Filed pursuant to Rule 424(b)(3)
File No. 333-83350
PROSPECTUS
[REVLON LOGO]
OFFER TO EXCHANGE $363,000,000 12% SENIOR SECURED NOTES DUE 2005 FOR
$363,000,000 12% SENIOR SECURED EXCHANGE NOTES DUE 2005, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OF
REVLON CONSUMER PRODUCTS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JUNE 13, 2002, UNLESS EXTENDED.
------------
Terms of the exchange offer:
o The exchange notes are being registered with the Securities and
Exchange Commission and are being offered in exchange for the original
notes that were previously issued in an offering exempt from the
Securities and Exchange Commission's registration requirements. The
terms of the exchange offer are summarized below and more fully
described in this prospectus.
o We will exchange all original notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
o You may withdraw tenders of original notes at any time prior to the
expiration of the exchange offer.
o The exchange of original notes will not be a taxable event for U.S.
federal income tax purposes. See "Certain United States Federal Income
Tax Consequences" on page 91 of this prospectus for more information.
o We will not receive any proceeds from the exchange offer.
o The terms of the exchange notes are substantially identical to the
original notes, except that the exchange notes are registered under the
Securities Act of 1933, as amended, and the transfer restrictions and
registration rights applicable to the original notes do not apply to the
exchange notes.
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF THE RISKS THAT
SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR ORIGINAL NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------
The date of this prospectus is May 13, 2002.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY REVLON
CONSUMER PRODUCTS CORPORATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF REVLON CONSUMER PRODUCTS CORPORATION
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE
INFORMATION CONTAINED IN THIS PROSPECTUS SPEAKS ONLY AS OF THE DATE OF THIS
PROSPECTUS UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
TABLE OF CONTENTS
PAGE
-----
Incorporation of Certain Documents by Reference .................................... i
Prospectus Summary ................................................................. 1
Risk Factors ....................................................................... 19
Use of Proceeds .................................................................... 30
Selected Historical and Unaudited Pro Forma Consolidated Financial Data of Revlon
Consumer Products Corporation ..................................................... 31
Selected Historical Consolidated Financial Data of Revlon, Inc. .................... 34
The Exchange Offer ................................................................. 37
Capitalization ..................................................................... 45
Description of Notes ............................................................... 46
Description of the Collateral and Intercreditor Arrangements ....................... 83
Description of Other Indebtedness .................................................. 87
Certain United States Federal Income Tax Consequences .............................. 91
Plan of Distribution ............................................................... 95
Legal Matters ...................................................................... 95
Independent Accountants ............................................................ 96
Where You Can Find More Information ................................................ 96
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are "incorporating by reference" the information we file with the SEC
into this prospectus, which means that we are disclosing important business and
financial information about us to you by referring you to another document
filed separately with the SEC. Certain information that Revlon files after the
date of this prospectus with the SEC will automatically update and supersede
this information. Revlon incorporates by reference into this prospectus the
documents listed below and any future filings made by Revlon with the SEC under
sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, until the completion of the offering of the exchange notes.
o Annual Report of Revlon Consumer Products Corporation on Form 10-K for
the year ended December 31, 2001, filed on February 25, 2002;
o Current Report on Form 8-K of Revlon Consumer Products Corporation filed
on May 13, 2002; and
o Annual Report of Revlon, Inc. on Form 10-K for the year ended December
31, 2001, filed on February 25, 2002.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this
i
prospectus to the extent that a statement contained in this prospectus or in
any subsequently filed document that is or is considered to be incorporated by
reference modifies or supersedes such statement. Any statement that is modified
or superseded shall not, except as so modified or superseded, constitute a part
of this prospectus.
You may request a copy of any of the documents which are incorporated by
reference in this prospectus, other than exhibits which are not specifically
incorporated by reference into such documents, at no cost, by writing or
telephoning us at the following address or phone number:
Revlon Consumer Products Corporation
625 Madison Avenue
New York, NY 10022
Telephone: (212) 527-4000
Attention: Investor Relations
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO
LATER THAN FIVE BUSINESS DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION.
ii
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the exchange notes we are offering, as
well as information regarding our business. We encourage you to read this
prospectus in its entirety. You should pay special attention to the "Risk
Factors" section beginning on page 19 of this prospectus. All references to
"we," "our," "ours," and "us," or "Revlon" in this prospectus are to Revlon
Consumer Products Corporation and its subsidiaries, unless otherwise indicated.
However, in the descriptions of the notes and related matters, these terms
refer solely to Revlon Consumer Products Corporation and not to any of our
subsidiaries. All United States market share and market position data herein
for our brands are based upon retail dollar sales, which are derived from AC
Nielsen data. AC Nielsen measures retail sales volume of products sold in the
United States mass-market distribution channel. Such data represent AC
Nielsen's estimates based upon data gathered by AC Nielsen from market samples
and are therefore subject to some degree of variance. Additionally, as of
August 4, 2001, AC Nielsen's data does not reflect sales volume from Wal-Mart,
Inc.
OUR COMPANY
We manufacture, market and sell an extensive array of cosmetics and skin
care, fragrances and personal care products. REVLON is one of the world's
best-known names in cosmetics and is a leading mass-market cosmetics brand. We
believe that our global brand name recognition, product quality and marketing
experience have enabled us to create one of the strongest consumer brand
franchises in the world. Our products are sold worldwide and are marketed under
such well-known brand names as REVLON, COLORSTAY, REVLON AGE DEFYING, and
SKINLIGHTS, as well as ALMAY and ULTIMA II in cosmetics; ALMAY Kinetin, VITAMIN
C ABSOLUTES, ETERNA 27, ULTIMA II and JEANNE GATINEAU in skin care; CHARLIE and
FIRE & ICE in fragrances; and HIGH DIMENSION, FLEX, MITCHUM, COLORSILK, JEAN
NATE and BOZZANO in personal care products. To further strengthen our consumer
brand franchises, we market each core brand with a distinct and uniform global
image, including packaging and advertising, while retaining the flexibility to
tailor products to local and regional preferences.
Revlon was founded by Charles Revson, who revolutionized the cosmetics
industry by introducing nail enamels matched to lipsticks in fashion colors
over 70 years ago. Today, we have leading market positions in a number of our
principal product categories, including the lip, face makeup and nail enamel
categories, in the U.S. mass-market distribution channel. We also have leading
market positions in several product categories in certain markets outside of
the United States, including in Australia, Canada, Mexico and South Africa. Our
products are sold in more than 100 countries across five continents.
1
The following table sets forth our principal brands and certain selected
products.
BRAND COSMETICS SKIN CARE FRAGRANCES PERSONAL CARE PRODUCTS
- ------------- ---------------------- ------------------ ------------------ -----------------------
REVLON Revlon Eterna 27 Charlie High Dimension
ColorStay Vitamin C Ciara Colorsilk
Revlon Age Defying Absolutes Fire & Ice Frost & Glow
Super Lustrous Revlon Absolutes Absolutely Colorstay
Moon Drops Fabulous Flex
New Complexion Outrageous
Absolutely Fabulous Aquamarine
Line & Shine Mitchum
Skinlights Lady Mitchum
Super Top Speed Hi & Dri
Shine Control Jean Nate
Mattifying Revlon Beauty Tools
High Dimension
Illuminance
Wet/Dry
Everylash
StreetWear
ALMAY Almay Time-Off Almay Kinetin Almay
Amazing Almay MilkPlus
One Coat
Skin Stays Clean
Beyond Powder
Organic Fluoride Plus
ULTIMA II Ultima II Glowtion U II Sheer Scent
Beautiful Nutrient Vital Radiance Ultimately U
Wonderwear CHR
Full Moisture LightCaptor-C
Glowtion
Pucker & Pout
Ultimate Edition
SIGNIFICANT Jeanne Gatineau Jeanne Gatineau Bozzano
REGIONAL Cutex Juvena
BRANDS
STRATEGIC PLAN
In 1999 and 2000, we faced a number of strategic challenges. New product
development and introductions slowed down. Our advertising, historically
created and executed by an in-house advertising agency, became somewhat stale
and dated resulting in diminished effectiveness. We had excess manufacturing
capacity as a number of facilities were substantially underutilized. Our
overhead was too high as a percentage of our net sales. In 2001, we initiated a
strategic plan aimed at capitalizing on our significant core strengths, growing
the sales of our products to consumers (also known as "sell-through" or
"consumption") and improving our profitability. Leveraging our strong brand
equity, we have been successful in implementing several key elements of this
plan.
2
We:
o reinvigorated our new product development process and launched four
major new products. Our market share for the Revlon brand from new color
cosmetics products in the United States was approximately 2.5% in the
year ended December 31, 2001, which is more than double the market share
that our new products achieved in the comparable period in 2000;
o closed our in-house advertising division and retained prominent
advertising agencies for our Revlon and Almay brands;
o implemented revised trade terms which have reduced sales returns,
allowances and discounts in our ongoing operations (which is described
under the caption "Summary Ongoing Consolidated Financial Data") by
approximately 20% for the year ended December 31, 2001 versus the
comparable period in 2000;
o reduced departmental general and administrative expenses in our ongoing
operations from $380.7 million in 1999 to $280.4 million in 2001; and
o reduced manufacturing and warehousing square footage by 55% since
November 2000.
New Product Development. One of our objectives was to reinvigorate our
brands by developing a pipeline of innovative new products. Historically, we
were a leader in new product development in mass market cosmetics. Based upon
AC Nielsen data, we believe that in the late 1990s consumption of our new
products substantially exceeded that of our competitors. Our objective is to
return to, as well as maintain, a leadership position in new product
innovation. During 2001, we created our most extensive line-up of new products
since COLORSTAY in the mid-1990s with major new product launches including
SKINLIGHTS skin brighteners, that brighten skin with sheer washes of color,
which created an entirely new category in color cosmetics; ABSOLUTELY FABULOUS
Lipcream, a new premium line of emollient-rich lip color; SUPER TOP SPEED nail
enamel, currently available in 48 shades, containing a patented speed drying
polymer formula which sets in 60 seconds; and ILLUMINANCE, an eyeshadow that
"brightens up eyes". Additionally, in 2001 we launched ALMAY Kinetin Skincare
Advanced Anti-Aging Series featuring Kinetin, a patented technology, and HIGH
DIMENSION hair color, a revolutionary 10-minute home permanent hair color,
compared to many of our competitors' home permanent hair color which require
two to three times as long. In addition, we have developed a pipeline of new
products for introduction in 2002.
New Advertising. We also sought to bring new energy to our brands by
making a fundamental shift in our advertising strategy. We had historically
used an in-house advertising division to create and execute our advertising. We
retained outside agencies and subsequently consolidated all advertising for the
Revlon and Almay brands with Deutsch Inc., to develop advertising campaigns for
a number of key new product launches and to energize our REVLON and ALMAY
brands, respectively. During the third quarter of 2001, we launched new
television and print advertising for REVLON HIGH DIMENSION haircolor.
Revised Trade Terms Creating More Profitable Trade Partnerships. In
December 2000, we introduced fundamental changes in the terms of trade we use
with our domestic retail partners intended to increase sell-through of our
products, reduce merchandise returns and claims for damages and drive market
growth. The revised trade terms have decreased inefficiencies for both Revlon
and our retail partners by reducing returns and associated costs. The aggregate
sales returns, allowances and discounts expense in our ongoing operations has
decreased to $243.9 million in the year ended December 31, 2001 from $306.2
million during 2000. We are also in the process of implementing improved point
of sale data collection methods, which we believe will allow us to more
effectively monitor sales, returns and sell-through. The revised terms of trade
became effective January 1, 2001 and include:
3
o incentives to retailers to encourage more efficient ordering and lower
return rates;
o establishment of a flat off-invoice allowance for damages, eliminating
expensive handling of returns of damaged products;
o a new approach to discontinuing stock keeping units (SKUs) including
providing retailers with advance notice, allowances encouraging
sell-through of the discontinued SKUs and limiting returns credits; and
o providing cooperative allowances and market development funds based upon
consumer sell-through.
We have streamlined our sales operation by eliminating a level of sales
management. By redeploying those resources, we have nearly doubled the number
of merchandisers directly servicing our accounts in order to improve the
in-store appearance of our products and reduce out-of-stock positions for our
faster selling SKUs. In conjunction with the change of our plan-o-grams in the
second quarter of 2001, we effected the largest SKU reduction in Revlon's
history, which eliminated slower moving SKUs and created shelf space for faster
turning products.
Reducing Departmental Costs; Manufacturing Consolidation. Over the last
year we have taken a number of actions to substantially reduce costs and
increase efficiencies.
We have completed our plan to implement substantial reductions in our
domestic administrative expenses, principally through reductions in our overall
employee headcount, in order to redirect savings toward our other strategic
priorities. In 2000 and 2001, we reduced employee headcount in our ongoing
operations by a total of approximately 2,000 from the end of 1999. Departmental
general and administrative expenses for our ongoing operations has decreased
from $380.7 million in 1999 to $330.4 million in 2000 and to $280.4 million in
2001.
We also completed our global manufacturing rationalization and
consolidation plan in the third quarter of 2001. The restructuring plan was
designed to improve profitability by reducing personnel and consolidating
manufacturing facilities. Since November 2000, we have sold or closed
approximately 55% of our manufacturing and distribution facility square
footage, including:
o the closure of our manufacturing operations in Phoenix, Arizona and
Mississauga, Canada and the consolidation of our North American cosmetics
manufacturing into our Oxford, North Carolina facility; and
o the sale or closure of our manufacturing facilities in Auckland, New
Zealand, Maesteg, Wales (UK) and Sao Paulo, Brazil.
Plant capacity utilization at our remaining plants has been substantially
increased. In addition, we realized approximately $100.0 million in gross
proceeds during 2001 through the sale of non-core assets, which was used for
general corporate purposes, including repayment of debt.
Aligning Employee and Shareholder Interests. We have taken a more focused
approach to aligning employee and shareholder interests intended to improve
profitability. We are implementing programs that are structured to deliver
rewards to employees who significantly drive performance results and enhance
shareholder value. We have issued stock options and restricted stock awards to
key employees during the course of 2001, the value of which would increase
based upon improved company-wide performance.
RECENT DEVELOPMENTS
Effective February 14, 2002, our former President and Chief Executive
Officer, Jeffrey M. Nugent, resigned his employment with us. During Mr.
Nugent's tenure as Chief Executive Officer, we accomplished the goals of
lowering costs overall and improving operational efficiency across the
enterprise, creating a platform for future growth. On February 19, 2002, we
announced the
4
appointment of Jack L. Stahl, former president and chief operating officer of
Coca-Cola Company, as our new President and Chief Executive Officer. Following
the appointment of Mr. Stahl, we have begun the process of reviewing and
evaluating our current business strategy.
THE REFINANCING TRANSACTIONS
On November 26, 2001, we issued and sold in a private placement $363
million in aggregate principal amount of the original notes, receiving gross
proceeds of $350.5 million.
On November 30, 2001, we completed the refinancing of our existing credit
facility by entering into the 2001 credit agreement, dated as of November 30,
2001 among us, those of our subsidiaries which are party thereto, the lenders
parties thereto, Citibank, N.A., as documentation agent, Lehman Commercial
Paper Inc., as syndication agent, J.P. Morgan Securities Inc., as sole arranger
and bookrunner, and JPMorgan Chase Bank, as administrative agent. The 2001
credit agreement provides up to $250.0 million in credit facilities and
consists of a $117.9 million term loan facility and a $132.1 million
multi-currency revolving credit facility. The issuance of the original notes
and the 2001 credit agreement are referred to as the "Refinancing
Transactions." The 2001 credit agreement is secured on a first-priority basis
by, with certain limited exceptions, our capital stock, substantially all of
our non-real property assets in the United States, our facility in Oxford,
North Carolina, the capital stock of our domestic subsidiaries and 66% of the
capital stock of our first-tier foreign subsidiaries. Our obligations under the
2001 credit agreement are guaranteed by Revlon, Inc. and, subject to certain
limited exceptions, by our domestic subsidiaries.
The proceeds from the original notes and borrowings under the 2001 credit
agreement were used by us to repay outstanding indebtedness under our previous
credit agreement and fees and expenses of the Refinancing Transactions and the
balance is available to us for general corporate purposes.
* * *
Our principal executive offices are located at 625 Madison Avenue, New
York, New York 10022. Our telephone number is (212) 527-4000.
5
The following sets forth a summary organizational chart for Revlon.
-------------------------------------
Mafco Holdings Inc.
("Mafco Holdings")
-------------------------------------
|
| 100%
|
-------------------------------------
MacAndrews & Forbes
Holdings Inc.
("MacAndrews Holdings")
-------------------------------------
|
| 100%
|
-------------------------------------
REV Holdings Inc.
("REV Holdings")
-------------------------------------
|
| 83%*
|
-------------------------------------
Revlon, Inc.
-------------------------------------
|
| 100%
|
-------------------------------------
REVLON CONSUMER PRODUCTS
CORPORATION
-------------------------------------
|
|
|
-------------------------------------
Operating Subsidiaries of Revlon
Consumer Products Corporation
-------------------------------------
* REV Holdings currently beneficially owns 11,650,000 shares of the
Class A common stock, par value $.01 per share, of Revlon, Inc.
(representing approximately 57% of the outstanding shares of Class A
common stock of Revlon, Inc.) and all of the outstanding 31,250,000
shares of Class B common stock, par value $.01 per share, of Revlon,
Inc., which together represent approximately 83.0% of the outstanding
shares of common stock of Revlon, Inc. REV Holdings also currently
beneficially owns all of the outstanding 4,333 shares of Series B
Convertible Preferred Stock, par value $.01 per share, of Revlon,
Inc. (each of which is entitled to 100 votes and each of which is
convertible into 100 shares of Class A common stock, which conversion
rights are subject to approval by Revlon, Inc.'s stockholders at its
2002 Annual Meeting of Stockholders), which, together with the Class
A common stock and Class B common stock, represents approximately
97.3% of the combined voting power of the outstanding shares of
common and preferred stock of Revlon, Inc.
6
SUMMARY OF THE EXCHANGE OFFER
On November 26, 2001, we completed the private offering of $363,000,000
aggregate principal amount of 12% senior secured notes due 2005. As part of
that offering, we entered into a registration agreement with the initial
purchasers of these original notes in which we agreed, among other things, to
deliver this prospectus to you and to complete an exchange offer for the
original notes. Below is a summary of the exchange offer.
SECURITIES OFFERED.......... Up to $363,000,000 aggregate principal amount
of new 12% senior secured exchange notes due
2005, which have been registered under the
Securities Act. The form and terms of these
exchange notes are identical in all material
respects to those of the original notes. The
exchange notes, however, will not contain
transfer restrictions and registration rights
applicable to the original notes.
THE EXCHANGE OFFER.......... We are offering to exchange $1,000 principal
amount of our 12% senior secured exchange notes
due 2005, which have been registered under the
Securities Act, for each $1,000 principal amount
of our outstanding 12% senior secured notes due
2005.
In order to be exchanged, an original note must
be properly tendered and accepted. All original
notes that are validly tendered and not
withdrawn will be exchanged. As of the date of
this prospectus, there are $363,000,000
principal amount of original notes outstanding.
We will issue exchange notes promptly after the
expiration of the exchange offer.
RESALES..................... Based on interpretations by the staff of the
SEC, as detailed in a series of no-action letters
issued to third parties, we believe that the
exchange notes issued in the exchange offer may
be offered for resale, resold or otherwise
transferred by you without compliance with the
registration and prospectus delivery requirements
of the Securities Act as long as:
o you are acquiring the exchange notes in the
ordinary course of your business;
o you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in a distribution of the exchange notes; and
o you are not an affiliate of ours.
If you are an affiliate of ours, are engaged in
or intend to engage in or have any arrangement
or understanding with any person to participate
in the distribution of the exchange notes:
o you cannot rely on the applicable
interpretations of the staff of the SEC; and
o you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
7
Each broker or dealer that receives exchange
notes for its own account in exchange for
original notes that were acquired as a result of
market-making or other trading activities must
acknowledge that it will comply with the
registration and prospectus delivery
requirements of the Securities Act in connection
with any offer to resell, resale, or other
transfer of the exchange notes issued in the
exchange offer, including the delivery of a
prospectus that contains information with
respect to any selling holder required by the
Securities Act in connection with any resale of
the exchange notes.
Furthermore, any broker-dealer that acquired any
of its original notes directly from us:
o may not rely on the applicable interpretation
of the staff of the SEC's position contained in
Exxon Capital Holdings Corp., SEC no-action
letter (May 13, 1988), Morgan, Stanley & Co.
Inc., SEC no-action letter (June 5, 1991) and
Shearman & Sterling, SEC no-action letter (July
2, 1993); and
o must also be named as a selling noteholder in
connection with the registration and prospectus
delivery requirements of the Securities Act
relating to any resale transaction.
EXPIRATION DATE............. 5:00 p.m., New York City time, on June 13, 2002
unless we extend the expiration date.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND
ORIGINAL NOTES............. The exchange notes will bear interest from the
most recent date to which interest has been paid
on the original notes. Interest is paid on the
notes on June 1 and December 1 of each year,
beginning June 1, 2002. If your original notes
are accepted for exchange, then you will receive
interest on the exchange notes and not on the
original notes.
CONDITIONS TO THE
EXCHANGE OFFER.............. The exchange offer is subject to customary
conditions. We may assert or waive these
conditions in our sole discretion. If we
materially change the terms of the exchange
offer, we will resolicit tenders of the original
notes. See "The Exchange Offer -- Conditions to
the Exchange Offer" for more information
regarding conditions to the exchange offer.
