PROSPECTUS
FILED PURSUANT TO RULE 424B(3)
REGISTRATION FILE NO. 333-55310
Exchange Offer
of $160,000,000 11 3/4% Series B Senior Secured Notes due 2011
for
$160,000,000 11 3/4% Series A Senior Secured Notes due 2011
of
Elizabeth Arden, Inc.
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MATERIAL TERMS OF THE EXCHANGE OFFER
. Expires at 5:00 p.m., New York City time, on March 23, 2001, unless
extended.
. The only conditions to completing the exchange offer are that the
exchange offer not violate applicable law or applicable interpretation
of the staff of the Securities and Exchange Commission and no
injunction, order or decree has been issued which would prohibit,
prevent or materially impair our ability to proceed with the exchange
offer.
. All Series A notes that are validly tendered and not validly withdrawn
will be exchanged.
. Tenders of Series A notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. The terms of the Series B notes to be issued in the exchange offer are
substantially identical to the Series A notes that we issued on January
23, 2001, except for certain transfer restrictions, registration rights
and additional interest.
. The Series A notes are, and the Series B notes will be, fully and
unconditionally guaranteed, jointly and severally, on a senior,
unsecured basis by FD Management, Inc., DF Enterprises, Inc., FFI
International, Inc. and Elizabeth Arden GmbH.
------------
Consider carefully the "Risk Factors" beginning on page 9 of this
prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is February 23, 2001
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TABLE OF CONTENTS
Page
----
Prospectus Summary.......... 1
Risk Factors................ 9
Where You Can Find More
Information................ 16
Forward-Looking Statements.. 16
Incorporation by Reference.. 16
The Exchange Offer.......... 17
Capitalization.............. 25
Page
----
Unaudited Pro Forma Condensed
Combined Financial Statements...... 26
Description of the Series B Notes... 36
Certain United States Federal Income
Tax Considerations................. 68
Plan of Distribution................ 69
Legal Matters....................... 70
Experts............................. 70
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements
(including the accompanying notes) incorporated by reference in this
prospectus. Unless the context otherwise requires:
. ""we'', "us" and "the Company" refer to Elizabeth Arden, Inc. and its
subsidiaries on a consolidated basis giving pro forma effect to the
acquisition of the Elizabeth Arden Business;
. the "Elizabeth Arden Business" refers to the Elizabeth Arden brands of
skin treatment, cosmetics and fragrance products, the Elizabeth Taylor
brands of fragrances and the White Shoulders fragrance brand and related
assets and liabilities that the Company has recently acquired;
pro forma data for the fiscal year ended January 31, 2000, the twelve
month period ended October 31, 2000 and the nine month period ended
October 31, 2000 give pro forma effect to the acquisition of the Elizabeth
Arden Business, the original note offering and certain other supplemental
adjustments;
. references to shares of our common stock on a "fully diluted basis" mean
currently issued and outstanding shares adjusted to reflect the
conversion of all outstanding convertible securities into common stock
and the exercise of all outstanding options and warrants;
. references to "Unilever" mean Unilever, N.V., a Netherlands corporation,
and its subsidiaries, including Conopco, Inc., a New York corporation,
from whom the Company acquired the Elizabeth Arden Business; and
. references to "notes" means both the Series A notes and the Series B
notes.
The Exchange Offer
On January 23, 2001, we issued in a private placement $160 million in
aggregate principal amount of our 11 3/4% Series A Senior Secured Notes due
2011. We refer to this private placement as the "original note offering." We
entered into a registration rights agreement with the initial purchasers of the
Series A notes in which we agreed to deliver to you this prospectus. You are
entitled to exchange your Series A notes in the exchange offer for Series B
notes with substantially identical terms. Unless you are a broker-dealer or
unable to participate in the exchange offer, we believe that the notes to be
issued in the exchange offer may be resold by you without compliance with the
registration and prospectus delivery requirements of the Securities Act of
1933. You should read the discussion under the headings "The Exchange Offer"
and "Description of the Series B Notes" for further information regarding the
Series B notes.
The Company
We are a leading global marketer and manufacturer of prestige beauty
products. We believe that we are the only prestige beauty products company with
significant direct penetration in each of the mass retail, mid-tier retail and
prestige department store channels in the United States. In addition, we have a
significant international presence. Our portfolio of leading fragrance brands
includes Elizabeth Arden's Red Door, 5th Avenue and Green Tea brands, Elizabeth
Taylor's White Diamonds and Passion brands, White Shoulders, Geoffrey Beene's
Grey Flannel brand, Halston, Halston Z-14, PS Fine Cologne for Men, Design and
Wings by Giorgio Beverly Hills. Our skin care brands include Elizabeth Arden's
Visible Difference, Ceramides, and Millenium. Our cosmetics products include
lipstick, foundation and other color cosmetics products under the Elizabeth
Arden brand name. In addition to the brands we own and license, we also
distribute more than 75 prestige fragrance brands to mass and mid-tier
retailers, providing us with a broader portfolio of brands. For the twelve-
month period ended October 31, 2000, we generated pro forma net sales of $888.7
million and pro forma EBITDA (as defined on page 35) of $149.1 million.
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We sell our fragrance products in more than 35,000 separate retail locations
in the United States, including mass retailers such as Wal-Mart, Target,
Walgreens and CVS, mid-tier retailers such as JCPenney, Sears and Kohl's and
prestige department stores such as Dillard's, The May Company, Federated
Department Stores, Belk's and Nordstrom. In the United States, we currently
sell our skin care and cosmetic products primarily in prestige department
stores. We also sell our Elizabeth Arden brands of fragrances, skin care and
cosmetics products in over 90 other countries worldwide through perfumeries,
boutiques and department stores, and through travel retail outlets such as duty
free shops and airport boutiques.
We provide a portfolio of products and value-added services to our customers
that uniquely position us to capitalize on the strong demand for prestige
beauty products among all distribution channels in the United States. We
distinguish ourselves from other prestige beauty companies by offering a large
selection of brands and tailoring the marketing, promotion, size and packaging
of our products to suit each of our targeted channels. For example, we
sometimes sell our fragrances in prestige department stores as part of a gift
set comprised of a large bottle of fragrance and complementary products,
whereas when selling gift sets through mass or mid-tier retailers we might
include a smaller bottle of fragrance and fewer or no complementary products.
This enables us to reach a wide range of consumers while maintaining the
products' prestige image. We also provide our customers with value-added
services, including category and inventory management and fulfillment services
that our competitors do not typically provide. We believe that the breadth of
products and level of services we provide has enabled us to gain a leading
share of the mass and mid-tier retail prestige beauty products markets in
particular, and to become an important and valued supplier for many of our
customers. For example, each of JCPenney and Wal-Mart designated us as their
Supplier of the Year in our category in 1999.
Recent Developments
On January 23, 2001, we acquired certain assets relating to the Elizabeth
Arden prestige fragrance, cosmetic and skin care lines, and the Elizabeth
Taylor and White Shoulders fragrance lines (the "Elizabeth Arden Business")
from Unilever N.V. and its affiliates. The purchase consideration included
approximately $190 million in cash (subject to certain post-closing
adjustments) plus certain assumed liabilities and $50 million in aggregate
liquidation preference of our Series D convertible preferred stock. We funded
the cash portion of the acquisition price for the Elizabeth Arden Business and
the related fees and expenses, as well as the refinancing of our existing
revolving credit facility, with: (1) the proceeds from the original note
offering and (2) borrowings by us under a new revolving credit facility.
* * *
Our executive offices are located at 14100 N.W. 60th Avenue, Miami Lakes,
Florida 33014 and our telephone number is (305) 818-8000.
2
Summary of the Terms of the Exchange Offer
The exchange offer relates to the exchange of up to $160 million aggregate
principal amount of Series A notes for an equal aggregate principal amount of
Series B notes. On January 23, 2001, we issued and sold $160 million in
aggregate principal amount of the Series A notes in a private placement. The
form and terms of the Series B notes are substantially the same as the form and
terms of the Series A notes, except that the Series B notes have been
registered under the Securities Act of 1933 and will not bear legends
restricting their transfer. We issued the Series A notes under an indenture
which grants you certain rights. The Series B notes also will be issued under
that indenture and you will have the same rights under the indenture as the
holders of the Series A notes. See "Description of the Series B Notes."
Registration Rights You are entitled under the registration rights
Agreement................... agreement to exchange your Series A notes for
Series B notes with substantially identical
terms. The exchange offer is intended to satisfy
these rights. After the exchange offer is
complete, except as set forth in the next
paragraph, you will no longer be entitled to any
exchange or registration rights with respect to
your Series A notes.
The registration rights agreement requires us to
file a registration statement for a continuous
offering in accordance with Rule 415 under the
Securities Act for your benefit if you would not
receive freely tradeable registered notes in the
exchange offer or you are ineligible to
participate in the exchange offer and indicate
that you wish to have your Series A notes
registered under the Securities Act. See "The
Exchange Offer--Procedures for Tendering."
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of 11 3/4% Series B Senior Secured Notes
due 2011, which have been registered under the
Securities Act, for each $1,000 principal amount
of 11 3/4% Series A Senior Secured Notes due 2011
which were issued on January 23, 2001 in a
private placement. In order to be exchanged, a
note must be properly tendered and accepted. All
Series A notes that are validly tendered and not
validly withdrawn will be exchanged.
As of this date, there are $160 million aggregate
principal amount of Series A notes outstanding.
We will issue the Series B notes promptly after
the expiration of the exchange offer.
Resales of the Series B We believe that Series B notes to be issued in
Notes....................... the exchange offer may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act if you
meet the following conditions:
(1) the Series B notes are acquired by you in
the ordinary course of your business;
(2) you are not engaging in and do not intend
to engage in a distribution of the Series B
notes;
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(3) you do not have an arrangement or
understanding with any person to participate in
the distribution of the Series B notes; and
(4) you are not an affiliate of ours, as that
term is defined in Rule 405 under the Securities
Act.
If you do not meet the above conditions, you may
incur liability under the Securities Act if you
transfer any registered note without delivering a
prospectus meeting the requirements of the
Securities Act. We do not assume or indemnify you
against that liability.
Each broker-dealer that is issued notes in the
exchange offer for its own account in exchange
for Series A notes which were acquired by that
broker-dealer as a result of market-making
activities or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of the Series B
notes. A broker-dealer may use this prospectus
for an offer to resell or to otherwise transfer
the Series B notes.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on March 23, 2001, unless we
decide to extend the exchange offer. We do not
intend to extend the exchange offer, although we
reserve the right to do so.
Conditions to the Exchange The only conditions to completing the exchange
Offer....................... offer are that the exchange offer not violate
applicable law or any applicable interpretation
of the staff of the Commission and no injunction,
order or decree has been issued which would
prohibit, prevent or materially impair our
ability to proceed with the exchange offer. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Series A Notes Held in the
Form of Book-Entry
Interests..................
The Series A notes were issued as global
securities in fully registered form without
coupons. Beneficial interests in the Series A
notes which are held by direct or indirect
participants in The Depository Trust Company
through certificateless depositary interests are
shown on, and transfers of the Series A notes can
be made only through, records maintained in book-
entry form by DTC with respect to its
participants.
If you are a holder of a note held in the form of
a book-entry interest and you wish to tender your
note for exchange pursuant to the exchange offer,
you must transmit to HSBC Bank USA, as exchange
agent, on or prior to the expiration of the
exchange offer either:
. a written or facsimile copy of a properly
completed and executed letter of transmittal
and all other required documents to the address
set forth on the cover page of the letter of
transmittal; or
4
. a computer-generated message transmitted by
means of DTC's Automated Tender Offer Program
system and forming a part of a confirmation of
book-entry transfer in which you acknowledge
and agree to be bound by the terms of the
letter of transmittal.
The exchange agent must also receive on or prior
to the expiration of the exchange offer either:
. a timely confirmation of book-entry transfer of
your notes into the exchange agent's account at
DTC, in accordance with the procedure for book-
entry transfers described in this prospectus
under the heading "The Exchange Offer--Book-
Entry Transfer," or
. the documents necessary for compliance with the
guaranteed delivery procedures described below.
A letter of transmittal accompanies this
prospectus. By executing the letter of
transmittal or delivering a computer-generated
message through DTC's Automated Tender Offer
Program system, you will represent to us that,
among other things:
. the Series B notes to be acquired by you in the
exchange offer are being acquired in the
ordinary course of your business;
. you are not engaging in and do not intend to
engage in a distribution of the Series B notes;
. you do not have an arrangement or understanding
with any person to participate in the
distribution of the Series B notes; and
. you are not our affiliate.
Procedures for Tendering
Certificated Series A
Notes......................
If you are a holder of book-entry interests in
the Series A notes, you are entitled to receive,
in limited circumstances, in exchange for your
book-entry interests, certificated notes which
are in equal principal amounts to your book-entry
interests. See "Description of the Series B
Notes--Form of Series B Notes." No certificated
notes are issued and outstanding as of the date
of this prospectus. If you acquire certificated
Series A notes prior to the expiration of the
exchange offer, you must tender your certificated
Series A notes in accordance with the procedures
described in this prospectus under the heading
"The Exchange Offer--Procedures for Tendering--
Certificated Series A Notes."
Special Procedures for
Beneficial Owner...........
If you are the beneficial owner of Series A notes
and they are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and you wish to tender your Series A
notes, you should promptly contact the person in
whose name your Series A notes are registered and
instruct that person to tender on your behalf. If
you wish to tender on your own behalf, you must,
5
prior to completing and executing the letter of
transmittal and delivering your notes, either
make appropriate arrangements to register
ownership of the Series A notes in your name or
obtain a properly completed bond power from the
person in whose name your Series A notes are
registered. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer--Procedures for Tendering--Procedures
Applicable to All Holders."
Guaranteed Delivery If you wish to tender your Series A notes and:
Procedures..................
(1) they are not immediately available;
(2) time will not permit your Series A notes
or other required documents to reach the exchange
agent before the expiration of the exchange
offer; or
(3) you cannot complete the procedure for
book-entry transfer on a timely basis,
you may tender your Series A notes in accordance
with the guaranteed delivery procedures set forth
in "The Exchange Offer--Procedures for
Tendering--Guaranteed Delivery Procedures."
Acceptance of Series A
Notes and Delivery of
Series B Notes.............
Except under the circumstances described above
under "Conditions to the Exchange Offer," we will
accept for exchange any and all Series A notes
which are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on the
expiration date. The Series B notes to be issued
to you in the exchange offer will be delivered
promptly following the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
Withdrawal.................. You may withdraw the tender of your Series A
notes at any time prior to 5:00 p.m., New York
City time, on the expiration date. We will return
to you any Series A notes not accepted for
exchange for any reason without expense to you as
promptly as we can after the expiration or
termination of the exchange offer.
Exchange Agent.............. HSBC Bank USA is serving as the exchange agent in
connection with the exchange offer.
Consequences of Failure to If you do not participate in the exchange offer,
Exchange.................... upon completion of the exchange offer, the
liquidity of the market for your Series A notes
could be adversely affected. See "The Exchange
Offer--Consequences of Failure to Exchange."
Federal Income Tax The exchange of Series A notes should not be a
Consequences................ taxable event for federal income tax purposes.
See "Certain United States Federal Income Tax
Considerations."
6
Summary of the Terms of the Series B Notes
Notes Offered............... $160.0 million principal amount of 11 3/4% Series
B Senior Secured Notes due 2011.
Maturity Date............... February 1, 2011.
Interest Rate and Payment Interest on the notes will accrue at the rate of
Dates....................... 11 3/4% per annum, payable semiannually in cash
in arrears on each February 1 and August 1,
commencing on August 1, 2001.
Optional Redemption......... On or after February 1, 2006, we may redeem the
notes at the redemption prices listed in
"Description of the Series B Notes--Optional
Redemption." Prior to February 1, 2004, we may
redeem up to 35% of the notes with the proceeds
of certain offerings of our common equity at the
price specified in "Description of the Series B
Notes--Optional Redemption."
Mandatory Offer to If we sell certain assets and fail to use the
Repurchase.................. proceeds of those sales for specified purposes or
if we experience specific kinds of changes in
control, we must offer to repurchase the notes at
the prices listed in "Description of the Series B
Notes--Repurchase at the Option of Holders."
Ranking..................... The Series B notes will be our senior secured
debt and rank equal in right of payment with all
of our existing and future senior debt, except to
the extent of any security interest securing that
debt, and senior to all of our existing and
future subordinated debt.
Security.................... The Series B notes will be secured by a first
priority lien against certain of the assets of
the Elizabeth Arden Business, primarily
consisting of intellectual property. For
additional details, see "Description of the
Series B Notes--Security."
Basic Covenants............. We will issue the Series B notes under the
indenture with HSBC Bank USA, as trustee under
which we issued the Series A notes. The indenture
governing the Series B notes, among other things,
restricts our ability to:
. pay dividends or make certain other restricted
payments;
. borrow money;
. incur liens;
. sell certain assets or merge with or into other
companies;
. enter into transactions with affiliates; and
. make certain investments.
