliate(s)...........................................................3.6
Agreement..............................................................Preamble
Balance Sheet..........................................................2.13
Bankruptcy Code........................................................3.8
Benefit Plan...........................................................2.9(k)
business day...........................................................8.4(a)
Buyer..................................................................Preamble
Buyer Material Adverse Effect..........................................3.1
Buyer Plans............................................................4.4(a)
Closing................................................................1.3(a)
Closing Date...........................................................1.3(a)
Closing Statement......................................................1.4(a)
Code...................................................................2.12(m)
Code /section/ 338 Forms...............................................4.3(a)
Company................................................................Preamble
Company Employee(s)....................................................4.4(a)
Company Intellectual Property Rights...................................2.15
Company Material Adverse Effect........................................2.1
Confidentiality Agreement..............................................4.2
Cut-Off Date...........................................................5.3
December Target Amount.................................................1.4(c)
Defined Benefit Plan...................................................2.9(k)
Dermablend Business....................................................4.11(a)
Designated Receivables.................................................4.11(b)
Disclosure Schedule....................................................2.1
Elections..............................................................4.3(a)
Employee Arrangement...................................................4.4(b)
Encumbrances...........................................................1.1
Environmental Laws.....................................................2.17(b)
ERISA..................................................................2.9(k)
ERISA Affiliate........................................................2.9(k)
Exchange Act...........................................................3.6
Final Closing Statement................................................1.4(c)
Financial Statements...................................................2.6
GAAP...................................................................2.6
Governmental Entity....................................................2.5
A-1
<PAGE>
DEFINED IN
TERMS SECTION
- ----- -------
Hazardous Substances...................................................2.17(b)
HSR Act................................................................2.5
Iman Business..........................................................4.11(b)
Indemnifiable Loss.....................................................5.5
Indemnifying Party.....................................................5.4
Indemnitee.............................................................5.5
Indemnity Payment......................................................5.5
Intellectual Property Rights...........................................2.15
LLC....................................................................4.11(a)
Losses.................................................................5.1
MADSP..................................................................4.3(a)
March Target Amount....................................................1.4(e)
Material Agreement.....................................................2.16
National Cosmetics Business............................................4.11(b)
Neutral Auditor........................................................1.4(c)
PBGC...................................................................2.9(k)
Permits................................................................2.11(a)
Permitted Encumbrances.................................................2.13
Plan...................................................................2.9(k)
Pre-Closing Consolidated Tax Returns...................................4.3(e)
Pre-Closing Separate Tax Returns.......................................4.3(e)
Pre-Closing Tax Return.................................................4.3(e)
Prime Rate.............................................................1.4(e)
Prohibited Activities..................................................4.7(a)
Pro-Line Litigation....................................................1.2(a)
Purchase Notice........................................................4.11(d)
Purchase Price.........................................................1.2(a)
Qualified Plan.........................................................2.9(k)
Releases...............................................................2.17(a)
Resolution Period......................................................1.4(b)
Seller.................................................................Preamble
Shares.................................................................Preamble
Subsidiary.............................................................2.1
Tax Return.............................................................2.12(m)
Tax Sharing Agreement..................................................4.3(d)
Taxes..................................................................2.12(m)
Third Party Purchaser..................................................4.11(a)
Transfer Taxes.........................................................4.3(f)
Unaudited Financial Statements.........................................2.6
Working Capital........................................................1.4(a)
A-2
<PAGE>
DEFINED IN
TERMS SECTION
- ----- -------
A-3
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL
The Closing Statement will be determined as set forth in this Annex B. To the
extent the procedures set forth herein are insufficient to determine an amount,
or some portion of an amount, for the Closing Statement, then the determination
of such amount, or portion of an amount, will be determined on a basis
consistent with the policies, procedures and methodologies used to prepare the
Financial Statements.
CASH
Amount per bank in account # 0010018800 at South Shore Bank adjusted for
deposits in transit checks outstanding that have not cleared the bank and other
reconciling items occurring through the Closing.
ACCOUNTS RECEIVABLE, NET
Amounts uncollected as of Closing, for product shipped through the Closing
(irrespective of when such amounts are invoiced), reduced for allowance for
doubtful accounts and reserve for credit memos as determined below.
ALLOWANCE FOR DOUBTFUL
Specific portion of reserve - Provide a reserve of 100% for all
accounts in bankruptcy or sent to a collection agency. Analyze all
accounts greater than 90 days past invoice (other than those accounts
in bankruptcy or sent to a collection agency (or would have been sent
to a collection agency consistent with past practices, even if not
actually sent)) and determine, in a manner consistent with past
practices used to prepare the Financial Statements, a reserve
requirement to cover possible uncollectible amounts.
General portion of reserve - For accounts less than 90 days past
invoice, first reduce the total amount less than 90 days past invoice
for those items already reserved for in the credit memo reserve
analysis (i.e. IBNR, invoices outstand ing more than one year and
customer deductions), then provide a reserve of 2% to the adjusted
amount.
RESERVE FOR CREDIT MEMOS
Specific portion of reserve - Provide a reserve of 100% on invoices
outstand ing for more than one year and on customer deductions taken on
invoices otherwise paid in full (referred to as open debits or customer
deductions outstanding). Analyze all invoices outstanding not covered
by the reserve methodology described in the preceding sentence or by
the reserve methodol ogy described below under "General portion of
reserve" and
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
determine in a manner consistent with past practices used to prepare
the Financial State ments, a reserve requirement to cover possible
uncollectible amounts.
General portion of reserve - For mass market sales outstanding less
than 70 days and for department store sales outstanding less than 48
days (these parameters represent days sales outstanding at December 31,
1997 for each type of receivable) provide a general reserve to cover
claims incurred but not reported ("IBNR") using the reserve percentages
in the following table (these percentages represent 1997 returns
processed as a percent of 1997 sales):
<TABLE>
<CAPTION>
TYPE OF CREDIT MEMO
--------------------------------------------------------------------------
RETURNS AND DEMO CO-OP CASH
BRAND ALLOWANCES SALARIES ADVERTISING DISCOUNTS
<S> <C> <C> <C> <C>
Mass Market 5.79% 0% 2.92% 2.00%
National 3.00% 11.76% 1.61% 0%
Cosmetics
Dermablend 3.00% 10.83% .73% 0%
</TABLE>
INVENTORIES, NET
Inventories, net will be determined as follows:
I. To the extent reasonably practicable, inventory movements should be
halted (receiving and shipping) as of the Closing Date, in order to
avoid any cut-off problems, and physical count of inventory should be
commenced on the Closing Date and should be completed within the next
10 days. Items held by a third party and not physically counted should
be confirmed in writing by such third party.
II. Determine Gross Inventory Value by extending inventory quantities on
hand on the Closing Date (including those not subject to a physical
count in I above) by the standard cost at Closing.
B-2
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
The following variances should be capitalized as of Closing Date.
HAIRCARE:
LABOR AND OVERHEAD COSTS
The average monthly variance between standard and actual for the last
12 months should be computed and be multiplied by the number of months
inventory on hand, determined at December 31, 1997 to 3.67 months. This
amount is reduced by 12% (the amount determined to be E&O as of
December 31, 1997) to derive the final capitalizable amount.
III. The following departments/costs are included to determine the actual
labor and overhead cost pool at the stated capitalization percentages:
DEPARTMENT/COSTS % TO BE CAPITALIZED
------------------------------------------------------------
11 - Administration 75%
12 - Product Screening 100%
13 - Product Filling 100%
14 - Product Packing 100%
16 - Compounding 100%
20 - Receiving 100%
25 - Maintenance/Engineering 50%
26 - Operations Analysis 50%
27 - Purchasing 100%
62 - Quality control 100%
Tools & Dies 100%
28 - Security 50%
90 - Housekeeping 50%
91 - Building expense 50%
FREIGHT
Inbound freight is capitalized in inventory based on inventory turnover
as determined at December 31, 1997, 3.67 months of inventory.
B-3
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
PURCHASE PRICE VARIANCE
Calculation is based on the variance for the number of months in ending
inventory, determined at 3.67 months.
COSMETICS:
LABOR AND OVERHEAD COSTS
The variance between standard and actual should be capitalized,
assuming 1 year's worth of labor of overhead included in inventory at
any time, thus capitalization is based on the last 12 months variance.
The following departments/costs are included to determine the actual
labor and overhead cost pool at the stated capitalization percentages:
21 - Purchasing (cosmetics) 100%
26 - Operations analysis 50%
FREIGHT
Inbound freight is capitalizable based on 1 year's worth of freight,
i.e. the last 12 months of freight. The total freight costs are then
written down by E&O reserve as a % of inventory, determined at December
31, 1997 at 57%.
PURCHASE PRICE VARIANCE
Calculation is based on the last 12 months variance between actual and
standard material cost.
IV. Determine the Excess and Obsolete Inventory Reserve ("E&O Reserve") as
of the Closing using the following methodology:
A. Obsolete Inventory Component of E&O Reserve - Identify items
on an SKU basis, where Company management has determined that
no sales or usage activity will occur over the twelve month
period starting on the last full month preceding the Closing
Date. Management's deter mination will be based as follows:
(a) for finished goods that have existed for
/greater than/ 12 month's, absence of sales during
the last 12 months.
B-4
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
(b) for work in process or raw materials, absence of
usage during the last 12 months AND absence of sales of
the corre sponding finished good(s) for the last 12
months after giving consideration to reasonable
substitution.
The Obsolete Inventory Component of E&O Reserve will equal
100% of SKUs identified in this Section IV.A).
B. Excess Inventory Component of E&O Reserve:
1. For all SKUs except for those identified as obsolete
in IV.A above, calculate, on a SKU basis, the dollar
amount of Gross Inventory Value on the Closing in
excess of the Gross Inventory Value sold or used
during the twelve month period preceding the Closing
(using full months only). One hundred percent (100%)
of this excess represents the Preliminary Excess
Inventory Component of E&O Reserve.
2. Review all SKUs in the Preliminary Excess Inventory
Compo nent of E&O Reserve calculated in IV.B.1 above
to determine whether historical usage is
representative of anticipated usage. Situations where
historical usage would not be representative of
anticipated usage would include new SKUs introduced
within 12 months prior to the Closing, discontinued
items, or promotional SKUs for periods prior to the
Closing where such promotions are not expected to
recur or will recur only at reduced volumes. Increase
or decrease the Preliminary Excess Inventory Compo
nent of E&O Reserve for the estimated impact of items
identified in this section IV.B.2 to determine the
Excess Inventory Compo nent of E&O Reserve.
C. Add the Obsolete Inventory Component of E&O Reserve calculated
in IV.B.1 to the Excess Inventory Component of E&O Reserve
calcu lated in IV.B.2 to determine the E&O Reserve.
V. Determine Net Inventory Value by reducing Gross Inventory Value by the
E&O Reserve.
DEFERRED INCOME TAXES
No calculation of deferred income taxes will be made. Amount per the Closing
Statement will be $0.
B-5
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Promotional inventories will be determined in the same manner as set forth under
the caption "Inventories, Net." Prepaid expenses and other assets will be
determined based on prepayment according to invoice or contract including all
payments made or accrued through Closing related to the compounding system
Project for the Chicago faculty, allocated on straight-line basis over the
service/contract period, where applicable, determined on a basis consistent with
the Financial Statements.
Display units should not be capitalized.
TCM note receivable related to the sale of certain of the Company's brand names
in 1995 is considered long-term since all expected payments for 1998 have been
received and therefore will not be part of the calculation.
BANK OVERDRAFT
Amount will equal $0.
ACCOUNTS PAYABLE
Accounts payable are determined based on outstanding invoices according to ac
counts payable detail ledger, and appropriate reconciling items, as of Closing
date.
In addition, account payable should include unvouched invoices for items that
have been received prior to Closing Date, but the invoice has not been obtained
as of Closing Date ("Other Accounts Payable"). The inventory items received
should be based on standard costs for items obtained.
Short term royalties payable should be based on royalty-% according to
underlying contract.
ACCRUED EXPENSES
Accrued expenses should be determined as follows:
DESCRIPTION BASIS
- ----------- -----
Accrued bonus Bonus by job code and quota attainment,
accrued ratably where applicable
B-6
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
Vacation/sick accrual Based on IVAX sick/vacation report stating
actual days accrued on an employee by
employee basis
Legal accrual Based on last time invoiced and a
computation for periods not yet invoiced,
on historical invoices re ceived, excluding
transaction costs
Accrued freight Based on month's lag, and average weekly
expense to accrue for one month
Other accruals Based on support, estimate for services or
goods obtained as of Closing Date
No amounts will be included for severance, retention or similar items which
Buyer has agreed to pay pursuant to the Purchase Agreement.
Payroll, related payroll taxes and similar items through the Closing will be
either accrued in the Closing Statement and paid by Buyer after the Closing or
excluded from the Closing Statement and paid by Seller after the Closing.
RESERVE FOR COSMETIC RETURNS
Amount will equal the sum of the reserve for J.C. PENNEY BASE BUSINESS, ALL
OTHER DEPARTMENT STORES BASE BUSINESS and PROMOTIONAL/HOLIDAY ITEMS and NEW SKUS
INTRODUCED IN 1998 as determined below.
J.C. PENNEY BASE BUSINESS - Perform following procedures on a SKU basis:
I. Obtain the "Brand Lot/Line Analysis" report from J.C. Penney (the "JCP
Report") for the most recent month-end prior to Closing. This report in
cludes, among other items, year-to-date sales information, product on
hand extended at J.C. Penney selling prices and weeks of product on
hand.
II. Exclude from the JCP Report amounts for promotional/holiday items and
new SKUs introduced in 1998.
III. After adjustment as described in II above, multiply the product on hand
extended at J.C. Penney selling price from the JCP Report by 60% to
deter mine the Company's estimated selling price of such products to
J.C. Penney.
IV. Use the reserve percentages as indicated in following table, applied to
the dollar amount of product at J.C. Penney (at Company selling price)
in each aging category set forth below, to determine the reserve
requirements for J.C. Penney (these percentages were developed for the
1997 audit by Company
B-7
<PAGE>
ANNEX B
PROCEDURES FOR CALCULATING WORKING CAPITAL ON THE CLOSING STATEMENT
(CONTINUED)
management through a specific review, on a SKUs basis, of estimated
sell- through of product in J.C. Penney stores).
<TABLE>
<CAPTION>
RESERVE PERCENTAGE BY BRAND
--------------------------------------------------------
AGING CATEGORY DERMABLEND FLORI ROBERTS/ IMAN
(WEEKS ON HAND) DERMABLEND PATTI LABELLE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 16 0% 0% 0%
16-32 11% 10% 9%
33-52 37% 31% 33%
Over 52 61% 56% 53%
</TABLE>
ALL OTHER DEPARTMENT STORES BASE BUSINESS - Perform the following procedures:
I. Compute the following ratio: All Other Department Stores Base Business
reserve at December 31, 1997 divided by J.C. Penney Base Business
reserve at December 31, 1997.
II. Multiply the ratio determined in I above by the J.C. Penney Base
Business reserve at Closing (as determined in IV above under J.C.
PENNEY BASE BUSINESS) to determine the reserve requirement for All
Other Department Stores Base Business.
PROMOTIONAL/HOLIDAY ITEMS AND NEW SKUS INTRODUCED IN 1998 - This reserve will be
determined based upon a specific review of anticipated sell-through of product
at retail as of the Closing related to promotional/holiday items and new SKUs
introduced in 1998.
B-8
EXHIBIT 10.3
CREDIT AGREEMENT
among
CARSON PRODUCTS COMPANY,
CARSON, INC.
and
IVAX CORPORATION
------------------------
Dated as of July 14, 1998
------------------------
$50,000,000
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1. Amount and Terms of Credit.........................................1
1.01. Term Loan..........................................................1
1.02. Note...............................................................1
1.03. Interest...........................................................2
SECTION 2. Payments...........................................................2
2.01. Voluntary Prepayments..............................................2
2.02. Mandatory Prepayments..............................................2
2.03. Method and Place of Payment........................................3
2.04. No Net Payments....................................................4
SECTION 3. Conditions Precedent...............................................4
3.01. Conditions Precedent to the Term Loan..............................4
SECTION 4. Representations, Warranties and Agreements.........................9
4.01. Corporate Status..................................................10
4.02. Corporate Power and Authority; Business...........................10
4.03. No Violation......................................................10
4.04. Litigation........................................................11
4.05. Use of Proceeds...................................................11
4.06. Governmental Approvals, Etc.......................................11
4.07. Investment Company Act............................................11
4.08. Public Utility Holding Company Act................................12
4.09. True and Complete Disclosure......................................12
4.10. Consummation of the Acquisition...................................12
4.11. Financial Condition; Financial Statements; Projections............12
4.12. Security Interests................................................13
4.13. Tax Returns and Payments..........................................13
4.14. ERISA.............................................................14
4.15. Subsidiaries......................................................15
4.16. Patents, Etc......................................................15
4.17. Compliance with Laws, Etc.........................................15
4.18. Properties........................................................15
4.19. Securities........................................................16
4.20. Collective Bargaining Agreements..................................16
4.21. Indebtedness Outstanding..........................................16
4.22. Environmental Matters.............................................16
4.23. Environmental Investigations......................................17
4.24. Fine Products Company.............................................18
SECTION 5. Affirmative Covenants.............................................18
i
<PAGE>
PAGE
----
5.01. Information Covenants.............................................18
5.02. Books, Records and Inspections....................................20
5.03. Maintenance of Property; Insurance................................21
5.04. Payment of Taxes..................................................21
5.05. Corporate Franchises..............................................22
5.06. Compliance with Statutes, Etc.....................................22
5.07. ERISA.............................................................22
5.08. Use of Proceeds...................................................22
5.09. Equal Security for Loan and Note; No Further Negative Pledges.....23
5.10. Pledge of Additional Collateral...................................23
5.11. Security Interests................................................24
5.12. Environmental Events..............................................24
5.13. New Subsidiaries..................................................24
5.14 Post-Closing Opinions.............................................25
SECTION 6. Negative Covenants................................................25
6.01. Changes in Business...............................................25
6.02. Amendments or Waivers of Certain Documents........................25
6.03. Liens.............................................................25
6.04. Indebtedness......................................................27
6.05. Advances, Investments and Loans...................................28
6.06. Prepayments of Indebtedness.......................................29
6.07. Dividends, Etc....................................................30
6.08. Transactions with Affiliates......................................30
6.09. Issuance of Subsidiary Stock......................................31
6.10. Disposition of Assets.............................................31
6.11. Contingent Obligations............................................33
6.12. ERISA.............................................................34
6.13. Merger and Consolidations.........................................34
6.14. Sale and Lease-Backs..............................................34
6.15. Sale or Discount of Receivables...................................35
6.16. Fine Products Company.............................................35
SECTION 7. Events of Default.................................................35
7.01. Payments..........................................................35
7.02. Representations, Etc..............................................35
7.03. Covenants.........................................................35
7.04. Default Under Other Agreements....................................35
7.05. Bankruptcy, Etc...................................................36
7.06. ERISA.............................................................36
7.07. Security Documents................................................37
7.08. Guarantees........................................................37
7.09. Judgments.........................................................37
7.10. Ownership; Board Composition......................................37
7.11. Certain Transactions Involving Carson Holdings Limited............38
ii
<PAGE>
PAGE
----
SECTION 8. Definitions.......................................................39
SECTION 9. Miscellaneous.....................................................51
9.01. Payment of Expenses, Etc..........................................52
9.02. Right of Setoff...................................................52
9.03. Notices...........................................................52
9.04. Benefit of Agreement..............................................53
9.05. No Waiver; Remedies Cumulative....................................53
9.06. Calculations; Computations........................................54
9.07. Governing Law; Submission to Jurisdiction; Venue..................54
9.08. Counterparts......................................................54
9.09. Effectiveness.....................................................54
9.10. Headings Descriptive..............................................55
9.11. Amendment or Waiver...............................................55
9.12. Survival..........................................................55
9.13. WAIVER OF JURY TRIAL..............................................55
9.14. Independence of Covenants.........................................55
9.15. Intercreditor Agreement with respect to
Revolving Credit Facility.......................................55
ANNEX I Schedule of Existing Debt
ANNEX II Schedule of Subsidiaries
ANNEX III Schedule of Collective Bargaining Agreements
ANNEX IV Summary of Corporate Insurance Policies
ANNEX V Schedule of Liens
ANNEX VI List of Mortgaged Real Property
ANNEX VII Schedule of Litigation
ANNEX VIII Schedule of Consents
ANNEX IX Schedule of Restrictions
ANNEX X Environmental Matters
ANNEX XI Taxes
ANNEX XII Schedule of Intellectual Property
ANNEX XIII Schedule of Existing Leases
ANNEX XIV Compliance with Laws
Exhibit A - Form of Term Note
Exhibit B - Form of Mortgage
Exhibit C - Form of Securities Pledge Agreement
Exhibit D - Form of Intellectual Property Security Agreement
Exhibit E - Form of General Security Agreement
Exhibit F - Form of Landlord Lien Assurance Agreement
Exhibit G - Form of Holdings Guarantee
Exhibit H - Form of Subsidiary Guarantee
iii
<PAGE>
CREDIT AGREEMENT, dated as of July 14, 1998 (the "Agreement"), among
CARSON PRODUCTS COMPANY, a Delaware corporation (the "Borrower"), CARSON, INC.,
a Delaware corporation ("Holdings") and IVAX CORPORATION, a Florida corporation
(the "Lender"). Unless otherwise defined herein, all capitalized terms used
herein and defined in Section 8 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, Holdings has entered into a Purchase Agreement dated as of
June 16, 1998 (as the same may be amended from time to time, the "Purchase
Agreement") with the Lender, and has assigned its rights thereunder to the
Borrower;
WHEREAS, pursuant to the Purchase Agreement, the Borrower shall
consummate on the Closing Date the acquisition (the "Acquisition") of all of the
outstanding shares of Johnson Products Co., Inc., a Florida corporation and a
wholly-owned subsidiary of the Lender;
WHEREAS, the Borrower desires to incur the Term Loan (as defined
herein) from the Lender, the proceeds of which will be applied to finance the
Acquisition and to pay certain fees and expenses related thereto, subject to the
conditions set forth herein;
WHEREAS, Holdings will execute a Guarantee, secured by a pledge of the
shares of capital stock of the Borrower, guaranteeing the Borrower's obligations
hereunder, and certain subsidiaries of Holdings will execute a Guarantee,
secured by a pledge of their assets, guaranteeing the Borrower's obligations
hereunder;
WHEREAS, in conjunction with this Agreement, the Borrower is
terminating its existing senior secured credit facility (the "Refinancing"), and
may enter into a new revolving credit facility (the "Revolving Credit Facility")
in accordance with the terms hereof; and
WHEREAS, the Lender is willing to make available the Term Loan provided
for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01. TERM LOAN. Subject to and upon the terms and conditions herein
set forth, the Lender agrees to make a term loan to the Borrower on the Closing
Date in the principal amount of $50,000,000.00 (the "Term Loan"), which shall
bear interest and shall be repaid in accordance with the terms hereof.