PROCEDURES FOR TENDERING
ORIGINAL NOTES............. Except as described in the section titled "The
Exchange Offer -- Guaranteed Delivery
Procedures," a tendering holder must, on or prior
to the expiration date:
o transmit a properly completed and duly executed
letter of transmittal, including all other
documents required by the letter of
transmittal, to the exchange agent at the
address listed in this prospectus; or
8
o if original notes are tendered in accordance
with the book-entry procedures described in
this prospectus, the tendering holder must
transmit an agent's message to the exchange
agent at the address listed in this prospectus.
See "The Exchange Offer -- Procedures for
Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS......... If you are the beneficial holder of original
notes that are registered in the name of your
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender in the
exchange offer, you should promptly contact the
person in whose name your original notes are
registered and instruct that person to tender on
your behalf. See "The Exchange Offer --
Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES.................. If you wish to tender your original notes and you
cannot deliver your original notes, the letter of
transmittal or any other required documents to
the exchange agent before the expiration date,
you may tender your original notes by following
the guaranteed delivery procedures under the
heading "The Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time before
5:00 p.m., New York City time, on the expiration
date.
ACCEPTANCE OF ORIGINAL NOTES
AND DELIVERY OF
EXCHANGE NOTES.............. Subject to the conditions stated in the section
"The Exchange Offer -- Conditions to the Exchange
Offer" of this prospectus, we will accept for
exchange any and all original notes which are
properly tendered in the exchange offer before
5:00 p.m., New York City time, on the expiration
date. The exchange notes will be delivered
promptly after the expiration date. See "The
Exchange Offer -- Terms of the Exchange Offer."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES.... Your exchange of original notes for exchange
notes to be issued in the exchange offer will not
result in any gain or loss to you and the
exchange notes will be treated as a continuation
of the original notes for U.S. federal income tax
purposes. See "Certain United States Federal
Income Tax Consequences."
EXCHANGE AGENT.............. Wilmington Trust Company is serving as exchange
agent in connection with the exchange offer. The
address and telephone number of the exchange
agent are listed under the heading "The Exchange
Offer -- Exchange Agent."
USE OF PROCEEDS............. We will not receive any proceeds from the
issuance of exchange notes in the exchange offer.
We will pay all expenses incident to the exchange
offer. See "Use of Proceeds."
9
SUMMARY OF TERMS OF THE NOTES
The form and terms of the exchange notes and the original notes are
identical in all material respects, except that the transfer restrictions and
registration rights applicable to the original notes do not apply to the
exchange notes. The exchange notes will evidence the same debt as the original
notes and will be governed by the same indenture.
EXCHANGE NOTES OFFERED...... $363,000,000 aggregate principal amount of 12%
senior secured exchange notes due 2005.
MATURITY DATE............... December 1, 2005
INTEREST PAYMENT DATES...... June 1 and December 1 of each year, beginning
June 1, 2002.
RANKING..................... The original notes are and the exchange notes
will be senior secured debt. Your right to
payment under the notes will be:
o pari passu with any of our present and
future senior indebtedness and other
liabilities which are not by their terms
specifically subordinate to the notes,
including, without limitation, indebtedness
under the 2001 credit agreement, the 8 1/8%
Senior Notes due 2006, the 9% Senior Notes
due 2006 and trade payables;
o senior to all the present and future
subordinated indebtedness of ours and of the
guarantors, including the 8 5/8% Senior
Subordinated Notes; and
o effectively subordinated to all indebtedness
and other liabilities of our non-guarantor
subsidiaries, including their trade
payables.
As of December 31, 2001, our total senior
indebtedness and other liabilities which rank
pari passu with the notes was approximately
$1,140.8 million (excluding the notes and
intercompany liabilities of approximately $425.5
million payable by us, offset by intercompany
receivables of approximately $769.1 million
payable to us) and the total indebtedness and
other liabilities (excluding intercompany
liabilities of approximately $418.3 million
payable by our non-guarantor subsidiaries,
offset by intercompany receivables of
approximately $248.3 million payable to our
non-guarantor subsidiaries) of our non-guarantor
subsidiaries was approximately $108.4 million.
The notes will have the benefit of the
second-priority security interests described
under "Collateral."
The guarantees of Revlon, Inc. and each of our
domestic subsidiaries that guarantee the notes
will be senior secured obligations of those
guarantors. Your right to payment under the
guarantees will be:
o pari passu with any present and future
senior indebtedness and other liabilities of
the guarantors, including guarantees of our
indebtedness under the 2001 credit agreement
and trade payables, that are not by their
terms expressly subordinated to the
guarantees;
10
o senior to present and future subordinated
obligations of the guarantors; and
o effectively subordinated to all indebtedness
and other liabilities of the non-guarantor
subsidiaries of such guarantors, including
their trade payables.
As of December 31, 2001, the total senior
indebtedness and other liabilities of Revlon,
Inc. which rank pari passu with Revlon, Inc.'s
guarantee of the notes was approximately $117.8
million (excluding the notes), consisting of its
guarantee of our outstanding liabilities under
the 2001 credit agreement. As of December 31,
2001, the total senior indebtedness and other
liabilities of the subsidiary guarantors which
rank pari passu with the subsidiary guarantors
guarantees of the notes was approximately $148.1
million (excluding intercompany liabilities of
approximately $560.7 million payable by our
subsidiary guarantors, offset by intercompany
receivables of approximately $387.1 million
payable to our subsidiary guarantors), including
their guarantee of $117.8 million of our
outstanding liabilities under the 2001 credit
agreement and $30.3 million of other
indebtedness and liabilities. As of December 31,
2001, the total indebtedness and other
liabilities of our non-guarantor subsidiaries
(excluding intercompany liabilities of
approximately $418.3 million payable by our
non-guarantor subsidiaries, offset by
intercompany receivables of approximately $248.3
million payable to our non-guarantor
subsidiaries) was approximately $108.4 million.
OPTIONAL REDEMPTION......... Prior to December 1, 2005, we may redeem the
notes at our option in whole or in part at a
redemption price equal to the sum of (i) the then
outstanding principal amount of notes to be
redeemed plus (ii) accrued and unpaid interest
(if any) to the date of redemption, plus (iii)
the greater of (a) 1.0% of the then outstanding
principal amount of notes to be redeemed and (b)
the excess of (1) the sum of the present values
of the remaining scheduled payments of principal
and interest in respect of the notes to be
redeemed discounted to the date of redemption at
the applicable treasury rate plus 75 basis
points, over (2) the then outstanding principal
amount of notes to be redeemed. See "Description
of Notes -- Optional Redemption."
CERTAIN COVENANTS........... The indenture governing the notes contains
covenants that, among other things, limit (i) our
ability to issue additional debt and redeemable
stock, (ii) our ability to incur liens, (iii) the
ability of our subsidiaries to issue debt and
preferred stock, (iv) our ability and the ability
of our subsidiaries to pay dividends on capital
stock and our ability to redeem capital stock,
(v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii)
consolidations, mergers and transfers of all or
substantially all of our assets. The
11
indenture also prohibits certain restrictions on
distributions from subsidiaries.
These covenants are subject to important
exceptions and qualifications, which are
described in the "Description of Notes" section
of this prospectus.
CHANGE OF CONTROL........... Upon a change of control (as defined under
"Description of Notes"), each holder of the notes
will have the right to require us to make an
offer to repurchase all or a portion of such
holder's notes at a price equal to 101% of the
principal amount of the notes plus accrued
interest.
GUARANTEES.................. The original notes are and the exchange notes
will be fully and unconditionally guaranteed on a
senior secured basis by Revlon, Inc. and our
domestic subsidiaries that guarantee the 2001
credit agreement.
COLLATERAL.................. The original notes are and the exchange notes
will be secured on a second-priority basis by,
subject to certain limited exceptions, our
capital stock, the stock of our domestic
subsidiaries, as well as 66% of the capital stock
of our first-tier foreign subsidiaries,
substantially all of our non-real property assets
in the United States and our facility located in
Oxford, North Carolina. The lenders under our
2001 credit agreement and certain other
indebtedness benefit from the first-priority
liens on the collateral.
As of December 31, 2001, approximately $149.0
million of indebtedness was secured on a
first-priority basis by the collateral,
including indebtedness then outstanding under
the 2001 credit agreement, approximately $27.3
million of issued but undrawn letters of credit
and approximately $2.5 million of certain other
lines of credit at some of our foreign
subsidiaries which are guaranteed by us. In
addition, as of December 31, 2001, approximately
$350.8 million of indebtedness was secured on a
second-priority basis by such collateral,
consisting solely of indebtedness under the
notes. In the future, the amount of indebtedness
and other liabilities which may be secured on
either a first-priority or second-priority basis
is subject to change. See "Description of the
Collateral and Intercreditor Arrangements --
Collateral." The collateral securing
indebtedness on a first-priority basis and
securing the notes on a second-priority basis is
also subject to certain other permitted liens
discussed in "Description of the Notes --
Certain Covenants -- Limitation on Liens."
Based upon an independent third party valuation
of the collateral undertaken in December, 2001,
we believe that the value of the collateral as
of such date was sufficient to cover the
indebtedness secured by the first and
second-priority liens if such collateral had
been sold to satisfy such liens. However,
12
the value of the collateral in the event of
liquidation will depend on market and economic
conditions, the availability of buyers and other
factors. We cannot assure you that the proceeds
from the sale or sales of all of such collateral
would be sufficient to satisfy the amounts due
on the notes in the event of a default. In
addition, your ability to realize upon the
collateral will be affected by restrictions on
your exercise of remedies and other provisions
of the collateral agency agreement, including
the extent to which additional indebtedness is
secured by the collateral on a first-priority
basis in the future, and may also be limited by
applicable laws. See "Risk Factors -- No
assurance of adequacy of collateral; Control by
creditors with first-priority lines" and
"Description of the Collateral and Intercreditor
Arrangements."
Releases of collateral from the second-priority
liens will be permitted (i) at our request
unless, after notice from us, holders of at
least 25% of the outstanding principal amount of
the notes object to such release or (ii) upon
the written consent of the holders of at least
66 2/3% of the outstanding principal amount of
the notes. Certain other releases of collateral
will also be permitted. See "Description of the
Collateral and Intercreditor Arrangements."
INTERCREDITOR ARRANGEMENTS... Pursuant to a collateral agency agreement, the
holders of the first-priority liens will, at all
times, control all remedies and other actions
with respect to the collateral. The
second-priority liens will not entitle holders of
the notes to take any action whatsoever with
respect to the collateral at any time when
first-priority liens are outstanding. The holders
of the first-priority liens will receive all
proceeds from any realization on the collateral
until the obligations secured by the
first-priority liens are paid in full. In
addition, proceeds from non-ordinary course asset
dispositions of collateral may be used to repay
the obligations secured by the first-priority
liens or reinvested in assets used in our
business before they would be used to repay the
notes.
ORIGINAL ISSUE DISCOUNT..... The original notes were issued with "original
issue discount" for United States federal income
tax purposes. Thus, each holder of an exchange
note generally must include in income a portion
of the remaining original issue discount for each
day during each taxable year in which an exchange
note is held even though there is no
corresponding receipt of cash attributable to
such income. Each holder will include in income
stated interest on an exchange note in accordance
with the holder's method of accounting for tax
purposes. See "Certain United States Federal
Income Tax Consequences."
RISK FACTORS
You should carefully consider the information under "Risk Factors" and all
other information in this prospectus before exchanging your original notes for
exchange notes.
13
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data for each of the years
in the five-year period ended December 31, 2001 has been derived from our
audited consolidated financial statements.
You should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the consolidated financial statements and
related notes, and the report of our independent auditors included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
incorporated by reference in this prospectus.
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998
------------------ ------------------
(DOLLARS IN MILLIONS)
HISTORICAL STATEMENT OF OPERATIONS DATA (a):
Net sales .......................................................... $2,156.4 $2,149.7
Gross profit ....................................................... 1,377.2 1,347.6(c)
Selling, general and administrative expenses ....................... 1,158.2 1,188.3
Restructuring costs and other, net ................................. 3.6(b) 33.1(c)
-------- --------
Operating income (loss) ............................................ 215.4 126.2
Interest expense, net .............................................. 129.5 132.7
Amortization of debt issuance costs ................................ 6.6 5.1
(Gain) loss on sale of product line, brand and facilities, net ..... -- --
Miscellaneous, net ................................................. 12.2 9.2
-------- --------
Income (loss) from continuing operations before income taxes ....... 67.1 (20.8)
Provision for income taxes ......................................... 9.3 5.0
-------- --------
Income (loss) from continuing operations ........................... 57.8 (25.8)
Income (loss) from discontinued operations ......................... 0.7 (64.2)
Extraordinary items -- early extinguishments of debt ............... (14.9) (51.7)
-------- --------
Net income (loss) .................................................. $ 43.6 $ (141.7)
-------- --------
OTHER DATA:
Net cash provided by (used for) operating activities ............... $ 7.8 $ (51.1)
Net cash (used for) provided by investing activities ............... (84.3) (91.0)
Net cash provided by (used for) financing activities ............... 85.8 158.7
EBITDA (g) ......................................................... 312.1 268.2
Ratio of earnings to fixed charges (h) ............................. 1.4x 0.9x
Capital expenditures ............................................... 52.3 60.8
Purchase of permanent displays ..................................... 68.9 76.6
Unaudited pro forma ratio of earnings to fixed charges (i) .........
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2001
------------------ ------------------ ------------------
(DOLLARS IN MILLIONS)
HISTORICAL STATEMENT OF OPERATIONS DATA (a):
Net sales .......................................................... $1,709.9 $1,447.8 $1,321.5
Gross profit ....................................................... 983.6 873.5(e) 777.3(f)
Selling, general and administrative expenses ....................... 1,154.2(d) 801.8 720.5(f)
Restructuring costs and other, net ................................. 40.2(d) 54.1(e) 38.1(f)
-------- -------- --------
Operating income (loss) ............................................ (210.8) 17.6 18.7
Interest expense, net .............................................. 145.1 142.4 137.8
Amortization of debt issuance costs ................................ 4.3 5.6 6.2
(Gain) loss on sale of product line, brand and facilities, net ..... 0.9 (10.8) 14.4
Miscellaneous, net ................................................. (0.5) (0.2) 4.9
-------- -------- --------
Income (loss) from continuing operations before income taxes ....... (360.6) (119.4) (144.6)
Provision for income taxes ......................................... 9.1 8.6 4.0
-------- -------- --------
Income (loss) from continuing operations ........................... (369.7) (128.0) (148.6)
Income (loss) from discontinued operations ......................... -- -- --
Extraordinary items -- early extinguishments of debt ............... -- -- (3.6)
-------- -------- --------
Net income (loss) .................................................. $ (369.7) $ (128.0) $ (152.2)
-------- -------- --------
OTHER DATA:
Net cash provided by (used for) operating activities ............... $ (81.7) $ (84.0) $ (86.5)
Net cash (used for) provided by investing activities ............... (40.7) 322.1 87.2
Net cash provided by (used for) financing activities ............... 117.4 (203.7) 46.3
EBITDA (g) ......................................................... (30.8) 197.5 201.3
Ratio of earnings to fixed charges (h) ............................. -- 0.3x 0.1x
Capital expenditures ............................................... 42.3 19.0 15.1
Purchase of permanent displays ..................................... 66.5 51.4 44.0
Unaudited pro forma ratio of earnings to fixed charges (i) ......... 0.1x
DECEMBER 31,
-----------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA (a):
Total assets ........................... $ 1,759.3 $ 1,831.7 $ 1,560.6 $ 1,104.2 $ 991.4
Total indebtedness ..................... 1,467.9 1,687.9 1,809.7 1,593.8 1,661.1
Total stockholder's deficiency ......... (457.0) (647.0) (1,013.2) (1,104.3) (1,288.8)
- -------------
See accompanying notes to Summary Historical and Pro Forma Consolidated
Financial Data
14
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) In March 2000 and May 2000, we completed the disposition of our worldwide
professional products line and our Plusbelle brand in Argentina,
respectively. In July 2001, we completed the disposition of our Colorama
brand and facility in Brazil. Accordingly, the summary historical financial
data include the results of operations of the professional products line,
Plusbelle and Colorama brands through the dates of their respective
dispositions.
In November 2001, the FASB Emerging Issues Task Force (the "EITF") reached
a consensus on EITF Issue 01-9 entitled "Accounting Consideration Given by
a Vendor to a Customer or a Reseller of the Vendor's Products" (the
"Guidelines"). The Guidelines address when sales incentives and discounts
should be recognized, as well as where the related revenues and expenses
should be classified in financial statements. We adopted the earlier
portion of these Guidelines (formerly EITF Issue 00-14) addressing certain
sales incentives effective January 1, 2001, and accordingly, the
accompanying summary historical financial data for each of the years in
the five-year period ended December 31, 2001 reflect the implementation of
the Guidelines. The Guidelines did not affect our operating income (loss),
net income (loss) or EBITDA (as defined below).
In September 2001, Revlon, Inc. acquired from Revlon Holdings Inc., an
affiliate and indirect wholly-owned subsidiary of Mafco Holdings, and
contributed to us all the assets and liabilities of the Charles of the
Ritz business. The acquired assets and liabilities assumed were accounted
for at historical cost in a manner similar to that of a pooling of
interests. The summary historical financial data for each of the years in
the five-year period ended December 31, 2001 is restated to reflect the
acquisition.
(b) In 1997, we incurred restructuring costs of $20.6 million in connection with
the implementation of our business strategy to rationalize factory
operations. These costs primarily included severance and other costs related
to the rationalization of certain factory and warehouse operations
worldwide. Such costs were partially offset by an approximately $12.7
million settlement of a claim and gains of approximately $4.3 million on the
sales of certain factory operations outside the United States.
(c) In late 1998, we developed a strategy to reduce overall costs and streamline
operations. To execute against this strategy, we began to develop a
restructuring plan and executed the plan in several phases, which has
resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, we committed to a restructuring plan to
realign and reduce personnel, exit excess leased real estate, realign and
consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines and recognized a charge of $44.2
million, which includes $2.7 million charged to cost of sales. In 1998, we
recognized gains of approximately $8.4 million for the sales of certain
non-core assets.
(d) In the first nine months of 1999, we continued to implement the
restructuring program established in late 1998 for which we recorded a
charge of $20.5 million for employee severance and other personnel benefits,
costs associated with the exit from leased facilities as well as other
costs. Also in 1999, we exited from a non-core business, resulting in a
charge of $1.6 million.
During the fourth quarter of 1999, we continued to restructure our
organization and began a new program in line with our original
restructuring plan developed in late 1998, principally for additional
employee severance and other personnel benefits and to restructure certain
operations outside the United States, including certain operations in
Japan, resulting in a charge of $18.1 million.
During the fourth quarter of 1999, we recorded a charge of $22.0 million
to selling, general and administrative costs related to separation costs
for various executives terminated in 1999.
15
(e) In the first and second quarter of 2000, we recorded charges of $9.5 million
and $5.1 million, respectively, relating to the 1999 restructuring program
that began in the fourth quarter of 1999.
During the third quarter of 2000, we continued to re-evaluate our
organizational structure. As part of this re-evaluation, we decided to
improve profitability by reducing personnel and consolidating
manufacturing facilities. This program focused on closing our
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and
to consolidate production into our plant in Oxford, North Carolina. This
program also includes the remaining obligation for excess leased real
estate at our headquarters, consolidation costs associated with closing
our facility in New Zealand, and the elimination of several domestic and
international executive and operational positions, both of which were
effected to reduce and streamline corporate overhead costs. In the third
quarter of 2000, we recorded a charge of $13.7 million for programs begun
in the quarter as well as for programs previously commenced. In the fourth
quarter of 2000, we recorded a charge of $25.8 million related to the
program begun in the third quarter of 2000, principally for additional
employee severance and other personnel benefits and to consolidate
worldwide operations.
During the fourth quarter of 2000, we recorded $4.9 million to cost of
sales related to additional costs associated with the consolidation of
worldwide operations.
(f) In the first, second, third and fourth quarters of 2001, we recorded charges
of $14.6 million, $7.9 million, $3.0 million and $12.6 million,
respectively, related to the 2000 restructuring program, principally for
additional employee severance and other personnel benefits, relocation and
to consolidate worldwide operations. The charge in the fourth quarter of
2001 also was for an adjustment to previous estimates of approximately $6.6
million.
In 2001, we recorded $38.2 million to cost of sales (which includes $6.1
million of increased depreciation) and $5.4 million to selling, general
and administrative costs related to additional costs associated with the
shutdown of our Phoenix and Canada facilities.
(g) We define EBITDA as operating income (loss) before restructuring costs and
other, net, and additional costs associated with the consolidation of our
worldwide operations and executive severance, plus depreciation and
amortization other than that relating to early extinguishment of debt,
discount and debt issuance costs. EBITDA is presented here as a measure of
our debt service ability, not of our operating results. EBITDA should not be
considered in isolation, as a substitute for net income or cash flow from
operations prepared in accordance with accounting principles generally
accepted in the United States of America or as a measure of our
profitability or liquidity. EBITDA does not take into account our debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Additionally, EBITDA may be defined differently for purposes of our
credit agreement.
(h) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) from continuing operations before income taxes plus fixed
charges. Fixed charges consist of interest expense (including amortization
of debt issuance costs, but not losses relating to the early extinguishment
of debt) and 33% of rental expense (considered to be representative of the
interest factors). Fixed charges exceeded earnings by $20.8 million in 1998,
$360.6 million in 1999, $119.4 million in 2000 and $144.6 million in 2001.
(i) Pro forma to reflect the increase in interest expense and the amortization
of debt issuance costs of $22.7 million and $1.9 million, respectively, for
the year ended December 31, 2001, as if the Refinancing Transactions
occurred on January 1, 2001. On a pro forma basis, fixed charges would have
exceeded earnings before fixed charges by $169.2 million in the year ended
December 31, 2001.
