<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION NO. 333-69213
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
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>
<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. [ ]
--------------
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>
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 FEBRUARY 24, 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 January 22, 1999.
<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
<PAGE>
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 22 years). We have the number one
and two selling brands of lip makeup for 1998. Our market share in lip makeup
and nail enamel has increased from 25.3% and 21.1%, respectively, for 1992, to
31.3% and 25.0%, respectively, for 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 20.9% for 1998. Propelled by
the success of our new product launches and our existing product lines, the
REVLON brand captured in 1996 and continued to hold in 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.
3
<PAGE>
REVLON brand market share has increased from 15.6% for 1992 to 21.2% for 1998.
Our portfolio of color cosmetics, including REVLON, ALMAY and ULTIMA II,
achieved a market share of 29.3% in the U.S. mass market for 1998 compared to
28.1% in 1997. 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. With the addition of NEW COMPLEXION compact makeup in 1996, NEW
COMPLEXION foundations gave Revlon the top three selling brands of foundation
for 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, is the fastest growing major
mass market color cosmetics brand, with 34.4% growth and a 7.7% market share
for 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.
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;
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<PAGE>
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.
On January 11, 1999, we announced that we will expand our restructuring
program, previously announced in October of 1998, which is intended to increase
efficiencies and enhance our competitive position. This program will include
manufacturing reconfigurations, personnel realignments and reductions, the
disposition of resultant excess real estate, realignment and consolidation of
regional activities and other measures intended to reduce costs. We expect to
incur restructuring charges of up to $80 million as part of the restructuring
initiative. We expect to take approximately $40 million of the charges in the
fourth quarter of 1998 and the remainder in 1999. We also announced that we had
amended our Credit Agreement to, among other things, reflect the restructuring.
5
<PAGE>
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 $.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 $650.0 million aggregate principal amount of 8 5/8% Senior
Subordinated Notes due 2008 and $250.0 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 $555.0 million aggregate principal amount of our 10 1/2% Senior Subordinated
Notes due 2003 and $260.0 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.
[GRAPHIC OMITTED]
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
<PAGE>
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 February 24, 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
February 24, 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
<PAGE>
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,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales .......................... $ 1,621.7 $ 1,598.7
Gross profit ....................... 1,078.3 1,065.4
Selling, general and
administrative expenses ........... 957.0 920.1
Business consolidation costs and
other, net (a) .................... (7.1) 4.4
---------- -----------
Operating income ................... 128.4 140.9
Interest expense, net .............. 99.5 96.1
Amortization of debt issuance
costs ............................. 3.9 5.3
Other, net ......................... 8.3 9.0
---------- -----------
Income (loss) from continuing
operations before income taxes 16.7 30.5
Provision for income taxes ......... 6.4 9.2
---------- -----------
Income (loss) from continuing
operations ........................ 10.3 21.3
Discontinued operations:
(Loss) income from discontinued
operations ........................ (16.5) (3.3)
Loss on disposal from
discontinued operations ........... (15.0) --
---------- -----------
(Loss) income from discontinued
operations ........................ (31.5) (3.3)
Extraordinary items--early
extinguishments of debt ........... (51.7) (14.9)
Cumulative effect of accounting
changes ........................... -- --
---------- -----------
Net (loss) income .................. $ (72.9) $ 3.1
========== ===========
OTHER DATA:
EBITDA (d) ......................... $ 198.0 $ 214.8
Ratio of EBITDA to interest
expense, net ...................... 2.0x 2.2x
Ratio of earnings to fixed
charges (e) ....................... 1.1x 1.2x
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales .......................... $ 2,238.6 $ 2,092.1 $ 1,867.3 $ 1,674.0 $ 1,540.5
Gross profit ....................... 1,495.5 1,403.2 1,252.4 1,107.0 997.2
Selling, general and
administrative expenses ........... 1,275.8 1,203.2 1,104.9 998.9 946.1
Business consolidation costs and
other, net (a) .................... 3.6 -- -- -- --
----------- ----------- ---------- ----------- -----------
Operating income ................... 216.1 200.0 147.5 108.1 51.1
Interest expense, net .............. 129.5 129.0 135.6 129.1 113.5
Amortization of debt issuance
costs ............................. 6.6 8.3 11.0 8.4 8.0
Other, net ......................... 11.7 12.0 12.7 20.8 39.3
----------- ----------- ---------- ----------- -----------
Income (loss) from continuing
operations before income taxes 68.3 50.7 (11.8) (50.2) (109.7)
Provision for income taxes ......... 9.3 25.5 25.4 22.8 19.0
----------- ----------- ---------- ----------- -----------
Income (loss) from continuing
operations ........................ 59.0 25.2 (37.2) (73.0) (128.7)
Discontinued operations:
(Loss) income from discontinued
operations ........................ 0.7 0.4 (4.0) (2.0) (1.5)
Loss on disposal from
discontinued operations ........... -- -- -- -- --
----------- ----------- ---------- ----------- -----------
(Loss) income from discontinued
operations ........................ 0.7 0.4 (4.0) (2.0) (1.5)
Extraordinary items--early
extinguishments of debt ........... (14.9) (6.6) -- -- (9.5)
Cumulative effect of accounting
changes ........................... -- -- -- (28.8)(b) (6.0)(c)
----------- ----------- ---------- ----------- -----------
Net (loss) income .................. $ 44.8 $ 19.0 $ (41.2) $ (103.8) $ (145.7)
=========== =========== ========== =========== ===========
OTHER DATA:
EBITDA (d) ......................... $ 312.8 $ 280.4 $ 222.9 $ 177.0 $ 119.0
Ratio of EBITDA to interest
expense, net ...................... 2.4 x 2.2 x 1.6 x 1.4 x 1.0 x
Ratio of earnings to fixed
charges (e) ....................... 1.4 x 1.2 x -- -- --
</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 1/8% 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. 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, 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
18
<PAGE>
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 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.
19
<PAGE>
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 approximately 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."
Such forward-looking statements 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;
o cash flows from operations;
o information system upgrades;
20
<PAGE>
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; and
o capital contributions or loans from affiliates or the sale of assets
or operations.
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.
We caution you that a number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. 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; and
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.