For more details, see "Description of the Series
B Notes--Certain Covenants" and "Description of
the Series B Notes--Repurchase at the Option of
Holders--Asset Sales."
Registration Rights......... If the exchange offer is not completed by April
24, 2001, then we will use our best efforts to
cause to become effective a shelf registration
statement with respect to the resale of the
Series A notes and to keep the shelf registration
statement effective until two years after the
date of the original issuance of the Series A
notes.
7
If
(1) we fail to file the shelf registration
statement with the Commission (if we are
obligated to do so) on or prior to 90 days after
such filing obligation arises; or
(2) this registration statement is not
declared effective by the Commission on or prior
to July 23, 2001 or any shelf registration
statement is not declared effective by the
Commission on or prior to 180 days after such
filing obligation arises; or
(3) we fail to issue on or prior to 30
business days, or longer, if required by
applicable securities laws or stock exchange
rules, after the date on which this registration
statement is declared effective by the
Commission, Series B notes in exchange for all
Series A notes tendered in the exchange offer; or
(4) the shelf registration statement or this
registration statement is declared effective but
thereafter ceases to be effective or usable in
connection with resales of transfer restricted
securities (as defined in the registration rights
agreement) during the periods specified in the
registration rights agreement (each a
"registration default"),
we will pay liquidated damages to each holder of
notes, with respect to the first 90-day period
immediately following the occurrence of any
registration default, in an amount equal to $0.05
per week per $1,000 principal amount of notes
with respect to each subsequent 90-day period
until all registration defaults have been cured,
up to a maximum amount of $0.50 per week per
$1,000 principal amount of notes. Following the
cure of all registration defaults, liquidated
damages will cease to accrue.
This additional interest will be payable in cash
semiannually in arrears on February 1 and August
1. See "Description of the Series B Notes--
Principal, Maturity and Interest" and "The
Exchange Offer--Purpose and Effect."
Form of Notes............... The notes to be issued in the exchange offer will
be represented by one or more global securities
deposited with HSBC Bank USA for the benefit of
DTC. You will not receive notes in certificated
form unless one of the events set forth under the
heading "Description of the Series B Notes--Form
of Series B Notes" occurs. Instead, beneficial
interests in the notes to be issued in the
exchange offer will be shown on, and transfer of
these interests will be effected only through,
records maintained in book-entry form by DTC with
respect to its participants.
Use of Proceeds............. We will not receive any cash proceeds upon
completion of the exchange offer.
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of participating in the exchange offer and investing in the
notes.
8
RISK FACTORS
An investment in the Series B notes involves a high degree of risk. You
should consider carefully the following risk factors, in addition to the other
information set forth in this prospectus, before deciding to participate in the
exchange offer. The factors set forth below, however, are generally applicable
to the Series A notes, as well as the Series B notes. Any reference to "notes"
in this prospectus refers to both Series A notes and Series B notes, unless the
context otherwise requires.
Risks related to the notes
Our substantial debt could impair our financial condition and our ability to
fulfill our debt obligations.
We incurred a significant amount of indebtedness in connection with the
acquisition of the Elizabeth Arden Business. The following chart sets forth
certain significant credit statistics and is presented assuming we had
completed the original note offering and the Arden acquisition as of the dates
or at the beginning of the periods specified below, and applied the proceeds as
intended:
At October 31, 2000
-------------------
(dollars in
millions)
Total debt.................................................. $413.6
Shareholders' equity........................................ $103.4
Debt to equity ratio........................................ 3.9x
For the Year Ended For the Twelve Months
January 31, 2000 Ended October 31, 2000
------------------ ----------------------
Ratio of earnings to fixed charges
(including preferred stock)........ 2.59x 3.31x
In addition, on a pro forma basis, after giving effect to the original note
offering and the use of proceeds therefrom and the Arden acquisition, as of
October 31, 2000, we had approximately $80 million of unused availability under
our new credit facility. Subject to the restrictions in our new credit
facility, the indenture governing the notes and our existing indentures, we may
incur significant additional indebtedness, which may be secured.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
and other general corporate requirements;
. 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 to fund working capital, capital
expenditures and other general corporate requirements;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds
and pay dividends. Moreover, failing to comply with those covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on us.
We may be unable to generate sufficient cash flow to service our debt.
Our future cash flow may be insufficient to meet the payment obligations
under the notes. Our ability to pay or to refinance our indebtedness will
depend upon our future operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond our control.
9
If we are unable to meet our debt service obligations, we could be forced to
restructure or refinance our indebtedness, seek additional equity capital or
sell assets. We may be unable to obtain financing or sell assets on
satisfactory terms, or at all.
In addition, subject to the restrictions and limitations contained in our
new credit facility, the indenture governing the notes and our existing
indentures, we may incur significant additional indebtedness, which could
adversely affect our operating cash flow and our ability to service
indebtedness.
Restrictive covenants in the new credit facility, the indenture governing the
notes and our existing indentures may reduce our operating flexibility.
The indenture governing the notes and our existing indentures currently
contain, various covenants that limit our ability to engage in certain
transactions. Our new credit facility also requires us to maintain specified
financial ratios and satisfy other financial conditions. Our ability to meet
those financial ratios and conditions can be affected by events beyond our
control, and therefore we may be unable to meet those ratios and conditions.
Our breach of any of these covenants or our failure to meet any of these ratios
or conditions could result in a default under our new credit facility, the
notes and/or our other indebtedness any of which could cause defaults under
other of our indebtedness. Upon the occurrence of an event of default under our
new credit facility, the lenders could elect to declare all amounts outstanding
under our new credit facility to be immediately due and payable and terminate
all commitments to extend further credit. If we were unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness, which would constitute an event of default under the
indenture. If the lenders under our new credit facility accelerate the
repayment of borrowings, we may not have sufficient assets to repay our new
credit facility and our other indebtedness, including the notes. Similarly,
upon the occurrence of an event of default under the indentures, a majority in
principal amount of the holders of the notes could elect to declare all amounts
outstanding under the indentures to be immediately due and payable. If we were
unable to repay amounts due on the notes, the trustee would have the right to
proceed against the collateral granted to it to secure the notes.
We may have inadequate collateral to satisfy payments on the notes.
The notes are secured by a first priority lien against certain of the assets
of the Elizabeth Arden Business, primarily intellectual property. The new
credit facility is secured by our domestic receivables and inventory. We did
not prepare any appraisals of the collateral in connection with the original
note offering. The value of and ability to foreclose on this collateral in the
event of a liquidation of our company will depend on market and economic
conditions, the availability of buyers, foreign laws relating to the
liquidation of collateral and other factors beyond our control. As a result,
the proceeds of any sale of the note collateral following a default may not be
sufficient to satisfy payments due on the notes. If the proceeds were not
sufficient to repay all amounts due on the notes, then you (to the extent not
repaid from those proceeds) would have only an unsecured claim against our
remaining assets. Other creditors, including the lenders under the new credit
facility, may have secured claims against other remaining assets.
The trustee under the indenture may be unable to foreclose on the collateral
securing the notes and pay you the amount due on the notes.
Under the indenture governing the notes, if an event of default occurs,
including defaults in payment of interest, principal or premium, if any, on the
notes when due at maturity or otherwise, the trustee may accelerate the notes
and, among other things, initiate proceedings to foreclose on the collateral
securing the notes. The right of the trustee to repossess and dispose of the
collateral after the occurrence of an event of default is likely to be
significantly impaired by applicable bankruptcy laws if a bankruptcy proceeding
were to be commenced by us or against us prior to the trustee having
repossessed and disposed of the collateral. For example, under applicable U.S.
bankruptcy laws, a secured creditor is prohibited from repossessing and selling
its security from a debtor in a bankruptcy case without bankruptcy court
approval. Moreover, with respect to collateral in jurisdictions outside the
U.S., the trustee's ability to foreclose may further be impaired by both local
laws and defects with respect to perfection of security interests in those
jurisdictions. Under any of these circumstances, you may not be fully
compensated for your investment in the notes in the event of a default.
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We may be unable to purchase the notes upon a change of control.
Upon the occurrence of "change of control" events specified in the
"Description of the Series B Notes," you may require us to purchase your notes
at 101% of their principal amount, plus accrued and unpaid interest and
liquidated damages, if any. The terms of our new credit facility limit our
ability to purchase your notes in those circumstances. Any of our future debt
agreements may contain similar restrictions and provisions. Accordingly, we may
be unable to satisfy our obligations to purchase your notes unless we are able
to refinance or obtain waivers under the new credit facility and other
indebtedness with similar restrictions. We may not have the financial resources
to purchase your notes, particularly if a change of control event triggers a
similar repurchase requirement for, or results in the acceleration of, other
indebtedness. Our new credit facility currently provides that certain change of
control events will constitute a default and could result in the acceleration
of our indebtedness under our new credit facility.
The notes may not be enforceable under federal and state fraudulent conveyance
laws that allow courts, under certain circumstances, to void guarantees and
require the return of payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could void all or a portion of our
obligations under the notes or subordinate our obligations under the notes to
other existing, and future indebtedness if, among other things, we, at the time
we incurred the indebtedness evidenced by the notes:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
. were insolvent or rendered insolvent by reason of such incurrence;
. were engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they mature.
The measures of insolvency for purposes of fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a debtor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets, or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature, or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that we will not be insolvent, we will not have
unreasonably small capital for the business in which we are engaged and will
not have incurred debts beyond our ability to pay such debts as they mature.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
11
Risks related to our business
If we are unable to successfully integrate the Elizabeth Arden Business into
our business we could incur unanticipated costs, our operations could be
disrupted and our ability to pay principal and interest on the notes may be
impaired.
Our acquisition of the Elizabeth Arden Business will significantly increase
our size and geographic scope of operations. Our ability to integrate the
Elizabeth Arden Business with our existing business will determine, to a
significant extent, the future success of our business, and thus our ability to
pay principal and interest on the notes. Our integration strategies are subject
to numerous conditions beyond our control, including the possibility of adverse
general and regional economic conditions, general negative industry trends and
competition. We may be unable to achieve the anticipated synergies from the
acquisition.
The successful integration of the Elizabeth Arden Business will require us
to, among other things, attract and hire key employees from the Elizabeth Arden
Business who at the completion of the Arden acquisition may not be our
employees, and instead may be leased to us pursuant to a lease agreement with
Unilever. These employees may decide not to work for us. Our future performance
will depend, in part, on our ability to successfully integrate these new
employees into our company. Our failure to hire these new employees could
disrupt our ongoing business.
We have not previously undertaken an acquisition of this size and
complexity. As a result, we will need to determine the extent to which our
management information systems are compatible with those of the Elizabeth Arden
Business and implement any modifications necessary to successfully integrate
the two systems. As a result, the Arden acquisition will require additional
attention from, and place substantial demands upon, our senior management,
which may divert their attention from and make it more difficult for them to
manage our business.
Because our arrangements with our manufacturers, suppliers or customers are
generally informal, we may be subject to increased costs, delays or other
disruptions to our business if these arrangements were changed or terminated.
We do not have long-term or exclusive contracts with any of our customers
and generally do not have long-term or exclusive contracts with our
manufacturers or suppliers. Our suppliers of distributed brands, which brands
represented approximately 26% of our pro forma net sales for the fiscal year
ended January 31, 2000, generally can, at any time, elect to supply products to
our customers directly or through another distributor. Our suppliers of
distributed brands may also choose to reduce or eliminate the volume of their
products distributed by us. If we were to lose any of our key suppliers or
customers, or if our relationship with any one of them were to change, our
revenues and growth could suffer.
We do not own or operate any significant manufacturing facilities. We use
third-party manufacturers and suppliers to manufacture certain of our products.
We currently obtain these products from a limited number of manufacturers and
other suppliers. If we were to experience delays in the delivery of the
finished products or the raw materials or components used to make such
products, our reputation and ability to generate revenues could suffer.
If we are unable to protect our intellectual property rights our ability to
compete could be negatively impacted.
The market for our products depends to a significant extent upon the
goodwill associated with our trademarks and trade names. We own, or have
licenses to use, all of the material trademark and trade name rights used in
connection with the packaging, marketing and distribution of our major products
both in the United States and in other countries where such products are
principally sold. Therefore, trademark and trade name protection is important
to our business. Although most of our trademarks are registered in the United
States and in certain foreign countries in which we operate, we may not be
successful in asserting trademark or trade name protection. In addition, the
laws of certain foreign countries may not protect our intellectual property
rights to the same extent as the laws of the United States. The costs required
to protect our trademarks and trade names may be substantial.
12
We currently hold certain patents with respect to the formulation or
manufacture of a number of our products and we protect our packaging and
component concepts through design patents, although we do not consider any
single patent to be material to the conduct of our business. When legally
permissible and appropriate, we file applications to obtain patents in the
United States and in foreign countries in which we operate. We cannot assure
you that any patents will issue as a result of our pending or future patent
applications, or that existing or future patents will afford adequate
protection against our competitors.
We currently hold exclusive license rights to use the "Elizabeth Taylor"
name on certain of our beauty products pursuant to a license agreement with the
Elizabeth Taylor Cosmetics Company. In addition to customary termination
provisions and events of default, the Taylor license agreement provides that if
we fail to cure a default under our new credit facility within 10 days of
written notice of that default, the license can be terminated. The termination
of our rights under the Taylor license would adversely affect our results of
operations.
Other parties may infringe on our intellectual property rights and may
thereby dilute our brand in the marketplace. Any such infringement of our
intellectual property rights would also likely result in a commitment of our
time and resources to protect these rights through litigation or otherwise.
Similarly, other parties may infringe on intellectual property rights which we
are licensed to use. Where we operate under a license, the protection of the
trademarks that are the subject of that license may be the responsibility of
the licensor and, therefore, we may be unable to control the protection of
those trademarks or prevent dilution in the marketplace of those brands. We may
infringe on others' intellectual property rights. One or more adverse judgments
with respect to these intellectual property rights could negatively impact our
ability to compete.
If we are unable to secure additional brands or distribution arrangements, the
growth of our business could be impaired.
Our business strategy contemplates the continued increase of our portfolio
of owned or licensed brands and distributed brands. Currently, we have no
agreements or commitments to obtain additional brands (other than those
included in the Arden acquisition) or to enter into exclusive or non-exclusive
distribution arrangements. We may be unsuccessful in identifying, negotiating
and consummating such acquisitions or arrangements on terms acceptable to us,
or at all, which could hinder our ability to increase revenues and build our
business.
If we are unable to secure additional working capital in the future, our
implementation of our business plan may be impaired and our growth may be
hindered.
Our working capital requirements have been and will continue to be
significant. To date, we have financed and expect to continue to finance our
working capital requirements primarily through internally generated funds and
our credit facility. Excluding additional working capital requirements that may
result from future acquisitions or new product distribution arrangements, we
believe that internally-generated funds and financing available under the
credit facility will be sufficient to fund our working capital needs for at
least the next twelve months. Our future expansion through acquisitions or new
product distribution arrangements, if any, will depend upon the capital
resources available to us. We may be unable to obtain additional financing for
these purposes or on terms acceptable to us or at all.
Our quarterly results of operations fluctuate due to seasonality and other
factors.
We generate much of our sales and income from operations during the second
half of our fiscal year as a result of increased demand by retailers in
anticipation of and during the holiday season. For example, in fiscal 2000, we
generated more than 68% of our pro forma net sales during the second half of
the fiscal year. Any substantial decrease in sales during that period likely
would harm our business, financial condition and results of operations.
Similarly, our working capital needs are greater during the second half of the
fiscal year. In addition, our sales and profitability may vary from quarter to
quarter as a result of a variety of factors, including the timing of customer
orders and additions or losses of brands or distribution rights.
13
If we are unable to compete effectively, our revenues may decline and we may be
unable to sustain profitability.
The beauty industry is highly competitive and at times changes rapidly due
to consumer preferences and industry trends. We compete primarily with global
prestige beauty companies, some of whom have significantly greater resources
than we have. Our products compete for consumer recognition and shelf space
with products that have achieved significant international, national and
regional brand name recognition and consumer loyalty. Our products also compete
with new products that often are accompanied by substantial promotional
campaigns. These factors, as well as demographic trends, economic conditions,
discount pricing strategies by competitors and direct sales by manufacturers to
our customers, could result in increased competition and could harm our
business, financial condition and results of operations.
If we are unable to retain key executives and other personnel our growth may be
hindered.
Our success is largely dependent on the performance of our management team
and other key personnel. Our future operations could be harmed if any of our
senior executives or other key personnel ceased working for us. We are
particularly dependent on E. Scott Beattie, our Chairman, President and Chief
Executive Officer and Paul West, our Executive Vice President and Chief
Operating Officer. We currently have no employment contracts with Messrs.
Beattie and West, and as a result, may be unable to maintain their services.
We may be forced to change the manner in which we price the products we
acquired in the Arden acquisition which could have an adverse impact on our
business in the future.