1.02. NOTE. (a) The Borrower's obligation to pay the principal of and
interest on the Term Loan made to it by the Lender shall be evidenced by a
promissory note (the "Term Note"), substantially in the form of Exhibit A
hereto.
(b) The Term Note of the Borrower issued to the Lender shall (i) be
duly executed and delivered by the Borrower, (ii) be payable to the order of the
Lender and be dated the Closing Date, (iii) be in a stated principal amount
equal to $50,000,000.00 and be payable in the aggregate principal amount of the
Term Loan evidenced thereby, (iv) mature on the Maturity Date, (v) be subject to
mandatory prepayment as provided in Section 2.02, (vi) bear interest as
<PAGE>
2
provided in Section 1.03 and (vii) be entitled to the benefits of this Agreement
and the other applicable Credit Documents.
1.03. INTEREST (a) The unpaid principal amount of the Term Loan shall
bear interest from the Closing Date until maturity (whether by acceleration or
otherwise) at a rate PER ANNUM equal to 9.0%.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of the Term Loan shall bear interest at a rate PER ANNUM
equal to 12.0%, such amount payable upon demand upon the occurrence, and during
the continuation, of any payment default (after the lapse of any applicable
grace periods).
(c) Interest shall accrue from and including the Closing Date to but
excluding the date of any repayment thereof and shall be payable (i) monthly in
arrears on the last Business Day of each calendar month beginning July 1998 and
(ii) on any prepayment (on the amount prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(d) All computations of interest hereunder shall be made in accordance
with Section 9.06(b).
SECTION 2. PAYMENTS.
2.01. VOLUNTARY PREPAYMENTS The Borrower shall have the right to prepay
the Term Loan in whole or in part from time to time, without premium or penalty,
on the following terms and conditions: (i) the Borrower shall give the Lender
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay the Term Loan and the amount of such prepayment, which notice
shall be given by the Borrower at least one Business Day prior to the date of
such prepayment; and (ii) each partial prepayment of the Term Loan shall be in
an aggregate principal amount of at least $100,000 and integral multiples of
$100,000 in excess of that amount.
2.02. MANDATORY PREPAYMENTS.
(A) REQUIREMENTS:
(a) As promptly as practicable, but in any event within five Business
Days of the date of receipt by Holdings, the Borrower and/or any of the
Borrower's Subsidiaries, as the case may be, of Net Cash Proceeds or Net
Financing Proceeds, an amount equal to 100% of such Net Cash Proceeds or Net
Financing Proceeds shall be applied as provided in Section 2.02(B); provided
that with respect to any Net Cash Proceeds of the sale of equity securities of
Holdings, the Borrower or any of its Subsidiaries, clause (b) of this Section
2.02(A) will govern and that with respect to any Net Cash Proceeds from any
Destruction or Taking, clause (c) of this Section 2.02(A) will govern.
(b) As promptly as practicable, but in any event within five Business
Days of the date of the receipt thereof by Holdings, the Borrower and/or any of
its Subsidiaries, an amount equal to 100% of the proceeds received by the
Borrower or Holdings (including capital contributions, other than those referred
to in clauses (i) and (ii) of this paragraph (b), received by the Borrower
<PAGE>
3
or any of its Subsidiaries) or such Subsidiary (net of underwriting discounts
and commissions and other costs and expenses directly associated therewith) of
the sale after the Closing Date of equity securities (other than proceeds from
the issuance of capital stock (i) of Holdings, the Borrower or any of its
Subsidiaries pursuant to any pension, stock option, profit sharing or other
employee benefit plan or agreement of Holdings, the Borrower or any of its
Subsidiaries in the ordinary course of business or (ii) by a Subsidiary to
another Subsidiary or to the Borrower) shall be applied as provided in Section
2.02(B).
(c) At the Lender's discretion, on the date of receipt thereof by
Holdings, the Borrower and/or any of the Borrower's Subsidiaries, an amount
equal to 100% of any proceeds received due to loss, damage, destruction or
condemnation of or to Assets (collectively, "Loss Proceeds"), less any portion
of such proceeds not in excess of $500,000, in the aggregate, to be used for
rebuilding, repairing or replacing productive assets of a kind then used or
usable in the business of the Borrower and its Subsidiaries (in each case to the
extent permitted by the Mortgages and the Security Documents) within 180 days of
receipt of such Loss Proceeds (or such longer periods as may be consented to by
the Lender, which consent shall not be unreasonably withheld) shall be delivered
by Holdings, the Borrower and/or the Borrower's Subsidiaries to the Lender to be
held by the Lender in a cash collateral account bearing interest payable to the
Borrower at a rate per annum (meaning 360 days) equal to the Federal Funds Rate.
Upon the Borrower's request, the Lender shall release such proceeds to the
Borrower for reinvestment, rebuilding, repair or replacement as described above.
To the extent the Borrower fails to use any or all of such released proceeds for
such rebuilding, repair or replacement of assets within 180 days (or such longer
periods as may be consented to by the Lender, which consent shall not be
unreasonably withheld) of such release, the Borrower shall, at the Lender's
discretion, return the unused portion of such released funds to the Lender and
authorize and direct the Lender to apply such proceeds as provided in Section
2.02(B).
(d) As promptly as practicable, but in any event within five Business
Days of the date of receipt by Holdings, the Borrower and/or its Subsidiaries of
any funds received pursuant to any post-closing purchase price adjustments
(unless such funds have been applied as an adjustment to working capital) or
indemnification payments in excess of out-of-pocket losses under either of stock
or asset purchase agreements and agreements related thereto pertaining to an
acquisition, an amount equal to 100% of such funds paid to Holdings, the
Borrower and/or any of its Subsidiaries shall be applied as provided in Section
2.02(B).
(B) APPLICATION:
Prepayments to be applied pursuant to this Section 2.02(B) shall be
applied without penalty or premium to the repayment of the Term Loan. With
respect to each such prepayment required by Section 2.02(A), the Borrower shall
give the Lender two Business Days' notice. All prepayments shall include payment
of accrued interest on the principal amount so prepaid and shall be applied to
the payment of interest before application to principal.
2.03. METHOD AND PLACE OF PAYMENT (a) Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the Lender
not later than 1:00 P.M. (New York time) on the date when due and shall be made
in immediately available funds in
<PAGE>
4
lawful money of the United States of America to the account specified therefor
by the Lender or if no account has been so specified at the Lender's Office.
(b) Any payments under this Agreement which are made by the Borrower
later than 1:00 P.M. (New York time) shall be deemed to have been made on the
next succeeding Business Day. Whenever any payment to be made hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension.
2.04. NO NET PAYMENTS. All payments by the Borrower under this
Agreement or under any Credit Document shall be made without set-off or
counterclaim, including any claim that may otherwise be made by Holdings or the
Borrower pursuant to the Purchase Agreement.
SECTION 3. CONDITIONS PRECEDENT.
3.01. CONDITIONS PRECEDENT TO THE TERM LOAN. The obligation of the
Lender to make the Term Loan to the Borrower hereunder is subject, at the time
of the making of such Term Loan (except as otherwise hereinafter indicated), to
the satisfaction of the following conditions:
(A) CREDIT AGREEMENT. The Borrower and Holdings shall have duly
executed and delivered this Agreement.
(B) OFFICER'S CERTIFICATES. On the Closing Date, the Lender shall have
received a certificate dated such date signed by an appropriate officer of each
of Holdings and the Borrower stating that all of the applicable conditions set
forth in Sections 3.01(D), (E), (I), (J), (K), (L), (O), and (Q) (in each case
disregarding any reference therein that such condition be deemed satisfactory by
the Lender) have been satisfied in all material respects (without giving effect
to any materiality or similar exceptions contained therein) or waived as of such
date.
(C) OPINIONS OF COUNSEL. On the Closing Date (or on the date each
applicable Mortgage is executed and delivered), the Lender shall have received
an opinion or opinions addressed to it and dated the Closing Date, each in form
and substance reasonably satisfactory to the Lender, from (i) Milbank, Tweed,
Hadley & McCloy, counsel to the Borrower and Holdings (ii) Hunter, Maclean,
Exley & Dunn, P.C., special Georgia counsel to the Borrower and Holdings, and
(iii) local counsel to the Borrower and Johnson Products in each jurisdiction in
which Mortgaged Real Property is located.
(D) CORPORATE PROCEEDINGS. All corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
the Credit Documents shall be reasonably satisfactory in form and substance to
the Lender, and the Lender shall have received all information and copies of all
certificates, documents and papers, including records of corporate proceedings
and governmental approvals, if any, which the Lender reasonably may have
requested from Holdings, the Borrower and any Affiliate thereof in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities. Without limiting the foregoing, the
Lender shall have received (i) resolutions of the Board of Directors of each of
Holdings, the Borrower and any Affiliate thereof approving and authorizing such
documents and actions as are contemplated hereby in form and
<PAGE>
5
substance reasonably satisfactory to Lender including without limitation the
execution and delivery of all Credit Documents, certified by its corporate
secretary or an assistant secretary as being in full force and effect without
modification or amendment, and (ii) signature and incumbency certificates of
officers of Holdings, the Borrower or any Affiliate thereof executing
instruments, documents or agreements required to be executed in connection with
the Refinancing and the Credit Documents.
(E) CONSUMMATION OF THE ACQUISITION. On the Closing Date, the
Acquisition shall be consummated concurrently with the closing hereunder.
(F) ORGANIZATIONAL DOCUMENTATION, ETC. On or prior to the Closing Date,
the Lender shall have received copies of a true and complete certified copy of
the following documents of each of Holdings and the Borrower and each other
Credit Party:
(1) Its respective Certificate of Incorporation, which shall be
certified and be accompanied by a good standing certificate from the Secretary
of State of the State of Delaware or its respective jurisdiction and good
standing certificates from the jurisdictions in which it is qualified to do
business as a foreign corporation, each to be dated a recent date prior to the
Closing Date;
(2) Its respective By-laws, certified as of the Closing Date by its
corporate secretary.
(G) NOTE. There shall have been delivered to the Lender the Term Note
executed by the Borrower in the amount and maturity and as otherwise provided
herein.
(H) CONDITIONS RELATING TO MORTGAGED REAL PROPERTY AND REAL PROPERTY.
On or as soon as practicable but in any event no more than 10 days after the
Closing Date (except as otherwise specified below), the Borrower shall have
caused to be delivered to the Lender the following documents and instruments:
(i) a Mortgage encumbering each Mortgaged Real Property in
favor of the Lender, duly executed and acknowledged by the Credit Party
or another party that is the owner of or holder of an interest in such
Mortgaged Real Property, and otherwise in form for recording in the
recording office of each political subdivision where each such
Mortgaged Real Property is situated, together with such certificates,
affidavits, questionnaires or returns as shall be required in
connection with the recording or filing thereof to create a lien under
applicable law, and such UCC-1 financing statements and other similar
statements as are contemplated by the counsel opinions described in
Section 3.01(C)(iii) in respect of such Mortgage, all of which shall be
in form and substance reasonably satisfactory to the Lender and which
will be delivered to the Title Company for filing within 8 days after
the Closing Date, and any other instruments necessary to grant a
mortgage lien under the laws of any applicable jurisdiction, which
Mortgage and financing statements and other instruments shall be
effective to create a first priority Lien on such Mortgaged Real
Property subject to no Liens other than Prior Liens and Permitted
Encumbrances;
(ii) with respect to each Mortgaged Real Property, such
consents, approvals, amendments, supplements, estoppels, tenant
subordination agreements or other
<PAGE>
6
instruments as necessary or required to consummate the transactions
contemplated hereby or as shall reasonably be deemed necessary by the
Lender in order for the owner or holder of the fee or leasehold
interest constituting such Mortgaged Real Property to grant the Lien
contemplated by the Mortgage with respect to such Mortgaged Real
Property;
(iii) with respect to each Mortgage, a policy (or commitment
to issue a policy) of title insurance insuring (or committing to
insure) the Lien of such Mortgage as a valid first mortgage Lien on the
real property described therein in an amount not less than 115% of the
fair market value thereof as determined by appraisal reports, which
policies (or commitment) shall (a) be issued by the Title Company, (b)
include such reinsurance arrangements (with provisions for direct
access) as shall be reasonably acceptable to the Lender, (c) contain a
"tie-in" or "cluster" endorsement (if applicable and if available under
applicable law) (I.E., policies which insure against losses regardless
of location or allocated value of the insured property up to a stated
maximum coverage amount) and have been supplemented by such
endorsements (or where such endorsements are not available, opinions of
special counsel reasonably acceptable to the Lender to the extent that
such opinions can be obtained at a cost which is reasonable with
respect to the value of the Real Property subject to such Mortgage) as
shall be reasonably requested by the Lender (including, without
limitation, endorsements on matters relating to usury, first loss, last
dollar, contiguity (as applicable), doing business, zoning, variable
rate and so-called comprehensive coverage over covenants and
restrictions) and (d) contain only such exceptions to title as shall be
Prior Liens or are otherwise agreed to by the Lender on or prior to the
Closing Date with respect to such Mortgaged Real Property;
(iv) with respect to each Mortgaged Real Property, a Survey
(which in the case of the Mortgaged Property located in Illinois will
be delivered after the Closing Date as soon as it becomes available);
(v) with respect to each Mortgaged Real Property, policies or
certificates of insurance as required by the Mortgage relating thereto,
which policies or certificates shall comply with the insurance
requirements contained in such Mortgage;
(vi) with respect to each Mortgaged Real Property, UCC,
judgment and tax lien searches confirming that the personal property
comprising a part of such Mortgaged Real Property is subject to no
Liens other than Prior Liens;
(vii) with respect to each Mortgaged Real Property, such
affidavits, certificates, information (including financial data) and
instruments of indemnification (including, without limitation, a
so-called "gap" indemnification) as shall be required to induce the
Title Company to issue the policy or policies (or commitment) and
endorsements contemplated in subparagraph (iii) above;
(viii) evidence reasonably acceptable to the Lender of payment
by the Borrower of all title insurance premiums, search and examination
charges, survey costs and related charges, mortgage recording taxes,
fees, charges, costs and expenses required for the recording of the
Mortgages and issuance of the title insurance policies referred to in
subparagraph (iii) above;
<PAGE>
7
(ix) with respect to each Real Property or Mortgaged Real
Property, copies of all Leases in which a Credit Party holds the
landlord's, tenant's or other interest and any other agreements
relating to possessory interests in such Real Property or Mortgaged
Real Property; and
(x) with respect to the Mortgaged Real Property located in
Savannah, Georgia, an Officers' Certificate or other evidence
reasonably satisfactory to the Lender that as of the date thereof, to
the best of such officer's knowledge, there (a) have been issued and
are in effect valid and proper certificates of occupancy or other local
equivalents for the use then being made of such Mortgaged Real Property
to the extent currently required by law in the jurisdiction in which
such Mortgaged Real Property is located which certificates if not
obtained or maintained would have a material adverse effect upon the
value of the Mortgaged Real Property and that there is not outstanding
any citation, violation or similar notice indicating that such
Mortgaged Real Property contains conditions which are not in compliance
in all material respects with local codes or ordinances relating to
building or fire safety or structural soundness, (b) has not occurred
any Taking or Destruction of any Mortgaged Real Property that has not
been repaired or restored except as set forth therein and (c) is no
litigation regarding boundary lines, encroachment or possession of any
Mortgaged Real Property and no state of facts known to any Credit Party
which could give rise to any such claim, except as set forth therein.
(I) INSURANCE. Set forth on Annex IV is a summary of all insurance
policies maintained by Holdings and its Subsidiaries.
(J) INDEBTEDNESS, ETC. On or prior to the Closing Date and except as
set forth on Annex VIII, Holdings, the Borrower and its Subsidiaries shall have
received all necessary consents or waivers or amended, supplemented or otherwise
modified, repaid or defeased their outstanding Indebtedness in a manner and on
terms reasonably satisfactory to the Lender such that there exists no default or
potential default with respect to such Indebtedness or under any note, evidence
of indebtedness, mortgage, deed of trust, security document or other agreement
relating to such Indebtedness and such indentures, notes, evidences of
indebtedness, mortgages, deeds of trust or other agreements relating to such
Indebtedness shall not, other than as set forth on Annex IX, contain any
restriction on the ability of Holdings, the Borrower or any of its Subsidiaries
to enter into this Agreement, the Mortgages, Pledge Agreements or the granting
of any Lien in favor of the Lender in connection therewith, or contain any
financial covenants, agreements or tests applicable to Holdings, the Borrower or
any of its Subsidiaries. Annex V sets forth a true list of all Liens other than
Permitted Encumbrances (except for clause (j) of Section 6.03) on the property
of Holdings, the Borrower and its Subsidiaries as of the Closing Date.