16
SUMMARY ONGOING CONSOLIDATED FINANCIAL DATA
Since 1999, there have been significant developments in our business. We
provide the following supplemental financial information describing trends in
our ongoing operations. The following table sets forth certain summary
unaudited data for the years ended December 31, 2001, 2000 and 1999,
reconciling our actual as reported results to the ongoing operations, after
giving effect to the following: (i) the disposition of the worldwide
professional products line, and the Plusbelle and Colorama brands, assuming
such transactions occurred on January 1, 1999; (ii) the elimination of
restructuring costs in the period incurred; and (iii) the elimination of
additional costs associated with the closing of our Phoenix and Canada
facilities that were included in cost of sales and selling, general and
administrative expenses and executive severance costs that were included in
selling, general and administrative expenses in the period incurred (after
giving effect thereto, the "ongoing operations"). The adjustments are based
upon available information and certain assumptions that our management believes
are reasonable and do not represent pro forma adjustments prepared in
accordance with Regulation S-X. The summary unaudited data for the ongoing
operations does not purport to represent the results of operations or our
financial position that actually would have occurred had the foregoing
transactions referred to in (i) above been consummated on January 1, 1999.
You should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the consolidated financial statements and
related notes and the report of our independent auditors included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, incorporated
in this prospectus by reference.
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999(a) 2000(b) 2001(c)
------------- ------------- -------------
(DOLLARS IN MILLIONS)
STATEMENT OF ONGOING OPERATIONS DATA:
Net sales ............................................ $ 1,268.8 $ 1,303.7 $ 1,305.1
Gross profit ......................................... 722.3 800.6 809.0
Selling, general and administrative expenses ......... 900.4 729.6 706.0
OTHER DATA:
Total secured debt (at period end) ................... $ 635.7 $ 420.4 $ 487.5
Total indebtedness (at period end) ................... 1,809.7 1,593.8 1,661.1
EBITDA ............................................... (72.3) 186.1 202.8
Ratio of EBITDA to interest expense, net ............. -- 1.3x 1.5x
Ratio of secured debt to EBITDA ...................... -- 2.3x 2.4x
Ratio of total indebtedness to EBITDA ................ -- 8.6x 8.2x
- -------------
See accompanying notes to Summary Ongoing Consolidated Financial Data
17
NOTES TO SUMMARY ONGOING CONSOLIDATED FINANCIAL DATA
(a) Reflects the following adjustments for the year ended December 31, 1999:
(in millions)
PRODUCT LINE, RESTRUCTURING
BRANDS AND COSTS AND
AS REPORTED FACILITIES SOLD OTHER, NET* ONGOING
------------- ----------------- -------------- -------------
Net sales .................................. $ 1,709.9 $ (441.1) $ -- $ 1,268.8
Gross profit ............................... 983.6 (261.3) -- 722.3
Selling, general and administrative
expenses .................................. 1,154.2 (231.8) (22.0) 900.4
Restructuring costs and other, net ......... 40.2 (3.9) (36.3) --
* See footnote (d) on page 15.
(b) Reflects the following adjustments for the year ended December 31, 2000:
(in millions)
PRODUCT LINE, RESTRUCTURING
BRANDS AND COSTS AND
AS REPORTED FACILITIES SOLD OTHER, NET* ONGOING
------------- ----------------- -------------- -------------
Net sales .................................. $ 1,447.8 $ (144.1) $ -- $ 1,303.7
Gross profit ............................... 873.5 (77.8) 4.9 800.6
Selling, general and administrative
expenses .................................. 801.8 (72.2) -- 729.6
Restructuring costs and other, net ......... 54.1 -- (54.1) --
* See footnote (e) on page 16.
(c) Reflects the following adjustments for the year ended December 31, 2001:
(in millions)
PRODUCT LINE, RESTRUCTURING
BRANDS AND COSTS AND
AS REPORTED FACILITIES SOLD OTHER, NET* ONGOING
------------- ----------------- -------------- -------------
Net sales .................................. $ 1,321.5 $ (16.4) $ -- $ 1,305.1
Gross profit ............................... 777.3 (6.5) 38.2 809.0
Selling, general and administrative
expenses .................................. 720.5 (9.1) (5.4) 706.0
Restructuring costs and other, net ......... 38.1 -- (38.1) --
* See footnote (f) on page 16.
18
RISK FACTORS
In addition to the information contained elsewhere in this prospectus and
in the documents incorporated by reference herein, the following risk factors
should be carefully considered in evaluating the exchange offer and an
investment in the exchange notes. The following risk factors, other than "You
may have difficulty selling the original notes that you do not exchange,"
generally apply to the original notes as well as the exchange notes.
RISKS RELATING TO THE NOTES
You may have difficulty selling the original notes that you do not exchange.
If you do not exchange your original notes for exchange notes in the
exchange offer, you will continue to be subject to the restrictions on transfer
of your original notes described in the legend on your original notes. The
restrictions on transfer of your original notes arise because we issued the
original notes under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, you may only offer or sell the original notes if they are
registered under the Securities Act and applicable state securities laws, or
offered and sold under an exemption from these requirements. We do not intend
to register the original notes under the Securities Act. To the extent original
notes are tendered and accepted in the exchange offer, the trading market, if
any, for the original notes would be adversely affected. See "The Exchange
Offer -- Consequences of Exchanging or Failing to Exchange Original Notes."
Our substantial indebtedness could affect our operations and flexibility.
We have a substantial amount of outstanding indebtedness. As of December
31, 2001, our total indebtedness was approximately $1,661.1 million. See
"Capitalization." This level of indebtedness could make it more difficult for
us to make interest payments on, or to repurchase, the notes. Although the
indenture governing the notes, the indentures governing our other outstanding
indebtedness, and our 2001 credit agreement limit our ability to borrow
additional money, under certain circumstances we are allowed to borrow a
significant amount of additional money, which would either rank equally in
right of payment with the notes or be subordinated in right of payment to the
notes and, in certain circumstances, could be secured on a first-priority basis
ahead of the notes. See "Description of Notes -- Certain Covenants." Subject to
certain limitations contained in the indenture governing the notes, our
non-guarantor subsidiaries may also incur additional debt that would be
structurally senior to the notes. See "-- The notes are effectively junior to
indebtedness and other liabilities of our non-guarantor subsidiaries." For more
information about our indebtedness, see "Description of Other Indebtedness" and
"Description of Notes" sections of this prospectus.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow for other general corporate purposes;
o limit our ability to fund future working capital, capital expenditures,
displays, acquisitions, investments, restructurings and other general
corporate requirements; and
o limit our flexibility in responding to changes in our business and the
industry in which we operate.
Our ability to pay principal of the notes depends on many factors.
We currently anticipate that, in order to pay the principal amount of the
notes upon the occurrence of an event of default, to repurchase the notes if a
change of control occurs or in the event our cash flows from operations are
insufficient to allow us to pay the principal amount of the notes at maturity,
we may be required to refinance our indebtedness, sell assets or operations,
sell our equity securities or seek capital contributions or loans from our
parent, Revlon, Inc., or from our affiliates.
19
Revlon, Inc. has no assets or operations other than holding our capital stock.
None of our affiliates are required to make any capital contributions, loans or
other payments to us regarding our obligations on the notes. We cannot assure
you that we would be able to pay the principal amount of the notes if we took
any of the above actions or that the indenture governing the notes, the
indentures governing our other outstanding indebtedness or any of our other
debt instruments or the debt instruments of our subsidiaries then in effect
would permit us to take any of the above actions. See "-- Restrictions and
covenants in debt agreements limit our ability to take certain actions;
Consequences of failure to comply" and "Description of Other Indebtedness."
The notes are effectively junior to the indebtedness and other liabilities of
our non-guarantor subsidiaries.
We conduct a significant portion of our operations through our
non-guarantor subsidiaries and depend, in part, on earnings and cash flows of,
and dividends from, these subsidiaries to pay our obligations, including
principal and interest on our indebtedness. Certain laws restrict the ability
of our subsidiaries to pay us dividends or make loans and advances to us. To
the extent these restrictions are applied to our non-guarantor subsidiaries, we
would not be able to use the earnings of those subsidiaries to make payments on
the notes. Furthermore, in the event of any bankruptcy, liquidation or
reorganization of a non-guarantor subsidiary, the rights of the holders of
notes to participate in the assets of such non-guarantor subsidiary will rank
behind the claims of that subsidiary's creditors, including trade creditors
(except to the extent we have a claim as a creditor of such subsidiary). As a
result, the notes are effectively subordinated to the outstanding indebtedness
and other liabilities, including trade payables, of our non-guarantor
subsidiaries. As of December 31, 2001, our non-guarantor subsidiaries had
approximately $108.4 million of outstanding indebtedness and other liabilities,
excluding intercompany liabilities, all of which was structurally senior to the
notes. See "-- Our substantial indebtedness could affect our operations and
flexibility" and "Description of Other Indebtedness." In addition, certain of
our foreign subsidiaries have debt obligations that are also secured by the
collateral that secures the notes and our 2001 credit agreement. Such
obligations, including certain borrowings by foreign subsidiaries under the
2001 credit agreement, may also benefit from liens on assets of the foreign
subsidiaries that do not secure the notes.
Our ability to service our debt, meet our debt covenants and meet our cash
requirements depends on many factors.
We currently anticipate that operating cash flow, cash on hand and funds
available for borrowing under our 2001 credit agreement, will be sufficient to
cover our operating expenses, including cash requirements in connection with
our ongoing operations, strategic plans (including restructuring plans) and our
debt service requirements, including our debt covenants, for the foreseeable
future. However, if we do not otherwise generate sufficient cash flow from our
operations, cash on hand or have funds available for borrowing under our credit
facilities, we would be required to adopt one or more alternatives. For
example, we could be required to:
o reduce or delay purchases of permanent displays;
o reduce or delay capital spending;
o restructure our indebtedness;
o delay or revise restructuring programs;
o sell assets or operations;
o seek capital contributions or loans from our affiliates;
o sell equity securities of Revlon, Inc.; and/or
o reduce discretionary spending.
If we are required to take any of these actions, it could have a material
adverse effect on our business, financial condition and results of operations.
In addition, we cannot assure you that we
20
would be able to take any of these actions, that these actions would enable us
to continue to satisfy our capital requirements or that these actions would be
permitted under the terms of our various debt instruments then in effect.
Restrictions and covenants in debt agreements limit our ability to take certain
actions; Consequences of failure to comply.
The indenture governing the notes, the indentures governing our other
outstanding indebtedness and our 2001 credit agreement contain a number of
significant restrictions and covenants that limit our ability and our
subsidiaries' ability, among other things, to:
o borrow money;
o use assets as security in other borrowings or transactions;
o pay dividends on stock or purchase stock;
o sell assets;
o enter into certain transactions with affiliates; and
o make certain investments or acquisitions.
In addition, the 2001 credit agreement further requires us to maintain
certain financial ratios and meet certain tests, including minimum EBITDA and
ratio of debt outstanding under the 2001 credit agreement to EBITDA, and
restricts our ability and the ability of our subsidiaries to make capital
expenditures. Subject to certain limited exceptions, our capital stock, the
capital stock of our domestic subsidiaries, as well as 66% of the capital stock
of our first-tier foreign subsidiaries, substantially all of our non-real
property assets in the United States and our facility located in Oxford, North
Carolina are pledged as collateral to secure on a first-priority basis our 2001
credit agreement and certain other obligations. Certain of our foreign assets
are pledged to secure local borrowings. In addition, a change of control would
be an event of default under the 2001 credit agreement and would give holders
of certain of our debt securities, including the notes and our other
outstanding notes, the right to require the repurchase of their notes.
Events beyond our control, such as prevailing economic conditions, changes
in consumer preferences and changes in the competitive environment, could
impair our operating performance, which could affect our ability and that of
our subsidiaries to comply with the terms of our debt instruments. We cannot
assure you that we and our subsidiaries will be able to comply with the
provisions of our respective debt instruments, including the financial
covenants in the 2001 credit agreement. Breaching any of these covenants or
restrictions or the failure to comply with our obligations after the lapse of
any applicable grace periods could result in a default under the applicable
debt instruments, including the 2001 credit agreement. If there were an event
of default, holders of such defaulted debt could cause all amounts borrowed
under these instruments to be due and payable immediately. We cannot assure you
that our assets or cash flow or that of our subsidiaries would be sufficient to
fully repay borrowings under the outstanding debt instruments, either upon
maturity or if accelerated upon an event of default or, if we were required to
repurchase the notes or any of our other debt securities upon a change of
control, that we would be able to refinance or restructure the payments on such
debt. Further, if we are unable to repay, refinance or restructure our
indebtedness under our 2001 credit agreement, the lenders under our 2001 credit
agreement could proceed against the collateral securing that indebtedness. In
that event, any proceeds received upon a realization of the collateral would be
applied first to amounts due under the 2001 credit agreement and to certain
other senior creditors before any proceeds would be available to make payments
on the notes. See "-- No assurance of adequacy of collateral; Control by
creditors with first-priority liens." In addition, any event of default or
declaration of acceleration under one debt instrument could also result in an
event of default under one or more of our or our subsidiaries' other debt
instruments, including the notes. See "-- Our substantial indebtedness could
affect our operations and flexibility."
21
No assurance of adequacy of collateral; Control by creditors with first-priority
liens.
The original notes are and the exchange notes will be secured on a
second-priority basis by, subject to certain limited exceptions, a pledge of
our capital stock, the capital stock of our domestic subsidiaries, as well as
66% of the capital stock of our first-tier foreign subsidiaries, substantially
all of our non-real property assets in the United States and our facility
located in Oxford, North Carolina. The lenders under the 2001 credit agreement,
the trustee under the notes, for the benefit of the holders of the notes, and
certain other creditors will share in the proceeds of the collateral; however,
the lenders under the 2001 credit agreement and certain other creditors will be
entitled to receive proceeds from the collateral before the holders of the
notes. The ability of the holders of the notes to realize upon the collateral
is limited by the collateral agency agreement, which permits, so long as any
obligations having the benefit of the first-priority liens are outstanding,
only the holders of those obligations to direct the exercise of remedies
against the collateral. In addition, releases of collateral from the
second-priority liens will be permitted (i) at our request unless, after notice
from us, holders of at least 25% of the outstanding principal amount of the
notes object to such release or (ii) upon the written consent of the holders of
at least 66 2/3% of the outstanding principal amount of the notes. Certain other
releases of collateral will also be permitted. Provisions of the agreements
relating to the second-priority liens may be amended or waived automatically
upon comparable amendment or waiver of the first-lien collateral documents
(except, in the case of releases of collateral, unless certain other conditions
are met). In addition, these agreements may be amended or waived (i) at our
request unless, after notice from us, holders of at least 25% of the
outstanding principal amount of the notes object to such amendment or waiver or
(ii) upon the written consent of the holders of a majority of the outstanding
principal amount of the notes. The value of the collateral in the event of
liquidation will depend on market and economic conditions, the availability of
buyers and other factors. We cannot assure you that the proceeds from the sale
or sales of all of such collateral would be sufficient to satisfy the amounts
due on the notes in the event of a default. If such proceeds were not
sufficient to repay amounts due on the notes, then holders of the notes (to the
extent not repaid from the proceeds of the sale of the collateral) would only
have an unsecured claim against our remaining assets. See "Description of the
Collateral and Intercreditor Arrangements."
The right of the collateral agent to foreclose upon and sell the
collateral upon the occurrence of a default will also be subject to limitations
under applicable bankruptcy laws if a bankruptcy proceeding were commenced
against us or our subsidiaries. In addition, because a portion of the
collateral consists of pledges of a portion of the stock of certain of our
foreign subsidiaries, the validity of those pledges under local law, if
applicable, and the ability of the holders of the notes to realize upon that
collateral under local law, to the extent applicable, may be limited by such
local law, which limitations may or may not affect the first-priority liens.
The rights of the holders of the notes with respect to the collateral
securing the notes are limited pursuant to the terms of the collateral agency
agreement. Under the terms of the collateral agency agreement, the holders of
the notes will have a second-priority interest in the collateral. Accordingly,
any proceeds received upon a realization of the collateral securing the notes
and the 2001 credit agreement will be applied first to amounts due under the
2001 credit agreement, amounts due to certain other creditors that have the
benefit of the first-priority liens and to pay certain administrative expenses
before any amounts will be available to pay the notes. Under the terms of the
indenture governing the notes, we are also permitted in the future to incur
additional indebtedness which can be secured by the collateral on a
first-priority basis and which will be entitled to payment out of the proceeds
of any sale of the collateral before the notes. In addition, under the terms of
the collateral agency agreement, at any time that obligations that have the
benefit of the first-priority liens are outstanding, any actions that may be
taken in respect of the collateral, including the approval of certain
amendments to the collateral documents, waivers of past defaults, the ability
to cause the commencement of enforcement proceedings and to control the conduct
of such proceedings, will be at the direction of the holders of the
first-priority obligations and the trustee, on behalf of the holders of the
notes, will not have the ability to control or direct such actions, even if the
rights of the holders of the notes are adversely affected.
22
Limitations on guarantees -- The guarantees provided by Revlon, Inc. and our
subsidiaries are subject to certain defenses that may limit your right to
receive payment on the notes.
Although the guarantees provide the holders of the notes with a direct
claim against the assets of the guarantors, enforcement of the guarantees
against any guarantor would be subject to certain "suretyship" defenses
available to guarantors generally. Enforcement could also be subject to other
defenses available to the guarantors in certain circumstances. See "-- Possible
avoidance of guarantees and liens." To the extent that the guarantees are not
enforceable, the notes would be effectively subordinated to all liabilities of
the guarantors, including trade payables of such guarantors.
Possible avoidance of guarantees and liens -- Federal and state statutes allow
courts, under specific circumstances, to void the guarantees and the liens
securing these guarantees and require noteholders to return payments received
from us or the guarantors.
Our creditors or the creditors of our guarantors could challenge these
guarantees and these liens as fraudulent conveyances or on other grounds. The
delivery of these guarantees and the grant of the second-priority liens
securing these guarantees could be found to be a fraudulent transfer and
declared void if a court determined that: the guarantor delivered the guarantee
and granted the lien with the intent to hinder, delay or defraud its existing
or future creditors; the guarantor did not receive fair consideration for the
delivery of the guarantee and the incurrence of the lien; or the guarantor was
insolvent at the time it delivered the guarantee and granted the lien. If a
court declares either these guarantees or these liens to be void, or if the
guarantees must be limited or voided in accordance with their terms, any claim
you may make against us for amounts payable on the notes would be unsecured and
subordinated to the debt of our guarantor, including trade payables.
You may find it difficult to sell your exchange notes because there is no
existing trading market for the exchange notes.
You may find it difficult to sell your exchange notes because an active
trading market for the exchange notes may not develop. The exchange notes are
being offered to the holders of the original notes. The original notes were
issued on November 26, 2001 primarily to a small number of institutional
investors. After the exchange offer, the trading market for the remaining
untendered original notes could be adversely affected.
There is no existing trading market for the exchange notes, and there can
be no assurance regarding the future development of a market for the exchange
notes, or the ability of the holders of the exchange notes to sell their
exchange notes or the price at which such holders may be able to sell their
exchange notes. If such a market were to develop, the exchange notes could
trade at prices that may be higher or lower than the initial offering price of
the original notes depending on many factors, including prevailing interest
rates, our operating results and the market for similar securities. We do not
intend to apply for listing or quotation of the exchange notes on any exchange,
and so we do not know the extent to which investor interest will lead to the
development of a trading market or how liquid that market might be. Although
Salomon Smith Barney Inc., Bear, Stearns & Co., Inc. and Lehman Brothers Inc.,
the initial purchasers of the original notes, have informed us that they intend
to make a market in the exchange notes, they are not obligated to do so, and
any market-making may be discontinued at any time without notice. Therefore,
there can be no assurance as to the liquidity of any trading market for the
exchange notes or that an active market for the exchange notes will develop. As
a result, the market price of the exchange notes, as well as your ability to
sell the exchange notes, could be adversely affected.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the exchange notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on holders of the exchange notes.
23
Broker-dealers or noteholders may become subject to the registration and
prospectus delivery requirements of the Securities Act.
Any broker-dealer that:
o exchanges its original notes in the exchange offer for the purpose of
participating in a distribution of the exchange notes, or
o resells exchange notes that were received by it for its own account in
the exchange offer,
may be deemed to have received restricted securities and may be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction by that broker-dealer.
Any profit on the resale of the exchange notes and any commission or
concessions received by a broker-dealer may be deemed to be underwriting
compensation under the Securities Act.
In addition to broker-dealers, any noteholder that exchanges its original
notes in exchange offer for the purpose of participating in a distribution of
the exchange notes may be deemed to have received restricted securities and may
be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction by
that noteholder.
RISKS RELATING TO THE COMPANY
Limited operating history under the new business strategy.
We have recently implemented material changes in our business strategy
intended to improve operating results and are in the process of implementing
further changes. There can be no assurance that the changes will be successful
or that they will enable us to achieve or maintain profitable operations.
Additionally, it is possible that the changes may have other unanticipated
consequences which could be adverse to our business. The new business strategy
involves a number of significant changes including:
o introduction of a significant number of new products;
o revised trade terms with our domestic customers which are intended to,
among others things, increase consumer sell-through of our products,
reduce merchandise returns and reduce claims for damages;
o a change in our advertising strategy and execution by using outside
agencies and consolidation into a single agency;
o significant reductions in administrative expenses principally by
reducing staffing levels throughout the company;
o shutdowns or dispositions of manufacturing facilities that are
underutilized, consolidation of manufacturing operations and outsourcing
to third-party manufacturers; and
o a shift in our advertising and promotional strategy to put less emphasis
on trade promotion and discounting and more on consumer advertising.
