<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REVLON CONSUMER PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2844 13-3662953
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
625 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 527-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WADE H. NICHOLS III, ESQ.
REVLON CONSUMER PRODUCTS CORPORATION
625 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 527-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
STACY J. KANTER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER UNIT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) OFFERING PRICE REGISTRATION FEE
- ---------------------------------- -------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
9% Senior Exchange Notes due 2006 $250,000,000 100% $250,000,000 $69,500
- ---------------------------------- -------------- ---------------- ----------------- ----------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION--DATED DECEMBER 18, 1998.
PROSPECTUS
OFFER TO EXCHANGE ALL 9% SENIOR NOTES DUE 2006
FOR 9% SENIOR EXCHANGE NOTES DUE 2006
OF
REVLON CONSUMER PRODUCTS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
Terms of the Exchange Offer:
o We will exchange all outstanding Old Notes that are validly
tendered and not withdrawn prior to the expiration of the Exchange
Offer.
o You may withdraw tenders of Old Notes at any time prior to the
expiration of the Exchange Offer.
o We believe that the exchange of Notes will not be a taxable
exchange for U.S. federal income tax purposes but you should see
"Certain U.S. Federal Income Tax Considerations" on page 113 for
more information.
o We will not receive any proceeds from the Exchange Offer.
o The terms of the New Notes are substantially identical to the
outstanding Old Notes, except that the New Notes have been
registered under the Securities Act and certain transfer
restrictions and registration rights relating to the Old Notes do
not apply to the New Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments and exhibits, the "Registration Statement") under the Securities
Act, with respect to our offering of the New Notes. This Prospectus does not
contain all of the information in the Registration Statement. You will find
additional information about us and the New Notes in the Registration
Statement. Any statements made in this Prospectus concerning the provisions
of legal documents are not necessarily complete and you should read the
documents that are filed as exhibits to the Registration Statement.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and file periodic
reports, registration statements and other information with the Commission.
You may inspect and copy the Registration Statement, including exhibits, and
our periodic reports, registration statements and other information filed
with the Commission at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at 7 World Trade
Center, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661. Copies may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
Web site at http://www.sec.gov which contains our reports, registration
statements and information statements and other information. If we are not
required to be subject to the reporting requirements of the Exchange Act in
the future, we will be required under the Indenture for the New Notes to
continue to file with the Commission and to furnish to holders of the New
Notes the information, documents and other reports specified in Sections 13
and 15(d) of the Exchange Act.
2
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage
you to read this entire Prospectus. On the cover page in this summary and in
the "Risk Factors" section, the words "Company," "we," "ours" and "us" refer
to Revlon Consumer Products Corporation and its subsidiaries. In this
Prospectus, unless the context requires otherwise, financial data for all
periods presented reflect our approximately 85% interest in The Cosmetic
Center, Inc. ("Cosmetic Center") as a discontinued operation (we disposed of
this interest on December 10, 1998; see "--The Company -- Recent
Developments"). All market share and market position data in this Prospectus
for our brands and specific products are based upon retail dollar sales which
are derived from A.C. Nielsen data. A.C. Nielsen measures retail sales volume
of products sold in the United States self-select distribution channel, which
is defined as the following channels of distribution: independent and chain
drug stores, mass-volume retailers, supermarkets and combination
supermarket/drug stores. This data represents A.C. Nielsen's estimates based
upon data gathered by A.C. Nielsen from market samples and is therefore
subject to some degree of variance.
THE COMPANY
Overview
REVLON is one of the world's best known names in cosmetics and is a
leading mass market cosmetics brand. Our vision is to provide glamour,
excitement and innovation through quality products at affordable prices. To
pursue this vision, our management team combines the creativity of a
cosmetics and fashion company with the marketing, sales and operating
discipline of a consumer packaged goods company. We believe that our global
brand name recognition, product quality and marketing experience have enabled
us to create one of the strongest consumer brand franchises in the world,
with products sold in approximately 175 countries and territories. We market
our products under such well-known brand names as REVLON, COLORSTAY, REVLON
AGE DEFYING, ALMAY and ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, ULTIMA
II, JEANNE GATINEAU and NATURAL HONEY in skin care; CHARLIE and FIRE & ICE in
fragrances; FLEX, OUTRAGEOUS, MITCHUM, COLORSTAY, COLORSILK, AFRICAN PRIDE,
JEAN NATE, PLUSBELLE, BOZZANO and COLORAMA in personal care products; and
ROUX FANCI-FULL, REALISTIC, CREME OF NATURE, CREATIVE NAIL DESIGN SYSTEMS and
AMERICAN CREW in professional products. To further strengthen our consumer
brand franchises, we market each core brand with a distinct and uniform
global image, including packaging and advertising, while retaining the
flexibility to tailor products to local and regional preferences.
Market Share
Revlon was founded by Charles Revson, who revolutionized the cosmetics
industry by introducing nail enamels matched to lipsticks in fashion colors
over 65 years ago. Today, we have leading market positions in many of our
principal product categories in the United States self-select distribution
channel, which we believe is the fastest-growing channel of distribution for
cosmetics and personal care products. Our leading market positions for our
REVLON brand products include the number one positions in lip makeup and nail
enamel (which we have occupied for the past 21 years). We have the number one
and two selling brands of lip makeup for 1997 and for the first nine months
of 1998. Our market share in lip makeup and nail enamel has increased from
25.3% and 21.1%, respectively, for 1992, to 31.4% and 22.7%, respectively,
for 1997, and 32.1% and 25.8%, respectively, for the first nine months of
1998. We have the number two position in face makeup (including the top three
selling brands of foundation), where our market share has increased from
11.7% for 1992 to 21.2% for 1997 and 21.0% for the first nine months of 1998.
Propelled by the success of our new product launches and market share gains
in our existing product lines, the REVLON brand captured in 1996 and held in
1997
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<PAGE>
and continued to hold for the first nine months of 1998 the number one
position overall in color cosmetics (consisting of lip, eye and face makeup
and nail enamel) in the United States self-select distribution channel.
REVLON brand market share has increased from 15.6% for 1992 to 21.6% for 1997
and 21.7% for the first nine months of 1998. Our portfolio of color
cosmetics, including REVLON, ALMAY and ULTIMA II, achieved a market share of
30% in the U.S. mass market for the first nine months of 1998 compared to
28.3% in the comparable period last year. We also have leading market
positions in several product categories in certain markets outside of the
United States, including in Argentina, Australia, Brazil, Canada, Mexico and
South Africa.
Products and Distribution
We believe that we are an industry leader in the development of innovative
and technologically advanced consumer and professional products under various
brands designed to fulfill identified consumer needs. In 1994, we launched
COLORSTAY lipcolor under the REVLON name. COLORSTAY lipcolor uses patented
transfer-resistant technology that provides long wear. We capitalized on the
highly successful launch of COLORSTAY lipcolor by introducing a collection of
COLORSTAY cosmetics, including foundation, mascara, eye colors, eye liners
and lip pencils and, in 1997, COLORSTAY hair color. We also introduced the
COLORSTAY collection in international markets, contributing to increased
sales of our color cosmetics in these markets.
In 1995, we introduced REVLON AGE DEFYING foundation, which uses
proprietary technology designed to meet the needs of women in the over 35 age
bracket. REVLON AGE DEFYING foundation was the number two selling foundation
in the United States self-select distribution channel for 1997 and the first
nine months of 1998. With the addition of NEW COMPLEXION compact makeup in
1996, NEW COMPLEXION foundations gave Revlon the top three selling brands of
foundation for 1997 and for the first nine months of 1998. In 1998, we
introduced various new products under our NEW COMPLEXION brand.
In 1997, we launched TOP SPEED nail enamel, which contains a patented
speed drying polymer formula which sets in 90 seconds. MOISTURESTAY, which we
introduced in 1998, uses breakthrough patent-pending technology to moisturize
the lips, even after the color wears off.
Our ALMAY brand, a line of hypo-allergenic, dermatologist-tested,
fragrance-free cosmetics and skin care products, was the fastest-growing
major brand in 1997 and for the first nine months of 1998. ALMAY leads the
mass market color cosmetics category in growth at 41% with an 8% market share
for the first nine months of 1998, up from 5.4% in 1994. We have introduced
the ALMAY AMAZING collection, the ONE COAT collection and STAY SMOOTH
ANTI-CHAP LIP, anti-chap lip color with SPF 25 protection. During 1998, we
began to broaden the distribution of our ULTIMA II line into the self-select
channel in the U.S.
In the United States and increasingly in international markets, our
products are sold principally in the expanding self-select distribution
channel, in which consumers select their own purchase without the assistance
of an in-store demonstrator. The trend in the cosmetics, skin care and
fragrance industry has been the shift of consumer purchases from the
demonstrator-assisted channel to the self-select distribution channel. We
believe that we are well positioned to continue to take advantage of the
shifting consumer shopping patterns in international markets toward the
self-select distribution channel.
In the United States, the self-select distribution channel includes
independent drug stores and chain drug stores (such as Walgreens, CVS, Eckerd
and Rite Aid), mass volume retailers (such as Wal-Mart, Target Stores and
Kmart) and supermarkets and combination supermarket/drug stores (such as
Pathmark, Albertson's, Kroger's and Smith's). Internationally, the
self-select distribution channel includes retailers such as Boots in the
United Kingdom and Western Europe, Shoppers Drug Mart in Canada and Wal-Mart
worldwide. The foregoing retailers, among others, sell our products.
4
<PAGE>
Business Strategy
Our business strategy, which is intended to improve our operating
performance, is to:
o Strengthen and broaden our core brands through globalization of
marketing and advertising, product development and manufacturing;
o Lead the industry in the development and introduction of
technologically advanced, innovative products that set new trends;
o Expand our presence in all markets in which we compete and enter new
markets where we identify opportunities for growth;
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital;
and
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
As a result of the implementation of our strategy, through June 30, 1998,
we had achieved 19 consecutive quarters of increased net sales, operating
income and EBITDA (EBITDA is defined in the notes to Summary Financial Data)
compared with the corresponding quarter of the respective prior year.
Although, as described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Nine months
ended September 30, 1998 compared with nine months ended September 30, 1997,"
our results of operations for the quarter and nine months ended September 30,
1998 were disappointing and not consistent with this trend, we intend to
pursue the same business strategy that fueled our success for the prior 19
quarters and believe that our longer-term outlook continues to be positive
despite challenges in the marketplace. Net sales for the nine months ended
September 30, 1998 increased 1.4% over the comparable period in 1997.
Operating income (including a non-recurring gain of $7.1 million on the sale
of the wigs and hairpieces portion of our U.S. operations) in the nine months
ended September 30, 1998 decreased by 8.9% from the comparable period in 1997
(including a non-recurring charge of $4.4 million related to business
consolidation costs and other, net). EBITDA (before the non-recurring items
in the 1998 and 1997 periods, respectively) decreased by 7.8% for the nine
months ended September 30, 1998 from the comparable period in 1997. Net
sales, operating income (including a non-recurring charge of $3.6 million for
the year ended December 31, 1997 related to business consolidation costs and
other, net) and EBITDA (before such non-recurring charge) increased 7.0%,
8.1% and 11.6%, respectively, for 1997 over 1996. Our income from continuing
operations increased from $25.2 million in 1996 to $59.0 million in 1997. Our
income from continuing operations decreased from $21.3 million for the nine
months ended September 30, 1997 to $10.3 million for the nine months ended
September 30, 1998.
Recent Developments
On December 11, 1998, we announced the completed disposition of our
approximately 85% equity interest in Cosmetic Center, along with certain
amounts due from Cosmetic Center to us for working capital and inventory, to
a newly formed limited partnership controlled by York Management Services,
Inc. We received a minority limited partnership interest in the limited
partnership as consideration for the disposition. In connection with the
completion of our disposal of Cosmetic Center, we will record a loss on
disposal in the fourth quarter of 1998 of approximately $33 million, in
addition to the charge of $15 million recorded in the second quarter of 1998.
Background
On March 5, 1996, Revlon, Inc., our direct parent, completed an initial
public offering (the "Revlon IPO") in which it issued and sold 8,625,000
shares of its Class A common stock, par value
5
<PAGE>
$.01 per share, for $24.00 per share. Revlon, Inc. contributed the net
proceeds of $187.8 million (net of underwriters' discount and related fees
and expenses) to us, and we in turn used those funds to repay borrowings
outstanding under our credit agreement in effect at that time (the "1995
Credit Agreement") and to pay fees and expenses related to entering into a
new credit agreement (the "1996 Credit Agreement"), which was subsequently
repaid in May 1997 with borrowings under our existing credit agreement (as
amended, the "Credit Agreement").
THE REFINANCING TRANSACTIONS
On February 2, 1998, one of our affiliates issued and sold in a private
placement $650 million aggregate principal amount of 8 5/8% Senior
Subordinated Notes due 2008 and $250 million aggregate principal amount of
8 1/8% Senior Notes due 2006. The net proceeds of approximately $886 million
were deposited into escrow. Those proceeds were used to finance the
redemption of $555 million aggregate principal amount of our 10-1/2% Senior
Subordinated Notes due 2003 and $260 million aggregate principal amount of
our 9 3/8% Senior Notes due 2001. On March 4, 1998, we assumed our
affiliate's obligations under the 8 5/8% Senior Subordinated Notes and the
related indenture (the "8 5/8% Senior Subordinated Notes Assumption"), and
under the 8 1/8% Senior Notes and the related indenture (the "8 1/8% Senior
Notes Assumption" and, together with the 8 5/8% Senior Subordinated Notes
Assumption, the "Assumption"). In connection with the redemptions of the
10 1/2% Senior Subordinated Notes and the 9 3/8% Senior Notes, we recorded an
extraordinary loss of $38.2 million and $13.5 million in the first and second
quarters of 1998, respectively, resulting primarily from the write-off of
deferred financing costs and payment of call premiums on those securities. In
this Prospectus, we refer to the original issuance of the 8 1/8% Senior Notes
and 8 5/8% Senior Subordinated Notes by our affiliate, the redemption of the
9 3/8% Senior Notes due 2001 and the 10 1/2% Senior Subordinated Notes due
2003 and the Assumption as the "Refinancing Transactions."
6
<PAGE>
The following is our summary organizational chart.
Mafco Holdings Inc.
("Mafco Holdings")
100%
MacAndrews & Forbes
Holdings Inc.
("MacAndrews Holdings")
100%
Revlon Holdings Inc.
("Holdings")
100%
REV
Holdings Inc.
("REV Holdings")
83.0%*
Revlon, Inc.
("Revlon, Inc.")
100%
REVLON CONSUMER
PRODUCTS CORPORATION
(INCLUDING OPERATING SUBSIDIARIES)
(THE "COMPANY" OR "REVLON")
* REV Holdings beneficially owns 11,250,000 shares of Class A common
stock of Revlon, Inc. (representing approximately 56.3% of the
outstanding shares of Class A common stock) and all of the outstanding
31,250,000 shares of Class B common stock, par value $.01 per share, of
Revlon, Inc., which together represent approximately 83.0% of the
outstanding shares of common stock of Revlon, Inc. and approximately
97.4% of the combined voting power of the outstanding shares of common
stock of Revlon, Inc.
7
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THE EXCHANGE OFFER
SECURITIES OFFERED ............ We are offering up to $250,000,000 aggregate
principal amount of new 9% Senior Exchange
Notes due 2006, which have been registered
under the Securities Act. The terms of the
New Notes are substantially identical to
those of the Old Notes, except that certain
transfer restrictions and registration
rights relating to the Old Notes do not
apply to the New Notes, and if the Exchange
Offer is not completed by June 4, 1999, the
interest rate on the Old Notes will increase
by 0.5% until the Exchange Offer is
completed.
THE EXCHANGE OFFER ............ We are offering to issue the New Notes in
exchange for a like principal amount of the
Old Notes. The Old Notes were not registered
with the Commission. We are offering to
issue the New Notes to satisfy our
obligations contained in the registration
agreement entered into when the Old Notes
were sold in transactions pursuant to Rule
144A and Regulation S under the Securities
Act. You may tender your Old Notes by
following the procedures under the heading
"The Exchange Offer."
TENDERS; EXPIRATION DATE;
WITHDRAWAL ................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1999, unless we
extend it. If you decide to exchange your
Old Notes for New Notes, you must
acknowledge that you are not engaging in,
and do not intend to engage in, a
distribution of the New Notes. The tender of
Old Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to ,
1999. If we decide for any reason not to
accept any Old Notes for exchange, the Old
Notes will be returned without expense to
the tendering holder promptly after the
expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of
the Exchange Offer; Period for Tendering Old
Notes" and "The Exchange Offer -- Withdrawal
Rights."
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER ............... The Exchange Offer is subject to customary
conditions, which we may waive. Please read
the section "The Exchange Offer -- Certain
Conditions to the Exchange Offer" of this
Prospectus for more information regarding
conditions to the Exchange Offer.
CERTAIN FEDERAL TAX
CONSIDERATIONS ............... Your exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not
result in any gain or loss to you for
federal income tax purposes. See "Certain
U.S. Federal Income Tax Considerations" of
this Prospectus.
USE OF PROCEEDS ............... We will receive no proceeds from the
Exchange Offer.
EXCHANGE AGENT ................ U.S. Bank Trust National Association is the
Exchange Agent for the Exchange Offer. The
address and telephone number of the Exchange
Agent are set forth under the heading "The
Exchange Offer -- Exchange Agent" of this
Prospectus.
8
<PAGE>
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your Old Notes in the Exchange Offer, your Old
Notes will continue to be subject to the restrictions on transfer set forth
in the legend on the certificate for your Old Notes. In general, you may
offer or sell your Old Notes only if they are registered under, offered or
sold pursuant to an exemption from, or offered or sold in a transaction not
subject to, the Securities Act and applicable state securities laws. We do
not currently intend to register the Old Notes under the Securities Act.
Under certain circumstances, however, certain holders of Old Notes (including
holders who are not permitted to participate in the Exchange Offer or who may
not freely resell New Notes received in the Exchange Offer) may require us to
file and cause to become effective, a shelf registration statement which
would cover resales of Old Notes by such holders. See "The Exchange Offer --
Consequences of Exchanging or Failing to Exchange Old Notes" and "Description
of the Notes -- Registration Rights."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that certain transfer restrictions and registration rights
relating to the Old Notes do not apply to the New Notes and that if the
Exchange Offer is not completed by June 4, 1999, the interest rate on the Old
Notes will increase by 0.5% until the Exchange Offer is completed.
SECURITIES OFFERED ............ We are offering up to $250,000,000 aggregate
principal amount of 9% Senior Exchange Notes
due 2006, which have been registered under
the Securities Act.
MATURITY DATE ................. November 1, 2006.
INTEREST PAYMENT DATES ........ May 1 and November 1, beginning May 1, 1999.
OPTIONAL REDEMPTION ........... The Notes may be redeemed at our option in
whole or from time to time in part at any
time on or after November 1, 2002 at the
redemption prices set forth on page 78. In
addition, at any time before November 1,
2001, we may redeem up to 35% of the
aggregate principal amount of the Notes
originally issued at a redemption price of
109% of their principal amount, plus accrued
and unpaid interest, if any, on such Notes
to the date fixed for redemption, with, and
to the extent we receive, the net cash
proceeds of one or more public equity
offerings, provided that at least $162.5
million aggregate principal amount of the
Notes remains outstanding immediately after
the occurrence of each such redemption. See
"Description of the Notes -- Optional
Redemption."
CHANGE OF CONTROL ............. Upon a Change of Control, we may redeem the
Notes in whole at a redemption price equal
to the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the
date of redemption plus the applicable
premium set forth in the section
"Description of the Notes -- Optional
Redemption." Subject to certain conditions,
each holder of the Notes will have the right
to require us to repurchase all or a portion
of such holder's Notes at a price equal to
101% of the principal amount of such Notes,
plus accrued and unpaid interest, if any, to
the date of repurchase.
RANKING ....................... The Old Notes are, and the New Notes will
be, senior unsecured obligations of ours and
will rank pari passu in right of payment
with all of our other existing and future
9
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unsubordinated indebtedness, including our
9-1/2% Senior Notes due 1999 (until they
mature or are earlier retired), our 8 1/8%
Senior Notes and the indebtedness under the
Credit Agreement, and senior to all existing
and future subordinated indebtedness
including our 8 5/8% Senior Subordinated
Notes. Our right and the rights of our
creditors to participate in the assets of
any of our subsidiaries upon any liquidation
or reorganization of that subsidiary will
rank behind the claims of that subsidiary's
creditors, including trade creditors (except
to the extent we have a claim as a creditor
of such subsidiary). As a result, the Old
Notes are, and the New Notes will be,
effectively subordinated to the outstanding
indebtedness and other liabilities,
including trade payables, of our
subsidiaries. As of September 30, 1998, our
subsidiaries had approximately $279.8
million of outstanding indebtedness, all of
which would have been structurally senior to
the Notes. See "Risk Factors -- We Have
Substantial Indebtedness," "Risk Factors --
Ability to Pay Principal of Notes," "Risk
Factors -- The Notes Effectively Will Be
Junior to Indebtedness and Liabilities of
Subsidiaries" and "Description of the
Notes."
CERTAIN COVENANTS ............. The Indenture contains covenants that, among
other things, limit (i) our ability to issue
additional debt and redeemable stock, (ii)
our ability to incur liens, (iii) the
ability of our subsidiaries to issue debt
and preferred stock, (iv) the payment of
dividends on our capital stock and the
capital stock of our subsidiaries and the
redemption of our capital stock, (v) the
sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii)
consolidations, mergers and transfers of all
or substantially all our assets. The
Indenture also prohibits certain
restrictions on distributions from
subsidiaries. All of these limitations and
prohibitions, however, are subject to a
number of important qualifications. See
"Description of the Notes."
USE OF PROCEEDS ............... We will not receive any proceeds from the
Exchange Offer. We will use $200.0 million
of the net proceeds of the Offering to
refinance our 9 1/2% Senior Notes, including
through open market purchases. We intend to
use the balance of the net proceeds for
general corporate purposes, including to
temporarily reduce indebtedness under the
working capital lines under the Credit
Agreement. Until we refinance the 9 1/2%
Senior Notes, we will retain the net
proceeds from the sale of the Old Notes and
use a portion of such proceeds to
temporarily reduce indebtedness under the
working capital lines under the Credit
Agreement and under other short-term
facilities. See "Use of Proceeds."
10
<PAGE>
RISK FACTORS
You should consider carefully all of the information set forth in this
Prospectus and, in particular, the specific factors set forth under "Risk
Factors" before deciding to tender your Old Notes in the Exchange Offer.
Our principal executive offices are located at 625 Madison Avenue, New
York, New York 10022, and our telephone number is (212) 527-4000. We were
incorporated in Delaware in April 1992.
11
<PAGE>
SUMMARY FINANCIAL DATA
The Statement of Operations data for each of the years in the three-year
period ended December 31, 1997 and the Balance Sheet data as of December 31,
1997 and 1996 have been derived from our audited consolidated financial
statements. The Statement of Operations data for each of the years in the
two-year period ended December 31, 1994 and the Balance Sheet data as of
December 31, 1995, 1994 and 1993 have been derived from our unaudited
financial statements for such periods which have been restated to reflect
Cosmetic Center as a discontinued operation. The summary financial data for
the nine months ended September 30, 1997 and 1998 and as of September 30,
1998 have been derived from our unaudited consolidated financial statements
which reflect, in the opinion of our management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial data for such periods. Results for interim periods are not
necessarily indicative of the results for the full year.
On June 8, 1998, we announced that we intended to dispose of our
approximately 85% interest in Cosmetic Center, our then retail store
subsidiary. On December 10, 1998, we disposed of our interest in Cosmetic
Center (See "--The Company -- Recent Developments"). Accordingly, the summary
financial data set forth below for all periods reflects Cosmetic Center as a
discontinued operation.
The following summary financial data should be read in conjunction with
"--The Refinancing Transactions," "Capitalization," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
12
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales ....................... $1,621.7 $1,598.7 $2,238.6 $2,092.1 $1,867.3 $1,674.0 $1,540.5
Gross profit .................... 1,078.3 1,065.4 1,495.5 1,403.2 1,252.4 1,107.0 997.2
Selling, general and
administrative expenses ........ 957.0 920.1 1,275.8 1,203.2 1,104.9 998.9 946.1
Business consolidation costs and
other, net (a) ................. (7.1) 4.4 3.6 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
Operating income ................ 128.4 140.9 216.1 200.0 147.5 108.1 51.1
Interest expense, net ........... 99.5 96.1 129.5 129.0 135.6 129.1 113.5
Amortization of debt issuance
costs .......................... 3.9 5.3 6.6 8.3 11.0 8.4 8.0
Other, net ...................... 8.3 9.0 11.7 12.0 12.7 20.8 39.3
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations before income taxes . 16.7 30.5 68.3 50.7 (11.8) (50.2) (109.7)
Provision for income taxes ..... 6.4 9.2 9.3 25.5 25.4 22.8 19.0
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations ..................... 10.3 21.3 59.0 25.2 (37.2) (73.0) (128.7)
Discontinued operations:
(Loss) income from discontinued
operations ..................... (16.5) (3.3) 0.7 0.4 (4.0) (2.0) (1.5)
Loss on disposal from
discontinued operations ........ (15.0) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
(Loss) income from discontinued
operations ..................... (31.5) (3.3) 0.7 0.4 (4.0) (2.0) (1.5)
Extraordinary items--early
extinguishments of debt ........ (51.7) (14.9) (14.9) (6.6) -- -- (9.5)
Cumulative effect of accounting
changes ........................ -- -- -- -- -- (28.8)(b) (6.0)(c)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net (loss) income ............... $ (72.9) $ 3.1 $ 44.8 $ 19.0 $ (41.2) $ (103.8) $ (145.7)
========== ========== ========== ========== ========== =========== ==========
OTHER DATA:
EBITDA (d) ...................... $ 198.0 $ 214.8 $ 312.8 $ 280.4 $ 222.9 $ 177.0 $ 119.0
Ratio of EBITDA to interest
expense, net ................... 2.0x 2.2x 2.4x 2.2x 1.6x 1.4x 1.0x
Ratio of earnings to fixed
charges (e) .................... 1.1x 1.2x 1.4x 1.2x -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------------------------------------------------------
-
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
<S> <C>
TOTAL ASSETS .............................. $1,862.1
LONG-TERM DEBT (INCLUDING CURRENT PORTION) 1,673.3
TOTAL STOCKHOLDER'S DEFICIENCY ............ (542.3)
</TABLE>
- ------------
See accompanying notes to Summary Financial Data.
13
<PAGE>
NOTES TO SUMMARY FINANCIAL DATA
(a) We recognized a gain of approximately $7.1 million on the sale of the
wigs and hairpieces portion of our U.S. operation during the third
quarter of 1998. We incurred business consolidation costs and other,
net, during 1997 in connection with the implementation of our business
strategy to rationalize factory operations, including primarily
severance and other related costs in certain operations, offset by a
settlement of a claim of $12.7 million and gains associated with the
sale of certain facilities.
(b) Effective January 1, 1994, we adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." We recognized a charge of
$28.8 million in the first quarter of 1994 to reflect the cumulative
effect of the accounting change, net of income tax benefit.
(c) Effective January 1, 1993, we adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for our
retiree benefit plan in the United States. Accordingly, we recognized a
charge of $6.0 million in the 1993 first quarter to reflect the
cumulative effect of the accounting change.
(d) We define EBITDA as operating income before business consolidation
costs and other, net, plus depreciation and amortization other than
that relating to early extinguishment of debt, debt discount and debt
issuance costs. EBITDA is presented here as a measure of our debt
service ability, not of our operating results. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
from operations prepared in accordance with generally accepted
accounting principles as a measure of our profitability or liquidity.
EBITDA does not take into account our debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses.
(e) Earnings used in computing the ratio of earnings to fixed charges
consist of income (loss) from continuing operations before income taxes
plus fixed charges. Fixed charges consist of interest expense
(including amortization of debt issuance costs, but not losses relating
to the early extinguishment of debt) and 33% of rental expense
(considered to be representative of the interest factors). Fixed
charges exceeded earnings before fixed charges by $37.2 million in
1995, $73.0 million in 1994 and $128.7 million in 1993.
14
<PAGE>
RISK FACTORS
You should consider carefully the following risks and all of the
information set forth in this Prospectus before tendering your Old Notes in
the Exchange Offer. The risk factors set forth below (other than
"--Consequences of Not Exchanging Notes") are generally applicable to the Old
Notes as well as the New Notes.
CONSEQUENCES OF NOT EXCHANGING NOTES
If you do not exchange your Old Notes for the New Notes pursuant to the
Exchange Offer, you will continue to be subject to the restrictions on
transfer of your Old Notes described in the legend on your Old Notes. The
restrictions on transfer of your Old Notes arise because we issued the Old
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the Old Notes if they
are registered under the Securities Act and applicable state securities laws,
or offered and sold pursuant to an exemption from such requirements. We do
not intend to register the Old Notes under the Securities Act. In addition,
if you exchange your Old Notes in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes, you may be deemed to
have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. To the extent Old Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the Old Notes would be adversely affected. See "The Exchange Offer --
Consequences of Exchanging or Failing to Exchange Old Notes."
WE HAVE SUBSTANTIAL INDEBTEDNESS
We have a substantial amount of outstanding indebtedness. As of September
30, 1998, our total indebtedness (excluding indebtedness of our discontinued
operations) was approximately $1,721.7 million. See "Capitalization." This
level of indebtedness could make it more difficult for us to make payments
on, or to repurchase, the Notes. Although the Existing Indentures (the
Indenture, the indenture governing our 8 1/8% Senior Notes, the indenture
governing our 8 5/8% Senior Subordinated Notes, the indenture governing our
9 1/2% Senior Notes) and the Credit Agreement limit our ability to borrow
additional money, under certain circumstances we are allowed to borrow a
significant amount of additional money which would either rank equally in
right of payment with the Notes or be subordinated in right of payment to the
Notes. Subject to certain limitations contained in their debt instruments,
our subsidiaries may also incur additional debt to finance working capital or
capital expenditures, investments or acquisitions or for other purposes. For
more information about our indebtedness, see the "Description of Other
Indebtedness" and "Description of the Notes" sections of this Prospectus.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow for other general corporate purposes;
o limit our ability to fund future working capital, capital
expenditures, acquisitions, investments and other general corporate
requirements; and
o limit our flexibility in responding to changes in our business and
the industry in which we operate.
ABILITY TO PAY PRINCIPAL OF NOTES
If our cash flows from operations are insufficient to allow us to pay the
principal amount of the Notes at maturity, if a Change of Control occurs
requiring us to redeem or repurchase the Notes or if there is an event of
default, we may be required to refinance our indebtedness, sell assets or
operations, sell our equity securities or seek capital contributions or loans
from our parent, Revlon, Inc., or from our affiliates. None of our affiliates
are required to make any capital contributions, loans
15
<PAGE>
or other payments to us regarding our obligations on the Notes. We cannot
guarantee that we would be able to pay the principal amount of the Notes if
we took any of the above actions or that the Existing Indentures or any of
our other debt instruments or the debt instruments of our subsidiaries then
in effect would permit us to take any of the above actions. See
"--Restrictions and Covenants in Debt Agreements Limit Our Ability to Take
Certain Actions; Consequences of Failure to Comply," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Description of Other Indebtedness."
THE NOTES EFFECTIVELY WILL BE JUNIOR TO INDEBTEDNESS AND LIABILITIES OF
SUBSIDIARIES
These Notes rank equally with all of our existing and future senior
unsecured indebtedness, except any future senior unsecured indebtedness that
expressly provides that it ranks subordinated in right of payment to the
Notes. The Notes currently rank equally with our 9-1/2% Senior Notes (until
they mature or are retired), our 8 1/8% Senior Notes and the indebtedness
under the Credit Agreement.
We conduct a substantial portion of our operations through subsidiaries.
We depend, in part, on earnings and cash flows of, and dividends from, our
subsidiaries to pay our obligations, including payments of principal and
interest on indebtedness. As an equity holder, rather than a creditor of our
subsidiaries, our right and the rights of our creditors to participate in the
assets of any of our subsidiaries upon any liquidation or reorganization of
that subsidiary will rank behind the claims of that subsidiary's creditors,
including trade creditors (except to the extent we have a claim as a creditor
of such subsidiary). As a result, the Notes will be effectively subordinated
to the outstanding indebtedness and other liabilities, including trade
payables, of our subsidiaries. As of September 30, 1998, our subsidiaries had
approximately $279.8 million of outstanding indebtedness, all of which would
have been structurally senior to the Notes. See "--We Have Substantial
Indebtedness" and "Description of Other Indebtedness."
ABILITY TO SERVICE DEBT DEPENDS ON MANY FACTORS
Based upon our current level of operations and anticipated growth in net
sales and earnings because of our business strategy, we anticipate that
operating cash flow and funds from currently available credit facilities and
refinancings of existing indebtedness will adequately cover our operating
expenses and our debt service requirements in the foreseeable future. (See
"--Restrictions and Covenants in Debt Agreements Limit Our Ability to Take
Certain Actions; Consequences of Failure to Comply.") We may borrow
additional funds under the Credit Agreement, subject to certain restrictions.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Financial Condition, Liquidity and Capital Resources." We
will use a portion of the net proceeds from the issuance of the Old Notes to
refinance the 9-1/2% Senior Notes, including through open market purchases.
We intend to use the balance of the net proceeds for general corporate
purposes, including to temporarily reduce indebtedness under the working
capital lines under the Credit Agreement. Until we refinance the 9-1/2%
Senior Notes, we will retain the net proceeds from the sale of the Notes and
use a portion of such proceeds to temporarily reduce indebtedness outstanding
under the working capital lines under the Credit Agreement and under other
short-term facilities. We do not have any current plans with respect to the
refinancing of our other indebtedness, although we believe that we will be
able to refinance such indebtedness upon maturity. However, we cannot assure
you that we will be able to refinance such other indebtedness or that net
sales or earnings will grow as a result of the continued implementation of
our business strategy (see "--Operating History under the Business
Strategy"). As a result, we cannot assure you that we will be able to satisfy
anticipated cash requirements on a consolidated basis. If we are unable to
satisfy such cash requirements, we could be required to, for example:
16
<PAGE>
o reduce or delay capital expenditures;
o restructure our indebtedness;
o sell assets or operations;
o seek capital contributions or loans from our parent, Revlon, Inc., or
from our other affiliates; or
o sell our equity securities.
We cannot assure you that we would be able to take any of these actions, that
these actions would enable us to continue to satisfy our capital requirements
or that these actions would be permitted under the terms of our various debt
instruments then in effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition,
Liquidity and Capital Resources" and "Description of Other Indebtedness."
RESTRICTIONS AND COVENANTS IN DEBT AGREEMENTS LIMIT OUR ABILITY TO TAKE
CERTAIN ACTIONS;
CONSEQUENCES OF FAILURE TO COMPLY
Our debt agreements, the Existing Indentures and the Credit Agreement
contain a number of significant restrictions and covenants that limit our
ability and our subsidiaries' ability, among other things, to:
o borrow money;
o use assets as security in other transactions;
o pay dividends on stock or purchase stock;
o sell assets;
o enter into certain transactions with affiliates; and
o make certain investments or acquisitions.
In addition, our Credit Agreement further requires us to maintain certain
financial ratios and meet certain tests, including leverage ratio and minimum
interest coverage, and restricts our ability and the ability of our
subsidiaries to make capital expenditures. All of our capital stock,
substantially all of our non-real property assets in the United States, our
Phoenix, Arizona facility and certain assets outside the United States are
pledged as collateral for our obligations under the Credit Agreement. See
"Description of Other Indebtedness -- Credit Agreement." In addition, a
change of control of the Company would be an event of default under the
Credit Agreement and would give the holders of the Notes, the 9-1/2% Senior
Notes (until they mature or are retired), the 8 1/81/8% Senior Notes and the
8 5/8% Senior Subordinated Notes the right to require the Company to
repurchase their notes. See "Description of Other Indebtedness."
Events beyond our control, such as prevailing economic conditions, changes
in consumer preferences and changes in the competitive environment, could
impair our operating performance, which could affect our ability and that of
our subsidiaries to comply with the terms of our debt instruments. We cannot
assure you that we and our subsidiaries will be able to comply with the
provisions of our respective debt instruments, including the financial ratios
and tests in the Credit Agreement. Breaching any of these covenants or
restrictions or the failure to comply with our obligations after the lapse of
any applicable grace periods could result in a default under the Existing
Indentures or the Credit Agreement. If there was an event of default holders
of such defaulted debt could cause all amounts borrowed under these
agreements to be due and payable immediately. We cannot assure you that our
assets or cash flow or that of our subsidiaries would be sufficient to fully
repay borrowings under the outstanding debt instruments, either upon maturity
or if accelerated upon an event of default or, if we were required to
repurchase notes upon a change of control under the terms of our debt
instruments, that we would be able to refinance or restructure our payments
on such debt. Further, if we are unable to repay, refinance or restructure
our indebtedness under the
17
<PAGE>
Credit Agreement, the lenders could proceed against the collateral securing
that indebtedness. In addition, any event of default or declaration of
acceleration under one debt instrument could also result in an event of
default under one or more of our other debt instruments. We currently expect
that at the end of the fourth quarter of 1998 we will not be in compliance
with certain of the financial ratios and tests contained in the Credit
Agreement as a result of, among other things, the expected charges in
connection with our restructuring effort. We are currently negotiating an
amendment to the Credit Agreement and expect to have an amendment executed
and effective prior to December 31, 1998, although we cannot assure you of
this. See "--We Have Substantial Indebtedness" and "Description of Other
Indebtedness."
OPERATING HISTORY UNDER THE BUSINESS STRATEGY
Our business strategy is to:
o strengthen and broaden our core brands through globalization of
marketing and advertising, product development and manufacturing and
through increasing our emphasis on advertising and promotion;
o lead the industry in the development and introduction of
technologically advanced, innovative products that set new trends;
o expand our presence in all markets in which we compete and enter new
markets where we identify opportunities for growth;
o continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital;
and
o continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
See "Business -- Business Strategy." Our ability to continue to implement our
strategy successfully will be dependent on business, financial and other
factors that are beyond our control, including economic conditions, changes
in consumer preferences and changes in the competitive environment. We cannot
guarantee that we will continue to be successful in implementing our
strategy. Certain factors adversely affected our business and results of
operations for the quarter and nine months ended September 30, 1998 and could
continue to do so in the future. See "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements and the notes thereto included
elsewhere in this Prospectus.
COMPETITION
The cosmetics and skin care, fragrance and personal care and professional
products business is highly competitive. We compete on the basis of numerous
factors. Brand recognition, product quality, performance and price, and the
extent to which consumers are educated on product benefits have a marked
influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. An increase in the amount of competition we face
could have a material adverse effect on our business, financial condition and
results of operations. In addition, we compete in selected product categories
against a number of multinational manufacturers, some of which are larger and
have substantially greater resources than we, and which may therefore have
more flexibility to respond to changing business and economic conditions than
we do. See "Business --Competition."
SOCIAL, POLITICAL AND ECONOMIC RISKS AFFECTING FOREIGN OPERATIONS AND EFFECTS
OF FOREIGN CURRENCY FLUCTUATION
As of September 30, 1998, we have operations based in 26 foreign
countries, and our products are sold in approximately 175 countries and
territories. We are exposed to the risk of changes in social,
18
<PAGE>
political and economic conditions inherent in operating in foreign countries,
including those in Asia, Eastern Europe and Latin America. Such changes
include changes in the laws and policies that govern foreign investment in
countries where we have operations, as well as, to a lesser extent, changes
in United States laws and regulations relating to foreign trade and
investment. In addition, fluctuations in foreign currency exchange rates may
affect our results of operations and the value of our foreign assets, which
in turn may adversely affect reported earnings and, accordingly, the
comparability of period-to-period results of operations. Changes in currency
exchange rates may affect the relative prices at which we and foreign
competitors sell products in the same market. Our net sales outside of the
United States were 41.1% and 42.1% for the nine months ended September 30,
1998 and 1997, respectively, and 41.9%, 43.5% and 44.2% for 1997, 1996 and
1995, respectively. In addition, changes in the value of the relevant
currencies may affect the cost of certain items required in our operations.
We enter into forward foreign exchange contracts to hedge certain cash flows
denominated in foreign currency (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition,
Liquidity and Capital Resources"). We recorded net foreign currency losses of
$4.7 million and $5.2 million for the nine months ended September 30, 1998
and 1997, respectively, and of $6.4 million, $5.7 million and $10.9 million
for 1997, 1996 and 1995, respectively. For a more complete discussion of
foreign currency fluctuations, see "Management's Discussion and Analysis of
Financial Conditions and Results of Operations." We can offer no assurances
as to the future effect of changes in social, political and economic
conditions on our business or financial condition. Certain factors adversely
affected our international operations in the quarter and nine months ended
September 30, 1998 and could continue to do so in the future. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
THE YEAR 2000 ISSUE
The "Year 2000 issue" arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations or decision-making
functions. Many of these programs may fail due to an inability to interpret
properly date codes beginning January 1, 2000. In 1997, we began a business
process enhancement program to substantially upgrade management information
technology systems. We have also developed a comprehensive plan to address
Year 2000 issues.
In connection with and as part of our business process enhancement
program, certain information technology systems have been and will continue
to be upgraded to be Year 2000 compliant. In addition, as part of our Year
2000 plan, we have identified potential deficiencies related to Year 2000 in
certain of our information technology systems, both hardware and software,
and are in the process of addressing them through upgrades and other
remediation. We currently expect to complete upgrade and remediation and
testing of our information systems by the third quarter of 1999. In respect
of non-information technology systems with date sensitive operating controls,
we are in the process of identifying those items which may require
remediation or replacement, and expect to complete remediation or replacement
and testing of these by the third quarter of 1999. We have identified and
contacted and continue to identify and contact key suppliers, both inventory
and non-inventory, key customers and other strategic business partners, such
as banks, pension trust managers and marketing data suppliers, by soliciting
written responses to questionnaires and/or meetings with certain of such
third parties. These third parties have themselves begun an upgrade and
remediation program for systems identified as non-Year 2000 compliant. The
companies from which we have received responses to date generally have
indicated that their systems are or will be Year 2000 compliant. We currently
expect to gain a better understanding of the Year 2000 readiness of third
party business partners by early 1999. The effect, if any, on our results of
operations from the failure of such parties to be Year 2000 compliant is not
readily estimable. However, continuing failures in key geographic areas in
the United States and in certain European, South American and Asian countries
that limit our ability to produce products, our customers' ability to
purchase our products and/or consumers' ability to shop would be likely to
have a material adverse effect on our results of operations, although we
would expect to eventually recoup at least part of such lost sales. We cannot
estimate the extent of such
19
<PAGE>
deferred or lost revenue at this time. Although we believe there is no
material risk that we will fail to address Year 2000 issues in a timely
manner, we cannot guarantee that we will eliminate any potential Year 2000
issues in a timely manner or the ultimate cost of doing so.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES
There is no existing trading market for the new Notes. We do not intend to
apply for listing or quotation of the New Notes on any exchange. Therefore,
we do not know the extent to which investor interest will lead to the
development of a trading market or how liquid that market might be, nor can
we make any assurances regarding the ability of New Note holders to sell
their New Notes or the price at which the New Notes might be sold. Although
the Initial Purchasers have informed us that they currently intend to make a
market in the New Notes, they are not obligated to do so, and any such
market-making may be discontinued at any time without notice. As a result,
the market price of the New Notes could be adversely affected. Historically,
the market for non-investment grade debt, such as the New Notes, has been
subject to disruptions that have caused substantial volatility in the prices
of such securities. Any such disruptions may have an adverse affect on
holders of the New Notes.
CONTROL BY MACANDREWS & FORBES
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings") is a corporation
wholly owned through Mafco Holdings Inc. ("Mafco Holdings" and, together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman. MacAndrews
& Forbes owns indirectly 83% of the outstanding common stock of Revlon, Inc.,
which owns 100% of our common stock. MacAndrews & Forbes will therefore be
able to direct and control our policies and those of our subsidiaries,
including mergers, sales of assets and similar transactions. Our shares of
common stock are pledged to secure Revlon, Inc.'s guarantee under our Credit
Agreement, and shares of Revlon, Inc. and shares of common stock of
intermediate holding companies are or may from time to time be pledged to
secure obligations of MacAndrews & Forbes or its affiliates. A foreclosure
upon any such shares of common stock could constitute a change of control
under all of the Existing Indentures and certain other debt instruments of
ours and of our subsidiaries. A change of control constitutes an event of
default, which would permit our lenders to accelerate our Credit Agreement.
In addition, holders of our 9-1/2% Senior Notes (until they mature or are
earlier retired), our 8 1/8% Senior Notes, our 8 5/8% Senior Subordinated
Notes and the Notes may require us to repurchase their notes under those
circumstances. See "--Ability to Pay Principal of Notes." We may not have
sufficient funds at the time of the change of control to repay in full the
borrowings under the Credit Agreement or to repurchase the 9-1/2% Senior
Notes, the 8 1/8% Senior Notes, the 8 5/8% Senior Subordinated Notes and the
Notes. See "--The Notes Effectively Will Be Junior to Indebtedness and
Liabilities of Subsidiaries."
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements involving
risks and uncertainties. Such forward looking statements are principally
contained in the sections "Prospectus Summary," "Business -- Business
Strategy," "Business -- Products," "Business -- Business Process
Enhancements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We caution you that a number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. Such factors include but are not
limited to:
o our expectations and estimates as to introduction of new products and
expansion into markets;
o future financial performance, including growth in net sales and
earnings;
o the effect on sales of retail inventory balancing and reductions;
o the effect on sales of political and/or economic conditions in
international markets;
o our estimate of restructuring activities, costs and benefits;
20
<PAGE>
o cash flows from operations;
o information system upgrades;
o our plan to address the Year 2000 issue, the costs associated with the
Year 2000 issue and the results of Year 2000 non-compliance by us or
one or more of our customers, suppliers or other strategic business
partners;
o capital expenditures;
o the availability of funds from currently available credit facilities
and refinancings of indebtedness;
o capital contributions or loans from affiliates or the sale of assets or
operations; and
o our intent to obtain an amendment to certain of the financial covenants
in our Credit Agreement.
We may also make forward-looking statements in our periodic reports to the
SEC, in our annual report to shareholders, in our proxy statements, in our
offering circulars and prospectuses, in press releases and other written
materials and in oral statements made by our officers, directors or employees
to third parties. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements can be identified by, among other
things, the use of forward-looking language, such as "believes," "expects,"
"may," "will," "should," "seeks," "plans," "scheduled to," "pro forma,"
"adjusted," "anticipates" or "intends" or the negative of those terms, or
other variations of those terms or comparable language, or by discussions of
strategy or intentions. These statements are based on current plans,
estimates and projections, and therefore you should not place undue reliance
on them. Forward-looking statements speak only as of the date they are made,
and we undertake no obligation to update publicly any of them in light of new
information or future events. In addition to factors that we describe in our
filings with the Commission and this Prospectus, the following factors, among
others, could cause our actual results to differ materially from those
expressed in any forward-looking statements we make:
o difficulties or delays in developing and introducing new products or
failure of our customers to accept new product offerings;
o changes in consumer preferences, including reduced consumer demand for
our color cosmetics and other current products;
o difficulties or delays in our continued expansion into the self-select
distribution channel and into certain markets and development of new
markets;
o unanticipated costs or difficulties or delays in completing projects
associated with our strategy to improve operating efficiencies,
including information system upgrades;
o the inability to refinance indebtedness, secure capital contributions
or loans from affiliates or sell assets or operations;
o effects of and changes in political and/or economic conditions,
including inflation and monetary conditions, and in trade, monetary,
fiscal and tax policies in international markets, including but not
limited to Brazil;
o actions by our competitors, including business combinations,
technological breakthroughs, new product offerings and marketing and
promotional successes;
o combinations among our significant customers or the loss, insolvency or
failure to pay debts by a significant customer or customers;
o lower than expected sales as a result of a longer than expected
duration of retail inventory balancing and reductions;
o difficulties, delays or unanticipated costs or less than expected
benefits resulting from our proposed restructuring;
21
<PAGE>
o difficulties, delays or unanticipated costs in achieving Year 2000
compliance or unanticipated consequences from non-compliance by us or
one or more of our customers, suppliers or other strategic business
partners; and
o inability to obtain an amendment to certain of the financial covenants
in the Credit Agreement.
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. We will use
$200.0 million of the net proceeds of the Offering to refinance our 9-1/2%
Senior Notes, including through open market purchases. We intend to use the
balance of the net proceeds for general corporate purposes, including to
temporarily reduce indebtedness under the working capital lines under the
Credit Agreement. Until we refinance the 9-1/2% Senior Notes, we will retain
the net proceeds from the sale of the Old Notes and use a portion of such
proceeds to temporarily reduce indebtedness under the working capital lines
under the Credit Agreement and under other short-term facilities. See
"Description of Other Indebtedness."
22
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1998 and the pro forma consolidated
capitalization of the Company as of September 30, 1998, as adjusted to give
effect to the issuance of the Notes and the application of the net proceeds
therefrom to repay the 9-1/2% Senior Notes as if such transactions had
occurred on such date. This table should be read in conjunction with the
notes hereto and the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------
HISTORICAL AS ADJUSTED
------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term borrowings--third parties.......................... $ 45.6 $ 45.6
Working capital lines ........................................ 519.1 471.9
9 1/2% Senior Notes due 1999 ................................. 200.0 --
Bank mortgage loan agreement due 2000 ........................ 27.6 27.6
9% Senior Notes due 2006 ..................................... -- 250.0
8 1/8% Senior Notes due 2006 ................................. 249.3 249.3
8 5/8% Senior Subordinated Notes due 2008 .................... 649.8 649.8
Advances from Holdings........................................ 26.2 26.2
Other mortgages and notes payable (6.8%-9.1%) due through
2001......................................................... 1.3 1.3
------------ -------------
Total indebtedness (a) ....................................... 1,718.9 1,721.7
------------ -------------
Total stockholder's deficiency ............................... (542.3) (542.3)
------------ -------------
Total capitalization.......................................... $1,176.6 $1,179.4
============ =============
</TABLE>
- ------------
(a) Excludes $36.0 million of indebtedness outstanding as of the end of
Cosmetic Center's 1998 third fiscal quarter under a credit facility of
Cosmetic Center, which was included as part of the net assets from
discontinued operations.
23
<PAGE>
SELECTED FINANCIAL DATA
The Statement of Operations data for each of the years in the three-year
period ended December 31, 1997 and the Balance Sheet data as of December 31,
1997 and 1996 have been derived from our audited consolidated financial
statements. The Statement of Operations data for each of the years in the
two-year period ended December 31, 1994 and the Balance Sheet data as of
December 31, 1995, 1994 and 1993 have been derived from our unaudited
financial statements for such periods which have been restated to reflect
Cosmetic Center as a discontinued operation. The selected financial data for
the nine months ended September 30, 1997 and 1998 and as of September 30,
1998 have been derived from our unaudited consolidated financial statements
which reflect, in the opinion of our management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial data for such periods. Results for interim periods are not
necessarily indicative of the results for the full year.
On June 8, 1998, we announced that we intended to dispose of our
approximately 85% interest in Cosmetic Center, our then retail store
subsidiary. On December 10, 1998, we disposed of our interest in Cosmetic
Center (See "Prospectus Summary -- The Company -- Recent Developments").
Accordingly, the summary financial data set forth below for all periods
reflects Cosmetic Center as a discontinued operation.
The following selected financial data should be read in conjunction with
"Prospectus Summary -- The Refinancing Transactions," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus.
24
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales .......................... $1,621.7 $1,598.7 $2,238.6 $2,092.1 $1,867.3 $1,674.0 $1,540.5
Gross profit ....................... 1,078.3 1,065.4 1,495.5 1,403.2 1,252.4 1,107.0 997.2
Selling, general and administrative
expenses .......................... 957.0 920.1 1,275.8 1,203.2 1,104.9 998.9 946.1
Business consolidation costs and
other, net (a)..................... (7.1) 4.4 3.6 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
Operating income ................... 128.4 140.9 216.1 200.0 147.5 108.1 51.1
Interest expense, net .............. 99.5 96.1 129.5 129.0 135.6 129.1 113.5
Amortization of debt issuance
costs.............................. 3.9 5.3 6.6 8.3 11.0 8.4 8.0
Other, net ......................... 8.3 9.0 11.7 12.0 12.7 20.8 39.3
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations before income taxes ... 16.7 30.5 68.3 50.7 (11.8) (50.2) (109.7)
Provisions for income taxes ....... 6.4 9.2 9.3 25.5 25.4 22.8 19.0
---------- ---------- ---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations ........................ 10.3 21.3 59.0 25.2 (37.2) (73.0) (128.7)
Discontinued operations:
(Loss) income from discontinued
operations ........................ (16.5) (3.3) 0.7 0.4 (4.0) (2.0) (1.5)
Loss on disposal from discontinued
operations ........................ (15.0) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
(Loss) income from discontinued
operations......................... (31.5) (3.3) 0.7 0.4 (4.0) (2.0) (1.5)
Extraordinary items--early
extinguishments of debt ........... (51.7) (14.9) (14.9) (6.6) -- -- (9.5)
Cumulative effect of accounting
changes ........................... -- -- -- -- -- (28.8)(b) (6.0)(c)
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net (loss) income .................. $ (72.9) $ 3.1 $ 44.8 $ 19.0 $ (41.2) $ (103.8) $ (145.7)
========== ========== ========== ========== ========== =========== ==========
OTHER DATA:
EBITDA (d) ......................... $ 198.0 $ 214.8 $ 312.8 $ 280.4 $ 222.9 $ 177.0 $ 119.0
Ratio of EBITDA to interest
expense, net ...................... 2.0x 2.2x 2.4x 2.2x 1.6x 1.4x 1.0x
Ratio of earnings to fixed charges
(e) ............................... 1.1x 1.2x 1.4x 1.2x -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
------------------ ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ..................... $1,862.1 $1,757.8 $1,618.1 $1,532.6 $1,414.3 $1,547.8
Long-term debt (including current
portion) ........................ 1,673.3 1,425.2 1,361.0 1,476.7 1,330.4 1,291.3
Total stockholder's deficiency .. (542.3) (456.7) (496.3) (702.3) (656.2) (554.2)
</TABLE>
See accompanying Notes to Selected Financial Data.
25
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(a) We recognized a gain of approximately $7.1 million on the sale of the
wigs and hairpieces portion of our U.S. operation during the third
quarter of 1998. We incurred business consolidation costs and other,
net, during 1997 in connection with the implementation of our business
strategy to rationalize factory operations, including primarily
severance and other related costs in certain operations, offset by a
settlement of a claim of $12.7 million and gains associated with the
sale of certain facilities.
(b) Effective January 1, 1994, we adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." We recognized a charge of
$28.8 million in the first quarter of 1994 to reflect the cumulative
effect of the accounting change, net of income tax benefit.
(c) Effective January 1, 1993, we adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for our
retiree benefit plan in the United States. Accordingly, we recognized a
charge of $6.0 million in the 1993 first quarter to reflect the
cumulative effect of the accounting change.
(d) We define EBITDA as operating income before business consolidation
costs and other, net, plus depreciation and amortization other than
that relating to early extinguishment of debt, debt discount and debt
issuance costs. EBITDA is presented here as a measure of our debt
service ability, not of our operating results. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
from operations prepared in accordance with generally accepted
accounting principles as a measure of our profitability or liquidity.
EBITDA does not take into account our debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses.
(e) Earnings used in computing the ratio of earnings to fixed charges
consist of income (loss) from continuing operations before income taxes
plus fixed charges. Fixed charges consist of interest expense
(including amortization of debt issuance costs, but not losses relating
to the early extinguishment of debt) and 33% of rental expense
(considered to be representative of the interest factors). Fixed
charges exceeded earnings before fixed charges by $37.2 million in
1995, $73.0 million in 1994 and $128.7 million in 1993.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus.
OVERVIEW
The Company operates in a single business segment with many different
products which include an extensive array of glamorous, exciting and
innovative cosmetics and skin care, fragrance and personal care products, and
professional products, consisting of hair and nail care products principally
for use in and resale by professional salons. In addition, the Company has a
licensing group.
The Company presents its business geographically as its United States
operation, which comprises the Company's business in the United States, and
its International operation, which comprises its business outside of the
United States.
Financial information, including information in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section, reflects the restatement of all periods presented to reflect
Cosmetic Center (and its predecessor, Prestige Fragrance & Cosmetics, Inc.)
as a discontinued operation.
On December 10, 1998, the Company disposed of its approximately 85% equity
interest in Cosmetic Center, along with certain amounts due from Cosmetic
Center to the Company for working capital and inventory, to a newly formed
limited partnership controlled by York Management Services, Inc. The Company
received a minority limited partnership interest in the limited partnership
as consideration for the disposition. In connection with the completion of
the Company's disposal of Cosmetic Center, the Company will record a loss on
disposal in the fourth quarter of 1998 of approximately $33 million, in
addition to the charge of $15 million recorded in the second quarter
of 1998.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by operation for
the nine months ended September 30, 1998 and 1997 and for each of the last
three years:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales:
United States $ 954.7 $ 925.7 $1,300.2 $1,182.3 $1,042.7
International 667.0 673.0 938.4 909.8 824.6
---------- ---------- ---------- ---------- ----------
$1,621.7 $1,598.7 $2,238.6 $2,092.1 $1,867.3
========== ========== ========== ========== ==========
</TABLE>
The following table sets forth certain statements of operations data as a
percentage of net sales for the nine months ended September 30, 1998 and 1997
and for each of the last three years:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1998 1997 1997 1996 1995
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Cost of sales ................................ 33.5% 33.4% 33.2 % 32.9 % 32.9%
Gross profit ................................. 66.5 66.6 66.8 67.1 67.1
Selling, general and administrative expenses 59.0 57.5 57.0 57.5 59.2
Business consolidation costs and other, net . (0.4) 0.3 0.1 -- --
Operating income ............................. 7.9 8.8 9.7 9.6 7.9
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net Sales
Net sales were $1,621.7 million and $1,598.7 million for the nine months
ended September 30, 1998 and 1997, respectively, an increase of $23.0
million, or 1.4% (or 4.0% on a constant U.S. dollar basis).
27
<PAGE>
United States. The United States operation's net sales were $954.7 million
for the nine months ended September 30, 1998 compared to $925.7 million for
the nine months ended September 30, 1997, an increase of $29.0 million, or
3.1%. The increase in net sales for the nine months ended September 30, 1998
reflects an increase in net sales for the six months ended June 30, 1998
compared to the six months ended June 30, 1997, partially offset by a decline
in net sales in the third quarter of 1998 as compared to the third quarter of
1997. For the six months ended June 30, 1998, net sales increased as compared
to the comparable 1997 period as a result of continued consumer acceptance of
new product offerings and general improvement in consumer demand for the
Company's color cosmetics. Factors affecting the U.S. business in the third
quarter of 1998 include a slowdown in the rate of growth in the mass market
color cosmetics category, a greater than expected seasonal flattening of
share and delays in some product introductions. Additionally, net sales for
the nine months ended September 30, 1998 were impacted by reduced purchases
by some retailers, particularly chain drugstores, resulting from inventory
systems upgrades and inventory reductions following several recent business
combinations. The foregoing factors were partially offset by improvements in
net sales of products in the Company's ALMAY and ULTIMA franchises. The
Company expects retail inventory balancing and reductions to continue to
affect sales in the fourth quarter of 1998 and in 1999.