(K) SECURITY DOCUMENTS AND GUARANTEES. The applicable Security
Documents (other than the Mortgages) and Guarantees shall have been duly
executed and delivered by the respective parties thereto and there shall have
been delivered to the Lender (i) certificates representing all Pledged
Securities, together with executed and undated stock powers and/or assignments
in blank, (ii) evidence of the due execution of appropriate financing statements
under the provisions of the UCC, applicable domestic or local laws, rules or
regulations in each
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8
of the offices where such filing is necessary or appropriate to grant to the
Lender a perfected first priority Lien in the Collateral superior to and prior
to the rights of all third persons and subject to no other Liens other than
Prior Liens, (iii) certified copies of Requests for Information (Form UCC-11 or
the equivalent), or equivalent reports or lien search reports listing all
effective financing statements which name each Credit Party under such Security
Documents as debtor and which are filed in those jurisdictions in which any of
the Collateral is located and the jurisdictions in which each Credit Party's
principal place of business is located, none of which, except as set forth in
the applicable Security Documents, shall encumber the Collateral covered or
intended or purported to be covered by the Security Documents, (iv) evidence
that arrangements have been made for the prompt completion of all recordings and
filings of each Security Document related to Mortgaged Real Property (to be
filed upon execution and delivery of the relevant Mortgages) and delivery to the
Lender of such other security and other documents as may be necessary or, in the
reasonable opinion of the Lender, desirable to perfect the Liens created, or
purported or intended to be created, by the Security Documents and (v) evidence
that arrangements have been made for appropriate filings in all relevant
trademark, patent and copyright registration offices with respect to recording
the Lender's security interest in the patents, registration and applications, if
any, contained on the schedules to the Intellectual Property Security
Agreements.
(L) CONSENTS, ETC. All material governmental and third party approvals
and consents (including, without limitation, all material approvals and consents
required in connection with any environmental statutes, rules or regulations),
if any, in connection with the transactions contemplated by the Credit Documents
and otherwise referred to herein or therein to be completed on or before the
Closing Date shall have been obtained and remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority which restrains, prevents or imposes, in the reasonable
judgment of the Lender, materially adverse conditions upon the consummation of
the Acquisition, the Refinancing or the consummation of the transactions
contemplated by this Agreement. There shall not exist any adverse judgment,
order, injunction or other restraint issued or filed with respect to the making
of the Term Loan hereunder or the consummation of the Refinancing or Acquisition
and Holdings and the Borrower shall be in compliance with all material
applicable federal, state, local and foreign laws and regulations, both before
and after giving effect to the Acquisition, the Refinancing and the transactions
contemplated by the Credit Documents.
(M) LITIGATION. Except as set forth in Annex VII hereto, there shall be
no litigation by any Person pending, or to Holdings' or the Borrower's knowledge
threatened, with respect to the Credit Documents that, in the Lender's good
faith judgment, could reasonably be expected to have a Material Adverse Effect
after giving effect to the Acquisition, the Refinancing and the transactions
contemplated by the Credit Agreement.
(N) ENVIRONMENTAL REVIEW. The Lender shall be reasonably satisfied with
its environmental risk assessment of the property of Holdings, the Borrower and
its Subsidiaries (including any potential levels of environmental liability),
such assessment to be based upon any information known to the Lender with
respect to the properties of Johnson Products and information provided to the
Lender by or on behalf of Holdings or the Borrower with respect to its
properties. The Borrower need not update its environmental review dated as of
May 1995.
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9
(O) NO MATERIAL ADVERSE CHANGE. From March 31, 1998 to and including
the Closing Date, there shall have been no material adverse change in the
business, assets, properties, condition (financial or otherwise) or prospects of
Holdings or the Borrower or in the industries in which they compete that has not
been disclosed to the Lender.
(P) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of the
making of the Term Loan and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
made by Holdings or the Borrower contained herein or in the other Credit
Documents in effect at such time shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of such Term Loan, unless such
representation and warranty expressly indicates that it is being made as of any
other specific date in which case on and as of such other date.
(Q) OPTIONS AND WARRANTS. There shall be no outstanding capital stock
(or right, option, warrant or other arrangement to acquire such capital stock)
of the Borrower, other than that owned by Holdings.
(R) MARGIN RULES. On the Closing Date, neither the making of the Term
Loan nor the use of the proceeds thereof will violate the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System.
The acceptance of the proceeds of the Term Loan shall constitute a
representation and warranty by each Credit Party to the Lender that all of the
applicable conditions specified above (in each case disregarding any reference
therein that such condition be deemed satisfactory by the Lender) have been
satisfied or waived as of that time.
All of the certificates, legal opinions and other documents and papers
referred to in this Section 3.01, unless otherwise specified, shall be delivered
to the Lender at the offices of Milbank, Tweed, Hadley & McCloy, 1 Chase
Manhattan Plaza, New York, NY 10005 (or such other location as may be specified
by the Lender) and shall be reasonably satisfactory in form and substance to the
Lender.
SECTION 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
In order to induce the Lender to enter into this Agreement and to
make the Term Loan provided for herein, each of Holdings and the Borrower makes
the following representations and warranties to, and agreements with, the
Lender, all of which shall survive the execution and delivery of this Agreement
and the making of the Term Loan (with the execution and delivery of this
Agreement and the making of the Term Loan being deemed to constitute a
representation and warranty that the matters specified in this Section 4 are
true and correct in all material respects both before and after giving effect to
the Refinancing and the Acquisition unless such representation and warranty
expressly indicates that it is being made as of any specific date; PROVIDED,
that (i) the representations and warranties relating to Johnson Products are
only to the best of Holdings' and the Borrower's knowledge based on the
information provided to them by the Lender in connection with the Purchase
Agreement and (ii) no representation or warranty
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10
hereunder shall be deemed a waiver of any rights or the admission of the truth
thereof by any Credit Party as against any other party to the Purchase
Agreement):
4.01. CORPORATE STATUS. Each Credit Party (i) is a duly organized and
validly existing corporation in good standing under the laws of the jurisdiction
of its organization; (ii) has the corporate or other organizational power and
authority and, other than as set forth on Annex VIII, has obtained all requisite
governmental licenses, authorizations, consents and approvals to own and operate
its property and assets and to transact the business in which it is engaged and
presently proposes to engage including, without limitation, those in compliance
with or required by the Environmental Laws except as described in Annex X hereto
and except for those governmental licenses, authorizations, consents or
approvals the failure of which to be so obtained would not have a Materially
Adverse Effect and (iii) is duly qualified and is authorized to do business and
is in good standing in all jurisdictions where it is required to be so qualified
and where the failure to be so qualified would have a Materially Adverse Effect.
4.02. CORPORATE POWER AND AUTHORITY; BUSINESS. (a) Each Credit Party
has the corporate power and authority to execute, deliver and carry out the
terms and provisions of the Credit Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. Each Credit Party
has duly executed and delivered each Credit Document to which it is a party and
each such Credit Document constitutes the legal, valid and binding obligation of
such Person enforceable against such Person in accordance with its terms except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally and except as
such enforceability may be limited by the application of general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(b) Holdings was incorporated on May 10, 1995 and consummated (i) an
initial public offering of its common stock on October 18, 1996 and (ii) a
private placement of its Senior Subordinated Notes on November 6, 1997. The
Borrower was incorporated as Aminco, Inc. in Delaware on March 20, 1990. Prior
to the Closing Date, Holdings will not have engaged in any business or incurred
any liabilities except for activities, expenses and liabilities incident to its
organization, its initial public offering, its Senior Subordinated Notes
offering (and a related exchange offer of registered notes) and the carrying out
of the transactions contemplated by the Credit Documents, the Purchase Agreement
and the Refinancing.
4.03. NO VIOLATION. Neither the execution, delivery or performance by
any Credit Party of the Credit Documents to which it is a party nor compliance
with the terms and provisions thereof, nor the consummation of the transactions
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Security
Documents) result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of any Credit Party or
its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, material agreement or other material instrument to which any Credit Party
or its Subsidiaries is a party or by which it or any of its property or assets
is bound or to which it may be subject or (iii) will
<PAGE>
11
violate any provision of the charter or by-laws of any Credit Party or its
Subsidiaries, except, in each such case, where such contravention, conflict,
inconsistency, breach, default, creation, imposition, obligation or violation
does not have a Materially Adverse Effect. The consummation of the Acquisition
and the Refinancing will not conflict or be inconsistent with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the property or assets of Holdings, the Borrower or any
of their respective Subsidiaries pursuant to the terms of, any indenture,
mortgage, deed of trust, material instrument or material agreement relating to
Indebtedness for borrowed money or the equivalent thereof or other material
agreement to which Holdings, the Borrower or any of their respective
Subsidiaries is a party or by which any of their respective property or assets
is bound or to which it may be subject, except, in each such case, where such
conflict, inconsistency, breach, default, creation, imposition or obligation
does not have a Materially Adverse Effect.
4.04. LITIGATION. Except as set forth on Annex VII, there are no
actions, judgments, suits or proceedings pending or, to Holdings' or the
Borrower's knowledge, threatened in any court of competent jurisdiction with
respect to any Credit Party or its Subsidiaries that are, individually or in the
aggregate, likely to have a Materially Adverse Effect.
4.05. USE OF PROCEEDS. (a) All the proceeds of the Term Loan to be made
hereunder shall be utilized to provide the financing required to consummate the
Acquisition and to pay related fees and expenses.
(b) Neither the making of the Term Loan hereunder, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System.
4.06. GOVERNMENTAL APPROVALS, ETC. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any third party or any foreign or domestic Governmental
Authority (other than those orders, consents, approvals, licenses,
authorizations or validations which, if not obtained or made, would not have a
Materially Adverse Effect or which have previously been obtained or made and
except for filings to perfect security interests granted pursuant to the
Security Documents) is required to authorize or is required in connection with
(i) the execution, delivery and performance of any Credit Document or the
transactions contemplated therein or (ii) the legality, validity, binding effect
or enforceability of any Credit Document. At the time of the making of the Term
Loan, there does not exist any judgment, order, injunction or other restraint
issued or filed with respect to the making of the Term Loan or the performance
by the Credit Parties of their obligations under the Credit Documents.
4.07. INVESTMENT COMPANY ACT. None of Holdings, the Borrower or their
respective Subsidiaries is, or will be after giving effect to the transactions
contemplated hereby, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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12
4.08. PUBLIC UTILITY HOLDING COMPANY ACT. None of Holdings, the
Borrower or their respective Subsidiaries is, or will be after giving effect to
the transactions contemplated hereby, a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.09. TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of Holdings,
the Borrower or any of their Subsidiaries in writing to the Lender (including,
without limitation, all information contained in the Credit Documents) for
purposes of or in connection with this Agreement or any transaction contemplated
herein is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any such Person in writing to the Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time in
light of the circumstances under which such information was provided. There is
no fact known to any Credit Party which has a Materially Adverse Effect which
has not been disclosed herein or in such other documents, certificates and
written statements furnished to the Lender for use in connection with the
transactions contemplated hereby.
4.10. CONSUMMATION OF THE ACQUISITION. On the Closing Date, the
Acquisition shall concurrently be consummated.
4.11. FINANCIAL CONDITION; FINANCIAL STATEMENTS; PROJECTIONS. No Credit
Party is entering into the arrangements contemplated hereby and by the other
Credit Documents, or intends to make any transfer or incur any obligations
hereunder or thereunder with actual intent to hinder, delay or defraud either
present or future creditors. On and as of the Closing Date, on a PRO FORMA basis
after giving effect to the Refinancing and to all Indebtedness incurred and
Liens created, or to be created, by each Credit Party in connection with the
Refinancing, the Acquisition and the Credit Documents, (w) Holdings and the
Borrower do not expect that final judgments against any Credit Party in actions
for money damages with respect to pending or threatened litigation will be
rendered at a time when, or in an amount such that, such Credit Party will be
unable to satisfy any such judgments promptly in accordance with their terms
(taking into account the maximum reasonable amount of such judgments in any such
actions and the earliest reasonable time at which such judgments might be
rendered and the cash available to each Credit Party, after taking into account
all other anticipated uses of the cash of such Credit Party (including the
payments on or in respect of debts (including their Contingent Obligations));
(x) no Credit Party will have incurred or intends to, or believes that it will,
incur debts beyond its ability to pay such debts as such debts mature (taking
into account the timing and amounts of cash to be received by such Credit Party
from any source, and amounts to be payable on or in respect of debts of such
Credit Party and the amounts referred to in the preceding clause (w)); (y) each
Credit Party, after taking into account all other anticipated uses of the cash
of such Credit Party, anticipates being able to pay all amounts on or in respect
of debts of such Credit Party when such amounts are required to be paid; and (z)
each Credit Party will have sufficient capital with which to conduct its present
and proposed business and the property of such Credit Party does not constitute
unreasonably small capital with which to conduct its present or proposed
business. For purposes of this Section 4.11, "debt" means any liability on a
claim, and "claim"
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13
means a (i) right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
As of the Closing Date, except as adequately reflected or reserved
against in Holdings' consolidated financial statements and the notes thereto as
of and for the year ended December 31, 1997 and as of and for the three-month
period ended March 31, 1998 or as set forth in Annexes VII, X and XIV, there
were no liabilities or obligations with respect to Holdings, the Borrower or any
of their respective Subsidiaries of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether or not due) which, either
individually or in the aggregate, would be material to Holdings, the Borrower or
any of their respective Subsidiaries, except as incurred by any Credit Party in
connection with this Agreement and the Refinancing. As of the Closing Date,
Holdings and the Borrower know of no basis for the assertion against Holdings,
the Borrower or any of their respective Subsidiaries of any liability or
obligation of any nature whatsoever that is not adequately reflected in the
consolidated financial statements of Holdings described above or otherwise
disclosed herein which, either individually or in the aggregate, could
reasonably be expected to be material to Holdings, the Borrower or any of their
respective Subsidiaries.
4.12. SECURITY INTERESTS. At all times after the execution of the
Security Documents, the Security Documents create, in favor of the Lender, as
security for the obligations purported to be secured thereby, a valid and
enforceable perfected first priority security interest in and Lien upon all of
the Collateral, superior to and prior to the rights of all third persons and
subject to no Liens, except Prior Liens and Permitted Encumbrances applicable to
such Collateral. The mortgagor under each Mortgage has good and marketable title
to the Mortgaged Real Property free and clear of all Liens other than Prior
Liens and Permitted Encumbrances and Liens expressly permitted by the applicable
Mortgage. The respective pledgor or assignor, as the case may be, has (or on and
after the time it executes the respective Security Document, will have) good and
marketable title to all items of Collateral (other than the Mortgaged Real
Property) covered by such Security Document free and clear of all Liens except
Prior Liens and Permitted Encumbrances and Liens expressly permitted by the
applicable Security Document. No filings or recordings are required in order to
perfect or confirm the perfection of the security interests created under any
Security Document except for filings or recordings required in connection with
any such Security Document which shall have been made prior to or
contemporaneously with the execution and delivery thereof.
4.13. TAX RETURNS AND PAYMENTS. Except as set forth on Annex XI hereto,
each Credit Party has filed all material tax returns required to be filed by it
and has paid all material taxes and assessments payable by it which have become
due, other than those not yet delinquent and except for those contested in good
faith and for which adequate reserves have been established. Except as set forth
on Annex XI hereto, each Credit Party has paid, or has provided adequate
reserves (in accordance with GAAP) for the payment of, all material federal,
state, local and foreign income taxes (including, without limitation, franchise
taxes based upon income) applicable for all prior fiscal years and for the
current fiscal year to the date hereof. Holdings knows of no proposed tax
assessment against Holdings or any of its Subsidiaries that could
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14
reasonably be expected to have a Materially Adverse Effect which is not being
actively contested in good faith by such Person to the extent affected thereby
in good faith and by appropriate proceedings; PROVIDED that such reserves or
other appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made or provided therefor.
4.14. ERISA. (A) Each Credit Party and its ERISA Affiliates are in
compliance with all applicable provisions of ERISA and the Code and the
regulations and published interpretations thereunder with respect to all
employee benefit plans, Pension Plans and Multiemployer Plans except for any
failures to comply which, individually or in the aggregate, would not have a
Materially Adverse Effect.
(B) No Termination Event has occurred or is reasonably expected to
occur with respect to any Pension Plan which resulted or would result in a
liability to any Credit Party or any ERISA Affiliate.
(C) The sum of the amount of unfunded benefit liabilities (determined
in accordance with Statement of Financial Accounting Standards No. 87) under all
Title IV Plans (excluding each Title IV Plan with an amount of unfunded benefit
liabilities of zero or less) is not more than $2,500,000. As of the Closing
Date, there are no unfunded benefit liabilities (within the meaning of Section
4001(a)(18) of ERISA) under any Title IV Plans.
(D) As of the Closing Date, no Credit Party nor any ERISA Affiliate has
any obligation to contribute to or any liability or potential liability
(including, but not limited to, actual or potential withdrawal liability) with
respect to any employee benefit plan of the type described in Sections 4063 and
4064 of ERISA or in Section 413(c) of the Code. Each Credit Party and its ERISA
Affiliates have complied in all material respects with the requirements of ERISA
Section 515 with respect to each Multiemployer Plan. The aggregate potential
withdrawal payments, as determined in accordance with Title IV of ERISA, of each
Credit Party and its ERISA Affiliates with respect to all Multiemployer Plans
does not exceed $2,500,000. No Credit Party nor any ERISA Affiliate has incurred
or reasonably expects to incur any withdrawal liability under Section 4201 ET
SEQ. of ERISA to any Multiemployer Plan or any employee benefit plan of the type
described in Sections 4063 and 4064 of ERISA or in Section 413(c) of the Code.
(E) No Credit Party nor any ERISA Affiliate has incurred any
accumulated funding deficiency (whether or not waived) with respect to any
Pension Plan.
(F) No Credit Party nor any ERISA Affiliate has or reasonably expects
to become subject to a Lien in favor of any Pension Plan under Section 302(f) or
307 of ERISA or Section 401(a)(29) or 412(n) of the Code.
(G) Assuming that no portion of the Term Loan to be advanced hereunder
is attributable, directly or indirectly, to the assets of any employee benefit
plan, the execution, performance and delivery of the Credit Documents by any
party thereto will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code for which an exemption
therefrom is not available.
As used in this Section 4.14, the term "accumulated funding deficiency"
has the meaning
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15
specified in Section 302 of ERISA and Section 412 of the Code, and the term
"employee benefit plan" has the meaning specified in Section 3(3) of ERISA.
4.15. SUBSIDIARIES. Annex II hereto lists each direct and indirect
Subsidiary of Holdings existing on the Closing Date.
4.16. PATENTS, ETC. Each Credit Party owns or possesses adequate
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, servicemarks, servicemark applications, trade names,
copyrights, trade secrets and know how (collectively, the "Intellectual
Property") that are necessary for the operation of their respective businesses
as presently conducted and as proposed to be conducted. No claim is pending or,
to the best of Holdings' or the Borrower's knowledge, threatened to the effect
that Holdings or any of its Subsidiaries infringes upon the asserted rights of
any other person under any Intellectual Property, and to the best of Holdings'
or the Borrower's knowledge there is no basis for any such claim (whether or not
pending or threatened), in each case where such claim could reasonably be
expected to have a Materially Adverse Effect. No claim is pending or, to the
best of Holdings' or the Borrower's knowledge, threatened to the effect that any
such Intellectual Property owned or licensed by Holdings or any of its
Subsidiaries or which Holdings or the Borrower or any of its Subsidiaries
otherwise has the right to use is invalid or unenforceable by Holdings, the
Borrower or such Subsidiary, and, to the best of Holdings' or the Borrower's
knowledge, there is no basis for any such claim (whether or not pending or
threatened), in each case where such claim could reasonably be expected to have
a Materially Adverse Effect.
4.17. COMPLIANCE WITH LAWS, ETC. Except as set forth in Annex XIV
hereto, each Credit Party is in material compliance with all material laws and
regulations, including without limitation those relating to equal employment
opportunity and employee safety but excluding Environmental Laws (as to which
Section 4.22 is applicable), in all jurisdictions in which it is presently doing
business, and each Credit Party will comply and cause each of its Subsidiaries
to comply with all such laws and regulations which may be imposed in the future
in jurisdictions in which it or such Subsidiary may then be doing business in
each such case other than those the non-compliance with which would not have a
Materially Adverse Effect.