In June 2000, Unilever and other cosmetics manufacturers were served with an
amended complaint in proceedings pending in the Superior Court of California in
Marin County. The amended complaint alleges that cosmetic manufacturers
conspired with each other and with certain large California department stores
to fix retail prices for "high-end" cosmetics. The action was brought as a
class action on behalf of all the residents of the State of California who
purchased cosmetics from the defendant department stores in the four years
prior to the filing of the original complaint in the fall of 1998.
Under the terms of the Arden acquisition, Unilever retains the conduct of,
and liability for, this lawsuit. Furthermore, we have been indemnified by
Unilever for any and all damages the Elizabeth Arden Business incurs as a
result of this lawsuit in respect of conduct occurring prior to the Arden
acquisition. Should the plaintiffs prevail in this matter, there can be no
assurance that such outcome would not require us to change the pricing of
products acquired in the Arden acquisition or that such outcome would not have
a material and adverse impact on our operations and results on a going forward
basis.
We are subject to risks related to our international operations.
The acquisition of the Elizabeth Arden Business will greatly increase our
business in foreign countries and subject us to risks customarily associated
with foreign operations, including:
. currency fluctuations;
. import and export license requirements;
. trade restrictions;
. changes in tariffs and taxes;
. restrictions on repatriating foreign profits back to the United States;
. unfamiliarity with foreign laws and regulations; or
. difficulties in staffing and managing international operations.
14
Fluctuations in foreign exchange rates could adversely affect our results of
operations.
Our functional currency is the U.S. dollar. Our debt, interest expense and a
significant portion of our overhead expenses are denominated in U.S. dollars.
However, approximately 28% of our pro forma net sales for the fiscal year ended
January 31, 2000, are denominated in currencies other than the U.S. dollar. A
significant weakening of the currencies in which we generate sales relative to
the U.S. dollar may adversely affect our ability to meet our U.S. dollar
obligations. In addition, our results of operations are reported in U.S.
dollars. A weakening of the currencies in which we generate sales relative to
the U.S. dollar will cause our reported results to decline.
In all jurisdictions in which we operate, we are also subject to laws and
regulations that govern foreign investment, foreign trade and currency exchange
transactions. These laws and regulations may limit our ability to repatriate
cash as dividends or otherwise to the United States and may limit our ability
to convert foreign currency cash flows into U.S. dollars. Outside the United
States, our sales and costs are denominated in a variety of currencies
including the euro, British pound, Swiss franc and Australian dollar. A
weakening of the currencies in which we generate sales relative to the
currencies in which our costs are denominated may decrease our operating
profits and cash flows. The recent decline in many European currencies relative
to the U.S. dollar has adversely affected our results of operations when
translated according to U.S. generally accepted accounting principles.
The liquidity of any market for the Series A notes could be adversely affected
after completion of the exchange offer. In addition, there may be no active
trading market for the Series B notes to be issued in the exchange offer.
There has been no public market for the Series A notes. If most holders of
the Series A notes tender their notes in the exchange offer, the liquidity for
the Series A notes not tendered in the exchange offer could be adversely
affected upon completion of the exchange offer. In addition, we cannot assure
you with respect to:
(1) the liquidity of any market for the Series B notes that may
develop,
(2) your ability to sell Series B notes or
(3) the price at which you will be able to sell those Series B notes.
If a public market were to exist, the Series B notes could trade at prices that
may be higher or lower than their principal amount or purchase price, depending
on many factors, including prevailing interest rates, the market for similar
notes, and our financial performance. We do not intend to list the Series B
notes to be issued to you in the exchange offer on any securities exchange or
to seek approval for quotations through any automated quotation system. No
active market for the Series B notes is currently anticipated. Credit Suisse
First Boston Corporation and Fleet Securities, Inc., the initial purchasers of
the Series A notes, have advised us that they currently anticipate making a
secondary market for the Series B notes, but they are not obligated to do so.
We cannot assure you that an active or liquid public trading market will
develop for the Series B notes.
15
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Commission.
Our Commission filings are also available over the Internet at the Commission's
web site at http://www.sec.gov. You may also read and copy any document we file
at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Commission at l-800-SEC-0330 to obtain
information on the operation of the public reference room. We have filed with
the Commission a Registration Statement on Form S-4 with respect to the
Series B notes. This prospectus, which is a part of the registration statement,
omits certain information included in the registration statement. Statements
made in this prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document, we refer you to such exhibit for a more complete
description of the matter involved, and each such statement is deemed qualified
in its entirety to such reference.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. We use words such as
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "intends," "plans," "projection" and other similar expressions to
identify some forward-looking statements, but not all forward-looking
statements include these words. All of our forward-looking statements involve
estimates and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements. Accordingly,
any such statements are qualified in their entirety by reference to the key
factors described under the caption "Risk Factors" and elsewhere in this
prospectus and as described in the documents incorporated by reference herein.
We caution that the factors described in this prospectus could cause actual
results to differ materially from those expressed in any of our forward-looking
statements and that investors should not place undue reliance on those
statements. Further, any forward-looking statement speaks only as of the date
on which it is made, and except as required by law we undertake no obligation
to update any forward-looking statement to reflect events or circumstances
after the date on which it is made or to reflect the occurrence of anticipated
or unanticipated events or circumstances. New factors that could cause our
business not to develop as we expect emerge from time to time, and it is not
possible for us to predict all of them. Further, we cannot assess the impact of
each currently known or new factor on our results of operations or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
INCORPORATION BY REFERENCE
The Commission allows us to "incorporate by reference" information that we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. This prospectus and the information that
we file later with the Commission may update and supersede the information we
incorporate by reference. We incorporate by reference the following documents:
(1) Our Form 10-K for the year ended January 31, 2000;
(2) Our Form 10-Q for the quarter ended April 30, 2000;
(3) Our Form 10-Q for the quarter ended July 31, 2000;
(4) Our Form 10-Q for the quarter ended October 31, 2000;
(5) Our Current Reports on Form 8-K filed on October 31, 2000, January
9, 2001 and February 7, 2001, and
(6) Our Proxy Statement filed with the Commission on December 12, 2000.
16
THE EXCHANGE OFFER
Purpose and Effect
We issued the Series A notes on January 23, 2001, in a private placement. In
connection with this issuance, we entered into the indenture and the
registration rights agreement. These agreements require that we file a
registration statement under the Securities Act with respect to the Series B
notes to be issued in the exchange offer and, upon the effectiveness of the
registration statement, offer to you the opportunity to exchange your Series A
notes for a like principal amount of Series B notes. These Series B notes will
be issued without a restrictive legend and, except as set forth below, may be
reoffered and resold by you without registration under the Securities Act.
After we complete the exchange offer, our obligations with respect to the
registration of the Series A notes and the Series B notes will terminate. A
copy of the indenture relating to the notes and the registration rights
agreement have been filed as exhibits to the registration statement of which
this prospectus is a part. We refer to this indenture in this prospectus as the
"indenture."
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, if you are not our "affiliate" within
the meaning of Rule 405 under the Securities Act or a broker-dealer referred to
in the next paragraph, we believe that Series B notes to be issued to you in
the exchange offer may be offered for resale, resold and otherwise transferred
by you, without compliance with the registration and prospectus delivery
provisions of the Securities Act. This interpretation, however, is based on
your representation to us that:
(1) the Series B notes to be issued to you in the exchange offer are
acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a
distribution of the Series B notes to be issued to you in the exchange
offer; and
(3) you have no arrangement or understanding with any person to
participate in the distribution of the Series B notes to be issued to you
in the exchange offer.
If you tender in the exchange offer for the purpose of participating in a
distribution of the Series B notes to be issued to you in the exchange offer,
you cannot rely on this interpretation by the staff of the Commission. Under
those circumstances, you must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Each broker-dealer that receives Series B notes in the
exchange offer for its own account in exchange for Series A notes that were
acquired by the broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of those
Series B notes. See "Plan of Distribution."
If you will not receive freely tradeable Series B notes in the exchange
offer or are not eligible to participate in the exchange offer, you can elect,
by indicating on the letter of transmittal and providing certain additional
necessary information, to have your Series A notes registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act. In the event that we are obligated to file a shelf registration
statement, we will be required to keep the shelf registration statement
effective for a period of two years following the date of original issuance of
the Series A notes or such shorter period that will terminate when all of the
Series A notes covered by the shelf registration statement have been sold
pursuant to the shelf registration statement. Other than as set forth in this
paragraph, you will not have the right to require us to register your Series A
notes under the Securities Act. See "--Procedures for Tendering."
Consequences of Failure to Exchange
After we complete the exchange offer, if you have not tendered your Series A
notes, you will not have any further registration rights, except as set forth
above. Your Series A notes will continue to be subject to certain restrictions
on transfer. Therefore, the liquidity of the market for your Series A notes
could be adversely affected upon completion of the exchange offer if you do not
participate in the exchange offer.
17
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all Series A notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date. We will issue $1,000 principal amount of Series B notes in
exchange for each $1,000 principal amount of Series A notes accepted in the
exchange offer. You may tender some or all of your Series A notes pursuant to
the exchange offer. However, Series A notes may be tendered only in integral
multiples of $1,000 in principal amount.
The form and terms of the Series B notes are substantially the same as the
form and terms of the Series A notes, except that the notes to be issued in the
exchange offer have been registered under the Securities Act and will not bear
legends restricting their transfer. The Series B notes will be issued pursuant
to, and entitled to the benefits of, the indenture. The indenture also governs
the Series A notes. The Series B notes and the Series A notes will be deemed
one issue of notes under the indenture.
As of the date of this prospectus, $160 million in aggregate principal
amount of the Series A notes were outstanding. This prospectus, together with
the letter of transmittal, is being sent to all registered holders and to
others believed to have beneficial interests in the Series A notes. You do not
have any appraisal or dissenters' rights in connection with the exchange offer
under the Florida Business Corporation Act or the indenture. We intend to
conduct the exchange offer in accordance with the applicable requirements of
the Exchange Act and the rules and regulations of the Commission promulgated
under the Exchange Act.
We will be deemed to have accepted validly tendered outstanding notes when,
as, and if we have given oral or written notice of our acceptance to the
exchange agent. The exchange agent will act as our agent for the tendering
holders for the purpose of receiving the Series B notes from us. If we do not
accept any tendered notes because of an invalid tender, the occurrence of
certain other events set forth in this prospectus or otherwise, we will return
certificates for any unaccepted notes, without expense, to the tendering holder
as promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, except as
set forth below under "--Transfer Taxes," transfer taxes with respect to the
exchange of your Series A notes in the exchange offer. We will pay all charges
and expenses, other than certain applicable taxes, in connection with the
exchange offer. See "--Fees and Expenses" below.
Expiration Date; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on March
23, 2001, unless we determine, in our sole discretion, to extend the exchange
offer, in which case, it will expire at the later date and time to which it is
extended. We do not intend to extend the exchange offer, although we reserve
the right to do so. If we extend the exchange offer, we will give oral or
written notice of the extension to the exchange agent and give each registered
holder notice by means of a press release or other public announcement of any
extension prior to 9:00 a.m., New York City time, on the next business day
after the scheduled expiration date.
We also reserve the right, in our sole discretion,
(1) to delay accepting any notes or, if any of the conditions set forth
below under "--Conditions" have not been satisfied or waived, to terminate
the exchange offer by giving oral or written notice of such delay or
termination to the exchange agent, or
(2) to amend the terms of the exchange offer in any manner, by complying
with Rule 14e-l(d) under the Exchange Act to the extent that rule applies.
18
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c)
under the Exchange Act, which requires us to pay the consideration offered, or
return the Series A notes surrendered for exchange, promptly after the
termination or withdrawal of the exchange offer. We will notify you as promptly
as we can of any extension, termination or amendment.
Procedures for Tendering
Book-Entry Interests
The Series A notes were issued as global securities in fully registered form
without interest coupons. Beneficial interests in the global securities, held
by direct or indirect participants in DTC, are shown on, and transfers of these
interests are effected only through, records maintained in book-entry form by
DTC with respect to its participants.
If you hold your Series A notes in the form of book-entry interests and you
wish to tender your notes for exchange pursuant to the exchange offer, you must
transmit to the exchange agent on or prior to the expiration date either:
(1) a written or facsimile copy of a properly completed and duly
executed letter of transmittal, including all other documents required by
such letter of transmittal, to the exchange agent at the address set forth
on the cover page of the letter of transmittal; or
(2) a computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and forming
a part of a confirmation of book-entry transfer, in which you acknowledge
and agree to be bound by the terms of the letter of transmittal.
In addition, in order to deliver notes held in the form of book-entry
interests:
(1) a timely confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC pursuant to the procedure for book-entry
transfers described below under "--Book-Entry Transfer" must be received by
the exchange agent prior to the expiration date; or
(2) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of notes and the letter of transmittal and all other
required documents to the exchange agent is at your election and risk. Instead
of delivery by mail, we recommend that you use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure delivery to
the exchange agent before the expiration date. You should not send the letter
of transmittal or notes to us. You may request your broker, dealer, commercial
bank, trust company, or nominee to effect the above transactions for you.
Certificated Series A Notes
Only registered holders of certificated Series A notes may tender those
notes in the exchange offer. If your Series A notes are certificated notes and
you wish to tender those notes for exchange pursuant to the exchange offer, you
must transmit to the exchange agent on or prior to the expiration date, a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth
below under "--Exchange Agent." In addition, in order to validly tender your
certificated notes:
(1) the certificates representing your Series A notes must be received
by the exchange agent prior to the expiration date or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to All Holders
If you tender a note and you do not withdraw the tender prior to the
expiration date, you will have made an agreement with us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
19
If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender your notes, you
should contact the registered holder promptly and instruct the registered
holder to tender on your behalf. If you wish to tender on your own behalf, you
must, prior to completing and executing the letter of transmittal and
delivering your notes, either make appropriate arrangements to register
ownership of the notes in your name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(1) Series A notes tendered in the exchange offer are tendered either
(A) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions"
on the letter of transmittal or
(B) for the account of an eligible institution; and
(2) the box entitled "Special Registration Instructions" on the letter
of transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the letter of transmittal is signed by a person other than you, your old
notes must be endorsed or accompanied by a properly completed bond power and
signed by you as your name appears on those Series A notes.
If the letter of transmittal or any Series A notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations, or others acting in a fiduciary or representative capacity,
those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered Series A notes. This determination will be final and
binding. We reserve the absolute right to reject any and all Series A notes not
properly tendered or any Series A notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular Series A
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties.
You must cure any defects or irregularities in connection with tenders of
your Series A notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of Series A notes, neither we, the
exchange agent nor any other person will incur any liability for failure to
give this notification. Your tender will not be deemed to have been made and
your notes will be returned to you if:
(1) you improperly tender your Series A notes;
(2) you have not cured any defects or irregularities in your tender; and
(3) we have not waived those defects, irregularities or improper tender.
The exchange agent will return your notes, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration of the
exchange offer.
20
In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for, or offer Series B notes for, any Series
A notes that remain outstanding subsequent to the expiration of the
exchange offer;
(2) terminate the exchange offer; and
(3) to the extent permitted by applicable law, purchase notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers could differ from the terms of
the exchange offer.
By tendering, you will represent to us that, among other things:
(1) the Series B notes to be acquired by you in the exchange offer are
being acquired in the ordinary course of your business,
(2) you are not engaging in and do not intend to engage in a
distribution of the Series B notes to be acquired by you in the exchange
offer,
(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the Series B notes to be acquired by you
in the exchange offer and
(4) you are not our "affiliate," as defined under Rule 405 of the
Securities Act.
In all cases, issuance of Series B notes for Series A notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for your Series A notes or a
timely book-entry confirmation of your Series A notes into the exchange agent's
account at DTC, a properly completed and duly executed letter of transmittal,
or a computer-generated message instead of the letter of transmittal, and all
other required documents. If any tendered notes are not accepted for any reason
set forth in the terms and conditions of the exchange offer or if notes are
submitted for a greater principal amount than you desire to exchange, the
unaccepted or non-exchanged Series A notes, or notes in substitution therefor,
will be returned without expense to you. In addition, in the case of Series A
notes, tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described below, the non-
exchanged Series A notes will be credited to your account maintained with DTC,
as promptly as practicable after the expiration or termination of the exchange
offer.
Guaranteed Delivery Procedures
If you desire to tender your Series A notes and your Series A notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives from an eligible institution, a written
or facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated Series A notes, in proper
form for transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange agent
within three NYSE trading days after the date of execution of the notice of
guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of notes you are tendering; and
21
(3) a statement that your tender is being made by the notice of
guaranteed delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the notice of guaranteed
delivery, the eligible institution will deliver the following documents to
the exchange agent:
(A) the certificates for all certificated Series A notes being
tendered, in proper form for transfer or a book-entry confirmation of
tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
Book-Entry Transfer
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests
into the exchange agent's account at DTC in accordance with DTC's procedures
for transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery
of your book-entry interests into the exchange agent's account at DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date,
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
Withdrawal Rights
You may withdraw tenders of your Series A notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For your withdrawal to be effective, the exchange agent must receive a
written or facsimile transmission notice of withdrawal at its address set forth
below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The notice of withdrawal must:
(1) state your name;
(2) identify the specific Series A notes to be withdrawn, including the
certificate number or numbers and the principal amount of withdrawn notes;
(3) be signed by you in the same manner as you signed the letter of
transmittal when you tendered your Series A notes, including any required
signature guarantees or be accompanied by documents of transfer sufficient
for the exchange agent to register the transfer of the old notes into your
name; and
(4) specify the name in which the Series A notes are to be registered,
if different from yours.