REVLON brand color cosmetics continued as the number one brand in dollar
market share in the U.S. self-select distribution channel. New product
introductions (including, in 1998, certain products launched during 1997)
generated incremental net sales in the nine months ended September 30, 1998,
principally as a result of launches of TOP SPEED nail enamel (which benefited
the nine-month period), MOISTURESTAY lip makeup, products in the NEW
COMPLEXION line, COLORSTAY shampoo, ALMAY STAY SMOOTH ANTI-CHAP lip makeup,
ALMAY AMAZING SHEER makeup, products in the ALMAY ONE COAT collection and
products in the ULTIMA II BEAUTIFUL NUTRIENT and ULTIMA II FULL MOISTURE
lipcolor lines.
International. The International operation's net sales were $667.0 million
for the nine months ended September 30, 1998 compared to $673.0 million for
the nine months ended September 30, 1997, a decrease of $6.0 million, or
0.9%, on a reported basis (an increase of 5.1% on a constant U.S. dollar
basis). The decrease in net sales for the nine months ended September 30,
1998 on a reported basis and the increase in net sales for the nine months
ended September 30, 1998 on a constant U.S. dollar basis reflects an increase
in net sales for the six months ended June 30, 1998 compared to the
comparable 1997 period, offset by a decline in net sales in the third quarter
of 1998 as compared to the third quarter of 1997. For the six months ended
June 30, 1998, net sales increased as compared to the comparable 1997 period
as a result of increased distribution, including through acquisitions, and
successful new product introductions in several markets partially offset, on
a reported basis, by the unfavorable effect on sales of a stronger U.S.
dollar against most foreign currencies and unfavorable economic conditions in
several international markets. The aggregate effect of the weak international
economic environment impacted results in the third quarter of 1998 by
restraining consumer and trade demand outside the U.S., particularly in South
America and the Far East, as well as Russia and other developing economies.
The Company's International performance also was affected (on a reported
basis) in the third quarter of 1998 by the unfavorable effect of a stronger
U.S. dollar against most foreign currencies. During the nine months ended
September 30, 1998, the Company introduced new products such as MOISTURESTAY
lip makeup and TOP SPEED nail enamel in selected international markets. The
International operation's sales are divided into three geographic regions. In
Europe, which is comprised of Europe, the Middle East and Africa, net sales
decreased by 0.5% to $297.4 million for the nine months ended September 30,
1998 as compared to the nine months ended September 30, 1997 (an increase of
3.9% on a constant U.S. dollar basis). In the Western Hemisphere, which is
comprised of Canada, Mexico, Central America, South America and Puerto Rico,
net sales increased by 8.3% on a reported basis to $264.9 million for the
nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997 (or an increase of 13.2% on a constant U.S. dollar basis).
The Company's operations in Brazil are significant and, along with operations
in certain other countries, have been subject to, and may continue to be
subject to, significant political and economic uncertainties, including the
weak international economic environment referred to above. In Brazil, net
sales were $91.3 million and $95.9 million for the nine months ended
September 30, 1998 and 1997, respectively, a decrease of $4.6 million, or
4.8%, on a reported basis (an increase of
28
<PAGE>
2.1% on a constant U.S. dollar basis). On a constant U.S. dollar basis, net
sales in Brazil increased as a result of increased sales of the Company's
value priced COLORAMA haircare and cosmetics brands. On a reported basis, net
sales were adversely affected by the stronger U.S. dollar against the
Brazilian real. In the Far East, net sales decreased by 19.2% to $104.7
million for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997 (or a decrease of 7.4% on a constant U.S.
dollar basis). Net sales in the International operation were, and may
continue to be, adversely impacted by generally weak economic conditions and
competitive activities in certain markets.
Cost of sales
As a percentage of net sales, cost of sales was 33.5% for the nine months
ended September 30, 1998 compared to 33.4% for the nine months ended
September 30, 1997. The increase in cost of sales as a percentage of net
sales for the nine months ended September 30, 1998 compared to the comparable
1997 period is due to changes in product mix and the effect of weaker local
currencies on the cost of imported purchases as well as the effect of lower
net sales. These factors were partially offset by the benefits of more
efficient global production and purchasing.
SG&A expenses
As a percentage of net sales, SG&A expenses were 59.0% for the nine months
ended September 30, 1998 compared to 57.5% for the nine months ended
September 30, 1997. SG&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, were
41.0% for the nine months ended September 30, 1998 compared to 40.2% for the
nine months ended September 30, 1997. The increase in SG&A expenses other
than advertising and consumer-directed promotion expenses as a percentage of
net sales was due primarily to the effects of lower than expected sales
relative to generally constant SG&A expenses. The Company increased
advertising and consumer-directed promotion expenditures for the nine months
ended September 30, 1998 compared with the comparable 1997 period to support
existing product lines, new product launches and increased distribution in
many of the Company's markets in the International operation. Advertising and
consumer-directed promotion expenses as a percentage of net sales were 18.0%,
or $291.9 million, for the nine months ended September 30, 1998 compared to
17.3%, or $275.9 million, for the nine months ended September 30, 1997.
Business consolidation costs and other, net
In the third quarter of 1998 the Company recognized a gain of
approximately $7.1 million on the sale of the wigs and hairpieces portion of
its U.S. operation. In 1997 the Company incurred business consolidation costs
in connection with the implementation of its business strategy to rationalize
factory operations. These costs primarily included severance and other
related costs in certain International operations. Such costs were partially
offset by an approximately $12.7 million settlement of a claim and a net gain
of approximately $1.0 million on the sale of a factory in one of its
International operations.
Operating income
As a result of the foregoing, operating income decreased by $12.5 million,
or 8.9%, to $128.4 million for the nine months ended September 30, 1998 from
$140.9 million for the nine months ended September 30, 1997.
Other expenses/income
Interest expense was $103.3 million for the nine months ended September
30, 1998 compared to $99.2 million for the nine months ended September 30,
1997. The increase in interest expense for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997 is due to
higher average outstanding borrowings partially offset by lower interest
rates.
Foreign currency losses, net, were $4.7 million for the nine months ended
September 30, 1998 compared to $5.2 million for the nine months ended
September 30, 1997. The foreign currency losses for the nine months ended
September 30, 1998 were comprised primarily of losses in several markets in
Latin America. The losses in the 1997 comparable period were comprised
primarily of losses in several markets in Europe and the Far East.
29
<PAGE>
Provision for income taxes
The provision for income taxes was $6.4 million and $9.2 million for the
nine months ended September 30, 1998 and 1997, respectively. The change for
the nine months ended September 30, 1998 as compared to the comparable 1997
period was primarily attributable to lower taxable income in the 1998 period.
Discontinued operations
In the second quarter of 1998, the Company determined to exit the retail
and outlet store business consisting of its approximately 85% ownership
interest in Cosmetic Center and recorded an estimated loss on disposal of
$15.0 million. (Loss) income from discontinued operations was $(16.5) million
and $(3.3) million for the nine months ended September 30, 1998 and 1997,
respectively. The 1997 period includes a $6.0 million non-recurring gain
resulting from the merger of Prestige Fragrance & Cosmetics, Inc., then a
wholly owned subsidiary of the Company, with and into Cosmetic Center on
April 25, 1997, partially offset by related business consolidation costs of
$4.0 million. The 1998 period includes the Company's share of a non-recurring
charge of $10.5 million taken by Cosmetic Center primarily related to
inventory and severance.
Extraordinary items
The extraordinary item of $51.7 million in the 1998 period resulted from
the write-off of deferred financing costs and payment of call premiums
associated with the redemption of the 9 3/8% Senior Notes and the 10 1/2%
Senior Subordinated Notes. The extraordinary item in the 1997 period resulted
from the write-off of deferred financing costs associated with the
extinguishment of borrowings under the 1996 Credit Agreement prior to
maturity with proceeds from the Credit Agreement, and costs of approximately
$6.3 million in connection with the redemption of the Company's 10 7/8%
Sinking Fund Debentures due 2010 (the "Sinking Fund Debentures").
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales
Net sales were $2,238.6 million and $2,092.1 million for 1997 and 1996,
respectively, an increase of $146.5 million, or 7.0%, or 9.5% on a constant
U.S. dollar basis, primarily as a result of successful new product
introductions worldwide, increased demand in the United States, increased
distribution internationally into the expanding self-select distribution
channel and the further development of new international markets.
United States. The United States operation's net sales increased to
$1,300.2 million for 1997 from $1,182.3 million for 1996, an increase of
$117.9 million, or 10.0%. Net sales improved for 1997, primarily as a result
of continued consumer acceptance of new product offerings and general
improvement in consumer demand for the Company's color cosmetics. These
results were partially offset by a decline in the Company's fragrance
business caused by downward trends in the mass fragrance industry and the
Company's strategy to de-emphasize new fragrance products. Even though
consumer sell-through for the REVLON and ALMAY brands, as described below in
more detail, has increased significantly, the Company's sales to its
customers have been during 1997 and may continue to be impacted by retail
inventory balancing and reductions resulting from consolidation in the chain
drugstore industry in the U.S.
REVLON brand color cosmetics continued as the number one brand in dollar
market share in the self-select distribution channel with a share of 21.6%
for 1997 versus 21.4% for 1996. Market share, which is subject to a number of
conditions, can vary from quarter to quarter as a result of such things as
timing of new product introductions and advertising and promotional spending.
New product introductions (including, in 1997, certain products launched during
1996) generated incremental net sales in 1997, principally as a result of
launches of products in the COLORSTAY collection, including COLORSTAY eye
makeup and face products such as powder and blush, COLORSTAY haircolor,
launched in the third quarter of 1997, TOP SPEED nail enamel, launched in the
third quarter of 1997, and launches of REVLON AGE DEFYING line extensions, the
STREETWEAR collection, NEW COMPLEXION face makeup,
30
<PAGE>
LINE & SHINE lip makeup and launches of products in the ALMAY AMAZING
collection, including lip makeup, eye makeup, face makeup and concealer, ALMAY
ONE COAT, and ALMAY TIME-OFF REVITALIZER.
International. The International operation's net sales increased to $938.4
million for 1997 from $909.8 million for 1996, an increase of $28.6 million,
or 3.1% on a reported basis or 8.8% on a constant U.S. dollar basis. Net
sales improved for 1997, principally as a result of increased distribution
into the expanding self-select distribution channel, successful new product
introductions, including the continued roll-out of the COLORSTAY cosmetics
collection and the further development of new international markets. This was
partially offset by the Company's decision to exit the unprofitable
demonstrator-assisted channel in Japan in the second half of 1996,
unfavorable economic conditions in several international markets, and, on a
reported basis, the unfavorable effect on sales of a stronger U.S. dollar
against certain foreign currencies, primarily the Spanish peseta, the Italian
lira and several other European currencies, the Australian dollar, the South
African rand and the Japanese yen. New products such as COLORSTAY haircolor
and STREETWEAR were introduced in select international markets in the second
half of 1997. During 1997, net sales in Europe increased by 3.4% on a
reported basis to $417.9 million for 1997 as compared to 1996 or an increase
of 11.3% on a constant U.S. dollar basis; net sales in the Western Hemisphere
increased by 11.1% on a reported basis to $346.6 million for 1997 as compared
to 1996 or an increase of 14.5% on a constant U.S. dollar basis; and net
sales in the Far East decreased by 10.3% on a reported basis to $173.9
million for 1997 as compared to 1996 or a decrease of 5.5% on a constant U.S.
dollar basis. Excluding in both periods the effect of the Company's strategy
of exiting the demonstrator-assisted distribution channel in Japan, Far East
net sales on a constant U.S. dollar basis for 1997 would have been at
approximately the same level as those in 1996.
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In
Brazil, net sales, operating income and income before taxes were $130.9
million, $16.0 million and $7.7 million, respectively, for 1997 compared to
$132.7 million, $25.1 million and $20.0 million, respectively, for 1996.
Results of operations in Brazil for 1997 were adversely impacted by
competitive activity affecting the Company's toiletries business.
Cost of sales
As a percentage of net sales, cost of sales was 33.2% for 1997 compared to
32.9% for 1996. The increase in cost of sales as a percentage of net sales
included factors which enhanced overall operating income, including increased
sales of the Company's higher cost, enhanced-performance, technology-based
products and increased export sales and other factors including the effect of
weaker local currencies on the cost of imported purchases and competitive
pressures on the Company's toiletries business in certain International
markets. These factors were partially offset by the benefits of improved
overhead absorption against higher production volumes and more efficient
global production and purchasing.
SG&A expenses
As a percentage of net sales, SG&A expenses were 57.0% for 1997, an
improvement from 57.5% for 1996. SG&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, improved to
39.2% for 1997 compared with 40.5% for 1996, primarily as a result of reduced
general and administrative expenses, improved productivity and lower
distribution costs in 1997 compared with those in 1996. In accordance with its
business strategy, the Company increased advertising and consumer-directed
promotion expenditures in 1997 compared with 1996 to support growth in existing
product lines, new product launches and increased distribution in the
self-select distribution channel in many of the Company's markets in the
International operation. Advertising and consumer-directed promotion expenses
increased by 11.8% to $397.4 million, or 17.8% of net sales, for 1997 from
$355.5 million, or 17.0% of net sales, for 1996.
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Business consolidation costs and other, net
Business consolidation costs and other, net, in 1997 include severance,
writedowns of certain assets to their estimated net realizable value and
other related costs to rationalize factory operations in certain operations
in accordance with the Company's business strategy, partially offset by
related gains from the sales of certain factory operations and an
approximately $12.7 million settlement of a claim in the second quarter of
1997. These business consolidations are intended to lower the Company's
operating costs and increase efficiency in the future.
Operating income
As a result of the foregoing, operating income increased by $16.1 million,
or 8.1%, to $216.1 million for 1997 from $200.0 million for 1996.
Other expenses/income
Interest expense was $133.7 million for 1997 compared to $133.4 million
for 1996. The slight increase in interest expense in 1997 is due to higher
average outstanding borrowings, partially offset by lower interest rates.
Foreign currency losses, net, were $6.4 million for 1997 compared to $5.7
million for 1996. The increase in foreign currency losses for 1997 as
compared to 1996 resulted primarily from a non-recurring gain recognized in
1996 in connection with the Company's simplification of its international
corporate structure and from the strengthening of the U.S. dollar versus
currencies in the Far East and most European currencies, partially offset by
the stabilization of the Venezuelan bolivar and Mexican peso versus the
devaluations which occurred during 1996.
Provision for income taxes
The provision for income taxes was $9.3 million and $25.5 million for 1997
and 1996, respectively. The decrease was primarily attributable to lower
taxable income in certain International operations, partially as a result of
the implementation of tax planning, including the utilization of net
operating loss carryforwards in certain International operations, and
benefits from net operating loss carryforwards domestically.
Discontinued operations
Income from discontinued operations was $0.7 million and $0.4 million for
1997 and 1996, respectively. The 1997 period includes a $6.0 million
non-recurring gain resulting from the merger of Prestige Fragrance &
Cosmetics, Inc., then a wholly owned subsidiary of the Company, with and into
Cosmetic Center on April 25, 1997, partially offset by related business
consolidation costs of $4.0 million and operating losses of Cosmetic Center.
Extraordinary item
The extraordinary item in 1997 resulted from the write-off in the second
quarter of 1997 of deferred financing costs associated with the early
extinguishment of borrowings under the 1996 Credit Agreement prior to
maturity with proceeds from the Credit Agreement, and costs of approximately
$6.3 million in connection with the redemption of the Sinking Fund Debentures.
The extraordinary item in 1996 resulted from the write-off in the first quarter
of 1996 of deferred financing costs associated with the early extinguishment of
borrowings under the 1995 Credit Agreement prior to maturity with the net
proceeds from the Revlon IPO and proceeds from the 1996 Credit Agreement.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales
Net sales were $2,092.1 million and $1,867.3 million for 1996 and 1995,
respectively, an increase of $224.8 million, or 12.0%, primarily as a result
of successful new product introductions worldwide,
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increased demand in the United States, acquisitions of certain exclusive line
professional product businesses, increased distribution internationally into
the expanding self-select distribution channel and the further development of
new international markets.
United States. The United States operation's net sales increased to
$1,182.3 million for 1996 from $1,042.7 million for 1995, an increase of
$139.6 million, or 13.4%. Net sales improved for 1996 primarily as a result
of continued consumer acceptance of new product offerings, general
improvement in consumer demand for the Company's color cosmetics in the
United States and acquisitions of certain exclusive line professional product
businesses, partially offset by overall softness in the fragrance industry
and lower sales of one of the Company's prestige brands. The Company improved
the dollar share of its REVLON brand cosmetics in the color cosmetics
business in the United States self-select distribution channel to 21.4% for
1996 from 19.5% for 1995, moving into the leading position in market share.
Market share, which is subject to a number of conditions, can vary from
quarter to quarter as a result of such things as timing of new product
introductions and advertising and promotional spending. New product
introductions (including, in 1996, certain products launched during 1995)
generated incremental net sales in 1996, principally as a result of launches
of products in the COLORSTAY collection, including COLORSTAY foundation, lip
makeup, eye makeup and COLORSTAY LASHCOLOR mascara, launches of products in
the ALMAY AMAZING collection, including lip makeup, eye makeup, face makeup
and concealer, and launches of CHERISH fragrance and MITCHUM CLEAR and ALMAY
CLEAR COMPLEXION line extensions.
International. The International operation's net sales increased to $909.8
million for 1996 from $824.6 million for 1995, an increase of $85.2 million,
or 10.3% on a reported basis or 12.6% on a constant U.S. dollar basis. Net
sales improved principally as a result of successful new product
introductions, including the continued roll-out of the COLORSTAY cosmetics
collection and REVLON AGE DEFYING makeup, increased distribution into the
expanding self-select distribution channel, the further development of new
international markets, partially offset, on a reported basis, by the
unfavorable effect on sales of a stronger U.S. dollar against certain foreign
currencies, primarily the South African rand, Japanese yen, and several
European currencies. During 1996, net sales in Europe increased to $404.0
million for 1996 from $374.6 million for 1995, an increase of $29.4 million,
or 7.8%; net sales in the Western Hemisphere increased to $311.9 million for
1996 from $275.4 million for 1995, an increase of $36.5 million, or 13.3%;
and net sales in the Far East increased to $193.9 million for 1996 from
$174.6 million for 1995, an increase of $19.3 million, or 11.1%.
The Company's operations in Brazil are significant and, along with
operations in certain other countries, have been subject to, and may continue
to be subject to, significant political and economic uncertainties. In
Brazil, net sales, operating income and income before taxes were $132.7
million, $25.1 million and $20.0 million, respectively, for 1996 compared to
$118.6 million, $22.8 million and $19.8 million, respectively, for 1995. In
Mexico, net sales for 1996 and 1995 were adversely affected by the December
1994 devaluation of the Mexican peso and related economic weakness. In
Venezuela, net sales and income before taxes for 1996 and 1995 were adversely
affected by high inflation and in the 1996 period by a currency devaluation.
See "Risk Factors -- Social, Political and Economic Risks Affecting Foreign
Operations and Effects of Foreign Currency Fluctuation."
Cost of sales
As a percentage of net sales, cost of sales was 32.9% for 1996 and 1995,
respectively. Cost of sales as a percentage of net sales for 1996 compared to
1995 reflects the benefits of improved overhead absorption against higher
production volumes and more efficient global production and purchasing. These
improvements were offset by changes in product mix involving an increase in
sales of the Company's higher cost technology-based products, an increase in
export sales, lower margin products (such as those products sold in Brazil),
the effect of weaker local currencies on the cost of imported purchases and
competitive pressures on the Company's toiletries business in certain
international markets in Europe and the Far East. The aforementioned increases
in sales that negatively impacted cost of sales were, however, more profitable
to the Company's overall operating results.
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SG&A expenses
As a percentage of net sales, SG&A expenses were 57.5% for 1996, an
improvement from 59.2% for 1995. SG&A expenses other than advertising and
consumer-directed promotion expenses, as a percentage of net sales, improved
to 40.5% for 1996 compared with 43.0% for 1995 primarily as a result of
reduced general and administrative expenses, improved productivity and lower
distribution costs in 1996 compared with 1995, partially offset by additional
costs incurred in Japan in 1996 in connection with the Company's strategy of
exiting the demonstrator-assisted distribution channel. In accordance with
its business strategy, the Company increased advertising and
consumer-directed promotion expenditures in 1996 compared with 1995 to
support growth in existing product lines, new product launches and increased
distribution in the self-select distribution channel in many of the Company's
markets in the International operation. Advertising and consumer-directed
promotion expenses increased by 17.4% to $355.5 million, or 17.0% of net
sales, for 1996 compared to $302.9 million, or 16.2% of net sales, for 1995.
Operating income
As a result of the foregoing, operating income increased by $52.5 million,
or 35.6%, to $200.0 million for 1996 from $147.5 million for 1995.
Other expenses/income
Interest expense was $133.4 million for 1996 compared to $142.6 million
for 1995. The reduction in interest expense is attributable to lower average
outstanding borrowings as a result of the paydown of debt under the 1996
Credit Agreement and under the 1995 Credit Agreement with the use of proceeds
from the Revlon IPO in the 1996 period and lower interest rates under the
1996 Credit Agreement than under the 1995 Credit Agreement.
Foreign currency losses, net, were $5.7 million for 1996 compared to $10.9
million for 1995. The reduction in the foreign currency loss in 1996 as
compared to 1995 was due to lower foreign currency losses primarily in Mexico
and Venezuela and the Company's simplification of its international corporate
structure, which resulted in $2.1 million of gains, previously deferred in
the currency translation account, partially offset by the strengthening of
the U.S. dollar against the Spanish peseta and the strengthening of the U.K.
pound against several European currencies.
Miscellaneous, net, was $6.3 million for 1996 compared to $1.8 million for
1995. The increase relates primarily to the Company's continued investment in
certain emerging markets.
Discontinued operations
Income (loss) from discontinued operations was $0.4 million and $(4.0)
million for 1996 and 1995, respectively. The improvement was primarily due to
an increase in net sales as a result of new store openings and increased
fragrance sales during the Christmas season.
Extraordinary item
The extraordinary item resulted from the write-off recorded in the first
quarter of 1996 of deferred financing costs associated with the early
extinguishment of the 1995 Credit Agreement prior to its maturity with the
net proceeds from the Revlon IPO and borrowings under the 1996 Credit
Agreement.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities was $95.7 million and $110.7
million for the nine months ended September 30, 1998 and 1997, respectively.
Net cash provided by (used for) operating activities was $8.9 million,
$(10.3) million and $(45.9) million for 1997, 1996 and 1995, respectively.
The improvement in net cash used for operating activities for the nine months
ended September 30, 1998 compared with the nine months ended September 30,
1997 resulted primarily from improved working
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capital management. The increase in net cash provided by operating activities
for 1997 compared with net cash used in 1996 resulted primarily from higher
operating income and improved working capital management, partially offset by
increased spending on merchandise display units in connection with the
Company's continued expansion into the self-select distribution channel. The
decrease in net cash used for operating activities for 1996 compared with 1995
resulted primarily from higher operating income, lower restructuring payments
($13.3 million for 1996 compared with $24.2 million for 1995) and improved
management of inventory relative to business growth, partially offset by higher
trade receivable balances as a result of higher net sales and increased
spending on merchandise display units in connection with the Company's
continued expansion into the self-select distribution channel.
Net cash used for investing activities was $84.4 million and $59.0 million
for the nine months ended September 30, 1998 and 1997, respectively. Net cash
used for investing activities was $84.3 million, $61.8 million and $69.5
million for 1997, 1996 and 1995, respectively. Net cash used for investing
activities for the nine months ended September 30, 1998 and 1997 includes
cash paid in connection with acquisitions of businesses and capital
expenditures, partially offset by the proceeds from the sale of the wigs and
hairpieces portion of the Company's U.S. operation in the 1998 period and
certain fixed assets. Net cash used for investing activities for 1997, 1996
and 1995 included capital expenditures of $52.3 million, $54.7 million and
$51.3 million, respectively, and $40.5 million, $7.1 million and $21.2
million, respectively, used for acquisitions.
Net cash provided by financing activities was $197.2 million and $174.8
million for the nine months ended September 30, 1998 and 1997, respectively.
Net cash provided by financing activities was $84.7 million, $77.9 million
and $125.6 million for 1997, 1996 and 1995, respectively. Net cash provided
by financing activities for the nine months ended September 30, 1998 included
proceeds from the issuance of the 8 1/8% Senior Notes and 8 5/8% Senior
Subordinated Notes and cash drawn under the Credit Agreement, partially
offset by the payment of fees and expenses related to the issuance of the
8 1/8% Senior Notes and 8 5/8% Senior Subordinated Notes, the redemption of the
10 1/2% Senior Subordinated Notes and the 9 3/8% Senior Notes, and the
repayment of borrowings under the Company's Japanese yen-denominated credit
agreement (the "Yen Credit Agreement"). During the second and third quarters
of 1998, the Company loaned $5.0 million and $2.0 million, respectively, to
CCI to assist it with liquidity needs and its new business strategy. Net cash
provided by financing activities for the nine months ended September 30, 1997
included cash drawn under the 1996 Credit Agreement and the Credit Agreement,
partially offset by the repayment of borrowings under the 1996 Credit
Agreement, the payment of fees and expenses related to the Credit Agreement,
the repayment of borrowings under the Yen Credit Agreement and the redemption
of the Sinking Fund Debentures. Net cash provided by financing activities for
1997 included cash drawn under the 1996 Credit Agreement and the Credit
Agreement, partially offset by the repayment of borrowings under the 1996
Credit Agreement, the payment of fees and expenses related to entering into
the Credit Agreement, the repayment of borrowings under the Yen Credit
Agreement and the redemption of the Sinking Fund Debentures. Net cash
provided by financing activities for 1996 included the net proceeds from the
Revlon IPO, cash drawn under the 1995 Credit Agreement and under the 1996
Credit Agreement, partially offset by the repayment of borrowings under the
1995 Credit Agreement, the payment of fees and expenses related to the 1996
Credit Agreement and the repayment of borrowings under the Yen Credit
Agreement. Net cash provided by financing activities for 1995 consisted
primarily of borrowings under the credit agreement of Products Corporation in
effect prior to the 1995 Credit Agreement and borrowings under the 1995
Credit Agreement, partially offset by repayments of cash drawn under those
credit agreements, repayments under the Yen Credit Agreement and payment of
debt issuance costs under the 1995 Credit Agreement.
On November 6, 1998, the Company issued and sold $250.0 million aggregate
principal amount of the Old Notes in a private placement, receiving net
proceeds of $247.2 million. The Company will use $200.0 million of the net
proceeds from the sale of the Notes to refinance the 9 1/2% Senior Notes,
including through open market purchases. The Company intends to use the
balance of the net proceeds for general corporate purposes, including to
temporarily reduce indebtedness under the
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working capital lines under the Credit Agreement. Pending the refinancing of
the 9 1/2% Senior Notes, such net proceeds will be retained by the Company and
a portion of such proceeds will be used to temporarily reduce indebtedness
under the working capital lines under the Credit Agreement and under other
short-term facilities.
On February 2, 1998, Revlon Escrow issued and sold the 8 1/8% Senior Notes
and the 8 5/8% Senior Subordinated Notes in a private placement, with the net
proceeds deposited into escrow. The proceeds from the sale of the 8 1/8%
Senior Notes and the 8 5/8% Senior Subordinated Notes were used to finance
the redemptions of the 10 1/2% Senior Subordinated Notes and the 9 3/8%
Senior Notes. The Company delivered a redemption notice to the holders of the
10 1/2% Senior Subordinated Notes for the redemption of the 10 1/2% Senior
Subordinated Notes on March 4, 1998, at which time the Company consummated
the 8 5/8% Notes Assumption, and to the holders of the 9 3/8% Senior Notes
for the redemption of the 9 3/8% Senior Notes on April 1, 1998, at which time
the Company consummated the 8 1/8% Notes Assumption. On May 7, 1998,
substantially all of the 8 1/8% Senior Notes and 8 5/8% Senior Subordinated
Notes were exchanged for registered notes with substantially identical terms.
In May 1997, the Company entered into the Credit Agreement with a
syndicate of lenders, whose individual members change from time to time. The
proceeds of loans made under the Credit Agreement were used for the purpose
of repaying the loans outstanding under the 1996 Credit Agreement and to
redeem the Company's Sinking Fund Debentures and were and will be used for
general corporate purposes or, in the case of the Acquisition Facility, the
financing of acquisitions. At September 30, 1998, the Company had
approximately $199.0 million outstanding under the Term Loan Facilities,
$216.4 million outstanding under the Multi-Currency Facility, $103.7 million
outstanding under the Acquisition Facility and $34.0 million of issued but
undrawn letters of credit under the Special LC Facility. In connection with
the issuance of the Notes, the Company amended the Credit Agreement to
provide that it can retain the net proceeds of such issuance which exceed the
amount of the 9 1/2% Senior Notes refinanced plus related costs and expenses.
Additionally, the Company agreed that until the 9 1/2% Senior Notes are
refinanced, $200.0 million of the Multi-Currency Facility available under the
Credit Agreement (reduced by the amount of 9 1/2% Senior Notes actually
repurchased or refinanced), which would otherwise be available for working
capital purposes, will be used solely to refinance the 9 1/2% Senior Notes.
A subsidiary of the Company is the borrower under the Yen Credit
Agreement, which had a principal balance of approximately yen 3.8 billion as of
September 30, 1998 (approximately $27.6 million U.S. dollar equivalent as of
September 30, 1998). In accordance with the terms of the Yen Credit Agreement,
approximately yen 539 million (approximately $4.6 million U.S. dollar
equivalent) was paid in January 1997. In June 1997, the Company amended and
restated the Yen Credit Agreement to extend the term to December 31, 2000,
subject to earlier termination under certain circumstances. In accordance with
the terms of the Yen Credit Agreement, as so amended and restated,
approximately yen 539 million (approximately $4.2 million U.S. dollar
equivalent) was paid in March 1998, approximately yen 539 million
(approximately $3.9 million U.S. dollar equivalent as of September 30, 1998) is
due in each of March 1999 and 2000 and yen 2.7 billion (approximately $19.8
million U.S. dollar equivalent as of September 30, 1998) is due on December 31,
2000. On December 10, 1998, in connection with the disposition of the stock of
Cosmetic Center, which had served as collateral under the Yen Credit Agreement,
the Company repaid yen 2.22 billion (approximately $18.95 million U.S. dollar
equivalent as of December 10, 1998) principal amount under the Yen Credit
Agreement in accordance with the terms of the Yen Credit Agreement, which
repayment reduces the amount due on December 31, 2000 to yen 500 million
(approximately $3.7 million U.S. dollar equivalent as of September 30, 1998).
The Company made an optional sinking fund payment of $13.5 million and
redeemed all of the outstanding $85.0 million principal amount Sinking Fund
Debentures during 1997 with the proceeds of borrowings under the Credit
Agreement. $9.0 million aggregate principal amount of previously purchased
Sinking Fund Debentures were used for the mandatory sinking fund payment due
July 15, 1997.
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The Company borrows funds from its affiliates from time to time to
supplement its working capital borrowings at interest rates more favorable to
the Company than interest rates under the Credit Agreement. No such
borrowings were outstanding as of September 30, 1998.
The Company's principal sources of funds are expected to be cash flow
generated from operations and borrowings under the Credit Agreement,
refinancings and other existing working capital lines. The Credit Agreement,
the 9 1/2% Senior Notes, the 8 1/8% Senior Notes, the 8 5/8% Senior
Subordinated Notes and the Notes contain certain provisions that by their
terms limit the Company's and/or its subsidiaries' ability to, among other
things, incur additional debt. The Company's principal uses of funds are
expected to be the payment of operating expenses, working capital and capital
expenditure requirements, expenses in connection with the restructuring
referred to below and debt service payments (including purchase and repayment
of the 9 1/2% Senior Notes).
The Company estimates that capital expenditures for 1998 will be
approximately $65 million including upgrades to the Company's management
information systems. Pursuant to a tax sharing agreement, the Company may be
required to make tax sharing payments to Revlon, Inc. (which in turn may be
required to make tax sharing payments to Mafco Holdings Inc.) as if the
Company were filing separate income tax returns, except that no payments are
required by the Company (or Revlon, Inc.) if and to the extent that the
Company is prohibited under the Credit Agreement from making tax sharing
payments to Revlon, Inc. The Credit Agreement prohibits the Company from
making any tax sharing payments other than in respect of state and local
income taxes. The Company currently anticipates that, as a result of net
operating tax losses and prohibitions under the Credit Agreement, no cash
federal tax payments or cash payments in lieu of federal taxes pursuant to
the tax sharing agreement will be required for 1998.
The Company currently anticipates recording a restructuring charge during
the fourth quarter of 1998. This restructuring will include the closing of
certain plants in the International operation, a reorganization of the
Company's workforce principally outside the U.S., and other actions designed
to reduce costs. The resulting efficiencies are intended to enhance the
Company's competitive position.
As of December 31, 1997, the Company was party to a series of interest
rate swap agreements totaling a notional amount of $225.0 million in which
the Company agreed to pay on such notional amount a variable interest rate
equal to the six month LIBOR to its counterparties and the counterparties
agreed to pay on such notional amounts fixed interest rates averaging
approximately 6.03% per annum. The Company entered into these agreements in
1993 and 1994 (and in the first quarter of 1996 extended a portion equal to a
notional amount of $125.0 million through December 2001) to convert the
interest rate on $225.0 million of fixed-rate indebtedness to a variable
rate. The Company terminated these agreements in January 1998 and realized a
gain of approximately $1.6 million, which was recognized upon repayment of
the hedged indebtedness and is included in the first quarter 1998
extraordinary item -early extinguishment of debt.
The Company enters into forward foreign exchange contracts and option
contracts from time to time to hedge certain cash flows denominated in
foreign currencies. The Company had forward foreign exchange contracts
denominated in various currencies of approximately $30.3 million and $9.8
milliion (U.S. dollar equivalent) outstanding at September 30, 1998 and 1997,
respectively, and option contracts of approximately $24.0 million (U.S.
dollar equivalent) outstanding at September 30, 1998. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If the Company had terminated these contracts on September 30, 1998
and 1997, no material gain or loss would have been realized.
Based upon the Company's current level of operations and anticipated
growth in net sales and earnings as a result of its business strategy, the
Company expects that cash flows from operations and funds from currently
available credit facilities and refinancings of existing indebtedness will be
sufficient to enable the Company to meet its anticipated cash requirements
for the foreseeable future on a consolidated basis, including for debt
service (including refinancing the 9 1/2% Senior Notes). However, there can
be no assurance that cash flow from operations and funds from existing credit
facilities and refinancing of existing indebtedness will be sufficient to
meet the Company's cash
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requirements on a consolidated basis. If the Company is unable to satisfy such
cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, restructuring
indebtedness, selling assets or operations, or seeking capital contributions or
loans from Revlon, Inc. or affiliates of the Company. There can be no assurance
that any of such actions could be effected, that they would enable the Company
to continue to satisfy its capital requirements or that they would be permitted
under the terms of the Company's various debt instruments then in effect. The
Company currently expects that at the end of the fourth quarter of 1998 it will
not be in compliance with certain of the financial ratios and tests contained
in the Credit Agreement as a result of, among other things, the expected
charges in connection with the Company's restructuring effort. The Company is
currently negotiating an amendment to such provisions of the Credit Agreement
and expects to have an amendment executed and effective prior to December 31,
1998, although there can be no assurance in this regard. The terms of the
Credit Agreement, the 9 1/2% Senior Notes, the 8 1/8% Senior Notes, the 8 5/8%
Senior Subordinated Notes, and the Notes generally restrict the Company from
paying dividends or making distributions, except that the Company is permitted
to pay dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as Commission filing fees and other
miscellaneous expenses related to being a public holding company and to pay
dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under the Revlon, Inc.
Amended and Restated 1996 Stock Plan, provided that the aggregate amount of
such dividends and distributions taken together with any purchases of Revlon,
Inc. common stock on the open market to satisfy matching obligations under the
excess savings plan may not exceed $6 million per annum.
YEAR 2000
Commencing in 1997, the Company undertook a business process enhancement
program to substantially upgrade management information technology systems in
order to provide comprehensive order processing, production and accounting
support for the Company's business. The Company also developed a
comprehensive plan to address Year 2000 issues. The Year 2000 plan addresses
three main areas: (a) information technology systems; (b) non-information
technology systems (including factory equipment, building systems and other
embedded systems); and (c) business partner readiness (including without
limitation customers, inventory and non-inventory suppliers, service
suppliers, banks, insurance companies and tax and other governmental
agencies). To oversee the process, the Company has established a Steering
Committee comprised of senior executives of the Company.
In connection with and as part of the Company's business process
enhancement program, certain information technology systems have been and
will continue to be upgraded to be Year 2000 compliant. In addition, as part
of its Year 2000 plan, the Company has identified potential deficiencies
related to Year 2000 in certain of its information technology systems, both
hardware and software, and is in the process of addressing them through
upgrades and other remediation. The Company currently expects to complete
upgrade and remediation and testing of its information systems by the third
quarter of 1999. In respect of non-information technology systems with date
sensitive operating controls, the Company is in the process of identifying
those items which may require remediation or replacement, and has commenced
an upgrade and remediation program for systems identified as Year 2000
non-compliant. The Company expects to complete remediation or replacement and
testing of these by the third quarter of 1999. The Company has identified and
contacted and continues to identify and contact key suppliers, both inventory
and non-inventory, key customers and other strategic business partners, such
as banks, pension trust managers and marketing data suppliers, either by
soliciting written responses to questionnaires and/or by meeting with certain
of such third parties.
The parties from whom the Company has received responses to date generally
have indicated that their systems are or will be Year 2000 compliant. The
Company currently expects to gain a better understanding of the Year 2000
readiness of third party business partners by early 1999.
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The Company does not expect that incremental out-of-pocket costs of its
Year 2000 program (which do not include costs incurred in connection with the
Company's comprehensive business process enhancement program) will be
material. These costs are expected to continue to be incurred through fiscal
1999 and include the cost of third party consultants, remediation of existing
computer software and replacement and remediation of embedded systems.
The Company believes that at the current time it is difficult to identify
specifically the most reasonably likely worst case Year 2000 scenario. As
with all manufacturers and distributors of products such as those sold by the
Company, a reasonable worst case scenario would be the result of failures of
third parties (including, without limitation, governmental entities and
entities with which the Company has no direct involvement, as well as the
Company's suppliers of goods and services and customers) that continue for
more than a brief period in various geographic areas where the Company's
products are produced or sold at retail or in areas from which the Company's
raw materials and components are sourced. In connection with functions that
represent a particular Year 2000 risk, including the production, warehousing
and distribution of products and the supply of raw materials and components,
the Company is considering various contingency plans. Continuing failures in
key geographic areas in the United States and in certain European, South
American and Asian countries that limit the Company's ability to produce
products, its customers' ability to purchase the Company's products and/or
consumers' ability to shop, would be likely to have a material adverse effect
on the Company's results of operations, although it would be expected that at
least part of such lost sales eventually would be recouped. The extent of
such deferred or lost revenue cannot be estimated at this time.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company currently anticipates
continuity of its business activities, that continuity will be dependent upon
its ability, and the ability of third parties upon which the Company relies
directly, or indirectly, to be Year 2000 compliant. There can be no assurance
that the Company will eliminate potential Year 2000 issues in a timely manner
or as to the ultimate cost of doing so.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
effect of adopting the statement and the date of such adoption by the Company
have not yet been determined.
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to the Company during the
past three years in the United States or foreign non-hyperinflationary
countries. The Company operates in certain countries around the world, such
as Brazil, Venezuela and Mexico, that have experienced hyperinflation in the
past three years. The Company's operations in Brazil were accounted for as
operating in a hyperinflationary economy until June 30, 1997. Effective July
1, 1997, Brazil was considered a non-hyperinflationary economy. The impact of
accounting for Brazil as a non-hyperinflationary economy was not material to
the Company's operating results. Effective January 1997, Mexico was
considered a hyperinflationary economy for accounting purposes. Effective
January 1, 1999 Mexico will no longer be considered a hyperinflationary
economy. In hyperinflationary foreign countries, the Company attempts to
mitigate the effects of inflation by increasing prices in line with
inflation, where possible, and efficiently managing its working capital
levels.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the terms and conditions set forth in this Prospectus and
Letter of Transmittal, we will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used in this Prospectus, the term "Expiration Date" means
5:00 p.m., New York City time, on , 1999; provided, however, that if we,
in our sole discretion, have extended the period of time during which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which we extend the Exchange Offer.
As of the date of this Prospectus, $250,000,000 aggregate principal amount
of the Old Notes are outstanding. This Prospectus and the Letter of
Transmittal are first being sent on or about , 199 , to all holders of
Old Notes known to us. Our obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
below under "--Certain Conditions to the Exchange Offer."
We expressly reserve the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Old Note holders as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by us. We will
return at no expense to the holder, any Old Notes not accepted for exchange
as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
If any of the events specified in "--Certain Conditions to the Exchange
Offer" should occur, we expressly reserve the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to Old Note holders as promptly as
practicable. In the case of an extension we will issue a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
Following consummation of the Exchange Offer, we may, in our sole
discretion, commence one or more additional exchange offers to those Old Note
holders who did not exchange their Old Notes for New Notes on terms which may
differ from those contained in the Registration Agreement. We may use this
Prospectus, as amended or supplemented from time to time, in connection with
additional exchange offers. Such additional exchange offers will take place
from time to time until all outstanding Old Notes have been exchanged for New
Notes pursuant to the terms and conditions contained herein.
PROCEDURES FOR TENDERING OLD NOTES
When an Old Note holder tenders, and we accept, the Old Notes, this will
constitute a binding agreement between us and such holder subject to the
terms and conditions set forth in this Prospectus and Letter of Transmittal.
Except as set forth below, to tender in the Exchange Offer, a holder must
transmit either:
o a properly completed and duly executed Letter of Transmittal, and
all other documents required by such Letter of Transmittal, to U.S.
Bank Trust National Association, the Exchange Agent, at the address
set forth under "--Exchange Agent" on or prior to the Expiration
Date; or
o if the Old Notes are tendered pursuant to the book-entry procedures
set forth below, the tendering Old Note holder may transmit an
Agent's Message to the Exchange Agent instead of the Letter of
Transmittal on or prior to the Expiration Date.
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In addition, either
o the Exchange Agent must receive the certificates for the Old Notes
and the Letter of Transmittal; or
o the Exchange Agent must receive, prior to , 1999, a timely
confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at The Depository Trust Company according
to the procedure for book-entry transfer described below, along
with the Letter of Transmittal and Agent's Message; or
o the holder must comply with the guaranteed delivery procedures
described below.
The term "Agent's Message" means a message, transmitted to The Depository
Trust Company and received by the Exchange Agent and forming a part of the
Book-Entry Confirmation, which states that The Depository Trust Company has
received an express acknowledgment from the tendering Participant (as defined
herein) that such Participant has received and agrees to be bound by the
Letter of Transmittal and we may enforce the Letter of Transmittal against
such Participant. The method of delivery of Old Notes, Letters of Transmittal
or Agent's Messages and all other required documents is at the election and
risk of the holders. If such delivery is by mail, we recommend registered
mail, properly insured, with return receipt requested. In all cases, you
should allow sufficient time to assure timely delivery. Do not send Letters
of Transmittal or Old Notes to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
are tendered either by a registered Old Note holder who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or for the account of an eligible
institution. An eligible institution is a firm which is a member of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States. If signatures on a
Letter of Transmittal or a notice of withdrawal are required to be
guaranteed, the guarantor must be an eligible institution. If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by us in our sole discretion,
duly executed by, the registered Holder with the signature thereon guaranteed
by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by us in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of Old Notes
improperly tendered or to not accept any Old Notes which acceptance might, in
our judgment or that of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). Our interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as we shall
determine. Neither we, the Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to
any tender of Old Notes for exchange, nor shall any of us incur any liability
for failure to give such notification.
If a person or persons other than the registered holder or holders of Old
Notes signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the
Old Notes.
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If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any Old Notes or powers of
attorney, such persons should so indicate when signing, and you must submit
proper evidence satisfactory to us of such persons' authority to so act
unless we waive this requirement.
By tendering, each holder represents to us that, among other things, the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether
or not such person is the holder, and that neither the holder nor such other
person has any arrangement or understanding with any person to participate in
the distribution of the New Notes. In the case of a holder that is not a
broker-dealer, each such holder, by tendering, also represents to us that
such holder is not engaged in, or intends to engage in, a distribution of the
New Notes. If any holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of ours, or is engaged in or
intends to engage in or has an arrangement or understanding with any person
to participate in a distribution of such New Notes to be acquired pursuant to
the Exchange Offer, such holder or any such other person could not rely on
the applicable interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, we will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer." For purposes
of the Exchange Offer, we shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if we have given oral or written notice
to the Exchange Agent, with written confirmation of any oral notice to be
given promptly thereafter.
For each Old Note accepted for exchange, the Old Note holder will receive
a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from November 6,
1998, the original issue date of the Old Notes. If the Exchange Offer is not
consummated by June 4, 1999, the interest rate on the Old Notes from and
including such date until but excluding the date of consummation of the
Exchange Offer will increase by 0.5%. Payments of such interest, if any, on
Old Notes in exchange for which New Notes were issued will be made to the
persons who, at the close of business on May 1 or November 1 next preceding
the interest payment date, are registered holders of such Old Notes if such
record date occurs prior to such exchange, or are registered holders of the
New Notes if such record date occurs on or after the date of such exchange,
even if Notes are cancelled after the record date and on or before the
interest payment date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after the Exchange
Agent timely receives either certificates for such Old Notes or Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, a properly completed and duly executed Letter of
Transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an Agent's Message. If for any reason set forth in the terms
and conditions of the Exchange Offer we do not accept any tendered Old Notes
or if Old Notes are submitted for a greater principal amount than the holder
desired to exchange, we will return such unaccepted or non-exchanged Old
Notes without expense to the tendering holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange
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Agent's account at The Depository Trust Company pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with The Depository Trust Company) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will request to establish an account with respect to
the Old Notes at The Depository Trust Company for the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in The Depository Trust Company's systems
may make book-entry delivery of Old Notes by causing The Depository Trust
Company to transfer such Old Notes into the Exchange Agent's account at The
Depository Trust Company in accordance with The Depository Trust Company's
procedures for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at The Depository Trust Company, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees, or an Agent's Message in lieu of a Letter of Transmittal, and any
other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if:
o the tender is made through an Eligible Institution;
o prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by us (by telegram,
telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the
amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
o the Exchange Agent receives the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, within three NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of Old Notes at any any time prior to the
Expiration Date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the Exchange Agent at one of the addresses set forth below
under "--Exchange Agent." Any such notice of withdrawal must specify the name
of the person having tendered the Old Notes to be withdrawn, identify the Old
Notes to be withdrawn (including the principal amount of such Old Notes), and
(where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the
withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of
such certificates the withdrawing holder must also submit the serial numbers
of the particular certificates to be withdrawn and signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
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unless such holder is an Eligible Institution. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at
The Depository Trust Company to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such
notices will be determined by us. Our determination will be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the holder thereof without cost to such holder
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at The Depository Trust Company pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with The Depository Trust Company for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures
for Tendering Old Notes" above at any time on or prior to the Expiration
Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, we shall not be
required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes. We may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following events shall occur, which
in our reasonable judgment in any case, and regardless of the circumstances
(including any action by us) giving rise to any event described below, makes
it inadvisable to proceed with the Exchange Offer and/or with such acceptance
for exchange or with such exchange:
o if any court, governmental agency or other governmental regulatory
or administrative agency or commission, threatens, institutes or
issues any action, injunction, or order of decree seeking to
restrain or prohibit the making or consummation of the Exchange
Offer or any other transaction contemplated by the Exchange Offer,
or assessing or seeking any damages as a result of the Exchange
Offer, which results in a material delay in our ability to accept
or exchange some or all of the Old Notes pursuant to the Exchange
Offer;
o if any government or governmental authority, agency or court,
domestic or foreign, takes, proposes to take or threatens to take
any action, or seeks, proposes, introduces, enacts, promulgates or
deems applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer any statute, rule, regulation,
order or injunction that in our reasonable judgment might directly
or indirectly result in any of the consequences referred to above,
or which in our reasonable judgment might result in New Notes
holders having obligations with respect to resales and transfers of
New Notes greater than those described in the Commission's
interpretation referred to in this section under the heading
"--Consequences of Exchanging or Failing to Exchange Old Notes," or
other consequences which would otherwise make it inadvisable to
proceed with the Exchange Offer;
o if any general suspension of or general limitation on prices for,
or trading in, securities on any national securities exchange or in
the over-the-counter market occurs;
o if any limitation by any governmental agency or authority which may
adversely affect our ability to complete the transactions
contemplated by the Exchange Offer occurs;
o if a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation
by any governmental agency or authority which adversely affects the
extension of credit occurs;
o if a commencement of war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof occurs; or
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o if any change (or any development involving a prospective change)
occurs or is threatened in our and our subsidiaries' business,
properties, assets, liabilities, financial condition, operations,
results of operations or prospects taken as a whole that, in our
reasonable judgment, is or may be adverse to us, or we become aware
of facts that, in our reasonable judgment, have or may have adverse
significance with respect to the value of the Old Notes or the New
Notes.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which we may assert at any time and from time to
time.
In addition, we will not accept for exchange any Old Notes tendered, and
no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal and Agent's
Messages should be directed to the Exchange Agent at one of the addresses set
forth below. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal or Agent's Message
and requests for Notices of Guaranteed Delivery should be directed to the
Exchange Agent addressed as follows:
Delivery To: U.S. Bank Trust National Association, Exchange Agent
By Mail: By Overnight Courier or Hand:
U.S. Bank Trust National Association U.S. Bank Trust National Association
Corporate Trust 180 East 5th Street
P.O. Box 64485 4th Floor Window
St. Paul, Minnesota 55101-9549 St. Paul, Minnesota 55101
Attention: Specialized Finance
By Facsimile:
(612) 244-1537
Confirm by Telephone:
(612) 244-1197
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer.
We will pay the estimated cash expenses to be incurred in connection with
the Exchange Offer, which are estimated in the aggregate to be $ .
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TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct us to register New Notes in the name of, or
request that Old Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indentures regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will register Old Notes under the Securities Act. See
"Description of the Notes -- Registration Rights." Based on interpretations
by the staff of the Commission, as set forth in no-action letters issued to
third parties, we believe that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder which is
an "affiliate" of ours within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such New Notes. However, we do not intend to request the
Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and we cannot guarantee that the
staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is
an affiliate of ours, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with state
securities laws, the New Notes may not be offered or sold in any state unless
they have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with. The
offer and sale of the New Notes to "qualified institutional buyers" (as such
term is defined under Rule 144A of the Securities Act) is generally exempt
from registration or qualification under the state securities laws. We
currently do not intend to register or qualify the sale of the New Notes in
any state where an exemption from registration or qualification is required
and not available.
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BUSINESS
OVERVIEW
REVLON is one of the world's best known names in cosmetics and is a
leading mass market cosmetics brand. The Company's vision is to provide
glamour, excitement and innovation through quality products at affordable
prices. To pursue this vision, the Company's management team combines the
creativity of a cosmetics and fashion company with the marketing, sales and
operating discipline of a consumer packaged goods company. The Company
believes that its global brand name recognition, product quality and
marketing experience have enabled it to create one of the strongest consumer
brand franchises in the world, with products sold in approximately 175
countries and territories. The Company's products are marketed under such
well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, ALMAY and
ULTIMA II in cosmetics; MOON DROPS, ETERNA 27, ULTIMA II, JEANNE GATINEAU and
NATURAL HONEY in skin care; CHARLIE and FIRE & ICE in fragrances; FLEX,
OUTRAGEOUS, MITCHUM, COLORSTAY, COLORSILK, AFRICAN PRIDE, JEAN NATE,
PLUSBELLE, BOZZANO and COLORAMA in personal care products; and ROUX
FANCI-FULL, REALISTIC, CREME OF NATURE, CREATIVE NAIL DESIGN SYSTEMS and
AMERICAN CREW in professional products. To further strengthen its consumer
brand franchises, the Company markets each core brand with a distinct and
uniform global image, including packaging and advertising, while retaining
the flexibility to tailor products to local and regional preferences.
Revlon was founded by Charles Revson, who revolutionized the cosmetics
industry by introducing nail enamels matched to lipsticks in fashion colors
over 65 years ago. Today, the Company has leading market positions in many of
its principal product categories in the United States self-select
distribution channel, which the Company believes is the fastest-growing
channel of distribution for cosmetics and personal care products. The
Company's leading market positions for its REVLON brand products include the
number one positions in lip makeup and nail enamel (which the Company has
occupied for the past 21 years), with the number one and two selling brands
of lip makeup for 1997 and for the first nine months of 1998. The Company's
market share in lip makeup and nail enamel has increased from 25.3% and
21.1%, respectively, for 1992, to 31.4% and 22.7%, respectively, for 1997,
and 32.1% and 25.8%, respectively, for the first nine months of 1998. The
Company has the number two position in face makeup (including the top three
selling brands of foundation), where its market share has increased from
11.7% for 1992 to 21.2% for 1997 and 21.0% for the first nine months of 1998.
Propelled by the success of its new product launches and market share gains
in its existing product lines, the REVLON brand captured in 1996 and
continued to hold in 1997 and for the first nine months of 1998 the number
one position overall in color cosmetics (consisting of lip, eye and face
makeup and nail enamel) in the United States self-select distribution
channel, where its market share has increased from 15.6% for 1992 to 21.6%
for 1997 and 21.7% for the first nine months of 1998. The Company also has
leading market positions in several product categories in certain markets
outside of the United States, including in Argentina, Australia, Brazil,
Canada, Mexico and South Africa.
BUSINESS STRATEGY
The Company's business strategy, which is intended to improve its
operating performance, is to:
o Strengthen and broaden its core brands through globalization of
marketing and advertising, product development and manufacturing;
o Lead the industry in the development and introduction of
technologically advanced, innovative products that set new trends;
o Expand the Company's presence in all markets in which the Company
competes and enter new markets where the Company identifies
opportunities for growth;
o Continue to reduce costs and improve operating efficiencies, customer
service and product quality by reducing overhead, rationalizing factory
operations, upgrading management information systems, globally sourcing
raw materials and components and carefully managing working capital;
and
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o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
As a result of the implementation of its strategy, through June 30, 1998,
the Company had achieved 19 consecutive quarters of increased net sales,
operating income and EBITDA (as defined herein in the notes to Summary
Financial Data) compared with the corresponding quarter of the respective
prior year. Although, as described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations --
Nine months ended September 30, 1998 compared with nine months ended
September 30, 1997," the Company's results of operations for the quarter and
nine months ended September 30, 1998 were disappointing and not consistent
with this trend, the Company intends to pursue the same business strategy
that fueled its success for the prior 19 quarters and believes that its
longer-term outlook continues to be positive despite challenges in the
marketplace. Net sales for the nine months ended September 30, 1998 increased
1.4% over the comparable period in 1997. Operating income (including a
non-recurring gain of $7.1 million on the sale of the wigs and hairpieces
portion of the Company's U.S. operations) in the nine months ended September
30, 1998 decreased by 8.9% from the comparable period in 1997 (including a
non-recurring charge of $4.4 million related to business consolidation costs
and other, net). EBITDA (before the non-recurring items in the 1998 and 1997
periods, respectively) decreased by 7.8% for the nine months ended September
30, 1998 from the comparable period in 1997. Net sales, operating income
(including a non-recurring charge of $3.6 million for the year ended December
31, 1997 related to business consolidation costs and other, net) and EBITDA
(before such non-recurring charge) increased 7.0%, 8.1% and 11.6%,
respectively, for 1997 over 1996. The Company's income from continuing
operations increased from $25.2 million in 1996 to $59.0 million in 1997. The
Company's income from continuing operations decreased from $21.3 million for
the nine months ended September 30, 1997 to $10.3 million for the nine months
ended September 30, 1998.
Key steps to implement the Company's business strategy are as follows:
Strengthen and Broaden Core Brands. The Company believes that its brand
names are widely recognized among consumers and retailers throughout the
world. The Company intends to continue to strengthen and broaden its
portfolio of core brands, including REVLON, COLORSTAY, REVLON AGE DEFYING,
ALMAY, ULTIMA II, CHARLIE, FLEX, OUTRAGEOUS and MITCHUM, by, among other
things, continuing to globalize its marketing and advertising, product
development and manufacturing to provide a uniform image and product
throughout the world. Each core brand is marketed with a distinct and uniform
global image, including packaging and advertising. The Company has formed
Global Marketing Committees, consisting of managers from the Company's
marketing, research and development, operations, advertising and finance
departments from the United States and abroad, which develop strategies for
the Company's current and new brands and products. The Global Marketing
Committees coordinate the Company's globalization efforts while allowing
sufficient flexibility to tailor the Company's products to local and regional
preferences.
As part of the strategy to strengthen and broaden its core brands, the
Company has increased its investment in advertising and promotion. For the
nine months ended September 30, 1998, advertising and consumer-directed
promotion expenditures increased by 5.8% over levels for the comparable 1997
period; by 11.8% for 1997 over 1996 levels and by 17.4% for 1996 over 1995
levels. The Company intends to target the increased advertising and
consumer-directed promotion to support new product introductions as well as
certain of the Company's existing brands. The Company also has developed
unique marketing materials such as the "Revlon Report," a glossy color
pamphlet distributed in magazines and on merchandising units, available in 78
countries and 19 languages, which highlights seasonal and other fashion and
color trends, describes the Company's products that address those trends and
contains coupons, rebate offers and other promotional material to encourage
consumers to try the Company's products. In addition, the global image of the
Company's core brands is reinforced through the visibility of Halle Berry,
Cindy Crawford, Kim Delaney, Karen Duffy, Melanie Griffith, Salma Hayek,
Vendela, Emme, Rachel Shane and Cybill Shepherd, among others, who act as
celebrity spokespersons for the Company's brands throughout the world in all
areas of the Company's marketing efforts, including appearing in the
Company's print and television advertisements.
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Lead the Industry in Product Innovation and Trends. The Company intends to
continue to lead the industry in developing and marketing trend-setting
products that incorporate proprietary technologies. The Company's product
introductions include the breakthrough COLORSTAY lipcolor, which uses
patented transfer-resistant technology that provides long wear. COLORSTAY has
effectively created an entirely new product category -transfer-resistant
makeup. Launched in June 1994, COLORSTAY is the number one selling lip makeup
in the United States self-select distribution channel. The Company
capitalized on the highly successful launch of COLORSTAY lipcolor by
introducing a collection of COLORSTAY cosmetics, including foundation,
mascara, eye colors, eye liners and lip pencils, and, in 1997, hair color.
The Company introduced REVLON AGE DEFYING foundation, which uses a
patented technology that does not settle in but instead conceals fine facial
lines and is designed to meet the needs of women
in the over-35 age bracket. Launched in April 1994, REVLON AGE DEFYING
foundation is the number two selling foundation for 1997 and the first nine
months of 1998. The Company capitalized on this highly successful launch by
introducing a collection of REVLON AGE DEFYING color cosmetics, including
blush and pressed powder. With the addition of NEW COMPLEXION compact makeup
in 1996, NEW COMPLEXION foundations gave Revlon the top three selling brands
of foundation for 1997 and for the first nine months of 1998. In 1998, the
Company launched various new products under the NEW COMPLEXION brand,
including EVEN OUT MAKEUP, cheek powder and lipcolor. The Company has
introduced, and intends to continue to introduce, innovative products
designed to fulfill identified consumer needs.