4.18. PROPERTIES. Holdings and each of its Subsidiaries have good and
marketable title to and beneficial ownership of all their respective properties
owned by them, including after the Closing Date all property reflected in
Holdings' most recent balance sheet described in Section 4.11 and except as sold
or otherwise disposed of since the date of such balance sheet in the ordinary
course of business, free and clear of all Liens, other than Prior Liens and
Permitted Encumbrances. Holdings and each Subsidiary thereof hold all material
licenses, certificates of occupancy or operation and similar certificates and
clearances of municipal and other authorities necessary to own and operate the
Mortgaged Real Property in the manner and for the purposes currently operated by
such party which if not obtained or maintained would have a material adverse
effect upon the value of the Mortgaged Real Property. There are no actual
defaults or defaults alleged in writing or, to the best knowledge of Holdings or
the Borrower, threatened defaults, in each case of a material nature with
respect to any leases of real property under which Holdings or any of its
Subsidiaries is lessor or lessee.
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4.19. SECURITIES. On the Closing Date, the common stock of each
Subsidiary of Holdings whose stock is being pledged as of the Closing Date will
be duly authorized, issued and delivered and will be fully paid, nonassessable
and free of preemptive rights. There are not, as of the Closing Date and
thereafter, any existing options, warrants, calls, subscriptions, convertible or
exchangeable securities, rights, agreements, commitments or arrangements for any
person to acquire any capital stock of the Borrower any other securities
convertible into, exchangeable for or evidencing the right to subscribe for any
such capital stock.
4.20. COLLECTIVE BARGAINING AGREEMENTS. Set forth on Annex III hereto
is a list and description (including dates of termination) of all collective
bargaining or similar agreements between or applicable to Holdings and its
Subsidiaries as of the date hereof and any union, labor organization or other
bargaining agent in respect of the employees of Holdings and its Subsidiaries on
the date indicated in Annex III hereto.
4.21. INDEBTEDNESS OUTSTANDING. Set forth on Annex I hereto is a
complete list and description of all Indebtedness of Holdings, the Borrower and
their Subsidiaries (other than the Term Loan) that will be outstanding
immediately after the Closing Date and set forth on Annex I hereto is a complete
list and description of all Indebtedness of Holdings, the Borrower and their
Subsidiaries that will be repaid, defeased, transferred or otherwise terminated
on or prior to the Closing Date.
4.22. ENVIRONMENTAL MATTERS. (A) Except as set forth in Annex X hereto,
each of Holdings and its Subsidiaries and the properties and assets used in its
businesses (including the Real Properties) is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes,
without limitation, the possession of all material licenses, permits,
registrations and other governmental authorizations (collectively,
"Environmental Authorizations") required under applicable Environmental Laws,
and compliance in all material respects with the terms and conditions thereof
except as could not reasonably be expected to result in the incurrence of costs
in excess of $100,000, and there are no circumstances of a nature which may
materially prevent or interfere with such compliance in the future. Except as
set forth in Annex X hereto, neither Holdings nor any of its Subsidiaries has
been notified by any Governmental Authority, or has any basis to believe, that
any such Environmental Authorizations will be modified, suspended or revoked or
cannot be renewed or otherwise maintained in the ordinary course of business.
Except as set forth in Annex X hereto, in the last five years, neither Holdings
nor any of its Subsidiaries has received any communication, whether from a
Governmental Authority, citizen group, employee or otherwise, that alleges that
Holdings or any of its Subsidiaries or any of the properties or assets used in
their respective businesses (including the Real Properties) is not in compliance
with Environmental Laws.
(B) Except as set forth in Annex X hereto, there is no Environmental
Notice that (i) is pending or, to the best knowledge of Holdings or the Borrower
or any of its Subsidiaries, threatened against Holdings or any of its
Subsidiaries or (ii) is pending or, to the best knowledge of Holdings or the
Borrower or any of its Subsidiaries, threatened against any Person whose
liability for such Environmental Notice may have been retained or assumed by or
could reasonably be imputed or attributed by law or contract to Holdings, the
Borrower or any of its Subsidiaries.
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(C) Except as set forth in Annex X hereto, to the best knowledge of
Holdings, the Borrower and its Subsidiaries, there are no past or present
actions, activities, circumstances, conditions, events or incidents arising out
of, based upon, resulting from or relating to the operation, ownership or use of
any properties or assets (including the Real Properties) currently or formerly
owned, operated, leased or used by Holdings or any of its Subsidiaries (or any
predecessor in interest of any of them), including, without limitation, the
emission, discharge, disposal or other release of any Hazardous Materials in or
into the Environment, that (i) could reasonably be expected to result in the
incurrence of costs in excess of $100,000, individually, under Environmental
Laws or (ii) could reasonably be expected to form the basis of any Environmental
Notice against or with respect to Holdings or any of its Subsidiaries, or
against any person or entity whose liability for any Environmental Notice may
have been retained or assumed by or could be imputed or attributed by law or
contract to Holdings or any of its Subsidiaries, which Notice could reasonably
be expected to result in the incurrence of costs in excess of $100,000.
(D) Except as set forth in Annex X hereto, without in any way limiting
the generality of the foregoing, (i) there are, and to the best knowledge of
Holdings, the Borrower and its Subsidiaries, have been, no underground storage
tanks, or related piping, located on, at or under property (including the Real
Properties) owned, operated, leased or used by Holdings or any of its
Subsidiaries (or any predecessor in interest of any of them), (ii) there are,
and, to the best knowledge of Holdings, the Borrower and its Subsidiaries, have
been, no polychlorinated biphenyls used or stored by Holdings or any of its
Subsidiaries, located on, at or under property (including the Real Properties)
owned, operated, leased or used by Holdings or any of its Subsidiaries, (iii)
there are and have been no properties (including the Real Properties) currently
or formerly owned, operated, managed, leased or used by Holdings or any of its
Subsidiaries (or any predecessor in interest of any of them) at which Hazardous
Materials generated, used, owned, managed, stored or controlled by Holdings or
any of its Subsidiaries (or any predecessor in interest of any of them) may have
been disposed of or otherwise released into the Environment except such
disposals or other releases which were both (a) in compliance with Environmental
Laws and Environmental Authorizations and (b) could not result in costs in
excess of $100,000, individually, under Environmental Laws and (iv) there is no
friable asbestos contained in or forming part of any building, building
component, structure or office space owned, operated, leased or used by Holdings
or any of its Subsidiaries.
(E) Prior to the Closing Date, Holdings and each of its Subsidiaries
shall have made all notifications, registrations and filings in accordance with
all applicable State and Local Real Property Disclosure Requirements, including,
without limitation, the use of forms provided by state or local agencies, where
such forms exist, whether to the Lender or to, or with, the state or local
agency, provided, that where such notification, registration or filing was made
to, or with, a state or local agency, a copy of such notification, registration
or filing shall be provided to the Lender prior to the Closing Date.
4.23. ENVIRONMENTAL INVESTIGATIONS. All material environmental
investigations, studies, audits, assessments or reviews conducted of which
Holdings or the Borrower is in possession in relation to the current or prior
business of Holdings, the Borrower or any of its Subsidiaries or any Real
Property or facility now or previously owned, operated, leased, used or
controlled by Holdings or any of its Subsidiaries, including, without
limitation, those relating to compliance
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18
with or liability under any Environmental Law, have been delivered to the Lender
through its attorneys, Skadden, Arps, Slate, Meagher & Flom.
4.24. FINE PRODUCTS COMPANY. As of the date of this Agreement and as of
the Closing Date, Fine Products Company, a Georgia corporation ("Fine
Products"), has capital of $145,000 and has no other assets or, to the best of
the Borrower's knowledge, liabilities of any kind (other than its rights and
obligations under the purchase agreement dated as of February 1, 1994 between
Fine Products, Aminco Delaware and Gilliam Candy Co., Inc., and certain tax
attributes). There are no actions, claims, judgments, suits or proceedings
pending or, to Holdings' or the Borrower's knowledge, threatened in any court of
competent jurisdiction with respect to Fine Products and neither Holdings nor
the Borrower is aware of any facts or circumstances which would provide the
basis for the assertion against Fine Products of any such actions, claims, suits
or proceedings.
4.25. The Borrower is actively engaged in the process of attempting to
sell certain assets used in the business of selling, distributing, packaging,
manufacturing and marketing CUTEX brand nail care and lip color products in the
United States and Puerto Rico, and has engaged Merrill Lynch to act as its
financial adviser in connection with such sale.
SECTION 5. AFFIRMATIVE COVENANTS.
Holdings and the Borrower covenant and agree that on the Closing Date
and thereafter for so long as this Agreement is in effect and until the Term
Loan together with interest, fees and all other Obligations incurred hereunder
are paid in full (except as otherwise agreed or consented to or waived, in
writing, by the Lender):
5.01. INFORMATION COVENANTS. Holdings will furnish or cause to be
furnished to the Lender:
(a) As soon as available and in any event within 90 days after the
close of each fiscal year of Holdings, the consolidated balance sheet of
Holdings and its Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income, of shareholders' equity and of cash flows for
such fiscal year, setting forth comparative consolidated figures for the
preceding fiscal year and a report on such consolidated balance sheets and
financial statements by independent certified public accountants of recognized
national standing, which report shall not be qualified as to the scope of audit
or as to the status of Holdings and its Subsidiaries as a going concern and
shall state that such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Holdings and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except for such changes with which the
independent certified public accountants concur) and the examination by such
accountants was conducted in accordance with generally accepted auditing
standards.
(b) As soon as available and in any event within 45 days after the
close of each of the first three quarterly accounting periods in each fiscal
year of Holdings, the consolidated balance sheet of Holdings and its
Subsidiaries as at the end of such quarterly accounting period and the related
consolidated statements of income, of shareholders' equity and of cash flows for
such
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19
quarterly accounting period and for the elapsed portion of the fiscal year ended
with the last day of such quarterly accounting period, setting forth in
comparative form the same information for the corresponding periods of the prior
fiscal year.
(c) As soon as practicable and in any event within 30 days after the
end of the month of July, 1998 and each month thereafter, (i) the consolidated
balance sheet of Holdings and its Subsidiaries as at the end of such period and
(ii) the related consolidated statements of income and cash flows of Holdings
each in the form customarily prepared by management, in each case for such
fiscal month and for the period from the beginning of the then current fiscal
year to the end of such fiscal month, setting forth in comparative form the same
information for the corresponding periods of the prior fiscal year, together
with a brief narrative discussion and analysis prepared by management describing
Holdings' results of operations for such fiscal month.
(d) At the time of the delivery of the financial statements provided
for in Sections 5.01(a) and (b), a certificate of the chief executive officer,
chief financial officer, controller, chief accounting officer or other
Authorized Officer of Holdings to the effect that such financial statements are
true and complete in all material respects and that no Default or Event of
Default exists, or, if any Default or Event of Default does exist, specifying
the nature and extent thereof.
(e) Promptly upon their becoming available, copies of all consolidated
financial statements, reports, notices and proxy statements sent or made
available generally by Holdings or any Subsidiary of Holdings to its security
holders (other than to Holdings, the Borrower or another Subsidiary of
Holdings), of all regular and periodic reports and all registration statements
and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any
securities exchange or with the SEC and of all press releases and other
statements made available generally by Holdings or any Subsidiary of Holdings to
the public concerning material developments in the business of Holdings and its
Subsidiaries.
(f) Promptly upon any Senior Officer obtaining knowledge (w) of any
condition or event which constitutes a Default or Event of Default, (x) that any
Person has given any written notice to Holdings, the Borrower or any Subsidiary
of the Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in Section 7.04, or (y) of a material
adverse change in the business, operations, properties, assets, nature of
assets, condition (financial or otherwise) or prospects of Holdings, the
Borrower and its Subsidiaries taken as a whole, an Officers' Certificate
specifying the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and the
nature of such claimed Default, Event of Default, event or condition, or
material adverse change, and what action Holdings has taken, is taking and
proposes to take with respect thereto.
(g) (i) Promptly upon any Senior Officer obtaining knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Holdings, the Borrower or any
of its Subsidiaries or any property of Holdings, the Borrower or any of its
Subsidiaries not previously disclosed to the Lender, which action, suit,
proceeding, governmental investigation or arbitration seeks (or in the case of
multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the
<PAGE>
20
same general allegations or circumstances which seek) recovery from Holdings,
the Borrower or any of its Subsidiaries aggregating $500,000 or more (exclusive
of claims covered by insurance policies of Holdings, the Borrower or any of its
Subsidiaries unless the insurers of such claims have disclaimed coverage or
reserved the right to disclaim coverage on such claims), Holdings shall give
notice thereof to the Lender and provide such other information as may be
reasonably available to enable the Lender and its counsel to evaluate such
matters; (ii) as soon as practicable and in any event within 45 days after the
end of each fiscal quarter, Holdings shall provide a report to the Lender
covering any institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration (not previously reported) against or
affecting Holdings, the Borrower or any of its Subsidiaries or any property of
Holdings, the Borrower or any of its Subsidiaries not previously disclosed to
the Lender, which action, suit, proceeding, governmental investigation or
arbitration seeks (or in the case of multiple actions, suits, proceedings,
governmental investigations or arbitrations arising out of the same general
allegations or circumstances which seek) recovery from Holdings, the Borrower or
any of its Subsidiaries aggregating $250,000 or more (exclusive of claims
covered by insurance policies of Holdings, the Borrower or any of its
Subsidiaries unless the insurers of such claims have disclaimed coverage or
reserved the right to disclaim coverage on such claims), and shall provide such
other information at such time as may be reasonably available to enable the
Lender and its counsel to evaluate such matters; (iii) in addition to the
requirements set forth in clauses (i) and (ii) of this Section 5.01(g), Holdings
upon request shall promptly give notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered to the Lender pursuant to clause (i) or (ii) above to the Lender and
provide such other information as may be reasonably available to it to enable
the Lender and its counsel to evaluate such matters and (iv) promptly upon any
Senior Officer obtaining knowledge of any material dispute in respect of or the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration in respect of any material contract of Holdings,
the Borrower or any of its Subsidiaries, Holdings shall give notice thereof to
the Lender and shall provide such other information as may be reasonably
available to enable the Lender and its counsel to evaluate such matters.
(h) With reasonable promptness, such other information and data with
respect to Holdings, the Borrower or any of its Subsidiaries or any other
similar entity in which Holdings, the Borrower or any of its Subsidiaries has an
investment, as from time to time may be reasonably requested by the Lender and
may be reasonably available to Holdings or the Borrower.
(i) Holdings shall deliver to the Lender, within 15 days after filing
with the SEC, copies of Holdings' annual report and of 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) which is filed by Holdings
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act within the time
periods prescribed under such rules and regulations. In addition, Holdings shall
file with the Lender Holdings' annual reports to shareholders and any quarterly
or other financial reports furnished by Holdings to shareholders generally.
5.02. BOOKS, RECORDS AND INSPECTIONS. Holdings will, and will cause
each of its Subsidiaries to, keep true books of records and accounts in which
full and correct entries will be
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21
made of all their business transactions, and will reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with GAAP.
Holdings will, and will cause each of its Subsidiaries to, permit, upon
reasonable prior notice to the chief financial officer, controller, chief
accounting officer or any other Authorized Officer of either of Holdings or the
Borrower, officers and designated representatives of the Lender to visit and
inspect any of the properties or assets of Holdings, the Borrower and any of its
Subsidiaries in whomsoever's possession, and to examine the books of account of
Holdings, the Borrower and any of its Subsidiaries and discuss the affairs,
finances and accounts of Holdings, the Borrower and any of its Subsidiaries
with, and be advised as to the same by, its and their officers and independent
accountants (in the presence of such officers), all at such reasonable times
during regular business hours and intervals and to such reasonable extent as the
Lender may reasonably request.
5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) Holdings will, and will
cause each of its Subsidiaries to, exercise commercially reasonable efforts to
maintain or cause to be maintained in good repair, working order and condition
(subject to normal wear and tear) all properties used in its businesses and from
time to time will make or cause to be made all repairs, renewals and
replacements thereof which Holdings and the Borrower deem appropriate in their
commercially reasonable judgment and will maintain and renew as necessary all
licenses, permits and other clearances necessary in their commercially
reasonable judgment to use and occupy such properties of Holdings, the Borrower
and each Subsidiary of Holdings, as the case may be.
(b) Holdings will, and will cause each of its Subsidiaries to, maintain
or cause to be maintained, with financially sound and reputable insurers,
insurance with respect to its properties and business against loss or damage of
the kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations to the extent that such types and such amounts of
insurance are available at commercially reasonable rates. Holdings will, and
will cause each of its Subsidiaries to, furnish to the Lender, upon reasonable
request, information as to the insurance carried.
(c) Without limiting subsection 5.03(b) above, Holdings will, and will
cause each of its Subsidiaries to, maintain in full force the insurance
coverages specified in the Mortgages and the other Security Documents.
5.04. PAYMENT OF TAXES. Holdings will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all material taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
material penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of Holdings or any of its
Subsidiaries or cause a failure or forfeiture of title thereto; PROVIDED that
neither Holdings, the Borrower nor any Subsidiary of Holdings shall be required
to pay any such tax, assessment, charge, levy or claim that is being contested
in good faith and by proper proceedings timely instituted and diligently
conducted if it has maintained adequate reserves with respect thereto in
accordance with GAAP.
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22
5.05. CORPORATE FRANCHISES. Holdings will do, and will cause each
Subsidiary to do, or cause to be done, all things necessary to preserve and keep
in full force and effect its existence, rights and authority, except where such
failure to keep in full force and effect such rights and authority would not
have a Materially Adverse Effect.
5.06. COMPLIANCE WITH STATUTES, ETC. Holdings will, and will cause each
Subsidiary to, comply with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by, all Governmental Authorities, in
respect of the conduct of its business and the ownership of its property, other
than non-compliance which would not have a Materially Adverse Effect; PROVIDED
that with respect to non-compliance with Environmental Laws which is disclosed
in Annex X hereto, Holdings will, and will cause each Subsidiary to, comply with
such Environmental Laws as soon as practicable.
5.07. ERISA. Holdings or the Borrower, as the case may be, will furnish
to the Lender:
(a) promptly upon Holdings' or the Borrower's knowing or having reason
to know of the occurrence of any (i) Termination Event, or (ii) "prohibited
transaction," within the meaning of Section 406 of ERISA or Section 4975 of the
Code, in connection with any Pension Plan or any trust created thereunder, which
in the case of all such events described in clause (i) or (ii) results or could
reasonably be expected to result in a liability of a Credit Party or its ERISA
Affiliates in the aggregate in excess of $200,000 or the imposition of a Lien
other than a Permitted Encumbrance on the assets of a Credit Party, a written
notice specifying the nature thereof, what action the Credit Party or its ERISA
Affiliates have taken, are taking or propose to take with respect thereto, and,
when known, any action taken or threatened by the Internal Revenue Service,
Department of Labor, PBGC or Multiemployer Plan with respect thereto.
(b) with reasonable promptness, copies of (i) all notices received by a
Credit Party or any of its ERISA Affiliates of PBGC's intent to terminate any
Title IV Plan or to have a trustee appointed to administer any Title IV Plan,
the notice of which event is required pursuant to the preceding paragraph (a);
(ii) upon the request of the Lender each Schedule B (Actuarial Information) to
the annual report (Form 5500 Series) filed by a Credit Party or any of its ERISA
Affiliates with the Internal Revenue Service with respect to each Pension Plan
for which Schedule B is required; (iii) upon the request of the Lender, the most
recent actuarial valuation report for each Title IV Plan; and (iv) all notices
received by the Credit Parties or any of their ERISA Affiliates from a
Multiemployer Plan concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA, the notice of which event is required
pursuant to the preceding paragraph (a).
5.07. PERFORMANCE OF OBLIGATIONS. Holdings will, and will cause each of
its Subsidiaries to, perform in all material respects all of its obligations
under the terms of each mortgage, indenture, security agreement, other debt
instrument and material contract by which it is bound or to which it is a party,
except where such nonperformance would not have a Materially Adverse Effect.
5.08. USE OF PROCEEDS. The proceeds of the Term Loan shall be used as
provided in Section 4.05.