We will determine all questions regarding the validity, form and
eligibility, including time of receipt, of withdrawal notices. Our
determination will be final and binding on all parties. Any Series A notes
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any Series A notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to you
without cost as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn Series A notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" above at any time on or prior to 5:00 p.m., New York City time, on
the expiration date.
22
Conditions
Notwithstanding any other provision of the exchange offer and subject to our
obligations under the registration rights agreement, we will not be required to
accept for exchange, or to issue Series B notes in exchange for, any Series A
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of any Series A notes for exchange any of the following events shall
occur:
(1) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer; or
(2) the exchange offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition, subject to applicable law.
We also may waive in whole or in part at any time and from time to time any
particular condition in our sole discretion. If we waive a condition, we may be
required in order to comply with applicable securities laws, to extend the
expiration date of the exchange offer. Our failure at any time to exercise any
of the foregoing rights will not be deemed a waiver of these rights and these
rights will be deemed ongoing rights which may be asserted at any time and from
time to time.
In addition, we will not accept for exchange any Series A notes tendered,
and no Series B notes will be issued in exchange for any of those Series A
notes, if at the time the notes are tendered any stop order shall be threatened
by the Commission or be in effect with respect to the registration statement of
which this prospectus is a part or the qualification of the indenture under the
Trust Indenture Act of 1939.
The exchange offer is not conditioned on any minimum principal amount of
Series A notes being tendered for exchange.
Exchange Agent
We have appointed HSBC Bank USA as exchange agent for the exchange offer.
Questions, requests for assistance and requests for additional copies of the
prospectus, the letter of transmittal and other related documents should be
directed to the exchange agent addressed as follows:
By Registered or Certified Mail, by Hand
or by Overnight Courier:
HSBC Bank USA
One Hanson Place
Lower Level
Brooklyn, New York 11243
Attention: Issuer Services
By Facsimile: (718) 488-4488 By Telephone: (718)
488-4475
The exchange agent also acts as trustee under the indenture.
23
Fees and Expenses
We will not pay brokers, dealers, or others soliciting acceptances of the
exchange offer. The principal solicitation is being made by mail. Additional
solicitations, however, may be made in person or by telephone by our officers
and employees. We will pay the estimated cash expenses to be incurred in
connection with the exchange offer.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with a
tender of your Series A notes for exchange unless you instruct us to register
Series B notes in the name of, or request that Series A notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder, in which event the registered tendering holder
will be responsible for the payment of any applicable transfer tax.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the
exchange offer over the term of the Series B notes under generally accepted
accounting principles.
24
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of October 31, 2000 on an actual basis and on a pro forma
basis giving effect to the Arden acquisition, the consummation of the original
note offering and the new revolving credit facility and the application of the
proceeds therefrom and the repayment of working capital indebtedness under our
existing revolving credit facility as if these events all occurred on October
31, 2000. You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Other Indebtedness" and our financial statements and
accompanying notes incorporated by reference in this prospectus.
As of October 31, 2000
-------------------------
Actual Pro Forma
----------- ------------
(dollars in millions)
Cash and cash equivalents..... $ 2.1 $ 10.9(1)
=========== ===========
Debt(2):
Existing revolving credit
facility(3)................ $ 31.0 --
New revolving credit
facility................... -- $ 81.0
8.84% Mortgage Notes........ 5.4 5.4
Senior Secured Notes........ -- 160.0
10 3/8% Senior Notes........ 157.1 157.1
J.P. Fragrances Debenture... 1.0 1.0
8.5% Subordinated
Debentures................. 6.5 6.5
7.5% Convertible
Subordinated Debentures.... 2.6 2.6
----------- -----------
Total Debt.............. $ 203.6 $413.6
----------- -----------
Series D convertible
preferred, $.01 par value
(liquidation preference $120
per share); 1,000,000 shares
authorized, 416,667 issued
and outstanding pro
forma(4)..................... -- 35.0
Shareholders' Equity:
Convertible, redeemable
preferred stock:
Series B, $.01 par value
(liquidation preference
$.01 per share); 350,000
shares authorized;
264,168 shares issued and
outstanding actual and 0
shares outstanding on a
pro forma basis(5)....... $ -- $ --
Series C, $.01 par value
(liquidation preference
$.01 per share); 571,429
shares authorized;
499,870 issued and
outstanding actual and 0
shares outstanding on a
pro forma basis(5)....... -- --
Common stock, $.01 par
value; 50,000,000 shares
authorized, 14,219,345
shares issued and
outstanding actual and
20,743,611 shares pro
forma...................... 0.1 0.2(5)
Additional paid-in capital.. 33.2 44.9(5)
Retained earnings........... 67.9 67.9
Treasury stock.............. (6.6) (6.6)
----------- -----------
Total Shareholders' equity.. $ 94.6 $106.4
----------- -----------
Total Capitalization.... $ 298.2 $555.0
=========== ===========
- -------
(1) Includes approximately $8.8 million associated with the conversion price
paid to the Company for the Series B and Series C convertible preferred
stock redeemed. Holders of Series B convertible preferred stock converted
each of their shares of Series B convertible preferred stock into 7.12
shares of our common stock at a conversion price of $3.30 per share.
Substantially all of the holders of Series C convertible preferred stock
converted each of their shares of Series C convertible preferred stock into
one share of our common stock at a conversion price of $5.25 per share.
(2) Includes short-term and long-term debt.
(3) At December 31, 2000, we had no borrowings outstanding under our existing
revolving credit facility.
(4) We issued the Series D convertible preferred stock to Unilever as part of
the purchase price for the Arden acquisition.
(5) On October 30, 2000, we sent an irrevocable notice of redemption to holders
of our Series B and Series C convertible preferred stock. Substantially all
holders converted their shares into shares of our common stock which
increased our outstanding common stock by approximately 2.4 million shares.
The conversion of the Series B and Series C convertible preferred stock
increased our additional paid-in capital, but did not otherwise affect our
total shareholders' equity or our total capitalization.
25
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined balance sheet as of October 31,
2000 gives effect to the acquisition of the Elizabeth Arden Business, the
completion of the original note offering and the entering into of the new
credit facility and the application of those proceeds and borrowings as if such
transactions had occurred on October 31, 2000. The unaudited pro forma and
adjusted pro forma condensed combined statements of income for the year ended
January 31, 2000, for the nine months ended October 31, 2000, and for the
twelve months ended October 31, 2000 give effect to the acquisition, the
completion of the original note offering and the entering into of the new
credit facility and the application of those proceeds and borrowings as if such
transactions occurred at the beginning of the period presented. Note that the
fiscal year of the Elizabeth Arden Business ends on December 31 as compared
with our January 31 year-end.
The pro forma adjustments related to the purchase price allocation and
financing of the Elizabeth Arden Business are preliminary and based on
information obtained to date that is subject to revision as additional
information becomes available. Subsequent revisions to the preliminary purchase
price allocation, the financing and any charges that may be taken in connection
with the acquisition of the Elizabeth Arden Business may have a significant
impact on our results of operations and financial condition.
Footnote (h) to the unaudited pro forma statement of income, includes a
supplemental adjustment to selling, general and administrative expense to
reflect management's estimates of the incremental overhead necessary for us to
operate the Elizabeth Arden Business. Although we believe that this
supplemental adjustment is appropriate to reflect the ongoing operations after
the acquisition of the Elizabeth Arden Business, the supplemental adjustment
represents "forward-looking" information and is subject to uncertainties. Our
actual results may differ materially from these projections.
We do not as a matter of course make public projections as to future sales,
earnings, or other results. However, management has prepared the prospective
financial information described above to more appropriately reflect operating
expenses of the Elizabeth Arden Business. This prospective financial
information was not prepared with a view toward public disclosure or with a
view toward complying with the guidelines established by the American Institute
of Certified Public Accountants with respect to prospective financial
information but, in the view of management, was prepared on a reasonable basis,
reflects the best currently available estimates and judgments, and present, to
the best of management's knowledge and belief, the expected expenses of
operating the Elizabeth Arden Business. However, this information is not fact
and should not be relied upon as being necessarily indicative of future
results, and readers of this prospectus are cautioned not to place undue
reliance on the prospective financial information.
Neither the Company's independent auditors, nor any other independent
accountants, have compiled, examined, or performed any procedures with respect
to the prospective financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim any association
with, the prospective financial information.
The assumptions and estimates underlying the prospective financial
information are inherently uncertain and, though considered reasonable by the
management of the Company as of the date of its preparation, are subject to a
wide variety of significant business, economic, and competitive risks and
uncertainties that could cause actual results to differ materially from those
contained in the prospective financial information. Accordingly, there can be
no assurance that the prospective results are indicative of the future
performance of the Company or that actual results will not differ materially
from those presented in the prospective financial information. Inclusion of the
prospective financial information in this prospectus should not be regarded as
a representation by any person that the results contained in the prospective
financial information will be achieved.
26
The Company does not generally publish its business plans and strategies or
make external disclosures of its anticipated financial position or results of
operations. Accordingly, the Company does not intend to update or otherwise
revise the prospective financial information to reflect circumstances existing
since its preparation or to reflect the occurrence of unanticipated events,
even in the event that any or all of the underlying assumptions are shown to be
in error. Furthermore, the Company does not intend to update or revise the
prospective financial information to reflect changes in general economic or
industry conditions.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the notes thereto, the historical consolidated
financial statements of French Fragrances and related notes thereto
incorporated by reference in this prospectus, and the historical financial
statements of the Elizabeth Arden Business and related notes thereto
incorporated by reference in this prospectus.
27
Unaudited Pro Forma Condensed Combined Balance Sheet
As of October 31, 2000
(dollars in thousands)
Elizabeth
Arden Arden
Company Business Acquisition Offering
Historical Historical Combined Adjustments Adjustments Pro Forma
---------- ---------- -------- ----------- ----------- ---------
Assets:
Cash and cash
equivalents............ $ 2,109 -- $ 2,109 -- $ 8,831 (d) $ 10,940
Accounts Receivable,
net.................... 149,592 -- 149,592 -- -- 149,592
Inventories............. 125,986 $ 90,900 216,886 -- -- 216,886
Advances on inventory
purchases.............. 1,892 -- 1,892 -- -- 1,892
Prepaid expense and
other assets........... 9,058 600 9,658 -- -- 9,658
-------- -------- -------- -------- -------- --------
Total current assets.. 288,637 91,500 380,137 -- 8,831 388,968
Property and equipment,
net.................... 22,105 21,500 43,605 -- -- 43,605
Other assets:
Exclusive brand licenses
and trademarks......... 44,174 -- 44,174 -- -- 44,174
Senior debt offering
costs, net............. 3,543 -- 3,543 -- 16,197 (e) 19,740
Deferred income taxes,
net.................... 3,337 -- 3,337 -- -- 3,337
Other intangibles and
other assets........... 6,240 -- 6,240 $152,895 (a) -- 159,135
-------- -------- -------- -------- -------- --------
Total other assets.... 57,294 -- 57,294 152,895 16,197 226,386
-------- -------- -------- -------- -------- --------
Total assets.......... $368,036 $113,000 $481,036 $152,895 $ 25,028 $658,959
======== ======== ======== ======== ======== ========
Liabilities and
Shareholders' Equity:
Current Liabilities:
Short-term debt......... $ 30,995 -- $ 30,995 -- $ 49,992 (f) $ 80,987
Accounts Payable-trade.. 49,878 -- 49,878 -- -- 49,878
Other payables and
accrued expenses....... 20,009 $ 19,100 39,109 $ 15,000 (b) -- 54,109
Current portion of long-
term debt.............. 1,145 -- 1,145 -- -- 1,145
-------- -------- -------- -------- -------- --------
Total current
liabilities.......... 102,027 19,100 121,127 15,000 49,992 186,119
-------- -------- -------- -------- -------- --------
Long-term debt, net..... 171,427 -- 171,427 -- 160,000 (g) 331,427
-------- -------- -------- -------- -------- --------
Total liabilities....... 273,454 19,100 292,554 15,000 209,992 517,546
Convertible Preferred
Stock, net............. -- -- -- 35,000 (c) -- 35,000
Shareholders' equity:
Convertible Preferred
Stock.................. 8 -- 8 -- (8)(d) --
Common stock............ 142 -- 142 -- 24 (d) 166
Additional paid-in
capital................ 33,179 93,900 127,079 (93,900)(a) 11,815 (d) 44,994
Treasury stock.......... (6,613) -- (6,613) -- -- (6,613)
Retained earnings....... 67,866 -- 67,866 -- -- 67,866
-------- -------- -------- -------- -------- --------
Total shareholders'
equity............... 94,582 93,900 188,482 (93,900) 11,831 106,413
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $368,036 $113,000 $481,036 $(43,900) $221,823 $658,959
======== ======== ======== ======== ======== ========
28
Notes To Unaudited Pro Forma
Condensed Combined Balance Sheet
As of October 31, 2000
(dollars in thousands)
(a) To record intangible assets:
Purchase Price:
Cash............................................................. $190,095
Preferred stock at estimated fair value.......................... 35,000
Acquisition costs.................................................. 6,700
--------
Total.......................................................... 231,795
Net assets acquired................................................ (93,900)
Reserve for expected returns....................................... 15,000
--------
Intangible assets.................................................. $152,895
========
(b) To record an additional reserve for expected returns for sales made by
Arden prior to the acquisition.
(c) To record the issuance of Series D convertible preferred stock at
estimated fair value:
Liquidation Preference........................................... $ 50,000
Discount......................................................... (15,000)
--------
Net.............................................................. $ 35,000
========
(d) To record the conversion of the Series B convertible preferred stock
and Series C convertible preferred stock pursuant to the notice of redemption
issued on October 30, 2000 and the fair value of 209,853 warrants issued as
compensation to the managers of the note offering. Includes conversion of
264,168 shares of Series B convertible at one preferred share into 7.12 shares
of common stock for an aggregate of 1,880,876 shares of our common stock at a
price of $3.30 per share. Also includes the conversion of 499,870 shares of
Series C convertible preferred stock at one share of convertible preferred
stock per one share of common stock for an aggregate of 499,870 shares of
common stock at a price of $5.25.
(e) To record the deferred offering cost of the notes and the new credit
facility totaling $16,197 which includes the fair value of 209,853 warrants
issued as compensation to the managers of the original note offering.
(f) To record borrowings under the new credit facility of $80,987 and
repayment of $30,995 under the Company's existing credit facility.
(g) To record the issuance of the notes offered hereby.