21
<PAGE>
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
SEPTEMBER 30,
---------------------------
1998 1997
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales ............................... $ 1,621.7 $ 1,598.7
Gross profit ............................ 1,078.3 1,065.4
Selling, general and administrative
expenses ............................... 957.0 920.1
Business consolidation costs and
other, net (a) ......................... (7.1) 4.4
---------- -----------
Operating income ........................ 128.4 140.9
Interest expense, net ................... 99.5 96.1
Amortization of debt issuance costs 3.9 5.3
Other, net .............................. 8.3 9.0
---------- -----------
Income (loss) from continuing
operations before income taxes ......... 16.7 30.5
Provisions for income taxes ............. 6.4 9.2
---------- -----------
Income (loss) from continuing
operations ............................. 10.3 21.3
Discontinued operations:
(Loss) income from discontinued
operations ............................. (16.5) (3.3)
Loss on disposal from discontinued
operations ............................. (15.0) --
---------- -----------
(Loss) income from discontinued
operations ............................. (31.5) (3.3)
Extraordinary items--early
extinguishments of debt ................ (51.7) (14.9)
Cumulative effect of accounting
changes ................................ -- --
---------- -----------
Net (loss) income ....................... $ (72.9) $ 3.1
========== ===========
OTHER DATA:
EBITDA (d) .............................. $ 198.0 $ 214.8
Ratio of EBITDA to interest
expense, net ........................... 2.0x 2.2x
Ratio of earnings to fixed charges
(e) .................................... 1.1x 1.2x
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales ............................... $ 2,238.6 $ 2,092.1 $ 1,867.3 $ 1,674.0 $ 1,540.5
Gross profit ............................ 1,495.5 1,403.2 1,252.4 1,107.0 997.2
Selling, general and administrative
expenses ............................... 1,275.8 1,203.2 1,104.9 998.9 946.1
Business consolidation costs and
other, net (a) ......................... 3.6 -- -- -- --
----------- ----------- ---------- ----------- -----------
Operating income ........................ 216.1 200.0 147.5 108.1 51.1
Interest expense, net ................... 129.5 129.0 135.6 129.1 113.5
Amortization of debt issuance costs 6.6 8.3 11.0 8.4 8.0
Other, net .............................. 11.7 12.0 12.7 20.8 39.3
----------- ----------- ---------- ----------- -----------
Income (loss) from continuing
operations before income taxes ......... 68.3 50.7 (11.8) (50.2) (109.7)
Provisions for income taxes ............. 9.3 25.5 25.4 22.8 19.0
----------- ----------- ---------- ----------- -----------
Income (loss) from continuing
operations ............................. 59.0 25.2 (37.2) (73.0) (128.7)
Discontinued operations:
(Loss) income from discontinued
operations ............................. 0.7 0.4 (4.0) (2.0) (1.5)
Loss on disposal from discontinued
operations ............................. -- -- -- -- --
----------- ----------- ---------- ----------- -----------
(Loss) income from discontinued
operations ............................. 0.7 0.4 (4.0) (2.0) (1.5)
Extraordinary items--early
extinguishments of debt ................ (14.9) (6.6) -- -- (9.5)
Cumulative effect of accounting
changes ................................ -- -- -- (28.8)(b) (6.0)(c)
----------- ----------- ---------- ----------- -----------
Net (loss) income ....................... $ 44.8 $ 19.0 $ (41.2) $ (103.8) $ (145.7)
=========== =========== ========== =========== ===========
OTHER DATA:
EBITDA (d) .............................. $ 312.8 $ 280.4 $ 222.9 $ 177.0 $ 119.0
Ratio of EBITDA to interest
expense, net ........................... 2.4x 2.2x 1.6x 1.4x 1.0x
Ratio of earnings to fixed charges
(e) .................................... 1.4x 1.2x -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
SEPTEMBER 30, 1998 1997
-------------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets ........................... $ 1,862.1 $ 1,757.8
Long-term debt (including current
portion) .............................. 1,673.3 1,425.2
Total stockholder's deficiency ......... (542.3) (456.7)
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ........................... $ 1,618.1 $ 1,532.6 $ 1,414.3 $ 1,547.8
Long-term debt (including current
portion) .............................. 1,361.0 1,476.7 1,330.4 1,291.3
Total stockholder's deficiency ......... (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.
On January 11, 1999, the Company announced that it will expand its
restructuring program, previously announced in October of 1998, which is
intended to increase efficiencies and enhance the Company's competitive
position. This program will include manufacturing reconfigurations, personnel
realignments and reductions, the disposition of resultant excess real estate,
realignment and consolidation of regional activities and other measures
intended to reduce costs. The Company expects to incur restructuring charges of
up to $80 million as part of the restructuring initiative. Approximately $40
million of the charges will be taken in the fourth quarter of 1998 and the
remainder is expected to be taken in 1999.
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>
27
<PAGE>
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).
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
28
<PAGE>
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 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.
29
<PAGE>
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.
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
30
<PAGE>
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, 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
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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.
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.
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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, 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."
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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.
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.
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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 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
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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 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. On December 23, 1998, the Company amended the
Credit Agreement to modify the terms of certain of the financial ratios and
tests to account for, among other things, the expected charges in connection
with the Company's restructuring program. In addition, the amendment increases
the applicable margin and provides that the Company may use the proceeds of the
Acquisition Facility for general corporate purposes as well as for
acquisitions.
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
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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 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.
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.
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.
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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 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 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 February 24, 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 January 22, 1999, 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 February 24, 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
<TABLE>
<S> <C>
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:
(651) 244-1537
Confirm by Telephone:
(651) 244-5011
</TABLE>
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 $359,500.
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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 22
years), with the number one and two selling brands of lip makeup for 1998. The
Company's market share in lip makeup and nail enamel has increased from 25.3%
and 21.1%, respectively, for 1992, to 31.3% and 25.0%, respectively, for 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 20.9% for 1998. Propelled by the success of its new product
launches and its existing product lines, the REVLON brand captured in 1996 and
continued to hold in 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 21.2% for 1998. Our portfolio of color cosmetics, including
REVLON, ALMAY and ULTIMA II, achieved a market share of 29.3% in the U.S. mass
market for 1998 compared to 28.1% in 1997. 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
o Continue to expand market share and product lines through possible
strategic acquisitions or joint ventures.
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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.
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
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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 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 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, is the
fastest growing major mass market color cosmetics brand, with 34.4% growth and
7.7% market share for 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 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
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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 product 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 1998. The
Company was number two in dollar sales of face makeup in the United States
self-select distribution channel with a 20.9% share for 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 1998. ALMAY leads the mass market color cosmetics category in
growth at 34.4% with a 7.7% market share for 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.
The Company also sells cosmetics in international markets under regional
brand names including COLORAMA in Brazil and JUVENA.
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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 29.3% in the U.S. mass market for 1998
compared to 28.1% in 1997. The Company has leading market positions for its
REVLON brand products in many of its principal product categories in the United
States self-select distribution channel, including the number one position in
lip makeup and nail enamel (which the Company has occupied for the past 22
years), and for 1998 the number one and two selling brands of lip makeup. The
Company's market share in lip makeup and nail
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enamel has increased from 25.3% and 21.1%, respectively, for 1992, to 31.3% and
25.0%, respectively, for 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 20.9% for 1998. Propelled by the
success of its new product launches and its existing product lines, the Company
captured in 1996 and continued to hold in 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 21.2% for 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 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
54
<PAGE>
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 educational efforts with salon professionals. The
Company believes that its presence in the professional markets benefits its
consumer products business since the Company is able to anticipate consumer
trends in hair, nail and skin care, which often appear first in salons.
NEW PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT
The Company believes that it is an industry leader in the development of
innovative and technologically-advanced consumer and professional products.
The Company's marketing and research and development groups identify consumer
needs and shifts in consumer preferences in order to develop new product
introductions, tailor line extensions and promotions and redesign or
reformulate existing products to satisfy such needs or preferences. The
Company's 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 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
55
<PAGE>
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."
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
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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 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.
57
<PAGE>
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. 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
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<PAGE>
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 96,000
office
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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information (ages as of December
31, 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 .......... 56 Executive Vice President and General Counsel
M. Katherine Dwyer ........... 49 Senior Vice President
D. Eric Pogue ................ 49 Senior Vice President, Human Resources
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 MacAndrews & Forbes and
various of its affiliates since 1980. Mr. Perelman also is Chairman of the
Executive Committees of the Boards of Directors of 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:
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, Inc.
("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, 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 VF Corporation, which
files reports pursuant to the Exchange Act.
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 & Forbes and
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various of its affiliates since 1992. He was Executive Vice President, Chief
Financial Officer and 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, 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 Hain Food
Group, Inc., which files reports pursuant to the Exchange Act.
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.
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. Pogue was elected Senior Vice President, Human Resources of the
Company and of Revlon, Inc. in November 1998. He was Vice President, Human
Resources, U.S. Operations for the Company
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from July 1997 until November 1998. From December 1994 until July 1997 he was
Vice President, Human Resources and Administration of Marvel. From September
1992 to November 1994 he was President of Next Phase Ventures, an independent
consulting and venture capital business. From 1988 to 1992 he was Vice
President of Philip Morris Companies, Inc. Prior to 1988 he held various
positions in human resource management.
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 & Forbes and various of its affiliates since 1987. Mr. Drapkin was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom for more than
five years prior to 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., 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, 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 & Forbes 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: 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 Offitbank Investment Fund, Inc., which files
reports pursuant to the Exchange Act.
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
64
<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 $3,062 in respect of
life insurance premiums. The amount shown for Mr. Colomer under All
Other Compensation for 1996 reflects life insurance premiums.