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23
5.09. EQUAL SECURITY FOR LOAN AND NOTE; NO FURTHER NEGATIVE PLEDGES.
(a) If Holdings or any of its Subsidiaries shall create or assume any Lien upon
any of its property or assets, whether now owned or hereafter acquired and
whether or not such property or assets constitutes Collateral, other than
Permitted Encumbrances (unless prior written consent to the creation or
assumption thereof shall have been obtained from the Lender), it shall make or
cause to be made effective provisions whereby the Obligations will be secured by
such Lien equally and ratably with any and all other Indebtedness thereby
secured as long as any such Indebtedness shall be secured; PROVIDED that this
covenant shall not be construed as consent by the Lender to any violation by the
Borrower of the provisions of Section 6.02.
(b) Except with respect to prohibitions against other encumbrances on
specific property encumbered to secure payment of particular Indebtedness
permitted hereunder (which Indebtedness relates solely to the acquisition or
improvement of such specific property) neither Holdings nor any of its
Subsidiaries shall enter into any agreement prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
hereafter acquired.
5.10. PLEDGE OF ADDITIONAL COLLATERAL. Concurrently with the execution
and delivery by any Subsidiary of a Subsidiary Guarantee, and/or in the event
that Holdings or any such Subsidiary acquires any assets directly or indirectly
through merger or otherwise that would constitute Pledged Collateral or
Mortgaged Real Property or assets of the same type, Holdings will, or will cause
such Subsidiary to, take all necessary action to grant the Lender a perfected
first Lien in all of the real and personal property of Holdings or such
Subsidiary (to the extent permitted by applicable law) to secure the payment and
performance of the Obligations, Holdings' obligations and liabilities under its
Guarantee and such Subsidiary's obligations and liabilities under its Subsidiary
Guarantee; and promptly, and in any event within 30 days after the acquisition
of assets of a type that, but for the fact that such assets shall have been
acquired after the Closing Date, would have constituted Collateral, Holdings
will, and will cause each of its Subsidiaries to, take all necessary action to
grant the Lender a perfected first Lien in such newly acquired assets (such
personal property and assets of a Subsidiary executing a Subsidiary Guarantee
and such newly acquired assets of Holdings or any of its Subsidiaries are
referred to herein collectively as the "Additional Collateral"). Such action to
be taken by Holdings and the Subsidiaries shall include, without limitation, the
execution and delivery of security agreements, and/or supplements thereto, and
other instruments and documents, all in form and substance reasonably
satisfactory to the Lender, the filing of appropriate financing statements under
the provisions of the UCC, applicable domestic or local laws, rules or
regulations in each of the offices where such filing is necessary or
appropriate, and the delivery of such opinions of counsel with respect to the
foregoing as the Lender shall reasonably require; PROVIDED this Section 5.10
shall not apply to any assets subject to Liens permitted under Section 6.03(i).
Furthermore, promptly, and in any event within 30 days, after the acquisition of
an interest in Real Property within the United States not held as of the Closing
Date (the "Additional Real Property"), Holdings will, and will cause such of its
Subsidiaries acquiring such an interest to, take such actions and execute such
documents as the Lender shall reasonably require to confirm the Lien of a
Mortgage (including, without limitation, satisfaction of the conditions set
forth in Sections 3.01(C)(iii) and 3.01(H)), or execute a new Mortgage, with
respect to such Additional Real Property. All costs and expenses arising from
any action taken or required to be taken by Holdings or any of its Subsidiaries
in connection with the pledge of Additional Collateral or Additional Real
Property pursuant to this Section 5.10, including, without limitation, costs of
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24
counsel to Holdings or such Subsidiary in connection with the delivery of
opinions as required by this Section 5.10, shall be payable by Holdings, the
Borrower or such Subsidiary. All agreements, instruments and documents executed
or delivered pursuant to or in furtherance of this Section 5.10, and all
amendments, modifications and supplements thereto from time to time entered
into, are and shall be within the definition of "Security Documents."
5.11. SECURITY INTERESTS. Holdings will, and will cause each of its
Subsidiaries to, perform any and all acts and execute any and all documents
(including, without limitation, the execution, amendment or supplementation of
any financing statement and continuation statement) for filing in any
appropriate jurisdiction under the provisions of the UCC, local law or any
statute, rule or regulation of any applicable domestic jurisdiction which are
necessary in order to maintain or confirm in favor of the Lender a valid and
perfected Lien on the Collateral as collateral security for the payment and
performance of the Obligations, subject to no Liens except for Prior Liens and
Liens permitted by the applicable Security Documents. Holdings or the Borrower
shall, as promptly as practicable after the filing of any financing statements,
deliver to the Lender acknowledgment copies of, or copies of lien search reports
confirming the filing of, financing statements duly filed under the UCC of all
jurisdictions as may be necessary or, in the reasonable judgment of the Lender,
desirable to perfect the Lien created, or purported or intended to be created,
by each Security Document.
5.12. ENVIRONMENTAL EVENTS. (i) Holdings will, and will cause each of
its Subsidiaries to, comply with any and all Environmental Laws, other than
non-compliance which could not reasonably be expected to result in liability
under any Environmental Laws in excess of $250,000 individually or in the
aggregate with any other liability under any Environmental Laws; PROVIDED that,
with respect to non-compliance with Environmental Laws which is disclosed in
Annex X hereto, Holdings will, and will cause each of its Subsidiaries to,
comply with such Environmental Laws as soon as practicable.
(ii) Holdings will, and will cause each of its Subsidiaries to,
promptly give notice to the Lender upon determining the existence of (a) any
violation of any Environmental Laws, (b) any Environmental Notice or (c) any
release or threatened release of Hazardous Materials at, on, upon, under or from
any of the Real Properties or any facility or equipment thereat in excess of a
reportable quantity or allowable standard or level under any Environmental Laws,
or in a manner and/or amount which could reasonably be expected to result in
liability under any Environmental Laws, in each case in excess of $250,000
individually or in the aggregate with any other liability under any
Environmental Laws (other than any such events disclosed in Annex X hereto).
(iii) In the event of the presence of Hazardous Materials on any of the
Real Properties which is in violation of, or which could reasonably be expected
to result in liability under, any Environmental Laws, in each case in excess of
$250,000 individually or in the aggregate with any other liability under any
Environmental Laws, Holdings or any of its Subsidiaries, upon discovery thereof,
shall take appropriate steps to initiate and expeditiously complete all
response, corrective and other action required under any Environmental Laws to
mitigate and eliminate any such violation or liability.
5.13. NEW SUBSIDIARIES. In addition to its obligations with respect to
Section 5.10, if, after the date hereof, Holdings, the Borrower or any
Subsidiary of Holdings shall create or
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25
acquire any (A) domestic Subsidiary, Holdings shall, concurrently with the
creation or acquisition of such Subsidiary, (i) cause such Subsidiary to execute
and deliver to the Lender a Subsidiary Guarantee, substantially in the form of
Exhibit H annexed hereto, guaranteeing the Borrower's Obligations hereunder and
(ii) take all necessary actions and execute such agreements, instruments and
documents, including, without limitation, stock powers executed in blank, and
deliver such opinions of counsel with respect thereto, as the Lender may
reasonably require to cause all of the capital stock of such Subsidiary owned or
controlled by Holdings, the Borrower or any Subsidiary of Holdings to be pledged
to the Lender to secure the Borrower's Obligations hereunder such that the
Lender has a valid and perfected first-priority security interest in such
pledged capital stock or (B) foreign Subsidiary whose direct parent is any of
Holdings, the Borrower or a Guarantor, Holdings shall, concurrently with the
creation or acquisition of such foreign Subsidiary, (i) comply with the
requirements of clause (A)(i) above if permitted by applicable foreign law and
if such compliance would not cause such Subsidiary to hold or be deemed to hold
an obligation of a United States person or other "United States property" for
purposes of Section 956(a)(1)(A) of the Code and Treas. Reg. ss. 1.956-2 and
(ii) comply with the requirements of clause (A)(ii) above, but only to the
extent of 65% of the capital stock of such foreign Subsidiary.
5.14 POST-CLOSING OPINIONS. Holdings and the Borrower will deliver or
cause to be delivered to the Lender an opinion of special South African counsel
to Holdings, Borrower and Carson Holdings Limited with respect to the pledge of
the shares of Carson Holdings Limited, in form and substance reasonably
satisfactory to the Lender within 15 days after the Closing Date.
SECTION 6. NEGATIVE COVENANTS.
Holdings and the Borrower hereby covenant and agree that as of the
Closing Date and thereafter for so long as this Agreement is in effect and until
the Term Loan together with interest, fees and all other Obligations incurred
hereunder are paid in full (except as otherwise agreed or consented to or
waived, in writing, by the Lender):
6.01. CHANGES IN BUSINESS. Other than asset dispositions permitted
under Section 6.05, the Borrower will not, and will not permit any of its
Subsidiaries to, materially alter its businesses from that conducted by Holdings
or such Subsidiary at the Closing Date, and lines of business reasonably related
thereto.
6.02. AMENDMENTS OR WAIVERS OF CERTAIN DOCUMENTS. Holdings will not,
and will not permit any of its Subsidiaries to, amend or otherwise change the
terms of any Existing Debt, including, without limitation, the interest rate,
time of payment of interest, with respect to security (if any) and the scheduled
maturity of, the Senior Subordinated Notes.
6.03. LIENS. Holdings will not, and will not permit any Subsidiary of
Holdings to, directly or indirectly, create, incur, assume or permit or suffer
to exist any Lien upon or with respect to any item constituting Collateral,
whether now owned or hereafter acquired, except for the Lien of the Security
Document relating thereto, Prior Liens applicable thereto and other Liens
expressly permitted by such Security Document. Holdings will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon or with respect to any property or assets of Holdings or any
Subsidiary of Holdings which does not constitute
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26
Collateral whether now owned or hereafter acquired, or sell any such property or
assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute, except the
following, which are herein collectively referred to as "Permitted
Encumbrances":
(a) Liens for taxes, assessments or governmental charges or claims not
yet delinquent or Liens for taxes, assessments or governmental charges or claims
being contested in good faith and by appropriate proceedings for which adequate
reserves, as may be required by GAAP, have been established;
(b) Liens in respect of property or assets of Holdings or any of its
Subsidiaries imposed by law (i) which were incurred in the ordinary course of
business, such as carriers', warehousemen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, and (x) which do not
in the aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of Holdings
or any of its Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or asset subject to such Lien or (ii) which
do not relate to material liabilities of Holdings and its Subsidiaries and do
not in the aggregate materially detract from the value of the property and
assets of Holdings and its Subsidiaries taken as a whole;
(c) Liens in connection with any attachment or judgment (including
judgment or appeal bonds) for amounts of less than $500,000 individually or less
than $1,000,000 in the aggregate (exclusive of any amount adequately covered by
insurance as to which the insurance company has acknowledged coverage) unless
the judgment it secures shall, within 60 days after the entry thereof, not have
been discharged or execution thereof not been stayed pending appeal, or shall
not have been discharged within 30 days after the expiration of any such stay;
(d) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed money or the
equivalent);
(e) subject to the provisions of Section 6.14 and, with respect to any
Mortgaged Real Property, to the provisions of any applicable Mortgage, (i)
Leases with respect to the assets or properties of Holdings or the Borrower
entered into in the ordinary course of Holdings' or the Borrower's business and
subordinate in all respects to the Liens granted and evidenced by the Security
Documents, (ii) foreign Leases and (iii) Existing Leases and any extensions,
renewals or replacements thereof;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title not interfering in any material respect with the
business of Holdings or any of its Subsidiaries, in each case incurred in the
ordinary course of business and which do not materially impair for its intended
purposes the Real Property to which it relates;
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27
(g) zoning and building by-laws and ordinances, municipal bylaws and
regulations, and restrictive covenants, which do not materially interfere with
the use of the subject property by Holdings or any of its Subsidiaries as such
property is used as of the Closing Date;
(h) Liens securing Indebtedness of a Subsidiary of Holdings owing to
Holdings or a Wholly Owned Subsidiary of Holdings;
(i) Liens upon real or tangible or intangible personal property
acquired or constructed by Holdings or its Subsidiaries after the date hereof or
on such property or equity securities of a Person at the time such Person
becomes a Subsidiary of Holdings or any of its Subsidiaries; PROVIDED that (i)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, the cost of the item of property subject
thereto or such Liens existed on the date such property or securities were
acquired and were not incurred as a result of or in anticipation of such
acquisition, (ii) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of the fair value (as determined in good faith by the board
of directors of Holdings or the Borrower, as the case may be) of the respective
property at the time it was so acquired or constructed, (iii) the Indebtedness
secured by the Lien is not created more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien, (iv) such
Lien does not extend to or cover any other property other than such item of
property and (v) the incurrence of such Indebtedness secured by such Lien is
permitted by Section 6.04;
(j) Liens on any property existing as of the date hereof securing
Existing Debt and any refinancing, extension, renewal or rearrangement thereof
provided that such Lien does not extend to or cover any other property other
than items of property encumbered as of the date hereof; and
(k) Liens on inventory and receivables and assets specifically related
thereto and proceeds thereof in connection with (i) the South African Credit
Agreement and (ii) the Revolving Credit Facility.
6.04. INDEBTEDNESS. Holdings will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to the Credit Documents;
(b) Existing Debt and any refinancing, extension, renewal,
rearrangement or replacement thereof; PROVIDED that any such refinancing,
extension, renewal, rearrangement or replacement of Existing Debt shall be on
terms which, both taken as a whole and specifically as such terms relate to the
identity of the obligors, repayments of principal, covenants, events of default
and security in property of the debtor, are in each event no less favorable to
Holdings or the Borrower than the correlative terms of the Existing Debt;
(c) $1,000,000 of Indebtedness outstanding at any time to finance the
cost of the acquisition or construction of real or personal tangible or
intangible property (including Capital Leases), and any refinancing, extension,
renewal, rearrangement or replacement thereof; PROVIDED that such Indebtedness
(or the refinancing thereof) shall not exceed 100% of the fair
<PAGE>
28
value of such property; and PROVIDED, FURTHER, that such Indebtedness (or the
refinancing thereof) is not secured by any Lien other than a Lien referred to in
clause (i) of Section 6.03;
(d) other unsecured Indebtedness not exceeding $1,000,000 in the
aggregate at any time outstanding;
(e) Indebtedness owed to Morningside under the Management Agreement;
(f) Indebtedness of Holdings to any of its Wholly Owned Subsidiaries
(provided that such Indebtedness owed by Holdings is used only to fund any
amounts required for the payment of (i) interest when due on the Senior
Subordinated Notes (provided no Default or Event of Default exists under this
Agreement) and (ii) taxes payable (A) by Holdings or (B) by Holdings, the
Borrower and/or its Subsidiaries on a consolidated, combined or unitary basis)
or of any Wholly Owned Subsidiary of Holdings to Holdings or another Wholly
Owned Subsidiary of Holdings (but only so long as such Indebtedness is held by
Holdings or its Wholly Owned Subsidiary), and Indebtedness permitted under
Section 6.05(i);
(g) Indebtedness in respect of performance bonds, return-of-money
bonds, surety and appeal bonds and other similar obligations incurred by
Holdings or any of its Subsidiaries in the ordinary course of business, PROVIDED
such Indebtedness does not exceed $100,000 at any time outstanding;
(h) Indebtedness of Holdings, the Borrower or any Subsidiary of
Holdings incurred pursuant to the Revolving Credit Facility in a maximum
principal amount not to exceed $15,000,000 in the aggregate at any time
outstanding;
(i) Indebtedness of Carson Holdings Limited pursuant to the South
African Credit Agreement in an amount not exceeding the equivalent of
US$2,000,000 in the aggregate at any time outstanding; PROVIDED that such
Indebtedness is not secured by any Lien other than a Lien referred to in Section
6.03(k); and
(j) Indebtedness of any Credit Party (including pursuant to the
issuance of any guarantees) incurred pursuant to the Senior Subordinated Notes.
6.05. ADVANCES, INVESTMENTS AND LOANS. Holdings will not, and will not
permit any of its Subsidiaries to, lend money or credit or make advances to any
Person, or purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to any Person, except:
(a) investments in Cash and Cash Equivalents;
(b) receivables owing to them and advances to customers and suppliers,
in each case if created, acquired or made in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(c) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent
<PAGE>
29
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(d) investments in any direct or indirect Wholly Owned Subsidiary of
Holdings;
(e) transactions between Holdings and any of its Wholly Owned
Subsidiaries and between Wholly Owned Subsidiaries, in each case permitted under
Sections 6.04(f);
(f) loans or advances made by Holdings to its officers, directors and
employees in the ordinary course of business not to exceed $500,000 in the
aggregate outstanding at any time;
(g) investments made as a result of the receipt of non-cash proceeds
from any Asset Sale made pursuant to and in compliance with Section 6.10;
(h) other investments, loans or advances not to exceed $500,000 in the
aggregate outstanding at any time;
(i) loans, advances and/or investments (in each case evidenced by notes
that shall constitute Pledged Collateral) by Holdings or the Borrower in Carson
Holdings Limited in an amount not to exceed the equivalent of US$5,000,000 in
the aggregate at any one time outstanding; and
(j) investments in one or more contract manufacturers, suppliers,
vendors and distributors that are Affiliates of Holdings in connection with the
provision by any such person of manufacturing, research and development,
outsourcing, sales, marketing and/or distribution services to Holdings and/or
one or more of its Subsidiaries in an aggregate amount at one time outstanding
not to exceed US$4,000,000.
6.06. PREPAYMENTS OF INDEBTEDNESS. (A) Other than in accordance with
Section 2.01, Holdings will not, and will not permit any of its Subsidiaries to
make (or give any notice in respect of) any voluntary or optional payment or
prepayment or redemption or acquisition for value of Indebtedness (including,
without limitation, by way of depositing with any trustee with respect thereto
money or securities before such Indebtedness is due for the purpose of paying
such Indebtedness when due) or exchange of any such Indebtedness or preferred
stock, as the case may be, or (B) other than in accordance with Section 2.02,
Holdings will not, and will not permit any of its Subsidiaries to, make (or give
any notice in respect of) any mandatory prepayment or redemption or acquisition
for value of Indebtedness (including, without limitation, by way of depositing
with any trustee with respect thereto money or securities for such purposes) or
exchange of any such Indebtedness or preferred stock, as the case may be, in
each case of clauses (A) and (B), until all Obligations under this Agreement
have been satisfied in full; PROVIDED that Holdings and any of its Subsidiaries
may make such a payment, prepayment, redemption, acquisition or exchange using
the proceeds of Indebtedness permitted to be incurred by Section 6.04 to
refinance or replace such Indebtedness.
(C) Holdings will not, and will not permit any of its Subsidiaries to:
amend, modify or change any of the Management Agreement, the Cutex Manufacturing
Agreement (other than in connection with a sale of the CUTEX business
contemplated by Section 4.25), the Certificate of Incorporation (including,
without limitation, by the filing of any certificate of designation) or
<PAGE>
30
By-laws of Holdings or the Borrower, or any agreement entered into by Holdings
or the Borrower with respect to its capital stock, or enter into any new
agreement with respect to the capital stock of Holdings or the Borrower, in each
case without the prior consent of the Lender, which consent shall not be
unreasonably withheld.
6.07. DIVIDENDS, ETC. Holdings will not, and will not permit any of its
Subsidiaries to, declare or pay any dividends (other than dividends or
distributions payable in shares of capital stock of Holdings or any of its
Subsidiaries, other than redeemable stock) or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for any consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any warrants for
or options or stock appreciation rights in respect of any of such shares), or
make any loans or advances to Affiliates, or set aside any funds for any of the
foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of
Holdings or any other Subsidiary, as the case may be, now or hereafter
outstanding (or any options or warrants or stock appreciation rights issued by
such Person with respect to its capital stock) (all of the foregoing,
"Dividends"), except that (i) any direct or indirect Subsidiary of Holdings may
pay Dividends to its parent corporation if such parent corporation is a Wholly
Owned Subsidiary of Holdings, (ii) the Borrower or any other Subsidiary of
Holdings may pay to Holdings any amounts required for the payment of (I)
interest when due on the Senior Subordinated Notes (provided no Default or Event
of Default exists under this Agreement) and (II) any taxes payable (A) by
Holdings or (B) by Holdings, the Borrower and/or its Subsidiaries on a
consolidated, combined or unitary basis, (iii) Holdings or any of its
Subsidiaries may purchase capital stock held by employees of Holdings or any of
its Subsidiaries pursuant to any employee stock option or other benefit plan
thereof upon the termination, retirement or death of any such employee in
accordance with the provisions of any such plan in an amount not greater than
$250,000 in any calendar year; PROVIDED that the Borrower may purchase capital
stock pursuant to the Employment Agreement with Dr. Leroy Keith dated as of
August 23, 1995, as amended, without regard to such limitation; and (iv)
Holdings or any of its Subsidiaries may make payments to Affiliates pursuant to
and in compliance with Section 6.08 hereof.