29
Unaudited Pro Forma Condensed
Combined Statement of Income
For the period indicated
(dollars in thousands, except per share amounts)
Fiscal Year Ended
-----------------------
12/31/99
Elizabeth Arden
1/31/00 Arden Acquisition
Company Business and Offering
Historical Historical Combined Adjustments Pro Forma
----------- ---------- -------- ------------ -----------
Net sales............... $ 361,243 $551,500 $912,743 $(55,875)(b) $ 856,868
Cost of sales........... 236,129 174,600 410,729 (55,875)(b) 354,854
----------- -------- -------- -------- -----------
Gross profit........... 125,114 376,900 502,014 -- 502,014
----------- -------- -------- -------- -----------
Selling, general &
administrative......... 80,167 294,510(a) 374,677 7,645 (c) 382,322
----------- -------- -------- -------- -----------
Income from operations.. 44,947 82,390(a) 127,337 (7,645) 119,692
Other income (expense):
Interest expense, net.. (19,412) -- (19,412) (25,545)(d) (44,957)
Other income........... (204) -- (204) -- (204)
----------- -------- -------- -------- -----------
Other income
(expense)............. (19,616) -- (19,616) (25,545) (45,161)
----------- -------- -------- -------- -----------
Income before provision
for income taxes....... 25,331 -- 107,721 (33,190) 74,531
Provision for income
taxes.................. 10,001 -- 10,001 7,322 (e) 17,323
----------- -------- -------- -------- -----------
Net income.............. $ 15,330 $ -- $ 97,720 $(40,512) $ 57,208
=========== ======== ======== ======== ===========
Accretion (dividend on)
preferred stock........ -- -- -- $ (1,250)(f) $ (1,250)(f)
Net income attributable
to common
stockholders(h)........ $ 15,330 $ -- $ 97,720 $(41,762) $ 55,958
=========== ======== ======== ======== ===========
Earnings per common
share:
Basic.................. $ 1.11 $ 3.46 (g)
----------- -----------
Diluted................ $ 0.99 $ 2.64 (g)
----------- -----------
Weighted average common
shares outstanding:
Basic.................. 13,801,196 16,196,225 (g)
----------- -----------
Diluted................ 15,577,422 21,264,068 (g)
----------- -----------
Other data:
Gross margin %.......... 34.6% 68.3% 55.0% -- 58.6 %
EBITDA(i)............... $ 56,113 $ 93,090 $149,203 -- $ 149,203
EBITDA margin........... 15.5% 16.9% 16.3% -- 17.4 %
Depreciation &
amortization........... $ 11,166 $ 10,700 $ 21,866 $ 7,645 $ 29,511
30
Unaudited Pro Forma Condensed
Combined Statement of Income
For the periods indicated
(dollars in thousands, except per share amounts)
Nine Months Ended
-----------------------
9/30/00 Arden
Elizabeth Acquisition
10/31/00 Arden and
Company Business Offering
Historical Historical Combined Adjustments Pro Forma
----------- ---------- -------- ----------- -----------
Net sales............... $ 296,046 $402,000 $698,046 $(54,251)(b) $ 643,795
Cost of sales........... 193,337 129,700 323,037 (54,251)(b) 268,786
----------- -------- -------- -------- -----------
Gross profit........... 102,709 272,300 375,009 -- 375,009
----------- -------- -------- -------- -----------
Selling, general &
administrative......... 67,807 201,200(a) 269,007 5,734 (c) 274,741
----------- -------- -------- -------- -----------
Income from operations.. 34,902 71,100(a) 106,002 (5,734) 100,268
Other income (expense):
Interest expense, net.. (14,718) -- (14,718) (19,158)(d) (33,876)
Other income........... 875 -- 875 -- 875
----------- -------- -------- -------- -----------
Other income
(expense)............. (13,843) -- (13,843) (19,158) (33,001)
----------- -------- -------- -------- -----------
Income before provision
for income taxes....... 21,059 -- 92,159 (24,892) 67,267
Provision for income
taxes.................. 8,223 8,223 7,818 (e) 16,041
----------- -------- -------- -------- -----------
Net income.............. $ 12,836 $ -- $ 83,936 $(32,710) $ 51,226
=========== ======== ======== ======== ===========
Accretion (dividend on)
preferred stock........ -- -- -- $ (938)(f) $ (938)(f)
Net income attributable
to common
stockholders(h)........ $ 12,836 $ -- $ 83,936 $(33,648) $ 50,288
=========== ======== ======== ======== ===========
Earnings per common
share:
Basic.................. $ 0.97 $ 3.22 (g)
----------- -----------
Diluted................ $ 0.85 $ 2.45 (g)
----------- -----------
Weighted average common
shares outstanding:
Basic.................. 13,244,233 15,604,984 (g)
----------- -----------
Diluted................ 15,133,473 20,549,070 (g)
----------- -----------
Other data:
Gross margin %.......... 34.7% 67.7% 53.7% -- 58.2%
EBITDA.................. $ 43,760 $ 79,800 $123,560 $ -- $ 123,560
EBITDA margin........... 14.8% 19.9% 17.7% -- 19.2%
Depreciation &
amortization........... $ 8,858 $ 8,700 $ 17,558 $ 5,734 $ 23,292
31
Unaudited Pro Forma Condensed
Combined Statement of Income
For the periods indicated
(dollars in thousands, except per share amounts)
Twelve Months Ended
-----------------------
9/30/00 Arden
Elizabeth Acquisition
10/31/00 Arden and
Company Business Offering
Historical Historical Combined Adjustments Pro Forma
----------- ---------- -------- ----------- -----------
Net sales............... $ 386,326 $576,500 $962,826 $ (74,096)(b) $ 888,730
Cost of sales........... 254,137 183,900 438,037 (74,096)(b) 363,941
----------- -------- -------- --------- -----------
Gross margin........... 132,189 392,600 524,789 -- 524,789
----------- -------- -------- --------- -----------
Selling, general &
administrative......... 85,267 278,400(a) 363,667 7,645 (c) 371,312
----------- -------- -------- --------- -----------
Income from operations.. 46,922 114,200(a) 161,122 (7,645) 153,477
Other income (expense):
Interest expense, net.. (19,798) -- (19,798) (25,545)(d) (45,343)
Other income........... 739 -- 739 -- 739
----------- -------- -------- --------- -----------
Other income
(expense)............. (19,059) -- (19,059) (25,545) (44,604)
----------- -------- -------- --------- -----------
Income before provision
for income taxes....... 27,863 -- 142,063 (33,190) 108,873
Provision for income
taxes.................. 10,989 10,989 15,274 26,263
----------- -------- -------- --------- -----------
Net income.............. $ 16,874 $ -- $131,074 $ (48,464)(e) $ 82,610
=========== ======== ======== ========= ===========
Accretion (dividend on)
preferred stock........ -- -- -- $ (1,250)(f) $ (1,250)(f)
Net income attributable
to common
stockholders(h)........ $ 16,874 -- $131,074 $ (49,714) $ 81,360
=========== ======== ======== ========= ===========
Earnings per common
share:
Basic.................. $ 1.26 $ 5.17 (g)
----------- -----------
Diluted................ $ 1.12 $ 3.97 (g)
----------- -----------
Weighted average common
shares outstanding:
Basic.................. 13,366,796 15,747,547 (g)
----------- -----------
Diluted................ 15,110,643 20,526,240 (g)
----------- -----------
Other data:
Gross margin %.......... 34.2% 68.1% 54.5% -- 59.0%
EBITDA.................. $ 58,655 $125,900 $184,555 -- $ 184,555
EBITDA margin........... 15.2% 21.8% 19.2% -- 20.8%
Depreciation &
amortization........... $ 11,733 $ 11,700 $ 23,433 $ 7,645 $ 31,078
32
Notes To Unaudited Pro Forma
Condensed Combined Statement of Income
For the periods indicated
(dollars in thousands)
(a) The Elizabeth Arden Business historical selling, general &
administrative expense corresponds to total direct operating expenses reflected
in the historical Elizabeth Arden Business financial statements. The Elizabeth
Arden Business historical income from operations corresponds to the excess of
net sales over cost of sales and direct operating expenses reflected in the
historical Elizabeth Arden Business financial statements. See the historical
financial statements of the Elizabeth Arden Business and related notes thereto
incorporated by reference in this prospectus.
(b) To eliminate historical intercompany sales of fragrance products from
the Elizabeth Arden Business to us:
Year Ended Nine Months Ended Twelve Months Ended
January 31, 2000 October 31, 2000 October 31, 2000
---------------- ------------------ --------------------
Intercompany sales...... $ 55,875 $54,251 $ 74,096
(c) To record additional amortization of intangible assets of $152,895 (over
an estimated useful life of 20 years) related to the Arden acquisition. The 20
year amortization period may change after the final allocations are made:
Year Ended Nine Months Ended Twelve Months Ended
January 31, 2000 October 31, 2000 October 31, 2000
---------------- ------------------ --------------------
Amortization............ $ 7,645 $ 5,734 $ 7,645
(d) To record interest expense on the increased borrowing under the new
credit facility, the notes offered in the original note offering and the
amortization of deferred offering costs:
Year Ended Nine Months Ended Twelve Months Ended
January 31, 2000 October 31, 2000 October 31, 2000
---------------- ------------------ --------------------
Interest expense........ $ 23,410 $17,557 $ 23,410
Deferred offering
costs.................. 2,135 1,601 2,135
-------- ------- --------
Total............... $ 25,545 $19,158 $ 25,545
======== ======= ========
A 0.125% increase or decrease in the average interest rate on the new credit
facility would change pro forma interest expense on the credit facility by
approximately $58, $43 and $58 for the year ended January 31, 2000, the nine
months ended October 31, 2000 and the twelve months ended October 31, 2000,
respectively.
(e) To record the estimated tax effect on the Elizabeth Arden Business
income from operations and certain other pro forma adjustments:
Year Ended Nine Months Ended Twelve Months Ended
January 31, 2000 October 31, 2000 October 31, 2000
---------------- ------------------ --------------------
Elizabeth Arden Business
(blended worldwide
income tax rate of
25%)................... $ 20,597 $17,775 $ 28,550
Pro forma adjustments
(effective income tax
rate of 40%)........... (13,275) (9,956) (13,276)
-------- ------- --------
Total............... $ 7,322 $ 7,818 $ 15,274
======== ======= ========
33
(f) To record accretion of Series D convertible preferred stock from $35
million estimated fair value to $50 million liquidation preference over 12
years. No dividends are recorded in the first year.
(g) Basic and fully diluted shares include the conversion of Series B and
Series C convertible preferred stock. Fully diluted shares also includes the
dilutive effect of the Series D Convertible Preferred Stock. The Series D
Convertible Preferred Stock is convertible into 4,166,667 shares of common
stock subject to certain terms and conditions.
(h) The following supplemental adjustment is presented to reflect
management's estimates of the incremental overhead necessary to operate the
business after the acquisition. This supplemental adjustment represents
"forward-looking information."
The historical financial statements of the Elizabeth Arden Business include
only direct operating expenses such as sales, marketing, advertising,
promotion, other development costs, rent, and certain allocations related to
these items. Allocations of general and administrative expenses, Unilever group
corporate overhead, interest, amortization of intangibles and income taxes have
been excluded from the Elizabeth Arden Business financial statements. See the
Elizabeth Arden Business financial statements and notes thereto incorporated by
reference herein.
Management developed its estimates of the total overhead required in the
Elizabeth Arden Business, "Estimated Overhead" in the chart below, by reviewing
headcount and general and administrative expenses on a "department by
department" basis. Certain overhead was included in the financial statements of
the Elizabeth Arden Business ("Direct Expenses Included in the Elizabeth Arden
Business Financial Statements" below). The supplemental adjustment is
calculated as the total estimated overhead minus the overhead included in the
Elizabeth Arden Business financial statements.
Year Ended Nine Months Ended Twelve Months Ended
Estimated Overhead January 31, 2000 October 31, 2000 October 31, 2000
- ------------------ ---------------- ----------------- -------------------
North America........... $ 32,186 $ 24,140 $ 32,186
Europe.................. 28,821 21,616 28,821
Asia Pacific............ 7,331 5,498 7,331
Transition & Other...... 20,567 15,425 20,567
-------- -------- --------
Total Overhead.......... $ 88,905 $ 66,679 $ 88,905
Less: Direct Expenses
Included in Arden
Financial Statements... (55,800) (38,400) (53,400)
-------- -------- --------
Supplemental
Adjustment............. $ 33,105 $ 28,279 $ 35,505
======== ======== ========
The following table calculates the effect of the supplemental adjustment on
Pro Forma Net Income:
Year Ended Nine Months Ended Twelve Months Ended
January 31, 2000 October 31, 2000 October 31, 2000
---------------- ----------------- -------------------
Pro forma Net Income.... $ 57,208 $ 51,226 $ 82,610
Supplemental Adjustment
(net of income tax
benefit of $8,276;
$7,070; $8,877,
respectively).......... (24,829) (21,209) (26,628)
-------- -------- --------
Adjusted Net Income..... $ 32,379 $ 30,017 $ 55,982
======== ======== ========
Accretion of Preferred
Stock.................. (1,250) (938) (1,250)
-------- -------- --------
Adjusted Net Income
Attributable to Common
Shareholders........... $ 31,129 $ 29,079 $ 54,732
======== ======== ========
Adjusted Earnings per
Common Share
Basic................. $ 1.92 $ 1.86 $ 3.48
Diluted............... $ 1.47 $ 1.42 $ 2.67
34
(i) EBITDA is defined as income from operations, plus depreciation and
amortization. EBITDA should not be considered as an alternative to operating
income (loss) or net income (loss) (as determined in accordance with generally
accepted accounting principles) as a measure of the Company's operating
performance or to net cash provided by operating, investing and financing
activities (as determined in accordance with generally accepted accounting
principles) as a measure of its ability to meet cash needs. The Company
believes that EBITDA is a measure commonly reported and widely used by
investors and other interested parties as a measure of a company's operating
performance and debt servicing ability because it assists in comparing
performance on a consistent basis without regard to depreciation and
amortization, which can vary significantly depending upon accounting methods
(particularly when acquisitions are involved) or nonoperating factors (such as
historical cost). Accordingly, this information has been disclosed herein to
permit a more complete comparative analysis of the Company's operating
performance relative to other companies and of the Company's debt servicing
ability. However, EBITDA may not be comparable in all instances to other
similar types of measures.
35
DESCRIPTION OF THE SERIES B NOTES
We will issue the Series B notes pursuant to the indenture (the "indenture")
between the Company and HSBC Bank USA, as trustee (the "trustee") that we
entered into in connection with the issuance of the Series A notes. The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The notes are subject to all such terms, and holders of
notes are referred to the indenture and the Trust Indenture Act for a statement
of these terms. The following summary of the provisions of the indenture we
consider material does not purport to be complete and is qualified in its
entirety by reference to the indenture, including the definitions therein of
certain terms used below. As used in this Description of the Series B Notes,
the terms "Company," "we" and "our" refer only to Elizabeth Arden, Inc. and not
to Elizabeth Arden, Inc. and its subsidiaries. The definitions of certain other
terms used in the following summary are set forth below under "--Certain
Definitions."
Brief Description of the Series B Notes
The Series B notes:
. are senior secured obligations of the Company;
. are secured by a first priority lien over certain assets of the
Elizabeth Arden Business, primarily intellectual property;
. rank senior in right of payment to all existing and future Subordinated
Indebtedness of the Company; and
. rank pari passu in right of payment with all existing and future Senior
Indebtedness of the Company.
As of October 31, 2000, after giving effect to the original note offering
and the application of the net proceeds therefrom and the Arden acquisition,
the Company would have had approximately $402.2 million of total indebtedness,
including the notes. The indenture limits the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness; however, subject to
certain limitations, the Company and its Restricted Subsidiaries will be
permitted to incur certain indebtedness, some of which may be secured. See "--
Certain Covenants."
Principal, Maturity and Interest
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount of $160.0 million. Interest on the Series B notes
will accrue at the rate of 11 3/4% per annum and will be payable in cash semi-
annually in arrears on February 1 and August 1, commencing on August 1, 2001,
to holders of record on the immediately preceding January 15 and July 15.
Interest on the Series B notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
We will pay principal, premium, interest and liquidated damages, if any, on
the Series B notes:
. at the office or agency of the company maintained for that purpose
within the City and State of New York;
. or, at our option, by check mailed to the holders of the Series B notes
at their respective addresses set forth in the register of holders of
notes.
If a holder has given wire transfer instructions to the Company, the Company
will pay all principal, premium, interest and liquidated damages, if any, on
that holder's Series B notes in accordance with those instructions.
Until we designate another office or agency, our office or agency in New
York will be the office of the trustee maintained for that purpose. The
Series B notes will be issued in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. See "--Form of Series B
Notes."
36
Security
The notes will be secured by a first priority (subject to certain liens to
be permitted under the terms of the indenture and the Security Documents) lien
to be perfected on:
(i) certain Acquired Assets constituting equipment located in the United
States; and
(ii) all Acquired Assets constituting intellectual property (including,
without limitation, trademarks, service marks, trade names, corporate
names, trade dress, trade secrets, trade styles, logos, trademark and
service mark registrations, copyrights, copyright applications, copyright
registrations, patents, patent applications and patentable inventions, but
excluding intangible assets related to such intellectual property owned by
third parties and any intangible assets related to such intellectual
property associated with Elizabeth Taylor fragrances and cosmetics)
(collectively, "Intellectual Property"),
(a) to the extent such a perfected lien (or its equivalent) may be
created therein,
(b) to the extent registered, registrable, used or useful in:
(i) the United States;
(ii) member states of the European Union;
(iii) Argentina, Australia, Brazil, Canada, Indonesia, Japan,
Korea, Mexico, New Zealand, Puerto Rico, Saudi Arabia, Singapore,
South Africa, Switzerland and Taiwan; and
(iv) in each other jurisdiction in which the Company or any
Subsidiary of the Company avails itself of such jurisdiction's laws
to register, file, preserve or otherwise protect or evidence its
interest in such Intellectual Property within 90 days of the
acquisition of the Elizabeth Arden Business;
provided, however, that no security interest shall be granted for Intellectual
Property that relates to products of the Company and/or its Subsidiaries (x)
not being manufactured by or on behalf of the Company at the time the notes are
issued or (y) sold in Colombia under the "Elizabeth Arden," "Arden for Men" and
"Body Clear" brand names, in each case with respect to deodorant and
antiperspirant products; and provided, further, that no security interest will
be granted to the extent the costs and efforts of obtaining such security
interests are unreasonable in view of the benefits to the holders that would
result therefrom, as determined by Credit Suisse First Boston Corporation, in
its sole discretion (all the property and assets set out in this paragraph,
together with all other property and assets that are from time to time subject
to the Security Documents, being collectively referred to as "Collateral").
The Collateral will be pledged to the trustee for the benefit of the holders
of the notes pursuant to security agreements, intellectual property security
agreements and other documents and agreements reasonably required by Credit
Suisse First Boston Corporation (collectively, the "Security Documents").