Each of the components of the new business strategy carries significant
risks as well as the possibility of unexpected consequences. Potential risks
include:
o failure of consumers to accept our new product offerings;
o failure of domestic customers to accept and adhere to the revised trade
program;
o reductions in net sales as a result of the revised trade program and/or
as a result of a shift in our advertising and promotional strategy;
o failure of the revised trade program to result in increased consumer
sell-through, decreased returns and decreased damage claims;
24
o possible increases in advertising costs and/or failure to achieve the
intended effect of the new advertising strategy;
o if we elect to pursue a company-wide enterprise software system, the
failure to successfully implement such system or the failure of such
system to successfully integrate our internal systems, unexpected costs
in implementing it or disruptions during implementation;
o significant severance and other cash costs arising out of reductions in
administrative expenses;
o possible adverse effects on employee morale and loss of needed
employees; and
o disruptions resulting from consolidation or outsourcing of
manufacturing.
Our former President and Chief Executive Officer, Jeffrey M. Nugent
resigned his employment with us, effective February 14, 2002 and on February
19, 2002, we announced the appointment of Jack L. Stahl, former president and
chief operating officer of Coca-Cola Company, as our new President and Chief
Executive Officer. Several of our other executive officers joined the company
in the recent past. Accordingly, there has been limited opportunity for us to
evaluate the effectiveness of our new management team as a working unit. The
failure of our senior management to function effectively as a team may have an
adverse effect on our ability to implement our business strategy.
Dependence on Oxford, North Carolina facility.
As of December 31, 2001, following our efforts to rationalize and
consolidate our global manufacturing, a substantial portion of our products
were produced at our Oxford, North Carolina facility. Significant unscheduled
downtime at this facility due to equipment breakdowns, power failures, natural
disasters or any other cause, could adversely affect our results of operations
and financial condition. Although we maintain insurance, including business
interruption insurance, that we consider to be adequate under the
circumstances, there can be no assurance that we will not incur losses beyond
the limits or outside the coverage of our insurance.
Dependence on Maesteg, Wales facility.
In July 2001, we sold our principal European manufacturing facility in
Maesteg, Wales and entered into a long-term supply contract with the purchaser
under which the purchaser produces substantially all Revlon color cosmetics and
other products for the European market. If the purchaser is unable to fulfill
its obligations under this supply contract because of manufacturing
difficulties or disruption at the Maesteg, Wales facility or for any other
reason, this could adversely affect our sales in the European market which
could have an adverse effect on our overall results of operations and financial
condition.
We depend on a limited number of customers for a large portion of our net sales.
In 2001, 2000 and 1999, Wal-Mart, Inc. and its affiliates accounted for
approximately 19.9%, 16.5% and 13.1%, respectively, of our net sales (without
giving effect to the adjustments resulting from the adoption of EITF Issue 01-9
discussed below). As a result of our dispositions of non-core assets, including
certain international businesses, we expect that for 2002 and future periods a
small number of other customers will, in the aggregate, account for a large
portion of our net sales. The loss of Wal-Mart or one or more of our other
customers that may account for a significant portion of our sales, or any
significant decrease in sales to these customers, could have a material adverse
effect on our business, financial condition and results of operations.
In January 2002, Kmart Corporation filed a bankruptcy petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Less than 5% of
our 2001 net sales were made to Kmart. We plan to continue doing business with
Kmart for the foreseeable future and accordingly, based upon the information
currently available, believe that Kmart's bankruptcy proceedings will not have
a material adverse effect on our business, financial condition or results of
operations.
25
Competition could materially adversely affect our business, financial condition
and results of operations.
The consumer products business is highly competitive. We compete on the
basis of numerous factors. Brand recognition, product quality, performance and
price, and the extent to which consumers are educated on product benefits have
a marked influence on consumers' choices among competing products and brands.
Advertising, promotion, merchandising and packaging, and the timing of new
product introductions and line extensions also have a significant impact on
buying decisions, and the structure and quality of the sales force affect
product reception, in-store position, permanent display space and inventory
levels in retail outlets. An increase in the amount of competition that we face
could have a material adverse effect on our business, financial condition and
results of operations. We have experienced declines in our market share in
various product categories since late 1998 and there can be no assurance that
such declines will not continue. In addition, we compete in selected product
categories against a number of multinational manufacturers, some of which are
larger and have substantially greater resources than we do, and which may
therefore have the ability to spend more aggressively on advertising and
marketing and more flexibility to respond to changing business and economic
conditions than we do. Certain of our competitors have increased their spending
on discounting and promotional activities in U.S. mass market cosmetics. In
addition to products sold in the mass-market and demonstrator-assisted
channels, our products also compete with similar products sold door-to-door or
through mail order or telemarketing by representatives of direct sales
companies.
Social, political and economic risks affecting foreign operations and effects of
foreign currency fluctuation.
As of December 31, 2001, we had operations based in 20 foreign countries.
We are exposed to the risk of changes in social, political and economic
conditions inherent in operating in foreign countries, including those in Asia,
Eastern Europe and Latin America. Such changes include changes in the laws and
policies that govern foreign investment in countries where we have operations,
as well as, to a lesser extent, changes in United States laws and regulations
relating to foreign trade and investment. In addition, fluctuations in foreign
currency exchange rates may affect the results of our operations and the value
of our foreign assets, which in turn may adversely affect reported earnings
and, accordingly, the comparability of period-to-period results of operations.
Changes in currency exchange rates may affect the relative prices at which we
and foreign competitors sell products in the same market. Our net sales outside
of the United States were 35.5%, 41.8% and 46.9% for 2001, 2000 and 1999,
respectively. In addition, changes in the value of the relevant currencies may
affect the cost of certain items required in our operations. We enter into
forward foreign exchange contracts to hedge certain cash flows denominated in
foreign currency. We had no forward foreign exchange contracts outstanding at
December 31, 2001. We recorded net foreign currency (losses) gains of $(2.2)
million, $(1.6) million and $0.5 million for 2001, 2000 and 1999, respectively.
We can offer no assurances as to the future effect of changes in social,
political and economic conditions on our business or financial condition.
Terrorist attacks, such as the attacks that occurred in New York and Washington,
D.C. on September 11, 2001, and other attacks or acts of war may adversely
affect the markets in which we operate, our operations and our profitability.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused major instability in
the U.S. and other financial markets and reduced consumer confidence. These
terrorist attacks, the military response and future developments may adversely
effect prevailing economic conditions, resulting in reduced consumer spending
and reduced demand for our products. These developments will subject our
worldwide operations to increased risks and, depending on their magnitude,
could have a material adverse effect on our business.
Control by MacAndrews & Forbes.
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings") is a corporation
wholly owned through Mafco Holdings Inc. ("Mafco Holdings" and, together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman. MacAndrews &
Forbes owns indirectly
26
approximately 83% of the outstanding common stock of Revlon, Inc., which owns
100% of our common stock. MacAndrews & Forbes will therefore be able to direct
and control our policies and those of our subsidiaries, including mergers,
sales of assets and similar transactions. Our shares of common stock are
pledged to secure Revlon, Inc.'s guarantee under our 2001 credit agreement and
the notes, and shares of Revlon, Inc. and shares of common stock of
intermediate holding companies are or may from time to time be pledged to
secure obligations of MacAndrews & Forbes or its affiliates. A foreclosure upon
any such shares of common stock could constitute a change of control under the
indenture governing the notes and the indentures governing our other
outstanding indebtedness and certain other debt instruments of ours and of our
subsidiaries. A change of control constitutes an event of default under the
2001 credit agreement, which would permit our lenders to accelerate the 2001
credit agreement. In addition, holders of the notes, our 9% Senior Notes due
2006, our 8 1/8% Senior Notes due 2006 and our 8 5/8% Senior Subordinated Notes
due 2008, may require us to repurchase their notes under those circumstances.
See "-- Our ability to pay principal of the notes depends on many factors." We
may not have sufficient funds at the time of the change of control to repay in
full the borrowings under our 2001 credit agreement or to repurchase the notes
and our other outstanding notes. See "-- The notes are effectively junior to
the indebtedness and other liabilities of our non-guarantor subsidiaries."
Forward-Looking Statements.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed in
such forward-looking statements. Such statements include, without limitation,
our expectations and estimates (whether qualitative or quantitative) as to:
o the introduction of new products;
o our plans to update our retail presence, evaluate, test and install new
display walls (and our estimates of the costs of such new displays, the
effects of such plans on the accelerated amortization of existing
displays and the estimated amount of such amortization) and our plans to
update the image of the Revlon brand through the introduction of new
graphics and package designs;
o our future financial performance;
o the effect on sales of political and/or economic conditions, adverse
currency fluctuations and competitive activities;
o the possible implementation of a new Enterprise Resource Planning, or
ERP, System, the costs and benefits of such system and the effects of the
adoption of such system on the accelerated amortization of existing
information systems if we proceed with such system;
o restructuring activities, restructuring costs, the timing of such
payments and annual savings and other benefits from such activities;
o the charges, the cash cost and the savings resulting from plant
shutdowns, dispositions and outsourcing;
o the effects of revised trade terms for our U.S. customers, including
reduced returns;
o cash flow from operations, cash on hand and availability of borrowings
under the 2001 credit agreement, the sufficiency of such funds to satisfy
our cash requirements in 2002, and the availability of funds from capital
contributions or loans from Revlon, Inc. or other of our affiliates;
o uses of funds, including for the purchases of permanent displays,
capital expenditures (and our estimates of the amounts of such expenses)
and restructuring costs (and our estimates of the amounts of such costs);
27
o the availability of raw materials and components and, with respect to
Europe, products, including that our facilities and third party
contractual supplier arrangements will provide sufficient capacity for
our current and expected production requirements;
o matters concerning market-risk sensitive instruments;
o the effects of transition to the Euro;
o the effects of the adoption of certain accounting principles, including
our estimates of the amounts of unamortized goodwill and identifiable
intangible assets; and
o the effects of the loss of one or more customers, including, without
limitation, Wal-Mart, and the status of our relationship with our
customers.
Statements that are not historical facts, including statements about our
beliefs and expectations, are forward-looking statements. Forward-looking
statements can be identified by, among other things, the use of forward-looking
language, such as "believes," "expects," "estimates," "projects," "forecast,"
"may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or
"intends" or the negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategy or intentions. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. In addition to factors that may be
described in our filings with the SEC, including this filing, the following
factors, among others, could cause our actual results to differ materially from
those expressed in any forward-looking statements made by us:
o difficulties or delays in developing and introducing new products or
failure of customers to accept new product offerings;
o difficulties or delays or unanticipated costs associated with our test
and possible implementation of new display walls and new graphics and
package designs;
o changes in consumer preferences, including reduced consumer demand for
our color cosmetics and other current products;
o effects of and changes in political and/or economic conditions,
including inflation and monetary conditions, and in trade, monetary,
fiscal and tax policies in international markets;
o actions by competitors, including business combinations, technological
breakthroughs, new products offerings, promotional spending and marketing
and promotional successes, including increases in market share;
o unanticipated costs or difficulties or delays in completing projects
associated with our strategic plan, including in connection with the
implementation of a new ERP system;
o difficulties, delays or unanticipated costs or less than expected
savings and other benefits resulting from our restructuring activities;
o difficulties or delays in implementing, higher than expected charges and
cash costs or lower than expected savings from the shutdown, disposition,
outsourcing and consolidation of manufacturing operations;
o difficulties or delays in achieving the intended results of the revised
trade terms, including, without limitation, lower returns or unexpected
consequences from the revised trade terms including the possible effect
on sales;
o lower than expected cash flow from operations, the inability to secure
capital contributions or loans from Revlon, Inc. or other of our
affiliates or the unavailability of funds under the 2001 credit
agreement;
o higher than expected operating expenses, working capital expenses,
permanent display costs, capital expenditures, restructuring costs or
debt service payments;
o difficulties or delays in sourcing raw materials or components and, with
respect to Europe, products;
28
o interest rate or foreign exchange rate changes affecting us and our
market sensitive financial instruments;
o difficulties, delays or unanticipated costs associated with the
transition to the Euro;
o unanticipated effects of our adoption of certain new accounting
standards; and
o combinations among significant customers or the loss, insolvency or
failure to pay debts by a significant customer or customers.
You should consider the areas of risk described above in connection with
any forward-looking statements that may be made by us. Forward-looking
statements speak only as of the date they are made, and, except for our ongoing
obligations to disclose material information under the federal securities laws,
we undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any additional disclosures we make in our
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports
on Form 8-K to the SEC (which, among other places, can be found on the SEC's
website at http://www.sec.gov, as well as on our website at www.revloninc.com.)
See "Where You Can Find More Information." The cautionary discussion of risks
and uncertainties under "Risk Factors" are factors that we think could cause
our actual results to differ materially from expected results. Factors other
than those listed above could cause our results to differ materially from
expected results. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
29
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the exchange notes, we will receive in exchange the original notes
of like principal amount, the terms of which are identical in all material
respects to the exchange notes. The original notes surrendered in exchange for
exchange notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the exchange notes will not result in any increase in
our indebtedness. We have agreed to bear the expenses of the exchange offer. No
underwriter is being used in connection with the exchange offer.
On November 26, 2001, we issued and sold the original notes in a private
placement, receiving gross proceeds of $350.5 million. We used the net proceeds
of that offering, together with borrowings under the 2001 credit agreement, to
repay indebtedness outstanding under our previous credit agreement and to pay
fees and expenses incurred in connection with the Refinancing Transactions,
with the balance available for general corporate purposes.
30
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
OF REVLON CONSUMER PRODUCTS CORPORATION
Our selected historical consolidated financial data for each of the five
years in the five-year period ended December 31, 2001 has been derived from our
audited consolidated financial statements. You should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
consolidated financial statements and related notes and the report of our
independent auditors included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2001, incorporated by reference in this prospectus.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- --------- --------- ---------
(DOLLARS IN MILLIONS)
HISTORICAL STATEMENT OF OPERATIONS DATA (a):
Net sales ....................................... $2,156.4 $2,149.7 $ 1,709.9 $ 1,447.8 $ 1,321.5
Gross profit .................................... 1,377.2 1,347.6(c) 983.6 873.5(e) 777.3(f)
Selling, general and administrative expenses..... 1,158.2 1,188.3 1,154.2(d) 801.8 720.5(f)
Restructuring costs and other, net .............. 3.6(b) 33.1(c) 40.2(d) 54.1(e) 38.1(f)
-------- -------- --------- --------- ---------
Operating income (loss) ......................... 215.4 126.2 (210.8) 17.6 18.7
Interest expense, net ........................... 129.5 132.7 145.1 142.4 137.8
Amortization of debt issuance costs ............. 6.6 5.1 4.3 5.6 6.2
(Gain) loss on sale of product line, brand
and facilities, net ............................ -- -- 0.9 (10.8) 14.4
Miscellaneous, net .............................. 12.2 9.2 (0.5) (0.2) 4.9
-------- -------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ............................ 67.1 (20.8) (360.6) (119.4) (144.6)
Provision for income taxes ...................... 9.3 5.0 9.1 8.6 4.0
-------- -------- --------- --------- ---------
Income (loss) from continuing operations ........ 57.8 (25.8) (369.7) (128.0) (148.6)
Income (loss) from discontinued operations....... 0.7 (64.2) -- -- --
Extraordinary items -- early extinguishment
of debt ........................................ (14.9) (51.7) -- -- (3.6)
-------- -------- --------- --------- ---------
Net income (loss) ............................... $ 43.6 $ (141.7) $ (369.7) $ (128.0) $ (152.2)
======== ======== ========= ========= =========
OTHER DATA:
Net cash provided by (used for) operating
activities ..................................... $ 7.8 $ (51.1) $ (81.7) $ (84.0) $ (86.5)
Net cash (used for) provided by investing
activities ..................................... (84.3) (91.0) (40.7) 322.1 87.2
Net cash provided by (used for) financing
activities ..................................... 85.8 158.7 117.4 (203.7) 46.3
EBITDA (g) ...................................... 312.1 268.2 (30.8) 197.5 201.3
Ratio of earnings to fixed charges (h) .......... 1.4x 0.9x -- 0.3x 0.1x
Capital expenditures ............................ 52.3 60.8 42.3 19.0 15.1
Purchase of permanent displays .................. 68.9 76.6 66.5 51.4 44.0
Unaudited proforma ratio of earnings to
fixed charges (i) .............................. 0.1x
DECEMBER 31,
-------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- --------- --------- --------- ---------
BALANCE SHEET DATA (a):
Total assets .................................... $1,759.3 $1,831.7 $ 1,560.6 $ 1,104.2 $ 991.4
Total indebtedness .............................. 1,467.9 1,687.9 1,809.7 1,593.8 1,661.1
Total stockholder's deficiency .................. (457.0) (647.0) (1,013.2) (1,104.3) (1,288.8)
See accompanying notes to Selected Historical and Unaudited Pro Forma
Consolidated Financial Data.
31
NOTES TO SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) In March 2000 and May 2000, we completed the disposition of our worldwide
professional products line and our Plusbelle brand in Argentina,
respectively. In July 2001, we completed the disposition of our Colorama
brand and facility in Brazil. Accordingly, the selected consolidated
financial data include the results of operations of the professional
products line, Plusbelle and Colorama brands through the dates of their
respective dispositions.
In November 2001, the FASB EITF reached a consensus on the Guidelines
which address when sales incentives and discounts should be recognized, as
well as where the related revenues and expenses should be classified in
financial statements. We adopted the earlier portion of these Guidelines
(formerly EITF Issue 00-14) addressing certain sales incentives effective
January 1, 2001, and accordingly, the accompanying selected consolidated
financial data for each of the years in the five-year period ended
December 31, 2001 reflect the implementation of the Guidelines. The
Guidelines did not affect our operating income (loss), net income (loss)
or EBITDA (as defined below).
In September 2001, Revlon, Inc. acquired from Revlon Holdings Inc., an
affiliate and indirect wholly-owned subsidiary of Mafco Holdings, and
contributed to us all the assets and liabilities of the Charles of the
Ritz business. The acquired assets and liabilities assumed were accounted
for at historical cost in a manner similar to that of a pooling of
interests. The selected consolidated financial data for each of the years
in the five-year period ended December 31, 2001 is restated to reflect the
acquisition.
(b) In 1997, we incurred restructuring costs of $20.6 million in connection with
the implementation of our business strategy to rationalize factory
operations. These costs primarily included severance and other costs related
to the rationalization of certain factory and warehouse operations
worldwide. Such costs were partially offset by an approximately $12.7
million settlement of a claim and gains of approximately $4.3 million on the
sales of certain factory operations outside the United States.
(c) In late 1998, we developed a strategy to reduce overall costs and streamline
operations. To execute against this strategy, we began to develop a
restructuring plan and executed the plan in several phases, which has
resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, we committed to a restructuring plan to
realign and reduce personnel, exit excess leased real estate, realign and
consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines and recognized a charge of $44.2
million, which includes $2.7 million charged to cost of sales. In 1998, we
recognized gains of approximately $8.4 million for the sales of certain
non-core assets.
(d) In the first nine months of 1999, we continued to implement the
restructuring program established in late 1998 for which we recorded a
charge of $20.5 million for employee severance and other personnel benefits,
costs associated with the exit from leased facilities as well as other
costs. Also in 1999, we exited from a non-core business, resulting in a
charge of $1.6 million.
During the fourth quarter of 1999, we continued to restructure our
organization and began a new program in line with our original
restructuring plan developed in late 1998, principally for additional
employee severance and other personnel benefits and to restructure certain
operations outside the United States, including certain operations in
Japan, resulting in a charge of $18.1 million.
During the fourth quarter of 1999, we recorded a charge of $22.0 million
to selling, general and administrative costs related to separation costs
for various executives terminated in 1999.
(e) In the first and second quarter of 2000, we recorded charges of $9.5 million
and $5.1 million, respectively, relating to the 1999 restructuring program
that began in the fourth quarter of 1999.
32
During the third quarter of 2000, we continued to re-evaluate our
organizational structure. As part of this re-evaluation, we decided to
improve profitability by reducing personnel and consolidating
manufacturing facilities. This program focused on closing our
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and
to consolidate production into our plant in Oxford, North Carolina. This
program also includes the remaining obligation for excess leased real
estate at our headquarters, consolidation costs associated with closing
our facility in New Zealand, and the elimination of several domestic and
international executive and operational positions, both of which were
effected to reduce and streamline corporate overhead costs. In the third
quarter of 2000, we recorded a charge of $13.7 million for programs begun
in the quarter as well as for programs previously commenced. In the fourth
quarter of 2000, we recorded a charge of $25.8 million related to the
program begun in the third quarter of 2000, principally for additional
employee severance and other personnel benefits and to consolidate
worldwide operations.
During the fourth quarter of 2000, we recorded $4.9 million to cost of
sales related to additional costs associated with the consolidation of
worldwide operations.
(f) In the first, second, third and fourth quarters of 2001, we recorded charges
of $14.6 million, $7.9 million, $3.0 million and $12.6 million,
respectively, related to the 2000 restructuring program, principally for
additional employee severance and other personnel benefits, relocation and
to consolidate worldwide operations. The charge in the fourth quarter of
2001 also was for an adjustment to previous estimates of approximately $6.6
million.
In 2001, we recorded $38.2 million to cost of sales (which includes $6.1
million of increased depreciation) and $5.4 million to selling, general
and administrative costs related to additional costs associated with the
consolidation of our Phoenix and Canada facilities.
(g) We define EBITDA as operating income (loss) before restructuring costs and
other, net, and additional costs associated with the consolidation of our
worldwide operations and executive severance, plus depreciation and
amortization other than that relating to early extinguishment of debt,
discount and debt issuance costs. EBITDA is presented here as a measure of
our debt service ability, not of our operating results. EBITDA should not be
considered in isolation, as a substitute for net income or cash flow from
operations prepared in accordance with accounting principles generally
accepted in the United States of America or as a measure of our
profitability or liquidity. EBITDA does not take into account our debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Additionally, EBITDA may be defined differently for purposes of our
credit agreement.