6.08. TRANSACTIONS WITH AFFILIATES. Holdings will not, and will not
permit any Subsidiary to, enter into any transaction or series of transactions,
whether or not in the ordinary course of business, with any holder of 5% or more
of any class of equity securities of Holdings or with any Affiliate of Holdings
other than on terms and conditions substantially as favorable to Holdings or
such Subsidiary as would be obtainable by Holdings or such Subsidiary at the
time in a comparable arm's-length transaction with a Person other than a holder
of 5% or more of any class of equity securities of Holdings or an Affiliate;
PROVIDED that the foregoing restrictions shall not apply to (i) transactions
between Holdings and any of its Wholly Owned Subsidiaries and between Wholly
Owned Subsidiaries, (ii) payments to Morningside pursuant to the Management
Agreement for management services not to exceed $500,000, or above such amount
up to an aggregate of $750,000 with approval of the board of directors of
Holdings, in any fiscal year (provided that all such payments made commencing
January 1, 1998 will be included in the calculation for the fiscal year ending
December 31, 1998), plus reimbursement of reasonable out-of-pocket expenses,
(iii) loans and other advances made by the Borrower to its officers, directors
and employees permitted under Section 6.05(f), (iv) the payment of customary
outside
<PAGE>
31
directors' fees, customary indemnification arrangements and customary director
and officer liability insurance, (v) the issuance of capital stock of Holdings
or any of its Subsidiaries, pursuant to any pension, stock option, profit
sharing or other employee benefit plan or agreement of Holdings or any of its
Subsidiaries in the ordinary course of business and (vi) investments made
pursuant to Section 6.05(j) hereof.
6.09. ISSUANCE OF SUBSIDIARY STOCK. Holdings will not and will not
permit any of its Subsidiaries directly or indirectly to issue, sell, assign,
pledge or otherwise encumber or dispose of any shares of such Subsidiaries'
capital stock or other equity securities (or warrants, rights or options to
acquire capital stock or convertible securities or other equity securities) of
such Subsidiary, except to Holdings or any other Wholly Owned Subsidiary of
Holdings (in each case other than directors' or nominees' qualifying shares or
shares of capital stock required to be owned by foreign nationals under
applicable law); PROVIDED, HOWEVER, that nothing contained in this Section 6.09
shall prohibit the issuance of capital stock of Carson Holdings Limited in
accordance with the terms of the Carson Holdings Limited Share Incentive Trust,
as in effect on the date hereof.
6.10. DISPOSITION OF ASSETS. (A) Holdings will not, and will not permit
any of its Subsidiaries to, sell, lease or otherwise dispose of all or any part
of its interest in any asset, except that Holdings and its Subsidiaries may
sell, lease or otherwise dispose of assets so long as either (i) such sales are
approved by the Lender; (ii) such sales are for at least the fair market value
of such assets and the aggregate amount of such asset sales is less than
$500,000 in any 12-month period and, in any such case, Holdings or such
Subsidiary complies with the mandatory prepayment provisions herein and, in the
case of Collateral, so long as the conditions to the release of Collateral
described herein and in the applicable Security Documents are met; (iii) such
sales are of inventory and in the ordinary course of business; (iv) such sales
or other dispositions are (A) of equipment that has become worn out, obsolete or
damaged or otherwise unsuitable or no longer needed for use in connection with
the business of Holdings or any of its Subsidiaries or should be replaced, as
the case may be, in each case as determined in good faith by the board of
directors of Holdings or its Subsidiary, as the case may be, (B) for at least
the fair market value of such equipment, (C) not in excess of $100,000
individually or $250,000 per year in the aggregate for sales of such equipment
and (D) the proceeds of the sales of such equipment are used within 90 days of
such sales to (1) purchase equipment used in substantially similar lines of
business or (2) repay Indebtedness under this Credit Agreement pursuant to
Sections 2.01 or 2.02; (v) such sales or other dispositions do not exceed
$50,000 individually and are for at least the fair market value of such assets
or as to such other dispositions, the likely amount of net sales proceeds that
would be realized upon a sale of such assets is such that a sale of such assets
is not, in the reasonable judgment of Holdings or the Borrower, economically
practicable but such other disposition is otherwise of commercial value to
Holdings or the Borrower; PROVIDED that in no case shall sales pursuant to this
clause (v) exceed an aggregate of $100,000 in any fiscal year, and in the case
of Collateral, so long as the conditions to the release of Collateral described
herein and in the applicable Security Documents are met; (vi) such sales consist
of the licensing or sublicensing of Holdings' or any of its Subsidiaries'
Intellectual Property in the ordinary course of business; or (vii) such sales
are of equity securities under any stock option or other benefit plan available
to the employees or directors of Holdings or any of its Subsidiaries.
<PAGE>
32
The consideration received by Holdings and its Subsidiaries from each
sale of assets permitted by subsections (i) and (ii) above, other than with
respect to such sales involving consideration of not more than $100,000 in the
aggregate in any fiscal year, shall be payable by the purchaser in whole within
15 days of such sale and at least 70% of the consideration from each sale shall
consist of Cash or Cash Equivalents. Any non-cash proceeds received from the
sale of assets constituting Collateral shall be pledged pursuant to and in
accordance with the applicable Security Documents and shall constitute
Collateral.
(B) Upon compliance with the conditions in subsection (A) of this
Section 6.10, the Release Conditions and the Partial Release Conditions (each as
hereinafter defined), Holdings or its Subsidiaries shall be entitled to receive
from the Lender an instrument in form and substance reasonably satisfactory to
Holdings or such Subsidiary (each, a "Release"), releasing the Lien of the
Mortgage with respect to all or any portion of a Mortgaged Real Property (each,
a "Released Real Property"). Holdings or its Subsidiaries shall exercise their
rights under this Section by delivering to the Lender a notice (each, a "Release
Notice"), which shall refer to this Section, describe with particularity the
proposed Released Real Property and be accompanied by (i) four counterparts of
the Release fully executed and acknowledged by all necessary parties other than
the Lender, (ii) executed counterparts of UCC termination statements necessary
to terminate the Lien of the applicable Mortgage and (iii) an Officer's
Certificate certifying that no Default or Event of Default shall have occurred
and the parties executing any and all documents in connection with the Release
(other than the Lender) were duly authorized to do so (collectively, the
"Release Conditions"). In the event the proposed Released Property consists of
less than all of the Mortgaged Real Property subject to a single Mortgage, the
Partial Release Conditions must be satisfied in order for the Borrower or its
Subsidiaries to receive the Release.
(C) The Lender's obligation to deliver a Release in respect of less
than all of the Mortgaged Real Property subject to a single Mortgage shall be
contingent upon the satisfaction of the conditions in subsection (A) of this
Section 6.10 and the Release Conditions as well as the following conditions
(collectively, the "Partial Release Conditions"):
(i) following the sale, transfer or other disposition of and
release of the Lien of the applicable Mortgage with respect to the
proposed Released Real Property, the remaining Mortgaged Real Property
shall have utility services and access to public roads, rail spurs and
other transportation structures sufficient and necessary in the
reasonable opinion of Holdings or the Borrower for the continued use of
such Mortgaged Real Property in the manner utilized prior to the
Release;
(ii) following the sale, transfer or other disposition of the
proposed Released Real Property, the remaining Mortgaged Real Property
shall comply in all material respects with applicable laws, rules,
regulations and ordinances relating to environmental protection,
zoning, land use, configuration and building and workplace safety
(except for such non-compliance which has been previously consented to
by the Lender);
(iii) following the sale, transfer or other disposition of the
proposed Released Real Property, the value of the remaining Mortgaged
Real Property shall not be less than the value of such remaining
Mortgaged Real Property prior to the Release due to such sale, transfer
or other disposition;
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33
(iv) the Title Company shall be prepared to issue an
endorsement to the Lender's title insurance policy relating to the
Mortgaged Real Property confirming that after the proposed release, the
Lien of the applicable Mortgage continues unimpaired as a first
priority Lien upon the remaining Mortgaged Real Property subject only
to Prior Liens, those Liens permitted by the Mortgage or previously
consented to by the Lender;
(v) Holdings shall cause to have been delivered to the Lender
a Survey reasonably acceptable to the Lender of the Mortgaged Real
Property remaining after the proposed Released Real Property has been
released; and
(vi) Holdings or its Subsidiaries shall cause to have been
delivered to the Lender an Officer's Certificate certifying that the
conditions set forth in subsections (i) through (v) have been
satisfied.
(D) The Lender shall execute, acknowledge (if applicable) and deliver
to the Borrower counterparts of the documents described in subsections (B)(i)
and (ii) of this Section 6.10 within 10 Business Days after receipt by the
Lender of a Release Notice provided that the Release Conditions and the Partial
Release Conditions (if applicable) have been satisfied. Holdings or the Borrower
shall (i) execute, deliver, obtain and record such instruments as the Lender may
require, including, without limitation, amendments to the Security Documents or
this Agreement and, (ii) deliver to the Lender such evidence of the satisfaction
of the Release Conditions and the Partial Release Conditions as the Lender may
require and (iii) cause the Title Company to issue the endorsement referred to
in subsection (C)(iv) of this Section 6.10. Holdings or the Borrower shall
reimburse the Lender upon demand for all reasonable costs or expenses incurred
in connection with any actions taken pursuant to this Section 6.10.
6.11. CONTINGENT OBLIGATIONS. Holdings will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or become or be
liable with respect to any Contingent Obligation except:
(i) guarantees resulting from endorsement of instruments for
deposit or collection in the ordinary course of business;
(ii) the Guarantees;
(iii) obligations arising as a direct consequence of the
Refinancing, the Acquisition or pursuant to the Cutex Manufacturing
Agreement;
(iv) obligations with respect to the Indebtedness permitted to
be incurred under Section 6.04;
(v) guarantees on a subordinated basis by the Borrower and any
of the Subsidiaries of Holdings of the obligations of Holdings pursuant
to the terms of the indenture governing the Senior Subordinated Notes;
and
(vi) other Contingent Obligations not to exceed $250,000
outstanding at any one time.
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34
6.12. ERISA. The Credit Parties will not, and will not permit any of
their ERISA Affiliates to:
(i) engage in any transaction in connection with which the
Borrower or any of its ERISA Affiliates could be subject to either a
tax imposed by Section 4975(a) of the Code or the corresponding civil
penalty assessed pursuant to Section 502(i) of ERISA, which penalties
and taxes for all such transactions could reasonably be expected to be
in an aggregate amount in excess of $500,000;
(ii) permit to exist any accumulated funding deficiency, for
which a waiver has not been obtained from the Internal Revenue Service,
with respect to any Pension Plan;
(iii) permit to exist any failure to make contributions or any
unfunded benefits liability which creates, or with the passage of time
would create, a statutory lien or requirement to provide security under
ERISA or the Code in favor of the PBGC or any Pension Plan,
Multiemployer Plan or other entity;
(iv) permit the sum of the amount of unfunded benefit
liabilities (determined in accordance with Statement of Financial
Accounting Standards No. 87) under all Title IV Plans (excluding each
Title IV Plan with an amount of unfunded benefit liabilities of zero or
less) to exceed $2,500,000 for a period in excess of twelve months; or
(v) fail to make any payment to any Multiemployer Plan that it
or any of its ERISA Affiliates may be required to make under such
Multiemployer Plan, any agreement relating to such Multiemployer Plan,
or any law pertaining thereto.
As used in this Section 6.12, the term "accumulated funding deficiency"
has the meaning specified in Section 302 of ERISA and Section 412 of the Code,
and the term "amount of unfunded benefit liabilities" has the meaning specified
in Section 4001(a)(18) of ERISA.
6.13. MERGER AND CONSOLIDATIONS. No Credit Party will merge or
consolidate with or into any other entity; PROVIDED that any Subsidiary of
Holdings may be merged or consolidated with or into (i) Holdings, if Holdings is
the continuing or surviving corporation or (ii) any other such Subsidiary, if
the continuing or surviving corporation is a Wholly Owned Subsidiary of
Holdings.
6.14. SALE AND LEASE-BACKS. Holdings will not, and will not permit any
of its Subsidiaries to, directly or indirectly, become or thereafter remain
liable as lessee or as guarantor or other surety with respect to the lessee's
obligations under any lease, whether an Operating Lease or a Capital Lease, of
any property (whether real or personal or mixed) whether now owned or hereafter
acquired, (i) which Holdings or any of its Subsidiaries has sold or transferred
or is to sell or transfer to any other Person or (ii) which Holdings or any such
Subsidiary intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Holdings or any such
Subsidiary to any Person in connection with such lease, if in the case of clause
(i) or (ii) above, such sale and such lease are part of the same transaction or
a
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35
series of related transactions or such sale and such lease occur with one year
of each other or are with the same other Person.
6.15. SALE OR DISCOUNT OF RECEIVABLES. Holdings will not, nor will it
permit any of its Subsidiaries to, sell, with or without recourse, or discount
(other than in connection with trade discounts or arrangements necessitated by
the creditworthiness of the other party, in each case in the ordinary course of
business consistent with past practice) or otherwise sell for less than the face
value thereof, notes receivable or accounts receivable owed to it by its third
party customers or suppliers.
6.16. FINE PRODUCTS COMPANY. Holdings will not, and will not permit any
Subsidiary to, transfer any cash or other property to Fine Products, other than
transfers of cash in amounts needed to enable Fine Products to pay amounts not
to exceed $25,000 in the aggregate then required to be paid by Fine Products to
Persons that are not Affiliates of Holdings. Holdings will not permit Fine
Products to engage in any business activity.
SECTION 7. EVENTS OF DEFAULT.
Upon the occurrence and during the continuance of any of the
following specified events (each an "Event of Default"):
7.01. PAYMENTS. The Borrower shall (i) default, and such default shall
continue for fifteen or more days, in the payment when due of any principal of
the Term Loan, (ii) default, and such default shall continue for three or more
Business Days, in the payment when due of any interest on the Term Loan or under
any other Credit Document or (iii) fail to pay any other amounts owing hereunder
for ten Business Days after receiving notice thereof; or
7.02. REPRESENTATIONS, ETC. Any representation, warranty or statement
made or deemed made by operation of Section 3.01 by any Credit Party herein or
in any other Credit Document or in any written statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made by
operation of Section 3.01; or
7.03. COVENANTS. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Sections 5.09, 5.10, 5.11, 5.13 or Section 6 hereof or Section 1.1 of any
Mortgage or (b) default in the due performance or observance by it of any other
term, covenant or agreement contained in this Agreement or any Security Document
and such default shall continue unremedied for a period of at least 30 days (or,
in the case of Section 5.12(iii), five Business Days) after the date of such
default; or
7.04. DEFAULT UNDER OTHER AGREEMENTS. (a) Any Credit Party shall (i)
default in any payment with respect to any Indebtedness (other than Obligations)
having a principal amount of $500,000 or more individually or $1,000,000 or more
in the aggregate, for all Credit Parties and their Subsidiaries, beyond the
period of grace, if any, provided in the instrument or agreement under which
such Indebtedness was created or (ii) default in the observance or performance
of any agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or
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36
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its stated
maturity; or (b) any such Indebtedness of any Credit Party or any of its
respective Subsidiaries shall be declared to be due and payable, or required to
be prepaid other than by a regularly scheduled required prepayment, prior to the
stated maturity thereof; or
7.05. BANKRUPTCY, ETC. Any Credit Party shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against any Credit Party
or any of its Subsidiaries and the petition is not controverted within 20 days,
or is not dismissed for a period of 60 consecutive days, after commencement of
the case; or a custodian (as defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or substantially all of the property of any Credit Party
or any of its Subsidiaries; or any Credit Party or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to any
Credit Party or any of its Subsidiaries; or there is commenced against any
Credit Party or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 consecutive days; or any Credit Party or any of
its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered and continues
unstayed for a period of 60 consecutive days; or any Credit Party or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 consecutive days; or any Credit Party or any of its Subsidiaries
makes a general assignment for the benefit of creditors; or any corporate action
is taken by any Credit Party or any of its Subsidiaries for the purpose of
effecting any of the foregoing; or
7.06. ERISA. (i) Any "reportable event" as described in Section 4043 of
ERISA or the regulations thereunder (excluding those events for which the
requirement for notice has been waived by regulation by the PBGC), or any other
event or condition, which the Required Banks determine constitutes reasonable
grounds under Section 4042 of ERISA for the termination of any Title IV Plan by
the PBGC or for the appointment by the appropriate United States District Court
of a trustee to administer or liquidate any Title IV Plan shall have occurred;
or
(ii) A trustee shall be appointed by a United States District Court to
administer any Title IV Plan; or
(iii) The PBGC shall institute proceedings to terminate any Title IV
Plan or to appoint a trustee to administer any Title IV Plan; or
(iv) A Credit Party or any of its ERISA Affiliates shall become liable
to the PBGC or any other party under Section 4062, 4063, 4064 or 4069 of ERISA
with respect to any Title IV Plan; or
(v) A Credit Party or any of its ERISA Affiliates shall become liable
to any Multiemployer Plan under Section 4201 ET SEQ. of ERISA;
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37
if the sum of each of such Credit Party's and its ERISA Affiliates'
various liabilities (such liabilities to include, without limitation, any
liability to the PBGC or to any other party under Section 4062, 4063, 4064 or
4069 of ERISA with respect to any Title IV Plan, or to any Multiemployer Plan
under Section 4201 ET SEQ. of ERISA) which the Required Banks determine could
reasonably be expected to be incurred as a result of such events listed in
subclauses (i) through (v) above exceeds $1,000,000; or
7.07. SECURITY DOCUMENTS. Any Security Document shall cease to be in
full force and effect, or shall cease to give the Lender the Liens, rights,
powers and privileges purported to be created thereby, in favor of the Lender,
superior to and prior to the rights of all third Persons and subject to no Liens
other than Prior Liens and Liens expressly permitted by the applicable Security
Document or any judgment creditor having a Lien against any item of Collateral
shall commence legal action to foreclose such Lien or otherwise exercise its
remedies against any item of Collateral; or
7.08. GUARANTEES. Any Guarantee or any provisions thereof shall cease
to be in full force or effect in all material respects, or the Guarantor
thereunder or Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under such Guarantee or the Guarantor
shall default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to such Guarantee; or
7.9. JUDGMENTS. One or more judgments or decrees shall be entered
against any Credit Party or any of its Subsidiaries involving a liability of
$500,000 or more in the case of any one such judgment or decree or $1,000,000 or
more in the aggregate for all such judgments and decrees for all Credit Parties
and their Subsidiaries (in either case in excess of the amount covered by
insurance as to which the insurance company has acknowledged coverage) and any
such judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal for a period of 60 consecutive days from the entry
thereof;
7.10. OWNERSHIP; BOARD COMPOSITION. (i) Holdings shall own less than
100% (on a fully diluted basis) of the issued and outstanding capital stock of
the Borrower, other than securities issued in the ordinary course of business
under any stock option or other benefit plan available to the employees or
directors of the Borrower or any of its Subsidiaries (each of clauses (i), (ii)
and (iii) of this Section 7.10 a "Change of Control"); or
(ii)(x) DNL Partners, Limited Partnership, together with the DNL
Affiliates, in the aggregate, cease to own or control at least more than 50% of
the Total Voting Power of Holdings, or (y) in the event that DNL Partners,
Limited Partnership distributes to its partners (pursuant to the terms of its
partnership agreement) all of the capital stock of Holdings owned by DNL
Partners, Limited Partnership, if, following such distribution, DNL Partners,
Limited Partnership, together with the DNL Affiliates, in the aggregate, cease
to own or control at least 33-1/3% of the Total Voting Power of Holdings;
PROVIDED that, for purposes of the calculations made pursuant to this paragraph
(ii) (I) in the event any shares of Class B Common Stock of Holdings are
converted into either shares of Class A Common Stock or Class C Common Stock of
Holdings (in any combination), then all such shares of Class A Common Stock
and/or Class C Common Stock issued upon such conversion shall be excluded and
(II) in the event shares of capital stock of Holdings are issued by Holdings as
consideration in whole or in part for the
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38
acquisition, directly or indirectly, of another entity and the Aggregate Market
Value of such shares of stock so issued is more than $25,000,000, then all
shares of capital stock of Holdings issued in connection with such acquisition
shall be excluded. For purposes of the foregoing proviso the term "Aggregate
Market Value" means (a) the average closing price per share of the relevant
class of Holdings capital stock during the 10 consecutive trading day period
preceding the tenth trading day immediately preceding the closing date of the
acquisition transaction with respect to which such shares are to be issued,
times (b) the number of shares of such class of capital stock issued by Holdings
in such acquisition transaction. The closing price for any day shall be the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the closing bid and asked prices regular way for such
day, in each case (1) on The New York Stock Exchange as reported on the NYSE
composite tape as reported in THE WALL STREET JOURNAL or another newspaper of
general circulation in the Borough of Manhattan, City of New York, New York
customarily published on each business day or (2) if the relevant shares of
capital stock are not listed on The New York Stock Exchange, on the principal
national securities exchange on which the relevant shares of capital stock of
Holdings are listed or to which such shares are admitted to trading or (3) if
the relevant shares of capital stock are not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as reported by
NASDAQ or any comparable system or (4) if the relevant shares of capital stock
are not listed on NASDAQ or a comparable system, or if for any other reason the
current market price per share cannot be determined pursuant to the foregoing
provisions of this paragraph, the current market price per share shall be the
fair market value thereof as determined in good faith by the Board of Directors
of Holdings; or
(iii) during any consecutive two-year period, individuals who at
the beginning of such period constituted the board of directors of Holdings
(together with any new directors whose election by such board of directors or
whose nomination for election by the stockholders of Holdings was approved by a
vote of a majority of the directors then still in office who are entitled to
vote to elect such new directors and were either directors at the beginning of
such period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
board of directors of Holdings then in office; or
7.11. CERTAIN TRANSACTIONS INVOLVING CARSON HOLDINGS LIMITED. Holdings
shall consolidate with or merge into, or sell, lease, convey or otherwise
dispose of all or substantially all of its assets to, Carson Holdings Limited;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Lender shall, by written notice to Holdings and
the Borrower, take any or all of the following actions, without prejudice to the
rights of the Lender to enforce its claims against Holdings or the Borrower,
except as otherwise specifically provided for in this Agreement (PROVIDED that
if an Event of Default specified in Section 7.05 shall occur, with respect to
any Credit Party, the result which would occur upon the giving of written notice
by the Lender as specified in clause (i) below shall occur automatically without
the giving of any such notice): (i) declare the principal of and accrued
interest in respect of the Term Loan and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; and/or (ii) enforce any or all of the
remedies created
<PAGE>
39
pursuant to the Security Documents. If an Event of Default is cured or waived in
accordance with the terms of the Agreement, it ceases (or is waived, pursuant to
the terms, and to the extent, of such waiver).