In 1997, the Company launched TOP SPEED nail enamel, which contains a
patented speed drying polymer formula which sets in 90 seconds. MOISTURESTAY
lip color, which the Company introduced in March 1998, uses patent-pending
technology to moisturize the lips, even after the color wears off.
The Company's ALMAY brand, a line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skin care products, was
the fastest-growing major brand in 1997 and continues to be for the first
nine months of 1998. ALMAY leads the mass market color cosmetics category in
growth at 41% with an 8% market share for the first nine months of 1998, up
from 5.4% in 1994. The Company has introduced the ALMAY AMAZING collection,
the ONE COAT collection and STAY SMOOTH ANTI-CHAP LIP, anti-chap lip color
with SPF 25 protection.
Expand Presence in All Markets. The Company believes that the self-select
distribution channel in the United States represents the fastest-growing
channel of distribution for cosmetics and personal care products. The Company
intends to continue to capitalize on its established presence and experience
in marketing into the self-select distribution channel to increase market
share in this channel. The Company believes that it can attract consumers
from department stores and specialty stores, existing consumers in the
self-select distribution channel and new cosmetics consumers by providing
them with glamour, excitement and innovation through quality products at
affordable prices. The Company reinforces this effort with its unique
marketing materials such as the "Revlon Report" and magazine inserts
containing samples of the Company's newest products, trial size products and
"shade samplers," a collection of trial size products in different shades,
which allow the consumer to sample the Company's newest face, eye and lip
makeup and nail enamel in coordinated colors. The Company also provides
point-of-sale testers on the Company's display units which provide
information about the Company's products and permit consumers to test the
products, thereby achieving the benefits of an in-store demonstrator without
the corresponding cost. The Company develops jointly with retailers carefully
tailored advertising, point of purchase and other focused marketing programs.
During 1998, the Company began to broaden the distribution of ULTIMA II into
the self-select channel in the U.S.
The Company intends to capitalize on its experience in the self-select
distribution channel in the United States to realize growth opportunities in
the international markets for cosmetics and skin care, fragrance and personal
care products. The Company believes that the worldwide recognition of the
REVLON name, the Company's existing international presence and the Company's
strengths in the self-select distribution channel are platforms from which to
gain further significant international
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<PAGE>
penetration. Pursuant to its strategy, the Company introduced the COLORSTAY
collection, MOISTURESTAY lip makeup and TOP SPEED nail enamel, among others,
in international markets. In addition, the Company intends to achieve growth
through increasing distribution into the expanding self-select distribution
channels in Western Europe, Latin America and South America, expanding the
distribution of certain regional international brands and entering new
markets where the Company identifies opportunities for growth.
The Company intends to strengthen its professional products business by
introducing a portfolio of innovative, technologically advanced professional
products for exclusive salon use under the REVLON brand, such as REVLONISSIMO
hair color, PERFECT PERM permanent wave and line extensions of the SYNAPLEX
and SENSOR PERM brands. The Company will also further strengthen its
leadership position in the supply of professional and retail ethnic hair care
products through, among other things, the introduction of new products
tailored to the specific needs of the ethnic customer.
As part of its business strategy, the Company acquired in 1995 Creative
Nail Design, Inc. ("Creative Nail"), a leading United States designer,
manufacturer and supplier of nail care and other products, including nail
care treatment, nail extensions and hand creams and lotions for the
professional nail industry. In April 1996, the Company acquired American
Crew, Inc. ("American Crew"), which manufactures and distributes men's
shampoos, conditioners, gels and other hair care products for use and resale
by professional salons. In addition, the Company is currently expanding both
the CREATIVE NAIL and AMERICAN CREW lines internationally. In September 1997,
the Company acquired Bionatura, S.A., a leading value priced hair care
manufacturer in Argentina. In May 1998, the Company acquired A.P. Products
Ltd. ("AP"), a leading marketer of haircare and related products for the
ethnic consumer. In April 1998, the Company acquired the CUTEX brand of nail
polish remover and nail care products in a number of international markets.
The Company believes that these acquisitions have broadened the Company's
products range and enhanced its distribution capabilities.
Improve Operating Efficiencies. The Company is rationalizing and
increasing the efficiency of its manufacturing operations worldwide by
centralizing production of some product categories for sale throughout the
world within designated facilities and by shifting production of certain
other product categories to more cost effective manufacturing sites. The
Company is making substantial improvements in its global sourcing, materials
management and distribution capabilities, which are intended to improve the
Company's gross profit margin. The Company intends to continue to globally
source raw materials and components from accredited vendors, which allows the
Company to utilize its large purchasing capacity to maximize cost savings and
ensure the quality of its raw materials and components. The Company continues
to upgrade its management information systems to provide an integrated system
for forecasting, production, inventory management, distribution, procurement
and accounting. As part of its efforts to continuously improve operating
efficiencies, the Company attempts to ensure that a significant portion of
its capital expenditures are devoted to improving operating efficiencies.
Improvements in manufacturing, sourcing and systems have also contributed to
improved customer service levels and improved product quality.
Strategic Acquisitions. The Company intends to continue to pursue
acquisitions of brands and businesses which expand the Company's market share
and product lines.
PRODUCTS
The Company's products include consumer products consisting of cosmetics
and skin care, fragrance and personal care products, and professional
products consisting of hair care products principally for use in and resale
by professional salons. The Company manufactures and markets a variety of
products worldwide. The following table sets forth the Company's principal
brands.
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<TABLE>
<CAPTION>
PERSONAL CARE PROFESSIONAL
BRAND COSMETICS SKIN CARE FRAGRANCES PRODUCTS PRODUCTS
- -------------- ------------------------- --------------------- ----------------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
REVLON Revlon, ColorStay, Moon Drops, Charlie, Charlie Red, Flex, Outrageous, Revlon
Revlon Age Defying, Revlon Results, Charlie White, Aquamarine, Professional,
Super Lustrous, Eterna 27, Revlon Fire & Ice, Mitchum, Roux Fanci-full,
MoistureStay, Age Defying Jontue, Ciara Lady Mitchum, Realistic, Creme
Moon Drops, Hi & Dri, of Nature, Sensor
Line & Shine, ColorStay, Perm, Perfect
New Complexion, Colorsilk, Perm, Fermodyl,
Touch & Glow, African Pride, Perfect Touch,
Top Speed, Lashful, Frost & Glow, Salon Perfection,
Naturally Glamorous, Revlon Shadings, Revlonissimo,
Custom Eyes, Timeliner, Jean Nate, Voila, Young
StreetWear, Roux Fanci-full, Color, Creative
Revlon Implements Realistic, Nail, Contours,
Creme of Nature, American Crew,
Herba Rich, R PRO,
Fabu-laxer True Cystem
ALMAY Almay, Time-Off, Sensitive Care, Oil Almay
Amazing, One Coat, Control, Time-Off,
StaySmooth, Moisture Balance,
Almay StayClean Moisture Renew,
Almay Clear
Complexion Skin
Care
ULTIMA II Ultima II, Beautiful Glowtion, Vital
Nutrient, Wonderwear, Radiance,
The Nakeds, Full Interactives, CHR
Moisture
SIGNIFICANT Colorama(b), Juvena(b), Jeanne Floid(b), Versace(a), Plusbelle(b), Colomer(b),
REGIONAL Jeanne Gatineau(b), Gatineau(b), Charlie Gold Bozzano(b), Intercosmo(b),
BRANDS Cutex(b) Natural Honey Juvena(b), Personal Bio
Geniol(b), Point, Natural
Colorama(b), Wonder,
Llongueras(b), Bain Llongueras(b)
de Soleil(b), ZP-11
</TABLE>
(a) License held for distribution in certain countries outside the United
States.
(b) Trademark owned in certain markets outside the United States.
Cosmetics and Skin Care. The Company sells a broad range of cosmetics and
skin care products designed to fulfill specifically identified consumer
needs, principally priced in the upper range of the self-select distribution
channel, including lip makeup, nail color and nail care products, eye and
face makeup and skin care products such as lotions, cleansers, creams, toners
and moisturizers. Many of the Company's products incorporate patented,
patent-pending or proprietary technology.
The Company markets several different lines of REVLON lip makeup (which
includes lipstick, lip gloss and liner), and has the number one and two
selling brands of lip makeup in the United States self-select distribution
channel. The Company's breakthrough COLORSTAY lipcolor, which uses patented
transfer-resistant technology that provides long wear, is produced in
approximately 50 shades and is the number one lip makeup brand in the United
States self-select distribution channel. SUPER LUSTROUS lipstick is produced
in approximately 70 shades and is the number two brand in the United States
self-select distribution channel. MOON DROPS, a moisturizing lipstick, is
produced in approximately 50 shades. LINE & SHINE, which was introduced in
1997, is a product that utilizes an innovative product form, combining
lipliner and lip gloss in one package, and is produced in approximately 20
shades. MOISTURESTAY, which the Company introduced in March 1998, uses
patent-pending technology to moisturize the lips, even after the color wears
off and is produced in approximately 40 shades.
The Company's nail color and nail care lines include enamels, cuticle
preparations and enamel removers. The Company's flagship REVLON nail enamel
is produced in approximately 85 shades and
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uses a patented formula that provides consumers with improved wear,
application, shine and gloss in a toluene-free and formaldehyde-free formula.
TOP SPEED nail enamel, launched in 1997, is produced in approximately 80
shades and contains a patented speed drying polymer formula which sets in 90
seconds. Revlon has the number one position in nail enamel in the United
States self-select distribution channel. The Company also sells CUTEX nail
polish remover and nail care products in certain countries outside the United
States.
The Company sells face makeup, including foundation, powder, blush and
concealers, under such REVLON brand names as REVLON AGE DEFYING, which is
targeted for women in the over 35 age bracket; COLORSTAY, which uses
patent-pending transfer-resistant technology that provides long wear; and NEW
COMPLEXION, for consumers in the 18 to 34 age bracket. COLORSTAY, REVLON AGE
DEFYING and NEW COMPLEXION were the number one, two and three selling
foundations in the United States self-select distribution channel in 1997.
The Company was number two in dollar sales of face makeup in the United
States self-select distribution channel with a 21.2% share for 1997 and a
21.0% share for the first nine months of 1998.
The Company's eye makeup products include mascaras, eye shadows, brow
color and liners. COLORSTAY eyecolor, mascara and brow color, LASHFUL
mascara, SOFTSTROKE eyeliners and REVLON CUSTOM EYES eye shadows are targeted
for women in the 18 to 49 age bracket.
The Company's ALMAY brand consists of a complete line of hypo-allergenic,
dermatologist-tested, fragrance-free cosmetics and skin care products
targeted for consumers who want "healthy looking skin." The Company positions
the ALMAY brand as the clean, natural-looking and healthy choice. ALMAY
products include lip makeup, nail color and nail care products, eye and face
makeup, skin care products, and sunscreen lotions and creams, including the
ALMAY AMAZING collection, which includes AMAZING LASTING lip makeup, which
uses the Company's patented transfer-resistant technology developed for
COLORSTAY, ALMAY AMAZING LASH mascara, ALMAY AMAZING eye makeup, ALMAY
AMAZING LASTING makeup and ALMAY CLEAR COMPLEXION SKIN CARE and MAKEUP, ALMAY
EASY-TO-WEAR eyecolor, TIME-OFF makeup and skin care and ALMAY ONE COAT
mascara. In 1998, the Company expanded the ONE COAT brand to include ONE COAT
NAIL COLOR, ONE COAT GEL EYECOLOR, ONE COAT GEL EYE PENCIL and ONE COAT LIP
SHINE. The Company introduced ALMAY'S patent-
pending STAY SMOOTH ANTI-CHAP LIP lipcolor, the first anti-chap lip makeup
with SPF 25, in the first quarter of 1998. The Company targets ALMAY for
value-conscious consumers by offering benefits comparable to higher priced
products, such as Clinique, at affordable prices. ALMAY was the
fastest-growing major brand in 1997 and for the first nine months of 1998.
ALMAY leads the mass market color cosmetics category in growth at 41.0% with
an 8.0% market share for the first nine months of 1998, up from 5.4% in 1994.
The Company's STREETWEAR brand consists of a line of nail enamels,
mascaras, lip and eye liners and lip glosses which are targeted for the trend
conscious consumer.
The Company's premium priced cosmetics and skin care products are sold
under the ULTIMA II brand name, which is the Company's flagship premium
priced brand sold throughout the world. ULTIMA II's products include lip
makeup, eye and face makeup and skin care products including GLOWTION, a line
of skin brightners which combines skin care and color; FULL MOISTURE
FOUNDATION; VITAL RADIANCE skin care products; the BEAUTIFUL NUTRIENT
collection, a complete line of nourishing makeup that provides advanced
nutrient protection against dryness; THE NAKEDS makeup, a trend-setting line
of makeup emphasizing neutral colors; and WONDERWEAR. The WONDERWEAR
collection includes a long-wearing foundation that uses patented technology,
cheek and eyecolor products that use proprietary technology that provides
long wear, and WONDERWEAR LIPSEXXXY lipstick, which uses patented
transfer-resistant technology that provides long wear. In the U.S. the
Company is broadening the distribution of ULTIMA II into the self-select
channel.
The Company sells implements, which include nail and eye grooming tools
such as clippers, scissors, files, tweezers and eye lash curlers. The
Company's implements are sold individually and in sets under the REVLON brand
name and are the number one brand in the United States self-select
distribution channel.
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The Company also sells cosmetics in international markets under regional
brand names including COLORAMA in Brazil and JUVENA.
The Company's skin care products, including moisturizers, are sold under
brand names, including ETERNA 27, MOON DROPS, REVLON RESULTS, ALMAY TIME-OFF
REVITALIZER, CLEAR COMPLEXION and ULTIMA II VITAL RADIANCE, a skin care
collection introduced in 1997. In addition, the Company sells skin care
products in international markets under internationally recognized brand
names and under regional brands, including NATURAL HONEY and the Company's
premium priced JEANNE GATINEAU.
Fragrances. The Company sells a selection of moderately priced and premium
priced fragrances, including perfumes, eau de toilettes and colognes. The
Company's portfolio includes fragrances such as CHARLIE and FIRE & ICE and
line extensions such as CHARLIE RED and CHARLIE WHITE. The Company's CHARLIE
fragrance has been a market leader since the mid-1970's. In international
markets, the Company distributes under license certain brands, including
VERSACE and VAN GILS.
Personal Care Products. The Company sells a broad line of personal care
consumer products which complements its core cosmetics lines and enables the
Company to meet the consumer's broader beauty care needs. In the self-select
distribution channel, the Company sells haircare, anti-perspirant and other
personal care products, including the FLEX, OUTRAGEOUS and AQUAMARINE
haircare lines throughout the world and the COLORAMA, BOZZANO, PLUSBELLE,
JUVENA, LLONGUERAS and NATURAL HONEY brands outside the United States; the
breakthrough, patent-pending COLORSTAY and the COLORSILK, REVLON SHADINGS,
FROST & GLOW and ROUX FANCI-FULL hair coloring lines throughout most of the
world; and the MITCHUM, LADY MITCHUM and HI & DRI anti-perspirant brands
throughout the world. Certain hair care products, including ROUX FANCI-FULL
hair coloring and PERFECT TOUCH and SALON PERFECTION home permanents, were
originally developed for professional use. The Company also markets
hypo-allergenic personal care products, including sunscreens, moisturizers
and anti-perspirants, under the ALMAY brand. The Company markets in the
self-select distribution channel several lines of hair relaxers, styling
products, hair conditioners and other hair care products under such names as
FABU-LAXER and CREME OF NATURE designed for the particular needs of ethnic
consumers. The Company's recent acquisition of AP significantly enhanced the
Company's ability to service its ethnic consumers with the addition of the
AFRICAN PRIDE brand of hair care products sold primarily in the United
States. The Company intends to expand distribution of AFRICAN PRIDE products
in various international markets. The Company is introducing SUPERLUSTRUOUS
haircolor in the fourth quarter of 1998, capitalizing on the SUPERLUSTRUOUS
brand.
Professional Products. The Company sells a comprehensive line of salon
products, including permanent wave preparations, hair relaxers, temporary and
permanent hair coloring products, shampoos, conditioners, styling products
and hair conditioners, to professional salons and beauty supply stores under
the REVLON brand as well as other brand names such as ROUX FANCI-FULL,
REALISTIC, REVLONISSIMO, CREME OF NATURE, FABU-LAXER, LOTTABODY, NATURAL
WONDER, SENSOR and INTERCOSMO. Most of the Company's salon products in the
United States currently are distributed in the non-exclusive distribution
channels, in contrast to those products that are distributed exclusively to
professional salons. Two acquisitions, Creative Nail, acquired in November
1995, and American Crew, acquired in April 1996, increase the Company's
strength in the exclusive distribution channel. Through Creative Nail, the
Company sells nail enhancement systems and nail color and treatment products
and services for use by the professional salon industry under the CREATIVE
NAIL brand name. Through American Crew, the Company sells men's shampoos,
conditioners, gels, and other hair care products for use by professional
salons under the AMERICAN CREW brand name. The Company also sells retail hair
care products under the LLONGUERAS, PERSONAL BIO POINT, GENIOL, FIXPRAY and
LANOFIL brands outside the United States.
MARKET SHARE
The Company's portfolio of color cosmetics, including REVLON, ALMAY and
ULTIMA II, achieved a market share of 30.0% in the U.S. mass market for the
first nine months of 1998 compared to 28.3% in the comparable period last
year. The Company has leading market positions for its REVLON brand products
in many of its principal product categories in the United States self-select
distribution
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channel, including the number one position in lip makeup and nail enamel
(which the Company has occupied for the past 21 years), and for 1997 and for
the first nine months of 1998 the number one and two selling brands of lip
makeup. The Company's market share in lip makeup and nail enamel has
increased from 25.3% and 21.1%, respectively, for 1992, to 31.4% and 22.7%,
respectively, for 1997 and 32.1% and 25.8%, respectively, for the first nine
months of 1998. The Company has the number two position in face makeup
(including the top three selling brands of foundation), where its market
share has increased from 11.7% for 1992 to 21.2% for 1997 and 21.0% for the
first nine months of 1998. Propelled by the success of its new product
launches and share gains in its existing product lines, the Company captured
in 1996 and held in 1997 and continued to hold for the first nine months of
1998 the number one position overall in color cosmetics (consisting of lip,
eye and face makeup and nail enamel) in the United States self-select
distribution channel, where its market share has increased from 15.6% for
1992 to 21.6% for 1997 and 21.7% for the first nine months of 1998.
MARKETING
The Company's vision is to provide glamour, excitement and innovation
through quality products at affordable prices. The Company's marketing
efforts are designed to implement this vision. The Company has formed Global
Marketing Committees, consisting of managers from the Company's marketing,
research and development, operations, advertising and finance departments
from the United States and abroad, which develop strategies for the Company's
current and new brands and products. The Global Marketing Committees
coordinate the Company's globalization efforts while allowing sufficient
flexibility to tailor the Company's products to local and regional
preferences.
Consumer Products. The Company markets extensive consumer product lines
at a range of retail prices primarily through the self-select distribution
channel and markets select premium lines through demonstrator-assisted
channels, principally outside the U.S. Each line is distinctively positioned
and is marketed globally with consistently recognizable logos, packaging and
advertising designed to differentiate it from other brands. The Company's
existing consumer product lines are carefully segmented, and new product
lines are developed, to target specific consumer needs as measured by focus
groups and other market research techniques.
The Company uses print and television advertising and point-of-sale
merchandising, including displays and samples. The Company has shifted a
significant portion of its marketing to appeal to a broader audience and has
increased media advertising, particularly national television advertising.
Advertising and consumer-directed promotion expenditures increased by 5.8%
for the nine months ended September 30, 1998 over the comparable period in
1997, by 11.8% in 1997 over 1996 levels and by 17.4% for 1996 over 1995
levels. The Company's marketing emphasizes a uniform global image and product
for its portfolio of core brands, including REVLON, COLORSTAY, REVLON AGE
DEFYING, ALMAY, ULTIMA II, FLEX, CHARLIE, OUTRAGEOUS and MITCHUM. The Company
coordinates advertising campaigns with in-store promotional and other
marketing activities. The Company develops jointly with retailers carefully
tailored advertising, point-of-purchase and other focused marketing programs.
In addition, Halle Berry, Cindy Crawford, Kim Delaney, Karen Duffy, Melanie
Griffith, Salma Hayek, Vendela, Emme, Rachel Shane and Cybill Shepherd, among
others, act as celebrity spokespersons for the Company's brands throughout
the world in all areas of the Company's marketing efforts, including
appearing in the Company's print and television advertising. The visibility
of such spokespersons reinforces the global image of the Company's core
brands. In the self-select distribution channel, the Company uses network and
spot television advertising, national cable advertising and print advertising
in major general interest, women's fashion and women's service magazines, as
well as coupons, magazine inserts and point-of-sale testers. In the
demonstrator-assisted distribution channel, the Company principally uses
cooperative advertising programs with retailers, supported by Company-paid or
Company-subsidized demonstrators, and coordinated in-store promotions and
displays.
The Company also has developed unique marketing materials such as the
"Revlon Report," a glossy, color pamphlet distributed in magazines and on
merchandising units, available in approximately 78 countries and
approximately 19 languages, which highlights seasonal and other fashion and
color trends, describes the Company's products that address those trends and
contains coupons, rebate
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offers and other promotional material to encourage consumers to try the
Company's products. Other marketing materials designed to introduce the
Company's newest products to consumers and encourage trial and purchase
include point-of-sale testers on the Company's display units that provide
information about, and permit consumers to test, the Company's products,
thereby achieving the benefits of an in-store demonstrator without the
corresponding cost, magazine inserts containing samples of the Company's
newest products, trial size products and "shade samplers," which are
collections of trial size products in different shades. Additionally, the
Company has its own website which features current product and promotional
information and was recognized by a major national business magazine as one
of the top corporate sites on the World Wide Web.
Professional Products. Professional products are marketed through
educational seminars on their application and benefits, and through
advertising, displays and samples to communicate to professionals and
consumers the quality and performance characteristics of such products. The
shift to exclusive line distributors is intended to significantly reinforce
the Company's marketing and educa-
tional efforts with salon professionals. The Company believes that its
presence in the professional markets benefits its consumer products business
since the Company is able to anticipate consumer trends in hair, nail and
skin care, which often appear first in salons.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development
of innovative and techno-logically-advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's research and development group is comprised of departments
specialized in the technologies critical to the Company's various product
categories as well as an advanced concepts department that promotes
inter-departmental cross-functional research on a wide range of technologies to
develop new and innovative products. The Company independently develops
substantially all of its new products. The Company also has entered into joint
research projects with major universities and commercial laboratories to
develop advanced technologies.
The Company believes that its Edison, New Jersey facility is one of the
most extensive cosmetics research and development facilities in the United
States. The researchers at the Edison facility are responsible for all of the
Company's new product research worldwide, performing research for new
products, ideas, concepts and packaging. The Company also has research
facilities in Brazil and California.
The research and development group at the Edison facility also performs
extensive safety and quality tests on the Company's products, including
toxicology, microbiology and package testing. Additionally, quality control
testing is performed at each manufacturing facility.
As of December 31, 1997, the Company employed approximately 200 people in
its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology, engineering, biology,
dermatology and quality control. In 1997, 1996 and 1995, the Company spent
approximately $29.7 million, $26.3 million and $22.3 million, respectively,
on research and development activities.
MANUFACTURING AND RELATED OPERATIONS AND RAW MATERIALS
The Company is continuing to rationalize its worldwide manufacturing
operations, which is intended to lower costs and improve customer service and
product quality. The globalization of the Company's core brands allows the
Company to centralize production of some product categories for sale
throughout the world within designated facilities and shift production of
certain other product categories to more cost effective manufacturing sites
to reduce production costs. Shifts of production may result in the closing of
certain of the Company's less significant manufacturing facilities, and the
Company continually reviews its needs in this regard. In addition, as part of
its efforts to continuously
55
<PAGE>
improve operating efficiencies, the Company attempts to ensure that a
significant portion of its capital expenditures is devoted to improving
operating efficiencies.
The Company manufactures Revlon brand color cosmetics, personal care
products and fragrances for sale in the United States, Japan and most of the
countries in Latin America and Southeast Asia at its Phoenix, Arizona
facility and its Canadian facility. The Company manufactures ULTIMA II
cosmetics and skin treatment products for sale in the United States and most
of the countries in Latin America and Southeast Asia, personal care products
for sale in the United States and ALMAY brand products for sale throughout
the world at its Oxford, North Carolina facility. Nail care products for sale
through salons worldwide are manufactured and distributed through the Vista,
California facility. Personal Care implements for sale throughout the world
are manufactured at the Company's Irvington, New Jersey facility. The Company
manufactures salon and retail professional products and personal care
consumer products for sale in the United States and Canada at the Company's
Jacksonville, Florida facility. The Phoenix and Oxford facilities have been
ISO-9002 certified. ISO-9002 certification is an internationally recognized
standard for manufacturing facilities, which signifies that the manufacturing
facility has achieved and maintains certain performance and quality
commitment standards.
The Company manufactures its entire line of consumer products (except
implements) for sale in most of Europe at its Maesteg, South Wales facility.
Local production of cosmetics and personal care products currently takes
place at the Company's facilities in Spain, Canada, Venezuela, Mexico, New
Zealand, Brazil, Italy, Argentina, France and South Africa. The manufacture
of professional products for sale by retailers outside the United States is
centralized principally at the Company's facilities in Ireland, Spain, Italy
and Mexico. Production of color cosmetics for Japan and Mexico has been
shifted primarily to the United States while production of REVLON brand
personal care products for Argentina is centralized in Brazil. The Maestag
and Irish facilities have been certified by the British equivalent of
ISO-9002.
The Company purchases raw materials and components throughout the world.
The Company continuously pursues reductions in cost of goods through the
global sourcing of raw materials and components from qualified vendors,
utilizing its large purchasing capacity to maximize cost savings. The global
sourcing of raw materials and components from accredited vendors also ensures
the quality of the raw materials and components. The Company believes that
alternate sources of raw materials and components exist and does not
anticipate any significant shortages of, or difficulty in obtaining, such
materials.
The Company's improvements in manufacturing, sourcing and related
operations have contributed to improved customer service, including an
improvement in the percentage of timely order fulfillment from most of the
Company's principal manufacturing facilities, and the timeliness and accuracy
of new product and promotion deliveries. To promote the Company's
understanding of and responsiveness to the needs of its retail customers, the
Company assigns members of senior operations management to lead
inter-departmental teams that visit significant accounts, and has provided
retail accounts with a designated customer service representative. As a
result of these efforts, accompanied by stronger and more customer-focused
management, the Company has developed strong relationships with its retailers
and has received several preferred vendor awards.
BUSINESS PROCESS ENHANCEMENTS
The Company's management information systems have been substantially
upgraded to provide comprehensive order processing, production and accounting
support for the Company's business. The Company's expenditures to outside
vendors for improvements to its management information systems were
approximately $11 million for 1997. Systems improvements have been, and the
Company anticipates that they will continue to be, instrumental in
contributing to the reduction of the time from order entry to shipment,
improved forecasting of demand and improved operating efficiencies.
The Company has also developed a comprehensive plan intended to address
Year 2000 issues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
56
<PAGE>
DISTRIBUTION
As a result of its improved customer service and consumer traffic
generated by its products and innovative marketing programs, the Company
believes that its relationships with self-select distribution cosmetic
retailers are the best in the cosmetics industry. The Company's products are
sold in approximately 175 countries and territories. The Company's worldwide
sales force had approximately 1,200 people as of December 31, 1997, including
a dedicated sales force for cosmetics, skin care and fragrance products in
the self-select distribution channel, for the demonstrator-assisted
distribution channel, for personal care products distribution and for salon
distribution. In addition, the Company utilizes sales representatives and
independent distributors to serve specialized markets and related
distribution channels.
United States. The United States operation's net sales accounted for
approximately 58.1% of the Company's 1997 net sales, a majority of which were
made in the self-select distribution channel. The Company also sells a broad
range of consumer and retail professional products to United States
Government military exchanges and commissaries. The Company licenses its
trademarks to select manufacturers for products that the Company believes
have the potential to extend the Company's brand names and image. As of
December 31, 1997, 19 licenses were in effect relating to 21 product
categories to be marketed in the self-select distribution channel. Pursuant
to the licenses, the Company retains strict control over product design and
development, product quality, advertising and use of its trademarks. These
licensing arrangements offer opportunities for the Company to generate
revenues and cash flow through earned royalties, royalty advances and, in
some cases, up-front licensing fees. Products designed for professional use
or resale by beauty salons are sold through wholesale beauty supply
distributors and directly to professional salons. Various hair care products,
such as ethnic hair relaxers, scalp conditioners, shampoos and hair coloring
products are sold directly and through wholesalers to chain drug stores and
mass volume retailers.
International. The International operation's net sales accounted for
approximately 41.9% of the Company's 1997 net sales. The International
operation's ten largest countries in terms of these sales, which include,
among others, Brazil, Spain, the United Kingdom, Australia, South Africa,
Canada and Japan, accounted for approximately 30% of the Company's net sales
in 1997, with Brazil accounting for approximately 5.8% of the Company's net
sales. The International operation is increasing distribution through the
expanding self-select distribution channels outside the United States, such
as drug stores/chemists, hypermarkets/mass volume retailers and variety
stores, as these channels gain importance. The International operation also
distributes through department stores and specialty stores such as
perfumeries. The International operation's professional products are sold
directly to beauty salons by the Company's direct sales force in Spain,
France, Germany, Portugal, Italy, Mexico and Ireland and through distributors
in other countries. At December 31, 1997, the Company actively sold its
products through wholly owned subsidiaries established in 26 countries
outside of the United States, through a joint venture in Indonesia, and
through a large number of distributors and licensees elsewhere around the
world. The Company continues to pursue strategies to establish its presence
in new markets where the Company identifies opportunities for growth. In 1996
the Company established a subsidiary in China with a local minority partner.
In addition, the Company is building a franchise through local
distributorships in northern and central Africa, where the Company intends to
expand the distribution of its products by capitalizing on its market
strengths in South Africa.
CUSTOMERS
The Company's principal customers include chain drug stores and large mass
volume retailers, including such well known retailers as Wal-Mart, Walgreens,
Kmart, Target, CVS, Drug Emporium, American Drug Stores, Eckerds and Rite Aid
in the self-select distribution channel, J.C. Penney in the
demonstrator-assisted distribution channel, Sally's Beauty Company for
professional products, Boots in the United Kingdom and Western Europe and
Wal-Mart worldwide. The foregoing principal customers each accounted for 1%
or more of the Company's net sales in 1997 and are representative of the
Company's customers. Wal-Mart and its affiliates accounted for approximately
10.3% of the Company's 1997 consolidated net sales. Although the loss of
Wal-Mart as a customer could have an
57
<PAGE>
adverse effect on the Company, the Company believes that its relationship
with Wal-Mart is satisfactory and the Company has no reason to believe that
Wal-Mart will not continue as a customer.
COMPETITION
The cosmetics and skin care, fragrance, personal care and professional
products business is characterized by vigorous competition throughout the
world. Brand recognition, together with product quality, performance and
price and the extent to which consumers are educated on product benefits,
have a marked influence on consumers' choices among competing products and
brands. Advertising, promotion, merchandising and packaging, and the timing
of new product introductions and line extensions, also have a significant
impact on buying decisions, and the structure and quality of the sales force
affect product reception, in-store position, permanent display space and
inventory levels in retail outlets. The Company competes in most of its
product categories against a number of companies, some of which have
substantially greater resources than the Company. In addition to products
sold in the self-select and demonstrator-assisted distribution channels, the
Company's products also compete with similar products sold door-to-door or
through mail order or telemarketing by representatives of direct sales
companies. The Company's principal competitors include L'Oreal S.A., The
Procter & Gamble Company, Unilever N.V. and John A. Benckiser GmbH in the
self-select distribution channel; L'Oreal S.A., Unilever N.V., Estee Lauder,
Inc. and John A. Benckiser GmbH in the demonstrator-assisted distribution
channel; and L'Oreal S.A. and Matrix Essentials, Inc., which is owned by
Bristol-Myers Squibb Company, in professional products.
SEASONALITY
The Company's business is subject to certain seasonal fluctuations, with
net sales in the second half of the year generally benefitting from increased
retailer purchases in the United States for the back-to-school and Christmas
selling seasons.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company's major trademarks are registered in the United States and in
many other countries, and the Company considers trademark protection to be
very important to its business. Significant trademarks include REVLON,
COLORSTAY, REVLON AGE DEFYING, STREETWEAR, FLEX, PLUSBELLE, CUTEX (outside
the U.S.), AFRICAN PRIDE, MITCHUM, ETERNA 27, ULTIMA II, ALMAY, CHARLIE, JEAN
NATE, REVLON RESULTS, COLORAMA, FIRE & ICE, MOON DROPS, SUPER LUSTROUS and
WONDERWEAR LIPSEXXXY for consumer products and REVLON, ROUX FANCI-FULL,
REALISTIC, FERMODYL, CREATIVE NAIL, AMERICAN CREW and INTERCOSMO for
professional products.
The Company utilizes certain proprietary or patented technologies in the
formulation or manufacture of a number of the Company's products, including
COLORSTAY lipcolor and cosmetics, COLORSTAY hair color, FLEX & GO shampoo,
classic REVLON nail enamel, TOP SPEED nail enamel, REVLON AGE DEFYING
foundation and cosmetics, NEW COMPLEXION makeup, WONDERWEAR foundation,
WONDERWEAR LIPSEXXXY lipstick, ALMAY TIME-OFF skin care and makeup, ALMAY
AMAZING cosmetics, ALMAY ONE COAT eye makeup and cosmetics, ULTIMA II VITAL
RADIANCE skin care products, OUTRAGEOUS shampoo, FLEX hairspray and various
professional products, including FERMODYL shampoo and conditioners. The
Company also protects certain of its packaging and component concepts through
design patents. The Company considers its proprietary technology and patent
protection to be important to its business.
GOVERNMENT REGULATION
The Company is subject to regulation by the Federal Trade Commission and
the Food and Drug Administration (the "FDA") in the United States, as well as
various other federal, state, local and foreign regulatory authorities. The
Phoenix, Arizona and Oxford, North Carolina manufacturing facilities are
registered with the FDA as drug manufacturing establishments, permitting the
manufacture of cosmetics that contain over-the-counter drug ingredients such
as sunscreens.
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<PAGE>
Compliance with federal, state, local and foreign laws and regulations
pertaining to discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, and is not
anticipated to have, a material effect upon the capital expenditures,
earnings or competitive position of the Company. State and local regulations
in the United States that are designed to protect consumers or the
environment have an increasing influence on product claims, contents and
packaging.
WOMEN'S HEALTH INITIATIVES
The Company is committed to and supports a wide range of philanthropic
women's health programs, focusing primarily on research for breast and
ovarian cancer. Since 1989, the Company has supported the Revlon/UCLA Women's
Cancer Research Program, for which additional funds are raised through the
annual Revlon Run/Walk in L.A. and in 1998 in New York and the annual Fire &
Ice Ball in Hollywood. In 1998, the FDA approved the drug
Herceptin(Registered Trademark), which is based on Revlon/UCLA's research and
initial clinical trials of an antibody to the Her-2/ neu gene which drives
the growth of the most aggressive forms of breast and ovarian cancer. Revlon
also is a longstanding supporter of the National Breast Cancer Coalition, a
grassroots lobbying organization, and a founding sponsor of the National
Women's Cancer Research Alliance, a consortium of leading breast cancer
research facilities throughout the U.S., and supports dozens of other women's
health organizations.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
The Company operates in a single business segment. Certain geographic,
financial and other information of the Company is set forth in Note 19 of the
Notes to Consolidated Financial Statements of the Company included elsewhere
in this Prospectus.
EMPLOYEES
As of December 31, 1997, the Company employed the equivalent of
approximately 14,000 full-time persons (excluding approximately 2,000
employees from the discontinued operations). Approximately 2,100 of such
employees in the United States are covered by collective bargaining
agreements. The Company believes that its employee relations are
satisfactory. Although the Company has experienced minor work stoppages of
limited duration in the past in the ordinary course of business, such work
stoppages have not had a material effect on the Company's results of
operations or financial condition.
PROPERTIES
The following table sets forth as of December 31, 1997 the Company's major
manufacturing, research and warehouse/distribution facilities, all of which
are owned except where otherwise noted.
59
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
LOCATION USE SQ. FT.
- --------------------------- -------------------------------------- -------------
<S> <C> <C>
United States:
- ---------------------------
Oxford, North Carolina .... Manufacturing, warehousing, 1,012,000
distribution and office
Phoenix, Arizona ........... Manufacturing, warehousing, 706,000
distribution and office (partially
leased)
Jacksonville, Florida ..... Manufacturing, warehousing, 526,000
distribution, research and office
Edison, New Jersey ......... Research and office (leased) 133,000
Irvington, New Jersey ..... Manufacturing, warehousing and office 96,000
International:
- --------------
Sao Paulo, Brazil .......... Manufacturing, warehousing, 435,000
distribution, office and research
Maesteg, South Wales ....... Manufacturing, distribution and office 316,000
Mississauga, Canada ........ Manufacturing, warehousing, 245,000
distribution and office
Santa Maria, Spain ......... Manufacturing and warehousing 173,000
Caracas, Venezuela ......... Manufacturing, distribution and office 145,000
Kempton Park, South Africa Warehousing, distribution and office 127,000
(leased)
Canberra, Australia ........ Warehousing, distribution and office 125,000
Isando, South Africa ....... Manufacturing, warehousing, 94,000
distribution and office
Escobar, Argentina ......... Manufacturing, warehousing, 75,000
distribution and office
Bologna, Italy ............. Manufacturing, warehousing, 60,000
distribution and office
Dublin, Ireland ............ Manufacturing, warehousing, 32,500
distribution and office
</TABLE>
In addition to the facilities described above, additional facilities are
owned and leased in various areas throughout the world, including the lease
for the Company's executive offices in New York, New York (345,000 square
feet, of which approximately 57,000 square feet was sublet to affiliates of
the Company and approximately 27,000 square feet was sublet to an
unaffiliated third party as of December 31, 1997). Management considers the
Company's facilities to be well-maintained and satisfactory for the Company's
operations, and believes that the Company's facilities provide sufficient
capacity for its current and expected production requirements.
LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incident to
the ordinary course of its business. The Company believes that the outcome of
all pending legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition of the
Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information (ages as of November
30, 1998) concerning the Directors and executive officers of the Company.
Each Director holds office until his successor is duly elected and qualified
or until his resignation or removal, if earlier.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- ----- ----------------------------------------------------
<S> <C> <C>
Ronald O. Perelman . 55 Chairman of the Board and of the Executive
Committee of the Board and Director
George Fellows ...... 56 President, Chief Executive Officer and Director
Irwin Engelman ...... 64 Vice Chairman, Chief Administrative Officer
and Director
William J. Fox ...... 42 Senior Executive Vice President and Director
Frank J. Gehrmann .. 44 Executive Vice President and Chief Financial Officer
Wade H. Nichols III 55 Executive Vice President and General Counsel
M. Katherine Dwyer . 49 Senior Vice President
Donald G. Drapkin .. 50 Director
Howard Gittis ....... 64 Director
Edward J. Landau ... 68 Director
</TABLE>
Mr. Perelman has been Chairman of the Board of Directors of the Company
and of Revlon, Inc. since June 1998, Chairman of the Executive Committee of
the Board of the Company and of Revlon, Inc. since November 1995 and a
Director of the Company and of Revlon, Inc. since their respective formations
in 1992. Mr. Perelman was Chairman of the Board of the Company and of Revlon,
Inc. from their respective formations in 1992 to November 1995. Mr. Perelman
has been Chairman of the Board and Chief Executive Officer of Mafco Holdings
and MacAndrews Holdings and various of its affiliates since 1980. Mr.
Perelman also is Chairman of the Executive Committees of the Boards of
Directors of Consolidated Cigar Holdings Inc. ("Cigar Holdings"), M&F
Worldwide Corp. ("MFW") and Panavision Inc. ("Panavision"), and Chairman of
the Board of Meridian Sports Incorporated ("Meridian"). Mr. Perelman is also
a Director of the following corporations which file reports pursuant to the
Exchange Act: Cigar Holdings, Golden State Bancorp Inc. ("Golden State"),
Golden State Holdings Inc. ("Golden State Holdings"), MFW, Meridian,
Panavision and REV Holdings Inc. ("REV Holdings"). (On December 27, 1996,
Marvel Entertainment Group ("Marvel"), Marvel (Parent) Holdings Inc. ("Marvel
Parent"), Marvel Holdings Inc. ("Marvel Holdings") and Marvel III Holdings
Inc. ("Marvel III"), of which Mr. Perelman was a Director on such date, and
several subsidiaries of Marvel filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code.)
Mr. Fellows has been President and Chief Executive Officer of the Company
and of Revlon, Inc. since January 1997. He was President and Chief Operating
Officer of the Company and of Revlon, Inc. from November 1995 until January
1997, and has been a Director of the Company since September 1994 and a
Director of Revlon, Inc. since November 1995. Mr. Fellows was Senior
Executive Vice President of the Company and of Revlon, Inc. and President and
Chief Operating Officer of the Company's Consumer Group from February 1993 to
November 1995. From 1989 through January 1993, he was a senior executive
officer of Mennen Corporation and then Colgate-Palmolive Company, which
acquired Mennen Corporation in 1992. From 1986 to 1989, he was Senior Vice
President of Holdings. Mr. Fellows is also a Director of the following
corporations which file reports pursuant to the Exchange Act: Cosmetic Center
and VF Corporation.
Mr. Engelman has been Vice Chairman and Chief Administrative Officer of
the Company since November 1998 and a Director since 1993. Mr. Engelman has
been Vice Chairman and Chief Administrative Officer and a Director of Revlon,
Inc. since November 1998. Mr. Engelman has been Executive Vice President,
Chief Financial Officer and a Director of MacAndrews Holdings and various of
its affiliates since 1992. He was Executive Vice President, Chief Financial
Officer and
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<PAGE>
Director of GAF Corporation from 1990 to 1992, Director, President and Chief
Operating Officer of Citytrust Bancorp Inc. from 1988 to 1990, Executive Vice
President of the Blackstone Group LP from 1987 to 1988 and Director,
Executive Vice President and Chief Financial Officer of General Foods
Corporation for more than five years prior to 1987. Mr. Engelman is also a
Director of California Federal Bank, A Federal Savings Bank ("Cal Fed"),
which files reports pursuant to the Exchange Act. (On December 27, 1996,
Marvel III, Marvel Parent and Marvel Holdings, of which Mr. Engelman was an
executive officer on such date, and several subsidiaries of Marvel filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code.)
Mr. Fox was appointed President, Strategic and Corporate Development,
Revlon Worldwide, of the Company and of Revlon, Inc. and Chief Executive
Officer, Revlon Technologies in January 1998. He has been Senior Executive
Vice President of Revlon, Inc. and the Company since January 1997, was Chief
Financial Officer of the Company and of Revlon, Inc. from their respective
formations in 1992 until January 1998 and was also Executive Vice President
of the Company and of Revlon, Inc. since their respective formations in 1992
until January 1997. Mr. Fox was elected as a Director of the Company in
September 1994 and of Revlon, Inc. in November 1995. He has been Senior Vice
President of MacAndrews Holdings since August 1990. He was Vice President of
MacAndrews Holdings from February 1987 to August 1990 and was Treasurer of
MacAndrews Holdings from February 1987 to September 1992. Prior to February
1987, he was Vice President and Assistant Treasurer of MacAndrews Holdings.
Mr. Fox joined MacAndrews & Forbes Group, Incorporated in 1983 as Assistant
Controller, prior to which time he was a certified public accountant at the
international auditing firm of Coopers & Lybrand. Mr. Fox is also a Director
of the following corporations which file reports pursuant to the Exchange
Act: Cosmetic Center and The Hain Food Group, Inc.
Mr. Gehrmann was elected as Executive Vice President and Chief Financial
Officer of the Company and of Revlon, Inc. in January 1998. From January 1997
to January 1998, he had been Vice President of the Company and Revlon, Inc.
Prior to January 1997, he served in various appointed senior executive
positions for the Company and for Revlon, Inc., including Executive Vice
President and Chief Financial Officer of the Company's Operating Groups from
August 1996 to January 1998, Executive Vice President and Chief Financial
Officer of the Company's Worldwide Consumer Products business from January
1995 to August 1996, and Executive Vice President and Chief Financial Officer
of the Company's Revlon North America unit from September 1993 to January
1994. From 1983 through September 1993, Mr. Gehrmann held positions of
increasing responsibility in the financial organizations of Mennen
Corporation and the Colgate-Palmolive Company, which acquired Mennen
Corporation in 1992. Prior to 1983, Mr. Gehrmann served as a certified public
accountant at the international auditing firm of Ernst & Young.
Mr. Nichols has been Executive Vice President and General Counsel of the
Company and of Revlon, Inc. since January 1998 and served as Senior Vice
President and General Counsel of the Company and of Revlon, Inc. from their
respective formations in 1992 until January 1998. Mr. Nichols has been Vice
President of MacAndrews Holdings since 1988. Mr. Nichols is a Director of
Cosmetic Center, which files reports pursuant to the Exchange Act.
Ms. Dwyer was appointed President of the Company's United States Consumer
Products business in January 1998. Ms. Dwyer was elected as Senior Vice
President of the Company and of Revlon, Inc. in December 1996. Prior to
December 1996, she served in various appointed senior executive positions for
the Company and for Revlon, Inc., including President of the Company's United
States Cosmetics unit from November 1995 to December 1996 and Executive Vice
President and General Manager of the Company's Mass Cosmetics unit from June
1993 to November 1995. From 1991 to 1993, Ms. Dwyer was Vice President,
Marketing, of Clairol, a division of Bristol-Myers Squibb Company. Prior to
1991, she served in various senior positions for Victoria Creations, Avon
Products Inc., Cosmair, Inc. and The Gillette Company. Ms. Dwyer is a
Director of WestPoint Stevens Inc. and Reebok International Ltd., each of
which files reports pursuant to the Exchange Act.
Mr. Drapkin has been a Director of the Company and of Revlon, Inc. since
their respective formations in 1992. He has been Vice Chairman of the Board
of MacAndrews Holdings and various
62
<PAGE>
of its affiliates since 1987. Mr. Drapkin was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom for more than five years prior to 1987.
Mr. Drapkin is also a Director of the following corporations which file
reports pursuant to the Exchange Act: Algos Pharmaceutical Corporation,
Anthracite Capital, Inc., BlackRock Asset Investors, Cardio Technologies,
Inc., Cosmetic Center, The Molson Companies Limited, Playboy Enterprises,
Inc., VIMRx Pharmaceuticals Inc. and Weider Nutrition International, Inc. (On
December 27, 1996, Marvel, Marvel Holdings, Marvel Parent and Marvel III, of
which Mr. Drapkin was a Director on such date, and several subsidiaries of
Marvel filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code.)
Mr. Gittis has been a Director of the Company and of Revlon, Inc. since
their respective formations in 1992. He has been Vice Chairman of the Board
of MacAndrews Holdings and various of its affiliates since 1985. Mr. Gittis
is also a Director of the following corporations which file reports pursuant
to the Exchange Act: Cigar Holdings, Golden State, Golden State Holdings,
Jones Apparel Group, Inc., Loral Space & Communications Ltd., MFW,
Panavision, REV Holdings, Rutherford-Moran Oil Corporation and Sunbeam
Corporation.
Mr. Landau has been a Director of the Company since June 1992 and a
Director of Revlon, Inc. since June 1996. Mr. Landau has been a Senior
Partner in the law firm of Wolf, Block, Schorr and Solis-Cohen LLP
(previously Lowenthal, Landau, Fischer & Bring, P.C.) for more than the past
five years. Mr. Landau is a Director of the following corporations which file
reports pursuant to the Exchange Act: Offitbank Investment Fund, Inc., the
Company and Revlon, Inc.
COMPENSATION OF DIRECTORS
Directors who currently are not receiving compensation as officers or
employees of the Company or any of its affiliates are paid an annual retainer
fee of $25,000, payable in quarterly installments, and a fee of $1,000 for
each meeting of the Board of Directors or any committee thereof they attend.
EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the persons who
served as Chief Executive Officer of the Company during 1997 and the four
most highly paid executive officers, other than the Chief Executive Officer,
who served as executive officers of the Company as of December 31, 1997
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company and its subsidiaries during such periods.
63
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (A) AWARDS
----------------------------------- --------------
OTHER
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDER- COMPEN-
NAME AND SALARY BONUS SATION LYING SATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS ($)
- ----------------------------------------- ------ ----------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
George Fellows........................... 1997 1,250,000 1,250,000 22,191 170,000 30,917
President and Chief Executive Officer (b) 1996 1,025,000 870,000 15,242 120,000 4,500
1995 841,667 531,700 68,559 0 4,500
Jerry W. Levin........................... 1997 825,000 0 20,811 170,000 160,871
Former Chairman of the Board (c) 1996 1,500,000 1,500,000 93,801 170,000 307,213
1995 1,450,000 1,450,000 42,651 0 308,002
William J. Fox........................... 1997 825,000 772,300 55,159 50,000 71,590
Senior Executive Vice President and Chief 1996 750,000 598,600 50,143 50,000 56,290
Financial Officer (d) 1995 660,000 455,000 54,731 0 56,290
M. Katherine Dwyer....................... 1997 500,000 800,000 5,948 125,000 18,377
Senior Vice President (e) 1996 500,000 326,100 90,029 45,000 4,500
Carlos Colomer........................... 1997 700,000 330,700 0 37,000 62,645
Executive Vice President (f) 1996 700,000 192,600 0 37,000 3,062
1995 600,000 135,200 0 0 0
</TABLE>
- ------------
(a) The amounts shown in Annual Compensation for 1997, 1996 and 1995
reflect salary, bonus and other annual compensation awarded to, earned
by or paid to the persons listed for services rendered to the Company
and its subsidiaries. The Company has a bonus plan (the "Executive
Bonus Plan") in which executives participate (including the Chief
Executive Officer and the other Named Executive Officers). The
Executive Bonus Plan provides for payment of cash compensation upon the
achievement of predetermined corporate and/or business unit and
individual performance goals during the calendar year established
pursuant to the Executive Bonus Plan or by the Compensation Committee.
(b) Mr. Fellows became Chief Executive Officer of the Company and of
Revlon, Inc. in January 1997. The amount shown for Mr. Fellows under
Other Annual Compensation for 1997 reflects payments in respect of
gross ups for taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising out
of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fellows under All Other
Compensation for 1997 reflects $11,117 in respect of life insurance
premiums, $4,800 in respect of matching contributions under the Revlon
Employees' Savings, Profit Sharing and Investment Plan (the "401(k)
Plan") and $15,000 in respect of matching contributions under the
Revlon Excess Savings Plan for Key Employees (the "Excess Plan"). The
amount shown for Mr. Fellows under Other Annual Compensation for 1996
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile and for
taxes on imputed income arising out of premiums paid or reimbursed by
the Company in respect of life insurance. The amount shown for Mr.
Fellows under All Other Compensation for 1996 reflects matching
contributions under the 401(k) Plan. The amount shown for Mr. Fellows
under Other Annual Compensation for 1995 includes $43,251 in respect of
membership fees and related expenses for personal use of a health and
country club and $9,458 in respect of gross ups for taxes on imputed
income arising out of personal use of a Company-provided automobile.
The amount shown for Mr. Fellows under All Other Compensation for 1995
reflects matching contributions under the 401(k) Plan.
(c) Mr. Levin was Chief Executive Officer of the Company and of Revlon,
Inc. during 1995, 1996 and January 1997 and Chairman of the Board of
the Company and of Revlon, Inc. during the remainder of 1997 until June
1998. The amount shown for Mr. Levin under Other Annual Compensation
for 1997 reflects payments in respect of gross ups for taxes on imputed
income arising out of personal use of a Company-provided automobile.
The amount shown for Mr. Levin under All Other Compensation for 1997
reflects $150,971 in respect of split-dollar life insurance premiums
(under which the Company is entitled to reimbursement of such
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<PAGE>
premiums or the cash surrender value of such insurance, whichever is
less), $2,400 in respect of matching contributions under the 401(k)
Plan and $7,500 in respect of matching contributions under the Excess
Plan. The amount shown for Mr. Levin under Other Annual Compensation
for 1996 includes $26,400 in respect of personal use of a
Company-provided automobile, payments in respect of gross ups for taxes
on imputed income arising out of personal use of such Company-provided
automobile and payments for taxes on imputed income arising out of
premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Levin under All Other Compensation
for 1996 reflects $302,713 in respect of life insurance premiums and
$4,500 in respect of matching contributions under the 401(k) Plan. The
amount shown for Mr. Levin under Other Annual Compensation for 1995
reflects payments in respect of gross ups for taxes on imputed income
arising out of personal use of a Company-provided automobile and for
taxes on imputed income arising out of premiums paid or reimbursed by
the Company in respect of life insurance. The amount shown for Mr.
Levin under All Other Compensation for 1995 reflects $303,502 in
respect of life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan.
(d) Mr. Fox became Senior Executive Vice President of the Company and of
Revlon, Inc. in January 1997. Mr. Fox served as Chief Financial Officer
of the Company and of Revlon, Inc. during 1995, 1996 and 1997. In
January 1998 Mr. Fox was appointed President, Strategic and Corporate
Development, Revlon Worldwide, and Mr. Gehrmann was elected Chief
Financial Officer of the Company and of Revlon, Inc. The amount shown
for Mr. Fox under Bonus for 1997 includes an additional payment of
$125,000 based upon Mr. Fox's performance. The amount shown for Mr. Fox
under Other Annual Compensation for 1997 reflects payments in respect
of gross ups for taxes on imputed income arising out of personal use of
a Company-provided automobile and payments for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect of
life insurance. The amount shown for Mr. Fox under All Other
Compensation for 1997 reflects $51,790 in respect of life insurance
premiums, $4,800 in respect of matching contributions under the 401(k)
Plan and $15,000 in respect of matching contributions under the Excess
Plan. The amount shown for Mr. Fox under Other Annual Compensation for
1996 reflects payments in respect of gross ups for taxes on imputed
income arising out of personal use of a Company-provided automobile and
for taxes on imputed income arising out of premiums paid or reimbursed
by the Company in respect of life insurance. The amount shown for Mr.
Fox under All Other Compensation for 1996 reflects $51,790 in respect
of life insurance premiums and $4,500 in respect of matching
contributions under the 401(k) Plan. The amount shown for Mr. Fox under
Other Annual Compensation for 1995 reflects payments in respect of
gross ups for taxes on imputed income arising out of personal use of a
Company-provided automobile and for taxes on imputed income arising out
of premiums paid or reimbursed by the Company in respect of life
insurance. The amount shown for Mr. Fox under All Other Compensation
for 1995 reflects $51,790 in respect of life insurance premiums and
$4,500 in respect of matching contributions under the 401(k) Plan.
(e) Ms. Dwyer became an executive officer of the Company and of Revlon,
Inc. in December 1996. The amount shown for Ms. Dwyer under Bonus for
1997 includes an additional payment of $300,000 pursuant to her
employment agreement. The amount shown for Ms. Dwyer under Other Annual
Compensation for 1997 reflects payments in respect of gross ups for
taxes on imputed income arising out of personal use of a
Company-provided automobile and payments for taxes on imputed income
arising out of premiums paid or reimbursed by the Company in respect of
life insurance. The amount shown for Ms. Dwyer under All Other
Compensation for 1997 reflects $4,800 in respect of matching
contributions under the 401(k) Plan, $10,857 in respect of matching
contributions under the Excess Plan and $2,720 in respect of life
insurance premiums. The amount shown for Ms. Dwyer under Other Annual
Compensation for 1996 reflects $57,264 in expense reimbursements and
payments in respect of gross ups for taxes on imputed income arising
out of personal use of a Company-provided automobile. The amount shown
for Ms. Dwyer under All Other Compensation for 1996 reflects matching
contributions under the 401(k) Plan.
(f) Mr. Colomer was an executive officer of the Company and of Revlon, Inc.
during 1995, 1996 and 1997. The amount shown for Mr. Colomer under
Bonus for 1997 includes $148,815 which is being deferred at Mr.
Colomer's election. The amount shown for Mr. Colomer under All Other
Compensation for 1997 reflects $59,583 in respect of an expatriate
travel and hardship allowance and $3,062 in respect of life insurance
premiums. The amount shown for Mr. Colomer under All Other Compensation
for 1996 reflects life insurance premiums.
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OPTION GRANTS IN THE LAST FISCAL YEAR
During 1997, the following grants of stock options were made pursuant to
the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Stock Plan") to
the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
GRANT DATE
VALUE
INDIVIDUAL GRANTS (A)
-------------------------------------------------------- ---------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE $
- ----------------------------------- ------------ -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George Fellows
President and Chief Executive
Officer (b) ........................ 170,000 11% $31.375 1/08/07 $2,703,255
Jerry W. Levin
Former Chairman of the Board (b) .. 170,000 11% $31.375 1/08/07 $2,703,255
William J. Fox
Senior Executive Vice President and
Chief Financial Officer (b) ....... 50,000 3% $31.375 1/08/07 $ 795,075
M. Katherine Dwyer
Senior Vice President (b) .......... 125,000 8% $31.375 1/08/07 $1,987,688
Carlos Colomer
Executive Vice President ........... 37,000 2% $31.375 1/08/07 $ 588,356
</TABLE>
The grants made during 1997 under the Stock Plan to Messrs. Fellows,
Levin, Fox and Colomer and Ms. Dwyer were made on January 9, 1997 and consist
of non-qualified options having a term of 10 years. The options vest 25% each
year beginning on the first anniversary of the grant date and will become
100% vested on the fourth anniversary of the grant date and have an exercise
price equal to the New York Stock Exchange ("NYSE") closing price per share
of Revlon, Inc.'s Class A Common Stock on the grant date, as indicated in the
table above. During 1997, Revlon, Inc. also granted an option to purchase
300,000 shares of its Class A Common Stock pursuant to the Stock Plan to Mr.
Perelman, Chairman of the Executive Committee. The option will vest in full
on the fifth anniversary of the grant date and has an exercise price of
$34.875, the NYSE closing price per share of Revlon, Inc.'s Class A Common
Stock on April 4, 1997, the date of the grant.
- ------------
(a) Present values were calculated using the Black-Scholes option pricing
model. The model as applied used the grant date of January 9, 1997. The
model also assumes (i) a risk-free rate of return of 6.41%, which was
the rate as of the grant date for the U.S. Treasury Zero Coupon Bond
issues with a remaining term similar to the expected term of the
options, (ii) stock price volatility of 39.34% based upon the
volatility of the stock price of Revlon, Inc.'s Class A Common Stock,
(iii) a constant dividend rate of zero percent and (iv) that the
options normally would be exercised on the final day of their seventh
year after grant. No adjustments to the theoretical value were made to
reflect the waiting period, if any, prior to vesting of the stock
options or the transferability (or restrictions related thereto) of the
stock options.