If the notes become due and payable prior to their maturity for any reason,
other than an optional redemption by us, or are not paid in full at their
maturity and after any applicable grace period has expired, the trustee will
have the exclusive right to foreclose (or decline to foreclose) upon (or
otherwise exercise (or decline to exercise) remedies in respect of) the
Collateral in accordance with instructions from the holders of a majority in
principal amount of the notes or, in the absence of such instructions, in such
manner as the trustee deems appropriate in its sole and absolute discretion.
Proceeds from the sale of Collateral will first be applied to the reasonable
expenses of the trustee in retaking, holding, preparing for sale or lease,
selling, leasing and the like of the Collateral, attorney's fees and other
reasonable legal expenses incurred by the trustee and then applied to repay the
notes (with any remaining proceeds to be payable to the Company or as may
otherwise be required by law).
No appraisals of any of the Collateral were prepared by or on behalf of the
Company in connection with the transactions contemplated by the original note
offering. There can be no assurance that the proceeds from the sale of the
Collateral would be sufficient to satisfy payments due on the notes. In the
case of a default, there
37
may not be sufficient available Collateral to satisfy the obligations under the
notes. By its nature, some or all of the Collateral will be illiquid and may
have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time, or at all.
The collateral release provisions of the indenture and the Security
Documents may permit the release of Collateral without substitution of
collateral of equal value under specified circumstances. See "--Release of
Collateral." As described under "--Repurchase at the Option of Holders--Asset
Sales," the Net Proceeds of such Asset Sales may be required to be utilized to
make an offer to purchase notes.
If an Event of Default occurs under the indenture and a declaration of
acceleration of the notes occurs as a result, the trustee, on behalf of the
holders of the notes, in addition to any rights or remedies available to it
under the indenture, may take such action as it deems advisable to protect and
enforce its rights in the Collateral, including the institution of foreclosure
proceedings. The proceeds received by the trustee from any foreclosure will be
applied by the trustee first to pay the expenses of such foreclosure and fees
and other amounts then payable to the trustee under the indenture, and
thereafter to pay the principal, premium, interest and liquidated damages, if
any, on the notes.
All of the Intellectual Property that constitutes Collateral is held by two
of the Company's Domestic Subsidiaries each of which executed a Subsidiary
Guarantee (secured by the Collateral transferred) of the Company's obligations
under the notes and the indenture. See "Certain Covenants--Subsidiary
Guarantees."
Certain Bankruptcy Limitations
The right of the trustee to repossess and dispose of, or otherwise exercise
remedies in respect of, the Collateral upon the occurrence of an Event of
Default is likely to be significantly impaired by applicable bankruptcy law if
a bankruptcy proceeding were to be commenced by or against the Company prior to
the trustee having repossessed and disposed of, or otherwise exercised remedies
in respect of, the Collateral. Under the Bankruptcy Code, secured creditors
such as the holders of the notes, are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from the debtor, without bankruptcy court approval. Moreover, the
Bankruptcy Code permits the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection." The meaning
of the term "adequate protection" may vary according to circumstances, but it
is intended in general to protect the value of the secured creditor's interest
in the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the Collateral as a result of the stay of
repossession or disposition or any use of the Collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a precise
definition of the term "adequate protection" and the broad discretionary powers
of a bankruptcy court, it is impossible to predict how long payments under the
indenture and the notes could be delayed following the commencement of a
bankruptcy case, whether or when the trustee could repossess or dispose of the
Collateral or whether or to what extent holders of the notes would be
compensated for any delay in payment or loss of value of the Collateral.
Optional Redemption
At any time prior to February 1, 2004, the Company may, at its option, on
any one or more occasions redeem up to 35% of the initially outstanding
aggregate principal amount of notes at a redemption price equal to 111.75% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date, with the net proceeds of one
or more public equity offerings of the Company generating in each case net
proceeds of at least $15.0 million; provided that:
(1) at least 65% of the initially outstanding aggregate principal amount
of notes remains outstanding immediately after the occurrence of any such
redemption: and
(2) that such redemption occurs within 90 days of the date of the
closing of any such public equity offering of the Company.
38
Pending application as set forth above, any such net proceeds may be applied
to temporarily reduce revolving Indebtedness.
After February 1, 2006, the Company may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and liquidated damages, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on February 1 of the years indicated below:
Year Percentage
---- ----------
2006........................................................... 105.875%
2007........................................................... 103.917%
2008........................................................... 101.958%
2009 and thereafter............................................ 100.000%
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Series B notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to a Change of
Control offer on the terms set forth in the indenture. In the Change of Control
offer, the Company will offer a Change of Control payment in cash equal to 101%
of the aggregate principal amount of the notes or portions of notes validly
tendered for payment, plus accrued and unpaid interest and liquidated damages,
if any, thereon to the date of purchase. Within 60 days following any Change of
Control, the Company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes pursuant to the procedures required by the indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the notes as a result of a change of control.
On the Change of Control payment date, the Company will, to the extent
lawful:
(i) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control offer;
(ii) deposit with the paying agent an amount equal to the Change of
Control payment in respect of all notes or portions of notes properly
tendered; and
(iii) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
Company.
The Paying Agent will promptly mail to each holder of notes properly
tendered the Change of Control payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book-entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. The Company will
publicly announce the results of the Change of Control offer on or as soon as
practicable after the Change of Control payment date.
39
The Company will not be required to make a Change of Control offer upon a
Change of Control if a third party makes a Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control offer made by the
Company and purchases all notes properly tendered and not withdrawn under the
Change of Control offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of
notes to require the Company to repurchase such notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company and its Restricted Subsidiaries taken as a whole to another
person or group may be uncertain.
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the holders of the notes to require the
Company to repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
The terms of the Revolving Credit Facility prohibit any repurchase of notes
by the Company in the event of a Change of Control, unless all indebtedness
then outstanding under the Revolving Credit Facility is first repaid. In order
to repay such indebtedness and repurchase the notes, it may be necessary for
the Company to recapitalize and/or refinance some or all of its outstanding
indebtedness. There can be no assurance that such recapitalization or
refinancing, if required, would be accomplished on favorable terms, in a timely
manner or at all. Were any obligation of the Company to repurchase notes upon a
Change of Control to result in a default under the Revolving Credit Facility,
the Company may not have sufficient assets to satisfy its obligations under the
Revolving Credit Facility and the indenture. See "Risk Factors--We may be
unable to purchase the notes upon a change of control."
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to consummate an Asset Sale, unless:
(i) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(ii) the fair market value is evidenced by a resolution of the Board of
Directors set forth in an officers' certificate delivered to the trustee;
(iii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
and
(iv) if any such Asset Sale involves Collateral, that Asset Sale shall
be in compliance with the provisions described under "--Release of
Collateral" and "--Asset Sale Release."
For the purposes of this provision, each of the following will be deemed to
be cash or Cash Equivalents:
(a) any liabilities, as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto, of the
Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary
from further liability (in which case the cash deemed to have been received
by way of the assumption will further be deemed to have been applied in
accordance with the next paragraph); and
(b) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received).
40
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply those Net Proceeds:
(i) to the extent that any Net Proceeds are received from an Asset Sale
not involving the sale, lease, conveyance or other disposition of
Collateral ("Non-Collateral Proceeds"):
(a) to permanently reduce Senior Indebtedness; and
(b) to permanently reduce Indebtedness permitted to be incurred
pursuant to clause (i) of the second paragraph of the covenant
described below under "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Disqualified Stock;" or
(ii) to an Investment in another business, the making of a capital
expenditure or the acquisition of other assets, in each case, in the same
or a similar or related line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of the indenture ("related
business investment"); provided, however, that to the extent that the Net
Proceeds applied are received from an Asset Sale involving the sale, lease,
conveyance or other disposition of Collateral ("Collateral Proceeds"), the
property and assets constituting such related business investment and any
other non-cash consideration received as a result of such Asset Sale are
made subject to the Lien of the indenture and the applicable Security
Documents and shall not consist of inventory or receivables but shall
constitute Collateral under the terms of the indenture and of the Security
Documents.
Any Net Proceeds from Asset Sales that are not applied (or deemed applied)
or invested as provided in the preceding paragraph will be deemed to constitute
"Excess Proceeds." Within 30 days after the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an Asset Sale Offer
to all holders of notes, and all holders of other Indebtedness that ranks
equally with the notes containing provisions similar to those set forth in the
indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets, to purchase the maximum principal amount of notes and such
other pari passu Indebtedness that may be purchased out of the Excess Proceeds.
The Asset Sale Offer Price will be equal to 100% of principal amount plus
accrued and unpaid interest and liquidated damages, if any, to the date of
purchase and will be payable in cash, in accordance with the procedures set
forth in the indenture. If any Excess Proceeds remain after consummation of an
Asset Sale Offer then, to the extent that such Excess Proceeds consist of Non-
Collateral Proceeds, the Company and its Restricted Subsidiaries may use such
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of notes and such other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will
select the notes and such other pari passu Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds will be reset at zero.
All Collateral Proceeds remaining after application pursuant to the
preceding two paragraphs shall be delivered by the Company to the trustee and
shall be deposited in a bank account to be established pursuant to the
indenture and the Security Documents (the "Collateral Account"). Collateral
Proceeds so deposited may be withdrawn from the Collateral Account pursuant to
the indenture and the Security Documents.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(i) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(ii) if the notes are not listed on any national securities exchange, on
a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
41
No notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the
holder of notes upon cancellation of the original note. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption unless the Company defaults in making the redemption payment.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any such distribution by such Persons in
connection with any merger or consolidation involving the Company) (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to
the Company or any Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the
Company;
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness, except
at scheduled maturity; or
(iv) make any Restricted Investment (all such payments and other actions
set out in this paragraph being collectively referred to as "Restricted
Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence of that Restricted Payment; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four fiscal quarters for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock;" and
(3) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (v) and (vi) of the next succeeding paragraph),
is less than the sum of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the indenture from the issuance or sale of Equity
Interests of the Company or of debt securities of the Company that have
been converted into such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company
and other than Disqualified Stock or
42
debt securities that have been converted into Disqualified Stock or
Equity Interests issued upon conversion of the Unilever Preferred Stock
outstanding on the date of the indenture); plus
(c) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any); plus
(d) 50% of any dividends received by the Company or a Restricted
Subsidiary that is a Guarantor after the date of the Indenture from an
Unrestricted Subsidiary of the Company, to extent that such dividends
were not otherwise included in Consolidated Net Income of the Company
for such period; plus
(e) to the extent that any Unrestricted Subsidiary of the Company is
redesignated as a Restricted Subsidiary after the date of the
indenture, the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation.
The preceding provisions will not prohibit:
(i) the payment of any dividend or distribution within 60 days after the
date of declaration of the dividend, if at the date of declaration the
dividend payment or distribution would have complied with the provisions of
the indenture;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company (including, without limitation, the
Unilever Preferred Stock) in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition will be excluded from clause (3)(b) of the preceding paragraph;
(iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Restricted Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition will be excluded from clause
(3)(b) of the preceding paragraph;
(iv) repurchases of warrants, options or rights to acquire Capital
Interests deemed to occur upon exercise of warrants, options or rights to
acquire Capital Interests if such warrants, options or rights represent a
portion of the exercise price of such warrants, options or rights;
(v) payments or distributions to dissenting stockholders pursuant to
applicable law or in connection with the settlement or other satisfaction
of legal claims made pursuant to or in connection with a consolidation,
merger or transfer of assets;
(vi) payments made to purchase, redeem, defease or otherwise acquire or
retire for value any Capital Interests or Subordinated Indebtedness of the
Company pursuant to provisions requiring the Company to offer to purchase,
redeem, defease or otherwise acquire or retire for value such Capital
Interests or Subordinated Indebtedness upon the occurrence of a "change of
control," as defined in the charter provisions, agreements or instruments
governing such Capital Interests or Subordinated Indebtedness; provided,
however, that the Company has made a Change of Control offer and has
purchased all notes tendered in connection with that Change of Control
offer; and
(vii) other Restricted Payments in an aggregate amount not to exceed
$10.0 million.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) proposed to
be transferred by the Company or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. The fair market value of any assets or
securities that are
43
required to be valued by this covenant will be determined by the Board of
Directors whose resolution with
respect thereto will be delivered to the trustee. Not later than the date of
making any Restricted Payment, the Company will deliver to the trustee an
officers' certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, which calculations may be based upon the
Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Company will not issue any Disqualified Stock; provided that the Company
may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock
and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt),
if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.25 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period; and
(ii) in the case of an incurrence of Indebtedness by a Domestic
Subsidiary (other than Acquired Debt), that Domestic Subsidiary guarantees
on a senior basis (a "Subsidiary Guarantee") the Company's payment
obligations under the notes (each such Subsidiary, a "Subsidiary
Guarantor"). See "--Subsidiary Guarantees."
In addition to any Indebtedness that may be incurred and any Disqualified
Stock that may be issued pursuant to the foregoing paragraph, the following may
be incurred (collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Subsidiary Guarantor of Senior
Indebtedness and letters of credit under one or more Credit Facilities for
working capital purposes (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) in an aggregate principal amount not to exceed the amount of
the Borrowing Base;
(2) the incurrence by any Foreign Subsidiary of Indebtedness under
Foreign Credit Facilities and letters of credit under one or more Foreign
Credit Facilities for working capital purposes (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Foreign Subsidiary thereunder) in an aggregate principal
amount not to exceed the amount of the Foreign Borrowing Base;
(3) the incurrence by the Company of the Existing Indebtedness;
(4) the incurrence by the Company of the Indebtedness represented by the
notes, the exchange notes, and the incurrence by any Subsidiary Guarantor
of the Indebtedness represented by its Subsidiary Guarantee;
(5) the incurrence by the Company and any Restricted Subsidiary of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the indenture to be incurred;
(6) the incurrence by the Company or any Restricted Subsidiary of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than a Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Restricted Subsidiary will be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be;
44
(7) the incurrence (A) by the Company and any Restricted Subsidiary of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing up to all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company
or such Restricted Subsidiary, or (B) by the Company and any Subsidiary
Guarantor of Indebtedness represented by mortgage financing secured solely
by the Miami Lakes Facility (in addition to Indebtedness permitted to be
incurred pursuant to clauses (2) or (4) above in this covenant) in a
principal amount for (A) and (B) in the aggregate not to exceed $10.0
million at any time outstanding;
(8) the incurrence by the Company and any Restricted Subsidiary of
Hedging Obligations in the ordinary course of business of the Company or
such Restricted Subsidiary, as the case may be;
(9) the incurrence by the Company and any Restricted Subsidiary of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business of
the Company or such Restricted Subsidiary, as the case may be;
(10) the incurrence by the Company and any Restricted Subsidiary of
Indebtedness not otherwise permitted under the indenture in an aggregate
amount for all such Indebtedness not to exceed $15.0 million at any time
outstanding;
(11) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued, accreted and amortized; and
(12) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided however, that if any such indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
the Company that was not permitted by this clause (12).
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Disqualified Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (12) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company will
be permitted to classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of Indebtedness,
in any manner that complies with this covenant.
The Company will not incur any secured Indebtedness which is not Senior
Indebtedness. No Subsidiary Guarantor will incur any secured Indebtedness which
is not Guarantor Senior Indebtedness.
Liens
The Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind upon:
(i) any item of Collateral other than the Liens created by the notes,
the indenture and the Security Documents and the Liens expressly permitted
by the Security Documents, if any; or
(ii) any other property or assets of the Company, now owned or hereafter
acquired (other than Permitted Liens), unless all payments due under the
indenture and the notes, and all obligations under the Subsidiary
Guarantees, if any, are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer
secured by a Lien.
45
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries (A) on their Capital Interests or (B) with
respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) any Credit Facility or Foreign Credit Facility, provided that any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereto are no more restrictive,
taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Revolving Credit Facility as in
effect on the date of the indenture;
(3) the indenture, the notes, the exchange notes and the Subsidiary
Guarantees;
(4) applicable law;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) Capital Lease Obligations, mortgage financings or purchase money
obligations for property acquired in the ordinary course of business or
mortgage financings secured by the Miami Lakes Facility that impose
restrictions of the nature described in clause (iii) above on the property
so acquired or the Miami Lakes Facility, as the case may be;
(7) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any of its Restricted Subsidiaries,
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(8) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business; or
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Company and its Restricted Subsidiaries in one or more related transactions
to, another corporation, Person or entity, unless:
(i) either (a) the Company is the surviving Person; or (b) the entity or
the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is organized and
existing under the laws of the United States, any state thereof or the
District of Columbia;
46
(ii) the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of the Company under the
security documents, the registration rights agreement, the notes and the
indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made, except in the
case of a transaction the principal purpose and effect of which is to
change the Company's state of incorporation, will, on the date of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Disqualified Stock."