SECTION 8. DEFINITIONS.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms in this Agreement
shall include in the singular number the plural and in the plural the singular:
"ACQUISITION" means the purchase of all of the outstanding shares of
Johnson Products by the Borrower pursuant to the terms of the Purchase
Agreement.
"ADDITIONAL COLLATERAL" has the meaning provided in Section 5.10.
"ADDITIONAL REAL PROPERTY" has the meaning provided in Section 5.10.
"AFFILIATE" means with respect to any Person, any other Person directly
or indirectly controlling (including but not limited to all directors and
executive officers of such Person), controlled by, or under direct or indirect
common control with such Person. A Person shall be deemed to control a
corporation for the purposes of this definition if such Person possesses,
directly or indirectly, the power (i) to vote 10% or more of the securities
having ordinary voting power for the election of directors of such corporation
or (ii) to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AGREEMENT" means this Credit Agreement, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"ASSET SALE" means the sale, transfer or other disposition, to the
extent consummated after the Closing Date, (x) by Holdings of the Securities of
the Borrower held by it to any Person or (y) by Holdings or any Subsidiary of
Holdings to any Person other than Holdings or any Wholly Owned Subsidiary of
Holdings of any asset of Holdings or such Subsidiary (other than, in each such
case, (i) transactions included in the definition of Net Financing Proceeds,
(ii) the issuance of equity securities under any stock option or other benefit
plan available to the employees or directors of Holdings, the Borrower or any of
its Subsidiaries, (iii) sales, transfers or other dispositions of inventory in
the ordinary course of business and/or of equipment that has become worn out,
obsolete or damaged or otherwise unsuitable or no longer needed for use in
connection with the business of Holdings or any of its Subsidiaries or should be
replaced, as the case may be, in each case as determined in good faith by the
board of directors of Holdings or its Subsidiary, as the case may be, effected
in compliance with Section 6.10(A)(iv) or (v), and (iv) sales or other
dispositions pursuant to Section 6.10(A)(v), (vi) or (vii)).
"AUTHORIZED OFFICER" means any senior officer of the Borrower or
Holdings, as the case may be, designated as such in writing to the Lender by the
Borrower or Holdings, as the case may be.
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40
"BANKRUPTCY CODE" has the meaning provided in Section 7.05.
"BORROWER" means Carson Products Company, a Delaware corporation.
"BORROWER GENERAL SECURITY AGREEMENT" means the Borrower General
Security Agreement substantially in the form of Exhibit E hereto, as the same
may after its execution be amended, supplemented or otherwise modified from time
to time in accordance with the terms thereof and hereof.
"BORROWER INTELLECTUAL PROPERTY SECURITY AGREEMENT" means the Borrower
Intellectual Property Security Agreement substantially in the form of Exhibit D
hereto, as the same may after its execution be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"BORROWER PLEDGE AGREEMENT" means the Borrower Securities Pledge
Agreement substantially in the form of Exhibit C hereto, except for such changes
therein as shall have been approved by the Lender, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which shall be in The City of New York, Chicago, Illinois or Savannah, Georgia a
legal holiday or a day on which banking institutions are authorized by law or
other governmental actions to close.
"CAPITAL LEASE" of any Person means any lease of any property (whether
real, personal or mixed) by that Person as lessee which, in conformity with
GAAP, is, or is required to be, accounted for as a capital lease on the balance
sheet of that Person, together with any renewals of such leases (or entry into
new leases) on substantially similar terms.
"CAPITALIZED LEASE OBLIGATIONS" of any Person means all obligations
under Capital Leases of such Person or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"CARSON HOLDINGS LIMITED" means a South African majority owned
subsidiary of the Borrower.
"CARSON HOLDINGS LIMITED SHARE INCENTIVE TRUST" means the trust
pursuant to which certain additional shares of common stock of Carson Holdings
Limited may be issued from time to time.
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) marketable direct obligations
issued by any State of the United States of America or any local government or
other political subdivision thereof rated (at the time of acquisition of such
security) at least AA by Standard & Poor's Ratings Group ("S&P") or the
equivalent thereof by Moody's Investors Service, Inc.
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41
("Moody's") having maturities of not more than one year from the date of
acquisition, (iii) U.S. dollar denominated time deposits, certificates of
deposit and bankers' acceptances of (x) any domestic commercial bank of
recognized standing having capital and surplus in excess of $250,000,000 or (y)
any bank whose short-term commercial paper rating (at the time of acquisition of
such security) by S&P is at least A-1 or the equivalent thereof or by Moody's is
at least P-1 or the equivalent thereof (any such bank, an "Approved Bank"), in
each case with maturities of not more than six months from the date of
acquisition, (iv) commercial paper and variable or fixed rate notes issued by
any Approved Bank or by the parent company of any Approved Bank and commercial
paper and variable rate notes issued by, or guaranteed by, any industrial or
financial company with a short-term commercial paper rating (at the time of
acquisition of such security) of at least A-1 or the equivalent thereof by S&P
or at least P-1 or the equivalent thereof by Moody's, or guaranteed by any
industrial company with a long-term unsecured debt rating (at the time of
acquisition of such security) of at least AA or the equivalent thereof by S&P or
the equivalent thereof by Moody's and in each case maturing within one year
after the date of acquisition, (v) repurchase agreements with any Approved Bank
or any primary dealer in U.S. government securities maturing within one year
from the date of acquisition that are fully collateralized by investment
instruments that would otherwise be Cash Equivalents; PROVIDED that the terms of
such repurchase agreements comply with the guidelines set forth in the Federal
Financial Institutions Examination Council Supervisory Policy -- Repurchase
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985, and (vi)
investments in money market mutual funds, all of the assets of which are
invested in securities and instruments of the types set forth in clauses (i)
through (iv) above.
"CERTIFICATE OF INCORPORATION" means the respective certificates of
incorporation of Holdings or the Borrower and each other Credit Party.
"CHANGE OF CONTROL" has the meaning provided in Section 7.10.
"CLOSING DATE" means the date on or before July 14, 1998 on which this
Agreement is signed and the consummation of the Acquisition occurs.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL" means all of the Pledged Collateral, Pledged Securities
and Mortgaged Real Property and all Additional Collateral and Additional Real
Property to the extent not otherwise included in any of the foregoing.
"CONTINGENT OBLIGATIONS" means, as to any Person, without duplication,
any obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the
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42
owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
PROVIDED, HOWEVER, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business and amounts that are permitted by Section 6.06. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the maximum
amount that such Person may be obligated to expend pursuant to the terms of such
Contingent Obligation or, if such Contingent Obligation is not so limited, the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"CREDIT DOCUMENTS" means (i) this Agreement, (ii) each Note, (iii) each
Guarantee and (iv) each Security Document.
"CREDIT PARTY" means at all times Holdings and the Borrower and each
Subsidiary of Holdings that pledges any stock, grants any Lien or issues any
Guarantee pursuant to any Credit Document.
"CUTEX MANUFACTURING AGREEMENT" means the manufacturing agreement dated
as of April 30, 1997 between the Borrower and CONOPCO, Inc. d/b/a
Cheseborough-Ponds USA Co., a subsidiary of Unilever plc., relating to the
manufacture by CONOPCO, Inc. of certain products for the Borrower.
"DEFAULT" means any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"DESTRUCTION" has the meaning assigned to that term in each Mortgage.
"DIVIDENDS" has the meaning provided in Section 6.07.
"DNL AFFILIATES" means Vincent A. Wasik, S. Garrett Stonehouse,
Lawrence E. Bathgate, II and Morningside, in each case together with Affiliates
thereof, any member of the immediate family of any of the foregoing, or any
trust or foundation for the benefit of any of the foregoing.
"DOLLARS" means United States Dollars.
"EFFECTIVE DATE" has the meaning provided in Section 9.09.
"ENVIRONMENT" shall mean any surface water, ground water, drinking
water supply, land surface or subsurface strata or ambient air and includes,
without limitation, any indoor location.
"ENVIRONMENTAL AUTHORIZATIONS" has the meaning provided in Section
4.22.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign
laws, codes, regulations, ordinances, requirements, directives, orders, common
law, and administrative or judicial interpretations thereof that may be enforced
by any Governmental Authority or court, relating to pollution, the protection of
human health, the protection of the Environment, or the
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43
emission, discharge, disposal or other release or threatened release of
Hazardous Materials in or into the Environment.
"ENVIRONMENTAL NOTICE" shall mean any written notice or claim by any
Governmental Authority or other third party alleging liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental costs, compliance costs or harm, injuries or damages to any person,
property or natural resources, or any fines or penalties) arising out of, based
upon, resulting from or relating to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" means any entity, whether or not incorporated, which
is under common control or would be considered a single employer with a Credit
Party within the meaning of Section 414(b), (c) or (m) of the Code and
regulations promulgated under those sections or within the meaning of section
4001(b) of ERISA and regulations promulgated under that section.
"EVENT OF DEFAULT" has the meaning provided in Section 7.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING DEBT" means the Indebtedness of Holdings and its Subsidiaries
set forth on Annex I.
"EXISTING LEASES" means the Leases of Holdings and its Subsidiaries set
forth on Annex XIII.
"FEDERAL FUNDS RATE" means on any one day the weighted average of the
rate on overnight Federal funds transactions with members of the Federal Reserve
System only arranged by Federal funds brokers as published as of such day by the
Federal Reserve Bank of New York, or if not so published, the rate then used by
leading banks in extending overnight loans to other leading banks.
"FINANCING PROCEEDS" means the cash (other than Net Cash Proceeds or
proceeds of any sale, transfer or other disposition of assets excluded from the
definition of "Asset Sale" by the exceptions contained therein) received by
Holdings, the Borrower and/or any of its Subsidiaries, directly or indirectly,
from any financing transaction of whatever kind or nature, including without
limitation from any incurrence of Indebtedness, any mortgage or pledge of an
asset or interest therein (including a transaction which is the substantial
equivalent of a mortgage or pledge), from the sale of tax benefits, from a lease
to a third party and a pledge of the lease payments due thereunder to secure
Indebtedness, from a joint venture arrangement, from an exchange of assets and a
sale of the assets received in such exchange, or any other similar arrangement
or technique whereby Holdings or any of its Subsidiaries obtains Cash in respect
of an asset, net of direct costs associated therewith. Financing Proceeds shall
not include any amounts with respect to (i) the incurrence or refinancing of the
Revolving Credit Facility, (ii) the
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44
incurrence or refinancing of Indebtedness permitted by Sections 6.04(a), (b),
(c) and (d) effected in accordance with the applicable provisions of such
Sections, or (iii) transactions between any of the Borrower, Holdings and any
Wholly Owned Subsidiaries of Holdings.
"FINE PRODUCTS" has the meaning provided in Section 4.24.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Effective Date.
"GENERAL SECURITY AGREEMENTS" means and includes the Borrower General
Security Agreement, the Johnson Products General Security Agreement and any
other general security agreements delivered pursuant to Section 5.10.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or
other governmental or administrative (including self-regulatory) body,
instrumentality, department or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body including, without limitation, those governing the regulation and
protection of the Environment, whether now or hereafter in existence, or any
officer or official thereof.
"GUARANTEE" means and includes, once executed and delivered, each of
the Holdings Guarantee, the Johnson Products Guarantee and each Subsidiary
Guarantee delivered pursuant to Section 5.13.
"GUARANTOR" for purposes of this Agreement means, individually, each of
Holdings and each Subsidiary which executes a Subsidiary Guarantee.
"HAZARDOUS MATERIALS" means all pollutants, contaminants, or chemical,
industrial, hazardous or toxic materials, substances, constituents or wastes,
including, without limitation, asbestos or asbestos-containing materials,
polychlorinated biphenyls and petroleum, oil, or petroleum or oil products,
derivatives or constituents, including, without limitation, crude oil or any
fraction thereof.
"HOLDINGS" means Carson, Inc., a Delaware corporation.
"HOLDINGS GUARANTEE" means the Holdings Guarantee substantially in the
form of Exhibit G hereto, as the same may after its execution be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"HOLDINGS PLEDGE AGREEMENT" means the Holdings Securities Pledge
Agreement substantially in the form of Exhibit C hereto, as the same may after
its execution be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof and hereof.
"INDEBTEDNESS" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, other than current
liabilities in respect of the foregoing, liabilities for accumulated
post-
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45
retirement benefit obligations and liabilities for deferred compensation, (iii)
the face amount of all letters of credit issued for the account of such Person
and, without duplication, all drafts drawn and unpaid thereunder, (iv) all
Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed by such
first Person, (v) all Capitalized Lease Obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, I.E., take-or-pay and similar
obligations, (vii) all obligations of such Person under Interest Rate Agreements
and (viii) all Contingent Obligations of such Person; PROVIDED that Indebtedness
shall not include trade payables, accrued expenses, accrued dividends and
accrued income taxes, in each case arising in the ordinary course of business.
"INTELLECTUAL PROPERTY" has the meaning provided in Section 4.16.
"INTELLECTUAL PROPERTY SECURITY AGREEMENTS" means and includes the
Borrower Intellectual Property Security Agreement, the Johnson Products
Intellectual Property Security Agreement and any other intellectual property
security agreements delivered pursuant to Section 5.10.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
futures contract, interest rate option contract or other similar agreement or
arrangement to which the Borrower is a party, designed to protect the Borrower
or any of its Subsidiaries against fluctuations in interest rates.
"INVENTORY" means all of the inventory of the Borrower and its
Subsidiaries (on a consolidated basis) including without limitation: (i) all raw
materials, work in process, parts, components, assemblies, supplies and
materials used or consumed in the business of the Borrower and its Subsidiaries;
(ii) all goods, wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be furnished under contracts of service; and
(iii) all goods returned or repossessed by the Borrower or any of its
Subsidiaries.
"JOHNSON PRODUCTS" means Johnson Products Co., Inc., a Florida
corporation, the outstanding shares of which are being purchased by the Borrower
from the Lender in the Acquisition pursuant to the Purchase Agreement.
"JOHNSON PRODUCTS GENERAL SECURITY AGREEMENT" means the General
Security Agreement executed by Johnson Products substantially in the form of
Exhibit E hereto, as the same may after its execution be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
hereof.
"JOHNSON PRODUCTS GUARANTEE" means the Subsidiary Guarantee executed by
Johnson Products substantially in the form of Exhibit G hereto, as the same may
after its execution be amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof and hereof.
"JOHNSON PRODUCTS INTELLECTUAL PROPERTY SECURITY AGREEMENT" means the
Intellectual Property Security Agreement executed by Johnson Products
substantially in the form of Exhibit D hereto, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
<PAGE>
46
"LANDLORD LIEN ASSURANCE" means, with respect to any Real Property
leased by Holdings or any of its Subsidiaries for use as a retail facility or
for the storage of Inventory, either (i) an agreement executed by the landlord
of such Real Property substantially in the form of Exhibit F hereto or (ii) a
legal opinion or other evidence, in each case reasonably satisfactory to the
Lender, that the laws of the jurisdiction or jurisdictions applicable to the
lease and the retail or storage facility do not give rise to any Lien in favor
of the landlord with respect to Inventory located at such facility.
"LEASE" means any lease, sublease, franchise agreement, license,
occupancy or concession agreement.
"LENDER'S OFFICE" means the office of the Lender located at 4400
Biscayne Boulevard, Miami, FL 33137, or such other office as the Lender may
hereafter designate in writing to the Borrower.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien, claim, hypothecation, assignment for security or charge of any kind
(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement or any lease in the nature thereof).
"LOSS PROCEEDS" has the meaning provided in Section 2.02(A)(c).
"MANAGEMENT AGREEMENT" means the management assistance agreement
between Morningside and the Borrower dated as of August 23, 1995, as amended.
"MATERIALLY ADVERSE EFFECT" means, (i) with respect to Holdings and the
Borrower and its Subsidiaries, any materially adverse effect (both before and
after giving effect to the Refinancing and the Acquisition and the other
transactions contemplated hereby) with respect to the operations, business,
properties, assets, liabilities (contingent or otherwise) or financial condition
or prospects of Holdings and the Borrower and its Subsidiaries, taken as a
whole, or (ii) any fact or circumstance (whether or not the result thereof would
be covered by insurance) as to which singly or in the aggregate there is a
reasonable likelihood of (w) a materially adverse change described in clause (i)
with respect to Holdings and the Borrower and its Subsidiaries, taken as a
whole, (x) the inability of any Credit Party to perform in any material respect
its Obligations or the inability of the Lender to enforce in any material
respect its rights purported to be granted hereunder or the Obligations
(including realizing on the Collateral), or (y) a materially adverse effect on
the ability to effect (including hindering or unduly delaying) the Acquisition,
the Refinancing and the other transactions contemplated hereby on the terms
contemplated hereby and thereby.