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<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
During 1997, the following grants of stock options were made pursuant to
the Revlon, Inc. Amended and Restated 1996 Stock Plan (the "Stock Plan") to the
executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
GRANT DATE
VALUE
INDIVIDUAL GRANTS (A)
--------------------------------------------------------------- --------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) IN FISCAL YEAR ($/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
67
<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
68
<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% 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 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. Until January 22, 1999, MacAndrews & Forbes was engaged
in the manufacture and distribution of cigars and pipe tobacco through its 64%
ownership of Consolidated Cigar Holdings Inc. 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.
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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 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 $2.9 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.
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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 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
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working capital borrowings from affiliates through June 30, 1996 (see "-- Other
Related Transactions"), and such amounts were evidenced by a
noninterest-bearing promissory note payable on June 30, 1996. The amount of
interest reimbursed by Holdings for 1995 was approximately $4.2 million. 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.
On February 2, 1998, Revlon Escrow Corp. ("Revlon Escrow"), an affiliate of
the Company, issued and sold in a private placement $650.0 million aggregate
principal amount of 8 5/8% Senior Subordinated Notes and $250.0 million
aggregate principal amount of 8 1/8% Senior Notes, with the net proceeds
deposited into escrow. The proceeds from the sale of the Notes were used to
finance the redemption of the Company's $555.0 million aggregate principal
amount of 10 1/2% Senior Subordinated Notes and $260.0 million aggregate
principal amount of 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 assumed the obligations of Revlon Escrow under the 8 5/8%
Senior Subordinated Notes and related indenture, and delivered a redemption
notice 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 assumed the
obligations of Revlon Escrow under the 8 1/8% Senior Notes and related
indenture.
During 1997, a subsidiary of the Company sold an inactive subsidiary to an
affiliate for approximately $1.0 million.
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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 and during the first half of 1998. The rent paid by MacAndrews
& Forbes or its affiliates to the 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 or 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.
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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 assembled lipstick cases for the Company. The
Company paid approximately $0.7 million, $0.9 million, $1.0 million and $1.0
million for such services for the nine months ended September 30, 1998 and for
1997, 1996 and 1995, respectively.
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, as amended, 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
to be used for acquisitions and general corporate purposes, 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 1.75% (or 2.75% for Local Loans); or (B) the Eurodollar
Rate plus the current applicable margin of 2.75%, 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 2.75%; 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 2.75% or (B) the applicable Local Rate plus the
current applicable margin of 2.75%, or a combination of the foregoing. The
applicable margin is reduced in the event the Company attains certain leverage
ratios. The Company pays the lenders a commitment fee of 0.5% of the unused
portion of the Credit Facilities. 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 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
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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 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
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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 9 1/2% SENIOR NOTES
On June 4, 1993, the Company issued and sold $200.0 million principal
amount of its 9 1/2% Senior Notes (the "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, 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.
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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 $250.0 million principal amount of 8 1/8%
Senior Notes (the "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 are senior unsecured obligations of the Company and
rank pari passu in right of payment with all existing and future Senior Debt
(as defined in the 8 1/8% Senior Notes Indenture) of the Company, including the
9 1/2% Senior Notes until the maturity or earlier retirement thereof, the Notes
and the indebtedness under the Credit Agreement, and senior to the 8 5/8% Senior
Subordinated Notes and to all future subordinated indebtedness of the Company.
The 8 1/8% Senior Notes are effectively subordinated to the outstanding
indebtedness and other liabilities of the Company's subsidiaries.
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 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
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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 $650.0 million principal amount of 8 5/8%
Senior Subordinated Notes (the "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 are general unsecured obligations of
the Company and are (i) subordinate in right of payment to all existing and
future Senior Debt (as defined in the 8 5/8% Senior Subordinated Notes
Indenture) of the Company, including the 9 1/2% Senior Notes until the maturity
or earlier retirement thereof, the Notes, the 8 1/8% Senior Notes and the
indebtedness under the Credit Agreement, (ii) pari passu in right of payment
with all future senior subordinated debt, if any, of the Company and (iii)
senior in right of payment to all future subordinated debt, if any, of the
Company. The 8 5/8% Senior Subordinated Notes are effectively subordinated to
the outstanding indebtedness and other liabilities of the Company's
subsidiaries.
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
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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 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 1.75% to 2.75% 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. On December 10, 1998, in connection with the
disposition of the shares of Cosmetic Center owned by the Company, which had
served as collateral
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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 in accordance with the terms of the Yen Credit Agreement, which
repayment reduced the amount due on December 31, 2000 to (Yen) 500 million
(approximately $3.7 million U.S. dollar equivalent as of September 30, 1998).
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 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, as amended, 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 and
(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.
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 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>
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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
<PAGE>
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 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>
F-25
<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 Notes 6 and 8).
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. (See Note 8).
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 EVENTS
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 JANUARY 22, 1999.
----------------------------------------
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
[LOGO]
REVLON CONSUMER
PRODUCTS CORPORATION
9% SENIOR EXCHANGE NOTES
DUE 2006
--------------------------------------------
PROSPECTUS
--------------------------------------------
JANUARY 22, 1999
===============================================================================
<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.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------
<S> <C>
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.)
4.12 Third Amendment, dated as of December 23, 1998, to the Credit Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<S> <C>
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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<S> <C>
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 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)).
10.19 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")).
10.20 Description of Post Retirement Life Insurance Program for Key Executives. (Incorporated
by reference to Exhibit 10.19 to the Revlon 1992 Form S-1).
10.21 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).
10.22 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated by reference to
Exhibit 10.20 to the Revlon 1996 10-K).
10.23 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).
10.24 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).
10.25 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).
+10.26 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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------- --------------------------------------------------------------------------------------
<S> <C>
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 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>
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts.
- ----------
+ Previously filed.
ITEM 22. 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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
New York, State of New York, on January 20, 1999.
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
Amendment No. 1 to the 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 January 20, 1999
-----------------------
Executive Committee of the Board
Ronald O. Perelman
and Director
/s/ George Fellows President, Chief Executive Officer and January 20, 1999
-----------------------
Director
George Fellows
* Vice Chairman, Chief Administrative January 20, 1999
-----------------------
Officer and Director
Irwin Engelman
* Senior Executive Vice President and January 20, 1999
-----------------------
Director
William J. Fox
/s/ Frank J. Gehrmann Executive Vice President and Chief January 20, 1999
-----------------------
Financial Officer (Principal Financial
Frank J. Gehrmann
Officer)
/s/ Lawrence E. Kreider Senior Vice President, Controller and January 20, 1999
-----------------------
Chief Accounting Officer (Principal
Lawrence E. Kreider
Accounting Officer)
* Director January 20, 1999
-----------------------
Donald G. Drapkin
* Director January 20, 1999
-----------------------
Howard Gittis
* Director January 20, 1999
-----------------------
Edward J. Landau
</TABLE>
* Robert K. Kretzman, by signing his name hereto, does hereby execute this
Amendment No. 1 to the 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>
EXHIBIT INDEX
<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.)
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<S> <C>
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.)
4.12 Third Amendment, dated as of December 23, 1998, to the Credit Agreement.
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<S> <C>
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).
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 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)).
10.19 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")).
10.20 Description of Post Retirement Life Insurance Program for Key Executives. (Incorporated
by reference to Exhibit 10.19 to the Revlon 1992 Form S-1).
10.21 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).
10.22 Revlon Executive Bonus Plan effective January 1, 1997. (Incorporated by reference to
Exhibit 10.20 to the Revlon 1996 10-K).
10.23 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).
10.24 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).
10.25 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- --------------------------------------------------------------------------------------
<S> <C>
+10.26 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.
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 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>
- ----------
+ Previously filed.
<PAGE>
CONFORMED COPY
THIRD AMENDMENT
THIRD AMENDMENT, dated as of December 23, 1998 (this
"Amendment"), to the Amended and Restated Credit Agreement, dated as of May 30,
1997 (as amended by the First Amendment, dated as of January 29, 1998, the
Second Amendment, dated as of November 6, 1998, and as may be further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among Revlon Consumer Products Corporation (the "Company"), the Borrowing
Subsidiaries from time to time parties thereto, the financial institutions from
time to time parties thereto (the "Lenders"), the Co-Agents named therein,
Citibank, N.A., as Documentation Agent, Lehman Commercial Paper Inc., as
Syndication Agent, The Chase Manhattan Bank, as Administrative Agent and Chase
Securities Inc., as Arranger.