(b) Mr. Fellows served as President during all of 1997 and became Chief
Executive Officer in January 1997. Mr. Levin served as Chairman of the
Board during all of 1997 and as Chief Executive Officer during January
1997. Mr. Fox was appointed President, Strategic and Corporate
Development, Revlon Worldwide in January 1998. Ms. Dwyer was appointed
President of the Company's United States Consumer Products business in
January 1998.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following chart shows the number of stock options exercised during
1997 and the 1997 year-end value of the stock options held by the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES VALUE YEAR-END (#) YEAR-END EXERCISABLE/
ACQUIRED ON REALIZED EXERCISABLE/ UNEXERCISABLE (A)
NAME EXERCISE (#) ($) UNEXERCISABLE ($)
- ----------------------------------- ------------- ---------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
George Fellows
President and
Chief Executive Officer ............ 0 0 0/290,000 0/2,026,875
Jerry W. Levin
Former Chairman of the Board ...... 0 0 0/340,000 0/2,592,500
William J. Fox
Senior Executive Vice President and
Former Chief Financial Officer .... 0 0 0/100,000 0/762,500
M. Katherine Dwyer
Senior Vice President .............. 0 0 0/170,000 0/1,001,250
Carlos Colomer
Executive Vice President ........... 0 0 0/74,000 0/564,250
</TABLE>
- ------------
(a) Amounts shown represent the market value of the underlying shares of
Revlon, Inc.'s Class A Common Stock at year-end calculated using the
December 31, 1997 NYSE closing price per share of Class A Common Stock
of $35 5/16 minus the exercise price of the stock option. The actual
value, if any, an executive may realize is dependent upon the amount by
which the market price of shares of Revlon, Inc.'s Class A Common Stock
exceeds the exercise price per share when the stock options are
exercised. The actual value realized may be greater or less than the
value shown in the table.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Each of the Chief Executive Officer and the other Named Executive Officers
entered into an executive employment agreement with the Company (except Mr.
Colomer, who entered into an executive employment agreement with a subsidiary
of the Company), which became effective upon consummation of the Revlon IPO,
providing for their continued employment. Effective January 1, 1997, Mr.
Fellows' employment agreement was amended to provide that he will serve as
the President and Chief Executive Officer of the Company and of Revlon, Inc.
at a base salary of $1,250,000 for 1997; $1,350,000 for 1998; $1,450,000 for
1999; $1,550,000 for 2000 and $1,700,000 for 2001 and thereafter, and that
management recommend to Revlon, Inc.'s Compensation Committee (the
"Compensation Committee") that he be granted options to purchase 170,000
shares of Class A Common Stock each year during the term of the agreement. At
any time after January 1, 2001, the Company may terminate the term of Mr.
Fellows' agreement by 12 months' prior notice of non-renewal. In connection
with his assumption of management responsibility for an affiliate, Mr. Levin
and the Company agreed to terminate his employment agreement as of June 30,
1997, with Mr. Levin continuing as Chairman of the Board of the Company and
of Revlon, Inc. (the "Levin Amendment"). Pursuant to the Levin Amendment, Mr.
Levin received a base salary of $825,000 for services provided to the Company
and Revlon, Inc. in 1997. Mr. Levin resigned as Chairman of the Board of the
Company in June 1998 and as a Director of the Company in November 1998. Mr.
Levin resigned as Chairman of the Board of Revlon, Inc. in June 1998.
Effective January 1, 1998, Mr. Colomer's employment agreement was amended to
provide that he will serve as Chairman, Revlon Professional Worldwide
Strategic Committee and Chairman, Revlon Professional International at a base
salary of not less than $700,000 for 1998 and thereafter, and that management
recommend to the
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<PAGE>
Compensation Committee that he be granted options to purchase 37,000 shares of
Class A Common Stock each year during the term of the agreement. Mr. Colomer's
agreement further provides that at any time on or after the second anniversary
of the effective date of his agreement, the Company may terminate the term by
12 months' prior notice of non-renewal. Mr. Fox's employment agreement, which
was amended effective as of June 1, 1998, provides for a base salary of not
less than $750,000 and a guaranteed annual bonus of $805,625 for a term that
expires June 30, 2001. Effective January 1, 1998, Ms. Dwyer's employment
agreement was amended to provide that she will serve as President of the
Company's United States Consumer Products business at a base salary of $875,000
per annum for 1998 to be increased as of January 1 of each year by not less
than $75,000, and that management recommend to the Compensation Committee that
she be granted options to purchase 75,000 shares of Class A Common Stock each
year during the term of the agreement. At any time on or after the fourth
anniversary of the effective date of her agreement, the Company may terminate
Ms. Dwyer's agreement by 12 months' prior notice of non-renewal. All of the
agreements currently in effect provide for participation in the Executive Bonus
Plan, continuation of life insurance and executive medical insurance coverage
in the event of permanent disability and participation in other executive
benefit plans on a basis equivalent to senior executives of the Company
generally. Pursuant to the Levin Amendment, Mr. Levin is entitled to continued
disability insurance and life insurance as well as certain other benefits. The
agreements with Messrs. Fellows and Colomer and Ms. Dwyer provide for
Company-paid supplemental term life insurance during employment in the amount
of three times base salary, while the terms of the agreements with Messrs.
Levin and Fox provide that, in lieu of any participation in Company-paid
pre-retirement life insurance coverage, the Company will pay premiums and gross
ups for taxes thereon in respect of, in the case of Mr. Levin, whole life
insurance policies on his life in the amount of $14,100,000 under a split
dollar arrangement pursuant to which the Company would be repaid the amount of
premiums it paid up to the cash surrender value of the policies from insurance
proceeds payable under the policies and, in the case of Mr. Fox, a whole life
insurance policy on his life in the amount of $5,000,000 under an arrangement
providing for all insurance proceeds to be paid to the designated beneficiary
under such policy. The agreements currently in effect, other than Mr. Fox's,
provide that in the event of termination of the term of the relevant executive
employment agreement by the Company (otherwise than for "cause" as defined in
the employment agreements or disability) or by the executive for failure of the
Compensation Committee to adopt and implement the recommendations of management
with respect to stock option grants, the executive would be entitled to
severance pursuant to and subject to the terms of the Executive Severance
Policy as in effect on January 1, 1997 (see "--Executive Severance Policy")
(or, at his or her election, to continued base salary payments throughout the
term in the case of Mr. Fellows and Ms. Dwyer). In addition, the employment
agreement with Mr. Fellows provides that if he remains continuously employed by
the Company or its affiliates until age 60, then upon any subsequent retirement
he will be entitled to a supplemental pension benefit in a sufficient amount so
that his annual pension benefit from all qualified and non-qualified pension
plans of the Company and its affiliates (expressed as a straight life annuity)
equals $500,000. Upon any earlier retirement with the Company's consent or any
earlier termination of employment by the Company otherwise than for "good
reason" (as defined in the Executive Severance Policy), Mr. Fellows will be
entitled to a reduced annual payment in an amount equal to the product of
multiplying $28,540 by the number of anniversaries, as of the date of
retirement or termination, of Mr. Fellows' fifty-third birthday (but in no
event more than would have been payable to Mr. Fellows under the foregoing
provision had he retired at age 60). In each case, the Company reserves the
right to treat Mr. Fellows as having deferred payment of pension for purposes
of computing such supplemental payments.
As of December 31, 1997, 1996, and 1995, Mr. Colomer had a loan
outstanding from the Company's subsidiary in Spain in the amount of 25
million Spanish pesetas (approximately $165,050 U.S. dollar equivalent as of
December 31, 1997) dating from 1991 pursuant to a management retention
program grandfathered under a 1992 change in the Spanish tax law which
currently covers certain executives of such subsidiary, including Mr.
Colomer. Pursuant to this management retention program, outstanding loans do
not bear interest but an amount equal to the one-year government
bond interest rate in effect at the beginning of the year is deducted from
the executives' annual compensation, and loans must be repaid in full upon
termination of employment. The amount
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<PAGE>
deducted from Mr. Colomer's compensation was 1.4 million Spanish pesetas
(approximately $9,210 U.S. dollar equivalent as of December 31, 1997) for 1997;
2.15 million Spanish pesetas (approximately $16,988 U.S. dollar equivalent as
of December 31, 1996) for 1996 and 2.25 million Spanish pesetas (approximately
$18,097 U.S. dollar equivalent as of December 31, 1995) for 1995.
EXECUTIVE SEVERANCE POLICY
The Company's Executive Severance Policy, as amended effective January 1,
1996, provides that upon termination of employment of eligible executive
employees, including the Chief Executive Officer and the other Named
Executive Officers, other than Messrs. Fox and Levin, other than voluntary
resignation or termination by the Company for good reason, in consideration
for the execution of a release and confidentiality agreement and the
Company's standard Employee Agreement as to Confidentiality and
Non-Competition (the "Non-Competition Agreement"), the eligible executive
will be entitled to receive, in lieu of severance under any employment
agreement then in effect or under the Company's basic severance plan, a
number of months of severance pay in semi-monthly installments based upon
such executive's grade level and years of service reduced by the amount of
any compensation from subsequent employment, unemployment compensation or
statutory termination payments received by such executive during the
severance period, and, in certain circumstances, by the actuarial value of
enhanced pension benefits received by the executive, as well as continued
participation in medical and certain other benefit plans for the severance
period (or in lieu thereof, upon commencement of subsequent employment, a
lump sum payment equal to the then present value of 50% of the amount of base
salary then remaining payable through the balance of the severance period).
Pursuant to the Executive Severance Policy, upon meeting the conditions set
forth therein, Messrs. Fellows and Colomer and Ms. Dwyer would be entitled to
severance pay equal to two years of base salary at the rate in effect on the
date of employment termination plus continued participation in the medical
and dental plans for two years on the same terms as active employees.
DEFINED BENEFIT PLANS
The following table shows the estimated annual retirement benefits payable
(as of December 31, 1997) at normal retirement age (65) to a person retiring
with the indicated average compensation and years of credited service, on a
straight life annuity basis, after Social Security offset, under the Revlon
Employees' Retirement Plan (the "Retirement Plan"), including amounts
attributable to the Pension Equalization Plan, each as described below:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL STRAIGHT LIFE ANNUITY BENEFITS AT RETIREMENT
HIGHEST CONSECUTIVE WITH INDICATED YEARS OF CREDITED SERVICE (A)
FIVE-YEAR AVERAGE -------------------------------------------------------------------
COMPENSATION DURING
FINAL 10 YEARS 15 20 25 30 35
- -------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 600,000 $151,974 $202,632 $253,290 $303,948 $303,948
700,000 177,974 237,299 296,623 355,948 355,948
800,000 203,974 271,965 339,957 407,948 407,948
900,000 229,974 306,632 383,290 459,948 459,948
1,000,000 255,974 341,299 426,623 500,000 500,000
1,100,000 281,974 375,965 469,957 500,000 500,000
1,200,000 307,974 410,632 500,000 500,000 500,000
1,300,000 333,974 445,299 500,000 500,000 500,000
1,400,000 359,974 479,965 500,000 500,000 500,000
1,500,000 385,974 500,000 500,000 500,000 500,000
2,000,000 500,000 500,000 500,000 500,000 500,000
2,500,000 500,000 500,000 500,000 500,000 500,000
</TABLE>
------------
(a) The normal form of benefit for the Retirement Plan and the Pension
Equalization Plan is a straight life annuity.
69
<PAGE>
The Retirement Plan is intended to be a tax qualified defined benefit
plan. Retirement Plan benefits are a function of service and final average
compensation. The Retirement Plan is designed to provide an employee having
30 years of credited service with an annuity generally equal to 52% of final
average compensation, less 50% of estimated individual Social Security
benefits. Final average compensation is defined as average annual base salary
and bonus (but not any part of bonuses in excess of 50% of base salary)
during the five consecutive calendar years in which base salary and bonus
(but not any part of bonuses in excess of 50% of base salary) were highest
out of the last 10 years prior to retirement or earlier termination. Except
as otherwise indicated, credited service only includes all periods of
employment with the Company or a subsidiary prior to retirement. The base
salaries and bonuses of each of the Chief Executive Officer and the other
Named Executive Officers are set forth in the Summary Compensation Table
under columns entitled "Salary" and "Bonus," respectively.
The Employee Retirement Income Security Act of 1974, as amended, places
certain maximum limitations upon the annual benefit payable under all
qualified plans of an employer to any one individual. In addition, the
Omnibus Budget Reconciliation Act of 1993 limits the annual amount of
compensation that can be considered in determining the level of benefits
under qualified plans. The Pension Equalization Plan, as amended effective
January 1, 1996, is a non-qualified benefit arrangement designed to provide
for the payment by the Company of the difference, if any, between the amount
of such maximum limitations and the annual benefit that would be payable
under the Retirement Plan but for such limitations, up to a combined maximum
annual straight life annuity benefit at age 65 under the Retirement Plan and
the Pension Equalization Plan of $500,000. Benefits provided under the
Pension Equalization Plan are conditioned on the participant's compliance
with his or her Non-Competition Agreement and, in any case, on the
participant not competing with the Company for one year after termination of
employment.
The number of years of credited service under the Retirement Plan and the
Pension Equalization Plan as of January 1, 1998 (rounded to full years) for
Mr. Fellows was nine years (which includes credit for prior service with
Holdings), for Mr. Fox was 14 years (which includes credit for service with
MacAndrews Holdings) and for Ms. Dwyer was four years, and as of June 30,
1997 for Mr. Levin was eight years (which includes credit for service with
MacAndrews Holdings). Pursuant to the Levin Amendment, Mr. Levin retains all
benefits under the Retirement Plan and the Pension Equalization Plan accrued
by him as of June 30, 1997. Mr. Colomer does not participate in the
Retirement Plan or the Pension Equalization Plan. Mr. Colomer participates in
the Revlon Foreign Service Employees Pension Plan (the "Foreign Pension
Plan"). The Foreign Pension Plan is a non-qualified defined benefit plan. The
Foreign Pension Plan is designed to provide an employee with 2% of final
average salary for each year of credited service, up to a maximum of 30
years, reduced by the sum of all other Company-provided retirement benefits
and social security or other government-provided retirement benefits.
Credited service includes all periods of employment with the Company or a
subsidiary prior to retirement. Final average salary is defined as average
annual base salary during the five consecutive calendar years in which base
salary was highest out of the last 10 years prior to retirement. The normal
form of payment under the Foreign Pension Plan is a life annuity. Mr.
Colomer's credited service as of January 1, 1998 (rounded to full years)
under the Foreign Pension Plan is 18 years (which includes credit for service
with Holdings).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1997, the executive officers of the Company were compensated for
services rendered to the Company and its subsidiaries, participated in
benefit plans sponsored by the Company and received grants of options under
the Stock Plan. Revlon, Inc.'s Compensation Committee (of which Messrs.
Drapkin and Gittis are members) performed the functions of a Compensation
Committee for the Company with respect to determining compensation of
executive officers of the Company.
The Company has used an airplane which is owned by a corporation of which
Messrs. Gittis and Drapkin are the sole stockholders. See "Relationship with
MacAndrews & Forbes -- Other Related Transactions."
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<PAGE>
OWNERSHIP OF COMMON STOCK
Revlon, Inc. beneficially owns all of the outstanding shares of common
stock of the Company. No other director, executive officer or other person
beneficially owns any shares of the Company's common stock. MacAndrews &
Forbes, a corporation wholly owned by Ronald O. Perelman, 35 East 62nd
Street, New York, New York 10021, beneficially owns 11,250,000 shares of
Class A common stock of Revlon, Inc. (representing approximately 56.3% of the
outstanding shares of Class A common stock) and all of the outstanding
31,250,000 shares of Class B common stock of Revlon, Inc., which together
represent approximately 83.0% of the outstanding shares of common stock and
approximately 97.4% of the combined voting power of the outstanding shares of
common stock of Revlon, Inc. The shares of common stock of the Company are
pledged to secure Revlon, Inc.'s obligations under its guarantee of the
Credit Agreement. Shares of Revlon, Inc. and shares of common stock of other
intermediate holding companies are or may from time to time be pledged to
secure obligations of MacAndrews & Forbes or its affiliates.
RELATIONSHIP WITH MACANDREWS & FORBES
Revlon, Inc. beneficially owns all of the outstanding shares of common
stock of the Company. MacAndrews & Forbes beneficially owns shares of Revlon,
Inc.'s common stock having approximately 97.4% of the combined voting power
of the outstanding shares of common stock of Revlon, Inc. As a result,
MacAndrews & Forbes is able to elect the entire Board of Directors of the
Company and control the vote on all matters submitted to a vote of the
Company's stockholder, including extraordinary transactions such as mergers
or sales of all or substantially all of the Company's assets. MacAndrews &
Forbes is wholly owned by Ronald O. Perelman, who is Chairman of the Board of
Directors of the Company.
MacAndrews & Forbes is a diversified holding company with interests in
several industries. Through the Company, MacAndrews & Forbes is engaged in
the cosmetics and skin care, fragrance and personal care products business.
MacAndrews & Forbes also owns 71% of Panavision, a supplier of film camera
systems to the motion picture and television industries, and 65% of Meridian,
a manufacturer and marketer of specialized ski boats. Through its 64%
ownership of Cigar Holdings, MacAndrews & Forbes is engaged in the
manufacture and distribution of cigars and pipe tobacco. Through its 39%
ownership of MFW (assuming conversion of certain preferred stock), MacAndrews
& Forbes is in the business of processing licorice and other flavors.
MacAndrews & Forbes is also in the financial services business through its
34.7% ownership of Cal Fed and Golden State. The principal executive offices
of MacAndrews & Forbes are located at 35 East 62nd Street, New York, New York
10021.
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and the Company entered into an asset transfer
agreement with Holdings and certain of its wholly owned subsidiaries (the
"Asset Transfer Agreement"), and Revlon, Inc. and the Company entered into a
real property asset transfer agreement with Holdings (the "Real Property
Transfer Agreement" and, together with the Asset Transfer Agreement, the
"Transfer Agreements"). Pursuant to such agreements, on June 24, 1992,
Holdings transferred assets to the Company and the Company assumed all the
liabilities of Holdings, other than certain specifically excluded assets and
liabilities. The liabilities excluded are referred to as the "Excluded
Liabilities." Holdings retained certain small brands that historically had
not been profitable (the "Retained Brands"). Holdings agreed to indemnify
Revlon, Inc. and the Company against losses arising from the Excluded
Liabilities, and Revlon, Inc. and the Company agreed to indemnify Holdings
against losses arising from the liabilities assumed by the Company. The
amounts reimbursed by Holdings to the Company for the Excluded Liabilities
for the nine months ended September 30, 1998 and for 1997, 1996 and 1995 were
$0.3 million, $0.4 million, $1.4 million and $4.0 million, respectively.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., the Company and Holdings entered into an
operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services
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Agreement") pursuant to which the Company has manufactured, marketed,
distributed, warehoused and administered, including the collection of
accounts receivable, the Retained Brands for Holdings. Pursuant to the
Operating Services Agreement, the Company was reimbursed an amount equal to
all of its and Revlon, Inc.'s direct and indirect costs incurred in
connection with furnishing such services, net of the amounts collected by the
Company with respect to the Retained Brands, payable quarterly. The net
amounts reimbursed by Holdings to the Company for such direct and indirect
costs for 1997, 1996 and 1995 were $1.4 million, $5.1 million and $8.6
million, respectively. Holdings also paid the Company a fee equal to 5% of
the net sales of the Retained Brands, payable quarterly. The fees paid by
Holdings to the Company pursuant to the Operating Services Agreement for
services with respect to the Retained Brands for 1997, 1996 and 1995 were
approximately $0.3 million, $0.6 million and $1.7 million, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., the Company and MacAndrews Holdings have entered into
reimbursement agreements (the "Reimbursement Agreements") pursuant to which
(i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including the Company, and
purchase services from third party providers, such as insurance and legal and
accounting services, on behalf of Revlon, Inc. and its subsidiaries,
including the Company, to the extent requested by the Company, and (ii) the
Company is obligated to provide certain professional and administrative
services, including employees, to MacAndrews Holdings (and its affiliates)
and purchase services from third party providers, such as insurance and legal
and accounting services, on behalf of MacAndrews Holdings (and its
affiliates) to the extent requested by MacAndrews Holdings, provided that in
each case the performance of such services does not cause an unreasonable
burden to MacAndrews Holdings or the Company, as the case may be. The Company
reimburses MacAndrews Holdings for the allocable costs of the services
purchased for or provided to the Company and its subsidiaries and for
reasonable out-of-pocket expenses incurred in connection with the provision
of such services. MacAndrews Holdings (or such affiliates) reimburses the
Company for the allocable costs of the services purchased for or provided to
MacAndrews Holdings (or such affiliates) and for the reasonable out-of-pocket
expenses incurred in connection with the purchase or provision of such
services. In addition, in connection with certain insurance coverage provided
by MacAndrews Holdings, the Company obtained letters of credit (which
aggregated approximately $27.7 million as of December 31, 1997) to support
certain self-funded risks of MacAndrews Holdings and its affiliates,
including the Company, associated with such insurance coverage. The costs of
such letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including the Company, which participate in the
insurance coverage to which the letters of credit relate. The Company expects
that these self-funded risks will be paid in the ordinary course and,
therefore, it is unlikely that such letters of credit will be drawn upon.
MacAndrews Holdings has agreed to indemnify the Company to the extent amounts
are drawn under any of such letters of credit with respect to claims for
which neither Revlon, Inc. nor the Company is responsible. The net amounts
reimbursed by MacAndrews Holdings to the Company for the services provided
under the Reimbursement Agreements for the nine months ended September 30,
1998 and for 1997, 1996 and 1995 were $4.9 million, $4.0 million, $2.2
million and $3.0 million, respectively. Each of Revlon, Inc. and the Company,
on the one hand, and MacAndrews Holdings, on the other, has agreed to
indemnify the other party for losses arising out of the provision of services
by it under the Reimbursement Agreements other than losses resulting from its
willful misconduct or gross negligence. The Reimbursement Agreements may be
terminated by either party on 90 days' notice. The Company does not intend to
request services under the Reimbursement Agreements unless their costs would
be at least as favorable to the Company as could be obtained from
unaffiliated third parties.
TAX SHARING AGREEMENT
Revlon, Inc. and the Company, for federal income tax purposes, are
included in the affiliated group of which Mafco Holdings is the common
parent, and Revlon, Inc.'s and the Company's federal
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taxable income and loss are included in such group's consolidated tax return
filed by Mafco Holdings. Revlon, Inc. and the Company also may be included in
certain state and local tax returns of Mafco Holdings or its subsidiaries. In
June 1992, Holdings, Revlon, Inc., the Company and certain of its
subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and the Company against
federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings
other than Revlon, Inc. or the Company and its subsidiaries) is the common
parent for taxable periods beginning on or after January 1, 1992 during which
Revlon, Inc. and the Company or a subsidiary of the Company is a member of
such group. Pursuant to the Tax Sharing Agreement, for all taxable periods
beginning on or after January 1, 1992, the Company will pay to Revlon, Inc.,
which in turn will pay to Holdings, amounts equal to the taxes that the
Company would otherwise have to pay if it were to file separate federal,
state or local income tax returns (including any amounts determined to be due
as a result of a redetermination arising from an audit or otherwise of the
consolidated or combined tax liability relating to any such period which is
attributable to the Company), except that the Company will not be entitled to
carry back any losses to taxable periods ending prior to January 1, 1992. No
payments are required by the Company or Revlon, Inc. if and to the extent the
Company is prohibited under the Credit Agreement from making tax sharing
payments to Revlon, Inc. The Credit Agreement prohibits the Company from
making such tax sharing payments other than in respect of state and local
income taxes.
Since the payments to be made by the Company under the Tax Sharing
Agreement will be determined by the amount of taxes that the Company would
otherwise have to pay if it were to file separate federal, state or local
income tax returns, the Tax Sharing Agreement will benefit Mafco Holdings to
the extent Mafco Holdings can offset the taxable income generated by the
Company against losses and tax credits generated by Mafco Holdings and its
other subsidiaries. There were no cash payments in respect of federal taxes
made by the Company pursuant to the Tax Sharing Agreement for the nine months
ended September 30, 1998 and for 1997, 1996 or 1995. The Company has a
liability of $0.9 million to Revlon, Inc. in respect of federal taxes for
1997 under the Tax Sharing Agreement.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and the Company entered into a financing reimbursement agreement
(the "Financing Reimbursement Agreement") in 1992, which expired on June 30,
1996, pursuant to which Holdings agreed to reimburse the Company for
Holdings' allocable portion of (i) the debt issuance cost and advisory fees
related to the capital restructuring of Holdings and (ii) interest expense
attributable to the higher cost of funds paid by the Company under the credit
agreement in effect at that time as a result of additional borrowings for the
benefit of Holdings in connection with the assumption of certain liabilities
by the Company under the Asset Transfer Agreement and the repurchase of
certain subordinated notes from affiliates. The amount of interest reimbursed
by Holdings for 1994 was approximately $0.8 million and was evidenced by
noninterest-bearing promissory notes originally due and payable on June 30,
1995. In February 1995, the $13.3 million in notes payable by Holdings to the
Company under the Financing Reimbursement Agreement was offset against the
$25.0 million note payable by the Company to Holdings and Holdings agreed not
to demand payment under the resulting $11.7 million note payable by the
Company so long as any indebtedness remained outstanding under the credit
agreement then in effect. In February 1995, the Financing Reimbursement
Agreement was amended and extended to provide that Holdings would reimburse
the Company for a portion of the debt issuance costs and advisory fees
related to the credit agreement then in effect (which portion was
approximately $4.7 million and was evidenced by a noninterest-bearing
promissory note payable on June 30, 1996) and 1-1/2% per annum of the average
balance outstanding under the 1995 Credit Agreement and the average balance
outstanding under working capital borrowings from affiliates through June 30,
1996 (see "--Other Related Transactions"), and such amounts were evidenced by
a noninterest-bearing promissory note payable on June 30, 1996. The amount of
interest reimbursed by Holdings for 1995 was approximately
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$4.2 million. As of December 31, 1995 the aggregate amount of notes payable
by Holdings under the Financing Reimbursement Agreement was $8.9 million. In
June 1996, $10.9 million in notes due to the Company, which included $2.0
million of interest reimbursement in 1996, under the Financing Reimbursement
Agreement from Holdings was offset against a $11.7 million demand note
payable by the Company to Holdings.
OTHER RELATED TRANSACTIONS
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leased to the Company the Edison research and development facility for a term
of up to 10 years with an annual rent of $1.4 million and certain shared
operating expenses payable by the Company which, together with the annual rent,
are not to exceed $2.0 million per year. Pursuant to an assumption agreement
dated February 18, 1993, Holdings agreed to assume all costs and expenses of
the ownership and operation of the Edison facility as of January 1, 1993, other
than (i) the operating expenses for which the Company is responsible under the
Edison Lease and (ii) environmental claims and compliance costs relating to
matters which occurred prior to January 1, 1993 up to an amount not to exceed
$8.0 million (the amount of such claims and costs for which the Company is
responsible, the "Environmental Limit"). In addition, pursuant to such
assumption agreement, the Company agreed to indemnify Holdings for
environmental claims and compliance costs relating to matters which occurred
prior to January 1, 1993 up to an amount not to exceed the Environmental Limit
and Holdings agreed to indemnify the Company for environmental claims and
compliance costs relating to matters which occurred prior to January 1, 1993 in
excess of the Environmental Limit and all such claims and costs relating to
matters occurring on or after January 1, 1993. Pursuant to an occupancy
agreement, during 1998, 1997, 1996 and 1995 the Company rented from Holdings a
portion of the administration building located at the Edison facility and space
for a retail store of the Company's now discontinued retail operation. The
Company provided certain administrative services, including accounting, for
Holdings with respect to the Edison facility pursuant to which the Company paid
on behalf of Holdings costs associated with the Edison facility and was
reimbursed by Holdings for such costs, less the amount owed by the Company to
Holdings pursuant to the Edison Lease and the occupancy agreement. The net
amount reimbursed by Holdings to the Company for such costs with respect to the
Edison facility for the nine months ended September 30, 1998 and for 1997, 1996
and 1995 was $0.4 million, $0.7 million, $1.1 million and $1.2 million,
respectively. In August 1998, Holdings sold the Edison facility to an unrelated
third party, which assumed substantially all liability for environmental claims
and compliance costs relating to the Edison facility, and in connection with
the sale the Company terminated the Edison Lease and entered into a new lease
with the new owner. Holdings agreed to indemnify the Company for what would
have been the term of the Edison Lease to the extent rent under the new lease
exceeds rent that would have been payable under the terminated Edison Lease.
During 1997, a subsidiary of the Company sold an inactive subsidiary to an
affiliate for approximately $1.0 million.
Effective July 1, 1997, Holdings contributed to the Company substantially
all of the assets and liabilities of the Bill Blass business not already
owned by the Company. The contributed assets approximated the contributed
liabilities and were accounted for at historical cost in a manner similar to
that of a pooling of interests and, accordingly, prior period financial
statements were restated as if the contribution took place prior to the
beginning of the earliest period presented.
Effective January 1, 1996, the Company acquired from Holdings
substantially all of the assets of Tarlow. The Company assumed substantially
all of the liabilities and obligations of Tarlow. Net liabilities assumed
were approximately $3.4 million. The Company paid $4.1 million to Holdings,
which payment was accounted for as an increase in capital deficiency. Credit
Suisse First Boston Corporation, a nationally recognized investment banking
firm, rendered its written opinion that the terms of the purchase are fair
from a financial standpoint to the Company.
The Company leases certain facilities to MacAndrews & Forbes or its
affiliates pursuant to occupancy agreements and leases. These included space
at the Company's New York headquarters and at the Company's offices in London
during 1998, 1997, 1996 and 1995, in Tokyo during 1996 and 1995 and in Hong
Kong during 1997. The rent paid by MacAndrews & Forbes or its affiliates to
the
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Company for the nine months ended September 30, 1998 and for 1997, 1996 and
1995 was $2.2 million, $3.8 million, $4.6 million and $5.3 million,
respectively.
In July 1995, the Company borrowed from Holdings approximately $0.8
million, representing certain amounts received by Holdings relating to an
arbitration arising out of the sale by Holdings of certain of its businesses.
In 1995, the Company borrowed from Holdings approximately $5.6 million,
representing certain amounts received by Holdings from the sale by Holdings
of certain of its businesses. In June 1997, the Company borrowed from
Holdings approximately $0.5 million, representing certain amounts received by
Holdings from the sale of a brand and inventory relating thereto. Such
amounts are evidenced by noninterest-bearing promissory notes. Holdings
agreed not to demand payment under such notes so long as any indebtedness
remains outstanding under the Credit Agreement. In March 1998, approximately
$4.7 million due to the Company from Holdings was offset against certain
notes payable to Holdings.
The Credit Agreement is supported by, among other things, guarantees from
Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) until the
disposition of the Edison facility in August 1998, a mortgage on the Edison
facility.
The Company borrows funds from its affiliates from time to time to
supplement its working capital borrowings. No such borrowings were
outstanding as of September 30, 1998, December 31, 1997, 1996 or 1995. The
interest rates for such borrowings are more favorable to the Company than
interest rates under the Credit Agreement and, for borrowings occurring prior
to the execution of the Credit Agreement, the credit facility in effect at
the time of such borrowing. The amount of interest paid by the Company for
such borrowings for the nine months ended September 30, 1998 and for 1997,
1996 and 1995 was $0.7 million, $0.6 million, $0.5 million and $1.2 million,
respectively.
In November 1993, the Company assigned to Holdings a lease for warehouse
space in New Jersey (the "N.J. Warehouse") between the Company and a trust
established for the benefit of certain family members of the Chairman of the
Executive Committee. The N.J. Warehouse had become vacant as a result of
divestitures and restructuring of the Company. The lease has annual lease
payments of approximately $2.3 million and terminates on June 30, 2005. In
consideration for Holdings assuming all liabilities and obligations under the
lease, the Company paid Holdings $7.5 million (for which a liability was
previously recorded) in three installments of $2.5 million each in January
1994, January 1995 and January 1996. Credit Suisse First Boston Corporation,
a nationally recognized investment banking firm, rendered its written opinion
that the terms of the lease transfer were fair from a financial standpoint to
the Company. For 1996 and 1995, the Company paid certain costs associated
with the N.J. Warehouse on behalf of Holdings and was reimbursed by Holdings
for such amounts. The amounts reimbursed by Holdings to the Company for such
costs were $0.2 million for each of 1996 and 1995.
During 1997, 1996 and 1995, the Company used an airplane owned by a
corporation of which Messrs. Gittis, Drapkin and, during 1995 and 1996, Levin
were the sole stockholders. The Company paid approximately $0.2 million, $0.2
million and $0.4 million for the usage of the airplane for 1997, 1996 and
1995, respectively.
During the nine months ended September 30, 1998 and for 1997, the Company
purchased products from an affiliate, for which it paid approximately $0.4
million and $0.9 million, respectively.
During 1997, the Company provided licensing services to an affiliate, for
which the Company was paid approximately $0.7 million. In connection with the
termination of the licensing arrangement and its agreement to provide
consulting services during 1998, the Company received payments of $2.0
million in 1998 and is entitled to receive an additional $1.0 million in
1999.
An affiliate of the Company assembles lipstick cases for the Company. The
Company paid approximately $0.7 million, $0.9 million, $1 million and $1
million for such services for the nine months ended September 30, 1998 and
for 1997, 1996 and 1995, respectively.
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In the fourth quarter of 1996, a subsidiary of the Company purchased an
inactive subsidiary from an affiliate for net cash consideration of
approximately $3 million in a series of transactions in which the Company
expects to realize certain tax benefits in future years.
In January 1995, the Company agreed to license certain of its trademarks
to a former affiliate of MacAndrews & Forbes. The amount paid by the
affiliate for 1995 was less than $0.1 million. The affiliate purchased $1.1
million of wigs from the Company during 1995. The Company terminated the
license with the affiliate during 1995.
The Company believes that the terms of the foregoing transactions are at
least as favorable to the Company as those that could be obtained from
unaffiliated third parties.
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DESCRIPTION OF THE NOTES
The Old Notes were, and the New Notes will be, issued by the Company under
the Indenture dated as of November 6, 1998 (the "Indenture") between itself
and U.S. Bank Trust National Association, as trustee (the "Trustee"), a copy
of which is available upon request to the Company. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). You
can find the definitions of certain terms used in this description under the
subheading "Certain Definitions." The New Notes are identical in all material
respects to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes and except
that, if the Exchange Offer is not consummated by June 4, 1999, the interest
rate on the Old Notes from and including such date until but excluding the
date of consummation of the Exchange Offer will increase by 0.5%. See
"--Registration Rights."
The following description is a summary of the material provisions of the
Indenture. It does not restate the agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights
as holders of these Notes. We have filed copies of the Indenture as an
exhibit to the registration statement which includes this Prospectus.
General
The Old Notes are, and the New Notes will be, unsecured obligations of the
Company, and will mature on November 1, 2006. The Trustee authenticated and
delivered Old Notes for original issue in an aggregate principal amount of
$250,000,000. The New Notes will be treated as a continuation of the Old
Notes, which bear interest at a rate equal to 9% per annum from November 6,
1998, payable semiannually in arrears on May 1 and November 1 of each year,
commencing May 1, 1999, to the persons who are registered holders thereof at
the close of business on the April 15 or October 15 next preceding such
interest payment date. The rate per annum at which the Old Notes bear
interest may increase under certain circumstances described under
"--Registration Rights." The Old Notes are, and the New Notes will be,
effectively subordinated to the outstanding indebtedness and other
liabilities of the Subsidiaries of the Company. As of September 30, 1998, the
outstanding indebtedness of the Subsidiaries of the Company was approximately
$279.8 million.
All interest on the Notes will be computed on the basis of a 360-day year
of twelve 30-day months. Principal and interest will be payable at the office
of the Trustee, but, at the option of the Company, interest may be paid by
check mailed to the registered holders of the Notes at their registered
addresses. The Notes will be transferable and exchangeable at the office of
the Trustee and will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.
Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the New Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
Optional Redemption
Except as described below, the Company will not have the option of
redeeming the Notes prior to November 1, 2002. On and after that date, the
Company will have the option of redeeming the Notes as a whole at any time,
or in part from time to time. If the Company chooses to redeem the Notes
during the 12-month period beginning on November 1 of the years indicated in
the table below, it may do so at the following prices, expressed as
percentages of the principal amount, plus accrued interest up to the date of
redemption:
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<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------- ----------------
<S> <C>
2002................. 104.500%
2003................. 103.000%
2004................. 101.500%
2005 and thereafter . 100.000%
</TABLE>
In addition, the Company has the option of redeeming the Notes as a whole
at any time in connection with a Change of Control. In such situation, the
redemption price is equal to the sum of the following three amounts: the
outstanding principal at the date of redemption, accrued and unpaid interest
(if any) at the date of redemption, and the Applicable Premium.
Prior to November 1, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes with, and to the extent the Company
actually receives, the net proceeds of one or more Public Equity Offerings
from time to time, at 109% of the principal amount thereof, plus accrued
interest to the date of redemption; provided, however, that at least $162.5
million aggregate principal amount of the Notes must remain outstanding after
each such redemption.
The Company will mail a notice of redemption to each holder of Notes at
their registered address at least 30 days, but not more than 60 days, before
the redemption date. The Company may redeem Notes in denominations larger
than $1,000, but only in whole multiples of $1,000. If the Company deposits
an amount of money with the Paying Agent on or before the redemption date,
that amount is sufficient to pay the redemption price and accrued interest on
all or part of the outstanding Notes, and certain other conditions are
satisfied, then on or after the redemption date, interest will cease to
accrue on those Notes (or the portions of them) called for redemption.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to a Note at any time, the
greater of (i) 1.0% of the then outstanding principal amount of such Note at
such time and (ii) the excess of (A) the present value of the required
interest and principal payments due on such Note, computed using a discount
rate equal to the Treasury Rate plus 50 basis points, over (B) the then
outstanding principal amount of such Note at such time.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the
date fixed for repayment or, in the case of defeasance, prior to the date of
deposit (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining average life to Stated Maturity of the Notes; provided, however,
that if the average life to Stated Maturity of the Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly yields of United States Treasury securities for which such yields are
given, except that if the average life to Stated Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be
used.
Sinking Fund
There will be no mandatory sinking fund payments for the Notes.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes. The repurchase price would
be equal to such holder's Put Amount as of the date of repurchase plus
accrued and unpaid interest to the date of repurchas. Each of the following
events constitutes a "Change of Control:"
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(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person will be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting power of the
Voting Stock of the Company; provided, however, that the Permitted Holders
"beneficially own" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting
Stock of the Company than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company (for the
purposes of this clause (i), such other person will be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person beneficially owns, directly or
indirectly, more than 35% of the voting power of the Voting Stock of such
parent corporation and the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of such parent corporation);
or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of 66 2/3% of the directors of the Company then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of
the Company then in office;
provided that, prior to the mailing of the notice to holders of Notes
provided for in the following paragraph, but in any event within 30 days
following any Change of Control, the Company covenants to (i) repay in full
all Bank Debt or to offer to repay in full all Bank Debt and to repay the
Bank Debt of each lender who has accepted such offer or (ii) obtain the
requisite consent under the Bank Debt to permit the repurchase of the Notes
as provided for below. The Company must first comply with the covenant in the
preceding sentence before it will be required to purchase Notes in connection
with a Change of Control.
Within 45 days following any Change of Control, the Company will mail a
notice to each holder with a copy to the Trustee stating (i) that a Change of
Control has occurred and that such holder has the right to require the
Company to repurchase all or any part of such holder's Notes at a repurchase
price in cash equal to their Put Amount as of the date of repurchase plus
accrued and unpaid interest to the date of repurchase; (ii) the circumstances
and relevant facts regarding such Change of Control; (iii) the repurchase
date (which will be no earlier than 30 days nor later than 60 days from the
date such notice is mailed); and (iv) the instructions, determined by the
Company consistent with this provision, that a holder must follow in order to
have its Notes repurchased.
Holders electing to have a Note repurchased will be required to surrender
the Note, with an appropriate form duly completed, to the Company at the
address specified in the notice at least 10 Business Days prior to the
purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than three Business Days prior to
the purchase date, a facsimile transmission or letter setting forth the name
of the holder, the principal amount of the Note which was delivered for
purchase by the holder and a statement that such holder is withdrawing his
election to have such Note repurchased.
On the repurchase date, all Notes repurchased by the Company shall be
delivered to the Trustee for cancellation, and the Company will pay the
repurchase price plus accrued and unpaid interest to the holders of such
Notes. Upon surrender of a Note that is repurchased under this provision in
part, the Company shall execute and the Trustee will authenticate for the
holder of such Note, a new Note having a principal amount equal to the
principal amount of the Note surrendered less the portion of the principal
amount of the Note repurchased. The Company will pay for the execution and
authentication of the new Note.
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The Company's ability to pay cash to holders of Notes upon a repurchase
may be limited by the Company's then existing financial resources. The
Company will comply with any tender offer rules under the Exchange Act which
may then be applicable, including Rule 14e-1, in connection with any offer
required to be made by the Company to repurchase the Notes as a result of a
Change of Control.
The Credit Facilities (as defined under the caption "Description of Other
Indebtedness -- Credit Agreement") contain, and future indebtedness of the
Company may contain, prohibitions on the occurrence of certain events that
would constitute a Change of Control or require such indebtedness to be
purchased upon a Change of Control. Moreover, the exercise by the holders of
their right to require the Company to repurchase the Notes could cause a
default under such indebtedness, even if the Change of Control itself does
not. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the
Company's then-existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases and there can be no assurance that the Company would be able to
obtain financing to make such repurchases. The provisions relating to the
Company's obligation to make an offer to repurchase the Notes as a result of
a Change of Control may be waived or modified with the written consent of the
holders of a majority in principal amount of the Notes.
Certain Covenants
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt. (a) The Company shall not, and shall not permit any
Subsidiary of the Company to, Issue, directly or indirectly, any Debt;
provided, however, that the Company and its Subsidiaries shall be permitted
to Issue Debt if, at the time of such Issuance, the Consolidated EBITDA
Coverage Ratio for the period of the most recently completed four consecutive
fiscal quarters ending at least 45 days prior to the date such Debt is Issued
exceeds the ratio of 2.0 to 1.0.
(b) Notwithstanding the foregoing, the Company and its Subsidiaries may
Issue the following Debt:
(1) Debt Issued pursuant to the Credit Agreement, any Refinancing of such
Agreement, or any other credit agreement, indenture or other agreement, in an
aggregate principal amount not to exceed $950 million outstanding at any one
time;
(2) Debt (other than Debt described in clause (1) above) Issued for
working capital and general corporate purposes in an aggregate principal
amount at the time of such Issue which, when taken together with the
aggregate principal amount then outstanding of all other Debt Issued pursuant
to this clause (2), will not exceed the sum of (x) 50% of the book value of
the inventory of the Company and its consolidated Subsidiaries and (y) 80% of
the book value of the accounts receivable of the Company and its consolidated
Subsidiaries, in each case as determined in accordance with GAAP;
(3) Debt (other than Debt described in clauses (1) and (2) above) in
respect of the undrawn portion of the face amount of or unpaid reimbursement
obligations in respect of letters of credit for the account of the Company or
any of its Subsidiaries in an aggregate amount at any time outstanding not to
exceed the excess of (i) $150 million over (ii) the undrawn portion of the
face amount of or unpaid reimbursement obligations in respect of letters of
credit Issued under the Credit Agreement or any Refinancing thereof or any
other credit agreement, indenture or other agreement pursuant to clause (1)
above;
(4) Debt of the Company Issued to and held by a Wholly Owned Recourse
Subsidiary of the Company and Debt of a Subsidiary of the Company Issued to
and held by the Company or a Wholly Owned Recourse Subsidiary; provided,
however, that any subsequent Issuance or transfer of any Capital Stock that
results in any such Wholly Owned Recourse Subsidiary ceasing to be a Wholly
Owned Recourse Subsidiary or any subsequent transfer of such Debt (other than
to the Company or a Wholly Owned Recourse Subsidiary) will be deemed, in each
case, to constitute the Issuance of such Debt by the Company or of such Debt
by such Subsidiary;
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(5) the Notes, the 8 1/8% Senior Notes, the 8 5/8% Senior Subordinated
Notes and Debt Issued to Refinance any Debt permitted by this clause (5);
provided, however, that, in the case of a Refinancing, the principal amount
of the Debt so Issued shall not exceed the principal amount of the Debt so
Refinanced plus any Refinancing Costs thereof; provided further, however,
that any Debt Issued pursuant to this clause (5) to Refinance the 8 5/8%
Senior Subordinated Notes, or any Refinancing thereof shall be subordinated
to the Notes to at least the same extent as the 8 5/8% Senior Subordinated
Notes are subordinated to the Notes;
(6) Debt (other than Debt described in clause (1), (2), (3), (4) or (5)
above or (11) below) of the Company or any of its Subsidiaries outstanding or
committed on the Issue Date and Debt Issued to Refinance any Debt permitted
by this clause (6), or by paragraph (a) above; provided, however, that in the
case of a Refinancing, the principal amount of the Debt so Issued will not
exceed the principal amount of the Debt so Refinanced plus any Refinancing
Costs thereof; provided further, however, that no Debt may be issued pursuant
to this clause (6) for the purpose of Refinancing the 9 1/2% Senior Notes;
(7) Debt Issued and arising out of purchase money obligations for property
acquired in an amount not to exceed, for the period through June 30, 1999,
$30 million, plus for each period of twelve consecutive months ending on June
30 thereafter, $15 million; provided, however, that any such amounts which
are available to be utilized during any such twelve month period and are not
so utilized may be utilized during any succeeding period;
(8) Debt of a Subsidiary of the Company Issued and outstanding on or prior
to the date on which such Subsidiary was acquired by the Company (other than
Debt Issued as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Subsidiary became a Subsidiary of
the Company or was acquired by the Company);
(9) Debt Issued to Refinance Debt referred to in the foregoing clause (8)
or this clause (9); provided, however, that the principal amount of the Debt
so Issued shall not exceed the principal amount of the Debt so Refinanced
plus any Refinancing Costs thereof;
(10) Non-Recourse Debt of a Non-Recourse Subsidiary; provided, however,
that if any such Debt thereafter ceases to be Non-Recourse Debt of a
Non-Recourse Subsidiary, then such event will be deemed for the purposes of
this covenant to constitute the Issuance of such Debt by the issuer thereof;
(11) Permitted Affiliate Debt; and
(12) Debt (other than Debt described in clauses (1) through (11) above and
paragraph (a) above) in an aggregate principal amount outstanding at any time
not to exceed $150 million.
(c) To the extent the Company or any Subsidiary of the Company guarantees
any Debt of the Company or of a Subsidiary of the Company, such guarantee and
such Debt will be deemed to be the same indebtedness and only the amount of
the Debt will be deemed to be outstanding. If the Company or a Subsidiary of
the Company guarantees any Debt of a Person that, subsequent to the Issuance
of such guarantee, becomes a Subsidiary, such guarantee and the Debt so
guaranteed will be deemed to be the same indebtedness, which will be deemed
to have been Issued when the guarantee was Issued and will be deemed to be
permitted to the extent the guarantee was permitted when Issued.
Limitation on Liens. The Company shall not, and shall not permit any
Subsidiary of the Company to, create or suffer to exist any Lien upon any of
its property or assets (including Capital Stock or Debt of any Subsidiary of
the Company) now owned or hereafter acquired by it, securing any obligation
unless contemporaneously therewith effective provision is made to secure the
Notes equally and ratably with such obligation with a Lien on the same assets
securing such obligation for so long as such obligation is secured by such
Lien. The preceding sentence shall not require the Company or any Subsidiary
of the Company to equally and ratably secure the Notes if the Lien consists
of the following:
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(1) Liens existing as of the Issue Date;
(2) any Lien arising by reason of (i) any judgment, decree or order of any
court or arbitrator, so long as such judgment, decree or order is being
contested in good faith and any appropriate legal proceedings which may have
been duly initiated for the review of such judgment, decree or order shall
not have been finally terminated or the period within which such proceedings
may be initiated shall not have expired, (ii) taxes not delinquent or which
are being contested in good faith, for which adequate reserves (as determined
by the Company) have been established, (iii) security for payment of workers'
compensation or other insurance, (iv) security for the performance of
tenders, contracts (other than contracts for the payment of borrowed money)
or leases in the ordinary course of business, (v) deposits to secure public
or statutory obligations, or in lieu of surety or appeal bonds entered into
in the ordinary course of business, (vi) operation of law in favor of
carriers, warehousemen, landlords, mechanics, materialmen, laborers,
employees, suppliers or similar Persons, incurred in the ordinary course of
business for sums which are not delinquent for a period of more than 30 days
or are being contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof, (vii) security for surety,
appeal, reclamation, performance or other similar bonds and (viii) security
for Hedging Obligations;
(3) Liens to secure the payment of all or a part of the purchase price of,
or Capital Lease Obligations with respect to, assets (including Capital
Stock) or property or business acquired or constructed after the Issue Date;
provided, however, that (i) the Debt secured by such Liens shall have
otherwise been permitted to be Issued under the Indenture and (ii) such Liens
shall not encumber any other assets or property of the Company or any of its
Subsidiaries and shall attach to such assets or property within 180 days of
the completion of construction or acquisition of such assets or property;
(4) Liens on the assets or property of a Subsidiary of the Company
existing at the time such Subsidiary became a Subsidiary of the Company and
not incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company; provided, however, that
such Liens do not extend to or cover any other property or assets of the
Company or any of its Subsidiaries;
(5) Liens (i) on any assets of the Company or any Subsidiary of the
Company securing obligations in respect of any Debt permitted by clause (1)
or (12) of the second paragraph of "--Limitation on Debt" above, (ii) on any
assets of the Company or any Subsidiary of the Company securing obligations
in respect of any Debt permitted by clause (5) of the second paragraph of
"--Limitation on Debt" above which is Issued to Refinance the Notes or any
Refinancing thereof, and (iii) on the inventory or receivables of the Company
or any Subsidiary of the Company securing obligations in respect of any Debt
permitted by clause (2) of the second paragraph of "--Limitation on Debt"
above;
(6) leases and subleases of real property by the Company and its
Subsidiaries (in any such case, as lessor) which do not interfere with the
ordinary conduct of the business of the Company or any of its Subsidiaries,
and which are made on customary and usual terms applicable to similar
properties;
(7) Liens securing Debt which is Issued to Refinance Debt which has been
secured by a Lien permitted under the Indenture and is permitted to be
Refinanced under the Indenture; provided, however, that such Liens do not
extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Debt so Refinanced, other than as otherwise
permitted under "--Limitation on Liens."
(8) easements, reservations, licenses, rights-of-way, zoning restrictions
and covenants, conditions and restrictions and other similar encumbrances or
title defects which, in the aggregate, do not materially detract from the use
of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(9) Liens on assets of a Non-Recourse Subsidiary;
(10) Liens on assets located outside the United States and Canada;
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(11) Liens in favor of the United States of America for amounts paid by
the Company or any of its Subsidiaries as progress payments under government
contracts entered into by them;
(12) other Liens incidental to the conduct of the business of the Company
and its Subsidiaries or the ownership of any of their assets not incurred in
connection with Debt, including Liens arising in connection with
reimbursement obligations not constituting Debt in favor of issuers of
standby letters of credit for the account of the Company or a Subsidiary,
which Liens do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(13) Liens granted in the ordinary course of business of the Company or
any of its Subsidiaries in favor of issuers of documentary or trade letters
of credit for the account of the Company or such Subsidiary or bankers'
acceptances, which Liens secure the reimbursement obligations of the Company
or such Subsidiary on account of such letters of credit or bankers'
acceptances; provided, that each such Lien is limited to (i) the assets
acquired or shipped with the support of such letter of credit or bankers'
acceptances and (ii) any assets of the Company or such Subsidiary which are
in the care, custody or control of such issuer in the ordinary course of
business; and
(14) Liens securing Debt which, together with all other Debt secured by
Liens (excluding Debt secured by Liens permitted by clauses (1) through (13)
above) at the time of determination does not exceed $25 million.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Subsidiary of the Company, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in respect
of its Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) or to the holders of its Capital Stock
(except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase its
Non-Convertible Capital Stock and except dividends or distributions payable
to the Company or a Subsidiary of the Company and, if a Subsidiary of the
Company is not wholly owned, to its other equity holders to the extent they
are not Affiliates of the Company),
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case within one year of the date of acquisition)
or
(iv) make any Investment in (A) an Affiliate of the Company other than a
Subsidiary of the Company and other than an Affiliate of the Company which
will become a Subsidiary of the Company as a result of any such Investment,
or (B) a Non-Recourse Subsidiary (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or
Investment being herein referred to as a "Restricted Payment") if at the time
the Company or such Subsidiary makes such Restricted Payment (the amount of
any such Restricted Payment, if other than in cash, as determined in good
faith by the Board of Directors, the determination of which shall be
evidenced by a resolution of the Board of Directors):
(1) a Default shall have occurred and be continuing (or would result
therefrom); or
(2) the Company is not able to incur $1.00 of additional Debt in
accordance with the provisions of paragraph (a) of "--Limitation on Debt"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments after February 2, 1998 (the "Commencement Date") would
exceed the sum of:
(a) 50% of the Consolidated Net Income of the Company accrued during the
period (treated as one accounting period) from January 1, 1998, to the end
of the most recent fiscal quarter ending at least 45 days prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit);
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(b) the aggregate Net Cash Proceeds received by the Company from the
Issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) subsequent to the Commencement Date (other than an
Issuance or sale to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any Subsidiary
for the benefit of their employees);
(c) the aggregate Net Cash Proceeds received by the Company from the
Issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) to an employee stock ownership plan subsequent to
January 1, 1998; provided, however, that if such employee stock ownership
plan incurs any Debt, such aggregate amount shall be limited to an amount
equal to any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such employee stock ownership
plan with respect to Debt incurred by it to finance the purchase of such
Capital Stock;
(d) the amount by which Debt of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Commencement Date of any Debt of the Company convertible
or exchangeable for Capital Stock (other than Redeemable Stock or
Exchangeable Stock) of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange);
(e) the aggregate net cash proceeds received by the Company subsequent to
the Commencement Date as capital contributions (which shall not be deemed
to include any net cash proceeds received in connection with (i) the
issuance of any Permitted Affiliate Debt, (ii) the Initial Cash Payment
and (iii) any contribution designated at the time it is made as a
restricted contribution (a "Restricted Contribution");
(f) to the extent that an Investment made by the Company or a Subsidiary
subsequent to the Commencement Date has theretofore been included in the
calculation of the amount of Restricted Payments, the aggregate cash
repayments to the Company or a Subsidiary of such Investment to the extent
not included in Consolidated Net Income of the Company; and
(g) $26 million.
Notwithstanding the foregoing, the Company may take actions to make a
Restricted Payment in anticipation of the occurrence of any of the events
described in this paragraph (a) or paragraph (b) below; provided, however,
that the making of such Restricted Payment shall be conditional upon the
occurrence of such event.
(b) Paragraph (a) shall not prohibit the following:
(i) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent Issue or sale of, Capital Stock of the Company (other than
Redeemable Stock or Exchangeable Stock and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan) or of a cash
capital contribution to the Company; provided, however, that (A) such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clauses (3)(b) and (3)(c) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall be
excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations from Net
Available Cash to the extent permitted by "--Limitation on Sales of Assets
and Subsidiary Stock" below, provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation in the amount of Restricted
Payments;
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(iv) dividends paid within 60 days after the date of declaration thereof,
or Restricted Payments made within 60 days after the making of a binding
commitment in respect thereof, if at such date of declaration or of such
commitment such dividend or other Restricted Payment would have complied with
paragraph (a); provided, however, that at the time of payment of such
dividend or the making of such Restricted Payment, no other Default shall
have occurred and be continuing (or result therefrom); provided further,
however, that such dividend or other Restricted Payment shall be included in
the calculation of the amount of Restricted Payments;
(v) dividends in an aggregate amount per annum not to exceed 6% of the
aggregate Net Cash Proceeds received by the Company in connection with all
Public Equity Offerings occurring after February 15, 1993; provided, however,
that such amount shall be included in the calculation of the amount of
Restricted Payments;
(vi) so long as no Default has occurred and is continuing or would result
from such transaction, (x) amounts paid or property transferred pursuant to
the Permitted Transactions and (y) dividends or distributions, redemptions of
Capital Stock and other Restricted Payments in an aggregate amount not to
exceed the sum of the Initial Cash Payment and all Restricted Contributions,
provided, however, that in the case of clause (y), such dividends,
distributions, redemptions of Capital Stock and other Restricted Payments are
not prohibited by the Credit Agreement or any Refinancing thereof (whether
pursuant to its terms or as a result of waiver, amendment, termination or
otherwise); provided further, however, that such amounts paid, property
transferred, dividends, distributions, redemptions and Restricted Payments
shall be excluded in the calculation of the amount of Restricted Payments;
(vii) so long as no Default has occurred and is continuing or would result
from such transaction, Restricted Payments in an aggregate amount not to
exceed the sum of (x) $25 million and (y) $5 million per annum (net of any
applicable cash exercise price actually received by the Company) made from
time to time to finance the purchase by the Company or Parent of its common
stock (for not more than fair market value) in connection with the delivery
of such common stock to grantees under any stock option plan of the Company
or Parent upon the exercise by such grantees of stock options or stock
appreciation rights settled with common stock or upon the grant of shares of
restricted common stock pursuant thereto; provided, however, that (A) amounts
available pursuant to this clause (vii) to be utilized for Restricted
Payments during any such year may be carried forward and utilized in any
succeeding year and (B) no Restricted Payments shall be permitted pursuant to
this clause unless, at the time of such purchase, the issuance by the Company
or Parent of new shares of common stock to such optionee would cause more
than 19.9% of the total voting power or more than 19.9% of the total value of
the stock of the Company or Parent to be held by Persons other than members
of the Mafco Consolidated Group (the term "stock" for purposes of this clause
shall have the same meaning as such term has for purposes of Section 1504 of
the Code); provided further, however, that such amounts shall be excluded in
the calculation of the amount of Restricted Payments;
(viii) any purchase, repurchase, redemption, defeasance or other
acquisition by any Non-Recourse Subsidiary of Non-Recourse Debt of such
Non-Recourse Subsidiary; provided, however, that the amount of such purchase,
repurchase, redemption, defeasance or other acquisition shall be excluded in
the calculation of the amount of Restricted Payments;
(ix) any purchase of 8 5/8% Senior Subordinated Notes pursuant to the
"--Change of Control" provisions thereof and any purchase of any other
Subordinated Obligations pursuant to an option given to a holder of such
Subordinated Obligation pursuant to a "Change of Control" covenant which is
no more favorable to the holders of such Subordinated Obligations than the
provisions of the Indenture relating to a Change of Control are to holders as
determined in good faith by the Board of Directors of the Company, the
determination of which shall be evidenced by a resolution adopted by such
Board of Directors; provided, however, that no such purchase shall be
permitted prior to the time when the Company shall have purchased all Notes
tendered for purchase by holders electing to have their Notes purchased
pursuant to the provisions of "--Change of Control"; provided further,
however, that such purchases shall be excluded from the calculation of
Restricted Payments;
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(x) so long as no Default shall have occurred and be continuing, amounts
paid to Parent to the extent necessary to enable Parent to pay actual
expenses, other than those paid to Affiliates of the Company, incidental to
being a publicly reporting, but non-operating, company; provided, however,
that such amounts paid shall be excluded in the calculation of the amount of
Restricted Payments; or
(xi) any loan to a Permitted Affiliate entered into in the ordinary course
of business; provided, however, that such Permitted Affiliate holds, directly
or indirectly, no more than 10% of the outstanding Capital Stock of the
Company.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of the Company to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Debt owed to the Company, (ii) make any loans or advances to the Company
or (iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(2) any encumbrance or restriction with respect to a Subsidiary of the
Company pursuant to an agreement relating to any Debt Issued by such
Subsidiary on or prior to the date on which such Subsidiary was acquired by
the Company (other than Debt Issued as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary of the Company or was acquired by the Company)
and outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement effecting an
Issuance of Bank Debt or a Refinancing of any other Debt Issued pursuant to
an agreement referred to in clause (1) or (2) above or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2)
above or this clause (3); provided, however, that any such encumbrance or
restriction with respect to any Subsidiary is no less favorable to the
holders of Notes than the least favorable of the encumbrances and
restrictions with respect to such Subsidiary contained in the agreements
referred to in clause (1) or (2) above, as determined in good faith by the
Board of Directors of the Company, the determination of which shall be
evidenced by a resolution of such Board of Directors;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease;
(5) in the case of clause (iii) above, restrictions contained in security
agreements securing Debt of a Subsidiary (other than security agreements
securing Debt of a Subsidiary Issued in connection with any agreement
referred to in clause (1), (2) or (3) above) and restrictions contained in
agreements relating to a disposition of property of a Subsidiary, to the
extent such restrictions restrict the transfer of the property subject to
such agreements;
(6) any encumbrance or restriction binding on a Foreign Subsidiary
contained in an agreement pursuant to which such Foreign Subsidiary has
Issued Debt consisting of working capital borrowings; and
(7) any encumbrance or restriction relating to a Non-Recourse Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Subsidiary of the Company (other than a
Non-Recourse Subsidiary) to, make any Asset Disposition unless:
(i) the Company or such Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors of the Company, the determination of
which shall be conclusive and evidenced by a resolution of the Board of
Directors of the Company (including as to the value of all non-cash
consideration), of the Capital Stock and assets subject to such Asset
Disposition;
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(ii) at least 75% of the consideration consists of cash, cash equivalents,
readily marketable securities which the Company intends, in good faith, to
liquidate promptly after such Asset Disposition or the assumption of
liabilities (including, in the case of the sale of the Capital Stock of a
Subsidiary of the Company, liabilities of the Company or such Subsidiary);
and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Subsidiary, as the case may
be):
(A) first, to the extent the Company is required by the terms of any Pari
Passu Debt or Debt of a Subsidiary of the Company, to prepay, repay or
purchase Pari Passu Debt or Debt of a Wholly Owned Recourse Subsidiary or
additionally, in the case of an Asset Disposition by a Subsidiary that is not
a Wholly Owned Recourse Subsidiary, Debt of such Subsidiary (in each case
other than Debt owed to the Company or an Affiliate of the Company) in
accordance with the terms of such Debt;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at the Company's election, to
either
(1) the optional prepayment, repayment or repurchase of Pari Passu Debt
or Debt of a Wholly Owned Recourse Subsidiary or, additionally in the case
of an Asset Disposition by a Subsidiary that is not a Wholly Owned
Recourse Subsidiary, Debt of such Subsidiary (in each case other than Debt
owed to the Company or an Affiliate of the Company) which the Company is
not required by the terms thereof to prepay, repay or repurchase (whether
or not the related loan commitment is permanently reduced in connection
therewith), or
(2) the investment by the Company or any Wholly Owned Recourse Subsidiary
(or, additionally in the case of an Asset Disposition by a Subsidiary that
is not a Wholly Owned Recourse Subsidiary, the investment by such
Subsidiary) in assets to replace the assets that were the subject of such
Asset Disposition or in assets that (as determined by the Board of
Directors of the Company, the determination of which shall be conclusive
and evidenced by a resolution of such Board of Directors) will be used in
the businesses of the Company and its Wholly Owned Recourse Subsidiaries
(or, additionally in the case of an Asset Disposition by a Subsidiary that
is not a Wholly Owned Recourse Subsidiary, the businesses of such
Subsidiary) existing on the Issue Date or in businesses reasonably related
thereto, in all cases, within the later of one year from the date of such
Asset Disposition or the receipt of such Net Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to
purchase Notes and other Pari Passu Debt designated by the Company pursuant
to and subject to the conditions of paragraph (b) below;
provided, however, that in connection with an offer pursuant to clause (C)
above, if the principal amount and premium of such Notes and such Pari Passu
Debt, together with accrued and unpaid interest tendered for acceptance
pursuant to such offer exceeds the balance of Net Available Cash, then the
Company will accept for purchase the Notes and such Pari Passu Debt of each
such tendering holder on a pro rata basis in accordance with the principal
amount so tendered.