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by the Company
and its Restricted Subsidiaries in the Subsidiary properly designated will be
deemed to be an Investment made as of the time of the designation and will
reduce the amount available for Restricted Payments under the first paragraph
of the covenant described above under the caption "--Restricted Payments" or
Permitted Investments, as determined by the Company. That designation will only
be permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless:
(i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the trustee:
(1) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.0 million, a resolution of the Board of
Directors set forth in an officers' certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors, if any; and
(2) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $15.0 million, an opinion as to the fairness
to the Company or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by a nationally-
recognized accounting, appraisal or investment banking firm.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(A) any reasonable employment, compensation, bonus or benefit
arrangement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
47
Restricted Subsidiary, including without limitation, the grant of stock
options, stock appreciation rights or other stock-based incentive awards
(other than Disqualified Stock) in the ordinary course of business of the
Company or such Restricted Subsidiary, as the case may be, provided that
any non-stock payments by the Company or any Restricted Subsidiary in
connection with the grant or exercise or other settlement of such stock
options, stock appreciation rights or other stock-based incentive awards
are permitted under the provisions of the indenture described above under
"--Restricted Payments;"
(B) transactions between or among the Company and/or its Restricted
Subsidiaries;
(C) the payment of reasonable fees, expense reimbursement and customary
indemnification, advances and other similar arrangements to directors and
officers of the Company or any of its Restricted Subsidiaries;
(D) reasonable loans or advances to employees of the Company and its
Restricted Subsidiaries in the ordinary course of business of the Company
or such Restricted Subsidiary, as the case may be;
(E) Permitted Investments and transactions permitted by the provisions
of the indenture described above under the caption "--Restricted Payments;"
(F) scheduled payments of principal and interest with respect to
Existing Indebtedness;
(G) purchases and sales of inventory in the ordinary course of business;
and
(H) transactions between or among the Company, Unilever and their
respective Subsidiaries entered into in the ordinary course of business or
in connection with the Acquisition Agreement.
Limitation on Preferred Stock or Preferred Equity Interests of Restricted
Subsidiaries
The Company will not permit any of its Restricted Subsidiaries to issue or
sell any preferred stock or preferred Equity Interests (other than to the
Company or to a Restricted Subsidiary of the Company) or permit any Person
(other than the Company or a Restricted Subsidiary of the Company) to own any
preferred stock or preferred Equity Interests of any Restricted Subsidiary.
Business Activities
The Company will not, and will not permit any Significant Subsidiary to,
engage in any business other than such business activities as the Company and
its Restricted Subsidiaries are engaged in on the date of the indenture and
such business activities similar or reasonably related thereto as determined in
good faith by the Company's Board of Directors.
Payments for Consent
The Company and its Subsidiaries will not, either directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the indenture or the
notes, unless such consideration is offered to be paid or agreed to be paid to
all holders of the notes that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any notes are outstanding, the Company will furnish to the holders of
notes, within the time periods specified in the Commission's rules and
regulations:
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information, only a report on
the annual financial statements by the Company's certified independent
accountants; and
48
(ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the
Commission, the Company will file a copy of all such information and reports
referred to in clauses (i) and (ii) 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. In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any notes remain outstanding, it will furnish to the
holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding two paragraphs will include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, of
the financial condition and results of operations of the Company and its
Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company.
Subsidiary Guarantees
As described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock," any Domestic Subsidiary may incur Indebtedness
under certain circumstances, provided that any such Domestic Subsidiary
guarantees on a senior basis the Company's payment obligations under the notes.
To effect such Guarantee, such Domestic Subsidiary will, no later than the
incurrence of such Indebtedness, execute and deliver to the trustee a
supplemental indenture to the indenture providing for the Guarantee of the
payment of the notes by such Subsidiary Guarantor and become a party to the
Security Documents. Each Subsidiary Guarantee will be a senior obligation of
the Subsidiary Guarantor issuing such Subsidiary Guarantee and will rank pari
passu in right of payment with all Guarantor Senior Indebtedness of such
Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited so as to not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--The notes may not be
enforceable under federal and state fraudulent conveyance laws that allow
courts, under certain circumstances, to void guarantees and require the return
of payments received from guarantors."
Any such Guarantee by a Subsidiary of the notes will provide by its terms
that it will be automatically and unconditionally released and discharged upon
either:
(i) the release or discharge of such Guarantee of such other
Indebtedness, except a discharge by or as a result of payment under such
Guarantee; or
(ii) any sale, exchange or transfer, to any Person not an Affiliate of
the Company, of all of the Company's Capital Interests in, or all or
substantially all the assets of, such Subsidiary, which sale, exchange or
transfer is made in compliance with the applicable provisions of the
indenture.
The form of such Guarantee will be attached as an exhibit to the indenture.
A Subsidiary Guarantor may not consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person (other than the Company or a Subsidiary Guarantor), unless;
(i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor, pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the trustee, under the notes and the indenture;
and
(ii) the Net Proceeds of that transaction are applied in accordance with
the Asset Sale provisions described above under the caption "--Repurchase
at the Option of Holders--Asset Sales."
49
The indenture will provide that the Subsidiary Guarantee of a Subsidiary
Guarantor will be automatically released:
(i) in connection with any sale or other disposition of all or
substantially all of the assets of that Subsidiary Guarantor to an entity
that is not, either before or after giving effect to that transaction, a
Subsidiary of the Company, if the Subsidiary Guarantor applies the Net
Proceeds of that sale or other disposition in accordance with the "Asset
Sales" provisions described under "Repurchase at the Option of Holders--
Asset Sales;"
(ii) in connection with any sale or other disposition of all of the
capital stock of that Subsidiary Guarantor to an entity that is not, either
before or after giving effect to that transaction, a Subsidiary of the
Company, if the Company applies the Net Proceeds of that sale in accordance
with the "Asset Sales" provisions described under "Repurchase at the Option
of Holders--Asset Sales;"
(iii) upon Legal Defeasance or Covenant Defeasance;
(iv) if the Company properly designates any Restricted Subsidiary that
is a Subsidiary Guarantor as an Unrestricted Subsidiary; or
(v) if the Subsidiary Guarantor is no longer a borrower under or a
Subsidiary Guarantor of the Revolving Credit Facility.
Events of Default and Remedies
Each of the following is an Event of Default:
(i) default for 30 days in the payment when due of interest on or
liquidated damages, if any, with respect to the notes;
(ii) default in the payment of all or any part of the principal, or
premium, if any, on the notes when and as the same becomes due and payable
at maturity, upon redemption, by acceleration, or otherwise, including,
without limitation, the payment of the Change of Control payment or the
Asset Sale Offer Price, or otherwise;
(iii) failure by the Company or any of its Subsidiaries to observe or
perform in all material respects the covenants set forth in the indenture
described above under the captions "--Certain Covenants--Restricted
Payments," "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock," "--Certain Covenants--Liens" and "--Certain
Covenants--Merger, Consolidation or Sale of Assets;"
(iv) failure by the Company or any of its Subsidiaries to observe or
perform in all material respects any other covenant or agreement on the
part of the Company or such Subsidiary contained in the notes, the
indenture or the Security Documents if that failure is not remedied within
30 days after written notice is given to the Company by the trustee or to
the Company and the trustee by the holders of at least 25% in aggregate
principal amount of the notes then outstanding, specifying such default,
requiring that it be remedied and stating that such notice is a "Notice of
Default;"
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
indenture, if that default:
(A) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(B) results in the acceleration of such Indebtedness prior to its
express maturity,
50
and, in each of (A) and (B), the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more;
(vi) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $15.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(vii) except as permitted by the indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Subsidiary
Guarantor, or any Person acting on behalf of any Subsidiary Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee;
(viii) breach by the Company or any Subsidiary Guarantor of any material
representation or warranty or agreement in the Security Documents, the
repudiation by the Company or any Subsidiary Guarantor of any of its
obligations under the Security Documents or the unenforceability of all or
any part of the Security Documents against the Company or any Subsidiary
Guarantor for any reason; and
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due and
payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately and may take such other
actions and exercise such other remedies as are provided for in the indenture
and the Security Documents.
Holders of the notes may not enforce the indenture, the notes or the
Security Documents except as provided in the indenture or the Security
Documents. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from holders of the notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs prior to
February 1, 2006 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the notes prior to February 1, 2006, then the
premium specified in the indenture will also become immediately due and payable
to the extent permitted by law upon the acceleration of the notes.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or liquidated damages, if any, on, or the principal of, the notes, and
except as to payments required under the covenants described above under the
captions "--Repurchase at the Option of Holders--Change of Control" and "--
Repurchase at the Option of Holders--Asset Sales."
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the trustee a
statement specifying such Default or Event of Default.
51
No Personal Liability of Directors, Officers, Employees, Partners and
Stockholders
No director, officer, employee, incorporator, partner or stockholder of the
Company or any Subsidiary of the Company, as such, will have any liability for
any obligations of the Company or any Subsidiary Guarantor under the notes, any
Subsidiary Guarantee or the indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. Such waiver may not he
effective to waive liabilities under the federal securities laws, and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations with respect to the outstanding notes and the Subsidiary
Guarantors' obligations under the Subsidiary Guarantees discharged ("Legal
Defeasance") except for:
(i) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium and liquidated damages, if any, and
interest on such notes when such payments are due from the trust referred
to below;
(ii) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(iii) the rights, powers, trusts, duties and immunities of the trustee,
and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations will not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and non-
callable Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and liquidated damages, if any, and
interest on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must
specify whether the notes are being defeased to maturity or to a particular
redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling
or (B) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel will confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to the trustee confirming that the holders of the
52
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company shall have delivered to the trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(vii) the Company must deliver to the trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(viii) the Company must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for in the indenture relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen
or destroyed notes that have been replaced or paid and notes for
whose payment money has been deposited in trust and thereafter
repaid to the Company, have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of
a notice of redemption or otherwise or will become due and payable
within one year and the Company or any Subsidiary Guarantor has
irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust solely for the benefit of the holders, cash in
U.S. dollars, non-callable Government Securities, or a combination
of cash in U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and liquidated damages, if any,
and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or any Subsidiary
Guarantor is a party or by which the Company or any Subsidiary Guarantor is
bound;
(3) the Company or any Subsidiary Guarantor has paid or caused to be
paid all sums payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an opinion
of counsel to the trustee stating that all conditions precedent to satisfaction
and discharge have been satisfied.
53
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. The Company is not required to transfer or exchange any note
selected for redemption. Also, the Company is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture, the
notes, the Security Documents and the Subsidiary Guarantees may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the notes then outstanding voting as a single class
(including consents obtained in connection with a tender offer or exchange
offer for notes), and any existing Default or compliance with any provision of
the indenture, the Subsidiary Guarantees, the Security Documents or the notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding notes (including consents obtained in connection with a
tender offer or exchange offer for notes). In addition, without the consent of
the holders of at least 85% in aggregate principal amount of the notes then
outstanding, an amendment or waiver may not make any change to, or be effective
with respect to any of the provisions of the indenture or Security Documents
relating to the Collateral.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(i) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes;
(iii) reduce the rate of or change the time for payment of interest or
liquidated damages, including default interest, on any note;
(iv) waive a Default or Event of Default in the payment of principal of
or premium or liquidated damages, if any, interest on the notes including,
without limitation, payment of the Change of Control payment or the Asset
Sale Offer Price (except a rescission of acceleration of the notes by the
holders of at least a majority in aggregate principal amount of the then
outstanding notes and a waiver of the payment default that resulted from
such acceleration);
(v) make any note payable in money other than that stated in the notes;
(vi) make any change in the provisions of the indenture relating to
waivers of Defaults or the rights of holders of notes to receive payments
of principal of or premium or liquidated damages, if any, or interest on
the notes;
(vii) waive a redemption payment with respect to any note; or
(viii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Company, the Guarantors and the trustee (or, with respect to the Security
Documents, the Collateral Agent, at the written direction of the trustee) may
amend or supplement the indenture, the notes, the Security Documents or any
Subsidiary Guarantee:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated notes in addition to or in place of
certificated notes;
(iii) to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to holders of notes in the case of a merger,
consolidation or sale of all or substantially all of the Company's assets;
54
(iv) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not materially adversely
affect the legal rights under the indenture of any such holder,
(v) to allow any Guarantor to execute a Supplemental Indenture and/or a
Subsidiary Guarantee with respect to the Notes;
(vi) to provide for Liens securing the notes in accordance with the
"Liens" covenant; or
(vii) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture
Act.
Concerning the Trustee
If the trustee becomes a creditor of the Company, the indenture limits its
rights to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and is continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Impairment of Security Interest
The Company shall not, and shall not permit any of its Subsidiaries to take,
or knowingly or negligently omit to take any action, which action or omission
might or would have the result of materially impairing the security interest in
favor of the trustee on behalf of the holders of the notes with respect to the
Collateral, and the Company shall not grant to any person (other than the
trustee on behalf of the holders of the notes) any interest whatsoever in the
Collateral (other than as permitted by the Security Documents).
Release of Collateral
Upon compliance by the Company with (i) the conditions set forth under the
heading "--Asset Sale Release" or (ii) the conditions set forth above with
respect to satisfaction and discharge, and upon delivery by the Company to the
trustee of an Opinion of Counsel to the effect that such conditions have been
met, the trustee will, with respect to clause (i) above, release the Released
Interest (as defined below) and with respect to clause (ii) above, release all
of the Collateral, in each case from the Lien of the Security Documents and re-
convey the Released Interest to the Company.
Asset Sale Release
The Company has the right to obtain a release of items of Collateral (the
"Released Interest") subject to an Asset Sale upon compliance with the
condition that the Company deliver to the trustee the following:
(a) a notice from the Company requesting the release of the Released
Interests, (i) describing the proposed Released Interests, (ii) specifying
the value of such Released Interests on a date within 60 days of such
notice (the "Valuation Date"), (iii) stating that the purchase price
received is at least equal to the fair market value of the Released
Interests, (iv) stating that the release of such Released Interests will
not interfere with the trustee's ability to realize the value of the
remaining Collateral and will not impair the maintenance and operation of
the remaining Collateral and (v) certifying that such Asset Sale complies
with the terms and conditions of the indenture with respect thereto;
55
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person;
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, provided that such Indebtedness was not incurred in contemplation
of such other Person merging with or into or becoming a Subsidiary of such
specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, provided that such Indebtedness was not incurred in
contemplation of such acquisition.
"Acquired Assets" means all those assets acquired by the Company or any
Subsidiary of the Company pursuant to the Acquisition Agreement.
"Acquisition Agreement" means the Purchase Agreement, dated as of October
30, 2000, by and between Conopco, Inc. and the Company, as subsequently
amended, and the agreements entered into in connection therewith, in each case
as in effect on the date of the indenture.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling." "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person will
be deemed to be control.
"Asset Sale" means:
(a) the sale, lease, conveyance or other disposition of any assets
(including, without limitation, by way of a sale and leaseback or by way of
merger, consolidation or similar transaction) other than sales of inventory
in the ordinary course of business consistent with past practices (provided
that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken
as a whole will be governed by the provisions of the indenture described
above under the caption""--Repurchase at the Option of Holders--Change of
Control" and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant);
(b) the issuance of Equity Interests in any of the Company's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries; and
(c) the disposition by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of any of
clauses (a), (b) or (c), whether in a single transaction or a series of
related transactions, (i) that have a fair market value in excess of $1.0
million, or (ii) for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following will not be deemed to be asset
sales:
(i) a transfer of assets by the Company to a Subsidiary Guarantor, or by
a Restricted Subsidiary to the Company or to a Restricted Subsidiary;
(ii) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
56
(iii) a Permitted Investment or a Restricted Payment that is permitted
by the covenant described above under the caption "--Certain Covenants--
Restricted Payments;" and
(iv) sales of inventory, accounts receivable or other current assets in
the ordinary course of business of the Company.
"Board of Directors" means the Board of Directors of the Person or any
authorized committee of the Board of Directors, except that for the purposes of
the definitions of the terms "Change of Control" and "Continuing Directors,"
the term "Board of Directors" shall mean the entire Board of Directors of the
Company and not any authorized committee of the Board of Directors.
"Borrowing Base" means, as of any date, an amount equal to:
(i) 85% of the face amount of all accounts receivable owned by the
Company and its Domestic Subsidiaries as of such date that are not more
than 90 days past due; plus
(ii) 65% of the book value (calculated on an average cost basis) of all
inventory owned by the Company and its Domestic Subsidiaries as of such
date.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Company may utilize the most
recent available information for purposes of calculating the Borrowing Base.
"Capital Interests" means:
(i) in the case of a corporation, corporate stock;
(ii) in the case of an association or other business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(iii) in the case of a partnership, partnership interests (whether
general or limited); and
(iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Cash Equivalents" means:
(i) United States dollars;
(ii) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition;
(iii) certificates of deposit and Eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits or demand deposits, in each case with any lender party to any
Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $1.0 billion;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the
qualifications specified in clause (iii) above;
(v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Service, a division of
The McGraw-Hill Companies, Inc. and in each case maturing within six months
after the date of acquisition; and
57
(vi) investments in money market funds all of whose assets comprise
securities of the types described in clauses (i), (ii) and (iii) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the Principals
or their Related Parties (as defined below));
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(iii) the consummation of any transaction or series of transactions
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above) (other than the Principals
and their Related Parties) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of (a) 35% or more of the voting Capital Interests of the
Company and (b) more of the voting Capital Interests of the Company than
are, in the aggregate, beneficially owned by the Principals and their
Related Parties at the time of such consummation; or
(iv) the first day on which a majority of the members of the Board of
Directors are not Continuing Directors.