W I T N E S S E T H :
WHEREAS, the Company has requested that the Lenders and the
Agents amend certain provisions of the Credit Agreement;
WHEREAS, the Lenders and the Agents are willing to amend such
provisions upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company, the Lenders and the Agents
hereby agree as follows:
1. Definitions. (a) General. All terms defined in the Credit
Agreement shall have such defined meanings when used herein unless otherwise
defined herein.
(b) Amendment of Definitions. The definition of "Commitment
Fee Rate" contained in subsection 1.1. of the Credit Agreement is hereby
amended by deleting paragraph (b) therefrom in its entirety and substituting in
lieu thereof the following new paragraph (b):
"(b) thereafter, 1/2% per annum."
(c) Replacement of Definitions. (i) The definitions of
"Applicable Margin", "EBITDA" and "Yen Credit Agreement" contained in
subsection 1.1 of the Credit Agreement are hereby amended by deleting such
definitions in their entirety and substituting in lieu thereof the following
definitions:
"'Applicable Margin' shall mean:
(a) during the period from the Closing Date through and
including the Adjustment Date occurring with respect to the delivery
of the consolidated financial statements of the Company and its
Subsidiaries for the fiscal period ending June 30, 1997, (i) with
respect to Alternate Base Rate Loans, 1/2% per annum and (ii) with
respect to all other Loans, 1-1/2% per annum; and
<PAGE>
2
(b) thereafter, for the period commencing with any Adjustment
Date (other than as described below) and ending on the day immediately
preceding the next succeeding Adjustment Date, the Applicable Margin
shall be the rate per annum set forth below for the relevant type of
Loan opposite the Leverage Ratio for such period:
Alternate Base
Rate Loans not
constituting
Period Local Loans Other Loans
------ ----------- -----------
Leverage Ratio is greater than 5.75 to 1-3/4% 2-3/4%
1.0
Leverage Ratio is greater than 5.25 to 1-1/2% 2-1/2%
1.0, but less than or equal to 5.75 to
1.0
Leverage Ratio is greater than 4.75 to 1-1/4% 2-1/4%
1.0, but less than or equal to 5.25 to
1.0
Leverage Ratio is greater than 4.50 to 1% 2%
1.0, but less than or equal to 4.75 to
1.0
Leverage Ratio is less than or equal 3/4% 1-3/4%
to 4.50 to 1.0
; provided, however, for the period beginning on the Third Amendment
Effective Date and ending on the day immediately preceding the next
succeeding Adjustment Date, the Applicable Margin shall be determined
based on a Leverage Ratio of greater than 5.75 to 1.0; provided,
further, that, in the event that the financial statements required to
be delivered pursuant to subsection 13.1(a) and (c) are not delivered
when due, then during the period from the date upon which such
financial statements were required to be delivered until the date upon
which they actually are delivered, the Leverage Ratio shall be deemed
for purposes of this definition to be greater than 5.75 to 1.0;"
"'EBITDA' shall mean, for any period, the amount equal to:
(a) Consolidated Net Income for such period;
(b) plus (to the extent deducted in the determination of
Consolidated Net Income) the sum of (i) tax expense on
account of such period, (ii) Interest Expense
(including, without limitation, fees, commissions and
other charges associated with standby letters of credit
and other financing charges) for such period, (iii)
depreciation and amortization expense for such period,
(iv) any losses in respect of currency fluctuations for
such period, (v) any losses in respect of equity
earnings for such period, (vi) the amount (not to
exceed the excess of the book value of the Roppongi
Building on December 31, 1995 over $35,000,000) equal
to any write-
<PAGE>
3
down in the book value of the Roppongi Building (or,
upon the sale thereof, any loss upon such sale), (vii)
non-cash write-offs in respect of unamortized debt
issuance costs and (viii) for any period of
determination including any of the fiscal quarters
ending December 31, 1998, March 31, 1999 and June 30,
1999 and without duplication, non-recurring
restructuring charges taken by the Company or any of
its Subsidiaries during any of such quarters which are
included in such period of determination in an
aggregate amount for all such quarters not to exceed
$125,000,000;
(c) minus (to the extent included in the determination of
Consolidated Net Income) the sum of (i) interest income
for such period, (ii) extraordinary gains for such
period, (iii) any gains in respect of currency
fluctuations for such period and (iv) any gains in
respect of equity earnings for such period;
provided that, for purposes of the calculation only of the Leverage
Ratio and compliance with the provisions of subsection 14.1(a), the
EBITDA of any Person acquired by the Company or any of its
Subsidiaries during the relevant calculation period shall be included,
on a pro forma basis, in the EBITDA of the Company as if such Person
had been acquired on the first day of the calculation period;"
"'Yen Credit Agreement' shall mean the Third Amended and
Restated Credit Agreement, dated as of June 30, 1997 and as amended,
between Pacific Finance & Development Corp. and The Long-Term Credit
Bank of Japan, Ltd. (or any subsequent agreement which refinances or
replaces such credit agreement in accordance with subsection 14.2(b))
and each other document, instrument and agreement executed and
delivered in connection therewith."
(d) Addition of Definitions. Subsection 1.1 of the Credit
Agreement is hereby amended by adding thereto the following new defined term in
appropriate alphabetical order:
"'Third Amendment' shall mean the Third Amendment,
dated as of December 23, 1998, to this Agreement;"
"'Third Amendment Effective Date' shall mean the date
of effectiveness of the Third Amendment;"
2. Amendment to Subsection 9.9. Subsection 9.9 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following new subsection 9.9:
"9.9 Use of Proceeds of Acquisition Loans. The
proceeds of the Acquisition Loans hereunder shall be used by the
relevant Acquisition Borrower to (a)
<PAGE>
4
finance the Investment Consideration for Investments which are
permitted hereunder, (b) refinance the Investment Consideration for
Investments which are permitted hereunder and are made after the date
hereof, (c) pay fees and expenses relating thereto and (d) for general
corporate purposes of the Company and its Subsidiaries."
3. Amendment to Subsection 14.1(a). Subsection 14.1(a) of the
Credit Agreement is hereby amended by deleting the table set forth therein and
substituting in lieu thereof the following new table:
Date Ratio
June 30, 1997 1.75 to 1.0
September 30, 1997 1.75 to 1.0
December 31, 1997 1.75 to 1.0
March 31, 1998 2.00 to 1.0
June 30, 1998 2.00 to 1.0
September 30, 1998 2.25 to 1.0
December 31, 1998 1.70 to 1.0
March 31, 1999 1.60 to 1.0
June 30, 1999 1.60 to 1.0
September 30, 1999 1.70 to 1.0
December 31, 1999 1.80 to 1.0
March 31, 2000 1.90 to 1.0
June 30, 2000 1.90 to 1.0
September 30, 2000 2.00 to 1.0
December 31, 2000 2.00 to 1.0
March 31, 2001 2.00 to 1.0
June 30, 2001 2.10 to 1.0
September 30, 2001 2.20 to 1.0
December 31, 2001 2.50 to 1.0
March 31, 2002 2.50 to 1.0
4. Amendment to Subsection 14.1(b). Subsection 14.1(b) of the
Credit Agreement is hereby amended by deleting the table set forth therein and
substituting in lieu thereof the following new table:
Date Ratio
June 30, 1997 6.25 to 1.0
September 30, 1997 6.25 to 1.0
December 31, 1997 5.50 to 1.0
March 31, 1998 5.50 to 1.0
June 30, 1998 5.50 to 1.0
<PAGE>
5
September 30, 1998 5.50 to 1.0
December 31, 1998 7.00 to 1.0
March 31, 1999 7.50 to 1.0
June 30, 1999 7.25 to 1.0
September 30, 1999 7.00 to 1.0
December 31, 1999 6.25 to 1.0
March 31, 2000 6.25 to 1.0
June 30, 2000 6.25 to 1.0
September 30, 2000 5.75 to 1.0
December 31, 2000 5.50 to 1.0
March 31, 2001 5.50 to 1.0
June 30, 2001 5.50 to 1.0
September 30, 2001 5.00 to 1.0
December 31, 2001 4.50 to 1.0
March 31, 2002 4.50 to 1.0
5. Amendment to Subsection 14.2(b). Subsection 14.2(b) of the
Credit Agreement is hereby amended by deleting words "terms and conditions
substantially similar to those set forth on Exhibit Y hereto" beginning in the
penultimate line and substituting in lieu thereof the following:
"the following terms: (x) the principal amount of the
Indebtedness thereunder may be increased to an amount not to exceed
$40,000,000, (y) the collateral securing such Indebtedness shall be
limited to the Roppongi Property or any property (including the
improvements thereon) which is exchanged for the Roppongi Property and
which is located in the greater Tokyo area and (z) (i) the covenants,
defaults and similar provisions applicable to such refinancing
Indebtedness are no more restrictive in all material respects, taken
as a whole, than those in effect in the Indebtedness refinanced
thereby, (ii) the covenants, defaults and similar provisions related
to the Company which are contained in such refinancing Indebtedness
are no more restrictive in all material respects, taken as a whole,
than those in this Agreement and do not conflict with the provisions
of this Agreement; provided, that the financial covenants and events
of default related to the Company which are contained in any such
refinancing Indebtedness are no more restrictive than those in this
Agreement".