Notwithstanding the foregoing provisions of this paragraph (a), the
Company and the Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph (a) except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph (a) exceeds $10,000,000. Pending
application of Net Available Cash pursuant to this paragraph (a), such Net
Available Cash shall be (i) invested in Temporary Cash Investments or (ii)
used to make an optional prepayment under any revolving credit facility
constituting Pari Passu Debt or Debt of a Wholly Owned Recourse Subsidiary
(or, additionally in the case of a Subsidiary that is not a Wholly Owned
Recourse Subsidiary, Debt of such Subsidiary), whether or not the related
loan commitment is permanently reduced in connection therewith.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to paragraph (a)(iii)(C), the Company will be required to
purchase Notes and Pari Passu Debt designated by the Company tendered
pursuant to an offer by the Company for the Notes and such
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Pari Passu Debt (the "Offer") at a purchase price of 100% of the principal
amount without premium, plus accrued interest to the Purchase Date (or in
respect of other Pari Passu Debt such lesser price, if any, as may be
provided for by the terms of such Pari Passu Debt) in accordance with the
procedures (including prorationing in the event of oversubscription) set
forth in paragraph (c) below, provided that the procedures for making an
offer to holders of other Pari Passu Debt will be as provided for by the
terms of such Pari Passu Debt. If (x) the aggregate purchase price of Notes
and other Pari Passu Debt tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the Notes and Pari Passu Debt, (y)
the Company shall not be obligated to make an offer pursuant to the last
sentence of this paragraph, or (z) the Company shall be unable to purchase
Notes from holders thereof in an Offer because of the provisions of
applicable law or of the Company's or its Subsidiaries' loan agreements,
indentures or other contracts governing Debt or Debt of Subsidiaries (in
which case the Company need not make an Offer) the Company shall apply the
remaining Net Available Cash to (i) invest in assets to replace the assets
that were the subject of the Asset Disposition or in assets that (as
determined by the Board of Directors of the Company, the determination of
which shall be conclusive and evidenced by a resolution of such Board of
Directors) will be used in the businesses of the Company and its Wholly Owned
Recourse Subsidiaries (or, additionally in the case of an Asset Disposition
by a Subsidiary that is not a Wholly Owned Recourse Subsidiary, the business
of such Subsidiary) existing on the Issue Date or in businesses reasonably
related thereto or (ii) in the case of clause (x) or (y) above, prepay, repay
or repurchase Debt of the Company or Debt of a Wholly Owned Recourse
Subsidiary or, additionally in the case of an Asset Disposition by a
Subsidiary that is not a Wholly Owned Recourse Subsidiary, Debt of such
Subsidiary which the Company or such Wholly Owned Recourse Subsidiary or
Subsidiary is not required by the terms thereof to prepay, repay, repurchase
or redeem (in each case other than Debt owed to the Company or an Affiliate
of the Company), whether or not the related loan commitment is permanently
reduced in connection therewith. The Company shall not be required to make an
Offer for Notes and Pari Passu Debt pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clause (A) and clause (B) of paragraph (a)(iii) above) is less
than $10,000,000 for any particular Asset Disposition (which lesser amounts
shall not be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) (1) Promptly, and in any event within five days after the last date by
which the Company must have applied Net Available Cash pursuant to paragraph
(a)(iii)(B) above, the Company shall be obligated to deliver to the Trustee
and send, by first-class mail to each Holder, a written notice stating that
the Holder may elect to have his Notes purchased by the Company either in
whole or in part (subject to prorationing as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of
principal amount, at the applicable purchase price. The notice shall specify
a purchase date not less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date") and shall contain information concerning
the business of the Company which the Company in good faith believes will
enable such holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on
Form 8-K of the Company filed subsequent to such Quarterly Report, other than
Current Reports describing Asset Dispositions otherwise described in the
offering materials (or corresponding successor reports), and (ii) if
material, appropriate pro forma financial information) and all instructions
and materials necessary to tender Notes pursuant to the Offer, together with
the information contained in clause (2) below.
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the
compliance of such allocation with the provisions of paragraph (a) above. On
such date, the Company shall also irrevocably deposit with the Trustee or
with a paying agent (or, if the Company is acting as its own paying agent,
segregate and hold in trust) in immediately available funds an amount equal
to the Offer Amount to
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be held for payment in accordance with the provisions of this covenant. The
amount so deposited, at the option of, and pursuant to the specific written
direction of, the Company, may be invested in Temporary Cash Investments the
maturity date of which is not later than the Purchase Date. The Company shall
be entitled to any interest or dividends accrued, earned or paid on such
Temporary Cash Investments. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Notes or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee
shall, on the Purchase Date, mail or deliver payment to each tendering Holder
in the amount of the purchase price. In the event that the aggregate purchase
price of the Notes and Pari Passu Debt delivered by the Company to the
Trustee is less than the Offer Amount, the Trustee shall deliver the excess
to the Company promptly after the expiration of the Offer Period.
(3) Holders electing to have a Note purchased will be required to
surrender the Note, with an appropriate form duly completed, to the Company
at the address specified in the notice at least ten Business Days prior to
the Purchase Date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than three Business Days prior to
the Purchase Date, a facsimile transmission or letter setting forth the name
of the holder, the principal amount of the Note which was delivered for
purchase by the holder and a statement that such holder is withdrawing his
election to have such Note purchased. If at the expiration of the Offer
Period the aggregate principal amount of Notes surrendered by holders exceeds
the Offer Amount, the Company shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed appropriate by the Company
so that only Notes in denominations of $1,000, or integral multiples thereof,
shall be purchased). Holders whose Notes are purchased only in part will be
Issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered.
(4) At the time the Company delivers Notes to the Trustee which are to be
accepted for purchase, the Company will also deliver an Officers' Certificate
stating that such Notes are to be accepted by the Company pursuant to and in
accordance with the terms of this covenant. A Note shall be deemed to have
been accepted for purchase at the time the Trustee, directly or through an
agent, mails or delivers payment therefor to the surrendering holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this provision, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue
thereof.
Limitation on Transactions with Affiliates. (a) The Company shall not,
and shall not permit any of its Subsidiaries (other than a Non-Recourse
Subsidiary) to, conduct any business or enter into any transaction or series
of similar transactions (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the
Company or any legal or beneficial owner of 10% or more of the voting power
of the Voting Stock of the Company or with an Affiliate of any such owner
unless
(i) the terms of such business, transaction or series of transactions are
(A) set forth in writing and (B) at least as favorable to the Company or such
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of similar transactions in arm's-length dealings with
an unrelated third Person and
(ii) to the extent that such business, transaction or series of
transactions (other than Debt Issued by the Company which is permitted under
"--Limitation on Debt") is known by the Board of Directors of the Company or
of such Subsidiary to involve an Affiliate of the Company or a legal or
beneficial owner of 10% or more of the voting power of the Voting Stock of
the Company or an Affiliate of such owner, then
(A) with respect to a transaction or series of related transactions, other
than any purchase or sale of inventory in the ordinary course of business (an
"Inventory Transaction"), involving aggregate
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payments or other consideration in excess of $5.0 million, such transaction
or series of related transactions has been approved (and the value of any
noncash consideration has been determined) by a majority of those members of
the Board of Directors of the Company having no personal stake in such
business, transaction or series of transactions and
(B) with respect to a transaction or series of related transactions, other
than any Inventory Transaction, involving aggregate payments or other
consideration in excess of $20.0 million (with the value of any noncash
consideration being determined by a majority of those members of the Board of
Directors of the Company having no personal stake in such business,
transaction or series of transactions), such transaction or series of related
transactions has been determined, in the written opinion of a nationally
recognized investment banking firm to be fair, from a financial point of
view, to the Company or such Subsidiary, as the case may be.
(b) The provisions of paragraph (a) shall not prohibit:
(i) any Restricted Payment permitted to be paid pursuant to "--Limitation
on Restricted Payments";
(ii) any transaction between the Company and any of its Subsidiaries;
provided, however, that no portion of any minority interest in any such
Subsidiary is owned by (x) any Affiliate (other than the Company, a Wholly
Owned Recourse Subsidiary of the Company, a Permitted Affiliate or an
Unrestricted Affiliate) of the Company or (y) any legal or beneficial owner
of 10% or more of the voting power of the Voting Stock of the Company or any
Affiliate of such owner (other than the Company, any Wholly Owned Recourse
Subsidiary of the Company or an Unrestricted Affiliate);
(iii) any transaction between Subsidiaries of the Company; provided,
however, that no portion of any minority interest in any such Subsidiary is
owned by (x) any Affiliate (other than the Company, a Wholly Owned Recourse
Subsidiary of the Company, a Permitted Affiliate or an Unrestricted
Affiliate) of the Company or (y) any legal or beneficial owner of 10% or more
of the voting power of the Voting Stock of the Company or any Affiliate of
such owner (other than the Company, any Wholly Owned Recourse Subsidiary of
the Company or an Unrestricted Affiliate);
(iv) any transaction between the Company or a Subsidiary of the Company
and its own employee stock ownership plan;
(v) any transaction with an officer or director of the Company, of Parent
or of any Subsidiary of the Company entered into in the ordinary course of
business (including compensation or employee benefit arrangements with any
such officer or director); provided, however, that such officer holds,
directly or indirectly, no more than 10% of the outstanding Capital Stock of
the Company;
(vi) any business or transaction with an Unrestricted Affiliate;
(vii) any transaction which is a Permitted Transaction; and
(viii) any transaction pursuant to which Mafco Holdings will provide the
Company and its Subsidiaries at their request and at the cost to Mafco
Holdings with certain allocated services to be purchased from third party
providers, such as legal and accounting services, insurance coverage and
other services.
Commission Reports. Whether or not required by the Commission, so long as
any Notes are outstanding, we will furnish to the holders of Notes, within
the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if we
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements
by our certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports.
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In addition, whether or not required by the Commission, we will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
Successor Company
(1) The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (if not the Issuer) is
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and such Person expressly assumes
by a supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Indenture and the Notes;
(ii) immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the resulting, surviving or transferee
person or any of its Subsidiaries as a result of such transaction as having
been issued by such Person or such Subsidiary at the time of such
transaction), no Default has occurred and is continuing;
(iii) immediately after giving effect to such transaction, the resulting,
surviving or transferee Person would be able to incur at least $1.00 of Debt
pursuant to paragraph (a) of the covenant described above under the caption
"--Limitation on Debt";
(iv) immediately after giving effect to such transaction, the resulting,
surviving or transferee Person has a Consolidated Net Worth in an amount
which is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture; provided
that, nothing in this paragraph shall prohibit a Wholly Owned Recourse
Subsidiary from consolidating with or merging with or into, or conveying,
transferring or leasing all or substantially all its assets to, the Company.
(2) The resulting, surviving or transferee Person will be the successor
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the predecessor Company under the Indenture and
thereafter, except in the case of a lease, the predecessor Company will be
discharged from all obligations and covenants under the Indenture and the
Notes.
Defaults
Each of the following is an Event of Default:
(1) default in the payment of interest on the Notes when due, continued
for 30 days,
(2) default in the payment of principal of any Note when due at its Stated
Maturity, upon redemption, upon required purchase, upon declaration or
otherwise,
(3) failure by the Issuer to comply with its obligations described under
the caption "--Successor Company,"
(4) failure by the Company to comply for 30 days after notice with any of
the covenants described under the captions "--Limitation on Debt,"
"--Limitation on Liens," "--Limitation on Restricted Payments," "--Limitation
on Restrictions on Distributions from Subsidiaries," "--Limitations on Sales
of Assets and Subsidiary Stock," "--Limitation on Transactions with
Affiliates," "--Change of Control" (other than a failure to purchase Notes)
or "--Commission Reports" above,
(5) failure by the Company to comply for 60 days after notice with the
other agreements applicable to it contained in the Indenture or the Notes
(other than those referred to in clauses (1), (2), (3) and (4) of this
paragraph),
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(6) Debt of the Company or any Significant Subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total principal amount of the
portion of such Debt that is unpaid or accelerated exceeds $25 million or its
foreign currency equivalent and such default continues for 10 days after
notice as specified in the last sentence of this paragraph (the "cross
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions") or
(8) any judgment or decree for the payment of money in excess of $25
million or its foreign currency equivalent is entered against the Company or
a Significant Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree or
(B) there is a period of 60 days following the entry of such judgment or
decree during which such judgment or decree is not discharged, waived or the
execution thereof stayed and, in the case of (B), such default continues for
10 days after the notice specified in the next sentence (the "judgment
default provision").
A default under clauses (4), (5), (6) and (8) (B) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount
of the outstanding Notes notify the Company of the default and the Company
does not cure such default within the time specified after receipt of such
notice. If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes by
notice to the Company may declare all the Notes to be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company occurs and is continuing, the
principal of and interest on all the Notes will become due and payable
immediately without further action or notice.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except (i) a Default or Event of Default in the payment
of interest on, or the principal of, the Notes or (ii) a Default relating to
a provision of the Indenture that cannot be amended without the consent of
each affected holder of Notes. See "--Amendment."
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes
unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense which might be incurred in
compliance with such request or direction. Except to enforce the right to
receive payment of principal or interest when due, no holder of a Note may
pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to in writing pursue the remedy,
(iii) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Trustee has not complied
with such request within 60 days after the receipt thereof and the offer of
security or indemnity and (v) the holders of a majority in principal amount
of the outstanding Notes have not given the Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain restrictions,
the holders of a majority in principal amount of the outstanding Notes are
given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. The Trustee, however, may refuse to follow
any direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a Note
or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes
notice of the Default within 90 days after it occurs. Except in the case of a
Default in the payment of principal of or interest on any Note, the Trustee
may withhold notice if and so long as a committee of its Trust Officers in
good faith determines that
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withholding notice is in the interests of the holders of the Notes. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
Amendment
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or noncompliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on any
Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"--Optional Redemption" above, (v) make any Note payable in money other than
that stated in the Note, (vi) make any change to the provision which protects
the right of any holder of the Notes to receive payment of principal of and
interest on such holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
holder's Notes or (vii) make any change in the amendment provisions which
require each holder's consent or in the waiver provisions.
Without the consent of or notice to any holder of the Notes, the Company
and the Trustee may amend the Indenture to cure any ambiguity, omission,
defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of the Company under the Indenture if in
compliance with the provisions described under "--Successor Company" above,
to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to
provide for issuance of the Exchange Notes under the Indenture (including to
provide for treatment of the Exchange Notes and the Notes as a single class
of securities) in connection with the Exchange Offer, or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the TIA or to otherwise comply with the TIA, or to make any
change that does not adversely affect the rights of any holder of the Notes.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
A consent to any amendment or waiver under the Indenture by any holder of
Notes given in connection with a tender of such holder's Notes will not be
rendered invalid by such tender.
Transfer
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges. See "Book Entry; Delivery and Form."
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Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Company at any time may terminate certain of its obligations
under the covenants described under "--Certain Covenants", "--Defaults" and
"--Change of Control" above, the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant
Subsidiaries, or the judgment default provision and the 30 day covenant
compliance provision, described under "--Defaults" above and the limitations
contained in clause (ii), (iii) and (iv) described under paragraph (1) of
"--Successor Company" ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (4), (6), (7) (with
respect only to Significant Subsidiaries) or (8) under "--Defaults" above, or
because of the failure of the Company to comply with clause (ii), (iii) or
(iv) described under paragraph (1) of "--Successor Company" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money
or U.S. Government Obligations for the payment of principal and interest (if
any) on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including (unless the Notes will mature
or be redeemed within 60 days) delivering to the Trustee an Opinion of
Counsel to the effect that holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable federal income tax law).
Concerning the Trustee
U.S. Bank Trust National Association is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director
or officer (A) of such specified Person, (B) of any Subsidiary of such
specified Person or (C) of any Person described in clause (i) above. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" shall have correlative meanings.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary of the Company (other than
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directors' qualifying shares and other than Capital Stock of a Non-Recourse
Subsidiary), property or other assets (each referred to for the purposes of
this definition as a "disposition") by the Company or any of its Subsidiaries
(other than a Non-Recourse Subsidiary) (including any disposition by means of
a merger, consolidation or similar transaction) . Notwithstanding the
preceding, the following items shall not be deemed to be Asset Dispositions:
(i) a disposition by a Subsidiary of the Company to the Company or by the
Company or a Subsidiary of the Company to a Wholly Owned Recourse Subsidiary,
(ii) a disposition of property or assets by the Company or its
Subsidiaries at fair market value in the ordinary course of business,
(iii) a disposition by the Company or its Subsidiaries of obsolete assets
in the ordinary course of business,
(iv) a disposition subject to or permitted by the provisions described in
"--Limitation on Restricted Payments" above,
(v) an issuance of employee stock options and
(vi) a disposition by the Company or its Subsidiaries in which the Company
or its Subsidiaries receive as consideration Capital Stock of (or similar
interests in) a Person engaged in, or assets that will be used in, the
businesses of the Company and its Wholly Owned Recourse Subsidiaries, or
additionally, in the case of a disposition by a Subsidiary of the Company
that is not a Wholly Owned Recourse Subsidiary, the business of such
Subsidiary, existing on the Issue Date or in businesses reasonably related
thereto, as determined by the Board of Directors of the Company, the
determination of which shall be conclusive and evidenced by a resolution of
the Board of Directors of the Company.
"Bank Debt" means any and all amounts payable by the Company or any of its
Subsidiaries under or in respect of the Credit Agreement or any Refinancing
thereof, or any other agreements with lenders party to the foregoing,
including principal, premium (if any), interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Company), fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof;
provided, however, that nothing in this definition shall permit the Company
or any of its Subsidiaries to Issue any Debt that is not permitted pursuant
to the covenant described above under the caption "--Limitation on Debt."
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee thereof duly authorized to act on
behalf of such Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount
of such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated EBITDA Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of EBITDA for such period to (ii) Consolidated
Interest Expense for such period; provided, however, that
(1) if the Company or any Subsidiary of the Company has Issued any Debt
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio is an Issuance of Debt, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Debt as if such Debt had been Issued on the first day
of such period and the discharge of any other Debt Refinanced or otherwise
discharged with the proceeds of such new Debt as if such discharge had
occurred on the first day of such period,
(2) if since the beginning of such period the Company or any Subsidiary of
the Company shall have made any Asset Disposition, EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of the
Company or any Subsidiary of the Company Refinanced or otherwise discharged
with respect to the Company and its continuing Subsidiaries in connection
with such Asset Dispositions for such period (or if the Capital Stock of any
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Debt of such Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such Debt
after such sale) and
(3) if since the beginning of such period the Company or any Subsidiary of
the Company (by merger or otherwise) shall have made an Investment in any
Subsidiary of the Company (or any Person which becomes a Subsidiary of the
Company) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto, as if such Investment or acquisition
occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Debt Issued in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
the Company. If any Debt bears a floating rate of interest and is being given
pro forma effect, the interest on such Debt shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for
the entire period.
"Consolidated Interest Expense" means, for any period, the sum of (a) the
interest expense, net of any interest income, of the Company and its
consolidated Subsidiaries (other than Non-Recourse Subsidiaries) for such
period as determined in accordance with GAAP consistently applied, plus (b)
Preferred Stock dividends in respect of Preferred Stock of the Company or any
Subsidiary of the Company (other than a Non-Recourse Subsidiary) held by
Persons other than the Company or a Wholly Owned Recourse Subsidiary, plus
(c) the cash contributions to an employee stock ownership plan of the Company
and its Subsidiaries (other than Non-Recourse Subsidiaries) to the extent
such contributions are used by an employee stock ownership plan to pay
interest.
"Consolidated Net Income" means with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted to the extent included in calculating such net income (or
loss), by excluding the following:
(i) all extraordinary gains or losses;
(ii) the portion of net income (or loss) of such Person and its
consolidated Subsidiaries attributable to minority interests in
unconsolidated Persons except to the extent that, in the case of
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net income, cash dividends or distributions have actually been received by
such Person or one of its consolidated Subsidiaries (subject, in the case of
a dividend or distribution received by a Subsidiary of such Person, to the
limitations contained in clause (v) below) and, in the case of net loss, such
Person or any Subsidiary of such Person has actually contributed, lent or
transferred cash to such unconsolidated Person;
(iii) net income (or loss) of any other Person attributable to any period
prior to the date of combination of such other Person with such Person or any
of its Subsidiaries on a "pooling of interests" basis;
(iv) net gains or losses in respect of dispositions of assets by such
Person or any of its Subsidiaries (including pursuant to a sale-and-leaseback
arrangement) other than in the ordinary course of business;
(v) the net income of any Subsidiary of such Person to the extent that the
declaration of dividends or distributions by that Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to that Subsidiary or
its shareholders;
(vi) any net income or loss of any Non-Recourse Subsidiary, except that
such Person's equity in the net income of any such Non-Recourse Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Non-Recourse Subsidiary
during such period to such Person as a dividend or other distribution; and
(vii) the cumulative effect of a change in accounting principles;
provided, however, that in using Consolidated Net Income for purposes of
calculating the Consolidated EBITDA Coverage Ratio at any time, net income of
a Subsidiary of the type described in clause (v) of this definition shall not
be excluded.
"Consolidated Net Worth" of any Person means, at any date, all amounts
which would, in conformity with GAAP, be included under shareholders' equity
on a consolidated balance sheet of such Person as at such date, less (x) any
amounts attributable to Redeemable Stock and (y) any amounts attributable to
Exchangeable Stock.
"Credit Agreement" means the Amended and Restated Credit Agreement dated
as of May 30, 1997 by and among the Company, The Chase Manhattan Bank, N.A.,
Citibank, N.A. and Lehman Commercial Paper Inc., as agents, and the Banks
named therein, as the same may be amended or restated from time to time.
"Debt" of any Person means, without duplication,
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable and other accrued current
liabilities arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
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(v) the amount of all obligations of such Person with respect to the
redemption, repayment (including liquidation preference) or other
repurchase of, in the case of a Subsidiary of the Company, any Preferred
Stock and, in the case of any other Person, any Redeemable Stock (but
excluding in each case any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including guarantees of
such obligations and dividends; and
(vii) all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means, with respect to the Notes issuable or issued in whole
or in part in global form, The Depository Trust Company, until a successor
shall have been appointed and become such pursuant to the applicable
provisions of the Indenture and, thereafter, "Depository" shall mean or
include such successor.
"EBITDA" means, for any period, the Consolidated Net Income of the Company
for such period, plus the following to the extent included in calculating
such Consolidated Net Income: (i) income tax expense, (ii) Consolidated
Interest Expense, (iii) depreciation expense, (iv) amortization expense, (v)
all other noncash charges (excluding any noncash charge to the extent that it
requires an accrual of or a reserve for cash disbursements for any future
period) and (vi) foreign currency gains or losses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock of a Person which by its
terms or otherwise is required to be exchanged or converted or is
exchangeable or convertible at the option of the holder into another security
(other than Capital Stock of such Person which is neither Exchangeable Stock
nor Redeemable Stock).
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is
organized under the laws of any jurisdiction outside of the United States,
(ii) is organized under the laws of Puerto Rico or the U.S. Virgin Islands,
(iii) has substantially all its operations outside of the United States, or
(iv) has substantially all its operations in Puerto Rico or the U.S. Virgin
Islands.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time, except that for purposes of
calculating the Consolidated EBITDA Coverage Ratio, it shall mean generally
accepted accounting principles in the United States as in effect on the
Commencement Date.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, however, that the
term "guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or
other similar agreement or arrangement designed to protect such Person
against changes in interest rates or foreign exchange rates.
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"holder" or "Securityholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Initial Cash Payment" means the $100 million received by the Company
prior to February 15, 1993.
"Investment" in any Person means any loan or advance to, any net payment
on a guarantee of, any acquisition of Capital Stock, equity interest,
obligation or other security of, or capital contribution or other investment
in, such Person. Investments shall exclude advances to customers and
suppliers in the ordinary course of business. The term "Invest" used as verb
has a corresponding meaning. For purposes of the definitions of "Non-Recourse
Subsidiary" and "Restricted Payment" and for purposes of "--Limitation on
Restricted Payments" above, (i) "Investment" shall include a designation
after the Commencement Date of a Subsidiary of the Company as a Non-Recourse
Subsidiary, and such Investment shall be valued at an amount equal to the
portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of such Subsidiary at the time
that such Subsidiary is designated a Non-Recourse Subsidiary; and (ii) any
property transferred to or from a Non-Recourse Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of the Company, and if
such property so transferred (including in a series of related transactions)
has a fair market value, as so determined by the Board of Directors, in
excess of $10,000,000, such determination shall be confirmed by an
independent appraiser.
"Issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing
at the time such Person becomes a Subsidiary of another Person (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Subsidiary at the time it becomes a Subsidiary of such other Person.
The term "Issuance" or "Issued" has a corresponding meaning.
"Issue Date" means the date of original issue of the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or in the
state where the principal office of the Trustee is located.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Mafco Holdings" means Mafco Holdings Inc., a Delaware corporation, and
its successors.
"Mafco Consolidated Group" means the "Affiliated Group" (within the
meaning of Section 1504(a)(1) of the Code) of which Mafco Holdings is the
common parent.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Debt or other obligations
relating to such properties or assets or received in any other noncash form)
therefrom, in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required or estimated in good
faith to be required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any Debt
which is secured by any assets subject to such Asset Disposition, in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from or in connection with such Asset Disposition
and (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition; provided, however, that in connection with an Asset
Disposition to a Subsidiary of the Company (other than a Wholly Owned
Recourse Subsidiary), Net Available Cash will be deemed to be a percentage of
Net Available Cash (as calculated above) equal to (A) 100% minus (B) the
Company's percentage ownership in such Subsidiary.
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"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or estimated in
good faith to be payable as a result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation,
any non-convertible Capital Stock of such corporation and any Capital Stock
of such corporation convertible solely into non-convertible common stock of
such corporation; provided, however, that Non-Convertible Capital Stock shall
not include any Redeemable Stock or Exchangeable Stock.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
neither the Company nor its Subsidiaries (other than a Non-Recourse
Subsidiary) (A) provide credit support (including any undertaking, agreement
or instrument which would constitute Debt), (B) is directly or indirectly
liable or (C) constitute the lender and (ii) no default with respect to which
(including any rights which the holders thereof may have to take enforcement
action against the assets of a Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company or
its Subsidiaries (other than Non-Recourse Subsidiaries) to declare a default
on such other Debt or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of the Company (i) which has
been designated as such by the Company, (ii) which has no Debt other than
Non-Recourse Debt and (iii) which is in the same line of business as the
Company and its Wholly Owned Recourse Subsidiaries existing on the Issue Date
or in businesses reasonably related thereto.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Issuer or the Company, as the case may be.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Vice Chairman, the President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, an Assistant Treasurer,
Secretary or an Assistant Secretary, of the Company and delivered to the
Trustee. One of the Officers signing an Officers' Certificate given pursuant
to the last paragraph under "--Defaults" above shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company (or to Parent or one of its Subsidiaries or the
Trustee).
"Parent" means Revlon, Inc., a Delaware corporation, and any other Person
which acquires or owns directly or indirectly 80% or more of the voting power
of the Voting Stock of the Company.
"Pari Passu Debt" means the following obligations, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, and whether at any
time owing actually or contingent:
(i) all obligations consisting of the Bank Debt, the Notes, the 8 1/8%
Senior Notes and the 9 1/2% Senior Notes;
(ii) all obligations consisting of the principal of and premium (if any)
and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
the Company), and all fees, expenses and other amounts in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Company is responsible or liable;
(iii) all Capital Lease Obligations of the Company;
(iv) all obligations of the Company (A) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) under interest rate swaps, caps, collars, options and
similar arrangements and foreign currency hedges entered into in respect
of
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any obligations described in clauses (i), (ii) and (iii) or (C) Issued or
assumed as the deferred purchase price of property and all conditional
sale obligations of the Company and all obligations of the Company under
any title retention agreement;
(v) all obligations of other Persons of the type referred to in clauses
(ii), (iii) and (iv) and all dividends of other persons for the payment of
which, in either case, the Company is responsible or liable as obligor,
guarantor or otherwise, including by means of any agreement which has the
economic effect of a guarantee; and
(vi) all obligations consisting of Refinancings of any obligation
described in clauses (i), (ii), (iii), (iv) or (v);
unless, in the case of any particular obligation, in the instrument creating
or evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes. However, Pari Passu Debt will not include (1) any obligation of the
Company to any Subsidiary or any Permitted Affiliate Debt, (2) any liability
for Federal, state, local or other taxes owed or owing by the Company, (3)
any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any indebtedness, guarantee or obligation
of the Company (including the 8 5/8% Senior Subordinated Notes) that is
subordinate or junior in any respect to any other indebtedness, guarantee or
obligation of the Company or (5) that portion of any Debt which at the time
of Issuance is issued in violation of the Indenture; provided, however, that
in the case of this clause (5), (A) any Debt Issued to any person who had no
actual knowledge that the Issuance of such Debt was not permitted under the
Indenture and who received on the date of Issuance thereof a certificate from
an officer of the Company to the effect that the Issuance of such Debt would
not violate the Indenture shall constitute Pari Passu Debt and (B) any Debt
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course
of business shall constitute Pari Passu Debt provided that such Debt would
normally be extinguished within three Business Days of Issuance.
"Permitted Affiliate" means any individual that is a director or officer
of the Company, of Parent, of a Subsidiary of the Company or of an
Unrestricted Affiliate; provided, however, that such individual is not also a
director or officer of Mafco Holdings or any Person that controls Mafco
Holdings.
"Permitted Affiliate Debt" means (i) Debt Issued to an Affiliate of the
Company representing amounts owing by the Company pursuant to the Tax Sharing
Agreement and (ii) Debt Issued to an Affiliate of the Company to the extent
of cash actually received by the Company, which cash either is required to be
advanced or contributed to the Company pursuant to the terms of the Credit
Agreement or any Refinancing thereof or, if not advanced or contributed to
the Company, would lead to a default under the Credit Agreement or any
Refinancing thereof.
"Permitted Holders" means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee
or other personal representative (collectively, "heirs")) or any Person
controlled, directly or indirectly, by Ronald O. Perelman or his heirs.
"Permitted Transactions" means (i) any transaction or series of similar
transactions (including the purchase, sale, lease or exchange of any property
or the rendering of any service) between the Company or any Subsidiary of the
Company, on the one hand, and any Affiliate of the Company or any legal or
beneficial owner of 10% or more of the voting power of Voting Stock of the
Company or an Affiliate of any such owner, on the other hand, existing on, or
pursuant to an agreement in effect on, the Issue Date and disclosed on a
schedule to the Indenture and any amendments thereto which do not adversely
affect the rights of the Holders and (ii) any Tax Sharing Agreement.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other
entity.
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"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note as of any date means the principal of the Note as of
such date.
"Public Equity Offering" means an underwritten public offering of equity
securities of the Company or Revlon, Inc. pursuant to an effective
registration statement under the Securities Act.
"Put Amount" as of any date means, with respect to each $1,000 principal
amount of Notes, 101% of the outstanding principal amount thereof as of the
date of repurchase.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Refinancing Costs" means, with respect to any Debt being Refinanced, any
premium actually paid thereon and reasonable costs and expenses, including
underwriting discounts, in connection with such Refinancing.
"Registration Agreement" means the Registration Agreement dated
November 6, 1998 among the Company and the Initial Purchasers.
"Registered Exchange Offer" has the meaning ascribed thereto in the
Registration Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" has the meaning ascribed thereto in the
Registration Agreement.
"Significant Subsidiary" means (i) any Subsidiary (other than a
Non-Recourse Subsidiary) of the Company which at the time of determination
either (A) had assets which, as of the date of the Company's most recent
quarterly consolidated balance sheet, constituted at least 5% of the
Company's total assets on a consolidated basis as of such date, in each case
determined in accordance with GAAP, or (B) had revenues for the 12-month
period ending on the date of the Company's most recent quarterly consolidated
statement of income which constituted at least 5% of the Company's total
revenues on a consolidated basis for such period, or (ii) any Subsidiary of
the Company (other than a Non-Recourse Subsidiary) which, if merged with all
Defaulting Subsidiaries (as defined below) of the Company, would at the time
of determination either (A) have had assets which, as of the date of the
Company's most recent quarterly consolidated balance sheet, would have
constituted at least 10% of the Company's total assets on a consolidated
basis as of such date or (B) have had revenues for the 12-month period ending
on the date of the Company's most recent quarterly consolidated statement of
income which would have constituted at least 10% of the Company's total
revenues on a consolidated basis for such period (each such determination
being made in accordance with GAAP). "Defaulting Subsidiary" means any
Subsidiary of the Company (other than a Non-Recourse Subsidiary) with respect
to which an event described under clauses (vi), (vii) or (viii) in
"--Defaults" above has occurred and is continuing.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision
(but excluding any provision providing for the repurchase of such security at
the option of the holder thereof upon the happening of any contingency).
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the date hereof or hereafter Issued) which is subordinate or
junior in right of payment to the Notes.
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"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
"Tax Sharing Agreement" means (i) that certain agreement dated June 24,
1992, as amended, among the Company, certain of its Subsidiaries, Revlon
Holdings, Inc., Revlon, Inc. and Mafco Holdings, and (ii) any other tax
allocation agreement between the Company or any of its Subsidiaries with any
direct or indirect shareholder of the Company with respect to consolidated or
combined tax returns including the Company or any of its Subsidiaries but
only to the extent that amounts payable from time to time by the Company or
any such Subsidiary under any such agreement do not exceed the corresponding
tax payments that the Company or such Subsidiary would have been required to
make to any relevant taxing authority had the Company or such Subsidiary not
joined in such consolidated or combined returns, but instead had filed
returns including only the Company or its Subsidiaries (provided that any
such agreement may provide that, if the Company or any such Subsidiary ceases
to be a member of the affiliated group of corporations of which Mafco
Holdings is the common parent for purposes of filing a consolidated Federal
income tax return (such cessation, a "Deconsolidation Event"), then the
Company or such Subsidiary shall indemnify such direct or indirect
shareholder with respect to any Federal, state or local income, franchise or
other tax liability (including any related interest, additions or penalties)
imposed on such shareholder as the result of an audit or other adjustment
with respect to any period prior to such Deconsolidation Event that is
attributable to the Company, such Subsidiary or any predecessor business
thereof (computed as if the Company, such Subsidiary or such predecessor
business, as the case may be, were a stand-alone entity that filed separate
tax returns as an independent corporation), but only to the extent that any
such tax liability exceeds any liability for taxes recorded on the books of
the Company or such Subsidiary with respect to any such period).
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or
any agency thereof, in each case, maturing within 360 days of the date of
acquisition thereof, (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company (including the Trustee)
which is organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States of America
having capital, surplus and undivided profits aggregating in excess of $250.0
million and whose debt is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by any registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a
nationally recognized broker-dealer, (iv) investments in commercial paper,
maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) organized
and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of "P-2" (or higher)
according to Moody's Investors Service, Inc. or "A-2" (or higher) according
to Standard and Poor's Corporation, (v) securities with maturities of six
months or less from the date of acquisition backed by standby or direct pay
letters of credit issued by any bank satisfying the requirements of clause
(ii) above and (vi) securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's
Corporation or "A" by Moody's Investors Service, Inc.
"Trustee" means the party named in the Indenture until a successor
replaces it and, thereafter, means the successor.
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"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Unrestricted Affiliate" means a Person (other than a Subsidiary of the
Company) controlled (as defined in the definition of an "Affiliate") by the
Company, in which no Affiliate of the Company (other than (x) a Wholly Owned
Recourse Subsidiary of the Company, (y) a Permitted Affiliate and (z) another
Unrestricted Affiliate) has an Investment.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Recourse Subsidiary" means a Subsidiary of the Company
(other than a Non-Recourse Subsidiary) all the Capital Stock of which (other
than directors' qualifying shares) is owned by (i) the Company, (ii) the
Company and one or more Wholly Owned Recourse Subsidiaries or (iii) one or
more Wholly Owned Recourse Subsidiaries.
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REGISTRATION RIGHTS
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. The Company entered into a registration agreement
(the "Registration Agreement") with the Initial Purchasers for the benefit of
the holders of the Old Notes, pursuant to which the Company agreed that it
will, at its cost, by May 5, 1999, use its best efforts to cause a
registration statement (the "registration statement") to be declared
effective under the Securities Act relating to the exchange of Old Notes for
registered notes. The Registration Statement of which this Prospectus is a
part constitutes the registration statement for purposes of the Registration
Agreement. Upon the Registration Statement being declared effective, the
Company will offer the New Notes in exchange for surrender of the Old Notes.
The Company will keep the Exchange Offer open for not less than 30 days (or
longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Old Notes. For each Old Note
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Old Note will receive a New Note having a principal amount equal to that of
the surrendered Old Note. Under existing Commission interpretations, the New
Notes would in general be freely transferable after the Exchange Offer
without further registration under the Securities Act; provided, however,
that in the case of broker-dealers, a prospectus meeting the requirements of
the Securities Act be delivered as required. The Company has agreed for a
period of 180 days after consummation of the Exchange Offer to make available
a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such New Notes
acquired as described below. A broker-dealer which delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of
the civil liability provisions under the Securities Act and will be bound by
the provisions of the Registration Agreement (including certain
indemnification rights and obligations).
In the event that applicable interpretations of the staff of the
Commission do not permit the Company to effect such an Exchange Offer, or if
for any other reason the Exchange Offer is not consummated by June 4, 1999,
the Company will, at its cost, (a) as promptly as practicable, file a shelf
registration statement with respect to the resale of the Old Notes (the
"Shelf Registration Statement") covering resales of the Old Notes, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until two years after its
effective date. The Company will, in the event of the Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus,
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Old Notes has become effective
and take certain other actions as are required to permit unrestricted resales
of the Old Notes. A holder of Old Notes who sells such Old Notes pursuant to
the Shelf Registration Statement generally would be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Agreement which are applicable to such a
holder (including certain indemnification obligations).
If by June 4, 1999, neither (i) the Exchange Offer is consummated nor (ii)
the Shelf Registration Statement is declared effective, the rate per annum at
which the Old Notes bear interest will increase by 0.5% from and including
such date, until but excluding the earlier of (i) the consummation of the
Exchange Offer and (ii) the effective date of a Shelf Registration Statement.
The summary herein of certain provisions of the Registration Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus constitutes a part.
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DESCRIPTION OF OTHER INDEBTEDNESS
Each of the following summaries of certain indebtedness of the Company is
subject to and qualified in its entirety by reference to the detailed
provisions of the respective agreements and instruments to which each summary
relates. Copies of such agreements and instruments are filed as exhibits to,
or incorporated by reference in, the Registration Statement of which this
Prospectus constitutes a part. Capitalized terms used below and not defined
have the meanings set forth in the respective agreements.
CREDIT AGREEMENT
In May 1997, the Company entered into the Credit Agreement. The proceeds
of loans made under the Credit Agreement were used for the purpose of
repaying the loans outstanding under the 1996 Credit Agreement and for the
redemption of certain indebtedness and were and will be used for general
corporate purposes or, in the case of the Acquisition Facility (as defined
herein), the financing of acquisitions.
The Credit Agreement provides up to $750 million and is comprised of five
senior secured facilities: $200 million in two term loan facilities (the
"Term Loan Facilities"), a $300 million multi-currency facility (the
"Multi-Currency Facility"), a $200 million revolving acquisition facility
which may be increased to $400 million under certain circumstances with the
consent of the lenders holding at least a majority of the aggregate
commitments then in effect under the Credit Agreement (the "Acquisition
Facility") and a $50 million special standby letter of credit facility (the
"Special LC Facility" and together with the Term Loan Facilities, the
Multi-Currency Facility and the Acquisition Facility, the "Credit
Facilities"). The Multi-Currency Facility is available (i) to the Company, in
revolving credit loans denominated in U.S. dollars (the "Revolving Credit
Loans"), (ii) to the Company, in swing line loans, in an aggregate principal
amount at any one time outstanding not to exceed $30 million, which shall be
made as Alternate Base Rate Loans, (iii) to the Company, in standby and
commercial letters of credit denominated in U.S. dollars (the "Operating
Letters of Credit") and (iv) to the Company and certain of its international
subsidiaries designated from time to time in revolving credit loans and
bankers' acceptances denominated in U.S. Dollars and other currencies (the
"Local Loans"). Loans under the Credit Facilities denominated in U.S. dollars
bear interest at a rate equal to, generally at the applicable borrower's
option, either (A) the Alternate Base Rate plus the current applicable margin
of 1/2% (or 1-1/2% for Local Loans); or (B) the Eurodollar Rate plus the
current applicable margin of 1-1/2%, or a combination of the foregoing. Loans
under the Credit Facilities (other than Local Loans) denominated in foreign
currencies bear interest at a rate equal to the Eurocurrency Rate plus the
current applicable margin of 1-1/2%; and Local Loans denominated in foreign
currencies bear interest at a rate equal to, generally at the applicable
borrower's option, either (A) the Eurocurrency Rate plus the current
applicable margin of 1-1/2% or (B) the applicable Local Rate plus the current
applicable margin of 1-1/2%, or a combination of the foregoing. The
applicable margin is reduced (or increased, but not above 3/4% for Alternate
Base Rate Loans not constituting Local Loans and 1 3/4% for other loans) in
the event the Company attains (or fails to attain) certain leverage ratios.
The Company pays the lenders a commitment fee of 3/8% of the unused portion
of the Credit Facilities, subject to reduction (or increase, but not above
1/2%) based on attaining (or failing to attain) certain leverage ratios.
Under the Multi-Currency Facility, the Company pays the lenders a local
administrative fee of 1/4% per annum on the aggregate principal amount of
specified Local Loans. The Company also paid certain facility and other fees
to the lenders and agents upon the closing in May 1997 of the Credit
Agreement. Prior to its termination date, the commitments under the Credit
Facilities will generally be reduced by, among other things: (i) the net
proceeds (including net proceeds in excess of an aggregate of $25 million
from certain specified dispositions since May 30, 1997) in excess of $10
million each year received during such year from sales of capital stock of
Holdings (or certain subsidiaries of Holdings) or of assets by Holdings (or
certain of its subsidiaries), the Company or any of its subsidiaries, subject
to certain limited exceptions, (ii) the net proceeds from the sales of
material collateral security granted to the lenders, (iii) the net proceeds
from the incurrence by certain subsidiaries of Holdings, the Company or any
of its subsidiaries of certain additional debt, (iv) 50% of the excess cash
flow of the Company and its subsidiaries (unless certain
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leverage ratios are attained) less certain reductions in the Acquisition
Facility and (v) certain scheduled reductions in the case of the Term Loan
Facilities, which commenced on May 31, 1998 in the aggregate amount of $1
million annually over the remaining life of the Credit Agreement, and the
Acquisition Facility, which will commence on December 31, 1999 in the amount
of $25 million, $60 million during 2000, $90 million during 2001 and $25
million during 2002 (which reductions will be proportionately increased if
the Acquisition Facility is increased). The Credit Agreement will terminate
on May 30, 2002. As of September 30, 1998, the Company had approximately $199
million outstanding under the Term Loan Facilities, $216.4 million
outstanding under the Multi-Currency Facility, $103.7 million outstanding
under the Acquisition Facility and $34 million outstanding under the Special
LC Facility. The weighted average interest rates on the Term Loan Facilities
and the Multi-Currency Facility were 7.21%, and 6.94% per annum,
respectively, as of September 30, 1998.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Holdings and certain of its subsidiaries,
Revlon, Inc., the Company and the domestic subsidiaries of the Company. The
obligations of the Company under the Credit Facilities and the obligations
under the aforementioned guarantees are secured, subject to certain
limitations, by (i) a mortgage on the Company's Phoenix, Arizona facility,
(ii) the capital stock of the Company and its domestic subsidiaries and 66%
of the capital stock of its first tier foreign subsidiaries and the capital
stock of certain subsidiaries of Holdings, (iii) domestic intellectual
property and certain other domestic intangibles of (x) the Company and its
domestic subsidiaries and (y) Holdings and certain of its subsidiaries, (iv)
domestic inventory and accounts receivable of (x) the Company and its
domestic subsidiaries and (y) Holdings and certain of its subsidiaries, and
(v) the assets of certain foreign subsidiary borrowers under the
Multi-Currency Facility (to support their borrowings only). The Credit
Agreement provides that the liens on the stock and personal property referred
to above may be shared from time to time with specified types of other
obligations incurred or guaranteed by the Company, such as interest rate
hedging obligations, working capital lines and the Yen Credit Agreement.
The Credit Agreement contains various material restrictive covenants
prohibiting the Company and its subsidiaries from (i) incurring additional
indebtedness or guarantees, with certain exceptions, (ii) making dividend,
tax sharing and other payments or loans to Revlon, Inc. or other affiliates,
with certain exceptions, including among others, permitting the Company (x)
to pay dividends and make distributions to Revlon, Inc., among other things,
to enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as Commission filing fees and other
miscellaneous expenses related to being a public holding company, and (y) to
pay dividends or make distributions in certain circumstances to finance the
purchase by Revlon, Inc. of its common stock in connection with the delivery
of such common stock to grantees under any stock option plan, provided that
the aggregate amount of such dividends and distributions taken together with
any purchases of Revlon, Inc. common stock on the market to satisfy matching
obligations under the excess savings plan may not exceed $6 million per
annum, (iii) creating liens or other encumbrances on their properties, assets
or revenues, granting negative pledges or selling or otherwise disposing of
any of their assets except in the ordinary course of business, all subject to
certain limited exceptions, (iv) with certain exceptions, engaging in merger
or acquisition transactions, (v) prepaying indebtedness, subject to certain
limited exceptions, (vi) making investments, subject to certain limited
exceptions and (vii) entering into transactions with affiliates of the
Company other than upon terms no less favorable to the Company or its
subsidiaries than it would obtain in an arm's-length transaction. In addition
to the foregoing, the Credit Agreement contains financial covenants requiring
the Company and its subsidiaries to maintain minimum interest coverage, and
covenants which limit the leverage ratio of the Company and its subsidiaries
and the amount of capital expenditures.
"Events of Default" under the Credit Agreement include (i) a default in
the payment when due of any principal of the loans under the Credit
Agreement, (ii) a default in the payment of interest on the loans, or any
other amounts payable under the Credit Agreement for five days after the due
date thereof, (iii) the failure to comply with the covenants in the Credit
Agreement or the ancillary
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security documents, subject in certain instances to grace periods, (iv) the
institution of any bankruptcy, insolvency or similar proceeding by or against
the Company or any of its subsidiaries, (v) a default by Revlon, Inc. or any
of its subsidiaries under any debt instruments in excess of $5 million, if
the effect of such default is to cause or permit the acceleration of the
maturity of the obligation under such instruments, (vi) the agreements by
certain affiliates of the Company providing that such affiliates will not
demand payment of or retain proceeds of any payment on account of certain
indebtedness of the Company held by such affiliates, ceasing to be valid and
enforceable or if an affiliate which holds indebtedness of the Company fails
to execute such agreement, (vii) the acceleration of, or failure to pay
principal or interest when due under, any of REV Holdings' debt instruments
in excess of $500,000, (viii) failure to pay one or more judgments in an
aggregate of $5 million or more and such judgments shall not have been
vacated, stayed, satisfied or bonded pending appeal within 60 days from the
entry thereof, (ix) the occurrence of a change of control such that (x)
Revlon, Inc. shall cease to own 100% of the capital stock of the Company, (y)
in the event that Ronald O. Perelman (and heirs and affiliates) shall cease
to control the Company, any other person (or group of persons acting in
concert) either (A) controls the Company or (B) owns more than 25% of the
voting stock of the Company or (z) the directors of the Company in May 1997
(or other directors nominated by at least two-thirds of such continuing
directors) shall cease to constitute at least two-thirds of the Board of
Directors of the Company, (x) the failure of the Company to have received
from Revlon, Inc. any cash capital contributions in the amount equal to the
net proceeds of certain equity offerings of certain parents of the Company,
(xi) the Company or any of its subsidiaries paying any amount to any parent
of the Company and its subsidiaries in respect of federal capital gains taxes
other than pursuant to a promissory note for certain amounts of such capital
gains, (xii) any representation or warranty of the borrower, any guarantor or
any pledgor failing to be correct in all material respects when made or
confirmed, and (xiii) Revlon, Inc. having any meaningful assets or
indebtedness (with certain exceptions) or Revlon, Inc. conducting any
meaningful business other than those that are customary for a publicly traded
holding company which is not itself an operating company.
The Company currently expects that at the end of the fourth quarter of
1998 it will not be in compliance with certain of the financial ratios and
tests contained in the Credit Agreement as a result of, among other things,
the expected charges in connection with the Company's restructuring effort.
The Company is currently negotiating an amendment to such provisions of the
Credit Agreement and expects to have an amendment executed and effective
prior to December 31, 1998, although there can be no assurance in this
regard.
THE 9 1/2% SENIOR NOTES
On June 4, 1993, the Company issued and sold $200 million principal amount
of its 9 1/2% Senior Notes. The 9 1/2% Senior Notes were sold in a registered
offering under the Securities Act and applicable state securities laws. The
9 1/2% Senior Notes bear interest at 9 1/2% per annum, payable semiannually on
each June 1 and December 1. The 9 1/2% Senior Notes are senior unsecured
obligations of the Company and mature on June 1, 1999.
The 9 1/2% Senior Notes may not be redeemed prior to maturity. Upon a
Change of Control (as defined in the indenture pursuant to which the 9 1/2%
Senior Notes were issued (the "9 1/2% Senior Notes Indenture")), and subject
to certain conditions, each holder of 9 1/2% Senior Notes will have the right
to require the Company to repurchase all or a portion of such holder's 9 1/2%
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the 9 1/2%
Senior Notes Indenture), the Company will be obligated to make offers to
purchase the 9 1/2% Senior Notes.
The 9 1/2% Senior Notes Indenture contains various material restrictive
covenants that limit (i) the issuance of additional debt and redeemable stock
by the Company, (ii) the issuance of debt and preferred stock by the
Company's subsidiaries, (iii) the incurrence of liens on the assets of the
Company and its subsidiaries which do not equally and ratably secure the
9 1/2% Senior Notes, (iv) the payment of dividends on and redemption of capital
stock of the Company and its subsidiaries,
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investments in affiliates and the redemption of certain subordinated
obligations of the Company, except that the 9 1/2% Senior Notes Indenture
permits the Company to pay dividends and make distributions to Revlon, Inc.,
among other things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things, professional
fees such as legal and accounting, regulatory fees such as Commission filing
fees and other miscellaneous expenses related to being a public holding
company, and to pay dividends or make distributions up to $5 million per
annum in certain circumstances to finance the purchase by Revlon, Inc. of its
Class A common stock in connection with the delivery of such Class A common
stock to grantees under the Revlon, Inc. Amended and Restated 1996 Stock
Plan, (v) the sale of assets and subsidiary stock, (vi) transactions with
affiliates and (vii) consolidations, mergers and transfers of all or
substantially all of the Company's assets. The 9 1/2% Senior Notes Indenture
also prohibits certain restrictions on distributions from subsidiaries. All
of these limitations and prohibitions, however, are subject to a number of
important qualifications.
Events of default under the 9 1/2% Senior Notes Indenture include, among
other things, (i) a default continuing for 30 days in the payment of interest
when due, (ii) a default in the payment of any principal when due, (iii) the
failure to comply with the covenants in the 9 1/2% Senior Notes Indenture,
subject in certain instances to grace periods, (iv) a failure to pay other
indebtedness of the Company or a Significant Subsidiary (as defined in the
9 1/2% Senior Notes Indenture) in excess of $25 million upon final maturity or
as a result of such indebtedness becoming accelerated and such default
continues for a period of 10 days after notice thereof, (v) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary and (vi) the failure to pay any judgment in excess of $25 million.
THE 8 1/8% SENIOR NOTES
The Company has outstanding $250 million principal amount of 8 1/8% Senior
Notes. The 8 1/8% Senior Notes were sold to the initial purchasers thereof
pursuant to the Section 4(2) exemption from the registration requirements of
the Securities Act and applicable state securities laws. The Company
consummated a registered exchange offer whereby holders of the 8 1/8% Senior
Notes exchanged such notes for registered 8 1/8% Senior Notes. Interest is
payable semiannually on each February 1 and August 1. The 8 1/8% Senior Notes
are senior unsecured obligations of the Company and mature on February 1,
2006.
The 8 1/8% Senior Notes may be redeemed at the option of the Company in
whole or in part at any time on or after February 1, 2002 at the redemption
prices set forth in the indenture pursuant to which the 8 1/8% Senior Notes
were issued (the "8 1/8% Senior Notes Indenture"), plus accrued and unpaid
interest, if any, to the date of redemption. In addition, at any time prior
to February 1, 2001, the Company may redeem up to 35% of the aggregate
principal amount of the 8 1/8% Senior Notes originally issued at a redemption
price of 108 1/8% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date fixed for redemption, with, and to the
extent the Company actually receives, the net cash proceeds of one or more
public equity offerings of the Company or Revlon Inc., provided that at least
$162.5 million aggregate principal amount of the 8 1/8% Senior Notes remains
outstanding immediately after the occurrence of each such redemption. Upon a
Change of Control (as defined in the 8 1/8% Senior Notes Indenture), the
Company will have the option to redeem the 8 1/8% Senior Notes in whole at a
redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined in the 8 1/8% Senior Notes Indenture), plus accrued and
unpaid interest, if any, to the date of redemption, and, subject to certain
conditions, each holder of 8 1/8% Senior Notes will have the right to require
the Company to repurchase all or a portion of such holder's 8 1/8% Senior
Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase. In addition, under certain
circumstances in the event of an Asset Disposition (as defined in the 8 1/8%
Senior Notes Indenture), the Company will be obligated to make offers to
purchase the 8 1/8% Senior Notes.
The 8 1/8% Senior Notes Indenture contains various material restrictive
covenants that limit (i) the issuance of additional indebtedness and
redeemable stock by the Company, (ii) the issuance of
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indebtedness and preferred stock by the Company's subsidiaries, (iii) the
incurrence of liens on the assets of the Company and its subsidiaries which
do not equally and ratably secure the 8 1/8% Senior Notes, (iv) the payment
of dividends on capital stock of the Company and its subsidiaries,
investments in affiliates and the redemption of capital stock and certain
subordinated obligations of the Company, except that the 8 1/8% Senior Notes
Indenture permits the Company to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as
Commission filing fees and other miscellaneous expenses related to being a
public holding company, and to pay dividends or make distributions up to $25
million plus $5 million per annum in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A common stock in connection with the
delivery of such Class A common stock to grantees under the Revlon, Inc.
Amended and Restated 1996 Stock Plan, (v) the sale of assets and subsidiary
stock, (vi) transactions with affiliates and (vii) consolidations, mergers
and transfers of all or substantially all of the Company's assets. The 8 1/8%
Senior Notes Indenture also prohibits certain restrictions on distributions
from subsidiaries of the Company. All of these limitations and prohibitions,
however, are subject to a number of important qualifications.
Events of default under the 8 1/8% Senior Notes Indenture include, among
other things, (i) a default continuing for 30 days in the payment of interest
when due, (ii) a default in the payment of any principal when due, (iii) the
failure to comply with the covenants in the 8 1/8% Senior Notes Indenture,
subject in certain instances to grace periods, (iv) failure to pay other
indebtedness of the Company or a Significant Subsidiary (as defined in the
8 1/8% Senior Notes Indenture) in excess of $25 million upon final maturity or
as a result of such indebtedness becoming accelerated and such default
continues for a period of 10 days after notice thereof, (v) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary and (vi) the failure to pay any judgment in excess of $25 million.