(h) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) from continuing operations before income taxes plus fixed
charges. Fixed charges consist of interest expense (including amortization
of debt issuance costs, but not losses relating to the early extinguishment
of debt) and 33% of rental expense (considered to be representative of the
interest factors). Fixed charges exceeded earnings by $20.8 million in 1998,
$360.6 million in 1999, $119.4 million in 2000 and $144.6 million in 2001.
(i) Pro forma to reflect the increase in interest expense and the amortization
of debt issuance costs of $22.7 million and $1.9 million, respectively, for
the year ended December 31, 2001, as if the Refinancing Transactions
occurred on January 1, 2001. On a pro forma basis, fixed charges would have
exceeded earnings before fixed charges by $169.2 million in the year ended
December 31, 2001.
33
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
OF REVLON, INC.
The selected historical consolidated financial data of Revlon, Inc. and
subsidiaries for each of the five years in the five-year period ended December
31, 2001 has been derived from the audited consolidated financial statements of
Revlon, Inc. You should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the consolidated financial statements and
related notes and the report of Revlon, Inc.'s independent auditors included in
the Annual Report on Form 10-K of Revlon, Inc. for the fiscal year ended
December 31, 2001, incorporated by reference in this prospectus. All references
to "we", "our", "ours" and "us" in this section are to Revlon, Inc. and its
subsidiaries.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- --------- --------- ---------
(DOLLARS IN MILLIONS)
HISTORICAL STATEMENT OF OPERATIONS DATA (a):
Net sales ....................................... $2,156.4 $2,149.7 $ 1,709.9 $ 1,447.8 $ 1,321.5
Gross profit .................................... 1,377.2 1,347.6(c) 983.6 873.5(e) 777.3(f)
Selling, general and administrative expenses..... 1,159.4 1,189.8 1,155.4(d) 803.5 723.1(f)
Restructuring costs and other, net .............. 3.6(b) 33.1(c) 40.2(d) 54.1(e) 38.1(f)
-------- -------- --------- --------- ---------
Operating income (loss) ......................... 214.2 124.7 (212.0) 15.9 16.1
Interest expense, net ........................... 129.5 132.7 145.1 142.4 136.6
Amortization of debt issuance costs ............. 6.6 5.1 4.3 5.6 6.2
(Gain) loss on sale of product line, brand
and facilities, net ............................ -- -- 0.9 (10.8) 14.4
Miscellaneous, net .............................. 12.2 9.2 (0.5) (0.2) 4.9
-------- -------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ............................ 65.9 (22.3) (361.8) (121.1) (146.0)
Provision for income taxes ...................... 9.3 5.0 9.1 8.6 4.1
-------- -------- --------- --------- ---------
Income (loss) from continuing operations ........ 56.6 (27.3) (370.9) (129.7) (150.1)
Income (loss) from discontinued operations....... 0.7 (64.2) -- -- --
Extraordinary items -- early extinguishment
of debt ........................................ (14.9) (51.7) -- -- (3.6)
-------- -------- --------- --------- ---------
Net income (loss) ............................... $ 42.4 $ (143.2) $ (370.9) $ (129.7) $ (153.7)
======== ======== ========= ========= =========
OTHER DATA:
Net cash provided by (used for) operating
activities ..................................... $ 7.6 $ (52.2) $ (81.8) $ (84.0) $ (86.5)
Net cash (used for) provided by investing
activities ..................................... (84.3) (91.0) (40.7) 322.1 87.2
Net cash provided by (used for) financing
activities ..................................... 86.0 159.8 117.5 (203.7) 46.3
EBITDA (g) ...................................... 310.9 266.7 (32.0) 195.8 198.7
Ratio of earnings to fixed charges (h) .......... 1.4x 0.9x -- 0.2x 0.1x
Capital expenditures ............................ 52.3 60.8 42.3 19.0 15.1
Purchase of permanent displays .................. 68.9 76.6 66.5 51.4 44.0
DECEMBER 31,
---------------------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- --------- --------- ---------
BALANCE SHEET DATA (a):
Total assets .................................... $1,757.6 $1,831.0 $ 1,558.9 $ 1,101.8 $ 997.6
Total indebtedness .............................. 1,467.9 1,687.9 1,809.7 1,593.8 1,661.1
Total stockholder's deficiency .................. (458.8) (647.7) (1,015.0) (1,106.7) (1,282.7)
See accompanying notes to Selected Historical Consolidated Financial Data.
34
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(a) In March 2000 and May 2000, we completed the disposition of our worldwide
professional products line and our Plusbelle brand in Argentina,
respectively. In July 2001, we completed the disposition of our Colorama
brand and facility in Brazil. Accordingly, the selected consolidated
financial data include the results of operations of the professional
products line, Plusbelle and Colorama brands through the dates of their
respective dispositions.
In November 2001, the FASB Emerging Issues Task Force (the "EITF") reached
a consensus on the Guidelines which address when sales incentives and
discounts should be recognized, as well as where the related revenues and
expenses should be classified in financial statements. We adopted the
earlier portion of these Guidelines (formerly EITF Issue 00-14) effective
January 1, 2001, and accordingly, the accompanying selected consolidated
financial data for each of the years in the five-year period ended
December 31, 2001 reflect the implementation of the Guidelines. The
Guidelines did not affect our operating income (loss), net income (loss)
or EBITDA (as defined below).
In September 2001, Revlon, Inc. acquired from Revlon Holdings Inc., an
affiliate and indirect wholly-owned subsidiary of Mafco Holdings, and
contributed to Revlon all the assets and liabilities of the Charles of the
Ritz business. The acquired assets and liabilities assumed were accounted
for at historical cost in a manner similar to that of a pooling of
interests. The selected consolidated financial data for each of the years
in the five-year period ended December 31, 2001 is restated to reflect the
acquisition.
(b) In 1997, we incurred restructuring costs of $20.6 million in connection with
the implementation of our business strategy to rationalize factory
operations. These costs primarily included severance and other costs related
to the rationalization of certain factory and warehouse operations
worldwide. Such costs were partially offset by an approximately $12.7
million settlement of a claim and gains of approximately $4.3 million on the
sales of certain factory operations outside the United States.
(c) In late 1998, we developed a strategy to reduce overall costs and streamline
operations. To execute against this strategy, we began to develop a
restructuring plan and executed the plan in several phases, which has
resulted in several restructuring charges being recorded.
In the fourth quarter of 1998, we committed to a restructuring plan to
realign and reduce personnel, exit excess leased real estate, realign and
consolidate regional activities, reconfigure certain manufacturing
operations and exit certain product lines and recognized a charge of $44.2
million, which includes $2.7 million charged to cost of sales. In 1998, we
recognized gains of approximately $8.4 million for the sales of certain
non-core assets.
(d) In the first nine months of 1999, we continued to implement the
restructuring program established in late 1998 for which we recorded a
charge of $20.5 million for employee severance and other personnel benefits,
costs associated with the exit from leased facilities as well as other
costs. Also in 1999, we exited from a non-core business, resulting in a
charge of $1.6 million.
During the fourth quarter of 1999, we continued to restructure our
organization and began a new program in line with our original
restructuring plan developed in late 1998, principally for additional
employee severance and other personnel benefits and to restructure certain
operations outside the United States, including certain operations in
Japan, resulting in a charge of $18.1 million.
During the fourth quarter of 1999, we recorded a charge of $22.0 million
to selling, general and administrative costs related to separation costs
for various executives terminated in 1999.
(e) In the first and second quarter of 2000, we recorded charges of $9.5 million
and $5.1 million, respectively, relating to the 1999 restructuring program
that began in the fourth quarter of 1999.
35
During the third quarter of 2000, we continued to re-evaluate our
organizational structure. As part of this re-evaluation, we decided to
improve profitability by reducing personnel and consolidating
manufacturing facilities. This program focused on closing our
manufacturing operations in Phoenix, Arizona and Mississauga, Canada and
to consolidate production into our plant in Oxford, North Carolina. This
program also includes the remaining obligation for excess leased real
estate at our headquarters, consolidation costs associated with closing
our facility in New Zealand, and the elimination of several domestic and
international executive and operational positions, both of which were
effected to reduce and streamline corporate overhead costs. In the third
quarter of 2000, we recorded a charge of $13.7 million for programs begun
in the quarter as well as for programs previously commenced. In the fourth
quarter of 2000, we recorded a charge of $25.8 million related to the
program begun in the third quarter of 2000, principally for additional
employee severance and other personnel benefits and to consolidate
worldwide operations.
During the fourth quarter of 2000, we recorded $4.9 million to cost of
sales related to additional costs associated with the consolidation of
worldwide operations.
(f) In the first, second, third and fourth quarters of 2001, we recorded charges
of $14.6 million, $7.9 million, $3.0 million and $12.6 million,
respectively, related to previous restructuring programs, as well as the
2000 restructuring program, principally for additional employee severance
and other personnel benefits, relocation and to consolidate worldwide
operations and the charge in the fourth quarter of 2001 also was for an
adjustment to previous estimates of approximately $6.6 million.
In 2001, we recorded $38.2 million to cost of sales (which includes $6.1
million of increased depreciation) and $5.4 million to selling, general
and administrative costs related to additional costs associated with the
shutdown of Phoenix and Canadian facilities.
(g) We define EBITDA as operating income (loss) before restructuring costs and
other, net, and additional costs associated with the consolidation of our
worldwide operations and executive severance, plus depreciation and
amortization other than that relating to early extinguishment of debt,
discount and debt issuance costs. EBITDA is presented here as a measure of
our debt service ability, not of our operating results. EBITDA should not be
considered in isolation, as a substitute for net income or cash flow from
operations prepared in accordance with accounting principles generally
accepted in the United States of America or as a measure of our
profitability or liquidity. EBITDA does not take into account our debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Additionally, EBITDA may be defined differently for purposes of our
credit agreement.
(h) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) from continuing operations before income taxes plus fixed
charges. Fixed charges consist of interest expense (including amortization
of debt issuance costs, but not losses relating to the early extinguishment
of debt) and 33% of rental expense (considered to be representative of the
interest factors). Fixed charges exceeded earnings by $22.3 million in 1998,
$361.8 million in 1999, $121.1 million in 2000 and $146.0 million in 2001.
36
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
When we sold the original notes in November 2001, we and the guarantors
entered into a registration agreement with the initial purchasers of those
original notes. Under the registration agreement, we agreed to file a
registration statement regarding the exchange of the original notes for notes
which are registered under the Securities Act. We also agreed to use our
respective best efforts to cause the registration statement to become effective
with the SEC and to conduct this exchange offer after the registration
statement is declared effective. The registration agreement provides that we
will be required to pay additional cash interest to the holders of the original
notes if:
o the registration statement is not filed by February 25, 2002;
o the registration statement is not declared effective by May 28, 2002; or
o the exchange offer has not been consummated by June 24, 2002.
A copy of the registration agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions described in this prospectus and in the
accompanying letter of transmittal, which together constitute the exchange
offer, we will accept for exchange original notes that are properly tendered on
or before the expiration date and not withdrawn as permitted below. As used in
this prospectus, the term "expiration date" means 5:00 p.m., New York City
time, on June 13, 2002. However, if we, in our sole discretion, have extended
the period of time for which the exchange offer is open, the term "expiration
date" means the latest time and date to which we extend the exchange offer.
As of the date of this prospectus, $363,000,000 aggregate principal amount
of the original notes is outstanding. This prospectus, together with the letter
of transmittal, is first being sent on or about May 14, 2002 to all holders of
original notes known to us. Our obligation to accept original notes for
exchange in the exchange offer is subject to the conditions described below
under "Conditions to the Exchange Offer."
We reserve the right to extend the period of time during which the
exchange offer is open. We would then delay acceptance for exchange of any
original notes by giving oral or written notice of an extension to the holders
of original notes as described below. During any extension period, all original
notes previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any original notes not accepted for exchange will
be returned to the tendering holder after the expiration or termination of the
exchange offer.
Original notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple of $1,000.
We reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any original notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "Conditions to the Exchange Offer." We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the
holders of the original notes as promptly as practicable. If we materially
change the terms of the exchange offer, we will resolicit tenders of the
original notes, file a post-effective amendment to the prospectus and provide
notice to the noteholders. If the change is made less than five business days
before the expiration of the exchange offer, we will extend the offer so that
the noteholders have at least five business days to tender or withdraw. We will
notify you of any extension by means of a press release or other public
announcement no later than 9:00 a.m., New York City time on that date.
37
Our acceptance of the tender of original notes by a tendering holder will
form a binding agreement upon the terms and subject to the conditions provided
in this prospectus and in the accompanying letter of transmittal.
PROCEDURES FOR TENDERING
Except as described below, a tendering holder must, on or prior to the
expiration date:
o transmit a properly completed and duly executed letter of transmittal,
including all other documents required by the letter of transmittal, to
Wilmington Trust Company at the address listed below under the heading
"Exchange Agent"; or
o if original notes are tendered in accordance with the book-entry
procedures listed below, the tendering holder must transmit an agent's
message to the exchange agent at the address listed below under the
heading "Exchange Agent."
In addition:
o the exchange agent must receive, on or before the expiration date,
certificates for the original notes; or
o a timely confirmation of book-entry transfer of the original notes into
the exchange agent's account at The Depository Trust Company, the
book-entry transfer facility, along with the letter of transmittal or an
agent's message; or
o the holder must comply with the guaranteed delivery procedures described
below.
The Depository Trust Company will be referred to as DTC in this
prospectus.
The term "agent's message" means a message, transmitted to DTC and
received by the exchange agent and forming a part of a book-entry transfer,
that states that DTC has received an express acknowledgment that the tendering
holder agrees to be bound by the letter of transmittal and that we may enforce
the letter of transmittal against this holder.
The method of delivery of original notes, letters of transmittal and all
other required documents is at your election and risk. If the delivery is by
mail, we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send letters of transmittal or original notes
to us.
If you are a beneficial owner whose original notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, and
wish to tender, you should promptly instruct the registered holder to tender on
your behalf. Any registered holder that is a participant in DTC's book-entry
transfer facility system may make book-entry delivery of the original notes by
causing DTC to transfer the original notes into the exchange agent's account.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the original notes surrendered for exchange are tendered:
o by a registered holder of the original notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
o for the account of an "eligible institution."
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be by an "eligible institution."
An "eligible institution" is a financial institution, including 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 Signature Program or the Stock Exchanges Medallion Program.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of original notes tendered for exchange. This discretion
extends to the determination of all questions concerning the timing of receipts
and acceptance of tenders. These determinations will be final and binding.
38
We reserve the right to reject any particular original note not properly
tendered or any which acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the right to waive any defects or
irregularities or conditions of the exchange offer as to any particular
original note either before or after the expiration date, including the right
to waive the ineligibility of any tendering holder. Our interpretation of the
terms and conditions of the exchange offer as to any particular original note
either before or after the expiration date, including the letter of transmittal
and the instructions to the letter of transmittal, shall be final and binding
on all parties. Unless waived, any defects or irregularities in connection with
tenders of original notes must be cured within a reasonable period of time.
Neither we, the exchange agent nor any other person will be under any duty to
give notification of any defect or irregularity in any tender of original
notes. Nor will we, the exchange agent or any other person incur any liability
for failing to give notification of any defect or irregularity.
If the letter of transmittal is signed by a person other than the
registered holder of original notes, the letter of transmittal must be
accompanied by a written instrument of transfer or exchange in satisfactory
form duly executed by the registered holder with the signature guaranteed by an
eligible institution. The original notes must be endorsed or accompanied by
appropriate powers of attorney. In either case, the original notes must be
signed exactly as the name of any registered holder appears on the original
notes.
If the letter of transmittal or any original notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, these persons should so indicate when signing. Unless
waived by us, proper evidence satisfactory to us of their authority to so act
must be submitted.
By tendering, each holder will represent to us that, among other things,
o the exchange notes are being acquired in the ordinary course of business
of the person receiving the exchange notes, whether or not that person is
the holder; and
o neither the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution of the
exchange notes.
In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in and does
not intend to engage in a distribution of the exchange notes.
If any holder or other person is an "affiliate" of ours, as defined under
Rule 405 of the Securities Act, or is engaged in, or intends to engage in, or
has an arrangement or understanding with any person to participate in, a
distribution of the exchange notes, that holder or other person cannot rely on
the applicable interpretations of the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where the original notes were acquired by it as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus that meets the requirements of
the Securities Act in connection with any resale of the exchange notes. The
letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all original notes
properly tendered. We will issue the exchange notes promptly after acceptance
of the original notes. See "Conditions to the Exchange Offer" below. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered original notes for exchange when, as and if we have given oral or
written notice to the exchange agent, with prompt written confirmation of any
oral notice.
39
For each original note accepted for exchange, the holder of the original
note will receive an exchange note having a principal amount equal to that of
the surrendered original note. The exchange notes will bear interest from the
most recent date to which interest has been paid on the original notes.
Accordingly, registered holders of exchange notes on the relevant record date
for the first interest payment date following the completion of the exchange
offer will receive interest accruing from the most recent date to which
interest has been paid. Original notes accepted for exchange will cease to
accrue interest from and after the date of completion of the exchange offer.
Holders of original notes whose original notes are accepted for exchange will
not receive any payment for accrued interest on the original notes otherwise
payable on any interest payment date the record date for which occurs on or
after completion of the exchange offer and will be deemed to have waived their
rights to receive the accrued interest on the original notes.
In all cases, issuance of exchange notes for original notes will be made
only after timely receipt by the exchange agent of:
o certificates for the original notes, or a timely book-entry confirmation
of the original notes, into the exchange agent's account at the
book-entry transfer facility;
o a properly completed and duly executed letter of transmittal; and
o all other required documents.
Unaccepted or non-exchanged original notes will be returned without
expense to the tendering holder of the original notes. In the case of original
notes tendered by book-entry transfer in accordance with the book-entry
procedures described below, the non-exchanged original notes will be credited
to an account maintained with the book-entry transfer facility, as promptly as
practicable after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
original notes at DTC for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in DTC's systems must make book-entry delivery of original notes by
causing DTC to transfer those original notes into the exchange agent's account
at DTC in accordance with DTC's procedure for transfer. This participant should
transmit its acceptance to DTC on or prior to the expiration date or comply
with the guaranteed delivery procedures described below. DTC will verify this
acceptance, execute a book-entry transfer of the tendered original notes into
the exchange agent's account at DTC and then send to the exchange agent
confirmation of this book-entry transfer. The confirmation of this book-entry
transfer will include an agent's message confirming that DTC has received an
express acknowledgment from this participant that this participant has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against this participant. Delivery of exchange notes
issued in the exchange offer may be effected through book-entry transfer at
DTC. However, the letter of transmittal or facsimile of it or an agent's
message, with any required signature guarantees and any other required
documents, must:
o be transmitted to and received by the exchange agent at the address
listed below under "-- Exchange Agent" on or prior to the expiration
date; or
o comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of original notes desires to tender the original
notes, and the original notes are not immediately available, or time will not
permit the holder's original notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer described above cannot be completed on a timely basis, a tender may
nonetheless be made if:
o the tender is made through an eligible institution;
40
o prior to the expiration date, the exchange agent received from an
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile of the letter of transmittal, and notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery,
(1) stating the name and address of the holder of original notes and
the amount of original notes tendered;
(2) stating that the tender is being made; and
(3) guaranteeing that within three New York Stock Exchange trading days
after the expiration date, the certificates for all physically
tendered original notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other
documents required by the letter of transmittal will be deposited
by the eligible institution with the exchange agent; and
o the certificates for all physically tendered original notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal, are received
by the exchange agent within three New York Stock Exchange trading days
after the expiration date.
WITHDRAWAL RIGHTS
Tenders of original notes may be withdrawn at any time before 5:00 p.m.,
New York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
written notice of withdrawal at the address or, in the case of eligible
institutions, at the facsimile number, indicated below under "Exchange Agent"
before 5:00 p.m., New York City time, on the expiration date. Any notice of
withdrawal must:
o specify the name of the person, referred to as the depositor, having
tendered the original notes to be withdrawn;
o identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of the original notes;
o contain a statement that the holder is withdrawing his election to have
the original notes exchanged;
o be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the original
notes register the transfer of the original notes in the name of the
person withdrawing the tender; and
o specify the name in which the original notes are registered, if
different from that of the depositor.
If certificates for original notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of these
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless this holder is an
eligible institution. If original notes have been tendered in accordance with
the procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the book-entry transfer
facility to be credited with the withdrawn original notes. We will determine
all questions as to the validity, form and eligibility, including time of
receipt, of notices of withdrawal. Any original notes so withdrawn will be
deemed not to have been validly tendered for exchange. No exchange notes will
be issued unless the original notes so withdrawn are validly re-tendered. Any
original notes that have been tendered for exchange, but which are not
exchanged for any reason, will be returned to the tendering holder
41
without cost to the holder. In the case of original notes tendered by
book-entry transfer, the original notes will be credited to an account
maintained with the book-entry transfer facility for the original notes.