6. Amendment to Subsection 14.3(g). Subsection 14.3(g) of the
Credit Agreement is hereby amended by adding thereto immediately after the word
"Lien" in the ninth line thereof the following: "and except for, with respect
to the Yen Credit Agreement, any property for which the Roppongi Property is
exchanged in accordance with the provisions of subsection 14.2(b)".
7. Amendment to Subsection 14.9(a). Subsection 14.9(a) of the
Credit Agreement is hereby amended by deleting the words "on terms and
conditions substantially similar to those set forth on Exhibit Y hereto"
beginning in the penultimate line and
<PAGE>
6
substituting in lieu thereof the following: "in accordance with the provisions
of subsection 14.2(b)".
8. Fees. In consideration of the agreement of the Lenders to
consent to the amendments contained herein, the Company agrees to pay to each
Lender which so consents on or prior to December 23, 1998, an amendment fee in
an amount equal to 0.25% of the amount of such Lender's Commitment, payable on
the date hereof in immediately available funds.
9. Conditions to Effectiveness. This Amendment shall become
effective on and as of the date that the Administrative Agent shall have
received counterparts of this Amendment duly executed by the Company and the
Required Lenders, and duly acknowledged and consented to by each Guarantor,
Grantor and Pledgor.
10. Representations and Warranties. The Company, as of the
date hereof and after giving effect to the amendment contained herein, hereby
confirms, reaffirms and restates the representations and warranties made by it
in Section 11 of the Credit Agreement and otherwise in the Credit Documents to
which it is a party; provided that each reference to the Credit Agreement
therein shall be deemed to be a reference to the Credit Agreement after giving
effect to this Amendment.
11. Reference to and Effect on the Credit Documents; Limited
Effect. On and after the date hereof and the satisfaction of the conditions
contained in Section 9 of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Credit
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Lender or the Agents under any of
the Credit Documents, nor constitute a waiver of any provisions of any of the
Credit Documents. Except as expressly amended herein, all of the provisions and
covenants of the Credit Agreement and the other Credit Documents are and shall
continue to remain in full force and effect in accordance with the terms
thereof and are hereby in all respects ratified and confirmed.
12. Counterparts. This Amendment may be executed by one or
more of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
REVLON CONSUMER PRODUCTS CORPORATION
By: /s/ Steven Berns
-------------------------------
Name: Steven Berns
Title: Vice President and Treasurer
DEUTSCHE REVLON GMBH & CO. KG
REVLON INTERNATIONAL CORPORATION
(UK Branch)
REVLON MANUFACTURING LIMITED
(Australia Branch)
REVLON MANUFACTURING (UK) LIMITED
EUROPEENNE DE PRODUITS DE BEAUTE
REVLON NEDERLAND B.V.
REVLON K.K.
REVLON CANADA, INC.
REVLON SA
REVLON-REALISTIC PROFESSIONAL
PRODUCTS LTD.
REVLON PROFESSIONAL LIMITED
REVLON (HONG KONG) LIMITED
EUROPEAN BEAUTY PRODUCTS S.P.A., as
Local Subsidiaries
By: /s/Robert K. Kretzman
-------------------------------
Name: Robert K. Kretzman
Title: Authorized Signatory
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/Neil R. Boylan
-------------------------------
Name: Neil R. Boylan
Title: Vice President
<PAGE>
8
CHASE SECURITIES INC., as Arranger
By: /s/Douglas Travers
-------------------------------
Name: Douglas Travers
Title: Managing Director
CITIBANK, N.A., as Documentation Agent and as
a Lender
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By: /s/Michele Swanson
-------------------------------
Name: Michele Swanson
Title: Authorized Signatory
ABN AMRO BANK N.V., as a Local Fronting
Lender in the Federal Republic of Germany
By: /s/Thomas T. Rogers
-------------------------------
Name: Thomas T. Rogers
Title: Vice President
By: /s/David Carrington
-------------------------------
Name: David Carrington
Title: Vice President
BANKBOSTON, N.A., as a Local Fronting Lender
in the United Kingdom
By: /s/Richard D. Hill, Jr.
-------------------------------
Name: Richard D. Hill, Jr.
Title: Managing Director
<PAGE>
9
NATEXIS BANQUE BFCE, formerly BANQUE
FRANCAISE DU COMMERCE EXTERIEUR, as
a Local Fronting Lender in France
By: /s/Jordan Sadler
-------------------------------
Name: Jordan Sadler
Title: Associate
By: /s/G. Kevin Dooley
-------------------------------
Name: G. Kevin Dooley
Title: Vice President & Group Manager
THE SANWA BANK LTD., as a Local Fronting
Lender in Japan
By: /s/Dominic Sorresso
-------------------------------
Name: Dominic Sorresso
Title: Vice President
BANK OF AMERICA CANADA, as a Local
Fronting Lender in Canada
By: /s/Richard J. Hall
-------------------------------
Name: Richard J. Hall
Title: Vice President
CITIBANK LIMITED, as a Local Fronting Lender
in Australia
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
<PAGE>
10
CITIBANK, N.A., as a Local Fronting Lender
in Hong Kong
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
CITIBANK, N.A., as a Local Fronting Lender in
the Netherlands
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
CITIBANK, N.A., as a Local Fronting Lender in
Italy
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
ALLIED IRISH BANK, as a Local Fronting Lender
in Ireland
By: /s/Marcia Meeker & W.J. Strickland
-------------------------------
Name: Marcia Meeker
Title: Vice President
Name: W.J. Strickland
Title: Senior Vice President
CITIBANK, N.A., as a Local Fronting
Lender in Spain
By: /s/James Buchanan
-------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
<PAGE>
11
ABN AMRO BANK N.V.
New York Branch
By: /s/Thomas T. Rogers
-------------------------------
Name: Thomas T. Rogers
Title: Vice President
By: /s/David Carrington
-------------------------------
Name: David Carrington
Title: Vice President
ALLIED IRISH BANK PLC
Cayman Islands Branch
By: /s/Marcia Meeker
-------------------------------
Name: Marcia Meeker
Title: Vice President
By: /s/W.J. Strickland
-------------------------------
Name: W.J. Strickland
Title: Senior Vice President
BANKBOSTON, N.A., as a Co-Agent
By: /s/Richard D. Hill, Jr.
-------------------------------
Name: Richard D. Hill, Jr.