For purposes of this definition, any transfer of an equity interest of an
entity that was formed for the purpose of acquiring voting Capital Interests of
the Company will be deemed to be a transfer of such portion of such voting
Capital Interests as corresponds to the portion of the equity of such entity
that has been so transferred.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period
plus:
(i) an amount equal to any extraordinary loss plus any net loss realized
in connection with an Asset Sale (to the extent such losses were deducted
in computing such Consolidated Net Income); plus
(ii) the provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income;
plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letters of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income; plus
(iv) all items classified as "depreciation" or "amortization" on such
Person's statement of operations and other non-cash charges (including non-
cash, equity-based compensation charges, but excluding any non-cash charge
to the extent that it represents an accrual of or reserve for cash charges
in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other
non-cash charges were deducted in computing such Consolidated Net Income.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-
58
cash charges of, a Restricted Subsidiary of the referent Person will be
added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted
at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its organizational documents and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income (or net loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Restricted Subsidiary of the
Person;
(ii) the Net Income (or net loss) of any Restricted Subsidiary will be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income (or
net loss) is not at the date of determination permitted without prior
government approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its organizational documents and
all agreements (other than those agreements permitted by clauses (1), (2),
(3), (5), (6), (7), (8) and (9) of the "--Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant), judgments,
decrees, orders, statutes, rules or governmental regulations applicable to
that Restricted Subsidiary or its stockholders;
(iii) the Net Income (or net loss) of any Person acquired in a pooling
of interests transaction for any period prior to the date of such
acquisition will be excluded;
(iv) the cumulative effect of a change in accounting principles will be
excluded;
(v) Consolidated Net Income will not include any gain (or loss),
together with any related provision for taxes on such gain (or loss),
realized in connection with (A) any Asset Sale or (B) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries;
(vi) Consolidated Net Income will not include any extraordinary or
nonrecurring gain (or loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (or loss); and
(vii) the Net Income (or net loss) of any Unrestricted Subsidiary will
be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who:
(i) was a member of such Board of Directors on the date of the
indenture; or
(ii) was nominated for election or elected to such Board of Directors
with the approval of (a) a majority of the Principals who were beneficial
owners of voting Capital Interests of the Company at the time of such
nomination or election or (b) a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election.
"Credit Facility" means any credit facility (including, without limitation,
any euro denominated facility) entered into by and among the Company, any
Subsidiary Guarantor and the lenders party thereto, including any credit
agreement, related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, extended, replaced or refinanced from
time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
59
"Disqualified Stock" means any Equity Interest that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Equity Interest),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder of the Equity Interest, in whole or in part, on or prior
to the date that is 91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Equity Interests that would
constitute Disqualified Stock solely because the holders of the Equity
Interests have the right to require the Company to repurchase such Equity
Interests upon the occurrence of a change of control or an asset sale will not
constitute Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security that
is convertible into, or exchangeable for, Capital Interests).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries in existence on the date of the indenture, until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of:
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount (other than original
issue discount arising from the sale of units consisting of Indebtedness
and other securities), non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letters of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations);
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period;
(iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon); and
(iv) the product of (a) the amount of dividends or distributions paid,
whether or not in cash, in respect of preferred stock or preferred Equity
Interests of such Person, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal,
in the case of clauses (i) through (iv), determined on a consolidated basis
and, in the case of clauses (i) through (iii), determined in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving borrowings under any Credit Facility) or
issues or redeems preferred Equity Interests subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but on
or prior to
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the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred Equity Interests, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
For purposes of making the computation referred to above:
(i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period;
(ii) the Consolidated Cash flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of on or prior to the Calculation Date, shall be excluded; and
(iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of on or prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Subsidiaries following the
Calculation Date.
"Foreign Borrowing Base" means, as of any date, an amount equal to:
(i) 85% of the face amount of all accounts receivable owned by Foreign
Subsidiaries of the Company as of such date that are not more than 90 days
past due; plus
(ii) 65% of the book value (calculated on an average cost basis) of all
inventory owned by Foreign Subsidiaries of the Company as of such date.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Company may utilize the most
recent available information for purposes of calculating the Foreign Borrowing
Base.
"Foreign Credit Facilities" means any credit facility (including, without
limitation, any euro denominated facility) entered into by and among any
Foreign Subsidiary and the lenders thereto, including any credit agreement,
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, restated,
modified, renewed, refunded, extended, replaced or refinanced from time to
time.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company formed
under the laws of any jurisdiction other than the United States or any
political subdivision thereof substantially all of the assets of which are
located outside of the United States or that conducts substantially all of its
business outside of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor Senior Indebtedness" means any Indebtedness permitted to be
incurred by any Subsidiary Guarantor under the terms of the indenture, unless
the instrument under which such Indebtedness is incurred
61
expressly provides that it is subordinated in right of payment to such
Subsidiary Guarantor's Subsidiary Guarantee. Notwithstanding the foregoing,
Guarantor Senior Indebtedness shall not include:
(i) any Obligation of such Subsidiary Guarantor to any Subsidiary of
such Subsidiary Guarantor;
(ii) any liability for federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor;
(iii) any accounts payable or other liability to trade creditors arising
in the ordinary course of business of the Subsidiary Guarantor (including
Guarantees thereof or instruments evidencing such liabilities);
(iv) any Indebtedness, Guarantee or Obligation of the Subsidiary
Guarantor that is contractually subordinated or junior in any respect to
any other Indebtedness, Guarantee or Obligation of such Subsidiary
Guarantor; or
(v) any Indebtedness incurred in violation of the indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates; and
(iii) agreements entered into for the purpose of fixing or hedging the
risks associated with fluctuations in foreign currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent:
(i) in respect of borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(iii) in respect of banker's acceptances;
(iv) representing Capital Lease Obligations; and
(v) the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability on a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness
of others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person or its
Subsidiaries in accordance with GAAP), advances or capital contributions
(excluding commission, travel expenses and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration consisting of Indebtedness, Equity Interests or
other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common Equity Interests of the Company will
not be deemed to be an Investment to the extent of that consideration.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under
62
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Miami Lakes Facility" means the land and buildings comprising the Company's
executive offices and distribution facility at 14100 N.W. 60th Avenue, Miami
Lakes, Florida 33014.
"Net Income" means, with respect to the Company, the net income (loss) of
the Company and its Restricted Subsidiaries, determined in accordance with
GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, regulatory compliance costs and sales commissions)
and any relocation expenses incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Senior Revolving Debt) secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness) or
(b) is directly or indirectly liable as a guarantor or otherwise;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment of the Indebtedness to be accelerated or payable prior to
its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means:
(i) any Investments in the Company or in a Restricted Subsidiary of the
Company that is engaged in the same or a similar or related line of
business as the Company and its Restricted Subsidiaries are permitted to
engage in under the "--Business Activities" covenant;
(ii) any Investments in Cash Equivalents;
(iii) Investments by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Company that is engaged in the same
or a similar or related line of business as the Company and its Restricted
Subsidiaries are permitted to engage in under the "--Business Activities"
covenant or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company that
is engaged in the same or a similar or related line of business as the
Company and its Restricted Subsidiaries are permitted to engage in under
the "--Business Activities" covenant;
(iv) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales;"
63
(v) Investments in endorsements of negotiable instruments and similar
negotiable documents in the ordinary course of business;
(vi) Investments existing on the date of the indenture;
(vii) Investments in obligations of account debtors to the Company or
any of its Subsidiaries and stock or obligations issued to the Company or
any such Subsidiary by any Person, in each case, in connection with the
insolvency, bankruptcy, receivership or reorganization of such Person or a
composition or readjustment of such Person's Indebtedness; and
(viii) other Investments in any one or more Persons that do not exceed
$20.0 million in the aggregate at any time outstanding.
"Permitted Liens" means
(i) Liens on accounts receivable and inventory securing Indebtedness
permitted to be incurred under clause (1) or clause (2) of the second
paragraph of the covenant described above under "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(ii) Liens in favor of the Company;
(iii) Liens to secure Indebtedness permitted to be incurred pursuant to
the first paragraph of the covenant described above under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock"
that is incurred to finance the acquisition of property or assets acquired
by the Company or any Subsidiary after the date of the indenture, so long
as such Indebtedness is incurred and the Lien securing such Indebtedness is
created within 90 days of such acquisition;
(iv) Liens on property of a Person existing at the time such Person is
merged into, consolidated with or acquired by the Company or any Subsidiary
of the Company; provided that such Liens were not incurred in contemplation
of such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with the Company or any
Subsidiary or those of an unrelated third party;
(v) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were not
incurred in contemplation of such acquisition;
(vi) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business of the Company or any
Subsidiary of the Company;
(vii) Liens to secure Indebtedness permitted by clause (7) of the second
paragraph of the covenant described above under "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock" covering
only the assets acquired, constructed or improved with such Indebtedness or
the Miami Lakes Facility, as the case may be;
(viii) Liens to secure Hedging Obligations permitted under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(ix) Liens existing on the date of the indenture;
(x) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently pursued,
provided that any reserve or other appropriate provision as is required in
conformity with GAAP shall have been made therefor;
(xi) Liens securing Permitted Refinancing Indebtedness, provided that
such Liens do not extend to or cover any assets or property other than the
collateral securing the Indebtedness to be refinanced;
(xii) Liens arising by operation of law in connection with judgments,
which do not give rise to an Event of Default with respect thereto;
64
(xiii) easements, rights of way, zoning restrictions and other similar
encumbrances or title defects which do not materially detract from the
value of the property or the assets subject thereto or interfere with the
ordinary conduct of the business of the Company and its Subsidiaries, taken
as a whole;
(xiv) Liens on sales of inventory, accounts receivable or other current
assets arising in the ordinary course of business;
(xv) Liens incurred in the ordinary course of business of the Company or
any Subsidiary of the Company with respect to obligations that (A) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (B) do not in the aggregate materially detract from the value
of the property subject thereto or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; and
(xvi) Liens on assets of Unrestricted Subsidiaries that secure Non-
Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used or are to be used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries: provided
that
(i) the principal amount of such Permitted Refinancing Indebtedness does
not exceed the principal amount of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
accrued and unpaid interest, redemption premiums and other reasonable
expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(iii) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or
the Subsidiary Guarantees, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the notes or the Subsidiary Guarantees,
as applicable, on terms at least as favorable to the holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(iv) such Indebtedness is incurred either by the Company or by the
Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture
association, joint-stock company, trust, unincorporated organization, limited
liability corporation or government or other entity.
"Principals" means Rafael Kravec, E. Scott Beattie, J.W. Nevil Thomas, Fred
Berens, Richard C.W. Mauran and Unilever.
"Related Party" with respect to any Principal means (a) any spouse or
immediate family member of such Principal or (b) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (a).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
65
"Senior Indebtedness" means any Indebtedness which ranks pari passu in right
of payment with, and which is not expressly by its terms subordinated in right
of payment of principal, interest or premium or liquidated damages, if any, to
the notes, whether or not such Indebtedness is secured.
"Senior Revolving Debt" means revolving credit borrowings under any Credit
Facility.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the indenture; provided that each Subsidiary Guarantor will be deemed to be a
Significant Subsidiary.
"Subordinated Indebtedness" means any Indebtedness which is expressly by its
terms subordinated in right of payment of principal, interest, premium or
liquidated damages, if any, to the notes.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
Capital 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 or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination
thereof).
"Subsidiary Guarantor" means any Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the indenture, and
its successors and assigns.
"Unilever" means any of Unilever, N.V., Unilever PLC and their respective
Subsidiaries.
"Unilever Preferred Stock" means the Series D convertible preferred stock of
the Company issued to Unilever in connection with the Acquisition Agreement.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary will be
deemed to be incurred by a Restricted Subsidiary of the Company as
of such date and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified
66
Stock," the Company will be in default of such covenant. The Board of Directors
of the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will only be permitted if (1) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Disqualified Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the sum of the products obtained by multiplying (i) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by
(b) the then outstanding principal amount of such Indebtedness.
Form of Series B Notes
The certificates representing the Series B notes will be issued in fully
registered form, without coupons. Except as described in the next paragraph,
the Series B notes will be deposited with, or on behalf of, DTC, and registered
in the name of Cede & Co., as DTC's nominee, in the form of a global note.
Holders of the Series B notes will own book-entry interests in the global note
evidenced by records maintained by DTC.
Book-entry interests may be exchanged for certificated notes of like tenor
and equal aggregate principal amount, if
(1) DTC notifies us that it is unwilling or unable to continue as
depositary or we determine that DTC is unable to continue as depositary and
we fail to appoint a successor depositary within 90 days,
(2) we provide for the exchange pursuant to the terms of the indenture
or
(3) we determine that the book-entry interests will no longer be
represented by global notes and we execute and deliver to the Trustee
instructions to that effect.
As of the date of this prospectus, no certificated notes are issued and
outstanding.
67
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the exchange of Series A notes for Series B notes in
the exchange offer. It does not contain a complete analysis of all the
potential tax considerations relating thereto. This summary is limited to
holders of Series A notes who hold the Series A notes as "capital assets" (in
general, assets held for investment). Special situations, such as the
following, are not addressed:
. tax consequences to holders who may be subject to special tax treatment,
such as tax-exempt entities, dealers in securities or currencies,
financial institutions, insurance companies, regulated investment
companies, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings or corporations that
accumulate earnings to avoid U.S. federal income tax;
. tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle or
other risk reduction transaction;
. tax consequences to holders whose "functional currency" is not the U.S.
dollar;
. tax consequences to persons who hold notes through a partnership or
similar pass-through entity;
. tax consequences to holders who have ceased to be United States citizens
or to be taxed as resident aliens;
. alternative minimum tax consequences, if any; or
. any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations
promulgated thereunder, and rulings, judicial decisions and administrative
interpretations thereunder, as of the date hereof. Those authorities may be
changed, perhaps retroactively, so as to result in U.S. federal income tax
consequences different from those discussed below.
Consequences of Tendering Notes
The exchange of your Series A notes for Series B notes in the exchange offer
should not constitute a taxable exchange for federal income tax purposes.
Accordingly, the exchange offer should have no federal income tax consequences
to you. Your tax basis and holding period in the Series B notes should be the
same as your Series A notes.
The preceding discussion of certain U.S. federal income tax considerations
is for general information only and is not tax advice. Accordingly, each
investor should consult its own tax advisor as to particular tax consequences
to it of exchanging Series A notes for Series B notes, including the
applicability and effect of any state, local or foreign tax laws, and of any
proposed changes in applicable laws.
68
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B notes in the exchange offer for
its own account must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
notes. We reserve the right in our sole discretion to purchase or make offers
for, or to offer Series B notes for, any Series A notes that remain outstanding
subsequent to the expiration of the exchange offer pursuant to this prospectus
or otherwise and, to the extent permitted by applicable law, purchase Series A
notes in the open market, in privately negotiated transactions or otherwise.
This prospectus, as it may be amended or supplemented from time to time, may be
used by all persons subject to the prospectus delivery requirements of the
Securities Act, including broker-dealers in connection with resales of Series B
notes received in the exchange offer, where such notes were acquired as a
result of market-making activities or other trading activities and may be used
by us to purchase any notes outstanding after expiration of the exchange offer.
We have agreed that, for a period of 180 days after the expiration of the
exchange offer, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of Series B notes by broker-
dealers. Notes received by broker-dealers in the exchange offer for their own
account 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 Series B 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 Series B notes. Any broker-dealer that resells Series B
notes that were received by it in the exchange offer for its own account and
any broker or dealer that participates in a distribution of such notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of such 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 meeting the
requirements of the Securities Act, 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 of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer, including the reasonable fees and expenses of counsel to
the initial purchaser of the Series A notes, other than commissions or
concessions of any brokers or dealers and will indemnify holders of the notes,
including any broker-dealers, against certain liabilities, including
liabilities under the Securities Act.
69
LEGAL MATTERS
The validity of the notes will be passed upon for us by Weil, Gotshal &
Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements of French Fragrances, Inc.
incorporated in this prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended January 31, 2000 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The statement of the net assets to be sold and statements of net sales, cost
of sales and direct operating expenses as of December 31, 1999 and for each of
the three years in the period ended December 31, 1999 of the Elizabeth Arden
Skin, Color and Fragrance, Elizabeth Taylor Fragrance and White Shoulders
Fragrance Business incorporated in this Prospectus by reference to the
Elizabeth Arden, Inc. Definitive Proxy Statement (as filed with the SEC on
December 12, 2000) have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Separate financial information of the Guarantors has not been presented
since these Guarantors were recently created for purposes of the acquisition of
the Elizabeth Arden Business and were not in existence during the periods for
which financial information of the Company is presented.
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