Properly withdrawn original notes may be re-tendered by following the
procedures described under "Procedures for Tendering" above at any time on or
before 5:00 p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue exchange notes in exchange for,
any original notes, and may terminate or amend the exchange offer, if at any
time before the acceptance of the original notes for exchange or the exchange
of the exchange notes for the original notes, any of the following events
occurs:
o there is threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission:
(1) seeking to restrain or prohibit the making or completion of the
exchange offer or any other transaction contemplated by the
exchange offer, or assessing or seeking any damages as a result of
this transaction;
(2) resulting in a material delay in our ability to accept for exchange
or exchange some or all of the original notes in the exchange
offer; or
(3) any statute, rule, regulation, order or injunction has been sought,
proposed, introduced, enacted, promulgated or deemed applicable to
the exchange offer or any of the transactions contemplated by the
exchange offer by any governmental authority, domestic or foreign;
or
o any action has been taken, proposed or threatened, by any governmental
authority, domestic or foreign, that in our sole judgment might directly
or indirectly result in any of the consequences referred to in clauses
(1), (2) or (3) above or, in our sole judgment, might result in the
holders of exchange notes having obligations with respect to resales and
transfers of exchange notes which are greater than those described in the
interpretation of the SEC referred to above, or would otherwise make it
inadvisable to proceed with the exchange offer; or
o the following has occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in
the over-the-counter market; or
(2) any limitation by a governmental authority, which may adversely
affect our ability to complete the transactions contemplated by the
exchange offer; or
(3) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the
extension of credit; or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the preceding events existing at
the time of the commencement of the exchange offer, a material
acceleration or worsening of these calamities; or
o any change, or any development involving a prospective change, has
occurred or been threatened in our business, financial condition,
operations or prospects and those of our subsidiaries taken as a whole
that is or may be adverse to us, or we have become aware of facts that
have or may have an adverse impact on the value of the original notes or
the exchange notes; which in our sole judgment in any case makes it
inadvisable to proceed with the exchange offer and/or with such
acceptance for exchange or with such exchange.
42
These conditions to the exchange offer are for our sole benefit and we may
assert them regardless of the circumstances giving rise to any of these
conditions, or we may waive them in whole or in part in our sole discretion. If
we do so, the exchange offer will remain open for at least five business days
following any waiver of the preceding conditions. Our failure at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any original notes, if at
this time any stop order is threatened or in effect relating to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
We have appointed Wilmington Trust Company as the exchange agent for the
exchange offer. You should direct all executed letters of transmittal to the
exchange agent at the address indicated below. You should direct questions and
requests for assistance, requests for additional copies of this prospectus or
of the letter of transmittal and requests for notices of guaranteed delivery to
the exchange agent addressed as follows:
Delivery To: Wilmington Trust Company, Exchange Agent
By Hand Before 5:00 p.m.: By Registered or Certified Mail:
Wilmington Trust Company Wilmington Trust Company
311 West 11th Street Rodney Square North
Wilmington, DE 19801-1615 1100 N. Market Street
Attention: Corporate Trust Wilmington, DE 19890
Reorg Services, Attention: Corporate Trust
1st Floor, Reorg Services,
Aubrey Rosa 1st Floor,
Aubrey Rosa
For Information Call: (302) 636-6472
By Facsimile Transmission
(for Eligible Institutions only): (302) 636-4145
Confirm by Telephone: (302) 636-6472
All other questions should be addressed to Revlon Consumer Products
Corporation, 625 Madison Avenue, New York, NY 10022, Attention: Investor
Relations. If you deliver the letter of transmittal to an address other than
any address indicated above or transmit instructions via facsimile other than
any facsimile number indicated, then your delivery or transmission will not
constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred
in connection with the exchange offer will be paid by us. We estimate these
expenses in the aggregate to be approximately $500,000.
43
TRANSFER TAXES
Holders who tender their original notes for exchange will not be obligated
to pay any related transfer taxes, except that holders who instruct us to
register exchange notes in the name of, or request that original notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer taxes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES
Holders of original notes who do not exchange their original notes for
exchange notes in the exchange offer will continue to be subject to the
provisions in the indenture regarding transfer and exchange of the original
notes and the restrictions on transfer of the original notes as described in
the legend on the original notes as a consequence of the issuance of the
original notes under exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. In general, the original notes may not be offered or sold, unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws.
Under existing interpretations of the Securities Act by the SEC's staff
contained in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the exchange notes would
generally be freely transferable by holders after the exchange offer without
further registration under the Securities Act, subject to certain
representations required to be made by each holder of exchange notes, as set
forth below. However, any purchaser of exchange notes who is one of our
"affiliates" (as defined in Rule 405 under the Securities Act) or who intends
to participate in the exchange offer for the purpose of distributing the
exchange notes:
o will not be able to rely on the interpretation of the SEC's staff;
o will not be able to tender its original notes in the exchange offer; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
notes unless such sale or transfer is made pursuant to an exemption from
such requirements. See "Plan of Distribution."
We do not intend to seek our own interpretation regarding the exchange
offer and there can be no assurance that the SEC's staff would make a similar
determination with respect to the exchange notes as it has in other
interpretations to other parties, although we have no reason to believe
otherwise.
44
CAPITALIZATION
The following table sets forth our cash and capitalization as of December
31, 2001. The information presented below should be read in conjunction with
"Summary Historical and Unaudited Pro Forma Consolidated Financial Data" and
"Summary Ongoing Consolidated Financial Data" included elsewhere in this
prospectus and our consolidated financial statements and the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our reports incorporated by reference herein.
DECEMBER 31,
2001
-------------
(IN MILLIONS)
Cash and cash equivalents ......................... $ 103.3
Marketable securities ............................. 2.2
----------
$ 105.5
==========
SHORT-TERM DEBT:
Secured debt:
Short-term borrowings ............................ $ 17.5
----------
Total short-term debt .......................... 17.5
----------
LONG-TERM DEBT:
Secured debt:
Credit agreement
Term loan ..................................... 117.9
Revolving loans ............................... 1.3
12% Senior Secured Notes due 2005 (a) ............ 350.8
----------
Total secured debt ............................ 487.5
----------
Unsecured debt:
8 1/8% Senior Notes due 2006 ...................... 249.6
9% Senior Notes due 2006 ......................... 250.0
8 5/8% Senior Subordinated Notes due 2008 ......... 649.9
Advances from Holdings ........................... 24.1
----------
Total unsecured debt ........................... 1,173.6
TOTAL INDEBTEDNESS ............................. 1,661.1
----------
TOTAL STOCKHOLDER'S DEFICIENCY ................. (1,288.8)
----------
TOTAL CAPITALIZATION .......................... $ 372.3
==========
- ----------
(a) Reflects issuance of $363.0 million aggregate principal amount of notes at a
price of 96.569% of principal amount.
45
DESCRIPTION OF NOTES
The terms of the exchange notes to be issued in the exchange offer are
identical in all material respects to the terms of the original notes, except
for the transfer restrictions and registration rights relating to the original
notes. Any original notes that remain outstanding after the exchange offer,
together with exchange notes issued in the exchange offer, will be treated as a
single class of securities under the indenture for voting purposes. You can
find the definitions of certain terms used in this description under the
subheading "Certain Definitions." In this description, the words "Company,"
"we," "us" and "our" refer only to Revlon Consumer Products Corporation, and
not to any of its Subsidiaries.
GENERAL
The original notes were, and the exchange notes will be, issued by us
under an Indenture dated as of November 26, 2001, among the Company, the
Guarantors and Wilmington Trust Company, as Trustee (the "Indenture"). In
connection with the consummation of the Refinancing Transactions, we and the
Guarantors also entered into a Collateral Agency Agreement and various security
documents relating to the collateral securing the original notes and which will
secure the exchange notes.
We urge you to read the Indenture, the Collateral Agency Agreement and
other security documents because they, and not this description, define your
rights as a holder of the original notes and the exchange notes, together
referred to as the Notes. Copies of the Indenture, the Collateral Agency
Agreement and other security documents are available upon request to us at the
address indicated under "Incorporation of Certain Documents by Reference."
We have issued $363 million in aggregate principal amount of original
notes and, subject to compliance with the debt and lien incurrence covenants in
the Indenture, can issue up to $300 million in aggregate principal amount of
additional Notes at later dates under the same Indenture. We can issue
additional Notes as part of the same series. Any additional Notes that we issue
in the future will be identical in all respects to the Notes that we have
already issued, including as to their secured status, except that Notes issued
in the future will have different issuance prices and issuance dates. We will
issue Notes only in fully registered form without coupons, in denominations of
$1,000 and whole multiples of $1,000.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on December 1, 2005. We have issued $363 million
aggregate principal amount of original notes.
Interest on the Notes accrues at a rate of 12% per annum and will be
payable semi-annually in arrears on June 1 and December 1, commencing on June
1, 2002. We will pay interest to those persons who were holders of record on
the May 15 or November 15 immediately preceding each interest payment date.
Interest on the Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The interest rate on the Notes will increase by 0.50% if:
(1) we do not file within 90 days after the issuance of the Notes either:
(A) a registration statement to allow for an exchange offer or;
(B) a resale shelf registration statement for the Notes; or
(2) we do not complete the exchange offer (or a resale shelf registration
statement is not declared effective) within 210 days after the issuance
of the Notes.
46
RANKING
The original notes are, and the exchange notes will be:
o senior secured obligations of the Company;
o equal in ranking ("pari passu") with all our existing and future senior
debt, and will have the benefit of the second-priority security
interests described under "Security;"
o senior in right of payment to all our existing and future subordinated
debt; and
o guaranteed on a senior secured basis by the Parent Guarantor and the
Subsidiary Guarantors;
As of December 31, 2001, the total senior indebtedness and other liabilities of
the Company and the Subsidiary Guarantors, excluding unused commitments made by
lenders, was as follows:
$1,171.1 million -- approximate total senior indebtedness and other
liabilities of the Company and the Subsidiary
Guarantors, combined and excluding the notes and
intercompany liabilities of approximately $425.5
million and $560.7 million payable by us and the
Subsidiary Guarantors, respectively, offset by
intercompany receivables of approximately $769.1
million and $387.1 million payable to us and the
Subsidiary Guarantors, respectively.
We only have a stockholder's claim in the assets of our Subsidiaries. This
stockholder's claim is junior to the claims that creditors of our Subsidiaries
have against our Subsidiaries. Holders of the original notes are, and the
holders of exchange notes will be, only creditors of the Company and of those
Subsidiaries that are Subsidiary Guarantors. In the case of Subsidiaries that
are not Subsidiary Guarantors (which on the date of this prospectus will
consist only of non-U.S. Subsidiaries), all the existing and future liabilities
of these Subsidiaries, including any claims of trade creditors and preferred
stockholders, respectively are and will be effectively senior to the Notes.
A substantial portion of our operations is conducted through our
Subsidiaries. Therefore, our ability to service our debt, including the Notes,
is partially dependent upon the earnings of our Subsidiaries, and their ability
to distribute those earnings as dividends, loans or other payments to us.
Certain laws restrict the ability of our Subsidiaries to pay us dividends or
make loans and advances to us. If these restrictions are applied to
Subsidiaries that are not Subsidiary Guarantors, then we would not be able to
use the earnings of those Subsidiaries to make payments on the Notes.
Furthermore, under certain circumstances, bankruptcy "fraudulent conveyance"
laws or other similar laws could invalidate the Subsidiary Guarantees. If this
were to occur, we would also be unable to use the earnings of these Subsidiary
Guarantors to the extent they face restrictions on distributing funds to us or
on making payments on their Guarantees. Any of the situations described above
could make it more difficult for us to service our debt.
As of December 31, 2001, the total balance sheet liabilities of the
Subsidiary Guarantors and our other subsidiaries, excluding unused commitments
made by lenders, were as follows:
$ 30.3 million -- approximate total balance sheet liabilities of
the Subsidiary Guarantors, excluding intercompany
liabilities of approximately $560.7 million payable
by the Subsidiary Guarantors, offset by intercompany
receivables of approximately $387.1 million payable
to the Subsidiary Guarantors.
$108.4 million -- approximate total balance sheet liabilities of
all other Subsidiaries, excluding intercompany
liabilities of approximately $418.3 million payable
by our non-guarantor Subsidiaries, offset by
approximately $248.3 million in intercompany
receivables payable to our non-guarantor Subsidiaries
The Subsidiary Guarantors and our other Subsidiaries have other liabilities,
including contingent liabilities, that may be significant. The Indenture
contains limitations on the amount of additional Debt that we and our
Subsidiaries may incur. However, the amounts of this Debt could nevertheless be
substantial and may be incurred either by Subsidiary Guarantors or by our other
Subsidiaries.
47
Even though the original notes are, and the exchange notes will be,
secured, to the extent that other secured Debt of the Company and of the
Subsidiary Guarantors has either of the following:
(1) a prior lien on the Collateral securing the Notes; or
(2) a lien on other property that is not Collateral that secures the
Notes,
then such other secured Debt will have a claim on that Collateral or that other
property, as the case may be, that is prior to the claim of the Notes on the
same Collateral or property to the extent of either:
(1) the value of the assets securing the other secured Debt; or
(2) the amount of the other secured Debt,
whichever is less.
See "Risk Factors--The notes are effectively junior to the indebtedness
and other liabilities of our non-guarantor subsidiaries," "--Limitations on
guarantees," "--Possible avoidance of guarantees and liens--Federal and state
statues allow courts, under specific circumstances, to void the guarantees and
the liens securing these guarantees and require noteholders to return payments
received from us or the guarantors," "--Our substantial indebtedness could
affect our operations and flexibility," "--Our ability to service our debt,
meet our debt covenants and meet our cash requirements depends on many factors"
and "Description of Other Indebtedness."
GUARANTEES
Our obligations under the Indenture, including the repurchase obligation
resulting from a Change of Control, are fully and unconditionally guaranteed,
jointly and severally, on a senior secured basis, by the Parent Guarantor and
our existing domestic Subsidiaries and certain of our future domestic
Subsidiaries that are not Non-Recourse Subsidiaries and that guarantee the 2001
credit agreement.
The Company, together with Subsidiary Guarantors, currently generate a
majority of our net sales. As of December 31, 2001, our Subsidiaries that were
not Subsidiary Guarantors represented the following approximate percentages of
our assets and net sales, on a consolidated basis (and net of intercompany
balances):
29% -- of our consolidated assets represented by Subsidiaries that are not
Subsidiary Guarantors
35% -- of our consolidated net sales represented by Subsidiaries that are
not Subsidiary Guarantors (net sales for the year ended December 31,
2001)
Under certain circumstances, a Subsidiary Guarantor will be released from
all its obligations under its Subsidiary Guarantee. See "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock," and
"--Additional Guarantees; Releases of Guarantors."
SECURITY
The original notes and the Guarantees are, and the exchange notes will be,
secured on a second-priority basis (subject to Liens permitted by the covenant
described under "--Limitation on Liens" and the Collateral Agency Agreement)
by, subject to certain limited exceptions, our capital stock, the capital stock
of our domestic subsidiaries as well as 66% of the capital stock of our foreign
subsidiaries directly owned by us or our domestic subsidiaries, substantially
all of our non-real property assets in the United States and our facility
located in Oxford, North Carolina. The lenders under our 2001 credit agreement
and certain other creditors benefit from first-priority liens on such
collateral. See "Description of the Collateral and Intercreditor Arrangements."
OPTIONAL REDEMPTION
We shall be entitled to redeem the Notes at our option at any time or from
time to time prior to December 1, 2005, as a whole or in part, at a redemption
price per Note equal to the sum of (1) the then outstanding principal amount
thereof, plus (2) accrued and unpaid interest (if any) to the date of
redemption, plus (3) the Applicable Premium.
48
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method that complies with legal and securities exchange requirements and
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancelation of the original Note.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at his
registered address. Notes in denominations larger than $1,000 may be redeemed
in part but only in whole multiples of $1,000. If money sufficient to pay the
redemption price of and accrued interest on all Notes (or portions thereof) to
be redeemed on the redemption date is deposited with the Paying Agent on or
before the redemption date and certain other conditions are satisfied, on and
after such date interest ceases to accrue on such Notes (or such portions
thereof) called for redemption.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to a Note at any time, the
greater of (1) 1.0% of the then outstanding principal amount of such Note at
such time and (2) the excess of (A) the present value of the required interest
and principal payments due on such Note, computed using a discount rate equal
to the Treasury Rate plus 75 basis points, over (B) the then outstanding
principal amount of such Note at such time.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the
date fixed for redemption or, in the case of defeasance, prior to the date of
deposit (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the then
remaining average life to Stated Maturity; provided, however, that if the
average life to Stated Maturity is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly yields of United States Treasury
securities for which such yields are given, except that if the average life to
Stated Maturity is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder of Notes will have the right to require the Company to
repurchase all or any part of such Holder's Notes at a repurchase price in cash
equal to their Put Amount as of the date of repurchase plus accrued and unpaid
interest to the date of repurchase:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders "beneficially own" (as so
defined), directly or indirectly, in the aggregate a lesser percentage
of the total voting power of the Voting Stock of the
49
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company (for the purposes of
this clause (1), such other person will be deemed to beneficially own
any Voting Stock of a specified corporation held by a parent
corporation, if such other person beneficially owns, directly or
indirectly, more than 35% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent corporation and do not
have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of
such parent corporation); or
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of 66 2/3% of the directors of the
Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office;
provided that, prior to the mailing of the notice to Holders of Notes provided
for in the following paragraph, but in any event within 30 days following any
Change of Control, the Company covenants to (i) repay in full all Bank Debt or
to offer to repay in full all Bank Debt and to repay the Bank Debt of each
lender who has accepted such offer or (ii) obtain the requisite consent under
the Bank Debt to permit the repurchase of the Notes as provided for below. The
Company must first comply with the covenant in the preceding sentence before it
will be required to purchase Notes in connection with a Change of Control.
Within 45 days following any Change of Control, the Company will mail a
notice to each Holder with a copy to the Trustee stating
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to repurchase all or any part of such
Holder's Notes at a repurchase price in cash equal to their Put Amount
as of the date of repurchase plus accrued and unpaid interest to the
date of repurchase;
(2) the circumstances and relevant facts regarding such Change of
Control;
(3) the repurchase date (which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions, determined by the Company consistent with this
provision, that a Holder must follow in order to have its Notes
repurchased.
Holders electing to have a Note repurchased will be required to surrender
the Note, with an appropriate form duly completed, to the Company at the
address specified in the notice at least 10 Business Days prior to the purchase
date. Holders will be entitled to withdraw their election if the Trustee or the
Company receives not later than three Business Days prior to the purchase date,
a facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note which was delivered for purchase by the Holder and
a statement that such Holder is withdrawing his election to have such Note
repurchased.
On the repurchase date, all Notes repurchased by the Company shall be
delivered to the Trustee for cancellation, and the Company shall pay the
repurchase price plus accrued and unpaid interest to the Holders entitled
thereto. Upon surrender of a Note that is repurchased under this provision in
part, the Company shall execute and the Trustee shall authenticate for the
Holder thereof (at the Company's expense) a new Note having a principal amount
equal to the principal amount of the Note surrendered less the portion of the
principal amount of the Note repurchased.
50
Our ability to pay cash to Holders of Notes upon a repurchase may be
limited by our then existing financial resources. See "Risk Factors--Our
ability to pay principal of the notes depends on many factors" and "--Our
ability to service our debt, meet our debt covenants and meet our cash
requirements depends on many factors." We will comply with any tender offer
rules under the Exchange Act which may then be applicable, including Rule
14e-1, in connection with any offer required to be made by us to repurchase the
Notes as a result of a Change of Control.
The Credit Facilities (as defined under "Description of Other Indebtedness
- -- The 2001 Credit Agreement") and other existing indebtedness of the Company
contain, and future indebtedness of ours may contain, prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be purchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require us to repurchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not. Finally, our ability to pay cash to the Holders of
Notes following the occurrence of a Change of Control may be limited by our
then-existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases and
there can be no assurance that the Company would be able to obtain financing to
make such repurchases. The provisions relating to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the Holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt. (a) The Company shall not, and shall not permit any
Subsidiary of the Company to, Issue, directly or indirectly, any Debt;
provided, however, that the Company and its Subsidiaries shall be permitted to
Issue Debt if, at the time of such Issuance, the Consolidated EBITDA Coverage
Ratio for the period of the most recently completed four consecutive fiscal
quarters ending at least 45 days prior to the date such Debt is Issued exceeds
the ratio of 2.0 to 1.0.