THE 8 5/8% SENIOR SUBORDINATED NOTES
The Company has outstanding $650 million principal amount of 8 5/8% Senior
Subordinated Notes. The 8 5/8% Senior Subordinated Notes were sold to the
initial purchasers thereof pursuant to the Section 4(2) exemption from the
registration requirements of the Securities Act and applicable state
securities laws. The Company consummated a registered exchange offer whereby
holders of 8 5/8% Senior Subordinated Notes exchanged such notes for
registered 8 5/8% Senior Subordinated Notes. Interest is payable semiannually
on each February 1 and August 1. The 8 5/8% Senior Subordinated Notes are
unsecured senior subordinated obligations of the Company and are subordinated
in right of payment to all existing and future Senior Debt (as defined in the
indenture pursuant to which the 8 5/8% Senior Subordinated Notes were issued
(the "8 5/8% Senior Subordinated Notes Indenture")). The 8 5/8% Senior
Subordinated Notes mature on February 1, 2008.
The 8 5/8% Senior Subordinated Notes may be redeemed at the option of the
Company in whole or in part at any time on or after February 1, 2003 at the
redemption prices set forth in the 8 5/8% Senior Subordinated Notes
Indenture, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to February 1, 2001, the Company
may redeem up to 35% of the aggregate principal amount of the 8 5/8% Senior
Subordinated Notes originally issued at a redemption price of 108 5/8% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the date fixed for redemption, with and to the extent the Company receives
the net cash proceeds of one or more public equity offerings of the Company
or Revlon, Inc., provided that at least $422.5 million aggregate principal
amount of the 8 5/8% Senior Subordinated Notes remains outstanding
immediately after the occurrence of each such redemption. Upon a Change of
Control (as defined in the 8 5/8% Senior Subordinated Notes Indenture), the
Company will have the option to redeem the 8 5/8% Senior Subordinated Notes
in whole or in part at a redemption price equal to the principal amount
thereof plus the Applicable Premium (as defined in the 8 5/8% Senior
Subordinated Notes Indenture), plus accrued and unpaid interest, if any, to
the date of redemption, and subject to certain conditions, each holder of
8 5/8% Senior Subordinated Notes will have the right to require the Company to
repurchase all or a portion of such holder's 8 5/8% Senior Subordinated Notes
at 101% of
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the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, under certain circumstances in the event of
an Asset Disposition (as defined in the 8 5/8% Senior Subordinated Notes
Indenture), the Company will be obligated to make offers to purchase the
8 5/8% Senior Subordinated Notes.
The 8 5/8% Senior Subordinated Notes Indenture contains various material
restrictive covenants that limit (i) the issuance of additional indebtedness
and redeemable stock by the Company and the issuance of any other senior
subordinated indebtedness of the Company that is senior to the 8 5/8% Senior
Subordinated Notes, (ii) the issuance of indebtedness and preferred stock by
the Company's subsidiaries, (iii) the incurrence of liens on the assets of
the Company and its subsidiaries to secure debt other than Senior Debt (as
defined in the 8 5/8% Senior Subordinated Notes Indenture) or debt of a
subsidiary unless the 8 5/8% Senior Subordinated Notes are equally and
ratably secured, (iv) the payment of dividends on capital stock of the
Company and its subsidiaries, investments in affiliates and the redemption of
capital stock and certain subordinated obligations of the Company, except
that the 8 5/8% Senior Subordinated Notes Indenture permits the Company to
pay dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as Commission filing fees and other
miscellaneous expenses related to being a public holding company, and to pay
dividends or make distributions up to $25 million plus $5 million per annum
in certain circumstances to finance the purchase by Revlon, Inc. of its Class
A common stock in connection with the delivery of such Class A common stock
to grantees under the Revlon, Inc. Amended and Restated 1996 Stock Plan, (v)
the sale of assets and subsidiary stock, (vi) transactions with affiliates
and (vii) consolidations, mergers and transfers of all or substantially all
of the Company's assets. The 8 5/8% Senior Subordinated Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries of the
Company. All of these limitations and prohibitions, however, are subject to a
number of important qualifications.
Events of default under the 8 5/8% Senior Subordinated Notes Indenture
include, among other things, (i) a default continuing for 30 days in the
payment of interest when due, (ii) a default in the payment of any principal
when due, (iii) the failure to comply with the covenants in the 8 5/8% Senior
Subordinated Notes Indenture, subject in certain instances to grace periods,
(iv) failure to pay other indebtedness of the Company or a Significant
Subsidiary (as defined in the 8 5/8% Senior Subordinated Notes Indenture) in
excess of $25 million upon final maturity or as a result of such indebtedness
becoming accelerated and such default continues for a period of 10 days after
notice thereof, (v) certain events of bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary and (vi) the
failure to pay any judgment in excess of $25 million.
YEN CREDIT AGREEMENT
Pacific Finance & Development Corp., a subsidiary of the Company ("Pacific
Finance"), is the borrower under the Yen Credit Agreement, which had a
principal balance of approximately yen 3.8 billion as of September 30, 1998
(approximately $27.6 million U.S. dollar equivalent as of September 30,
1998). The applicable interest rate is the Euro Yen Rate plus an applicable
margin, which ranges from 0.75% to 1.75% based on certain financial
performance ratios of the Company. The interest rate on the outstanding
principal balance was 2.13% per annum as of September 30, 1998. In June 1997,
the Company amended and restated the Yen Credit Agreement to extend the term
to December 31, 2000, subject to earlier termination under certain
circumstances. In accordance with the terms of the Yen Credit Agreement, as
amended and restated, approximately yen 539 million (approximately $3.9
million U.S. dollar equivalent as of September 30, 1998) is due in each of
March 1999 and 2000 and yen 2.7 billion (approximately $19.8 million U.S.
dollar equivalent as of September 30, 1998) is due on December 31, 2000.
Borrowings under the Yen Credit Agreement are secured by a first mortgage
on certain real property in Tokyo, Japan owned by Revlon Real Estate
Kabushiki Kaisha, a pledge by Revlon
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International Corporation of all of the common stock of Revlon Real Estate
Kabushiki Kaisha and a pledge of a note payable by the Company to Pacific
Finance. In addition, the Company has guaranteed the obligations of Pacific
Finance to repay any amounts due under the Yen Credit Agreement.
The Yen Credit Agreement contains certain material restrictive
covenants prohibiting Pacific Finance from (with certain limited exceptions)
incurring material obligations, creating liens, engaging in any new activities
or consolidating with, or merging into, any other entity or selling, leasing or
otherwise transferring or permitting the transfer of all or any substantial
part of its assets to any other entity. Events of default under the Yen Credit
Agreement include, among other things, (i) a default in the payment of all or
any principal when due, (ii) a default continuing for three business days in
the payment of interest or other amounts due under the Yen Credit Agreement or
a failure to comply with any covenant (subject to grace periods in certain
instances), (iii) a default or breach by the Company, Pacific Finance or Revlon
Real Estate Kabushiki Kaisha with respect to the Credit Agreement or any other
indebtedness with an outstanding principal amount in excess of $10 million (or
the foreign currency equivalent) beyond the period of cure provided under such
indebtedness, (iv) a judgment or order for the payment of money in excess of $5
million (or the foreign currency equivalent) being entered against the Company
or certain subsidiaries of the Company, including Pacific Finance, which is not
covered by insurance and which remains unsatisfied for 30 days, (v) either
Pacific Finance and Revlon International Corporation shall cease to be
wholly-owned subsidiaries of the Company or Revlon Real Estate Kabushiki Kaisha
shall cease to be a wholly-owned subsidiary of Revlon International Corporation
or Ronald O. Perelman shall cease to "control" (as used in Rule 405 under the
Securities Act of 1933) Pacific Finance, the Company, Revlon International
Corporation or Revlon Real Estate Kabushiki Kaisha and certain events of
bankruptcy, insolvency or reorganization relating to the Company or certain
subsidiaries of the Company, including Pacific Finance, and (vi) the Company
shall cease to own more than 50% of the voting power of Cosmetic Center. In
connection with the disposition of the shares of Cosmetic Center owned by the
Company, yen 2.22 billion (approximately $18.95 million U.S. dollar equivalent
as of December 10, 1998) principal amount under the Yen Credit Agreement was
repaid in accordance with the terms of the Yen Credit Agreement, which
repayment reduces the amount due on December 31, 2000 to yen 500 million
(approximately $3.7 million U.S. dollar equivalent as of September 30, 1998),
and the Yen Credit Agreement was amended to remove the provision requiring the
Company to own more than 50% of the voting power of Cosmetic Center.
OTHER INDEBTEDNESS
The Company also maintains working capital lines in various countries
outside the United States for use in its international operations. As of
September 30, 1998, the aggregate amount outstanding under these lines was
approximately $45.6 million having a weighted average interest rate of 7.06%,
converted into U.S. dollars at the applicable exchange rates on such date.
Most of these working capital lines are short-term facilities that contain
customary events of default and few restrictive covenants. The obligations
under several of these foreign working capital lines are guaranteed by the
Company.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences associated with the exchange of the Old Notes for the New Notes
pursuant to the Exchange Offer and the ownership and disposition of New Notes
to a U.S. Holder (as defined below) who acquired the Old Notes at the initial
offering from the Initial Purchasers for the original offering price thereof
and who acquires the New Notes pursuant to the Exchange Offer. This
discussion is based upon current laws, regulations, rulings, and judicial
decisions, all of which are subject to change and such change could affect
the continuing validity of this discussion. The tax treatment of a holder may
vary depending on such holder's particular situation. This summary does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that
will hold New Notes as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. In addition, the
discussion does not address any aspect of state, local, or foreign taxation.
WE URGE PROSPECTIVE PURCHASERS OF THE NEW NOTES TO CONSULT THEIR TAX
ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING,
OWNING, AND DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION OF STATE,
LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
will not be treated as an exchange for federal income tax purposes because
the New Notes will not differ materially in kind or extent from the Old Notes
and because the exchange will occur by operation of the original terms of the
Old Notes. As a result, holders who exchange their Old Notes for New Notes
will not recognize any income, gain or loss for federal income tax purposes.
A holder will have the same adjusted tax basis and holding period in the New
Notes immediately after the exchange as it had in the Old Notes immediately
before the exchange.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
Unless otherwise stated, this summary only discusses certain federal
income tax rules applicable to a U.S. Holder who purchases New Notes upon
original issuance. For purposes of this discussion, a "U.S. Holder" means a
holder of New Notes who or which is (i) an individual who is a citizen or
resident of the United States for U.S. federal income tax purposes, (ii) a
corporation or other entity taxable as a corporation created or organized in
the United States or under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate the income of which is
includable in gross income for U.S. federal income tax purposes regardless of
its source or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States persons have the authority to control all substantial
decisions of such trust. A "non-U.S. Holder" is any holder who is not a U.S.
Holder.
TAX TREATMENT OF THE NEW NOTES
U.S. HOLDERS
Stated interest payable on the New Notes generally will be includible in
the gross income of a U.S. Holder as ordinary interest income at the time
accrued or received, in accordance with such holder's regular method of tax
accounting. If a New Note is redeemed, sold or otherwise disposed of, a U.S.
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized on the sale or other disposition of such New Note
(to the extent such amount does not represent accrued but unpaid interest)
and such holder's adjusted tax basis in the New Note. A U.S. Holder's
adjusted tax basis in a New Note generally will equal the U.S. Holder's
purchase price for
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such New Note (net of accrued interest) less any principal payments received
by the U.S. Holder. Such capital gain or loss will be long-term capital gain
or loss, provided that the holder has held the New Note for more than one
year at the time of the disposition. The deduction of capital losses is
subject to certain limitations.
NON-U.S. HOLDERS
An investment in the New Notes by a non-U.S. Holder generally will not
give rise to any U.S. federal income tax consequences, if the interest
received or any gain recognized on the sale, redemption or other disposition
of the New Notes by such holder is not treated as effectively connected with
the conduct by such holder of a trade or business in the United States,
provided that (A) in the case of payments of interest or principal, (i) the
non-U.S. Holder satisfies and complies with certain certification and
reporting requirements, (ii) the non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (iii) the non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership, and (iv) the beneficial
owner is not a bank whose receipt of interest on a New Note is on an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business, or (B) in the case of gain, such
non-U.S. Holder holds the New Notes as a capital asset, and such non-U.S.
Holder is not present in the United States for 183 days or more in the
taxable year of the disposition and certain other conditions are satisfied.
A non-U.S. Holder that does not qualify for an exemption from withholding
under the preceding paragraph generally will be subject to withholding of
U.S. federal income tax at the rate of 30% (or a lower rate if a treaty
applies) on payments of interest on the New Notes.
If a non-U.S. Holder is engaged in a trade or business in the United
States and interest on the New Notes is effectively connected with the
conduct of such trade or business, the non-U.S. Holder will be subject to
U.S. federal income tax on such interest on a net income basis in the same
manner as if the non-U.S. Holder were a U.S. person. In addition, if such
holder is a foreign corporation, it may be subject to a branch profits tax at
a 30% rate (or, if applicable, a lower rate specified by a treaty).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 31% on payments of principal, interest on, and the proceeds of the
disposition of, the New Notes. In general, backup withholding will be imposed
only if (i) a U.S. Holder fails to furnish a correct taxpayer identification
number ("TIN"), which, for an individual, would be his or her Social Security
number, (ii) furnishes an incorrect TIN, (iii) fails to report interest
income in full, or (iv) fails to certify that such holder has provided a
correct TIN and that the U.S. Holder is not subject to backup withholding. In
addition, such payments of principal and interest to U.S. Holders generally
will be subject to information reporting. Non-U.S. Holders may be required to
comply with applicable certification procedures to establish that they are
not U.S. Holders in order to avoid the application of such backup
withholding. In addition, each non-U.S. Holder will be required to provide an
IRS Form W-8 to certify its status as a non-U.S. person.
Backup withholding generally will not apply to payments made to a non-U.S.
Holder of a New Note who provides the certification described above or
otherwise establishes an exemption from backup withholding. Payments by a
United States office of a broker of the proceeds of a disposition of the New
Notes generally will be subject to backup withholding at a rate of 31% unless
the non-U.S. Holder certifies it is a non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption.
Any amount withheld from a payment to a holder under the backup
withholding rules is allowable as a credit against such holder's U.S. federal
income tax liability, or if withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished
to the IRS. Certain holders (including, among others, corporations and
foreign individuals
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who comply with certain certification requirements) are not subject to backup
withholding. U.S. Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to non-U.S.
Holders after December 31, 1999. The new Treasury regulations generally would
not alter the treatment of non-U.S. Holders described above. The new Treasury
regulations would alter the procedures for claiming the benefits of an income
tax treaty and may change the certification procedures relating to the
receipt by intermediaries of payments on behalf of a beneficial owner of a
New Note. Prospective investors should consult their tax advisors concerning
the effect, if any, of such new Treasury regulations on an investment in the
New Notes.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited with, or on behalf of, DTC
and registered in the name of Cede & Co., as nominee of DTC, or will remain
in the custody of the Trustee pursuant to the FAST Balance Certificate
Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the
Federal Reserve System, (iii) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to
hold securities for its participating organizations (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to
the accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Holders who are not Participants may beneficially own
securities held by or on behalf of the Depository only through Participants
or Indirect Participants.
The Company expects, pursuant to procedures established by DTC, that (i)
upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with an interest in the
Global Note and (ii) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interest in negotiable instruments can only
be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as
collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indentures. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of certificated securities (the "Certificated Securities"),
and will not be considered the owners or Holders thereof under the Indentures
for any purpose, including with respect to giving of any directions,
instruction or approval to the Trustee thereunder. As a result, the ability
of a person having a beneficial interest in Notes represented by a Global
Note to pledge or transfer such interest to persons or entities that do not
participate in DTC's system or to otherwise take action with respect to such
interest, may be affected by the lack of a physical certificate evidencing
such interest.
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Accordingly, each holder owning a beneficial interest in a Global Note
must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through
which such holder owns its interest, to exercise any rights of a holder of
Notes under the Indenture or such Global Note. The Company understands that
under existing industry practice, in the event the Company requests any
action of holders of Notes or a holder that is an owner of a beneficial
interest in a Global Note desires to take any action that DTC, as the holder
of such Global Note, is entitled to take, DTC would authorize the
Participants to take such action and the Participant would authorize holders
owning through such Participants to take such action or would otherwise act
upon the instruction of such holders. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on any Notes represented by a Global Note registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to
or at the direction of DTC or its nominee in its capacity as the registered
holder of the Global Note representing such Notes under the Indentures. Under
the terms of the Indentures, the Company and the Trustee may treat the
persons in whose names the Notes, including the Global Notes, are registered
as the owners thereof for the purpose of receiving such payment and for any
and all other purposes whatsoever. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of interest in the Global Note (including
principal, premium, if any, and interest), or to immediately credit the
accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of
interests in the Global Note will be governed by standing instructions and
customary practice and will be the responsibility of the Participants or the
Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) DTC notifies the Company in writing that it is no longer willing or
able to act as a depository or DTC ceases to be registered as a clearing
agency under the Exchange Act and the Company is unable to locate a qualified
successor within 90 days, (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Notes. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC
or any Participant or Indirect Participant in identifying the beneficial
owners of the related Notes and each such person may conclusively rely on,
and shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
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The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of the Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
document in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
Following consummation of the Exchange Offer, the Company may, in its sole
discretion, commence one or more additional exchange offers to holders of Old
Notes who did not exchange their Old Notes for New Notes in the Exchange
Offer on terms which may differ from those contained in the Registration
Agreement. This Prospectus, as it may be amended or supplemented from time to
time, may be used by the Company in connection with any such additional
exchange offers. Such additional exchange offers will take place from time to
time until all outstanding Old Notes have been exchanged for New Notes
pursuant to the terms and conditions contained herein.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
New Notes will be passed upon for the Company by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York and certain other legal matters will
be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP.
Skadden, Arps, Slate, Meagher & Flom LLP and Paul, Weiss, Rifkind, Wharton &
Garrison have from time to time represented, and may continue to represent,
MacAndrews & Forbes and certain of its affiliates (including the Company and
Revlon, Inc.) in connection with certain legal matters.
EXPERTS
The financial statements and schedule of the Company and its subsidiaries
as of December 31, 1997 and 1996 and for each of the years in the three-year
period ended December 31, 1997, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and in
the Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.
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REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.................................. F-3
Consolidated Statements of Operations for each of the years in the three-year period ended
December 31, 1997............................................................................ F-4
Consolidated Statements of Stockholder's Deficiency for each of the years in the three-year
period ended December 31, 1997............................................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 1997............................................................................ F-6
Notes to Consolidated Financial Statements.................................................... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets as of September 30, 1998 and December 31, 1997 ........ F-33
Consolidated Condensed Statements of Operations for each of the nine months ended September
30, 1998 and 1997 ........................................................................... F-34
Consolidated Condensed Statements of Stockholder's Deficiency and Comprehensive Loss for each
of the nine months ended September 30, 1998 and 1997......................................... F-35
Consolidated Condensed Statements of Cash Flows for each of the nine months ended September
30, 1998 and 1997 ........................................................................... F-36
Notes to Unaudited Consolidated Condensed Financial Statements ............................... F-37
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Revlon Consumer Products Corporation:
We have audited the accompanying consolidated balance sheets of Revlon
Consumer Products Corporation and its subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations,
stockholder's deficiency and cash flows for each of the years in the
three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Revlon
Consumer Products Corporation and its subsidiaries as of December 31, 1997
and 1996 and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
January 23, 1998, except for Note 2
which is as of June 8, 1998
F-2
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 37.4 $ 35.1
Trade receivables, less allowances of $25.9 and $24.9, respectively ... 492.5 426.8
Inventories............................................................ 260.7 249.4
Prepaid expenses and other............................................. 96.2 74.5
-------------- --------------
Total current assets.................................................. 886.8 785.8
Property, plant and equipment, net...................................... 364.0 373.5
Other assets............................................................ 142.7 138.6
Intangible assets, net.................................................. 319.2 279.2
Net assets of discontinued operations................................... 45.1 41.0
-------------- --------------
Total assets.......................................................... $1,757.8 $1,618.1
============== ==============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings--third parties................................... $ 42.7 $ 27.1
Current portion of long-term debt--third parties....................... 5.5 8.8
Accounts payable....................................................... 178.8 159.7
Accrued expenses and other............................................. 356.0 363.8
-------------- --------------
Total current liabilities............................................. 583.0 559.4
Long-term debt--third parties .......................................... 1,388.8 1,321.8
Long-term debt--affiliates.............................................. 30.9 30.4
Other long-term liabilities............................................. 211.8 202.8
Stockholder's deficiency:
Preferred stock, par value $1.00 per share; 1,000 shares authorized,
546 issued and outstanding............................................ 54.6 54.6
Common stock, par value $1.00 per share; 1,000 shares authorized,
issued and outstanding................................................ -- --
Capital deficiency..................................................... (230.8) (231.1)
Accumulated deficit since June 24, 1992................................ (256.8) (301.6)
Adjustment for minimum pension liability............................... (4.5) (12.4)
Currency translation adjustment........................................ (19.2) (5.8)
-------------- --------------
Total stockholder's deficiency........................................ (456.7) (496.3)
-------------- --------------
Total liabilities and stockholder's deficiency........................ $1,757.8 $1,618.1
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................. $2,238.6 $2,092.1 $1,867.3
Cost of sales......................................... 743.1 688.9 614.9
---------- ---------- ----------
Gross profit......................................... 1,495.5 1,403.2 1,252.4
Selling, general and administrative expenses ......... 1,275.8 1,203.2 1,104.9
Business consolidation costs and other, net .......... 3.6 -- --
---------- ---------- ----------
Operating income .................................... 216.1 200.0 147.5
---------- ---------- ----------
Other expenses (income):
Interest expense..................................... 133.7 133.4 142.6
Interest and net investment income................... (4.2) (4.4) (7.0)
Amortization of debt issuance costs.................. 6.6 8.3 11.0
Foreign currency losses, net......................... 6.4 5.7 10.9
Miscellaneous, net................................... 5.3 6.3 1.8
---------- ---------- ----------
Other expenses, net................................. 147.8 149.3 159.3
---------- ---------- ----------
Income (loss) from continuing operations before
income taxes......................................... 68.3 50.7 (11.8)
Provision for income taxes............................ 9.3 25.5 25.4
---------- ---------- ----------
Income (loss) from continuing operations ............. 59.0 25.2 (37.2)
Income (loss) from discontinued operations............ 0.7 0.4 (4.0)
Extraordinary items -early extinguishments of debt ... (14.9) (6.6) --
---------- ---------- ----------
Net income (loss)..................................... $ 44.8 $ 19.0 $ (41.2)
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CURRENCY
PREFERRED CAPITAL ACCUMULATED OTHER TRANSLATION
STOCK DEFICIENCY DEFICIT (A) ADJUSTMENTS ADJUSTMENT
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ........ $54.6 $(414.7) $(279.4) $(10.9) $ (5.8)
Net loss........................ (41.2)
Adjustment for minimum pension
liability ..................... (6.1)
Net capital contribution ...... 0.4 (b)
Currency translation adjustment 0.8
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1995 ..... 54.6 (414.3) (320.6) (17.0) (5.0)
Net income...................... 19.0
Contribution from parent........ 187.8 (c)
Adjustment for minimum pension
liability...................... 4.6
Net capital distribution ...... (0.5) (b)
Currency translation
adjustment..................... (0.8) (d)
Acquisition of business ........ (4.1) (e)
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1996 ...... 54.6 (231.1) (301.6) (12.4) (5.8)
Net income...................... 44.8
Adjustment for minimum pension
liability...................... 7.9
Net capital contribution........ 0.3 (b)
Currency translation adjustment (13.4)
----------- ------------ ------------- ------------- -------------
Balance, December 31, 1997 ...... $54.6 $(230.8) $(256.8) $ (4.5) $(19.2)
=========== ============ ============= ============= =============
</TABLE>
- ------------
(a) Represents net loss since June 24, 1992, the effective date of the
transfer agreements referred to in Note 16.
(b) Represents changes in capital from the acquisition of the Bill Blass
business (See Note 16).
(c) Represents the capital contribution from Revlon, Inc. with the funds
from its initial public equity offering (the "Revlon IPO").
(d) Includes $2.1 of gains related to the Company's simplification of its
international corporate structure.
(e) Represents amounts paid to Revlon Holdings Inc. for the Tarlow
Advertising Division ("Tarlow") (See Note 16).
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ 44.8 $ 19.0 $ (41.2)
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization.................................. 99.7 88.7 86.4
(Income) loss from discontinued operations..................... (0.7) (0.4) 4.0
Extraordinary items............................................ 14.9 6.6 --
Gain on sale of certain fixed assets, net...................... (4.4) -- (2.2)
Change in assets and liabilities:
Increase in trade receivables ................................ (70.0) (67.7) (44.1)
Increase in inventories ...................................... (16.9) (2.7) (12.6)
(Increase) decrease in prepaid expenses and other current
assets ...................................................... (0.6) (8.0) 4.6
Increase in accounts payable ................................. 17.9 9.4 12.1
Decrease in accrued expenses and other current liabilities .. (2.8) (10.0) (12.5)
Other, net.................................................... (73.0) (45.2) (40.4)
--------- --------- ---------
Net cash provided by (used for) operating activities .......... 8.9 (10.3) (45.9)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................ (52.3) (54.7) (51.3)
Acquisition of businesses, net of cash acquired ................ (40.5) (7.1) (21.2)
Proceeds from the sale of certain fixed assets ................. 8.5 -- 3.0
--------- --------- ---------
Net cash used for investing activities ......................... (84.3) (61.8) (69.5)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings--third
parties......................................................... 18.0 5.8 (122.9)
Proceeds from the issuance of long-term debt--third parties ... 760.2 266.4 493.7
Repayment of long-term debt--third parties ..................... (690.2) (366.6) (236.3)
Net contribution from parent.................................... 0.3 187.3 0.4
Proceeds from the issuance of debt--affiliates.................. 120.7 115.0 157.4
Repayment of debt--affiliates................................... (120.2) (115.0) (151.0)
Acquisition of business from affiliate ......................... -- (4.1) --
Payment of debt issuance costs ................................. (4.1) (10.9) (15.7)
--------- --------- ---------
Net cash provided by financing activities....................... 84.7 77.9 125.6
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents .. (3.6) (0.9) (0.1)
--------- --------- ---------
Net cash used by discontinued operations........................ (3.4) (2.7) (9.2)
--------- --------- ---------
Net increase in cash and cash equivalents ..................... 2.3 2.2 0.9
Cash and cash equivalents at beginning of period .............. 35.1 32.9 32.0
--------- --------- ---------
Cash and cash equivalents at end of period .................... $ 37.4 $ 35.1 $ 32.9
========= ========= =========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ..................................................... $ 139.6 $ 139.0 $ 148.2
Income taxes, net of refunds ................................. 10.5 15.4 18.8
Supplemental schedule of noncash investing activities:
In connection with business acquisitions, liabilities were
assumed (including minority interest and discontinued
operations) as follows:
Fair value of assets acquired ................................ $ 132.7 $ 9.7 $ 27.3
Cash paid..................................................... (64.5) (7.2) (21.6)
--------- --------- ---------
Liabilities assumed........................................... $ 68.2 $ 2.5 $ 5.7
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
Revlon Consumer Products Corporation ("Products Corporation" and together
with its subsidiaries, the "Company") was formed in April 1992. The Company
operates in a single business segment with many different products, which
include an extensive array of glamorous, exciting and innovative cosmetic and
skin care, fragrance and personal care products, and professional products
(products for use in and resale by professional salons). In the United States
and increasingly in international markets, the Company's products are sold
principally in the self-select distribution channel. The Company also sells
certain products in the demonstrator-assisted distribution channel, sells
consumer and professional products to United States military exchanges and
commissaries and has a licensing group. Outside the United States, the
Company also sells such consumer products through department stores and
specialty stores, such as perfumeries.
On June 24, 1992, Products Corporation succeeded to assets and liabilities
of the cosmetic and skin care, fragrance and personal care products business
of its then parent company whose name was changed from Revlon, Inc. to Revlon
Holdings Inc. ("Holdings"). Certain consumer products lines sold in
demonstrator-assisted distribution channels considered not integral to the
Company's business and which historically had not been profitable (the
"Retained Brands") and certain other assets and liabilities were retained by
Holdings.
The Consolidated Financial Statements of the Company presented herein
relate to the business to which the Company succeeded and include the assets,
liabilities and results of operations of such business. Assets, liabilities,
revenues, other income, costs and expenses which were identifiable
specifically to the Company are included herein and those identifiable
specifically to the retained and divested businesses of Holdings have been
excluded. Amounts which were not identifiable specifically to either the
Company or Holdings are included herein to the extent applicable to the
Company pursuant to a method of allocation generally based on the respective
proportion of the business of the Company to the applicable total of the
businesses of the Company and Holdings. The operating results of the Retained
Brands and divested businesses of Holdings have not been reflected in the
Consolidated Financial Statements of the Company. Management of the Company
believes that the basis of allocation and presentation is reasonable.
Although the Retained Brands were not transferred to Products Corporation
when the cosmetic and skin care, fragrance and personal care products
business of Holdings was transferred to Products Corporation, Products
Corporation's bank lenders required that all assets and liabilities relating
to such Retained Brands existing on the date of transfer (June 24, 1992),
other than the brand names themselves and certain other intangible assets, be
transferred to Products Corporation. Any assets and liabilities that had not
been disposed of or satisfied by December 31 of the applicable year have been
reflected in the Company's consolidated financial position as of such dates.
However, any new assets or liabilities generated by such Retained Brands
since the transfer date and any income or loss associated with inventory that
has been transferred to Products Corporation relating to such Retained Brands
have been and will be for the account of Holdings. In addition, certain
assets and liabilities relating to divested businesses were transferred to
Products Corporation on the transfer date and any remaining balances as of
December 31 of the applicable year have been reflected in the Company's
Consolidated Balance Sheets as of such dates. At December 31, 1997 and 1996,
the amounts reflected in the Company's Consolidated Balance Sheets aggregated
a net liability of $23.3 and $23.6, respectively, of which $4.9 and $5.2,
respectively, are included in accrued expenses and other and $18.4 as of both
dates is included in other long-term liabilities.
The Consolidated Financial Statements include the accounts of Products
Corporation and its subsidiaries after elimination of all material
intercompany balances and transactions. Further, the
F-7
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of liabilities and the
reporting of revenues and expenses to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Products Corporation is a direct wholly owned subsidiary of Revlon, Inc.,
which is an indirect majority owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), a corporation wholly owned indirectly
through Mafco Holdings Inc. ("Mafco Holdings" and, together with MacAndrews
Holdings, "MacAndrews & Forbes") by Ronald O. Perelman.
CASH AND CASH EQUIVALENTS:
Cash equivalents (primarily investments in time deposits which have
original maturities of three months or less) are carried at cost, which
approximates fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
principally determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT AND OTHER ASSETS:
Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 20 to 40 years; buildings and improvements, 5 to
50 years; machinery and equipment, 3 to 17 years; and office furniture and
fixtures and capitalized software development costs, 2 to 12 years. Leasehold
improvements are amortized over their estimated useful lives or the terms of
the leases, whichever is shorter. Repairs and maintenance are charged to
operations as incurred, and expenditures for additions and improvements are
capitalized.
Included in other assets are permanent displays amounting to approximately
$107.7 and $81.8 (net of amortization) as of December 31, 1997 and 1996,
respectively, which are amortized over 3 to 5 years.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets related to businesses acquired principally represent
goodwill, the majority of which is being amortized on a straight-line basis
over 40 years. The Company evaluates, when circumstances warrant, the
recoverability of its intangible assets on the basis of undiscounted cash
flow projections and through the use of various other measures, which
include, among other things, a review of its image, market share and business
plans. Accumulated amortization aggregated $104.2 and $94.1 at December 31,
1997 and 1996, respectively.
REVENUE RECOGNITION:
The Company recognizes net sales upon shipment of merchandise. Net sales
comprise gross revenues less expected returns, trade discounts and customer
allowances. Cost of sales is reduced for the estimated net realizable value
of expected returns.
INCOME TAXES:
Income taxes are calculated using the liability method in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
F-8
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
The Company is included in the affiliated group of which Mafco Holdings is
the common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax return filed by Mafco Holdings. The
Company also may be included in certain state and local tax returns of Mafco
Holdings or its subsidiaries. For all periods presented, federal, state and
local income taxes are provided as if the Company filed its own income tax
returns. On June 24, 1992, Holdings, Revlon, Inc., Products Corporation and
certain of its subsidiaries and Mafco Holdings entered into a tax sharing
agreement, which is described in Notes 13 and 16.
PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
Products Corporation sponsors pension and other retirement plans in
various forms covering substantially all employees who meet eligibility
requirements. For plans in the United States, the minimum amount required
pursuant to the Employee Retirement Income Security Act, as amended, is
contributed annually. Various subsidiaries outside the United States have
retirement plans under which funds are deposited with trustees or reserves
are provided.
Products Corporation accounts for benefits such as severance, disability
and health insurance provided to former employees prior to their retirement,
if estimable, on a terminal basis in accordance with the provisions of SFAS
No. 5, "Accounting for Contingencies," as amended by SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires companies
to accrue for postemployment benefits when it is probable that a liability
has been incurred and the amount of such liability can be reasonably
estimated, which Products Corporation has concluded is generally when an
employee is terminated.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings in 1997, 1996 and 1995 were $29.7, $26.3 and
$22.3, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are generally translated into
United States dollars at the rates of exchange in effect at the balance sheet
date. Income and expense items are generally translated at the weighted
average exchange rates prevailing during each period presented. Gains and
losses resulting from foreign currency transactions are included in the
results of operations. Gains and losses resulting from translation of
financial statements of foreign subsidiaries and branches operating in
non-hyperinflationary economies are recorded as a component of stockholder's
deficiency. Foreign subsidiaries and branches operating in hyperinflationary
economies translate nonmonetary assets and liabilities at historical rates
and include translation adjustments in the results of operations.
Effective January 1997, the Company's operations in Mexico have been
accounted for as operating in a hyperinflationary economy. Effective July
1997, the Company's operations in Brazil have been accounted for as is
required for a non-hyperinflationary economy. The impact of the changes in
accounting for Brazil and Mexico were not material to the Company's operating
results in 1997.
SALE OF SUBSIDIARY STOCK:
The Company recognizes gains and losses on sales of subsidiary stock in
its Consolidated Statements of Operations.
CLASSES OF STOCK:
Products Corporation designated 1,000 shares of Preferred Stock as the
Series A Preferred Stock, of which 546 shares are outstanding and held by
Revlon, Inc. The holder of Series A Preferred Stock
F-9
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
is not entitled to receive any dividends. The Series A Preferred Stock is
entitled to a liquidation preference of $100,000 per share before any
distribution is made to the holders of Common Stock. The holder of the Series
A Preferred Stock does not have any voting rights, except as required by law.
The Series A Preferred Stock may be redeemed at any time by Products
Corporation, at its option, for $100,000 per share. However, the terms of
Products Corporation's various debt agreements currently restrict Products
Corporation's ability to effect such redemption.
STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation plans using the intrinsic value method
prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of Revlon, Inc.'s stock at the date of the grant over the
amount an employee must pay to acquire the stock (See Note 15).
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company maintains a control
environment which includes policies and procedures for risk assessment and
the approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial
instruments for trading purposes.
The differentials to be received or paid under interest rate contracts
designated as hedges are recognized in income over the life of the contracts
as adjustments to interest expense. Gains and losses on terminations of
interest rate contracts designated as hedges are deferred and amortized into
interest expense over the remaining life of the original contracts or until
repayment of the hedged indebtedness. Unrealized gains and losses on
outstanding contracts designated as hedges are not recognized.
Gains and losses on contracts designated to hedge identifiable foreign
currency commitments are deferred and accounted for as part of the related
foreign currency transaction. Gains and losses on all other foreign currency
contracts are included in income currently. Transaction gains and losses have
not been material.
2. DISCONTINUED OPERATIONS
On June 8, 1998, the Company announced its intention to dispose of its
retail and outlet store business and recorded an estimated loss on disposal
of $15.0 in the second quarter of 1998. Accordingly, all prior periods have
been restated to reflect the results of operations of the retail and outlet
store business as a discontinued operation. The net assets of the
discontinued operations consist primarily of inventory and intangible assets,
offset by liabilities, including third party debt and minority interest.
3. EXTRAORDINARY ITEMS
The extraordinary item in 1997 resulted from the write-off in the second
quarter of 1997 of deferred financing costs associated with the early
extinguishment of borrowings under a prior credit agreement and costs of
approximately $6.3 in connection with the redemption of Products
Corporation's 10 7/8% Sinking Fund Debentures due 2010 (the "Sinking Fund
Debentures"). The early extinguishment of borrowings under a prior credit
agreement and the redemption of the Sinking Fund
F-10
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Debentures were financed by the proceeds from a new credit agreement which
became effective in May 1997 (the "Credit Agreement"). The extraordinary item
in 1996 resulted from the write-off of deferred financing costs associated
with the early extinguishment of borrowings with the net proceeds from the
Revlon IPO and proceeds from a prior credit agreement.
4. BUSINESS CONSOLIDATION COSTS AND OTHER, NET
Business consolidation costs and other, net in 1997 include severance,
writedowns of certain assets to their estimated net realizable value and
other related costs to rationalize factory and warehouse operations in
certain United States and International operations, partially offset by
related gains from the sales of certain factory operations of approximately
$4.3 and an approximately $12.7 settlement of a claim in the second quarter
of 1997. The business consolidation costs include $14.2 for the termination
of approximately 415 factory and administrative employees. By December 31,
1997 the Company terminated approximately 200 employees, made cash payments
for such terminations of approximately $6.4, and made cash payments for other
business consolidation costs of approximately $3.2. As of December 31, 1997,
the unpaid balance of the business consolidation accrual approximated $11.0,
which amount is included in accrued expenses and other.
5. ACQUISITIONS
On April 25, 1997, Prestige Fragrance & Cosmetics, Inc. ("PFC"), a wholly
owned subsidiary of Products Corporation, and The Cosmetic Center, Inc.
("CCI") completed the merger of PFC with and into CCI (the "Cosmetic Center
Merger") with CCI (subsequent to the Cosmetic Center Merger, "Cosmetic
Center") surviving the Cosmetic Center Merger. In the Cosmetic Center Merger,
Products Corporation received in exchange for all of the capital stock of PFC
newly issued Class C Common Stock of Cosmetic Center constituting
approximately 85.0% of Cosmetic Center's outstanding common stock.
Accordingly, the Cosmetic Center Merger was accounted for as a reverse
acquisition using the purchase method of accounting, with PFC considered the
acquiring entity for accounting purposes even though Cosmetic Center is the
surviving legal entity. The deemed purchase consideration for the acquisition
was approximately $27.9 and the goodwill associated with the Cosmetic Center
Merger was approximately $10.5. The Company recognized a gain of $6.0
resulting from the sale of subsidiary stock pursuant to the Cosmetic Center
Merger. The gain from the sale of subsidiary stock is included in the income
(loss) from discontinued operations in 1997 (See Note 2).
In 1997, the Company consummated other acquisitions for a combined
purchase price of $51.6, with resulting goodwill of $35.8. These acquisitions
were not significant to the Company's results of operations. Acquisitions
consummated in 1996 and 1995 were also not significant to the Company's
results of operations.
6. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Raw materials and
supplies.................. $ 82.6 $ 76.6
Work-in-process............ 14.9 19.4
Finished goods............. 163.2 153.4
-------- -------
$260.7 $249.4
======== =======
</TABLE>
F-11
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
7. PREPAID EXPENSES AND OTHER
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Prepaid
expenses........ $40.7 $42.5
Other............ 55.5 32.0
------- -------
$96.2 $74.5
======= =======
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land and improvements............................... $ 32.5 $ 37.5
Buildings and improvements.......................... 193.2 207.6
Machinery and equipment............................. 203.5 192.4
Office furniture and fixtures and
software development costs......................... 73.9 52.3
Leasehold improvements.............................. 37.5 33.1
Construction-in-progress............................ 30.6 43.3
--------- ---------
571.2 566.2
Accumulated depreciation............................ (207.2) (192.7)
--------- ---------
$ 364.0 $ 373.5
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $38.4, $37.0 and $36.6, respectively.
9. ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Advertising and promotional costs and accrual
for sales returns...................................... $147.1 $137.4
Compensation and related benefits....................... 73.5 95.1
Interest................................................ 32.1 36.7
Taxes, other than federal income taxes.................. 30.2 34.0
Restructuring and business consolidation costs.......... 18.2 6.9
Net liabilities assumed from Holdings................... 4.9 5.2
Other................................................... 50.0 48.5
-------- --------
$356.0 $363.8
======== ========
</TABLE>
10. SHORT-TERM BORROWINGS
Products Corporation maintained short-term bank lines of credit at
December 31, 1997 and 1996 aggregating approximately $82.3 and $72.7,
respectively, of which approximately $42.7 and $27.1 were outstanding at
December 31, 1997 and 1996, respectively. Interest rates on amounts borrowed
under such short-term lines at December 31, 1997 and 1996 varied from 2.5% to
12.0% and 2.2% to 12.1%, respectively. Compensating balances at December 31,
1997 and 1996 were approximately $6.2 and $7.4, respectively. Interest rates
on compensating balances at December 31, 1997 and 1996 varied from 0.4% to
8.1% and 0.4% to 7.9%, respectively.
F-12
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Working capital lines (a)................................. $ 344.6 $ 187.2
Bank mortgage loan agreement due 2000 (b)................. 33.3 41.7
9 1/2% Senior Notes due 1999 (c).......................... 200.0 200.0
9 3/8% Senior Notes due 2001 (d).......................... 260.0 260.0
10 1/2% Senior Subordinated Notes due 2003 (e) ........... 555.0 555.0
10 7/8% Sinking Fund Debentures due 2010 (f).............. -- 79.6
Advances from Holdings (g)................................ 30.9 30.4
Other mortgages and notes payable (8.6%-13.0%) due
through 2001............................................. 1.4 7.1
---------- ---------
1,425.2 1,361.0
Less current portion...................................... (5.5) (8.8)
---------- ---------
$1,419.7 $1,352.2
========== =========
</TABLE>
(a) In May 1997, Products Corporation entered into the Credit Agreement
with a syndicate of lenders, whose individual members change from time to
time. The proceeds of loans made under the Credit Agreement were used to
repay the loans outstanding under the 1996 Credit Agreement and to redeem the
Sinking Fund Debentures.
The Credit Agreement provides up to $750.0 and is comprised of five senior
secured facilities: $200.0 in two term loan facilities (the "Term Loan
Facilities"), a $300.0 multi-currency facility (the "Multi-Currency Facility"),
a $200.0 revolving acquisition facility, which may be increased to $400.0 under
certain circumstances with the consent of a majority of the lenders (the
"Acquisition Facility"), and a $50.0 special standby letter of credit facility
(the "Special LC Facility" and together with the Term Loan Facilities, the
Multi-Currency Facility and the Acquisition Facility, the "Credit Facilities").
The Multi-Currency Facility is available (i) to Products Corporation in
revolving credit loans denominated in U.S. dollars (the "Revolving Credit
Loans"), (ii) to Products Corporation in standby and commercial letters of
credit denominated in U.S. dollars (the "Operating Letters of Credit") and
(iii) to Products Corporation and certain of its international subsidiaries
designated from time to time in revolving credit loans and bankers' acceptances
denominated in U.S. dollars and other currencies (the "Local Loans"). At
December 31, 1997 Products Corporation had approximately $200.0 outstanding
under the Term Loan Facilities, $102.7 outstanding under the Multi-Currency
Facility, $41.9 outstanding under the Acquisition Facility and $34.8 of issued
but undrawn letters of credit under the Special LC Facility.
The Credit Facilities (other than loans in foreign currencies) bear
interest as of December 31, 1997 at a rate equal to, at Products
Corporation's option, either (A) the Alternate Base Rate plus 1/4 of 1% (or
1.25% for Local Loans); or (B) the Eurodollar Rate plus 1.25%. Loans in
foreign currencies bear interest as of December 31, 1997 at a rate equal to
the Eurocurrency Rate or, in the case of Local Loans, the local lender rate,
in each case plus 1.25%. The applicable margin is reduced (or increased, but
not above 3/4 of 1% for Alternate Base Rate Loans not constituting Local
Loans and 1.75% for other loans) in the event Products Corporation attains
(or fails to attain) certain leverage ratios. Products Corporation pays the
lender a commitment fee as of December 31, 1997 of 3/8 of 1% of the unused
portion of the Credit Facilities, subject to reduction (or increase, but not
above 1/2 of 1%) based on attaining (or failing to attain) certain leverage
ratios. Under the Multi-Currency Facility, the Company pays the lenders an
administrative fee of 1/4% per annum on the aggregate principal
F-13
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
amount of specified Local Loans. Products Corporation also paid certain
facility and other fees to the lenders and agents upon closing of the Credit
Agreement. Prior to its termination date, the commitments under the Credit
Facilities will be reduced by: (i) the net proceeds in excess of $10.0 each
year received during such year from sales of assets by Holdings (or certain
of its subsidiaries), Products Corporation or any of its subsidiaries (and
$25.0 with respect to certain specified dispositions), subject to certain
limited exceptions, (ii) certain proceeds from the sales of collateral
security granted to the lenders, (iii) the net proceeds from the issuance by
Products Corporation or any of its subsidiaries of certain additional debt,
(iv) 50% of the excess cash flow of Products Corporation and its subsidiaries
(unless certain leverage ratios are attained) and (v) certain scheduled
reductions in the case of the Term Loan Facilities, which will commence on
May 31, 1998 in the aggregate amount of $1.0 annually over the remaining life
of the Credit Agreement, and in the case of the Acquisition Facility, which
will commence on December 31, 1999 in the amount of $25.0 and in the amounts
of $60.0 during 2000, $90.0 during 2001 and $25.0 during 2002 (which
reductions will be proportionately increased if the Acquisition Facility is
increased). The Credit Agreement will terminate on May 30, 2002. The weighted
average interest rates on the Term Loan Facilities, the Multi-Currency
Facility and the Acquisition Facility were 7.1%, 5.4% and 5.7% per annum,
respectively, as of December 31, 1997.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Holdings and certain of its subsidiaries,
Revlon, Inc., Products Corporation and the domestic subsidiaries of Products
Corporation. The obligations of Products Corporation under the Credit
Facilities and the obligations under the aforementioned guarantees are
secured, subject to certain limitations, by (i) mortgages on Holdings'
Edison, New Jersey and Products Corporation's Phoenix, Arizona facilities;
(ii) the capital stock of Products Corporation and its domestic subsidiaries,
66% of the capital stock of its first tier foreign subsidiaries and the
capital stock of certain subsidiaries of Holdings; (iii) domestic
intellectual property and certain other domestic intangibles of (x) Products
Corporation and its domestic subsidiaries (other than Cosmetic Center) and
(y) certain subsidiaries of Holdings; (iv) domestic inventory and accounts
receivable of (x) Products Corporation and its domestic subsidiaries (other
than Cosmetic Center) and (y) certain subsidiaries of Holdings; and (v) the
assets of certain foreign subsidiary borrowers under the Multi-Currency
Facility (to support their borrowings only). The Credit Agreement provides
that the liens on the stock and personal property referred to above may be
shared from time to time with specified types of other obligations incurred
or guaranteed by Products Corporation, such as interest rate hedging
obligations, working capital lines and a subsidiary of Products Corporation's
yen-denominated credit agreement.
The Credit Agreement contains various material restrictive covenants
prohibiting Products Corporation from (i) incurring additional indebtedness
or guarantees, with certain exceptions, (ii) making dividend, tax sharing and
other payments or loans to Revlon, Inc. or other affiliates, with certain
exceptions, including among others, permitting Products Corporation to pay
dividends and make distributions to Revlon, Inc., among other things, to
enable Revlon, Inc. to pay expenses incidental to being a public holding
company, including, among other things, professional fees such as legal and
accounting, regulatory fees such as Securities and Exchange Commission
("Commission") filing fees and other miscellaneous expenses related to being
a public holding company, and to pay dividends or make distributions in
certain circumstances to finance the purchase by Revlon, Inc. of its common
stock in connection with the delivery of such common stock to grantees under
any stock option plan, provided that the aggregate amount of such dividends
and distributions taken together with any purchases of Revlon, Inc. common
stock on the market to satisfy matching obligations under an excess savings
plan may not exceed $6.0 per annum, (iii) creating liens or other
encumbrances on their assets or revenues, granting negative pledges or
selling or transferring any of their assets except in the ordinary course of
business, all subject to certain limited exceptions, (iv) with certain
F-14
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
exceptions, engaging in merger or acquisition transactions, (v) prepaying
indebtedness, subject to certain limited exceptions, (vi) making investments,
subject to certain limited exceptions, and (vii) entering into transactions
with affiliates of Products Corporation other than upon terms no less
favorable to Products Corporation or its subsidiaries than it would obtain in
an arms' length transaction. In addition to the foregoing, the Credit
Agreement contains financial covenants requiring Products Corporation to
maintain minimum interest coverage and covenants which limit the leverage
ratio of Products Corporation and the amount of capital expenditures.
In January 1996, Products Corporation entered into a credit agreement (the
"1996 Credit Agreement"), which became effective upon consummation of the
Revlon IPO on March 5, 1996. The 1996 Credit Agreement included, among other
things, (i) a term to December 31, 2000 (subject to earlier termination in
certain circumstances), and (ii) credit facilities of $600.0 comprised of
four senior secured facilities: a $130.0 term loan facility, a $220.0
multi-currency facility, a $200.0 revolving acquisition facility and a $50.0
standby letter of credit facility. The weighted average interest rates on the
term loan facility and multi-currency facility were 8.1% and 7.0% per annum,
respectively, as of December 31, 1996.
(b) The Pacific Finance & Development Corp., a subsidiary of Products
Corporation, is the borrower under a yen denominated credit agreement (the
"Yen Credit Agreement"), which had a principal balance of approximately yen
4.3 billion as of December 31, 1997 (approximately $33.3 U.S. dollar
equivalent as of December 31, 1997). In accordance with the terms of the Yen
Credit Agreement, approximately yen 539 million (approximately $5.2 U.S.
dollar equivalent) was paid in January 1996 and approximately yen 539 million
(approximately $4.6 U.S. dollar equivalent) was paid in January 1997. In June
1997, Products Corporation amended and restated the Yen Credit Agreement to
extend the term to December 31, 2000 subject to earlier termination under
certain circumstances. In accordance with the terms of the Yen Credit
Agreement, as amended and restated, approximately yen 539 million
(approximately $4.2 U.S. dollar equivalent as of December 31, 1997) is due in
each of March 1998, 1999 and 2000 and yen 2.7 billion (approximately $20.7
U.S. dollar equivalent as of December 31, 1997) is due on December 31, 2000.
The applicable interest rate at December 31, 1997 under the Yen Credit
Agreement was the Euro-Yen rate plus 1.25% which approximated 1.9%. The
interest rate at December 31, 1996, was the Euro-Yen rate plus 2.5%, which
approximated 3.1%.
(c) The Senior Notes due 1999 (the "1999 Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the 1999 Senior Notes (the "1999 Senior Note Indenture")). The
1999 Senior Notes bear interest at 9 1/2% per annum. Interest is payable on
June 1 and December 1.
The 1999 Senior Notes may not be redeemed prior to maturity. Upon a Change
of Control (as defined in the 1999 Senior Note Indenture) and subject to
certain conditions, each holder of 1999 Senior Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
1999 Senior Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase. In addition, under
certain circumstances in the event of an Asset Disposition (as defined in the
1999 Senior Note Indenture), Products Corporation will be obligated to make
offers to purchase the 1999 Senior Notes.
The 1999 Senior Note Indenture contains various restrictive covenants
that, among other things, limit (i) the issuance of additional debt and
redeemable stock by Products Corporation, (ii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iii) the incurrence
of liens on the assets of Products Corporation and its subsidiaries which do
not equally and ratably secure the 1999 Senior Notes, (iv) the payment of
dividends on and redemption of capital stock of Products Corporation and its
subsidiaries and the redemption of certain subordinated obligations of
F-15
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Products Corporation, except that the 1999 Senior Note Indenture permits
Products Corporation to pay dividends and make distributions to Revlon, Inc.,
among other things, to enable Revlon, Inc. to pay expenses incidental to
being a public holding company, including, among other things, professional
fees such as legal and accounting, regulatory fees such as Commission filing
fees and other miscellaneous expenses related to being a public holding
company, and to pay dividends or make distributions up to $5.0 per annum
(subject to allowable increases) in certain circumstances to finance the
purchase by Revlon, Inc. of its Class A Common Stock in connection with the
delivery of such Class A Common Stock to grantees under any stock option
plan, (v) the sale of assets and subsidiary stock, (vi) transactions with
affiliates and (vii) consolidations, mergers and transfers of all or
substantially all of Products Corporation's assets. The 1999 Senior Note
Indenture also prohibits certain restrictions on distributions from
subsidiaries. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
(d) The 9 3/8% Senior Notes due 2001 (the "Senior Notes") are senior
unsecured obligations of Products Corporation and rank pari passu in right of
payment to all existing and future Senior Debt (as defined in the indenture
relating to the Senior Notes (the "Senior Note Indenture")). The Senior Notes
bear interest at 9 3/8% per annum. Interest is payable on April 1 and October
1.
The Senior Notes may be redeemed at the option of Products Corporation in
whole or in part at any time on or after April 1, 1998 at the redemption
prices set forth in the Senior Note Indenture, plus accrued and unpaid
interest, if any, to the date of redemption. Upon a Change of Control (as
defined in the Senior Note Indenture), Products Corporation will have the
option to redeem the Senior Notes in whole or in part at a redemption price
equal to the principal amount thereof plus the Applicable Premium (as defined
in the Senior Note Indenture), plus accrued and unpaid interest, if any, to
the date of redemption, and, subject to certain conditions, each holder of
Senior Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder's Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, under certain circumstances in the event of
an Asset Disposition (as defined in the Senior Note Indenture), Products
Corporation will be obligated to make offers to purchase the Senior Notes.
The Senior Note Indenture contains various restrictive covenants that,
among other things, limit (i) the issuance of additional indebtedness and
redeemable stock by Products Corporation, (ii) the issuance of indebtedness
and preferred stock by Products Corporation's subsidiaries, (iii) the
incurrence of liens on the assets of Products Corporation and its
subsidiaries which do not equally and ratably secure the Senior Notes, (iv)
the payment of dividends on capital stock of Products Corporation and its
subsidiaries and the redemption of capital stock and certain subordinated
obligations of Products Corporation, except that the Senior Note Indenture
permits Products Corporation to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as
Commission filing fees and other miscellaneous expenses related to being a
public holding company, and to pay dividends or make distributions up to $5.0
per annum (subject to allowable increases) in certain circumstances to
finance the purchase by Revlon, Inc. of its Class A Common Stock in
connection with the delivery of such Class A Common Stock to grantees under
any stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers
of all or substantially all of Products Corporation's assets. The Senior Note
Indenture also prohibits certain restrictions on distributions from
subsidiaries of Products Corporation. All of these limitations and
prohibitions, however, are subject to a number of important qualifications
(See Note 20).
(e) The Senior Subordinated Notes due 2003 (the "Senior Subordinated
Notes") are unsecured obligations of Products Corporation and are
subordinated in right of payment to all existing and
F-16
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
future Senior Debt (as defined in the indenture relating to the Senior
Subordinated Notes (the "Senior Subordinated Note Indenture")). The Senior
Subordinated Notes bear interest at 10 1/2% per annum. Interest is payable on
February 15 and August 15.
The Senior Subordinated Notes may be redeemed at the option of Products
Corporation in whole or in part at any time on or after February 15, 1998 at
the redemption prices set forth in the Senior Subordinated Note Indenture,
plus accrued and unpaid interest, if any, to the date of redemption. Upon a
Change of Control (as defined in the Senior Subordinated Note Indenture),
Products Corporation will have the option to redeem the Senior Subordinated
Notes in whole or in part at a redemption price equal to the principal amount
thereof plus the Applicable Premium (as defined in the Senior Subordinated
Note Indenture), plus accrued and unpaid interest, if any, to the date of
redemption, and, subject to certain conditions, each holder of Senior
Subordinated Notes will have the right to require Products Corporation to
repurchase all or a portion of such holder's Senior Subordinated Notes at
101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. In addition, under certain circumstances in
the event of an Asset Disposition (as defined in the Senior Subordinated Note
Indenture), Products Corporation will be obligated to make offers to purchase
the Senior Subordinated Notes.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness and redeemable stock by Products Corporation, (ii) the issuance
of indebtedness and preferred stock by Products Corporation's subsidiaries,
(iii) the incurrence of liens on the assets of Products Corporation and its
subsidiaries to secure debt other than Senior Debt (as defined in the Senior
Subordinated Note Indenture) or debt of a subsidiary, unless the Senior
Subordinated Notes are equally and ratably secured, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and
the redemption of capital stock and certain subordinated obligations of
Products Corporation, except that the Senior Subordinated Note Indenture
permits Products Corporation to pay dividends and make distributions to
Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses
incidental to being a public holding company, including, among other things,
professional fees such as legal and accounting, regulatory fees such as
Commission filing fees and other miscellaneous expenses related to being a
public holding company, and to pay dividends or make distributions up to $5.0
per annum (subject to allowable increases) in certain circumstances to
finance the purchase by Revlon, Inc. of its Class A Common Stock in
connection with the delivery of such Class A Common Stock to grantees under
any stock option plan, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers
of all or substantially all of Products Corporation's assets. The Senior
Subordinated Note Indenture also prohibits certain restrictions on
distributions from subsidiaries of Products Corporation. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications (See Note 20).
(f) Products Corporation redeemed all the outstanding $85.0 principal
amount of Sinking Fund Debentures during 1997 with the proceeds of borrowings
under the Credit Agreement.
(g) During 1992, Holdings made an advance of $25.0 to Products
Corporation. This advance was evidenced by a noninterest-bearing demand note
payable by Products Corporation, the payment of which was subordinated to the
obligations of Products Corporation under the credit agreement in effect at
that time. Holdings agreed not to demand payment under the note so long as
any indebtedness remained outstanding under the credit agreement in effect at
that time. In February 1995, the $13.3 in notes due to Products Corporation
under the Financing Reimbursement Agreement, referred to in Note 16, was
offset against the $25.0 note and Holdings agreed not to demand payment under
the resulting $11.7 note so long as certain indebtedness remains outstanding.
In October 1993, Products Corporation borrowed from Holdings approximately
$23.2 (as adjusted and
F-17
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
subject to further adjustment for certain expenses) representing amounts
received by Holdings from an escrow account relating to divestiture by
Holdings of certain of its predecessor businesses. In July 1995, Products
Corporation borrowed from Holdings approximately $0.8, representing certain
amounts received by Holdings relating to an arbitration arising out of the
sale by Holdings of certain of its businesses. In 1995, Products Corporation
borrowed from Holdings approximately $5.6, representing certain amounts
received by Holdings from the sale by Holdings of certain of its businesses.
In June 1996, $10.9 in notes due to Products Corporation under the Financing
Reimbursement Agreement from Holdings was offset against the $11.7 demand
note (referred to above) payable by Products Corporation to Holdings. In June
1997, Products Corporation borrowed from Holdings approximately $0.5,
representing certain amounts received by Holdings from the sale of a brand
and the inventory relating thereto. At December 31, 1997 the balance of $30.9
is evidenced by noninterest-bearing promissory notes payable to Holdings that
are subordinated to Products Corporation's obligations under the Credit
Agreement.