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Co-Agent
By: /s/Debra A. Seiter
-------------------------------
Name: Debra A. Seiter
Title: Vice President
<PAGE>
12
THE BANK OF NEW YORK
By: /s/Georgia Pan-Kita
-------------------------------
Name: Georgia Pan-Kita
Title: Vice President
NATEXIS BANQUE BFCE, formerly BANQUE
FRANCAISE DU COMMERCE EXTERIEUR, as
a Co-Agent
By: /s/Jordan Sadler
-------------------------------
Name: Jordan Sadler
Title: Associate
By: /s/Cynthia E. Sachs
-------------------------------
Name: Cynthia E. Sachs
Title: Vice President, Group Manager
BANQUE PARIBAS
By: /s/John J. McCormick, III
-------------------------------
Name: John J. McCormick, III
Title: Vice President
By: /s/Duane Helkowski
-------------------------------
Name: Duane Helkowski
Title: Vice President
BARCLAYS BANK PLC
By: /s/Marlene Wechselblatt
-------------------------------
Name: Marlene Wechselblatt
Title: Vice President
<PAGE>
13
CREDIT AGRICOLE INDOSUEZ
By: /s/Craig Welch
-------------------------------
Name: Craig Welch
Title: First Vice President
By: /s/Sarah McClintock
-------------------------------
Name: Sarah McClintock
Title: Vice President, TL
CREDIT LYONNAIS, New York Branch
By: /a/Attila Koc
-------------------------------
Name: Attila Koc
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON, as a Co-Agent
By: /s/Joel Glodowski
-------------------------------
Name: Joel Glodowski
Title: Managing Director
By: /s/Chris T. Horgan
-------------------------------
Name: Chris T. Horgan
Title: Vice President
DEEPROCK & COMPANY
By EATON VANCE MANAGEMENT, as
Investment Manager
By: /s/Payson F.Swaffield
-------------------------------
Name: Payson F. Swaffield
Title: Vice President
<PAGE>
14
U.S. BANK NATIONAL ASSOCIATION, as a
Co-Agent
By: /s/Greg Wilson
-------------------------------
Name: Greg Wilson
Title: Banking Officer
THE FUJI BANK, LIMITED, New York Branch,
as a Co-Agent
By: /s/Teiji Teramoto
-------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
GENERAL ELECTRIC CAPITAL
CORPORATION, as a Co-Agent
By: /s/Janet Williams
-------------------------------
Name: Janet Williams
Title: Duly Authorized Signatory
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., Los Angeles Agency
By: /s/Shunji Sato
-------------------------------
Name: Shunji Sato
Title: Deputy General Manager
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/R. Douglas Henderson
-------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/Toshihiro Hayashi
-------------------------------
Name: Toshihiro Hayashi
Title: Senior Vice President
<PAGE>
15
NATIONSBANK, N.A.
By: /s/Debra A. Seiter
-------------------------------
Name: Debra A. Seiter
Title: Vice President
OCTAGON LOAN TRUST
By: Octagon Credit Investors as Manager
By: /s/Margaret B. Harvey
-------------------------------
Name: Margaret B. Harvey
Title: Vice President
THE SANWA BANK, LIMITED
NEW YORK BRANCH
By: /s/Dominic Sorresso
-------------------------------
Name: Dominic Sorresso
Title: Vice President
VAN KAMPEN PRIME RATE INCOME TRUST
By: /s/Jeffrey W. Maillet
-------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
ROYAL BANK OF CANADA
By: /s/Michael Korine
-------------------------------
Name: Michael Korine
Title: Senior Manager
SENIOR DEBT PORTFOLIO
By: /s/Payson F. Swaffield
-------------------------------
Name: Payson F. Swaffield
Title: Vice President
<PAGE>
16
AERIES FINANCE LTD.
By:
-------------------------------
Name:
Title:
STRATA FUNDING LTD.
By: /s/Authorized Signatory
-------------------------------
Name:
Title:
MEDICAL LIABILITY MUTUAL INSURANCE
COMPANY
By: Invesco Senior Secured Management, Inc.
as Investment Manager
By: /s/Anne M. McCarthy
-------------------------------
Name: Marcia Meeker
Title: Vice President
Name: Anne M. McCarthy
Title: Authorized Signatory
CERES FINANCE LTD.
By: /s/Authorized Signatory
-------------------------------
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Dated as of December 23, 1998
Each of the undersigned (in its capacity as a Guarantor,
Grantor and/or Pledgor, as the case may be, under the Security Documents to
which it is a party) does hereby (a) consent, acknowledge and agree to the
transactions described in the foregoing Third Amendment and (b) after giving
effect to such Third Amendment, (i) confirms, reaffirms and restates the
representations and warranties made by it in each Credit Document to which it
is a party, (ii) ratifies and confirms each Security Document to which it is a
party and (iii) confirms and agrees that each such Security Document is, and
shall continue to be, in full force and effect, with the Collateral described
therein securing, and continuing to secure, the payment of all obligations of
the undersigned referred to therein; provided that each reference to the Credit
Agreement therein and in each of the other Credit Documents shall be deemed to
be a reference to the Credit Agreement after giving effect to such Third
Amendment.
ALEXANDRA DE MARKOFF, LTD. REVLON, INC.
ALMAY, INC. REVLON COMMISSARY SALES, INC.
AMERICAN CREW, INC. REVLON CONSUMER CORP.
AMERINAIL, INC. REVLON CONSUMER PRODUCTS
A.P. PRODUCTS LTD. CORPORATION
APPLIED SCIENCE & TECHNOLOGIES INC. REVLON GOVERNMENT SALES, INC.
CARRINGTON PARFUMS LTD. REVLON HOLDINGS INC.
CHARLES OF THE RITZ GROUP LTD. REVLON INTERNATIONAL CORPORATION
CHARLES REVSON INC. REVLON PRODUCTS CORP.
COSMETIQUES HOLDINGS, INC. REVLON PROFESSIONAL, INC.
CREATIVE NAIL DESIGN, INC. REVLON PROFESSIONAL PRODUCTS INC.
FERMODYL PROFESSIONALS INC. REVLON REAL ESTATE CORPORATION
MODERN ORGANIC PRODUCTS, INC. REVLON RECEIVABLES SUBSIDIARY, INC.
NEW ESSENTIALS LIMITED RIROS CORPORATION
NORELL PERFUMES, INC. RIT INC.
NORTH AMERICA REVSALE INC. ROUX LABORATORIES, INC.
OXFORD PROPERTIES CO. VISAGE BEAUTE COSMETICS, INC.
PACIFIC FINANCE & DEVELOPMENT CORP.
PPI TWO CORPORATION
PPI FOUR CORPORATION
PRESTIGE FRAGRANCES, LTD. By: /s/ Robert Kretzman
REALISTIC/ROUX PROFESSIONAL PRODUCTS -----------------------------
INC. Title: Vice President
<PAGE>
January 20, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Revlon Consumer Products Corporation
Registration Statement on Form S-4 (File No. 333-69213)
-------------------------------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement
on Form S-4 (the "Registration Statement") filed by Revlon Consumer Products
Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations under the Act (the "Securities
Act Rules"), we have been requested to render our opinion as to the legality of
the securities being registered by the Registration Statement. The Registration
Statement covers
<PAGE>
Securities and Exchange Commission 2
$250,000,000 aggregate principal amount of the Company's 9% Senior Exchange
Notes due 2006 (the "Exchange Notes") to be issued under the Indenture, dated
as of November 6, 1998 (the "Indenture"), between the Company and U.S. Bank
Trust National Association ("Trustee"), as Trustee, and as contemplated by the
Registration Agreement, dated November 6, 1998 (the "Registration Agreement"),
by and among the Company and the signatories to it.
In connection with the furnishing of this opinion, we have
examined originals, or copies certified or otherwise identified to our
satisfaction, of the (i) Registration Statement; (ii) Indenture; and (iii) form
of the Senior Exchange Notes which is set forth as Exhibit B to the Indenture
(collectively, the "Documents").
In addition, we have examined those corporate records and
other instruments as we have deemed necessary or appropriate and those other
certificates, agreements and documents as we deemed relevant and necessary as a
basis for the opinions expressed below.