(b) Notwithstanding the foregoing, the Company and its Subsidiaries may
Issue the following Debt:
(1) Debt Issued pursuant to the Credit Agreement and the Notes, any
Refinancing thereof, or any other credit agreement, indenture or other
agreement, in an aggregate principal amount outstanding at any one
time not to exceed an amount equal to $675 million less the sum of all
principal payments (whether by prepayment, repayment or purchase) made
with respect to such Debt pursuant to paragraphs (a)(iii)(A),
(a)(iii)(B)(1) or (a)(iii)(C) of the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock" to the extent that
such payments (i) are as a result of an Asset Disposition involving
assets that are included in the Collateral, or are owned, directly or
indirectly, by a Foreign Subsidiary the stock of which is included in
the Collateral, and (ii) permanently retire such Debt in accordance
with the terms of the agreements governing such Debt;
(2) Debt Issued on an unsecured basis pursuant to any other credit
agreement, indenture or other agreement in an aggregate principal
amount not to exceed $225 million outstanding at any one time;
(3) Debt (other than Debt described in clauses (1) and (2) above) in
respect of the undrawn portion of the face amount of or unpaid
reimbursement obligations in respect of letters of credit for the
account of the Company or any of its Subsidiaries in an aggregate
amount at any time outstanding not to exceed the excess of (i) $150
million over (ii) the undrawn portion of the face amount of or unpaid
reimbursement obligations in respect of letters of credit Issued under
the Credit Agreement or any Refinancing thereof or any other credit
agreement, indenture or other agreement pursuant to clause (1) above;
(4) Debt of the Company Issued to and held by a Wholly Owned Recourse
Subsidiary of the Company and Debt of a Subsidiary of the Company
Issued to and held by the Company or
51
a Wholly Owned Recourse Subsidiary; provided, however, that any
subsequent Issuance or transfer of any Capital Stock that results in
any such Wholly Owned Recourse Subsidiary ceasing to be a Wholly Owned
Recourse Subsidiary or any subsequent transfer of such Debt (other than
to the Company or a Wholly Owned Recourse Subsidiary) will be deemed,
in each case, to constitute the Issuance of such Debt by the Company or
of such Debt by such Subsidiary;
(5) Debt of the Company consisting of the 9% Senior Notes, the 8 1/8%
Senior Notes, the 8 5/8% Senior Subordinated Notes and Debt of the
Company Issued to Refinance any Debt permitted by this clause (5);
provided, however, that, in the case of a Refinancing, the principal
amount of the Debt so Issued shall not exceed the principal amount of
the Debt so Refinanced plus any Refinancing Costs thereof; provided
further, however, that any Debt Issued pursuant to this clause (5) to
Refinance the 8 5/8% Senior Subordinated Notes, or any Refinancing
thereof shall be subordinated to the Notes to at least the same extent
as the 8 5/8% Senior Subordinated Notes are subordinated to the Notes;
(6) Debt (other than Debt described in clause (1), (2), (3), (4) or (5)
above or (11) or (12) below) of the Company or any of its Subsidiaries
outstanding on the Issue Date, as identified on a schedule to the
Indenture, and Debt Issued to Refinance any Debt permitted by this
clause (6), or by paragraph (a) above; provided, however, that in the
case of a Refinancing, the principal amount of the Debt so Issued will
not exceed the principal amount of the Debt so Refinanced plus any
Refinancing Costs thereof;
(7) Debt Issued and arising out of purchase money obligations for
property acquired in an amount not to exceed, for the period through
December 31, 2002, $50 million, plus for each period of twelve
consecutive months ending on December 31 thereafter, $15 million;
provided, however, that any such amounts which are available to be
utilized during any such twelve month period and are not so utilized
may be utilized during any succeeding period;
(8) Debt of a Subsidiary of the Company Issued and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company
(other than Debt Issued as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary of the Company or was acquired by the
Company);
(9) Debt Issued to Refinance Debt referred to in the foregoing clause (8)
or this clause (9); provided, however, that the principal amount of
the Debt so Issued shall not exceed the principal amount of the Debt
so Refinanced plus any Refinancing Costs thereof;
(10) Non-Recourse Debt of a Non-Recourse Subsidiary; provided, however,
that if any such Debt thereafter ceases to be Non-Recourse Debt of a
Non-Recourse Subsidiary, then such event will be deemed for the
purposes of this covenant to constitute the Issuance of such Debt by
the issuer thereof;
(11) Permitted Affiliate Debt;
(12) Debt of Foreign Subsidiaries in an aggregate principal amount at the
time of Issuance which, when taken together with all other Debt issued
by Foreign Subsidiaries pursuant to this clause (12) and then
outstanding, does not exceed $60 million; provided, however, that such
Foreign Subsidiaries shall not be permitted to have more than $30
million of such Debt outstanding at any one time that consists of Debt
that is not offset or secured by a compensating cash balance, a
counterpart cash deposit or a cash deposit pledge at the bank or banks
to whom such Debt was Issued (or an affiliate of such bank or banks);
and
(13) Debt (other than Debt described in clauses (1) through (12) above and
paragraph (a) above) in an aggregate principal amount outstanding at
any time not to exceed $150 million.
(c) Notwithstanding the foregoing paragraph (b), the Company shall not
permit any Foreign Subsidiary that is not a Subsidiary Guarantor to Issue,
directly or indirectly, any Debt pursuant to
52
paragraph (b) above except (1) Debt Issued pursuant to clause (1) of paragraph
(b) if, at the time of such Issuance, the principal amount of such Debt does
not exceed in the aggregate, when taken together with all other Debt Issued by
all Foreign Subsidiaries pursuant to such clause (1) and then outstanding, $75
million and (2) Debt Issued pursuant to clauses (4) and (7)-(12) of paragraph
(b).
(d) To the extent the Company or any Subsidiary of the Company guarantees
any Debt of the Company or of a Subsidiary of the Company, such guarantee and
such Debt will be deemed to be the same indebtedness and only the amount of the
Debt will be deemed to be outstanding. If the Company or a Subsidiary of the
Company guarantees any Debt of a Person that, subsequent to the Issuance of
such guarantee, becomes a Subsidiary, such guarantee and the Debt so guaranteed
will be deemed to be the same indebtedness, which will be deemed to have been
Issued when the guarantee was Issued and will be deemed to be permitted to the
extent the guarantee was permitted when Issued.
(e) For purposes of determining compliance with any U.S. dollar
denominated restriction on the Issuance of Debt where the Debt Issued is
denominated in a different currency, the amount of such Debt will be the U.S.
Dollar Equivalent determined on the date of the Issuance of such Debt,
provided, however, that if any such Debt denominated in a different currency is
subject to a Hedging Obligation with respect to U.S. dollars covering all
principal, premium, if any, and interest payable on such Debt, the amount of
such Debt expressed in U.S. dollars will be as provided in such Hedging
Obligation. The principal amount of any Refinancing Debt Issued in the same
currency as the Debt being Refinanced will be the U.S. Dollar Equivalent of the
Debt Refinanced, except to the extent that (1) such U.S. Dollar Equivalent was
determined based on a Hedging Obligation, in which case the Refinancing Debt
will be determined in accordance with the preceding sentence, and (2) the
principal amount of the Refinancing Debt exceeds the principal amount of the
Debt being Refinanced, in which case the U.S. Dollar Equivalent of such excess
will be determined on the date such Refinancing Debt is Issued.
(f) Notwithstanding paragraph (b)(1) above, prior to the consummation of
the Refinancing Transactions, the Notes shall be treated as not having been
Issued for purposes of this "--Limitation on Debt" covenant.
Limitation on Liens. (a) The Company shall not, and shall not permit any
Subsidiary of the Company to, create or suffer to exist any Lien upon any of
its property or assets (including Capital Stock or Debt of any Subsidiary of
the Company) now owned or hereafter acquired by it, securing any Debt or other
obligation other than the following Liens:
(1) Liens existing as of the Issue Date;
(2) any Lien arising by reason of (i) any judgment, decree or order of
any court or arbitrator, so long as such judgment, decree or order is
being contested in good faith and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired,
(ii) taxes not delinquent or which are being contested in good faith,
for which adequate reserves (as determined by the Company) have been
established, (iii) security for payment of workers' compensation or
other insurance, (iv) security for the performance of tenders,
contracts (other than contracts for the payment of borrowed money) or
leases in the ordinary course of business, (v) deposits to secure
public or statutory obligations, or in lieu of surety or appeal bonds
entered into in the ordinary course of business, (vi) operation of law
in favor of carriers, warehousemen, landlords, mechanics, materialmen,
laborers, employees, suppliers or similar Persons, incurred in the
ordinary course of business for sums which are not delinquent for a
period of more than 30 days or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the
collection thereof, (vii) security for surety, appeal, reclamation,
performance or other similar bonds and (viii) security for Hedging
Obligations;
(3) Liens to secure the payment of all or a part of the purchase price
of, or Capital Lease Obligations with respect to, assets (including
Capital Stock) or property or business acquired or constructed after
the Issue Date; provided, however, that (i) the Debt secured by such
53
Liens shall have otherwise been permitted to be Issued under the
Indenture and (ii) such Liens shall not encumber any other assets or
property of the Company or any of its Subsidiaries and shall attach to
such assets or property within 180 days of the completion of
construction or acquisition of such assets or property;
(4) Liens on the assets or property of a Subsidiary of the Company existing
at the time such Subsidiary became a Subsidiary of the Company and not
incurred as a result of (or in connection with or in anticipation of)
such Subsidiary becoming a Subsidiary of the Company; provided,
however, that such Liens do not extend to or cover any other property
or assets of the Company or any of its Subsidiaries;
(5) Liens on any assets, including Collateral, of the Company or any
Subsidiary of the Company securing (A) obligations in respect of any
Debt permitted by clause (1) of paragraph (b) of "--Limitation on
Debt" above and (B) obligations in respect of Debt, in an aggregate
principal amount not to exceed $30 million at any time outstanding,
permitted by clause (12) of such paragraph (b);
(6) leases and subleases of real property by the Company and its
Subsidiaries (in any such case, as lessor) which do not interfere with
the ordinary conduct of the business of the Company or any of its
Subsidiaries, and which are made on customary and usual terms
applicable to similar properties;
(7) Liens securing Debt which is Issued to Refinance Debt which has been
secured by a Lien permitted under the Indenture and is permitted to be
Refinanced under the Indenture; provided, however, that such Liens do
not extend to or cover any property or assets of the Company or any of
its Subsidiaries not securing the Debt so Refinanced, other than as
otherwise permitted under "--Limitation on Liens;"
(8) easements, reservations, licenses, rights-of-way, zoning restrictions
and covenants, conditions and restrictions and other similar
encumbrances or title defects which, in the aggregate, do not
materially detract from the use of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(9) Liens on assets of a Non-Recourse Subsidiary;
(10) Liens on assets located outside the United States and Canada to
secure Debt Issued by Foreign Subsidiaries permitted by paragraphs (b)
and (c) of "--Limitation on Debt" above;
(11) Liens in favor of the United States of America for amounts paid by
the Company or any of its Subsidiaries as progress payments under
government contracts entered into by them;
(12) other Liens incidental to the conduct of the business of the Company
and its Subsidiaries or the ownership of any of their assets not
incurred in connection with Debt, which Liens do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or
any of its Subsidiaries; and
(13) Liens granted in the ordinary course of business of the Company or
any of its Subsidiaries in favor of issuers of documentary or trade
letters of credit for the account of the Company or such Subsidiary or
bankers' acceptances, which Liens secure the reimbursement obligations
of the Company or such Subsidiary on account of such letters of credit
or bankers' acceptances; provided, that each such Lien is limited to
(A) the assets acquired or shipped with the support of such letter of
credit or bankers' acceptances and (B) any assets of the Company or
such Subsidiary which are in the care, custody or control of such
issuer in the ordinary course of business.
(b) Notwithstanding paragraph (a) above, the Company shall not, and shall
not permit any Subsidiary of the Company, to create or suffer to exist any Lien
upon any of the Collateral (including Collateral consisting of Capital Stock or
Debt of any Subsidiary of the Company) now owned or hereafter acquired by it
(i) securing any Public Debt unless the holders of such Public Debt share in
the distribution of proceeds from the foreclosure on Collateral either (x) on
an equal and ratable basis with the holders of the Primary First-Lien
Obligations (and any other obligations that share on an
54
equal and ratable basis with the Primary First-Lien Obligations) or (y) on an
equal and ratable basis with the Holders of the Notes (and any other
obligations that share on an equal and ratable basis with the Holders of the
Notes) or (ii) securing any Debt or other obligations (other than Public Debt)
unless the holders thereof share in the distribution of proceeds from the
foreclosure on Collateral on an equal or any greater basis with the Holders of
the Notes or on any basis with the holders of the Primary First-Lien
Obligations or any other obligations that share in such proceeds. Liens
permitted by paragraph (a) above and which comply with the requirements of this
paragraph (b) are referred to collectively as "Permitted Liens."
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Subsidiary of the Company, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on or in respect
of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) or to the holders of its
Capital Stock (except dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights
to purchase its Non-Convertible Capital Stock and except dividends or
distributions payable to the Company or a Subsidiary of the Company
and, if a Subsidiary of the Company is not wholly owned, to its other
equity holders to the extent they are not Affiliates of the Company),
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than
the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case
within one year of the date of acquisition) or
(iv) make any Investment in (A) an Affiliate of the Company other than a
Subsidiary of the Company and other than an Affiliate of the Company
which will become a Subsidiary of the Company as a result of any such
Investment, or (B) a Non-Recourse Subsidiary (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to as a
"Restricted Payment"),
if at the time the Company or such Subsidiary makes such Restricted Payment
(the amount of any such Restricted Payment, if other than in cash, as
determined in good faith by the Board of Directors, the determination of which
shall be evidenced by a resolution of the Board of Directors):
(1) a Default shall have occurred and be continuing (or would result
therefrom); or
(2) the Company is not able to incur $1.00 of additional Debt in
accordance with the provisions of paragraph (a) of "--Limitation on
Debt;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments after the Issue Date would exceed the sum of:
(a) 50% of the Consolidated Net Income of the Company accrued during
the period (treated as one accounting period) from October 1, 2001,
to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(b) the aggregate Net Cash Proceeds received by the Company from the
Issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) subsequent to the Issue Date (other than an
Issuance or sale to a Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any
Subsidiary for the benefit of their employees);
55
(c) the aggregate Net Cash Proceeds received by the Company from the
Issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) to an employee stock ownership plan subsequent
to the Issue Date; provided, however, that if such employee stock
ownership plan incurs any Debt, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net
Worth of the Company resulting from principal repayments made by
such employee stock ownership plan with respect to Debt incurred by
it to finance the purchase of such Capital Stock;
(d) the amount by which Debt of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the Issue Date of any Debt of the Company
convertible or exchangeable for Capital Stock (other than Redeemable
Stock or Exchangeable Stock) of the Company (less the amount of any
cash, or other property, distributed by the Company upon such
conversion or exchange);
(e) the aggregate net cash proceeds received by the Company subsequent
to the Issue Date as capital contributions (which shall not be
deemed to include any net cash proceeds received in connection with
(i) the issuance of any Permitted Affiliate Debt and (ii) any
contribution designated at the time it is made as a restricted
contribution (a "Restricted Contribution"); and
(f) to the extent that an Investment made by the Company or a Subsidiary
subsequent to the Issue Date has theretofore been included in the
calculation of the amount of Restricted Payments, the aggregate cash
repayments to the Company or a Subsidiary of such Investment to the
extent not included in Consolidated Net Income of the Company.
Notwithstanding the foregoing, the Company may take actions to make a
Restricted Payment in anticipation of the occurrence of any of the events
described in this paragraph (a) or paragraph (b) below; provided, however, that
the making of such Restricted Payment shall be conditional upon the occurrence
of such event.
(b) Paragraph (a) shall not prohibit the following:
(i) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Capital Stock or Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent Issue or sale of, Capital Stock of the Company
(other than Redeemable Stock or Exchangeable Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan) or of a cash capital contribution to the Company;
provided, however, that (A) such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be
excluded in the calculation of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale shall be excluded from clauses
(3)(b) and (3)(c) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of the Company made
by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations; provided, however, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount
of Restricted Payments;
(iii) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations from Net Available
Cash to the extent permitted by "--Limitation on Sales of Assets and
Subsidiary Stock" below, provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation in the amount of
Restricted Payments;
56
(iv) dividends paid within 60 days after the date of declaration thereof, or
Restricted Payments made within 60 days after the making of a binding
commitment in respect thereof, if at such date of declaration or of
such commitment such dividend or other Restricted Payment would have
complied with paragraph (a); provided, however, that at the time of
payment of such dividend or the making of such Restricted Payment, no
other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend or other
Restricted Payment shall be included in the calculation of the amount
of Restricted Payments;
(v) dividends in an aggregate amount per annum not to exceed 6% of the
aggregate Net Cash Proceeds received by the Company in connection with
all Public Equity Offerings occurring after the Issue Date; provided,
however, that such amount shall be included in the calculation of the
amount of Restricted Payments;
(vi) so long as no Default has occurred and is continuing or would result
from such transaction, (x) amounts paid or property transferred
pursuant to the Permitted Transactions and (y) dividends or
distributions, redemptions of Capital Stock and other Restricted
Payments in an aggregate amount not to exceed the sum of all Restricted
Contributions, provided, however, that in the case of clause (y), such
dividends, distributions, redemptions of Capital Stock and other
Restricted Payments are not prohibited by the Credit Agreement or any
Refinancing thereof (whether pursuant to its terms or as a result of
waiver, amendment, termination or otherwise); provided further,
however, that such amounts paid, property transferred, dividends,
distributions, redemptions and Restricted Payments shall be excluded in
the calculation of the amount of Restricted Payments;
(vii) so long as no Default has occurred and is continuing or would result
from such transaction, Restricted Payments in an aggregate amount not
to exceed the sum of (x) $30 million and (y) $5 million per annum from
the Issue Date (net of any applicable cash exercise price actually
received by the Company) made from time to time to finance the purchase
by the Company or Parent of its common stock (for not more than fair
market value) in connection with the delivery of such common stock to
grantees under any stock option plan of the Company or Parent upon the
exercise by such grantees of stock options or stock appreciation rights
settled with common stock or upon the grant of shares of restricted
common stock pursuant thereto; provided, however, that (A) amounts
available pursuant to this clause (vii) to be utilized for Restricted
Payments during any such year may be carried forward and utilized in
any succeeding year, (B) no Restricted Payments shall be permitted
pursuant to this clause unless, at the time of such purchase, the
issuance by the Company or Parent of new shares of common stock to such
optionee would cause more than 19.9% of the total voting power or more
than 19.9% of the total value of the stock of the Company or Parent to
be held by Persons other than members of the Mafco Consolidated Group
(the term "stock" for purposes of this clause shall have the same
meaning as such term has for purposes of Section 1504 of the Code) and
(C) no Restricted Payments shall be permitted pursuant to this clause
if, at the time of and after giving effect to such Restricted Payment,
the aggregate number of shares of common stock of Parent purchased by
the Company or the Parent pursuant to this clause would exceed 2.5% of
the total number of shares of common stock of the Parent outstanding at
the time of such Restricted Payment; provided further, however, that
such amounts shall be excluded in the calculation of the amount of
Restricted Payments;
(viii) any purchase, repurchase, redemption, defeasance or other acquisition
by any Non-Recourse Subsidiary of Non-Recourse Debt of such
Non-Recourse Subsidiary; provided, however, that the amount of such
purchase, repurchase, redemption, defeasance or other acquisition shall
be excluded in the calculation of the amount of Restricted Payments;
57
(ix) any purchase of 8 5/8% Senior Subordinated Notes pursuant to the
"Change of Control" provisions thereof and any purchase of any other
Subordinated Obligations pursuant to an option given to a holder of
such Subordinated Obligation pursuant to a "Change of Control" covenant
which is no more favorable to the holders of such Subordinated
Obligations than the provisions of the Indenture relating to a Change
of Control are to Holders as determined in good faith by the Board of
Directors of the Company, the determination of which shall be evidenced
by a resolution adopted by such Board of Directors; provided, however,
that no such purchase shall be permitted prior to the time when the
Company shall have purchased all Notes tendered for purchase by Holders
electing to have their Notes purchased pursuant to the provisions of
"--Change of Control;" provided further, however, that such purchases
shall be excluded from the calculation of Restricted Payments;
(x) so long as no Default shall have occurred and be continuing, amounts
paid to Parent to the extent necessary to enable Parent to pay actual
expenses, other than those paid to Affiliates of the Company,
incidental to being a publicly reporting, but non-operating, company;
provided, however, that such amounts paid shall be excluded in the
calculation of the amount of Restricted Payments; or
(xi) any loan to a Permitted Affiliate entered into in the ordinary course
of business; provided, however, that such Permitted Affiliate holds,
directly or indirectly, no more than 10% of the outstanding Capital
Stock of the Company.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of the Company to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Debt owed to the Company, (ii) make any loans or advances to the Company or
(iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction in effect at or entered into on the
Issue Date, including pursuant to the Credit Agreement, any agreement
entered into pursuant thereto or any other agreement;
(2) any encumbrance or restriction with respect to a Subsidiary of the
Company pursuant to an agreement relating to any Debt Issued by such
Subsidiary on or prior to the date on which such Subsidiary was
acquired by the Company (other than Debt Issued as consideration in,
or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary of
the Company or was acquired by the Company) and outstanding on such
date;
(3) any encumbrance or restriction pursuant to an agreement effecting an
Issuance of Bank Debt or a Refinancing of any other Debt Issued
pursuant to an agreement referred to in clause (1) or (2) above or
this clause (3) or contained in any amendment to an agreement referred
to in clause (1) or (2) above or this clause (3); provided, however,
that any such encumbrance or restriction with respect to any
Subsidiary is no less favorable to the Holders of Notes than the least
favorable of the encumbrances and restrictions with respect to such
Subsidiary contained in the agreements referred to in clause (1) or
(2) above, as determined in good faith by the Board of Directors of
the Company, the determination of which shall be evidenced by a
resolution of such Board of Directors;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease;
(5) in the case of clause (iii) above, restrictions contained in security
agreements securing Debt of a Subsidiary (other than security
agreements securing Debt of a Subsidiary Issued in
58
connection with any agreement referred to in clause (1), (2) or (3)
above) and restrictions contained in agreements relating to a
disposition of property of a Subsidiary, to the extent such
restrictions restrict the transfer of the property subject to such
agreements;
(6) any encumbrance or restriction binding on a Foreign Subsidiary
contained in an agreement pursuant to which such Foreign Subsidiary
has Issued Debt consisting of working capital borrowings; and
(7) any encumbrance or restriction relating to a Non-Recourse Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Subsidiary of the Company (other than a
Non-Recourse Subsidiary) to, make any Asset Disposition unless:
(i) the Company or such Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value, as
determined in good faith by the Board of Directors of the Company, the
determination of which shall be conclusive and evidenced by a
resolution of the Board of Directors of the Company (including as to
the value of all non-cash consideration), of the Capital Stock and
assets subject to such Asset Disposition;
(ii) at least 75% of the consideration consists of cash, cash equivalents,
readily marketable securities which the Company intends, in good faith,
to liquidate promptly after such Asset Disposition or the assumption of
liabilities (including, in the case of the sale of the Capital Stock of
a Subsidiary of the Company, liabilities of the Company or such
Subsidiary); and
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Subsidiary, as the case
may be):
(A) first, to the extent the Company is so required by the terms of any
Applicable Debt, to prepay, repay or purchase such Applicable Debt
(in each case other than Debt owed to the Company or an Affiliate of
the Company) in accordance with the terms of such Debt;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), at the Company's
election, to either (1) the optional prepayment, repayment or
repurchase of Applicable Debt (in each case other than Debt owed to
the Company or an Affiliate of the Company) which the Company is not
required by the terms thereof to prepay, repay or repurchase
(whether or not the related loan commitment is permanently reduced
in connection therewith), or (2) the investment by the Company or
any Wholly Owned Recourse Subsidiary (or, additionally in the case
of an Asset Disposition by a Subsidiary that is not a Wholly Owned
Recourse Subsidiary, the investment by such Subsidiary) in assets to
replace the assets that were the subject of such Asset Disposition
or in assets that (as determined by the Board of Directors of the
Company, the determination of which shall be conclusive and
evidenced by a resolution of such Board of Directors) will be used
in the businesses of the Company and its Wholly Owned Recourse
Subsidiaries (or, additionally in the case of an Asset Disposition
by a Subsidiary that is not a Wholly Owned Recourse Subsidiary, the
businesses of such Subsidiary) existing on the Issue Date or in
businesses reasonably related thereto (provided that if the assets
that were the subject of such Asset Disposition constituted
Collateral, then such replacement or other assets shall be pledged
at the time of their acquisition to the Collateral Agent as
Collateral, subject to Permitted Liens and the Collateral Agency
Agreement) in all cases, within the later of one year from the date
of such Asset Disposition or the receipt of such Net Available Cash;
and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an
offer to purchase Notes and other Applicable Pari Passu Debt
designated by the Company pursuant to and subject to the conditions
of paragraph (b) below;
59
provided, however, that in connection with an offer pursuant to clause (C)
above, if the principal amount and premium of such Notes and such Applicable
Pari Passu Debt, together with accrued and unpaid interest tendered for
acceptance pursuant to such offer exceeds the balance of Net Available Cash,
then the Company will accept for purchase the Notes and such Applicable Pari
Passu Debt of each such tendering Holder on a pro rata basis in accordance with
the principal amount so tendered.