"MATURITY DATE" means November 30, 1998.
"MORNINGSIDE" means Morningside Capital Group, L.L.C., a Connecticut
limited liability company.
"MORTGAGE" means a term loan mortgage (or deed of trust or deed to
secure debt, as the case may be), assignment of rents, security agreement and
fixture filing creating and evidencing a Lien on a Mortgaged Real Property,
which shall be substantially in the form of Exhibit B
<PAGE>
47
hereto, containing such schedules and including such additional provisions and
other deviations from such Exhibit as shall be necessary to conform such
document to applicable or local law or as shall be customary under applicable or
local law and which shall be dated the date of delivery thereof and made by the
owner (fee or leasehold, as the case may be) of the Mortgaged Real Property
described therein for the benefit of the Lender, as mortgagee (or beneficiary,
as the case may be), assignee and secured party, as the same may after its
execution be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"MORTGAGED REAL PROPERTY" means each Real Property designated on Annex
VI which shall be subject to a Mortgage.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA with respect to which any Credit Party or any of their
respective ERISA Affiliates is or has been required to contribute or otherwise
may have liability.
"NET AWARD" has the meaning assigned to that term in each Mortgage.
"NET CASH PROCEEDS" means:
(a) with respect to any Asset Sale, the aggregate cash payments
received by Holdings, the Borrower and/or any of the Borrower's Subsidiaries, as
the case may be, from such Asset Sale, net of direct expenses of sale paid to
Persons who are not Affiliates; and
(b) with respect to any Taking or Destruction, the Net Award or Net
Proceeds, as applicable, resulting therefrom, to be applied as Net Cash Proceeds
under this Agreement pursuant to the provisions of Sections 1.13.3 and 1.13.4 of
the Mortgages;
PROVIDED, FURTHER, that Net Cash Proceeds shall not include any amounts or items
included in the definition of Financing Proceeds or Net Financing Proceeds
(including in any proviso appearing therein).
"NET FINANCING PROCEEDS" means Financing Proceeds, net of direct
expenses of the transaction paid to Persons who are not Affiliates.
"NET PROCEEDS" has the meaning assigned to that term in each Mortgage.
"OBLIGATIONS" means all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Lender pursuant to the terms of this Agreement or any other Credit Document or
secured by any of the Security Documents.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its President or one of its Vice Presidents and by its Chief
Financial Officer or its Treasurer or any Assistant Treasurer; PROVIDED that
every Officers' Certificate with respect to compliance with a condition
precedent to the making of any Loan hereunder shall include (i) a statement that
the officers making or giving such Officers' Certificate have read such
condition and any definitions or other provisions contained in this Agreement
relating thereto, (ii) a statement that, in the opinion of the signers,
<PAGE>
48
they have made or have caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not
such condition has been complied with, and (iii) a statement as to whether, in
the opinion of the signers, such condition has been complied with.
"OPERATING LEASE" of any Person, shall mean any lease (including,
without limitation, leases which may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) by such Person as Lessee which is
not a Capital Lease.
"PARTIAL RELEASE CONDITIONS" has the meaning provided in Section
6.05(C).
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"PENSION PLAN" means any pension plan as defined in Section 3(2) of
ERISA (other than a Multiemployer Plan) which is or has been maintained by or to
which contributions are or have been made by any Credit Party or their
respective ERISA Affiliates or as to which any Credit Party or their respective
ERISA Affiliates may have liability.
"PERMITTED ENCUMBRANCES" has the meaning provided in Section 6.03.
"PERSON" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any Governmental Authority.
"PLEDGE AGREEMENTS" means and includes the Holdings Pledge Agreement,
the Borrower Pledge Agreement, and any other securities pledge agreements
(including, without limitation, any supplements or amendments to any of the
foregoing) delivered pursuant to Section 5.10.
"PLEDGED COLLATERAL" means all the Pledged Collateral as defined in
each of the General Security Agreements and in the Intellectual Property
Security Agreements.
"PLEDGED SECURITIES" means all the securities and other collateral in
which a security interest is purported to be granted to the Lender by each of
the Pledge Agreements, including, without limitation, all Pledged Collateral as
defined therein.
"PRIOR LIENS" means (i) Liens which, pursuant to the provisions of any
Security Document, are or may be superior to the Lien of such Security Document
and (ii) Liens on inventory, receivables, assets specifically related thereto
and proceeds thereof and of Holdings, the Borrower and their Subsidiaries to the
extent required by Section 9.15 which secure or will secure the obligations of
Holdings, the Borrower or their Subsidiaries under the Revolving Credit
Facility, which Liens shall be prior to the Lien of the Lender on such
inventory, receivables, assets specifically related thereto and proceeds
thereof.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of June 16,
1998 by and between the Lender, as seller, and the Borrower, as buyer, as the
same may be amended from time to time.
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49
"REAL PROPERTY" means all right, title and interest of Holdings or any
of its Subsidiaries (including, without limitation, any leasehold estate) in and
to a parcel of real property owned, leased or operated by Holdings or any of its
Subsidiaries together with, in each case, all of Holdings' or such Subsidiaries'
right, title and interest in and to all improvements and appurtenant fixtures,
equipment, personal property, easements and other property and rights incidental
to the ownership, lease or operation thereof.
"REFINANCING" has the meaning set forth in the recitals hereto.
"RELEASE" has the meaning provided in Section 6.10(B).
"RELEASE CONDITIONS" has the meaning provided in Section 6.10(B).
"RELEASE NOTICE" has the meaning provided in Section 6.10(B).
"RELEASED REAL PROPERTY" has the meaning provided in Section 6.10(B).
"REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"RESTORATION" has the meaning assigned to that term in each Mortgage.
"REVOLVING CREDIT FACILITY" means a credit facility or facilities to be
entered into on or after the Closing Date by Holdings, the Borrower and/or any
of their Subsidiaries with one or more lenders providing for revolving loans to
Holdings, the Borrower and/or their Subsidiaries, as the same may after its
execution be amended, supplemented, modified, restated, refinanced or replaced
from time to time.
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"SECURITIES" means any stock, shares, voting trust certificates, bonds,
debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
<PAGE>
50
"SECURITY DOCUMENTS" means each of the Mortgages, the Pledge
Agreements, the General Security Agreements, the Intellectual Property Security
Agreements and any other documents utilized to pledge as Collateral for the
Obligations any property or assets of whatever kind or nature.
"SENIOR OFFICER" means any of the chief executive officer, chief
financial officer, controller, chief accounting officer, chief operating
officer, treasurer or any executive vice president of Holdings or the Borrower.
"SENIOR SUBORDINATED NOTES" means the 10-3/8% Senior Subordinated Notes
due 2007 of Holdings in an aggregate principal amount of $100,000,000 issued in
November 1997 (and any notes issued in exchange therefor pursuant to an
effective exchange offer registration statement under the Securities Act).
"SOUTH AFRICAN CREDIT AGREEMENT" means a South African inventory and
receivables facility between Carson Holdings Limited and a South African bank of
up to the equivalent of US$2,000,000 dollars, which shall be nonrecourse to
Holdings and its Subsidiaries other than Carson Holdings Limited and Carson
Products (Proprietary) Limited.
"STATE AND LOCAL REAL PROPERTY DISCLOSURE REQUIREMENTS" means any state
or local laws requiring notification of the buyer of real property, or
notification, registration, or filing to or with any state or local agency,
prior to, concurrent with or following the sale of any real property or transfer
of control of an establishment, of the actual or threatened presence or release
into the environment, or the use, disposal, or handling of Hazardous Materials
on, at, under, or near the real property to be sold or the establishment for
which control is to be transferred.
"SUBSIDIARY" of any Person means and includes (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at the time.
"SUBSIDIARY GUARANTEE" means each guarantee substantially in the form
of Exhibit H hereto, executed and delivered by a Subsidiary in accordance with
the terms hereof, as the same may after its execution be amended, supplemented
or otherwise modified from time to time in accordance with the terms hereof and
thereof; PROVIDED, HOWEVER, that (subject to change if applicable law is
modified from that in effect on the Closing Date), Carson Holdings Limited and
its subsidiaries, Carson U.K., Ltd., Carson Products do Brasil and any other
direct or indirect subsidiaries of Holdings organized or incorporated in a
jurisdiction other than the United States, any state of the United States or the
District of Columbia shall not be required to execute a Subsidiary Guarantee.
"SURVEY" means a survey of any Mortgaged Real Property (and all
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the state where such Mortgaged Real Property is located, (ii)
certified by the surveyor (in a manner reasonably
<PAGE>
51
acceptable to the Lender) to the Lender and the Title Company and (iii)
complying in all respects with the minimum detail requirements of the American
Land Title Association as such requirements are in effect on the date of
preparation of such survey.
"TAKING" has the meaning assigned to that term in each Mortgage.
"TERM LOAN" has the meaning provided in Section 1.01.
"TERMINATION EVENT" means (i) a "reportable event" described in Section
4043 of ERISA or in the regulations thereunder (excluding events for which the
requirement for notice of such reportable event has been waived by the PBGC)
with respect to a Title IV Plan, or (ii) the withdrawal of any Credit Party or
any of their respective ERISA Affiliates from a Title IV Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, or (iii) the filing of a notice of intent to terminate a Title IV Plan or
the treatment of a Title IV Plan amendment as a termination under Section 4041
of ERISA, or (iv) the institution of proceedings by the PBGC to terminate a
Title IV Plan or to appoint a trustee to administer a Title IV Plan, or (v) any
other event or condition which might constitute reasonable grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan, or (vi) the complete or partial withdrawal
(within the meaning of Sections 4203 and 4205, respectively, of ERISA) of any
Credit Party or any of their respective ERISA Affiliates from a Multiemployer
Plan, or (vii) the insolvency or reorganization (within the meaning of Sections
4245 and 4241, respectively, of ERISA) or termination of any Multiemployer Plan,
or (viii) the failure to make any payment or contribution to any Pension Plan or
Multiemployer Plan or the making of any amendment to any Pension Plan which
could result in the imposition of a lien or the posting of a bond or other
security.
"TITLE COMPANY" means Ticor Title Insurance or such other title
insurance or abstract company as shall be selected by Holdings or the Borrower
and reasonably acceptable to the Lender.
"TITLE IV PLAN" means any Pension Plan described in Section 4021(a) of
ERISA, and not excluded under Section 4021(b) of ERISA.
"TOTAL VOTING POWER" means the total combined voting power in the
election of directors of all shares of capital stock then outstanding.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York or any other applicable jurisdiction in the United States.
"WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary of such
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares or shares
of capital stock required to be owned by foreign nationals under applicable law,
is owned directly or indirectly by such Person.
"WRITTEN" or "IN WRITING" means any form of written communication or a
communication by means of telex, telecopier device, telegraph or cable.
SECTION 9. MISCELLANEOUS.
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52
9.01. PAYMENT OF EXPENSES, ETC. Holdings and the Borrower agree to: (i)
pay all reasonable out-of-pocket costs and expenses of the Lender in connection
with the negotiation, preparation, execution and delivery of any amendment,
waiver or consent relating to the Credit Documents and the documents and
instruments referred to therein and in connection with the enforcement of the
Credit Documents and the documents and instruments referred to therein
(including, without limitation, in each case, the reasonable fees and
disbursements of counsel for the Lender with prior notice to Holdings and the
Borrower of the engagement of any counsel); (ii) pay and hold the Lender
harmless from and against any and all present and future stamp and other similar
taxes with respect to the foregoing matters and save the Lender harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to the Lender) to pay such
taxes; and (iii) indemnify the Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses (including, without
limitation, any and all losses, liabilities, claims, damages or expenses arising
under Environmental Laws except with regard to any losses, costs, damages or
expenses under Environmental Laws arising from or relating to acts or omissions
occurring after the Lender takes possession of, uses, operates, manages,
controls or sells the Mortgaged Property provided, however, that such exception
shall apply only to the extent such losses, costs, damages or expenses arise
solely from the gross negligence, bad faith or willful misconduct of the Lender
or of the agents of the Lender) incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not the Lender is a party thereto)
related to the entering into and/or performance of any Credit Document or the
use of the proceeds of the Term Loan hereunder or the Refinancing or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding (but excluding any such losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence, bad faith or
willful misconduct of the Person to be indemnified).
9.02. RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, the Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by the Lender to or for the
credit or the account of any Credit Party against and on account of the
Obligations and liabilities of such Credit Party to the Lender under this
Agreement or under any of the other Credit Documents, and all other claims of
any nature or description arising out of or connected with this Agreement or any
other Credit Document, irrespective of whether or not the Lender shall have made
any demand hereunder.
9.03. NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to Holdings or the
Borrower at 64 Ross Road, Savannah Industrial Park, Savannah, GA 31405,
Attention: Chief Financial Officer, with a copy to Morningside Capital Group,
L.L.C., 1 Morningside Drive, North, Suite 200, Westport, CT 06880, Attention:
President, or if
<PAGE>
53
to another Credit Party, to its address specified in the other relevant Credit
Documents, as the case may be; if to the Lender, at the Lender's Office; or, at
such other address as shall be designated by any party in a written notice to
the other parties hereto. All such notices and communications shall, when
mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective two days after being deposited in the mails, when
delivered to the telegraph company, cable company or overnight courier, as the
case may be, or when sent by telex or telecopier.
9.04. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto, all future
holders of the Term Note evidencing the Term Loan, and their respective
successors and assigns; PROVIDED that no Credit Party may assign or transfer any
of its interests hereunder without the prior written consent of the Lender; and
PROVIDED, FURTHER, that the Lender may not assign or transfer any of its
interests hereunder without the prior written consent of Holdings and the
Borrower, which consent shall not be unreasonably withheld; provided, that if an
Event of Default occurs, no consent of Holdings or the Borrower shall be
required.
(b) The Lender agrees to keep confidential (and to cause its officers,
directors, employees, agents and representatives to keep confidential) all
information, materials and documents furnished to the Lender (the
"Information"). Notwithstanding the foregoing, the Lender shall be permitted to
disclose Information (i) to such of its officers, directors, employees, agents
and representatives as need to know such Information in connection with its
participation in any of the transactions contemplated hereby or the
administration of this Agreement; (ii) to the extent required by applicable laws
and regulations or by any subpoena or similar legal process, or requested by any
governmental agency or authority; (iii) to the extent such Information (A)
becomes publicly available other than as a result of a breach of this Agreement
or any other confidentiality agreement with respect thereto, (B) becomes
available to the Lender on a non-confidential basis from a source other than
Holdings, the Borrower, or any of their respective subsidiaries, officers,
directors, employees, agents or representatives or (C) was available to the
Lender on a non-confidential basis prior to its disclosure to the Lender by the
Borrower, Holdings or any of their respective subsidiaries; (iv) to the extent
the Borrower, Holdings or any of their respective subsidiaries shall have
consented to such disclosure in writing; or (v) in connection with the sale of
any Collateral pursuant to the provisions of any of the Security Documents; or
(vi) to a prospective transferee so long as such prospective transferee shall
enter into a written agreement with the Lender to preserve the confidentiality
of any Information to the extent set forth in this Section 9.04(b).
9.05. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Lender in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between any Credit Party and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power, or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle any Credit Party to any other or further
notice or demand in similar or other circumstances or constitute a waiver of
<PAGE>
54
the rights of the Lender to any other or further action in any circumstances
without notice or demand.
9.06. CALCULATIONS; COMPUTATIONS. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with GAAP consistently applied throughout the periods involved (except as set
forth in the notes thereto or as otherwise disclosed in writing by Holdings to
the Lender).
(b) All computations of interest and fees hereunder shall be made on
the actual number of days elapsed over a year of 365 days.
9.07. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) This
Agreement and the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with and be governed by the laws of the
State of New York applicable to contracts made and to be performed wholly
therein. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, each party hereby irrevocably accepts for itself
and in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts. Each party further irrevocably consents to
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the respective party at its address for notices
pursuant to Section 9.02, such service to become effective 15 days after such
mailing. Each Credit Party hereby irrevocably appoints the Borrower and such
other persons as may hereafter be selected by the Borrower irrevocably agreeing
in writing to serve as its agent for service of process in respect of any such
action or proceeding. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any party in any other jurisdiction.
(b) Each party hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
9.08. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Holdings, the Borrower
and the Lender.
9.09. EFFECTIVENESS. This Agreement shall become effective on the date
(the "Effective Date") on which Holdings, the Borrower and the Lender shall have
signed a copy hereof (whether the same or different copies).
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55
9.10. HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
9.11. AMENDMENT OR WAIVER. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Borrower and the Lender.
9.12. SURVIVAL. All indemnities set forth herein including, without
limitation, in Section 9.01 shall survive the execution and delivery of this
Agreement and the making of the Term Loan and the repayment of the Obligations.
9.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.14. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitation of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
9.15. INTERCREDITOR AGREEMENT WITH RESPECT TO REVOLVING CREDIT
FACILITY. The Lender hereby covenants and agrees to negotiate in good faith and
execute in a timely manner an intercreditor agreement, in form and substance
reasonably satisfactory to the Lender, with the agent and/or the lenders under
the Revolving Credit Facility with respect to the priority of the Liens of such
lenders on the inventory, receivables, assets specifically related thereto and
proceeds thereof of Holdings, the Borrower and their Subsidiaries to the extent
reasonably necessary to facilitate the execution of the Revolving Credit
Facility.
[signature pages follow]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
CARSON PRODUCTS COMPANY
By: /s/ S. GARRETT STONEHOUSE
-------------------------------------------
Name: S. Garrett Stonehouse
Title: Assistant Secretary
CARSON, INC.
By: /s/ S. GARRETT STONEHOUSE
-------------------------------------------
Name: S. Garrett Stonehouse
Title: Assistant Secretary
<PAGE>
Credit Agreement among Carson Products Company, Carson, Inc. and IVAX
Corporation.
IVAX CORPORATION
By: /s/ JAMES M. MILLSAP
-----------------------------------------
Name: James M. Millsp
Title: Senior VP - Corporate Development
<PAGE>
ANNEX I
EXISTING DEBT
DEBT REPAID ON OR PRIOR TO CLOSING DATE
<PAGE>
ANNEX II
SUBSIDIARIES
<PAGE>
ANNEX III
COLLECTIVE BARGAINING AGREEMENTS
<PAGE>
ANNEX IV
INSURANCE
<PAGE>
ANNEX V
LIENS
<PAGE>
ANNEX VI
MORTGAGED REAL PROPERTY
<PAGE>
ANNEX VII
LITIGATION
<PAGE>
ANNEX VIII
CONSENTS
<PAGE>
ANNEX IX
RESTRICTIONS
<PAGE>
ANNEX X
ENVIRONMENTAL MATTERS
<PAGE>
ANNEX XI
TAXES
<PAGE>
ANNEX XII
SCHEDULE OF INTELLECTUAL PROPERTY
<PAGE>
ANNEX XIII
SCHEDULE OF EXISTING LEASES
<PAGE>
ANNEX XIV
COMPLIANCE WITH LAWS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IVAX
CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 166,954
<SECURITIES> 0
<RECEIVABLES> 96,862 <F1>
<ALLOWANCES> 0
<INVENTORY> 145,961
<CURRENT-ASSETS> 471,080
<PP&E> 189,024 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 750,226
<CURRENT-LIABILITIES> 201,623
<BONDS> 94,178
0
0
<COMMON> 11,992
<OTHER-SE> 413,480
<TOTAL-LIABILITY-AND-EQUITY> 750,226
<SALES> 307,719
<TOTAL-REVENUES> 307,719
<CGS> 197,716
<TOTAL-COSTS> 197,716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,821
<INTEREST-EXPENSE> 3,539
<INCOME-PRETAX> 5,356
<INCOME-TAX> 5,027
<INCOME-CONTINUING> (551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (551)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0 <F3>
<FN>
<F1> AMOUNT SHOWN IS NET OF ALLOWANCES.
<F2> AMOUNT SHOWN IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
<F3> AMOUNT IS ANTI-DILUTIVE.
</FN>
</TABLE>