In our examination of the documents referred to above, we
have assumed, without independent investigation, the genuineness of all
signatures, the enforceability of the Documents against all parties to them
(other than the Company in the case of the Indenture and the Exchange Notes),
the authenticity of all documents submitted to us as originals, the conformity
to the original documents of all documents submitted to us as certified,
photostatic, reproduced or conformed copies of valid existing agreements and
other documents, the authenticity of all the latter documents
<PAGE>
Securities and Exchange Commission 3
and the legal capacity of all individuals who have executed any of the
documents we have examined.
In expressing the opinions set forth below, we have assumed
that the Exchange Notes will be in the form of Exhibit B to the Indenture and
any information omitted from the form and indicated as such by a blank space
has been properly added. In addition, we have relied upon the factual matters
contained in the representations and warranties of the Company made in any of
the Documents and upon certificates of public officials and officers of the
Company.
Based upon the foregoing, and subject to the assumptions,
exceptions and qualifications set forth in this letter, we are of the opinion
that the Exchange Notes to be issued under the Indenture, when issued,
authenticated and delivered as provided in the Indenture and as contemplated by
the Registration Statement, will be validly issued and delivered and will
constitute valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except as enforceability of such
obligations may be subject to (a) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
The opinions in this letter are limited to the laws of the
State of New York and the General Corporation Law of the State of Delaware.
Please be advised
<PAGE>
Securities and Exchange Commission 4
that no member of this firm is admitted to practice in the State of Delaware.
Our opinion is rendered only with respect to the laws, and the rules,
regulations and orders under them, which are currently in effect.
We hereby consent to the use of our name in the Registration
Statement and in the related Prospectus as it appears in the caption "Legal
Matters" and to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we come within the
category of persons whose consent is required by the Securities Act or the
Securities Act Rules.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<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 LLP
New York, New York
January 20, 1999
<PAGE>
LETTER OF TRANSMITTAL
REVLON CONSUMER PRODUCTS CORPORATION
OFFER FOR ALL OUTSTANDING
9% SENIOR NOTES DUE 2006
IN EXCHANGE FOR 9% SENIOR EXCHANGE NOTES DUE 2006
PURSUANT TO THE PROSPECTUS DATED JANUARY 22, 1999
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON FEBRUARY 24,
1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- -------------------------------------------------------------------------------
Delivery To:
U.S. BANK TRUST NATIONAL ASSOCIATION,
Exchange Agent
By Mail: By Overnight Courier or Hand: By Facsimile:
U.S. Bank Trust National U.S. Bank Trust National (651) 244-1537
Association Association
Corporate Trust 180 East 5th Street Confirm by Telephone:
P.O. Box 64485 4th Floor Window
St. Paul, MN 55101-9549 St. Paul, MN 55101 (651) 244-5011
Attention: Specialized Finance
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated January 22, 1999 (the "Prospectus"), of Revlon Consumer
Products Corporation, a Delaware corporation (the "Company"), and this Letter
of Transmittal (the "Letter"), which together constitute the Company's offer
(the "Exchange Offer") to exchange an aggregate principal amount of up to
$250,000,000 of its 9% Senior Exchange Notes due 2006 (the "New Notes"), which
have been registered under the Securities Act of 1933, as amended, for a like
principal amount of the issued and outstanding 9% Senior Notes due 2006 (the
"Old Notes") of the Company from the holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. 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%. Holders
of Old Notes accepted for exchange will be deemed to have waived the right to
receive any other payments or accrued interest on the Old Notes. The Company
reserves the right, at any time or from time to time, to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the latest time and date to which the Exchange Offer is extended. The Company
shall notify the holders of the Old Notes of any extension by oral or written
notice prior to 9:00 A.M., New York City time, on the next business day after
the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Book-Entry Transfer" section of the Prospectus and an Agent's
Message (as defined herein) is not delivered. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF THE OLD NOTES 1 2 3
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------- ------------- -----------
------------- ------------- -----------
------------- ------------- -----------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by the Old
Notes indicated in column 2. See Instruction 2. Old Notes tendered must be in denominations of principal amount at maturity of
$1,000 and any integral multiple thereof. See Instruction 1.
</FN>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------
Account Number Transaction Code Number
--------------- ---------------
By crediting Old Notes to the Exchange Agent's Account at the Book-Entry
Facility in accordance with the Book-Entry Transfer Facility's Automated
Tender Offer Program ("ATOP") and by complying with applicable ATOP
procedures with respect to the Exchange Offer, including transmitting an
Agent's Message to the Exchange Agent in which the holder of Old Notes
acknowledges and agrees to be bound by the terms of this Letter, the
participant in ATOP confirms on behalf of itself and the beneficial owners
as if it had completed the information required herein and executed and
transmitted this Letter to the Exchange Agent.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
-------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------
Name of Institution which guaranteed delivery
-----------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number Transaction Code Number
--------------- ---------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------
---------------------------------------------------------------------------
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 New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes, it represents that the Old Notes to
be exchanged for New Notes were acquired by it as a result of market-making or
other trading activities and acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act of 1933, as amended, in
connection with any resale of such New 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 Securities Act of 1933, as
amended.
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the Company.
The undersigned hereby further represents that any New Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the undersigned, that neither the holder of such Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the holder
of such Old Notes nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"),
of the Company.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued in exchange for the Old Notes pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. However, the
Company does not intend to request the SEC to consider, and the SEC has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in other circumstances. 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 New Notes
and has no arrangement or understanding to participate in a distribution of New
Notes. If any holder is an affiliate of the Company or is engaged in or intends
to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff
of the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for the New 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 New 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 Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer -- Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated in the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes
not exchanged) to the undersigned at the address shown above in the box
entitled "Description of the Old Notes."
3
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF THE OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if the certificates for the Old
Notes not exchanged and/or the New Notes are to be
issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this
Letter above, or if Old Notes delivered by book-entry
transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account
indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)
--------------------------------------
(PLEASE PRINT)
Address
--------------------------------------
----------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
----------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if the certificates for the Old
Notes not exchanged and/or the New Notes are to be sent
to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such
person or persons at an address other than shown in the
box entitled "Description of the Old Notes" on this Letter
above.
Mail: New Notes and/or Old Notes to:
Name(s)
--------------------------------------
(PLEASE TYPE OR PRINT)
----------------------------------------------
(PLEASE TYPE OR PRINT)
Address
--------------------------------------
----------------------------------------------
(ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
HEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
4
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FROM W-9 ON REVERSE SIDE)
Dated:
.................................................................., 1999
x ................................................................, 1999
x ................................................................., 1999
Signature(s) of Owner(s) Date
Area Code and Telephone Number
.......................................
If a holder is tendering any Old Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Old Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):
......................................................................
...............................................................................
(Please Type or Print)
Capacity:
.....................................................................
Address:
.....................................................................
...............................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
.....................................................
(Authorized Signature)
...............................................................................
(Title)
...............................................................................
(Name and Firm)
Date:
..................................................................., 1999
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
9% SENIOR NOTES DUE 2006 IN EXCHANGE FOR THE
9% SENIOR EXCHANGE NOTES DUE 2006 OF REVLON CONSUMER PRODUCTS CORPORATION
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are
to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus and an Agent's Message is
not delivered. Certificates for all physically tendered Old Notes, or
Book-Entry Confirmation, as the case may be, as well as a properly completed
and duly executed Letter (or manually signed facsimile thereof) and any other
documents required by this Letter, must be received by the Exchange Agent at
the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount
at maturity of $1,000 and any integral multiple thereof. The term "Agent's
Message" means a message, transmitted to the Book-Entry Transfer Facility and
received by the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received
an express acknowledgement from the tendering Participant that such Participant
has received and agrees to be bound by this Letter and that the Company may
enforce this Letter against such Participant.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to
the Exchange Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to the Expiration Date, the Exchange Agent must receive from such
Eligible Institution a properly completed and duly executed Letter (or a
facsimile thereof or an Agent's Message in lieu thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (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, or a Book-Entry Confirmation, and any other
documents required by the Letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, or Book-Entry Confirmation, as the case
may be, and all other documents required by this Letter, are received by the
Exchange Agent within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but
the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount at maturity of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount Tendered." A reissued certificate
representing the balance of nontendered Old Notes will be sent to such
tendering holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO
THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
6
<PAGE>
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER
OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST
COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different form the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be credited to such account maintained at the
Book-Entry Transfer Facility as such noteholder may designate hereon. If no
such instructions are given, such Old Notes not exchanged will be returned to
the name or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Old Notes are accepted for exchange must provide the Company (as payor) with
such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form
W-9 below, which in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption, such tendering holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
to such tendering holder of New Notes may be subject to backup withholding in
an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii)
7
<PAGE>
the Internal Revenue Service has notified the holder that such holder is no
longer subject to backup withholding. If the tendering holder of Old Notes is a
nonresident alien or foreign entity not subject to backup withholding, such
holder must give the Company a completed Form W-8, Certificate of Foreign
Status. These forms may be obtained from the Exchange Agent. If the Old Notes
are in more than one name or are not in the name of the actual owner, such
holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If
however, New Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11. INCORPORATION OF LETTER OF TRANSMITTAL.