(h) In connection with the Cosmetic Center Merger, on April 25, 1997
Cosmetic Center entered into a loan and security agreement (the "Cosmetic
Center Facility"). Cosmetic Center paid the then outstanding balance of $14.0
on CCI's former credit agreement with borrowings under the Cosmetic Center
Facility. On April 28, 1997, Cosmetic Center used approximately $21.2 of
borrowings under the Cosmetic Center Facility to fund the cash election
associated with the Cosmetic Center Merger. The Cosmetic Center Facility,
which expires on April 30, 1999, provides up to $70.0 of revolving credit
tied to a borrowing base of 65% of Cosmetic Center's eligible inventory, as
defined in the Cosmetic Center Facility. Borrowings under the Cosmetic Center
Facility are collateralized by Cosmetic Center's accounts receivable and
inventory and proceeds therefrom. Under the Cosmetic Center Facility,
Cosmetic Center may borrow at the London Inter-Bank Offered Rate ("LIBOR")
plus 2.25% or at the lending bank's prime rate plus 0.5%. Cosmetic Center
also pays a commitment fee equal to one-quarter of one percent per annum.
Interest is payable on a monthly basis except for interest on LIBOR rate
loans with a maturity of less than three months, which is payable at the end
of the LIBOR rate loan period and interest on LIBOR rate loans with a
maturity of more than three months, which is payable every three months. If
Cosmetic Center terminates the Cosmetic Center Facility, Cosmetic Center is
obligated to pay a prepayment penalty of $0.7 if the termination occurs
before the first anniversary date of the Cosmetic Center Facility and $0.2 if
the termination occurs after the first anniversary date. The Cosmetic Center
Facility contains various restrictive covenants and requires Cosmetic Center
to maintain a minimum tangible net worth and an interest coverage ratio. At
December 31, 1997, approximately $39.0 was outstanding under the Cosmetic
Center Facility with an interest rate of 8.1%. The borrowings under the
Cosmetic Center Facility are included as part of net assets of discontinued
operations in the consolidated balance sheet (See Note 2).
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings at interest rates more favorable
to Products Corporation than the rate under the Credit Agreement. No such
borrowings were outstanding at December 31, 1997 or 1996.
The aggregate amounts of long-term debt maturities and sinking fund
requirements (at December 31, 1997), in the years 1998 through 2002 are $5.5,
$205.4, $26.2, $278.5 and $354.6, respectively, and $555.0 thereafter.
12. FINANCIAL INSTRUMENTS
As of December 31, 1997, Products Corporation was party to a series of
interest rate swap agreements totaling a notional amount of $225.0 in which
Products Corporation agreed to pay on such notional amount a variable
interest rate equal to the six month LIBOR to its counterparties and the
counterparties agreed to pay on such notional amount fixed interest rates
averaging approximately 6.03% per annum. Products Corporation entered into
these agreements in 1993 and 1994 (and in the
F-18
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
first quarter of 1996 extended a portion equal to a notional amount of $125.0
through December 2001) to convert the interest rate on $225.0 of fixed-rate
indebtedness to a variable rate. If Products Corporation had terminated these
agreements, which Products Corporation considered to be held for other than
trading purposes, on December 31, 1997 and 1996, a loss of approximately $0.1
and $3.5, respectively would have been realized. Certain other swap
agreements were terminated in 1993 for a gain of $14.0 that was amortized
over the original lives of the agreements through 1997. The amortization of
the 1993 realized gain in 1997, 1996 and 1995 was approximately $3.1, $3.2
and $3.2, respectively. Cash flow from the agreements outstanding at December
31, 1997 was approximately break even for 1997. In anticipation of repayment
of the hedged indebtedness, Products Corporation terminated these agreements
in January 1998 and realized a gain of approximately $1.6, which will be
recognized upon repayment of the hedged indebtedness.
Products Corporation enters into forward foreign exchange contracts and
option contracts from time to time to hedge certain cash flows denominated in
foreign currencies. At December 31, 1997 and 1996, Products Corporation had
forward foreign exchange contracts denominated in various currencies of
approximately $90.1 and $62.0, respectively, and option contracts of
approximately $94.9 outstanding at December 31, 1997. Such contracts are
entered into to hedge transactions predominantly occurring within twelve
months. If Products Corporation had terminated these contracts on December
31, 1997 and 1996, no material gain or loss would have been realized.
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair
value of long-term debt at December 31, 1997 and 1996 was approximately $39.0
and $37.3 more than the carrying value of $1,425.2 and $1,361.0,
respectively. Because considerable judgment is required in interpreting
market data to develop estimates of fair value, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid
in a current market exchange. The effect of using different market
assumptions or estimation methodologies may be material to the estimated fair
value amounts.
Products Corporation also maintains standby and trade letters of credit
with certain banks for various corporate purposes under which Products
Corporation is obligated, of which approximately $40.6 and $40.9 (including
amounts available under credit agreements in effect at that time) were
maintained at December 31, 1997 and 1996, respectively. Included in these
amounts are $27.7 and $26.4, respectively, in standby letters of credit which
support Products Corporation's self-insurance programs (See Note 16). The
estimated liability under such programs is accrued by Products Corporation.
The carrying amounts of cash and cash equivalents, trade receivables,
accounts payable and short-term borrowings approximate their fair values.
13. INCOME TAXES
In June 1992, Holdings, Revlon, Inc., Products Corporation and certain of
its subsidiaries, and Mafco Holdings entered into a tax sharing agreement (as
subsequently amended, the "Tax Sharing Agreement"), pursuant to which Mafco
Holdings has agreed to indemnify Revlon, Inc. and Products Corporation
against federal, state or local income tax liabilities of the consolidated or
combined group of which Mafco Holdings (or a subsidiary of Mafco Holdings
other than Revlon, Inc. and Products Corporation or its subsidiaries) is the
common parent for taxable periods beginning on or after January 1, 1992
during which Revlon, Inc. and Products Corporation or a subsidiary of
Products Corporation is a member of such group. Pursuant to the Tax Sharing
Agreement, for all taxable periods beginning on or after January 1, 1992,
Products Corporation will pay to Revlon, Inc., which in turn will pay Mafco
Holdings, amounts equal to the taxes that such corporation would otherwise
have
F-19
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
to pay if they were to file separate federal, state or local income tax
returns (including any amounts determined to be due as a result of a
redetermination arising from an audit or otherwise of the consolidated or
combined tax liability relating to any such period which is attributable to
Products Corporation), except that Products Corporation will not be entitled
to carry back any losses to taxable periods ending prior to January 1, 1992.
No payments are required by Products Corporation or Revlon, Inc. if and to
the extent that Products Corporation is prohibited under the Credit Agreement
from making tax sharing payments to Revlon, Inc. The Credit Agreement
prohibits Products Corporation from making any tax sharing payments other
than in respect of state and local income taxes. Since the payments to be
made by Products Corporation under the Tax Sharing Agreement will be
determined by the amount of taxes that Products Corporation would otherwise
have to pay if it were to file separate federal, state or local income tax
returns, the Tax Sharing Agreement will benefit Mafco Holdings to the extent
Mafco Holdings can offset the taxable income generated by Products
Corporation against losses and tax credits generated by Mafco Holdings and
its other subsidiaries. As a result of net operating tax losses and
prohibitions under the Credit Agreement there were no federal tax payments or
payments in lieu of taxes pursuant to the Tax Sharing Agreement for 1997,
1996 or 1995. Products Corporation has a liability of $0.9 to Revlon, Inc. in
respect of federal taxes for 1997 under the Tax Sharing Agreement.
Pursuant to the asset transfer agreement referred to in Note 16, Products
Corporation assumed all tax liabilities of Holdings other than (i) certain
income tax liabilities arising prior to January 1, 1992 to the extent such
liabilities exceeded reserves on Holdings' books as of January 1, 1992 or
were not of the nature reserved for and (ii) other tax liabilities to the
extent such liabilities are related to the business and assets retained by
Holdings.
The Company's income (loss) before income taxes and the applicable
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic.................................... $ 83.8 $10.2 $(35.4)
Foreign..................................... (15.5) 40.5 23.6
-------- ------- ---------
$ 68.3 $50.7 $(11.8)
======== ======= =========
Provision (benefit) for income taxes:
Federal..................................... $ 0.9 $ -- $ --
State and local............................. 1.1 1.2 3.4
Foreign..................................... 7.3 24.3 22.0
-------- ------- ---------
$ 9.3 $25.5 $ 25.4
======== ======= =========
Current..................................... $ 32.3 $22.7 $ 37.1
Deferred.................................... 10.4 6.6 3.0
Benefits of operating loss carryforwards ... (34.5) (4.7) (15.4)
Carryforward utilization applied to
goodwill................................... 1.1 1.0 0.8
Effect of enacted change of tax rates ...... -- (0.1) (0.1)
-------- ------- ---------
$ 9.3 $25.5 $ 25.4
======== ======= =========
</TABLE>
F-20
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
The effective tax rate on income (loss) before income taxes is reconciled
to the applicable statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate................ 35.0% 35.0% (35.0)%
State and local taxes, net of federal income tax
benefit......................................... 1.1 1.6 18.7
Foreign and U.S. tax effects attributable to
operations outside the U.S...................... 13.1 35.7 116.5
Nondeductible amortization expense............... 4.5 5.8 21.1
U.S. loss without benefit ....................... -- -- 94.0
Change in domestic valuation allowance........... (43.3) (29.2) --
Other............................................ 3.2 1.4 --
-------- -------- ---------
Effective rate................................... 13.6% 50.3% 215.3%
======== ======== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to doubtful
accounts............................................... $ 3.3 $ 3.9
Inventories............................................. 10.5 11.7
Net operating loss carryforwards........................ 206.9 257.4
Restructuring and related reserves...................... 9.4 10.2
Employee benefits....................................... 28.7 31.7
State and local taxes................................... 13.1 12.8
Self-insurance.......................................... 3.8 3.6
Advertising, sales discounts and returns and coupon
redemptions ........................................... 26.0 23.6
Other................................................... 25.3 23.9
--------- ---------
Total gross deferred tax assets........................ 327.0 378.8
Less valuation allowance............................... (279.3) (333.8)
--------- ---------
Net deferred tax assets................................ 47.7 45.0
Deferred tax liabilities:
Plant, equipment and other assets....................... (50.8) (43.9)
Inventories............................................. (0.2) (0.2)
Other................................................... (5.3) (6.9)
--------- ---------
Total gross deferred tax liabilities................... (56.3) (51.0)
--------- ---------
Net deferred tax liability............................. $ (8.6) $ (6.0)
========= =========
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1997 was
$333.8. The valuation allowance decreased by $54.5 and $10.2 during the years
ended December 31, 1997 and 1996, respectively, and increased by $19.2 during
the year ended December 31, 1995.
F-21
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
During 1997, 1996 and 1995 certain of the Company's foreign subsidiaries
used operating loss carryforwards to credit the current provision for income
taxes by $4.0, $4.7 and $15.4, respectively. Certain other foreign operations
generated losses during 1997, 1996 and 1995 for which the potential tax
benefit was reduced by a valuation allowance. During 1997, the Company used
domestic operating loss carryforwards to credit the current provision for
income taxes by $18.5 and the deferred provision for income taxes by $12.0.
At December 31, 1997, the Company had tax loss carryforwards of approximately
$578.9 which expire in future years as follows: 1998-$21.1; 1999-$25.3;
2000-$9.3; 2001-$15.9; and beyond-$386.4; unlimited-$120.9. Approximately
$43.6 of the tax loss carryforwards at December 31, 1997 is attributable to
discontinued operations and expire beyond 2001, some of which may not be
available to the Company upon the disposal of such operations and all of
which would not be available to the Company if the Company were not a member
of the Mafco Holdings consolidated federal income tax return. The Company
will receive a benefit only to the extent it has taxable income during the
carryforward periods in the applicable jurisdictions.
Appropriate United States and foreign income taxes have been accrued on
foreign earnings that have been or are expected to be remitted in the near
future. Unremitted earnings of foreign subsidiaries which have been, or are
currently intended to be, permanently reinvested in the future growth of the
business aggregated approximately $18.7 at December 31, 1997, excluding those
amounts which, if remitted in the near future, would not result in
significant additional taxes under tax statutes currently in effect.
14. POSTRETIREMENT BENEFITS
PENSIONS:
Products Corporation uses a September 30 date for measurement of plan
obligations and assets.
The following tables reconcile the funded status of Products Corporation's
significant pension plans with the respective amounts recognized in the
Consolidated Balance Sheets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
------------ ------------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1997, includes vested benefits of $304.5. ............. $(269.3) $(45.2) $(314.5)
============ ============= ==========
Projected benefit obligation as of September 30, 1997
for service rendered .................................. $(309.3) $(55.5) $(364.8)
Fair value of plan assets as of September 30, 1997 ...... 305.0 1.9 306.9
------------ ------------- ----------
Plan assets less than projected benefit obligation ...... (4.3) (53.6) (57.9)
Amounts contributed to plans during fourth quarter 1997 . 0.3 0.6 0.9
Unrecognized net (assets) obligation..................... (1.3) 0.2 (1.1)
Unrecognized prior service cost.......................... 6.5 3.2 9.7
Unrecognized net loss.................................... 0.2 12.7 12.9
Adjustment to recognize additional minimum liability .... -- (6.5) (6.5)
------------ ------------- ----------
Prepaid (accrued) pension cost......................... $ 1.4 $(43.4) $ (42.0)
============ ============= ==========
</TABLE>
F-22
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
OVERFUNDED UNDERFUNDED
PLANS PLANS TOTAL
------------ ------------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation as of September 30,
1996, includes vested benefits of $286.9............... $(163.7) $(131.4) $(295.1)
============ ============= ==========
Projected benefit obligation as of September 30, 1996
for service rendered .................................. $(198.1) $(141.4) $(339.5)
Fair value of plan assets as of September 30, 1996 ..... 173.3 81.6 254.9
------------ ------------- ----------
Plan assets less than projected benefit obligation ...... (24.8) (59.8) (84.6)
Amounts contributed to plans during fourth quarter 1996 . 0.2 0.5 0.7
Unrecognized net (assets) obligation..................... (1.5) 0.2 (1.3)
Unrecognized prior service cost.......................... 5.2 3.9 9.1
Unrecognized net loss.................................... 20.2 20.5 40.7
Adjustment to recognize additional minimum liability .... -- (15.3) (15.3)
------------ ------------- ----------
Accrued pension cost................................... $ (0.7) $ (50.0) $ (50.7)
============ ============= ==========
</TABLE>
The weighted average discount rate assumed was 7.75% for 1997 and 1996 for
domestic plans. For foreign plans, the weighted average discount rate was
7.1% and 7.9% for 1997 and 1996, respectively. The rate of future
compensation increases was 5.3% for 1997 and 1996 for domestic plans and was
a weighted average of 5.3% and 5.1% for 1997 and 1996, respectively, for
foreign plans. The expected long-term rate of return on assets was 9.0% for
1997 and 1996 for domestic plans and a weighted average of 10.1% for 1997 and
10.4% for 1996 for foreign plans.
Plan assets consist primarily of common stock, mutual funds and fixed
income securities, which are stated at fair market value and cash equivalents
which are stated at cost, which approximates fair market value.
In accordance with the provisions of SFAS No. 87, "Employers' Accounting
for Pensions," the Company recorded an additional liability to the extent
that, for certain U.S. plans, the unfunded accumulated benefit obligation
exceeded recorded liabilities. At December 31, 1997, the additional liability
was recognized by recording an intangible asset to the extent of unrecognized
prior service costs of $1.0, a due from affiliates of $1.0 and a charge to
stockholder's deficiency of $4.5. At December 31, 1996, the additional
liability was recognized by recording an intangible asset to the extent of
unrecognized prior service costs of $1.8, a due from affiliates of $1.1, and
a charge to stockholder's deficiency of $12.4.
F-23
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Net periodic pension cost for the pension plans consisted of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the
period........................................ $ 11.7 $ 10.6 $ 8.2
Interest cost on projected benefit obligation . 26.0 24.3 21.7
Actual return on plan assets................... (55.8) (30.4) (27.3)
Net amortization and deferrals................. 35.6 15.1 13.4
-------- -------- --------
17.5 19.6 16.0
Portion allocated to Holdings.................. (0.3) (0.3) (0.3)
-------- -------- --------
Net periodic pension cost of the Company ...... $ 17.2 $ 19.3 $ 15.7
======== ======== ========
</TABLE>
A substantial portion of the Company's employees in the United States are
covered by defined benefit retirement plans. To the extent that aggregate
pension costs could be identified as relating to the Company or to Holdings,
such costs have been so apportioned. The components of the net periodic
pension cost applicable solely to the Company are not presented as it is not
practical to segregate such information between Holdings and the Company. In
1997 and 1996, there was a settlement loss of $0.2 and $0.3, respectively,
and a curtailment loss of $0.1 and $1.0, respectively, resulting from
workforce reductions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company also has sponsored an unfunded retiree benefit plan, which
provides death benefits payable to beneficiaries of certain key employees and
former employees. Participation in this plan is limited to participants
enrolled as of December 31, 1993. The Company also administers a medical
insurance plan on behalf of Holdings, the cost of which has been apportioned
to Holdings. Net periodic postretirement benefit cost for each of the years
ended December 31, 1997, 1996 and 1995 was $0.7 which consists primarily of
interest on the accumulated postretirement benefit obligation. The Company's
date of measurement of plan obligations is September 30. At December 31, 1997
and 1996, the portion of accumulated benefit obligation attributable to
retirees was $7.3 and $6.9, respectively, and to other fully eligible
participants, $1.4 and $1.3, respectively. The amount of unrecognized gain at
December 31, 1997 and 1996 was $1.9 and $1.2, respectively. At December 31,
1997 and 1996, the accrued postretirement benefit obligation recorded on the
Company's Consolidated Balance Sheets was $10.6 and $9.4, respectively. Of
these amounts, $1.9 and $2.0 was attributable to Holdings and was recorded as
a receivable from affiliates at December 31, 1997 and 1996, respectively. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation at September 30, 1997 and 1996 was 7.75%.
15. STOCK COMPENSATION PLAN
At December 31, 1997 and 1996, Revlon, Inc. had a stock-based compensation
plan (the "Plan"), which is described below. Products Corporation applies APB
Opinion No. 25 and related Interpretations in accounting for the Plan. Under
APB Opinion No. 25, because the exercise price of Revlon, Inc.'s employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation cost has been recognized. Had compensation cost for
Revlon, Inc.'s Plan been determined consistent with SFAS No. 123, Products
Corporation's net income for 1997 of $44.8 ($19.0 in 1996) would have been
reduced to the pro forma amounts of $32.5 for 1997 ($15.8 in 1996). The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model assuming no dividend yield, expected
volatility of approximately 39% in 1997
F-24
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
and 31% in 1996; weighted average risk-free interest rate of 6.54% in 1997
and 5.99% in 1996; and a seven year expected average life for the Plan's
options issued in 1997 and 1996. The effects of applying SFAS No. 123 in this
pro forma disclosure are not necessarily indicative of future amounts.
Under the Plan, Revlon, Inc. may grant options to its employees for up to
an aggregate of 5.0 million shares of Class A Common Stock. Non-qualified
options granted under the Plan have a term of 10 years during which the
holder can purchase shares of Class A Common Stock at an exercise price which
must be not less than the market price on the date of the grant. Options
granted in 1996 to certain executive officers will not vest as to any portion
until the third anniversary of the grant date and will thereupon become 100%
vested, except that upon termination of employment by Revlon, Inc. other than
for "cause," death or "disability" under the applicable employment agreement,
such options will vest with respect to 25% of the shares subject thereto (if
the termination is between the first and second anniversaries of the grant)
and 50% of the shares subject thereto (if the termination is between the
second and third anniversaries of the grant). Primarily all other option
grants, including options granted to certain executive officers in 1997 will
vest 25% each year beginning on the first anniversary of the date of grant
and will become 100% vested on the fourth anniversary of the date of grant.
During 1997, Revlon, Inc. granted to Mr. Perelman, Chairman of the Executive
Committee, an option to purchase 300,000 shares of Revlon, Inc.'s Class A
Common Stock, which will vest in full on the fifth anniversary of the grant
date. At December 31, 1997 there were 98,450 options exercisable under the
Plan. At December 31, 1996 there were no options exercisable under the Plan.
A summary of the status of the Plan as of December 31, 1997 and 1996 and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
(000) EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at
2/28/96............... -- --
Granted................ 1,010.2 $24.37
Exercised.............. -- --
Forfeited.............. (119.1) 24.00
---------
Outstanding at
12/31/96.............. 891.1 24.37
Granted................ 1,485.5 32.64
Exercised.............. (12.1) 24.00
Forfeited.............. (85.1) 29.33
---------
Outstanding at
12/31/97.............. 2,279.4 29.57
=========
</TABLE>
The weighted average fair value of each option granted during 1997 and
1996 approximated $16.42 and $11.00, respectively.
The following table summarizes information about the Plan's options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OUTSTANDING YEARS AVERAGE
EXERCISE PRICES (000) REMAINING EXERCISE PRICE
- ---------------- ------------- ----------- --------------
<S> <C> <C> <C>
$24.00 to $29.88 817.9 8.17 $24.05
31.38 to 33.88 1,067.8 9.02 31.40
34.88 to 50.75 393.7 9.38 36.10
-------------
24.00 to 50.75 2,279.4 8.78 29.57
=============
</TABLE>
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
16. RELATED PARTY TRANSACTIONS
TRANSFER AGREEMENTS
In June 1992, Revlon, Inc. and Products Corporation entered into an asset
transfer agreement with Holdings and certain of its wholly owned subsidiaries
(the "Asset Transfer Agreement"), and Revlon, Inc. and Products Corporation
entered into a real property asset transfer agreement with Holdings (the
"Real Property Transfer Agreement" and, together with the Asset Transfer
Agreement, the "Transfer Agreements"), and pursuant to such agreements, on
June 24, 1992 Holdings transferred assets to Products Corporation and
Products Corporation assumed all the liabilities of Holdings, other than
certain specifically excluded assets and liabilities (the liabilities
excluded are referred to as the "Excluded Liabilities"). Holdings retained
the Retained Brands. Holdings agreed to indemnify Revlon, Inc. and Products
Corporation against losses arising from the Excluded Liabilities, and Revlon,
Inc. and Products Corporation agreed to indemnify Holdings against losses
arising from the liabilities assumed by Products Corporation. The amounts
reimbursed by Holdings to Products Corporation for the Excluded Liabilities
for 1997, 1996 and 1995 were $0.4, $1.4 and $4.0, respectively.
OPERATING SERVICES AGREEMENT
In June 1992, Revlon, Inc., Products Corporation and Holdings entered into
an operating services agreement (as amended and restated, and as subsequently
amended, the "Operating Services Agreement") pursuant to which Products
Corporation manufactures, markets, distributes, warehouses and administers,
including the collection of accounts receivable, the Retained Brands for
Holdings. Pursuant to the Operating Services Agreement, Products Corporation
is reimbursed an amount equal to all of its and Revlon, Inc.'s direct and
indirect costs incurred in connection with furnishing such services, net of
the amounts collected by Products Corporation with respect to the Retained
Brands, payable quarterly. The net amounts reimbursed by Holdings to Products
Corporation for such direct and indirect costs for 1997, 1996 and 1995 were
$1.4, $5.1 and $8.6, respectively. Holdings also pays Products Corporation a
fee equal to 5% of the net sales of the Retained Brands, payable quarterly.
The fees paid by Holdings to Products Corporation pursuant to the Operating
Services Agreement for services with respect to the Retained Brands for 1997,
1996 and 1995 were approximately $0.3, $0.6 and $1.7, respectively.
REIMBURSEMENT AGREEMENTS
Revlon, Inc., Products Corporation and MacAndrews Holdings have entered
into reimbursement agreements (the "Reimbursement Agreements") pursuant to
which (i) MacAndrews Holdings is obligated to provide (directly or through
affiliates) certain professional and administrative services, including
employees, to Revlon, Inc. and its subsidiaries, including Products
Corporation, and purchase services from third party providers, such as
insurance and legal and accounting services, on behalf of Revlon, Inc. and
its subsidiaries, including Products Corporation, to the extent requested by
Products Corporation, and (ii) Products Corporation is obligated to provide
certain professional and administrative services, including employees, to
MacAndrews Holdings (and its affiliates) and purchase services from third
party providers, such as insurance and legal and accounting services, on
behalf of MacAndrews Holdings (and its affiliates) to the extent requested by
MacAndrews Holdings, provided that in each case the performance of such
services does not cause an unreasonable burden to MacAndrews Holdings or
Products Corporation, as the case may be. The Company reimburses MacAndrews
Holdings for the allocable costs of the services purchased for or provided to
the Company and its subsidiaries and for reasonable out-of-pocket expenses
incurred in connection with the provision of such services. MacAndrews
Holdings (or such affiliates) reimburses the Company for the allocable costs
of the services purchased for or provided to MacAndrews Holdings (or such
F-26
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
affiliates) and for the reasonable out-of-pocket expenses incurred in
connection with the purchase or provision of such services. In addition, in
connection with certain insurance coverage provided by MacAndrews Holdings,
Products Corporation obtained letters of credit under the Special LC Facility
(which aggregated approximately $27.7 as of December 31, 1997) to support
certain self-funded risks of MacAndrews Holdings and its affiliates,
including the Company, associated with such insurance coverage. The costs of
such letters of credit are allocated among, and paid by, the affiliates of
MacAndrews Holdings, including the Company, which participate in the
insurance coverage to which the letters of credit relate. The Company expects
that these self-funded risks will be paid in the ordinary course and,
therefore, it is unlikely that such letters of credit will be drawn upon.
MacAndrews Holdings has agreed to indemnify Products Corporation to the
extent amounts are drawn under any of such letters of credit with respect to
claims for which neither Revlon, Inc. nor Products Corporation is
responsible. The net amounts reimbursed by MacAndrews Holdings to the Company
for the services provided under the Reimbursement Agreements for 1997, 1996
and 1995 were $4.0, $2.2 and $3.0, respectively. Each of Revlon, Inc. and
Products Corporation, on the one hand, and MacAndrews Holdings, on the other,
has agreed to indemnify the other party for losses arising out of the
provision of services by it under the Reimbursement Agreements other than
losses resulting from its willful misconduct or gross negligence. The
Reimbursement Agreements may be terminated by either party on 90 days'
notice. The Company does not intend to request services under the
Reimbursement Agreements unless their costs would be at least as favorable to
the Company as could be obtained from unaffiliated third parties.
TAX SHARING AGREEMENT
Holdings, Revlon, Inc., Products Corporation and certain of its
subsidiaries and Mafco Holdings are parties to the Tax Sharing Agreement,
which is described in Note 13. Since payments to be made under the Tax
Sharing Agreement will be determined by the amount of taxes that Products
Corporation would otherwise have to pay if it were to file separate federal,
state or local income tax returns, the Tax Sharing Agreement will benefit
Mafco Holdings to the extent Mafco Holdings can offset the taxable income
generated by Products Corporation against losses and tax credits generated by
Mafco Holdings and its other subsidiaries.
FINANCING REIMBURSEMENT AGREEMENT
Holdings and Products Corporation entered into a financing reimbursement
agreement (the "Financing Reimbursement Agreement") in 1992, which expired on
June 30, 1996, pursuant to which Holdings agreed to reimburse Products
Corporation for Holdings' allocable portion of (i) the debt issuance cost and
advisory fees related to the capital restructuring of Holdings, and (ii)
interest expense attributable to the higher cost of funds paid by Products
Corporation under the credit agreement in effect at that time as a result of
additional borrowings for the benefit of Holdings in connection with the
assumption of certain liabilities by Products Corporation under the Asset
Transfer Agreement and the repurchase of certain subordinated notes from
affiliates. The amount of interest to be reimbursed by Holdings for 1994 was
approximately $0.8 and was evidenced by noninterest-bearing promissory notes
originally due and payable on June 30, 1995. In February 1995, the $13.3 in
notes then payable by Holdings to Products Corporation under the Financing
Reimbursement Agreement was offset against a $25.0 note payable by Products
Corporation to Holdings and Holdings agreed not to demand payment under the
resulting $11.7 note payable by Products Corporation so long as any
indebtedness remained outstanding under the credit agreement then in effect.
In February 1995, the Financing Reimbursement Agreement was amended and
extended to provide that Holdings would reimburse Products Corporation for a
portion of the debt issuance costs and advisory fees related to the credit
agreement then in effect (which portion was approximately $4.7 and was
evidenced by a
F-27
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
noninterest-bearing promissory note payable on June 30, 1996) and 1 1/2 % per
annum of the average balance outstanding under the credit agreement then in
effect and the average balance outstanding under working capital borrowings
from affiliates through June 30, 1996 and such amounts were evidenced by a
noninterest-bearing promissory note payable on June 30, 1996. The amount of
interest to be reimbursed by Holdings for 1995 was approximately $4.2. As of
December 31, 1995, the aggregate amount of notes payable by Holdings under
the Financing Reimbursement Agreement was $8.9. In June 1996, $10.9 in notes
due to Products Corporation, which included $2.0 of interest reimbursement
from Holdings in 1996, under the Financing Reimbursement Agreement was offset
against an $11.7 demand note payable by Products Corporation to Holdings.
OTHER
Pursuant to a lease dated April 2, 1993 (the "Edison Lease"), Holdings
leases to Products Corporation the Edison research and development facility
for a term of up to 10 years with an annual rent of $1.4 and certain shared
operating expenses payable by Products Corporation which, together with the
annual rent, are not to exceed $2.0 per year. Pursuant to an assumption
agreement dated February 18, 1993, Holdings agreed to assume all costs and
expenses of the ownership and operation of the Edison facility as of January
1, 1993, other than (i) the operating expenses for which Products Corporation
is responsible under the Edison Lease and (ii) environmental claims and
compliance costs relating to matters which occurred prior to January 1, 1993
up to an amount not to exceed $8.0 (the amount of such claims and costs for
which Products Corporation is responsible, the "Environmental Limit"). In
addition, pursuant to such assumption agreement, Products Corporation agreed
to indemnify Holdings for environmental claims and compliance costs relating
to matters which occurred prior to January 1, 1993 up to an amount not to
exceed the Environmental Limit and Holdings agreed to indemnify Products
Corporation for environmental claims and compliance costs relating to matters
which occurred prior to January 1, 1993 in excess of the Environmental Limit
and all such claims and costs relating to matters occurring on or after
January 1, 1993. Pursuant to an occupancy agreement, during 1997, 1996 and
1995 Products Corporation rented from Holdings a portion of the
administration building located at the Edison facility and space for a retail
store of Products Corporation. Products Corporation provides certain
administrative services, including accounting, for Holdings with respect to
the Edison facility pursuant to which Products Corporation pays on behalf of
Holdings costs associated with the Edison facility and is reimbursed by
Holdings for such costs, less the amount owed by Products Corporation to
Holdings pursuant to the Edison Lease and the occupancy agreement. The net
amount reimbursed by Holdings to Products Corporation for such costs with
respect to the Edison facility for 1997, 1996 and 1995 was $0.7, $1.1 and
$1.2, respectively.
During 1997, a subsidiary of Products Corporation sold an inactive
subsidiary to an affiliate for approximately $1.0.
Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and liabilities of the Bill Blass business
not already owned by Products Corporation. The contributed assets
approximated the contributed liabilities and were accounted for at historical
cost in a manner similar to that of a pooling of interests and, accordingly,
prior period financial statements were restated as if the contribution took
place prior to the beginning of the earliest period presented.
In the fourth quarter of 1996, a subsidiary of Products Corporation
purchased an inactive subsidiary from an affiliate for net cash consideration
of approximately $3.0 in a series of transactions in which Products
Corporation expects to realize foreign tax benefits in future years.
Effective January 1, 1996, Products Corporation acquired from Holdings
substantially all of the assets of Tarlow in consideration for the assumption
of substantially all of the liabilities and obligations of Tarlow. Net
liabilities assumed were approximately $3.4. The assets acquired and
F-28
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
liabilities assumed were accounted for at historical cost in a manner similar
to that of a pooling of interests and, accordingly, prior period financial
statements have been restated as if the acquisition took place at the
beginning of the earliest period. Products Corporation paid $4.1 to Holdings
which was accounted for as an increase in capital deficiency. A nationally
recognized investment banking firm rendered its written opinion that the
terms of the purchase are fair from a financial standpoint to Products
Corporation.
Products Corporation leases certain facilities to MacAndrews & Forbes or
its affiliates pursuant to occupancy agreements and leases. These included
space at Products Corporation's New York headquarters and at Products
Corporation's offices in London during 1997, 1996 and 1995; in Tokyo during
1996 and 1995 and in Hong Kong during 1997. The rent paid by MacAndrews &
Forbes or its affiliates to Products Corporation for 1997, 1996 and 1995 was
$3.8, $4.6 and $5.3, respectively.
In July 1995, Products Corporation borrowed from Holdings approximately
$0.8, representing certain amounts received by Holdings relating to an
arbitration arising out of the sale by Holdings of certain of its businesses.
In 1995, Products Corporation borrowed from Holdings approximately $5.6,
representing certain amounts received by Holdings from the sale by Holdings
of certain of its businesses.
In June 1997, Products Corporation borrowed from Holdings approximately
$0.5, representing certain amounts received by Holdings from the sale of a
brand and inventory relating thereto. Such amounts are evidenced by
noninterest-bearing promissory notes. Holdings agreed not to demand payment
under such notes so long as any indebtedness remains outstanding under the
Credit Agreement.
The Credit Agreement is supported by, among other things, guarantees from
Holdings and certain of its subsidiaries. The obligations under such
guarantees are secured by, among other things, (i) the capital stock and
certain assets of certain subsidiaries of Holdings and (ii) a mortgage on
Holdings' Edison, New Jersey facility.
Products Corporation borrows funds from its affiliates from time to time
to supplement its working capital borrowings. No such borrowings were
outstanding as of December 31, 1997, 1996 or 1995. The interest rates for
such borrowings are more favorable to Products Corporation than interest
rates under the Credit Agreement and, for borrowings occurring prior to the
execution of the Credit Agreement, the credit facility in effect at the time
of such borrowing. The amount of interest paid by Products Corporation for
such borrowings for 1997, 1996 and 1995 was $0.6, $0.5 and $1.2,
respectively.
In November 1993, Products Corporation assigned to Holdings a lease for
warehouse space in New Jersey (the "N.J. Warehouse") between Products
Corporation and a trust established for the benefit of certain family members
of the Chairman of the Executive Committee. The N.J. Warehouse had become
vacant as a result of divestitures and restructuring of Products Corporation.
The lease has annual lease payments of approximately $2.3 and terminates on
June 30, 2005. In consideration for Holdings assuming all liabilities and
obligations under the lease, Products Corporation paid Holdings $7.5 (for
which a liability was previously recorded) in three installments of $2.5 each
in January 1994, January 1995 and January 1996. A nationally recognized
investment banking firm rendered its written opinion that the terms of the
lease transfer were fair from a financial standpoint to Products Corporation.
During 1996 and 1995, Products Corporation paid certain costs associated with
the N.J. Warehouse on behalf of Holdings and was reimbursed by Holdings for
such amounts. The amounts reimbursed by Holdings to Products Corporation for
such costs were $0.2 and $0.2 for 1996 and 1995, respectively.
F-29
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
During 1997, 1996 and 1995, Products Corporation used an airplane owned by
a corporation of which Messrs. Gittis, Drapkin and, during 1995 and 1996,
Levin were the sole stockholders, for which Products Corporation paid
approximately $0.2, $0.2 and $0.4 for 1997, 1996 and 1995, respectively.
During 1997, Products Corporation purchased products from an affiliate,
for which it paid approximately $0.9.
During 1997, Products Corporation provided licensing services to an
affiliate, for which Products Corporation has been paid approximately $0.7.
An affiliate of Products Corporation assembles lipstick cases for Products
Corporation. Products Corporation paid approximately $0.9, $1.0 and $1.0 for
such services for 1997, 1996 and 1995, respectively.
In January 1995, Products Corporation agreed to license certain of its
trademarks to a former affiliate of MacAndrews & Forbes. The amount paid to
Products Corporation pursuant to such license for 1995 was less than $0.1.
The affiliate purchased $1.1 of wigs from Products Corporation during 1995.
Products Corporation terminated the license with the affiliate during 1995.
17. COMMITMENTS AND CONTINGENCIES
The Company currently leases manufacturing, executive, including research
and development, and sales facilities and various types of equipment under
operating lease agreements. Rental expense was $46.1, $46.7 and $44.5 for the
years ended December 31, 1997, 1996 and 1995, respectively. Minimum rental
commitments under all noncancelable leases, including those pertaining to
idled facilities and the Edison research and development facility, with
remaining lease terms in excess of one year from December 31, 1997 aggregated
$146.6; such commitments for each of the five years subsequent to December
31, 1997 are $32.4, $29.4, $25.8, $22.0 and $20.7, respectively. Such amounts
exclude the minimum rentals to be received in the future under noncancelable
subleases of $4.2 and future minimum lease commitments of the discontinued
operations under noncancelable operating leases with initial lease terms in
excess of one year from December 31, 1997 aggregating $54.5; such commitments
for each of the five years subsequent to December 31, 1997 are $10.8, $10.4,
$8.8, $7.3 and $6.0, respectively.
The Company and its subsidiaries are defendants in litigation and
proceedings involving various matters. In the opinion of the Company's
management, based upon advice of its counsel handling such litigation and
proceedings, adverse outcomes, if any, will not result in a material effect
on the Company's consolidated financial condition or results of operations.
F-30
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (A)
---------------------------------------------
1ST 2ND 3RD 4TH
QUARTER (B) QUARTER (B) QUARTER QUARTER
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................... $480.0 $537.7 $581.0 $639.9
Gross profit ............................ 319.6 356.5 389.3 430.1
(Loss) income before extraordinary item (25.1) 9.7 33.4 41.7
Net (loss) income ....................... (25.1) (5.2)(c) 33.4 41.7
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (A)(B)
-------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $452.1 $502.1 $551.7 $586.2
Gross profit............................ 305.1 338.9 368.1 391.1
(Loss) income before extraordinary
item................................... (29.0) 1.5 21.6 31.5
Net (loss) income ...................... (35.6)(d) 1.5 21.6 31.5
</TABLE>
(a) On June 8, 1998, the Company announced its intention to dispose of its
retail and outlet store business comprised of its approximately 85% ownership
interest in Cosmetic Center. The results of operations of Cosmetic Center have
been reported as a discontinued operation and, accordingly, all prior periods
have been restated (See Note 2).
(b) Effective July 1, 1997, Holdings contributed to Products Corporation
substantially all of the assets and liabilities of the Bill Blass business
not already owned by Products Corporation. The contributed assets
approximated the contributed liabilities and were accounted for at historical
cost in a manner similar to that of a pooling of interests and, accordingly,
prior period financial statements were restated as if the contribution took
place prior to the beginning of the earliest period presented.
(c) Includes the extraordinary charges of $14.9 resulting from the
write-off in the second quarter of 1997 of deferred financing costs
associated with the early extinguishment of borrowings and the redemption of
Products Corporation's Sinking Fund Debentures.
(d) Includes an extraordinary charge of $6.6 resulting from the write-off
of deferred financing costs associated with the early extinguishment of
borrowings.
19. GEOGRAPHIC SEGMENTS
The Company manages its business on the basis of one reportable segment.
See Note 1 for a brief description of the Company's business. As of December
31, 1997, the Company had operations established in 26 countries outside of
the United States and its products are sold throughout the world. The Company
is exposed to the risk of changes in social, political and economic
conditions inherent in foreign operations and the Company's results of
operations and the value of its foreign assets are affected by fluctuations
in foreign currency exchange rates. The Company's operations in Brazil have
accounted for approximately 5.8%, 6.3% and 6.4% of the Company's net sales
for 1997, 1996 and 1995, respectively. Net sales by geographic area are
presented by attributing revenues from external customers on the basis of
where the products are sold. During 1997 and 1996, one customer and its
affiliates accounted for approximately 10.3% and 10.5% of the Company's
consolidated net sales, respectively. This data is presented in accordance
with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which the Company has retroactively adopted for all periods
presented.
F-31
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
GEOGRAPHIC AREAS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
United
States....... $1,300.2 $1,182.3 $1,042.7
International 938.4 909.8 824.6
---------- ---------- ----------
$2,238.6 $2,092.1 $1,867.3
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1996
-------- -------- --
<S> <C> <C> <C>
Long-lived assets:
United States.............. $545.4 $545.4
International.............. 280.5 245.9
-------- --------
$825.9 $791.3
======== ========
CLASSES OF SIMILAR PRODUCTS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Cosmetics, skin care and
fragrances....................... $1,319.6 $1,216.3 $1,038.8
Personal care and professional ... 919.0 875.8 828.5
---------- ---------- ----------
$2,238.6 $2,092.1 $1,867.3
========== ========== ==========
</TABLE>
20. SUBSEQUENT EVENT (UNAUDITED)
On February 2, 1998, an affiliate of the Company, Revlon Escrow Corp.,
issued notes in the aggregate amount of $900.0 (the "Notes"). The net
proceeds of $880 (net of discounts, fees and expenses) were deposited with an
escrow agent and substantially all of such proceeds will be used to fund the
redemptions by Products Corporation of its Senior Subordinated Notes and the
Senior Notes, including prepayment premiums for early redemptions. Products
Corporation will assume the obligations of Revlon Escrow Corp. under the
Notes upon consummation of such redemptions. In connection with the early
redemptions of the Senior Notes and Senior Subordinated Notes, the Company
expects to record an extraordinary loss of up to $52 in 1998.
F-32
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 35.6 $ 37.4
Trade receivables, less allowances of $26.7 and $25.9,
respectively.......................................... 479.1 492.5
Inventories............................................ 309.7 260.7
Prepaid expenses and other............................. 96.7 96.2
--------------- --------------
Total current assets.................................. 921.1 886.8
Property, plant and equipment, net...................... 369.3 364.0
Other assets............................................ 164.5 142.7
Intangible assets, net.................................. 376.9 319.2
Net assets of discontinued operations................... 30.3 45.1
--------------- --------------
Total assets.......................................... $1,862.1 $1,757.8
=============== ==============
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current liabilities:
Short-term borrowings--third parties................... $ 45.6 $ 42.7
Current portion of long-term debt--third parties ...... 5.2 5.5
Accounts payable....................................... 186.8 178.8
Accrued expenses and other............................. 289.0 356.0
--------------- --------------
Total current liabilities............................. 526.6 583.0
Long-term debt--third parties........................... 1,641.9 1,388.8
Long-term debt--affiliates.............................. 26.2 30.9
Other long-term liabilities............................. 209.7 211.8
Stockholder's deficiency:
Preferred stock, par value $1.00 per share; 1,000
shares
authorized, 546 issued and outstanding................ 54.6 54.6
Common stock, par value $1.00 per share; 1,000 shares
authorized, issued and outstanding.................... -- --
Capital deficiency..................................... (230.8) (230.8)
Accumulated deficit since June 24, 1992................ (329.7) (256.8)
Accumulated other comprehensive loss................... (36.4) (23.7)
--------------- --------------
Total stockholder's deficiency........................ (542.3) (456.7)
--------------- --------------
Total liabilities and stockholder's deficiency ....... $1,862.1 $1,757.8
=============== ==============
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-33
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales............................................ $1,621.7 $1,598.7
Cost of sales........................................ 543.4 533.3
---------- ----------
Gross profit........................................ 1,078.3 1,065.4
Selling, general and administrative expenses ........ 957.0 920.1
Business consolidation costs and other, net ......... (7.1) 4.4
---------- ----------
Operating income.................................... 128.4 140.9
---------- ----------
Other expenses (income):
Interest expense.................................... 103.3 99.2
Interest and net investment income.................. (3.8) (3.1)
Amortization of debt issuance costs................. 3.9 5.3
Foreign currency losses, net........................ 4.7 5.2
Miscellaneous, net.................................. 3.6 3.8
---------- ----------
Other expenses, net................................ 111.7 110.4
---------- ----------
Income from continuing operations before income
taxes................................................ 16.7 30.5
Provision for income taxes........................... 6.4 9.2
---------- ----------
Income from continuing operations.................... 10.3 21.3
Loss from discontinued operations.................... (16.5) (3.3)
Loss on disposal of discontinued operations ......... (15.0) --
---------- ----------
Loss from discontinued operations.................... (31.5) (3.3)
Extraordinary items--early extinguishments of
debt............................................... (51.7) (14.9)
---------- ----------
Net (loss) income.................................... $ (72.9) $ 3.1
========== ==========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-34
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S
DEFICIENCY AND COMPREHENSIVE LOSS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
PREFERRED CAPITAL ACCUMULATED COMPREHENSIVE COMPREHENSIVE
STOCK DEFICIENCY DEFICIT LOSS (A) LOSS
----------- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997........ $54.6 $(231.1) $(301.6) $(18.2)
Net income..................... 3.1 $ 3.1
Net capital contribution ...... 0.3 (c)
Currency translation
adjustment.................... (12.4) (12.4)
----------- ------------ ------------- --------------- ---------------
Balance, September 30, 1997 .... $54.6 $(230.8) $(298.5) $(30.6) $ (9.3)
=========== ============ ============= =============== ===============
Balance, January 1, 1998........ $54.6 $(230.8) $(256.8) $(23.7)
Net loss....................... (72.9) $(72.9)
Revaluation of marketable
securities.................... (2.4) (2.4)
Currency translation
adjustment.................... (10.3)(b) (10.3)(b)
----------- ------------ ------------- --------------- ---------------
Balance, September 30, 1998 .... $54.6 $(230.8) $(329.7) $(36.4) $(85.6)
=========== ============ ============= =============== ===============
</TABLE>
- ------------
(a) Accumulated other comprehensive loss includes a revaluation of
marketable securities of $2.4 for the nine months ended September 30,
1998, currency translation adjustments of $29.5 and $18.2 as of
September 30, 1998 and 1997, respectively, and adjustments for the
minimum pension liability of $4.5 and $12.4 as of September 30, 1998
and 1997, respectively.
(b) Accumulated other comprehensive loss and comprehensive loss each
include a reclassification adjustment of $2.2 for realized gains
associated with the sale of certain International operations assets.
(c) Represents change in capital from the acquisition of the Bill Blass
business.
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-35
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................................... $ (72.9) $ 3.1
Adjustments to reconcile net (loss) income to net cash (used for)
provided by operating activities:
Depreciation and amortization............................................ 80.6 74.8
Gain on sale of business interests and certain fixed assets, net ........ (7.1) (1.0)
Loss from discontinued operations........................................ 31.5 3.3
Extraordinary items...................................................... 51.7 14.9
Change in assets and liabilities:
Decrease (increase) in trade receivables................................ 14.2 (36.9)
Increase in inventories................................................. (50.5) (43.8)
Increase in prepaid expenses and other current assets................... (5.9) (5.9)
Increase (decrease) in accounts payable................................. 3.0 (12.1)
Decrease in accrued expenses and other current liabilities ............. (76.4) (49.3)
Other, net.............................................................. (63.9) (57.8)
--------- ---------
Net cash used for operating activities.................................... (95.7) (110.7)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................... (40.5) (27.8)
Proceeds from the sale of business interests and certain fixed assets .... 13.7 2.5
Acquisition of businesses, net of cash acquired........................... (57.6) (33.7)
--------- ---------
Net cash used for investing activities.................................... (84.4) (59.0)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings--third parties...................... 1.3 2.5
Proceeds from the issuance of long-term debt--third parties .............. 1,178.9 681.7
Repayment of long-term debt--third parties................................ (961.8) (506.1)
Proceeds from the issuance of debt--affiliates............................ 105.9 91.1
Repayment of debt--affiliates............................................. (110.6) (90.6)
Net contribution from parent.............................................. -- 0.3
Payment of debt issuance costs............................................ (16.5) (4.1)
--------- ---------
Net cash provided by financing activities................................. 197.2 174.8
--------- ---------
Effect of exchange rate changes on cash and cash equivalents ............. (2.0) (1.3)
Net cash used for discontinued operations................................. (16.9) (2.8)
--------- ---------
Net (decrease) increase in cash and cash equivalents..................... (1.8) 1.0
Cash and cash equivalents at beginning of period......................... 37.4 35.1
--------- ---------
Cash and cash equivalents at end of period............................... $ 35.6 $ 36.1
========= =========
Supplemental schedule of cash flow information:
Cash paid for:
Interest................................................................ $ 116.2 $ 108.6
Income taxes, net of refunds............................................ 9.8 8.8
Supplemental schedule of noncash investing activities:
Liabilities assumed in connection with business acquisitions
(including discontinued operations):
Fair value of assets acquired........................................... $ 74.5 $ 129.4
Cash paid............................................................... (57.6) (57.7)
--------- ---------
Liabilities assumed..................................................... $ 16.9 $ 71.7
========= =========
</TABLE>
See Notes to Unaudited Consolidated Condensed Financial Statements.
F-36
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Revlon Consumer Products Corporation ("Products Corporation" and together
with its subsidiaries, the "Company") is a direct wholly owned subsidiary of
Revlon, Inc., which is an indirect majority owned subsidiary of MacAndrews &
Forbes Holdings Inc., a corporation wholly owned indirectly by Mafco Holdings
Inc.
The accompanying Consolidated Condensed Financial Statements are
unaudited. In management's opinion, all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been made.
The Unaudited Consolidated Condensed Financial Statements include the
accounts of the Company after elimination of all material intercompany
balances and transactions. The Company has made a number of estimates and
assumptions relating to the assets and liabilities, the disclosure of
contingent assets and liabilities and the reporting of revenues and expenses
to prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates. The
Unaudited Consolidated Condensed Financial Statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997. The financial information contained in this Quarterly
Report on Form 10-Q reflects the treatment of The Cosmetic Center, Inc.
("CCI") as a discontinued operation (See Note 6).
The results of operations and financial position, including working
capital, for interim periods are not necessarily indicative of those to be
expected for a full year, due, in part, to seasonal fluctuations, which are
normal for the Company's business.
The Company matches advertising and promotion expenses with sales revenues
for interim reporting purposes. Advertising and promotion expenses estimated
for a full year are charged to earnings for interim reporting purposes in
proportion to the relationship that net sales for such period bear to
estimated full year net sales. As a result, for the nine months ended
September 30, 1998 and 1997, disbursements and commitments for advertising
and promotion exceeded advertising and promotion expenses by $48.4 and $38.7,
respectively, and such amounts were deferred.
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income (loss) and its components in a full set of
general-purpose financial statements. The components of comprehensive income
(loss) are comprised of net income (loss), changes in the currency
translation adjustment, adjustments for minimum pension liability and changes
in the valuation of marketable securities.
During 1998, the Company adopted Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of certain development costs of software to be
used internally. The adoption of this statement did not have a material
effect on the Company's financial condition or results of operations.
F-37
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- --------------
<S> <C> <C>
Raw materials and
supplies.................. $ 97.1 $ 82.6
Work-in-process............ 21.5 14.9
Finished goods............. 191.1 163.2
--------------- --------------
$309.7 $260.7
=============== ==============
</TABLE>
3. REFINANCING
On February 2, 1998, Revlon Escrow Corp. ("Revlon Escrow"), an affiliate
of Products Corporation, issued and sold in a private placement $650.0
aggregate principal amount of 8 5/8% Senior Subordinated Notes due 2008 (the
"8 5/8% Notes") and $250.0 aggregate principal amount of 8 1/8% Senior Notes
due 2006 (the "8 1/8% Notes" and, together with the 8 5/8% Notes, the
"Notes"), with the net proceeds of approximately $886 deposited into escrow.
The proceeds from the sale of the Notes were used to finance the redemption
by Products Corporation of $555.0 aggregate principal amount of its 10 1/2%
Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes") and
$260.0 aggregate principal amount of its 9 3/8% Senior Notes due 2001 (the
"Senior Notes"). Products Corporation delivered a redemption notice to the
holders of the Senior Subordinated Notes for the redemption of the Senior
Subordinated Notes on March 4, 1998, at which time Products Corporation
assumed the obligations under the 8 5/8% Notes and the related indenture (the
"8 5/8% Notes Assumption"), and to the holders of the Senior Notes for the
redemption of the Senior Notes on April 1, 1998, at which time Products
Corporation assumed the obligations under the 8 1/8% Notes and the related
indenture (the "8 1/8% Notes Assumption" and, together with the 8 5/8% Notes
Assumption, the "Assumption"). In connection with the redemptions of the
Senior Subordinated Notes and the Senior Notes, the Company recorded an
extraordinary loss of $51.7 in the first half of 1998 resulting primarily
from the write-off of deferred financing costs and payment of call premiums
on the Senior Subordinated Notes and the Senior Notes. On May 7, 1998,
substantially all of the Notes were exchanged for registered notes with
substantially identical terms (the Notes and the registered exchange notes
shall each be referred to as the Notes).
The 8 5/8% Notes are general unsecured obligations of Products Corporation
and are (i) subordinate in right of payment to all existing and future Senior
Debt (as defined in the indenture relating to the 8 5/8% Notes (the "8 5/8%
Notes Indenture")) of Products Corporation, including the 9 1/2% Senior Notes
due 1999 (the "1999 Notes") until the maturity or earlier retirement thereof,
the 9% Notes (as defined in Note 8), the 8 1/8% Notes and the indebtedness
under the credit agreement which became effective in May 1997 (as
subsequently amended, the "Credit Agreement"), (ii) pari passu in right of
payment with all future senior subordinated debt, if any, of Products
Corporation and (iii) senior in right of payment to all future subordinated
debt, if any, of Products Corporation. The 8 5/8% Notes are effectively
subordinated to the outstanding indebtedness and other liabilities of
Products Corporation's subsidiaries. Interest is payable on February 1 and
August 1.
The 8 5/8% Notes may be redeemed at the option of Products Corporation in
whole or from time to time in part at any time on or after February 1, 2003
at the redemption prices set forth in the 8 5/8% Notes Indenture. In
addition, at any time prior to February 1, 2001, Products Corporation may
redeem up to 35% of the aggregate principal amount of the 8 5/8% Notes
originally issued at a redemption price of 108 5/8% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date fixed
for redemption, with, and to the extent Products Corporation receives, the
net cash proceeds of one or more Public Equity Offerings (as defined in the
8 5/8% Notes Indenture),
F-38
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
provided that at least $422.5 aggregate principal amount of the 8 5/8% Notes
remains outstanding immediately after the occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 5/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 5/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the
Applicable Premium (as defined in the 8 5/8% Notes Indenture) and, subject to
certain conditions, each holder of the 8 5/8% Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
8 5/8% Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the date of repurchase.
The 8 5/8% Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
dividends on capital stock of Products Corporation and its subsidiaries and
the redemption of capital stock of Products Corporation, (v) the sale of
assets and subsidiary stock, (vi) transactions with affiliates, (vii)
consolidations, mergers and transfers of all or substantially all Products
Corporation's assets and (viii) the issuance of additional subordinated debt
that is senior in right of payment to the 8 5/8% Notes. The 8 5/8% Notes
Indenture also prohibits certain restrictions on distributions from
subsidiaries. All of these limitations and prohibitions, however, are subject
to a number of important qualifications.
The 8 1/8% Notes are senior unsecured obligations of Products Corporation
and rank pari passu in right of payment with all existing and future Senior
Debt (as defined in the indenture relating to the 8 1/8% Notes (the "8 1/8%
Notes Indenture")) of Products Corporation, including the 1999 Notes until
the maturity or earlier retirement thereof, the 9% Notes and the indebtedness
under the Credit Agreement, and senior to the 8 5/8% Notes and to all future
subordinated indebtedness of Products Corporation. The 8 1/8% Notes are
effectively subordinated to the outstanding indebtedness and other
liabilities of Products Corporation's subsidiaries. Interest is payable on
February 1 and August 1.
The 8 1/8% Notes may be redeemed at the option of Products Corporation in
whole or from time to time in part at any time on or after February 1, 2002
at the redemption prices set forth in the 8 1/8% Notes Indenture. In
addition, at any time prior to February 1, 2001, Products Corporation may
redeem up to 35% of the aggregate principal amount of the 8 1/8% Notes
originally issued at a redemption price of 108 1/8% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date fixed
for redemption, with, and to the extent Products Corporation receives, the
net cash proceeds of one or more Public Equity Offerings (as defined in the
8 1/8% Notes Indenture), provided that at least $162.5 aggregate principal
amount of the 8 1/8% Notes remains outstanding immediately after the
occurrence of each such redemption.
Upon a Change of Control (as defined in the 8 1/8% Notes Indenture),
Products Corporation will have the option to redeem the 8 1/8% Notes in whole
at a redemption price equal to the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of redemption plus the
Applicable Premium (as defined in the 8 1/8% Notes Indenture) and, subject to
certain conditions, each holder of the 8 1/8% Notes will have the right to
require Products Corporation to repurchase all or a portion of such holder's
8 1/8% Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the date of repurchase.
The 8 1/8% Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by Products
Corporation, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by Products Corporation's subsidiaries, (iv) the payment of
F-39
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
dividends on capital stock of Products Corporation and its subsidiaries and
the redemption of capital stock of Products Corporation, (v) the sale of
assets and subsidiary stock, (vi) transactions with affiliates and (vii)
consolidations, mergers and transfers of all or substantially all Products
Corporation's assets. The 8 1/8% Notes Indenture also prohibits certain
restrictions on distributions from subsidiaries. All of these limitations and
prohibitions, however, are subject to a number of important qualifications.
4. BUSINESS CONSOLIDATION COSTS AND OTHER, NET
In the third quarter of 1998 the Company recognized a gain of
approximately $7.1 on the sale of the wigs and hairpieces portion of its U.S.
operation. In connection with the business consolidation costs and other,
net, recorded in 1997, the Company made cash payments for severance of $5.3
and cash payments for other business consolidation costs of $1.7 during the
nine months ended September 30, 1998, which payments reduced accrued expenses
and other as of September 30, 1998. As of September 30, 1998, the unpaid
balance of the business consolidation costs included in accrued expenses and
other was $4.0.
5. ACQUISITIONS
During the second quarter of 1998, the Company consummated acquisitions
for a combined purchase price of approximately $62.6, with resulting goodwill
recorded under the purchase method of $63.7.
6. DISCONTINUED OPERATIONS
In the second quarter of 1998, the Company determined to exit the retail
and outlet store business comprised of its 85% ownership interest in CCI and
recorded an estimated loss on disposal of $15.0. The results of operations of
CCI have been reported as a discontinued operation and, accordingly, all
prior periods have been restated. The net assets of CCI included in the
accompanying unaudited consolidated condensed balance sheets consist
primarily of inventory and intangible assets, offset by third party debt,
minority interest and a reserve for estimated loss on disposal.
7. GEOGRAPHIC SEGMENTS
The Company manages its business on the basis of one reportable segment.
The Company is exposed to the risk of changes in social, political and
economic conditions inherent in foreign operations and the Company's results
of operations and the value of its foreign assets and liabilities are
affected by such factors and by fluctuations in foreign currency exchange
rates. The Company's operations in Brazil have accounted for approximately
5.6% and 6.0% of the Company's net sales for the nine months ended September
30, 1998 and 1997, respectively. Net sales by geographic area are presented
by attributing revenues from external customers on the basis of where the
products are sold.