This Letter shall be deemed to be incorporated in and acknowledged and
accepted by any tender through the Book-Entry Transfer Facility's ATOP
procedures by any Participant on behalf of itself and the beneficial owners of
any Old Notes so tendered.
8
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: U.S. BANK TRUST NATIONAL ASSOCIATION
PART 1--PLEASE PROVIDE YOUR TIN IN
SUBSTITUTE THE BOX AT RIGHT AND CERTIFY BY
FORM W-9 SIGNING AND DATING BELOW
TIN:
--------------------------------
Social Security number or
Employer Identification Number
PART 2--TIN Applied For [ ]
CERTIFICATION: UNDER THE PENALTIES
DEPARTMENT OF THE OF PERJURY, I CERTIFY THAT:
TREASURY INTERNAL
REVENUE SERVICE
(1) the number shown on this form is
my correct Taxpayer Identification
Number (or I am waiting
for a number to be issued to me).
(2) I am not subject to backup
withholding either because: (a) I am
PAYOR'S REQUEST exempt from backup withholding,
FOR or (b) I have not been notified
TAXPAYER by the Internal Revenue Service
IDENTIFICATION (the "IRS") that I am subject to backup
NUMBER ("TIN") withholding as a result of a failure
AND CERTIFICATION to report all interest or dividends, or
(c) the IRS has notified me that I
am no longer subject to backup
withholding, and
(3) any other information provided
on this form is true and correct.
SIGNATURE
--------------------------
DATE
----------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
- ------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31
percent of all reportable payments made to me thereafter will be withheld until
I provide a number.
--------------------------------------------- -----------------------------
Signature Date
- ------------------------------------------------------------------------------
9
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
REVLON CONSUMER PRODUCTS CORPORATION
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Revlon Consumer Products Corporation (the "Company")
made pursuant to the Prospectus, dated January 22, 1999 (the "Prospectus"),
if certificates for the outstanding 9% Senior Notes due 2006 (the "Old
Notes") of the Company are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 p.m., New
York City time, on the Expiration Date of the Exchange Offer. Such form may
be delivered or transmitted by telegram, telex, facsimile transmission, mail
or hand delivery to U.S. Bank Trust National Association (the "Exchange
Agent") as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. Capitalized terms not defined herein are
defined in the Prospectus.
Delivery To:
U.S. BANK TRUST NATIONAL ASSOCIATION,
Exchange Agent
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile: By Overnight Courier or Hand:
U.S. Bank Trust National Association (651) 244-1537 U.S. Bank Trust National Association
Corporate Trust 180 East 5th Street
P.O. Box 64485 Confirm by Telephone: 4th Floor Window
St. Paul, MN 55101-9549 (651) 244-5011 St. Paul, MN 55101
Attention: Specialized Finance
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes
Tendered:*
$
- ------------------------------------------- If Old Notes will be delivered by
Certificate Nos. (if available): book-entry transfer to The
Depository Trust Company, provide
account number.
Account Number
- ------------------------------------------- ---------------------
Total Principal Amount Represented by Old
Notes Certificate(s):
$
- -------------------------------------------
* Must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
<PAGE>
- --------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X
---------------------------------- -----------------
X
---------------------------------- -----------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
----------------------
Must be signed by the holder(s) of Old Senior Notes as their name(s)
appear(s) on certificates for Old Senior Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Capacity: ----------------------------------------------------------------
Address(es): ----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
GUARANTEE
The undersigned, 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, hereby guarantees that the certificates representing the
principal amount of Old Notes tendered hereby in proper form for transfer, or
timely confirmation of the book-entry transfer of such Old Notes into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus, together with a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) with
any required signature guarantee and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent at the address
set forth above, no later than three New York Stock Exchange trading days
after the date of execution hereof.
Name of Firm:
----------------------------------------------------------------
Address:
---------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Zip Code)
Area Code and
Telephone No.:
---------------------------------------------------------------
- -----------------------------------------------------------------------------
(Authorized Signature)
Name:
------------------------------------------------------------------------
(Please Type or Print)
Title:
-----------------------------------------------------------------------
Dated: , 1999
--------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION
OFFER FOR ALL OUTSTANDING 9% SENIOR NOTES DUE 2006
IN EXCHANGE FOR 9% SENIOR EXCHANGE NOTES DUE 2006
To: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Revlon Consumer Products Corporation (the "Company") is offering, upon and
subject to the terms and conditions set forth in the Prospectus, dated
January 22, 1999 (the "Prospectus"), and the enclosed Letter of Transmittal
(the "Letter of Transmittal"), to exchange (the "Exchange Offer") its 9%
Senior Exchange Notes due 2006, which have been registered under the
Securities Act of 1933, as amended, for its outstanding 9% Senior Notes due
2006 (the "Old Notes"). The Exchange Offer is being made in order to satisfy
certain obligations of the Company contained in the Registration Agreement
dated November 6, 1998, by and among the Company and the Initial Purchasers
referred to therein.
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding
to your clients for whom you hold Old Notes registered in your name or in the
name of your nominee, or who hold Old Notes registered in their own names, we
are enclosing the following documents:
1. Prospectus dated January 22, 1999;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON FEBRUARY 24, 1999, UNLESS EXTENDED BY THE
COMPANY (THE "EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them
to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to
the beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer,
except as set forth in Instruction 6 of the Letter of Transmittal.
<PAGE>
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to U.S.
Bank Trust National Association, the Exchange Agent for the Old Notes, at its
address and telephone number set forth on the front of the Letter of
Transmittal.
Very truly yours,
REVLON CONSUMER PRODUCTS CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
<PAGE>
REVLON CONSUMER PRODUCTS CORPORATION
OFFER FOR ALL OUTSTANDING 9% SENIOR NOTES DUE 2006
IN EXCHANGE FOR 9% SENIOR EXCHANGE NOTES DUE 2006
To Our Clients:
Enclosed for your consideration is a Prospectus, dated January 22, 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Revlon
Consumer Products Corporation (the "Company") to exchange its 9% Senior
Exchange Notes due 2006, which have been registered under the Securities Act
of 1933, as amended, for its outstanding 9% Senior Notes due 2006 (the "Old
Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Agreement dated November 6, 1998, by and among the Company and
the Initial Purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER
OF SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT
TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender
on your behalf the Old Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on February 24, 1999, unless extended by the
Company. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions
to the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
February 24, 1999, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Revlon
Consumer Products Corporation with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
<S> <C>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
------------------------------------------------
9% Senior Notes due 2006......................
------------------------------------------------
[ ] Please do not tender any Old Notes held
by you for my account.
Dated: , 1999
---------------------- ------------------------------------------------
------------------------------------------------
Signature(s)
------------------------------------------------
-------------------------------------------------
------------------------------------------------
Please print name(s) here
-------------------------------------------------
-------------------------------------------------
Address(es)
------------------------------------------------
Area Code and Telephone Number
------------------------------------------------
Tax Identification or Social Security No(s).
</TABLE>
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for
your account.
2