F-40
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN MILLIONS)
GEOGRAPHIC AREAS:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net sales:
United States...................... $ 954.7 $ 925.7
International...................... 667.0 673.0
-------------- --------------
$1,621.7 $1,598.7
============== ==============
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
Long-lived assets:
United States...................... $ 627.0 $ 545.4
International...................... 283.7 280.5
-------------- --------------
$ 910.7 $ 825.9
============== ==============
CLASSES OF SIMILAR PRODUCTS:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
-------------- --------------
Net sales:
Cosmetics, skin care and
fragrances........................ $ 982.9 $ 970.6
Personal care and professional .... 638.8 628.1
-------------- --------------
$1,621.7 $1,598.7
============== ==============
</TABLE>
8. SUBSEQUENT EVENT
On November 6, 1998, Products Corporation issued and sold in a private
placement $250.0 aggregate principal amount of 9% Senior Notes due 2006 (the
"9% Notes"), receiving net proceeds of $247.2. Products Corporation will use
$200.0 of the net proceeds from the sale of the 9% Notes to refinance the
1999 Notes, including through open market purchases. Products Corporation
intends to use the balance of the net proceeds for general corporate
purposes, including to temporarily reduce indebtedness under the working
capital lines under the Credit Agreement. Pending the refinancing of the 1999
Notes, such net proceeds will be retained by Products Corporation and a
portion of such proceeds will be used to temporarily reduce indebtedness
under the working capital lines under the Credit Agreement and under other
short-term facilities. Accordingly, the Company has classified the 1999 Notes
as "Long-term debt-third parties" in its consolidated condensed balance sheet
as of September 30, 1998.
On December 10, 1998, the Company disposed of its approximately 85% equity
interest in Cosmetic Center, along with certain amounts due from Cosmetic
Center to the Company for working capital and inventory, to a newly formed
limited partnership controlled by York Management Services, Inc. The Company
received a minority limited partnership interest in the limited partnership
as consideration for the disposition. In connection with the completion of
the Company's disposal of Cosmetic Center, the Company will record a loss on
disposal in the fourth quarter of 1998 of approximately $33 million, in
addition to the charge of $15 million recorded in the second quarter of 1998.
F-41
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF , 1998.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information................... 2
Prospectus Summary...................... 3
Risk Factors ........................... 15
Use of Proceeds ........................ 22
Capitalization ......................... 23
Selected Financial Data ................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 27
The Exchange Offer...................... 40
Business ............................... 47
Management ............................. 61
Ownership of Common Stock .............. 71
Relationship with MacAndrews
& Forbes .............................. 71
Description of the Notes................ 77
Description of Other Indebtedness ..... 106
Certain U.S. Federal Income Tax
Considerations ........................ 113
Book-Entry; Delivery and Form .......... 115
Plan of Distribution.................... 116
Legal Matters .......................... 117
Experts................................. 117
Index to Consolidated Financial
Statements ............................ F-1
</TABLE>
$250,000,000
REVLON
REVLON CONSUMER
PRODUCTS CORPORATION
9% SENIOR EXCHANGE NOTES
DUE 2006
PROSPECTUS
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was unlawful. A Delaware corporation may indemnify officers and
directors against expenses (including attorneys' fees) in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
Article X of the By-laws of the Registrant, a copy of which is filed as
Exhibit 3.3 to this Registration Statement, allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or
was a director or officer of the Registrant or such person who serves or
served as a director, officer, employee or agent, of another corporation,
partnership or other enterprise at the request of the Registrant. Article X
of the Registrant's By-Laws provides for indemnification of the officers and
directors of the Registrant to the fullest extent permitted by applicable
law.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
Sixth of the Certificate of Incorporation of the Registrant, a copy of which
is filed as Exhibit 3.1 to this Registration Statement, provides that no
director of the Registrant shall be personally liable to the Registrant or
its shareholders for monetary damages for any breach of his fiduciary duty as
a director; provided, however, that such clause shall not apply to any
liability of a director (1) for any breach of the Director's duty of loyalty
to the Registrant or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law, (3) pursuant to Section 174 of the Delaware Corporation Law, or (4) for
any transaction from which the director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------
<S> <C>
3. CERTIFICATE OF INCORPORATION AND BY-LAWS.
3.1 Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.3 to the
Form 10 of the Company filed with the Securities and Exchange Commission on August 7, 1992
(File No. 1-11334).)
3.2 Certificate of Amendment of Certificate of Incorporation as filed on February 18, 1993.
(Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K for the year ended
December 31, 1992 of the Company (the "1992 10-K").)
3.3 Amended and Restated By-Laws of the Company dated January 30, 1997. (Incorporated by reference
to Exhibit 3.3 to the Annual Report on Form 10-K for the year ended December 31, 1996 of the
Company.)
II-1
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES.
4.1 Indenture, dated as of February 1, 1998, between Revlon Escrow and U.S. Bank Trust National
Association (formerly known as First Trust National Association), as Trustee, relating to the
8 1/8% Senior Notes due 2006 (the "Senior Notes Indenture"). (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1 of the Company filed with the Commission
on March 12, 1998 (File No. 333-47875)(the "1998 Form S-1").)
4.2 Indenture, dated as of February 1, 1998, between Revlon Escrow and U.S. Bank Trust National
Association (formerly known as First Trust National Association), as Trustee, relating to the
8 5/8% Senior Notes Due 2006 (the "Senior Subordinated Notes Indenture"). (Incorporated by
reference to Exhibit 4.3 to the 1998 Form S-1.)
4.3 First Supplemental Indenture, dated April 1, 1998, among Revlon Escrow, the Company and the
Trustee, amending the Senior Notes Indenture. (Incorporated by reference to Exhibit 4.2 to the
1998 Form S-1.)
4.4 First Supplemental Indenture, dated March 4, 1998, among Revlon Escrow, the Company and the
Trustee, amending the Senior Subordinated Notes Indenture. (Incorporated by reference to
Exhibit 4.4 to the 1998 Form S-1.)
4.5 Indenture, dated as of November 6, 1998, between the Company and U.S. Bank Trust National
Association, as Trustee, relating to the Company's 9% Senior Notes due 2006 (the "Indenture").
(Incorporated by reference to Exhibit 4.13 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998 of Revlon, Inc. (the "Revlon, Inc. September 30,
1998 Form 10-Q.")
4.6 Indenture dated as of June 1, 1993, between the Company and NationsBank of Georgia, National
Association, as Trustee, relating to the Company's 9 1/2% Senior Notes Due 1999. (Incorporated
by reference to Exhibit 4.31 to the Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1993 of the Company).
4.7 Third Amended and Restated Credit Agreement, dated as of June 30, 1997, between Pacific
Finance and Development Corporation and the Long-Term Credit Bank, Ltd. (the "Yen Credit
Agreement"). (Incorporated by reference to Exhibit 4.11 to the Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997 of Revlon, Inc. (the "Revlon 1997 Second Quarter
10-Q").)
4.8 First Amendment to the Yen Credit Agreement dated as of December 10, 1998.
4.9 Amended and Restated Credit Agreement, dated as of May 30, 1997, among the Company, The Chase
Manhattan Bank, Citibank N.A., Lehman Commercial Paper Inc., Chase Securities Inc. and the
lenders party thereto (the "Credit Agreement"). (Incorporated by reference to Exhibit 4.23 to
Amendment No. 2 to the Form S-1 of Revlon Worldwide (Parent) Corporation, filed with the
Securities and Exchange Commission on June 26, 1997 (File No. 333-23451).)
4.10 First Amendment, dated as of January 29, 1998, to the Credit Agreement. (Incorporated by
reference to Exhibit 4.8 to the Annual Report for the year ended December 31, 1997 of Revlon,
Inc. (the "Revlon 1997 10-K").)
4.11 Second Amendment, dated as of November 6, 1998, to the Credit Agreement (Incorporated by
reference to Exhibit 4.12 to the Revlon, Inc. September 30, 1998 Form 10-Q.)
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------
5. OPINIONS.
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to the Company.
10. MATERIAL CONTRACTS.
10.1 Purchase and Sale Agreement and Amendment thereto by and between the Company and Holdings,
each dated as of February 18, 1993, relating to the Edison, New Jersey facility. (Incorporated
by reference to Exhibit 4.22 to the 1992 10-K).
10.2 Asset Transfer Agreement, dated as of June 24, 1992, among Holdings, National Health Care
Group, Inc., Charles of the Ritz Group Ltd., the Company and Revlon, Inc. (Incorporated by
reference to Exhibit 10.1 to the Amendment No. 1 to the Revlon Form S-1 filed with the
Securities and Exchange Commission on June 29, 1992 (File No. 33-47100)(the "Revlon 1992
Amendment No. 1").
10.3 Real Property Asset Transfer Agreement, dated as of June 24, 1992, among Holdings, Revlon,
Inc. and the Company. (Incorporated by reference to Exhibit 10.2 to the Revlon 1992 Amendment
No. 1).
10.4 Assumption Agreement and Amendment thereto by and between the Company and Holdings, each dated
as of February 18, 1993, relating to the Edison, New Jersey facility. (Incorporated by
reference to Exhibit 4.23 to the 1992 10-K).
10.5 Tax Sharing Agreement, dated as of June 24, 1992, among Mafco Holdings, Revlon, Inc., the
Company and certain subsidiaries of the Company (the "Tax Sharing Agreement"). (Incorporated
by reference to Exhibit 10.5 to the Revlon 1992 Amendment No. 1).
10.6 First Amendment, dated as of February 28, 1995, to the Tax Sharing Agreement. (Incorporated by
reference to Exhibit 10.5 to the Annual Report on Form 10-K for the year ended December 31,
1994 of the Company (the "1994 10-K")).
10.7 Second Amendment, dated as of January 1, 1997, to the Tax Sharing Agreement. (Incorporated by
reference to Exhibit 10.7 to the Annual Report on Form 10-K for the year ended December 31,
1996 of Revlon, Inc. (the "Revlon 1996 10-K")).
10.8 Second Amended and Restated Operating Services Agreement by and among Holdings, Revlon, Inc.
and the Company, as of January 1, 1996 (the "Operating Services Agreement"). (Incorporated by
reference to Exhibit 10.8 to the Revlon 1996 10-K).
10.9 Amendment to the Operating Services Agreement, dated as of July 1, 1997. (Incorporated by
reference to Exhibit 10.10 to the Revlon 1997 10-K).
10.10 Employment Agreement dated as of January 1, 1996 between the Company and Jerry W. Levin (the
"Levin Employment Agreement"). (Incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K for the year ended December 31, 1995 of the Company (the "1995 10-K")).
10.11 Amendment, effective June 30, 1997, to the Levin Employment Agreement. (Incorporated by
reference to Exhibit 10.12 to the Revlon 1997 10-K).
10.12 Employment Agreement dated as of January 1, 1997 between the Company and George Fellows.
(Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 of Revlon, Inc.).
10.13 Employment Agreement dated as of January 1, 1996 between the Company and William J. Fox (the
"Fox Employment Agreement"). (Incorporated by reference to Exhibit 10.12 to the 1995 10-K).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------
10.14 Amendment, effective June 1, 1998, to the Fox Employment Agreement. (Incorporated by reference
to Exhibit 10.28 to the Revlon, Inc. September 30, 1998 Form 10-Q).
10.15 Employment Agreement dated as of January 1, 1996 between RIROS Corporation and Carlos Colomer
Casellas (the "Colomer Employment Agreement"). (Incorporated by reference to Exhibit 10.13 to
the 1995 10-K).
10.16 Amendment, effective January 1, 1998, to the Colomer Employment Agreement. (Incorporated by
reference to Exhibit 10.16 to the Revlon 1997 10-K).
10.17 Employment Agreement dated as of January 1, 1998 between the Company and M. Katherine Dwyer.
(Incorporated by reference to Exhibit 10.17 to the Revlon 1997 10-K).
10.18 Revlon Employees' Savings, Investment and Profit Sharing Plan effective as of January 1, 1997.
(Incorporated by reference to Exhibit 10.18 to the Revlon 1997 10-K).
10.19 Revlon Employees' Retirement Plan as amended and restated December 19, 1994. (Incorporated by
reference to Exhibit 10.15 to the 1994 10-K).
10.20 Amended and Restated Revlon Pension Equalization Plan, effective January 1, 1996.
(Incorporated by reference to Exhibit 10.17 to the Amendment No. 4 to the Revlon Form S-1
filed with the Securities and Exchange Commission on February 26, 1996 (File No. 33-99558)).
10.21 Executive Supplemental Medical Expense Plan Summary dated July 1991. (Incorporated by
reference to Exhibit 10.18 to the Form S-1 of Revlon, Inc. filed with the Securities and
Exchange Commission on May 22, 1992 (File No. 33-47100)(the "Revlon 1992 Form S-1")).
10.22 Description of Post Retirement Life Insurance Program for Key Executives. (Incorporated by
reference to Exhibit 10.19 to the Revlon 1992 Form S-1).
10.23 Benefit Plans Assumption Agreement dated as of July 1, 1992, by and among Holdings, Revlon,
Inc. and the Company. (Incorporated by reference to Exhibit 10.25 to the 1992 10-K).
10.24 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated by reference to Exhibit
10.20 to the Revlon 1996 10-K).
10.25 Revlon Executive Deferred Compensation Plan, amended as of October 15, 1993. (Incorporated by
reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended December 31,
1993 of the Company).
10.26 Revlon Executive Severance Policy effective January 1, 1996. (Incorporated by reference to
Exhibit 10.23 to the Amendment No. 3 to the Revlon 1995 Form S-1 filed with the Securities and
Exchange Commission on February 5, 1996).
10.27 Revlon, Inc. 1996 Stock Plan, amended and restated as of December 17, 1996. (Incorporated by
reference to Exhibit 10.23 to the Revlon 1996 10-K).
10.28 Registration Agreement dated as of November 6, 1998 by and among the Company and Chase
Securities Inc. and Credit Suisse First Boston Corporation.
12. RATIO OF EARNINGS TO FIXED CHARGES.
12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company.
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------
21. SUBSIDIARIES.
21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1 to the Annual Report
on Form 10-K for the year ended December 31, 1997 of the Company).
23. CONSENTS.
23.1 Consent of KPMG Peat Marwick LLP and Report on Schedule.
*23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to the Company (included
in Exhibit 5.1).
24. POWERS OF ATTORNEY.
24.1 Power of Attorney executed by Ronald O. Perelman.
24.2 Power of Attorney executed by Howard Gittis.
24.3 Power of Attorney executed by Irwin Engelman.
24.4 Power of Attorney executed by Lawrence E. Kreider.
24.5 Power of Attorney executed by George Fellows.
24.6 Power of Attorney executed by William J. Fox.
24.7 Power of Attorney executed by Frank Gehrmann.
24.8 Power of Attorney executed by Donald G. Drapkin.
24.9 Power of Attorney executed by Edward J. Landau, Esq.
25. FORM T-1.
25.1 Statement of Eligibility and Qualification on Form T-1 of U.S. Bank Trust National
Association, as Trustee under the Indenture relating to the Company's 9% Senior Exchange Notes
due 2006.
99. MISCELLANEOUS.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-5
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on December 17, 1998.
REVLON CONSUMER PRODUCTS
CORPORATION
By /s/ Wade H. Nichols III
--------------------------------
Wade H. Nichols III
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ----------------------------------------- ---------------------
<S> <C> <C>
* Chairman of the Board and of the December 17, 1998
---------------------------- Executive Committee of the Board and
Ronald O. Perelman Director (Principal Executive Officer)
/s/ George Fellows President, Chief Executive Officer and December 17, 1998
---------------------------- Director
George Fellows
* Vice Chairman, Chief Administrative December 17, 1998
---------------------------- Officer and Director
Irwin Engelman
* Senior Executive Vice President and December 17, 1998
---------------------------- Director
William J. Fox
/s/ Frank J. Gehrmann Executive Vice President and Chief December 17, 1998
---------------------------- Financial Officer (Principal Financial
Frank J. Gehrmann Officer)
/s/ Lawrence E. Kreider Senior Vice President, Controller and December 17, 1998
---------------------------- Chief Accounting Officer (Principal
Lawrence E. Kreider Accounting Officer)
* Director December 17, 1998
----------------------------
Donald G. Drapkin
* Director December 17, 1998
----------------------------
Howard Gittis
* Director December 17, 1998
----------------------------
Edward J. Landau
</TABLE>
* Robert K. Kretzman, by signing his name hereto, does hereby execute this
Registration Statement on behalf of those directors and officers of the
Registrant indicated above by asterisks, pursuant to powers of attorney
duly executed by such directors and officers and filed as exhibits to the
Registration Statement.
By: /s/ Robert K. Kretzman
--------------------------------
Robert K. Kretzman
Attorney-in-fact
II-7
<PAGE>
SCHEDULE II
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Applied against asset accounts:
Allowance for doubtful
accounts...................... $12.9 $ 3.6 $ (4.5)(1) $12.0
Allowance for volume and early
payment discounts............. $12.0 $46.8 $(44.9)(2) $13.9
YEAR ENDED DECEMBER 31, 1996:
Applied against asset accounts:
Allowance for doubtful
accounts...................... $13.6 $ 7.1 $ (7.8)(1) $12.9
Allowance for volume and early
payment discounts............. $10.1 $43.8 $(41.9)(2) $12.0
YEAR ENDED DECEMBER 31, 1995:
Applied against asset accounts:
Allowance for doubtful
accounts...................... $11.1 $ 5.5 $ (3.0)(1) $13.6
Allowance for volume and early
payment discounts............. $10.6 $33.3 $(33.8)(2) $10.1
</TABLE>
- ------------
Notes:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign currency translation adjustments.
(2) Discounts taken, reclassifications and foreign currency translation
adjustments.
S-1
<PAGE>
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT")
is dated as of December 10, 1998 and entered into by and among PACIFIC FINANCE
& DEVELOPMENT CORP., a California corporation ("COMPANY"), and THE LONG-TERM
CREDIT BANK OF JAPAN, LTD., acting through its Los Angeles Agency ("BANK") and,
for purposes of Section 5 hereof, the Credit Support Parties (as defined in
Section 5 hereof) listed on the signature pages hereof, and is made with
reference to that certain Third Amended and Restated Credit Agreement dated as
of June 30, 1997, (the "CREDIT AGREEMENT"), by and between Company and Bank.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Company and Bank desire to amend the Credit Agreement to (i)
amend certain prepayment provisions, (ii) amend certain events of default, and
(iii) make certain other amendments as set forth below, and Company and Bank
desire to terminate the PFC Pledge Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS
A. Subsection 1.1 of the Credit Agreement is hereby amended by adding
thereto the following definition which shall be inserted in proper alphabetical
order:
"CASH COLLATERAL AGREEMENT" means that certain Cash Collateral
Agreement dated as of December 10, 1998 between Company and Bank.
"`LATEST SHORTFALL AMOUNT' means, as of any date of determination,
the difference between (a) the outstanding principal amount of the
Loan as of such date or, in the event that a Default or an Event of
Default shall have occurred and be continuing, the Loan Obligations
and (b) 70% of the Appraised Value (based on the latest Appraisal)."
B. Subsection 1.1 of the Credit Agreement is hereby amended by adding
immediately after the phrase "the Pledge Agreement" appearing in each of the
definitions "Operative Agreements" and "Security Instruments" the phrase ", the
Cash Collateral Agreement".
1
<PAGE>
1.2 AMENDMENTS TO SECTION 2: AMOUNT AND TERMS OF LOAN
A. Subsection 2.03(b) of the Credit Agreement is hereby amended by
deleting therefrom the phrase "the London Branch of" appearing therein.
B. Subsection 2.06(a) of the Credit Agreement is hereby amended by
deleting the text appearing therein and substituting therefor the following:
"The Company shall prepay the Loan on December 14, 1998 in the amount
of (Y)2,220,000,000 and such obligation to prepay shall be deemed to
have been satisfied upon the making of the deposit of $18,950,711.87
in accordance with subsection 3(b) of the Cash Collateral Agreement,
which deemed prepayment shall be effective as of December 14, 1998.
The Company hereby authorizes the Bank to apply the amount deposited
by the Company pursuant to the Cash Collateral Agreement to the
prepayment of the Loan in the amount of (Y)2,220,000,000 and to the
payment of accrued interest (accruing on or prior to December 14,
1998), fees and other Bank Charges and expenses to be paid on or
before such date."
C. Subsection 2.06(c) of the Credit Agreement is hereby amended by
deleting the phrase "[Intentionally Omitted]" appearing therein and
substituting therefor the following:
"Within three (3) Business Days after receiving notice from the Bank
that the Latest Shortfall Amount is greater than zero, the Company
shall prepay the Loan by an aggregate amount equal to the Latest
Shortfall Amount."
D. Subsection 2.06(f) of the Credit Agreement is hereby amended by
deleting the first sentence appearing therein and substituting therefor the
following:
"The Bank shall notify the Company that it will be obtaining
an Appraisal prior to obtaining an Appraisal and the Bank
shall deliver an Appraisal to the Company not more than 30
days after receiving the Appraisal; provided that (i) the
Bank shall not obtain more than two Appraisals per calendar
year and (ii)the Bank shall not have obtained any Appraisal
within the last 180 days.
E. Subsection 2.07(a) of the Credit Agreement is hereby amended by
(i) deleting therefrom the phrase "at its office at 350 South Grand Avenue,
Suite 3000, Los Angeles, California 90071, Attention: Mr. Shunji Sato (or such
other account in the United States as the Bank may notify the Company in
writing)" and substituting therefor the following: "(i) in the case of Yen
payments, at its head office at 1-8, Uchisaiwaicho 2, Chiyoda-ku, Tokyo 100,
Japan, Reference: Pacific Finance and Development Corp. (or to such other
account in Japan as the Bank may notify the Company in writing), and (ii)
in the case of U.S. dollar payments, at its New York Branch (such payments to
be made to Chase Manhattan Bank, New York; ABA: 021000021; for the account of
The Long-Term Credit Bank of Japan, Ltd., New York Branch; Account Number:
544-7-75066; Reference: Pacific Finance and Development Corp., or to such other
account in the United States as the Bank may notify the Company in writing)"
and (ii)
2
<PAGE>
deleting the phrase "Los Angeles, California" appearing in the tenth
line thereof and substituting therefor the phrase "New York, New York, or
Tokyo, Japan, as the case may be."
1.3 AMENDMENTS TO SECTION 7: DEFAULTS
Subsection 7.01 of the Credit Agreement is hereby amended by deleting
subsections 7.01(s) and 7.01(t) in their entirety.
SECTION 2. TERMINATION OF PFC PLEDGE AGREEMENT
Subject to the terms and conditions of this Amendment, the parties
hereto agree that the PFC Pledge Agreement is terminated and is of no further
force and effect and the Bank shall send a notice to The Chase Manhattan Bank
on the First Amendment Effective Date (but only after receiving confirmation
satisfactory to it that Company has deposited with Bank cash collateral in an
amount not less than $18,950,711.87) notifying The Chase Manhattan Bank that
the Bank is terminating the PFC Pledge Agreement pursuant to the terms of this
Amendment. Company hereby acknowledges and agrees that, in the absence of
Bank's gross negligence, bad faith or willful misconduct, it releases Bank from
any claim, cause of action or liability at any time arising out of or with
respect to the PFC Pledge Agreement, this Section 2 or transactions
contemplated by this Section 2.
SECTION 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 of this Amendment shall become effective only upon
the satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FIRST
AMENDMENT EFFECTIVE DATE"):
A. On or before the First Amendment Effective Date, Company shall
deliver to Bank the following, each, unless otherwise noted, dated the First
Amendment Effective Date:
(i) Certified copies of its Certificate of Incorporation,
together with a good standing certificate from the Secretary of State
of the State of California, each dated a recent date prior to the
First Amendment Effective Date;
(ii) Copies of its Bylaws, certified as of the First Amendment
Effective Date by its corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this
Amendment and the Cash Collateral Agreement, certified as of the
First Amendment Effective Date by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment;
(iv) Signature and incumbency certificates of its officers
executing this Amendment and the Cash Collateral Agreement; and
3
<PAGE>
(v) Executed copies of this Amendment executed by Company and
each Credit Support Party and executed copies of the Cash Collateral
Agreement executed by Company.
B. On or before the First Amendment Effective Date, Bank shall have
received from Company $18,950,711.87 for deposit pursuant to and in accordance
with Section 3 of the Cash Collateral Agreement and Bank shall have received
confirmation satisfactory to it that such amount has been deposited.
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, Company represents and warrants
to Bank that the following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Each Obligor has all requisite
corporate power and authority to enter into this Amendment and the Cash
Collateral Agreement as applicable, and to carry out the transactions
contemplated by, and perform its obligations under, the Credit Agreement as
amended by this Amendment (the "AMENDED AGREEMENT") and each of the other
Operative Agreements and the Cash Collateral Agreement, as applicable.
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement and the execution,
delivery and performance of the Cash Collateral Agreement have been duly
authorized by all necessary corporate action on the part of Company and the
execution and delivery of this Amendment have been duly authorized by all
necessary corporate action on the part of each of the other Obligors.
C. NO CONFLICT. The execution and delivery by each Obligor of this
Amendment and the performance by Company of the Amended Agreement and the
execution, delivery and performance of the Cash Collateral Agreement by Company
do not and will not (i) violate any provision of any law or any governmental
rule or regulation applicable to any Obligor or any of their respective
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of any
Obligor or any of their respective Subsidiaries or any order, judgment or
decree of any court or other agency of government binding on any Obligor or any
of their respective Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of any Obligor or any of their respective
Subsidiaries (including without limitation the New Consumer Products Credit
Agreement, the Subsidiary Guaranty and the Revlon Senior Notes), (iii) result
in or require the creation or imposition of any Lien upon any of the properties
or assets of any Obligor or any of its Subsidiaries (other than Liens created
under any of the Operative Agreements in favor of Bank), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
material contractual obligation of any Obligor or any of their respective
Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by each
Obligor of this Amendment and the performance by Company of the Amended
Agreement and the execution, delivery and performance of the Cash Collateral
Agreement by Company do not and
4
<PAGE>
will not require any registration with, consent or approval of, or notice to,
or other action to, with or by, any federal, state or other governmental
authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and, in the case of Company,
the Amended Agreement and the Cash Collateral Agreement have been duly executed
and delivered by each Obligor and are the legally valid and binding obligations
of each Obligor, enforceable against each Obligor in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing and
after giving effect to this Amendment, no event will result that would
constitute an Event of Default or a Potential Event of Default.
SECTION 5. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Pledge Agreement, as amended through the
First Amendment Effective Date, pursuant to which Company has created Liens in
favor of Bank on certain collateral to secure the Loan Obligations. Mortgagor
is a party to the Mortgage and the Mortgagor Acknowledgment, in each case as
amended through the First Amendment Effective Date, pursuant to which Mortgagor
has created Liens in favor of Bank on certain collateral to secure the Loan
Obligations. Revlon International is a party to the Stock Pledge Agreement, as
amended through the First Amendment Effective Date, pursuant to which Revlon
International has pledged certain collateral to Bank to secure the Loan
Obligations. Consumer Products is a party to the Consumer Products Guarantee,
as amended through the First Amendment Effective Date, pursuant to which
Consumer Products has guaranteed the Loan Obligations. Company, Revlon
International, Mortgagor and Consumer Products are collectively referred to
herein as the "CREDIT SUPPORT PARTIES," and the Mortgage, the Pledge Agreement,
the Stock Pledge Agreement, and the Consumer Products Guarantee are
collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS."
Each Credit Support Party hereby acknowledges that it has reviewed
the terms and provisions of the Credit Agreement and this Amendment and
consents to the amendment of the Credit Agreement effected pursuant to this
Amendment. Each Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all collateral
encumbered thereby will continue to guaranty or secure, as the case may be, to
the fullest extent possible the payment and performance of all "Loan
Obligations," "Guarantied Obligations" and "Secured Obligations," as the case
may be (in each case as such terms are defined in the applicable Credit Support
Document), including without limitation the payment and performance of all such
"Loan Obligations," "Guarantied Obligations" or "Secured
5
<PAGE>
Obligations," as the case may be, in respect of the Loan Obligations of Company
now or hereafter existing under or in respect of the Amended Agreement and the
Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in
the Amended Agreement and the Credit Support Documents to which it is a party
or otherwise bound are true, correct and complete in all material respects on
and as of the First Amendment Effective Date to the same extent as though made
on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
Each Credit Support Party (other than Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Operative Agreements to consent to the amendments
to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in
the Credit Agreement, this Amendment or any other Operative Agreements shall be
deemed to require the consent of such Credit Support Party to any future
amendments to the Credit Agreement.
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
OPERATIVE AGREEMENTS.
(i) On and after the First Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Operative Agreements to
the "Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Operative Agreements shall remain in
full force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver
of any provision of, or operate as a waiver of any right, power or
remedy of Bank under, the Credit Agreement or any of the other
Operative Agreements.
B. FEES AND EXPENSES. Company acknowledges that all costs, Bank
Charges, fees and expenses (including those described in subsection 8.04 of the
Credit Agreement) incurred by Bank and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall be for
the account of Company.
6
<PAGE>
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (INCLUDING
WITHOUT LIMITATION SECTION 1646.5 OF THE CIVIL CODE OF THE STATE OF
CALIFORNIA), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Sections 1 and 2 hereof, the effectiveness of which is governed
by Section 3 hereof) shall become effective upon the execution of a counterpart
hereof by Company, Bank and each of the Credit Support Parties and receipt by
Company and Bank of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
PACIFIC FINANCE & DEVELOPMENT CORP.
By: /s/ Robert Kretzman
---------------------------------------
Title: Vice President and Secretary
------------------------------------
REVLON CONSUMER PRODUCTS CORPORATION,
(for purposes of Section 5 only) as a
Credit Support Party
By: /s/ Robert Kretzman
---------------------------------------
Title: Senior Vice President, Deputy
General Counsel and Secretary
------------------------------------
REVLON INTERNATIONAL CORPORATION,
(for purposes of Section 5 only) as a
Credit Support Party
By: /s/ Robert Kretzman
---------------------------------------
Title: Vice President and Secretary
------------------------------------
REVLON REAL ESTATE KABUSHIKI KAISHA,
(for purposes of Section 5 only) as a
Credit Support Party
By: /s/ H. Timothy Ricks
---------------------------------------
Title: Director
------------------------------------
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
acting through its Los Angeles Agency
By: /s/ Shunji Sato
---------------------------------------
Title: Deputy General Manager
------------------------------------
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION
9% Senior Notes Due 2006
REGISTRATION AGREEMENT
November 6, 1998
CHASE SECURITIES INC.
270 Park Avenue
New York, NY 10017
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, NY 10010
Dear Sirs:
Revlon Consumer Products Corporation, a Delaware corporation ("Revlon"
or the "Issuer"), proposes to issue and sell to Chase Securities Inc. and
Credit Suisse First Boston Corporation (the "Initial Purchasers"), upon the
terms set forth in a purchase agreement dated November 3, 1998 (the "Purchase
Agreement"), its 9% Senior Notes due 2006 (the "Notes"). Capitalized terms used
but not specifically defined herein are defined in the Purchase Agreement. As
an inducement to the Initial Purchasers to enter into the Purchase Agreement
and in satisfaction of a condition to your obligations thereunder, Revlon
agrees with you, for the benefit of the holders of the Notes (including the
Initial Purchasers) (the "Holders"), as follows:
1. Registered Exchange Offer. Revlon shall, at its cost, prepare and,
not later than 45 days after the Closing Date (or, if the 45th day is not a
business day, the first business day thereafter) (December 21, 1998, assuming
the Closing Date is November 6, 1998), shall file with the Securities and
Exchange Commission (the "Commission") a registration statement (the "Exchange
Offer Registration Statement") on an appropriate form under the Securities Act
of 1933, as amended (the "1933 Act"), with respect to a proposed offer (the
"Registered Exchange Offer") to the Holders to issue and deliver to such
Holders, in exchange for the Notes, a like principal amount of debt securities
(the "Exchange Notes") of Revlon with terms substantially
<PAGE>
identical in all material respects to the Notes (except that the Exchange Notes
will not contain terms with respect to transfer restrictions and interest rate
increases), shall use its best efforts to cause the Exchange Offer Registration
Statement to become effective under the 1933 Act by 180 days after the Closing
Date (or, if the 180th day is not a business day, the first business day
thereafter) (May 5, 1999, assuming the Closing Date is November 6, 1998) and
shall use its best efforts to keep the Exchange Offer Registration Statement
effective under the 1933 Act until the close of business on the 180th day
following the expiration of the Registered Exchange Offer (such period being
called the "Exchange Offer Registration Period") for use by Exchanging Dealers
(as defined below) as contemplated in Section 3(g) below. Revlon shall be
deemed not to have used its best efforts to keep the Exchange Offer
Registration Statement effective during the Exchange Offer Registration Period
if Revlon voluntarily takes any action that would result in Exchanging Dealers
not being able to use such Registration Statement as contemplated in such
Section 3(g), unless (i) such action is required by applicable law or (ii) such
action is taken by Revlon in good faith and for valid business reasons (not
including avoidance of Revlon's obligations hereunder), including, but not
limited to, the acquisition or divestiture of assets, so long as Revlon
promptly thereafter complies with the requirements of Section 3(j) hereof, if
applicable. The Exchange Notes will be issued under the Indenture.
Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuer shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Notes for Exchange Notes (assuming that such Holder is not an
affiliate of Revlon within the meaning of the 1933 Act, acquires the Exchange
Notes in the ordinary course of such Holder's business and has no arrangements
with any person to participate in the distribution of the Exchange Notes) to
trade such Exchange Notes from and after their receipt without any limitations
or restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States. Notwithstanding the foregoing, the Initial Purchasers and Revlon
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the 1933 Act, and in the absence of an applicable exemption
therefrom, (i) each Holder (including any Initial Purchaser) which is a
broker-dealer electing to exchange the Notes, acquired for its own account as a
result of market making activities or other trading activities, for
2
<PAGE>
the Exchange Notes (an "Exchanging Dealer"), is required to deliver a
prospectus containing the information set forth in Annex A hereto on the cover,
in Annex B hereto in "The Exchange Offer" section, and in Annex C hereto in the
"Plan of Distribution" section of such prospectus in connection with a sale of
any such Exchange Notes received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) each Initial Purchaser which elects to sell
Exchange Notes acquired in exchange for the Notes constituting any portion of
an unsold allotment is required to deliver a prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the 1933
Act, as applicable, in connection with such a sale.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds the Notes constituting any portion of an unsold allotment
acquired by it as part of its initial distribution, the Issuer, simultaneously
with the delivery of the Exchange Notes pursuant to the Registered Exchange
Offer, shall issue and deliver to such Initial Purchaser upon the written
request of such Initial Purchaser, in exchange (the "Private Exchange") for the
Notes held by such Initial Purchaser, a like principal amount of the Exchange
Notes issued under the Indenture and identical in all material respects
(including the existence of restrictions on transfer under the 1933 Act and the
securities laws of the several states of the United States) to the Notes (the
"Private Exchange Notes"; the Notes, the Exchange Notes and the Private
Exchange Notes being hereinafter referred to collectively as the "Securities").
The Issuer will use reasonable efforts to cause the Private Exchange Notes to
bear the same CUSIP number as the Exchange Notes.
In connection with the Registered Exchange Offer, the Issuer shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
3
<PAGE>
(d) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which
the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all applicable laws.
As soon as practicable after the close of the Registered Exchange
Offer or the Private Exchange, as the case may be, the Issuer shall:
(a) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Registered Exchange Offer and the Private Exchange;
(b) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(c) cause the Trustee promptly to authenticate and deliver to each
Holder of the Notes either Exchange Notes or Private Exchange Notes, as
the case may be, equal in principal amount to the Notes of such Holder so
accepted for exchange.
The Indenture will provide that the Exchange Notes will not be subject
to the transfer restrictions applicable to the Notes set forth in the Indenture
and that all Securities issued under the Indenture will vote and consent
together on all matters as one class and that none of the Securities issued
under the Indenture will have the right to vote or consent as a class separate
from one another on any matter.
Notwithstanding any other provisions hereof, the Issuer shall ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies in
all material respects with the 1933 Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
prospectus forming part of any Exchange Offer Registration Statement, and any
supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact necessary in
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order to make the statements, in the light of the circumstances under which
they were made, not misleading.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuer that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will
be acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the
distribution of the Notes or the Exchange Notes within the meaning of the 1933
Act, (iii) such Holder is not an "affiliate", as defined in Rule 405 of the
1933 Act, of Revlon or if it is an affiliate, such Holder acknowledges that it
must comply with the registration and prospectus delivery requirements of the
1933 Act to the extent applicable, (iv) if such Holder is not a broker-dealer,
that it is not engaged in, and does not intend to engage in, a distribution of
the Exchange Notes and (v) if such Holder is a broker-dealer, that it will
receive Exchange Notes for its own account in exchange for the Notes that were
acquired as a result of market-making activities or other trading activities
and that it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
2. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Issuer
determines that it is not permitted to effect the Registered Exchange Offer as
contemplated by Section 1 hereof, (ii) for any other reason the Registered
Exchange Offer is not consummated by the 210th day after the Closing Date (or,
if such day is not a business day, the first business day thereafter) (June 4,
1999, assuming the Closing Date is November 6, 1998), (iii) any Initial
Purchaser so requests with respect to the Notes (or Private Exchange Notes)
held by it following consummation of the Registered Exchange Offer, (iv) any
Holder (other than an Exchanging Dealer) is not eligible to participate in the
Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) or Initial Purchaser that participates in the Registered
Exchange Offer, such Holder or Initial Purchaser does not receive freely
tradeable Exchange Notes in exchange for the exchanged Notes (in the case of an
Initial Purchaser constituting any portion of an unsold allotment) (it being
understood that the requirement that an Initial Purchaser deliver a prospectus
in connection with sales of the Exchange Notes acquired in the Registered
Exchange Offer in exchange for the Notes acquired as a result of market-making
activities or other trading activities, shall not result in
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such Exchange Notes not being "freely tradeable" for purposes of this Section
2) or (v) if the Issuer so elects, the following provisions shall apply:
(a) The Issuer shall, at its cost, as promptly as practicable file
with the Commission and thereafter shall use its best efforts to cause to be
declared effective a shelf registration statement on an appropriate form under
the 1933 Act relating to the offer and sale of the Notes by the Holders or the
Exchange Notes or the Private Exchange Notes by the Initial Purchasers, as
applicable, from time to time in accordance with the methods of distribution
elected by such Holders or the Initial Purchasers, as applicable, and set forth
in such registration statement (hereafter, a "Shelf Registration Statement"
and, together with any Exchange Offer Registration Statement, a "Registration
Statement").
(b) The Issuer shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be usable by Holders or the Initial Purchasers, as
applicable, for a period of two years from the date the Shelf Registration
Statement is declared effective by the Commission or such shorter period that
will terminate when all the Notes covered by the Shelf Registration Statement
have been sold pursuant to the Registration Statement or when, in the opinion
of outside counsel to the Issuer, which is reasonably satisfactory in form and
substance to counsel for the Initial Purchasers, all such Notes may be sold
without registration under the 1933 Act and unlegended certificates
representing the Securities may be given to the holders thereof (in any such
case, such period being called the "Shelf Registration Period"). The Issuer
shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if Revlon
voluntarily takes any action that would result in Holders of Securities covered
thereby not being able to offer and sell such Securities during that period,
unless (i) such action is required by applicable law, or (ii) such action is
taken by Revlon in good faith and for valid business reasons (not including
avoidance of Revlon's obligations hereunder), including, but not limited to,
the acquisition or divestiture of assets, so long as the Issuer promptly
thereafter complies with the requirements of Section 3(j) hereof, if
applicable.
(c) Notwithstanding any other provisions hereof, the Issuer shall
ensure that (i) any Shelf Registration Statement and any amendment thereto and
any prospectus
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forming part thereof and any supplement thereto complies in all material
respects with the 1933 Act and the rules and regulations thereunder, (ii) any
Shelf Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any prospectus forming part of any
Shelf Registration Statement, and any supplement to such prospectus, does not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
3. Registration Procedures. In connection with any Shelf Registration
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
(a) The Issuer shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration Statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchasers reasonably may propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in "The Exchange Offer" section,
and in Annex C hereto in the "Plan of Distribution" section of the prospectus
forming a part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; (iii) if requested by an Initial
Purchaser, include the information required by Items 507 and/or 508 of
Regulation S-K under the 1933 Act, as applicable, in the prospectus forming a
part of the Registration Statement; and (iv) in the case of a Shelf
Registration Statement, include the names of the Holders who propose to sell
Securities pursuant to the Shelf Registration Statement, as selling security
holders.
(b)(1) The Issuer shall advise you (which notice pursuant to clause
(ii) shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made) and, in the case of a
Shelf Registration Statement, the Holders of Securities included therein, and,
in the case of an Exchange Offer Registration Statement, any Exchanging Dealer
which has provided in writing to the Issuer a telephone or facsimile
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number or address for notices, and, if requested by you or any such Holder or
Exchanging Dealer, confirm such advice in writing:
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the prospectus included therein or for
additional information.
(2) The Issuer shall advise you and, in the case of a Shelf
Registration Statement, Holders of Securities included therein, and, in the
case of an Exchange Offer Registration Statement, any Exchanging Dealer which
has provided in writing to the Issuer a telephone or facsimile number or
address for notices, and, if requested by you or any such Holder or Exchanging
Dealer, confirm such advice in writing;
(i) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Issuer of any notification with respect to
the suspension of the qualification of the Securities included therein for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made).
(c) The Issuer shall make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
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(d) The Issuer shall furnish to each Holder of Securities included
within the coverage of any Shelf Registration Statement (including any
Exchanging Dealer which so requests in writing or any Initial Purchaser),
without charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(e) The Issuer shall, during the Shelf Registration Period, deliver to
each Holder of Securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the prospectus
(including each preliminary prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Issuer consents to the use of the prospectus or any amendment
or supplement thereto by each of the selling Holders of Securities in
connection with the offering and sale of the Securities covered by the
prospectus or any amendment or supplement thereto.
(f) The Issuer shall furnish to each Exchanging Dealer or Initial
Purchaser, as applicable, which so requests, without charge, at least one copy
of the Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Exchanging
Dealer or Initial Purchaser, as applicable, so requests in writing, all
exhibits (including those incorporated by reference).
(g) The Issuer shall, during the Exchange Offer Registration Period,
promptly deliver to each broker-dealer that is the beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "1934
Act")) of Exchange Notes received by such broker-dealer in the Registered
Exchange Offer (a "Participating Broker-Dealer") and such other persons as may
be required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the prospectus included in such Exchange
Offer Registration Statement and any amendment or supplement thereto as such
person may reasonably request for delivery by such person in connection with a
sale of Exchange Notes received by it pursuant to the Registered Exchange
Offer; and the Issuer consents to the use of the prospectus or any amendment or
supplement thereto by any such Participating Broker-Dealer or other person as
aforesaid.
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(h) Prior to any public offering of Securities pursuant to any
Registration Statement, the Issuer shall register or qualify or cooperate with
the Holders of Securities included therein and their respective counsel in
connection with the registration or qualification of such Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as any
such Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such
jurisdictions of the Securities covered by such Registration Statement;
provided, however, that Revlon shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.
(i) The Issuer shall cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Shelf Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
Holders may request prior to sales of the Securities pursuant to such Shelf
Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraph
(b)(2)(iii) above, the Issuer shall promptly prepare a post-effective amendment
to the Registration Statement or a supplement to the related prospectus or file
any other required document so that, as thereafter delivered to purchasers of
the Securities included therein, the prospectus will not include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. If the Issuer notifies the Initial Purchasers, the
Holders and any known Participating Broker-Dealer in accordance with paragraphs
(1)(ii) or (2)(i) through (iii) of Section 3(b) above to suspend the use of the
prospectus until the requisite changes to the prospectus have been made, then
the Initial Purchasers, the Holders and any such Participating Broker-Dealers
shall suspend use of such prospectus.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuer shall provide a CUSIP number for the Notes, the Exchange
Notes or the Private Exchange Notes, as the case may be, and provide the
trustee with printed certificates for the Notes, the
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Exchange Notes or the Private Exchange Notes, as the case may be, in a form
eligible for deposit with The Depository Trust Company (it being expressly
understood that the Exchange Notes will continue to be held in book-entry form
in the same manner as the Notes).
(l) The Issuer shall comply with all applicable rules and regulations
of the Commission and shall make generally available to its security holders as
soon as practicable after the effective date of the applicable Registration
Statement an earnings statement satisfying the provisions of Section 11(a) of
the 1933 Act.
(m) The Issuer shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner. In the event that
such qualification would require the appointment of a new trustee under the
Indenture, the Issuer shall appoint a new trustee thereunder pursuant to the
applicable provisions of the Indenture.
(n) The Issuer may require each Holder of Securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Issuer such
information regarding the Holder and the distribution of such Securities as the
Issuer may from time to time reasonably require for inclusion in such
Registration Statement, and the Issuer may exclude from such Registration
Statement the Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) The Issuer shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all such
other action, if any, as any Holder shall reasonably request in order to
facilitate the disposition of the Securities pursuant to any Shelf Registration
Statement.
(p) In the case of any Shelf Registration Statement, the Issuer shall
(i) make reasonably available for inspection by the Holders, and any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney, accountant or other agent retained by the Holders
or any such underwriter, all relevant financial and other records, pertinent
corporate documents and properties of the Issuer and (ii) cause the Issuer's
officers, directors and employees to supply all relevant information reasonably
requested by the Holders or any such underwriter, attorney, accountant or agent
in connection with any such Registration Statement.
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<PAGE>
(q) In the case of any Exchange Offer Registration Statement, the
Issuer shall (i) make reasonably available for inspection by the Initial
Purchasers, but in each case only in such firm's capacity as an Exchanging
Dealer and with the express understanding that each such firm shall be acting
solely for itself and not on behalf of any other party, including, without
limitation, any other Exchanging Dealer, all relevant financial and other
records, pertinent corporate documents and properties of the Issuer and (ii)
cause the Issuer's officers, directors and employees to supply all information
reasonably requested by any of them.
(r) In the case of any Shelf Registration Statement, the Issuer, if
requested by any Holder, shall cause (x) its counsel to deliver an opinion
relating to the Securities included within the coverage of such Shelf
Registration Statement in customary form, (y) its officers to execute and
deliver all customary documents and certificates requested by any underwriters
of the Securities and (z) its independent public accountants to provide to the
selling Holders and any underwriter therefor a comfort letter in customary
form.
(s) In the case of any Exchange Offer Registration Statement, the
Issuer, if requested by the Initial Purchasers, but in each case only in such
firm's capacity as an Exchanging Dealer and with the express understanding that
each such firm shall be acting solely for itself and not on behalf of any other
party, including, without limitation, any other Exchanging Dealer, in
connection with any prospectus delivery as contemplated in paragraph (g) above,
shall use its best efforts to cause, on and as of the effective date of the
Exchange Offer Registration Statement, (x) its counsel to deliver an opinion
relating to the Exchange Offer Registration Statement and the Exchange Notes in
customary form, (y) its officers to execute and deliver all customary documents
and certificates requested and (z) its independent public accountants to
provide a comfort letter in customary form, subject to receipt of appropriate
documentation (including the delivery of a customary representation letter), as
contemplated by Statement on Auditing Standards No. 72.
(t) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Issuer (or to such
other person as directed by the Issuer) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Issuer shall mark, or cause
to be marked, on the Notes so exchanged that
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such Notes are being canceled in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be; in no event shall the Notes be marked as
paid or otherwise satisfied.
(u) The Issuer shall pay interest on the Notes for failure to comply
with its obligations under Section 1 or Section 2, as applicable, in accordance
with the terms of the Notes.
4. Registration Expenses. Revlon shall bear all expenses incurred in
connection with the performance of its obligations under Sections 1, 2 and 3
hereof and, in the event of any Shelf Registration Statement, shall reimburse
the Holders for the reasonable fees and disbursements of one firm or counsel
designated by the Holders of a majority in principal amount of the Securities
to be registered thereunder to act as counsel for the Holders in connection
therewith, and, in the case of any Exchange Offer Registration Statement, shall
reimburse the Initial Purchasers, as applicable, for the reasonable fees and
disbursements of counsel in connection therewith, whether or not the Exchange
Offer Registration Statement or a Shelf Registration Statement is filed or
becomes effective.
5. Indemnification. (a) In the event of a Shelf Registration or in
connection with any prospectus delivery pursuant to a Registered Exchange Offer
by an Exchanging Dealer as contemplated in Section 3(g) above, Revlon shall
indemnify and hold harmless each Holder and each person, if any, who controls
such Holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
prospectus, in the light of the circumstances under which they were made)
not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental or regulatory agency or body, commenced or threatened, or of
any claim whatsoever
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based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to Section 5(c) hereof, the fees and disbursements of counsel
chosen by the indemnified party reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental or regulatory agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission);
provided, however, that (i) this indemnity shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Issuer by the
indemnified party expressly for use in such Registration Statement and (ii)
such indemnity with respect to any preliminary prospectus shall not inure to
the benefit of any Holder (or any person controlling such Holder) from whom the
person asserting any such loss, claim, damage or liability purchased the
Securities which are the subject thereof if such person did not receive a copy
of the final prospectus (or the final prospectus as supplemented) at or prior
to the confirmation of the sale of such Securities to such person and (A) the
untrue statement or omission of a material fact contained in such preliminary
prospectus was corrected in the final prospectus (or the final prospectus as
supplemented) and (B) such Holder had previously been furnished by or on behalf
of the Issuer (prior to the date of mailing by such Holder of the applicable
confirmation) with a sufficient number of copies of the final prospectus as so
amended or supplemented.
(b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Issuer, its directors and officers and each
person, if any, who controls the Issuer within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 5(a)
hereof, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment or supplement thereto) in reliance on and in conformity with
written information furnished to the Issuer by such Holder expressly for use in
the Registration Statement (or in such amendment
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<PAGE>
or supplement); provided, however, that no such Holder shall be liable for any
indemnity claims hereunder in excess of the amount of net proceeds received by
such Holder from the sale of Securities pursuant to the Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement, except
to the extent actually prejudiced thereby. If any such claim or action shall be
brought against an indemnified party, the indemnified party shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 5 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof (other than reasonable costs of investigation); provided, however, if
the defendants in any such action include both an indemnified party and an
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, the indemnified party or parties under this Section 5 shall
have the right to employ not more than one counsel (in addition to any local
counsel) to represent them and, in that event, the fees and expenses of not
more than one such separate counsel (in addition to any local counsel) shall be
paid by the indemnifying party, as such expenses are incurred. No indemnifying
party shall be liable for any settlement effected without its written consent.
An indemnifying party shall not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each
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indemnified party from all liability arising out of such claim, action, suit or
proceeding.
(d) To provide for just and equitable contribution in circumstances in
which the indemnity provided for in Sections 5(a) through (c) hereof is for any
reason held to be unenforceable by the indemnified parties although applicable
in accordance with its terms, Revlon, on the one hand, and the applicable
Holder or Holders, on the other hand, shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity incurred by Revlon and such Holder or Holders, as incurred, in such
proportions that Revlon is responsible for that portion represented by the
percentage that the aggregate consideration received by Revlon from the sale by
it of the Securities sold by such Holder bears to the aggregate principal
amount of Securities sold by such Holder and such Holder is responsible for the
balance; provided, however, that no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) by a
court of competent jurisdiction shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 5, each person, if any, who controls a Holder within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Holder and each director and officer of Revlon
and each person, if any, who controls Revlon within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as Revlon.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Underwritten Registrations. (a) "Transfer Restricted Notes" means
each Security until (i) the date on which such Transfer Restricted Note has
been exchanged by a person other than a broker-dealer for a freely transferable
Exchange Note in the Registered Exchange Offer, (ii) following the exchange by
a broker-dealer in the Registered Exchange Offer of a Transfer Restricted Note
for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date
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on which such Transfer Restricted Note has been effectively registered under
the 1933 Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Transfer Restricted Note is
distributed to the public pursuant to Rule 144 under the 1933 Act or is
saleable pursuant to Rule 144(k) under the 1933 Act.
(b) If any of the Transfer Restricted Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
("Managing Underwriters") will be selected by the Holders of a majority in
aggregate principal amount of such Transfer Restricted Notes to be included in
such offering.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes
on the basis reasonably provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
7. Miscellaneous. (a) Amendment and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless Revlon has
obtained the written consent of Holders of a majority in aggregate principal
amount of the Securities.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such Holder
to the Issuer in accordance with the provisions of this Section 7(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to the Initial Purchasers;
(ii) if to the Initial Purchasers, initially at the respective
addresses set forth in the Purchase Agreement with copies to the parties
specified therein; and
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(iii) if to the Issuer, initially at its address set forth in the
Purchase Agreement, with copies to the parties specified therein.
All such notices and communications shall be deemed to have been duly
given when received.
The Initial Purchasers or Revlon by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(c) Successors and Assigns. This Agreement shall be binding upon
Revlon and each of its successors and assigns.
(d) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT
TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Specified times of day refer to New York City time.
(g) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(h) Securities Held by the Issuer. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Issuer or any of its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.
18
<PAGE>
(i) No Inconsistent Agreements. Revlon has not, as of the date hereof,
entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(j) Copies of Agreement. Revlon shall provide a copy of this Agreement
to prospective purchasers of the Notes identified to them by the Initial
Purchasers upon request.
19
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between Revlon and you.
Very truly yours,
REVLON CONSUMER PRODUCTS CORPORATION
By /s/ Robert K. Kretzman
------------------------------------
Name: Robert K. Kretzman
Title: Senior Vice President
CONFIRMED AND ACCEPTED
as of the date first above written:
CHASE SECURITIES INC.
By /s/ James P. Casey
----------------------------------
Name: James P. Casey
Title: Managing Director
CREDIT SUISSE FIRST BOSTON CORPORATION
By /s/ Robert A. Hansen
----------------------------------
Name: Robert A. Hansen
Title: Director
20
<PAGE>
ANNEX A TO
REGISTRATION AGREEMENT
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the 1933 Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for the Notes where such
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a
period of 180 days after the Expiration Date (as defined herein), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution".
A-1
<PAGE>
ANNEX B TO
REGISTRATION AGREEMENT
Each broker-dealer that receives Exchange Notes for its own account in
exchange for the Notes, where such Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution".
B-1
<PAGE>
ANNEX C TO
REGISTRATION AGREEMENT
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of marketmaking activities or other trading activities. The Issuer has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 ,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.1
The Issuer will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the 1933 Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received
- ------------------------------
1 The legend required by Item 502(e) of Regulation S-K must appear on the
back page of the Exchange Offer Prospectus.
C-1
<PAGE>
by any such persons may be deemed to be underwriting compensation under the
1933 Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the 1933 Act.
For a period of 180 days after the Expiration Date, the Issuer will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuer has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
1933 Act.
C-2
<PAGE>
ANNEX D TO
REGISTRATION AGREEMENT
Rider A
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
Rider B
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes, it represents that the Notes to be
exchanged for Exchange Notes were acquired by it as a result of market-making
or other trading activities and acknowledges that it will deliver a prospectus
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the 1933 Act.
D-1
<PAGE>
EXHIBIT 12.1
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before income taxes .... $ 10.3 $ 21.3 $ 59.0 $ 25.2 $(37.2) $(73.0) $(128.7)
Interest expense .................... 103.3 99.2 133.7 133.4 142.6 136.7 121.5
Amortization of debt issuance costs 3.9 5.3 6.6 8.3 11.0 8.4 8.0
Portion of rental expense deemed to
represent interest ................. 11.4 11.6 15.2 15.4 14.7 15.0 16.0
-------- -------- -------- -------- --------- --------- ----------
Earnings before fixed charges ...... $128.9 $137.4 $214.5 $182.3 $131.1 $ 87.1 $ 16.8
======== ======== ======== ======== ========= ========= ==========
Interest expense .................... $103.3 $ 99.2 $133.7 $133.4 $142.6 $136.7 $ 121.5
Amortization of debt issuance costs 3.9 5.3 6.6 8.3 11.0 8.4 8.0
Portion of rental expense deemed to
represent interest ................. 11.4 11.6 15.2 15.4 14.7 15.0 16.0
-------- -------- -------- -------- --------- --------- ----------
Fixed charges ....................... $118.6 $116.1 $155.5 $157.1 $168.3 $160.1 $ 145.5
======== ======== ======== ======== ========= ========= ==========
Ratio of earnings to fixed charges . 1.1 1.2 1.4 1.2 -- -- --
======== ======== ======== ======== ========= ========= ==========
Deficiency of earnings to fixed
charges ............................ $ -- $ -- $ -- $ -- $ 37.2 $ 73.0 $ 128.7
======== ======== ======== ======== ========= ========= ==========
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholder
Revlon Consumer Products Corporation:
The audits referred to in our report dated January 23, 1998, except for
Note 2 which is as of June 8, 1998, included the related financial statement
schedule for each of the years in the three-year period ended December 31,
1997, included in the registration statement. The financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the registration statement.
/s/ KPMG PEAT MARWICK LLP
New York, New York
December 18, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement"), under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Ronald O. Perelman
-------------------------
Ronald O. Perelman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Howard Gittis
-------------------------
Howard Gittis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Irwin Engelman
-------------------------
Irwin Engelman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Robert K. Kretzman and Wade H. Nichols or
either of them, each acting alone, his true and lawful attorney-in-fact and
agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the Revlon Consumer
Products Corporation (the "Corporation") Registration Statement on Form S-1 or
Form S-4, as applicable (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name and
on behalf of the Corporation or on behalf of the undersigned as a director or
officer of the Corporation, to sign any amendments and supplements relating
thereto (including post-effective amendments) under the Securities Act and to
sign any instrument, contract, document or other writing of or in connection
with the Registration Statement and any amendments and supplements thereto
(including post-effective amendments) and to file the same, with all exhibits
thereto, and other documents in connection therewith, including this power of
attorney, with the Securities and Exchange Commission and any applicable
securities exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS HEREOF, the undersigned has signed these presents
this 17th day of December, 1998.
/s/ Lawrence E. Kreider
-------------------------
Lawrence E. Kreider
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ George Fellows
-------------------------
George Fellows
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ William J. Fox
-------------------------
William J. Fox
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Frank J. Gehrmann
-------------------------
Frank J. Gehrmann
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Donald G. Drapkin
-------------------------
Donald G. Drapkin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Robert K. Kretzman and Wade H. Nichols or either of them,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, in connection with the Revlon Consumer Products Corporation (the
"Corporation") Registration Statement on Form S-1 or Form S-4, as applicable
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Corporation or on behalf of the undersigned as a director or officer of the
Corporation, to sign any amendments and supplements relating thereto (including
post-effective amendments) under the Securities Act and to sign any instrument,
contract, document or other writing of or in connection with the Registration
Statement and any amendments and supplements thereto (including post-effective
amendments) and to file the same, with all exhibits thereto, and other documents
in connection therewith, including this power of attorney, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS HEREOF, the undersigned has signed these presents this 17th
day of December, 1998.
/s/ Edward J. Landau
-------------------------
Edward J. Landau, Esq.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM T- 1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
REVLON CONSUMER PRODUCTS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3662953
(State of Incorporation) (I.R.S. Employer
Identification No.)
625 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
9% Senior Exchange Notes due 2006
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners
of 10% or more of the voting securities of the obligors, or affiliates, are
based upon information furnished to the Trustee by the obligors. While the
Trustee has no reason to doubt the accuracy of any such information, it cannot
accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested,
all in the City of Saint Paul and State of Minnesota on the 17th day of
December, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
--------------------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Christina M. Hatfield
- --------------------------------
Christina M. Hatfield
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: December 17, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
---------------------------------
Richard H. Prokosch
Assistant Vice President