Generally, by virtue of the foregoing provisions and the definitions of
"Applicable Debt" and "Applicable Pari Passu Debt," if we make an Asset
Disposition with an asset that is part of Collateral, or is a foreign asset
owned directly or indirectly by a Foreign Subsidiary the stock of which
constitutes Collateral, we will not be permitted to use the Net Available Cash
from such Asset Disposition except (1) to prepay or purchase Debt or other
obligations that are secured by Collateral or, in the case of a foreign asset
sale, Debt of a Foreign Subsidiary, or (2) to reinvest in assets that will
become Collateral (subject to Permitted Liens and the Collateral Agency
Agreement) or, in the case of a foreign asset sale, in other assets. If we do
neither within one year, then we will be required to make an offer to purchase
the Notes and, if we choose, other Debt secured by the Collateral. If, on the
other hand we make an Asset Disposition with assets that do not constitute
Collateral, the provisions described in the foregoing paragraph will not permit
us to use the Net Available Cash except to prepay or purchase any
non-subordinated Debt, whether secured or unsecured, or to reinvest in assets
that may or may not become part of the Collateral. If we do neither within one
year, then we will be required to make an offer to purchase the Notes and, if
we choose, any other non-subordinated Debt. Any excess cash remaining after any
offer described in this paragraph may be used for any other purpose otherwise
permitted by the Indenture. The description in this paragraph is qualified in
its entirety by the actual provisions of the Indenture to which this
description relates.
Notwithstanding the foregoing provisions of this paragraph (a), the
Company and the Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this paragraph (a) except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in accordance with this paragraph (a) exceeds $10,000,000. Pending application
of Net Available Cash pursuant to this paragraph (a), such Net Available Cash
shall be (i) invested in Temporary Cash Investments (which, if the assets that
were the subject of such Asset Disposition constituted Collateral, then such
Temporary Cash Investments shall be pledged to the Collateral Agent as
Collateral, subject to Permitted Liens and the Collateral Agency Agreement,
pending such application) or (ii) used to make an optional prepayment under any
revolving credit facility constituting Applicable Debt, whether or not the
related loan commitment is permanently reduced in connection therewith.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to paragraph (a)(iii)(C), the Company will be required to
purchase Notes and other Applicable Pari Passu Debt designated by the Company
tendered pursuant to an offer by the Company for the Notes and such Applicable
Pari Passu Debt (the "Offer") at a purchase price of 100% of their principal
amount, without premium, plus accrued interest to the Purchase Date (or in
respect of other Applicable Pari Passu Debt such lesser price, if any, as may
be provided for by the terms of such Applicable Pari Passu Debt) in accordance
with the procedures (including prorationing in the event of oversubscription)
set forth in the Indenture, provided that the procedures for making an offer to
holders of other Applicable Pari Passu Debt will be as provided for by the
terms of such Applicable Pari Passu Debt. If
(x) the aggregate purchase price of Notes and other Applicable Pari Passu
Debt tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Notes and Applicable Pari Passu Debt,
(y) the Company shall not be obligated to make an offer pursuant to the
last sentence of this paragraph, or
(z) the Company shall be unable to purchase Notes from Holders thereof in
an Offer because of the provisions of applicable law or of the
Company's or its Subsidiaries' loan agreements, indentures or other
contracts governing Debt or Debt of Subsidiaries (in which case the
Company need not make an Offer),
60
the Company shall apply the remaining Net Available Cash to (1) invest in
assets to replace the assets that were the subject of the Asset Disposition or
in assets that (as determined by the Board of Directors of the Company, the
determination of which shall be conclusive and evidenced by a resolution of
such Board of Directors) will be used in the businesses of the Company and its
Wholly Owned Recourse Subsidiaries (or, additionally in the case of an Asset
Disposition by a Subsidiary that is not a Wholly Owned Recourse Subsidiary, the
business of such Subsidiary) existing on the Issue Date or in businesses
reasonably related thereto or (2) in the case of clause (x) or (y) above,
prepay, repay or repurchase any Debt of the Company or Debt of a Wholly Owned
Recourse Subsidiary or, additionally in the case of an Asset Disposition by a
Subsidiary that is not a Wholly Owned Recourse Subsidiary, Debt of such
Subsidiary (in each case other than Debt owed to the Company or an Affiliate of
the Company), whether or not the related loan commitment is permanently reduced
in connection therewith.
The Company shall not be required to make an Offer for Notes and other
Applicable Pari Passu Debt pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clause (A)
and clause (B) of paragraph (a)(iii) above) is less than $10,000,000 for any
particular Asset Disposition (which lesser amounts shall, except with respect
to Asset Dispositions involving Collateral, not be carried forward for purposes
of determining whether an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this provision, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company shall not, and
shall not permit any of its Subsidiaries (other than a Non-Recourse Subsidiary)
to, conduct any business or enter into any transaction or series of similar
transactions (including the purchase, sale, lease or exchange of any property
or the rendering of any service) with any Affiliate of the Company or any legal
or beneficial owner of 10% or more of the voting power of the Voting Stock of
the Company or with an Affiliate of any such owner unless
(i) the terms of such business, transaction or series of transactions are
(A) set forth in writing and (B) at least as favorable to the Company
or such Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in
arm's-length dealings with an unrelated third Person and
(ii) to the extent that such business, transaction or series of transactions
(other than Debt Issued by the Company which is permitted under
"--Limitation on Debt") is known by the Board of Directors of the
Company to involve an Affiliate of the Company or a legal or beneficial
owner of 10% or more of the voting power of the Voting Stock of the
Company or an Affiliate of such owner, then
(A) with respect to a transaction or series of related transactions,
other than any purchase or sale of inventory in the ordinary course
of business (an "Inventory Transaction"), involving aggregate
payments or other consideration in excess of $5.0 million, such
transaction or series of related transactions has been approved (and
the value of any noncash consideration has been determined) by a
majority of those members of the Board of Directors of the Company
having no personal stake in such business, transaction or series of
transactions and
(B) with respect to a transaction or series of related transactions,
other than any Inventory Transaction, involving aggregate payments
or other consideration in excess of $20.0 million (with the value of
any noncash consideration being determined by a majority of those
members of the Board of Directors of the Company having no
61
personal stake in such business, transaction or series of
transactions), such transaction or series of related transactions
has been determined, in the written opinion of a nationally
recognized investment banking firm to be fair, from a financial
point of view, to the Company or such Subsidiary, as the case may
be.
(b) The provisions of paragraph (a) shall not prohibit:
(i) any Restricted Payment permitted to be paid pursuant to "--Limitation
on Restricted Payments;"
(ii) any transaction between the Company and any of its Subsidiaries;
provided, however, that no portion of any minority interest in any such
Subsidiary is owned by (x) any Affiliate (other than the Company, a
Wholly Owned Recourse Subsidiary of the Company, a Permitted Affiliate
or an Unrestricted Affiliate) of the Company or (y) any legal or
beneficial owner of 10% or more of the voting power of the Voting Stock
of the Company or any Affiliate of such owner (other than the Company,
any Wholly Owned Recourse Subsidiary of the Company or an Unrestricted
Affiliate);
(iii) any transaction between Subsidiaries of the Company; provided, however,
that no portion of any minority interest in any such Subsidiary is
owned by (x) any Affiliate (other than the Company, a Wholly Owned
Recourse Subsidiary of the Company, a Permitted Affiliate or an
Unrestricted Affiliate) of the Company or (y) any legal or beneficial
owner of 10% or more of the voting power of the Voting Stock of the
Company or any Affiliate of such owner (other than the Company, any
Wholly Owned Recourse Subsidiary of the Company or an Unrestricted
Affiliate);
(iv) any transaction between the Company or a Subsidiary of the Company and
its own employee stock ownership plan;
(v) any transaction with an officer or director of the Company, of Parent
or of any Subsidiary of the Company entered into in the ordinary course
of business (including compensation or employee benefit arrangements
with any such officer or director); provided, however, that such
officer holds, directly or indirectly, no more than 10% of the
outstanding Capital Stock of the Company;
(vi) any business or transaction with an Unrestricted Affiliate;
(vii) any transaction which is a Permitted Transaction; and
(viii) any transaction pursuant to which Mafco Holdings will provide the
Company and its Subsidiaries at their request and at the cost to Mafco
Holdings with certain allocated services to be purchased from third
party providers, such as legal and accounting services, insurance
coverage and other services.
Additional Guarantees; Releases of Guarantors. (a) From and after the
Issue Date, if any Subsidiary of the Parent Guarantor, whether existing on the
Issue Date or thereafter formed or acquired, becomes an obligor in respect of
Debt or other obligations that at the time constitutes Primary First Lien
Obligations (except a Foreign Subsidiary that becomes an obligor solely in
respect of Debt or other obligations of itself or another Foreign Subsidiary),
and such Person is not at the time a Guarantor, then the Company shall cause
such Person to execute and deliver to the Trustee a guarantee of the Notes at
the time such Person becomes such an obligor.
(b) Notwithstanding the foregoing, any Subsidiary Guarantee provided under
the Indenture, including pursuant to paragraph (a) above, shall be released,
(1) without any action required on the part of the Trustee or any Holder,
if all of the Capital Stock or all or substantially all of the assets
of such Subsidiary is sold or otherwise disposed of to a Person other
than the Company or a Subsidiary of the Company and the Company
otherwise complies, to the extent applicable, with the provisions
under "--Limitation on Sales of Assets and Subsidiary Stock;"
62
(2) upon request of the Company without consent unless, within 20
Business Days after written notice of the proposed release of such
Subsidiary Guarantee is mailed to the Trustee and the Holders, Holders
of 25% of the outstanding principal amount of Notes deliver to the
Company a written objection to such release;
(3) with the written consent of Holders of 66 2/3% of the principal amount
of the Notes then outstanding; or
(4) upon request of the Company without consent if the fair market value
of the assets of the related Subsidiary Guarantor (as determined in
good faith by the Board of Directors of the Company), together with
the fair market value of the assets of other Subsidiary Guarantors
whose Subsidiary Guarantee was released in the same calendar year, do
not exceed $5,000,000 (subject to a cumulative carryover for amounts
not used in any prior calendar year).
At the request of the Company, the Trustee shall execute and deliver an
instrument evidencing such release.
Amendment to Security Documents. The Company shall not amend, modify or
supplement, or permit or consent to any amendment, modification or supplement
of, the Security Documents in any way that would be adverse to the Holders in
any material respect except in the following circumstances:
(a) in accordance with the provisions described under "Description
of the Collateral and Intercreditor Arrangements--Amendment to
Collateral Documents;"
(b) upon request of the Company without consent unless, within 20
Business Days after written notice of a proposed amendment,
modification, supplement or waiver is mailed to the Trustee and
the Holders, 25% in interest of the Holders delivers to the
Company a written objection thereto;
(c) to effectuate a release of Collateral permitted under
"Description of the Collateral and Intercreditor
Arrangements--Releases of Collateral" or a release of a
Subsidiary Guarantee permitted under "--Additional Guarantees;
Releases of Guarantors"; or
(d) with the written consent of Holders of a majority of the
principal amount of the Notes then outstanding.
Additional Security Documents. From and after the date the Security
Documents are executed and delivered, if the Parent Guarantor or any Subsidiary
of the Parent Guarantor executes and delivers in respect of any property of
such Person any mortgages, deeds of trust, security agreements, pledge
agreements or similar instruments to secure Debt or other obligations that at
the time constitute Primary First Lien Obligations (except a Foreign Subsidiary
that does so solely in respect of Debt or other obligations of itself or
another Foreign Subsidiary), then the Company will, or will cause such Person
to, execute and deliver substantially identical mortgages, deeds of trust,
security agreements, pledge agreements or similar instruments in order to vest
in the Collateral Agent a perfected security interest, subject only to
Permitted Liens and the Collateral Agency Agreement, in such property for the
benefit of the Collateral Agent on behalf of the Holders, among others, and
thereupon all provisions of this Indenture and the Collateral Agency Agreement
relating to Collateral shall be deemed to relate to such property to the same
extent and with the same force and effect.
Commission Reports. Notwithstanding that the Company may not be required
to be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file or cause to be filed with the Commission
and provide the Trustee and Holders of the Notes with the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) with respect to the
Company specified in Sections 13 and 15(d) of the Exchange Act. The Company
also will comply with the other provisions of TIA Section 314(a).
63
SUCCESSOR COMPANY
(a) The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (if not the Issuer) is
organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and such Person expressly
assumes by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the Indenture and the Notes;
(ii) immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the resulting, surviving or
transferee person or any of its Subsidiaries as a result of such
transaction as having been issued by such Person or such Subsidiary at
the time of such transaction), no Default has occurred and is
continuing;
(iii) immediately after giving effect to such transaction, the resulting,
surviving or transferee Person would be able to incur at least $1.00 of
Debt pursuant to paragraph (a) of the "--Limitation on Debt" covenant;
(iv) immediately after giving effect to such transaction, the resulting,
surviving or transferee Person has a Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture;
provided that, nothing in this paragraph shall prohibit a Wholly Owned Recourse
Subsidiary from consolidating with or merging with or into, or conveying,
transferring or leasing all or substantially all its assets to, the Company.
(b) The resulting, surviving or transferee Person will be the successor
Company and shall succeed to, and be substituted for, and may exercise every
right and power of, the predecessor Company under the Indenture and thereafter,
except in the case of a lease, the predecessor Company will be discharged from
all obligations and covenants under the Indenture and the Notes.
(c) Unless the Guarantee of a Guarantor is being released as permitted by
paragraph (b) of "--Additional Guarantees" in connection with a merger,
conveyance, transfer or lease, the Company will not permit such Guarantor to
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person (other than the Company or a
Subsidiary Guarantor) unless:
(i) the resulting, surviving or transferee Person (if not such Guarantor)
is organized and existing under the laws of the jurisdiction under
which such Guarantor was organized or under the laws of the United
States of America, any State thereof or the District of Columbia and
such Person expressly assumes by a supplemental guarantee agreement,
executed and delivered to the Trustee, all the obligations of such
Guarantor under its Guarantee;
(ii) immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the resulting, surviving or
transferee Person or any of its Subsidiaries as a result of such
transaction as having been issued by such Person or such Subsidiary at
the time of the transaction), no Default has occurred and is
continuing; and
(iii) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental guarantee agreement (if any) comply with
the Indenture.
64
DEFAULTS
An Event of Default is defined in the Indenture as
(i) a default in the payment of interest on the Notes when due,
continued for 30 days,
(ii) a default in the payment of principal of any Note when due at
its Stated Maturity, upon redemption, upon required purchase,
upon declaration or otherwise,
(iii) the failure by the Issuer to comply with its obligations
described under "--Successor Company,"
(iv) the failure by the Company to comply for 30 days after notice
with any of the covenants described under "--Limitation on Debt,"
"--Limitation on Liens," "--Limitation on Restricted Payments,"
"--Limitation on Restrictions on Distributions from
Subsidiaries," "--Limitations on Sales of Assets and Subsidiary
Stock" (other than a failure to purchase Notes), "--Limitation on
Transactions with Affiliates," "Change of Control" (other than a
failure to purchase Notes), "--Additional Guarantees by
Subsidiaries," "--Amendment to Security Documents," "--Additional
Security Documents," or "--Commission Reports" above,
(v) the failure by the Company to comply for 60 days after notice
with the other agreements applicable to it contained in the
Indenture or the Notes (other than those referred to in clauses
(i), (ii), (iii) and (iv) of this paragraph),
(vi) Debt of the Parent Guarantor, the Company or any Significant
Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because
of a default and the total principal amount of the portion of
such Debt that is unpaid or accelerated exceeds $25 million or
its foreign currency equivalent and such default continues for 10
days after notice as specified in the last sentence of this
paragraph (the "cross acceleration provision"),
(vii) certain events of bankruptcy, insolvency or reorganization of
the Parent Guarantor, the Company or a Significant Subsidiary
(the "bankruptcy provisions"),
(viii) any judgment or decree for the payment of money in excess of $25
million or its foreign currency equivalent is entered against the
Parent Guarantor, the Company or a Significant Subsidiary and is
not discharged and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B)
there is a period of 60 days following the entry of such judgment
or decree during which such judgment or decree is not discharged,
waived or the execution thereof stayed and, in the case of (B),
such default continues for 10 days after the notice specified in
the next sentence (the "judgment default provision"),
(ix) the Liens created by the Security Documents shall at any time
not constitute a valid and perfected Lien on the Collateral
intended to be covered thereby (to the extent perfection by
filing, registration, recordation or possession is required
herein or therein) in favor of the Collateral Agent, free and
clear of all other Liens (other than Permitted Liens), or, except
for expiration in accordance with its terms or amendment,
modification, waiver, termination or release in accordance with
the terms of this Indenture, any of the Security Documents shall
for whatever reason be terminated or cease to be in full force
and effect, if in either case, such default continues for 10 days
after notice, or the enforceability thereof shall be contested by
the Company or any Guarantor (the "security default provisions"),
or
(x) a Guarantee ceases to be in full force and effect (other than in
accordance with the terms of this Indenture) and such default
continues for 10 days after notice, or a Guarantor denies or
disaffirms its obligations under its Guarantee (the "guarantee
provision").
65
However, a default under clauses (iv), (v), (vi), (viii) (B), (ix) and (x) will
not constitute an Event of Default until the Trustee or the Holders of at least
25% in principal amount of the outstanding Notes notify the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the outstanding Notes by notice
to the Company and the Trustee may declare the principal of and accrued but
unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
interest on all the Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders of the Notes. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences. However, even following an
Event of Default and acceleration of the Notes, neither the Trustee nor the
Holders will have any right or ability to exercise or cause the exercise of
remedies against the Collateral while any Primary First-Lien Obligations exist.
See "Description of the Collateral and Intercreditor Arrangements--Exercise of
Remedies and Application of Proceeds."
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes unless
such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense which might be incurred in compliance
with such request or direction. Except to enforce the right to receive payment
of principal or interest when due, no Holder of a Note may pursue any remedy
with respect to the Indenture or the Notes unless
(i) such Holder has previously given the Trustee written notice that
an Event of Default is continuing,
(ii) Holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to in writing pursue the remedy,
(iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense which might be
incurred in compliance with such request,
(iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity
and
(v) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Holders of
the Notes. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
66
AMENDMENT
Subject to certain exceptions, the Indenture or the Indenture Documents
may be amended with the consent of the Holders of a majority in principal
amount of the Notes then outstanding and any past default or noncompliance with
any provisions may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. However, (a) without the
consent of each Holder of an outstanding Note affected, no amendment may, among
other things,
(i) reduce the principal amount of Notes whose Holders must consent
to an amendment,
(ii) reduce the rate of or extend the time for payment of interest on
any Note,
(iii) reduce the principal of or extend the Stated Maturity of any
Note,
(iv) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described
under "--Optional Redemption" above,
(v) make any Note payable in money other than that stated in the
Note,
(vi) make any change to the provision which protects the right of any
Holder of the Notes to receive payment of principal of and
interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes, or
(vii) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions
and (b) with certain exceptions described under "--Certain Covenants--Additional
Guarantees; Releases of Guarantors" and "Description of the Collateral and
Intercreditor Arrangements--Releases of Collateral," without the consent of
Holders of at least 66 2/3% of the outstanding principal amount of the Notes, no
amendment may release any Guarantor from its obligation under its Guarantee,
change any Guarantee in any manner that adversely affects the rights of any
Holder of Notes under such Guarantee in any material respect or release any
Collateral from the Liens of the Security Documents.
Without the consent of or notice to any Holder of the Notes, the Company,
the Guarantors and the Trustee may amend the Indenture or the Indenture
Documents
(i) to cure any ambiguity, omission, defect or inconsistency,
(ii) to comply with certain covenants described under "--Additional
Guarantees; Releases of Guarantors," "--Amendment to Security
Documents" or "--Additional Security Documents," or "Description
of the Collateral and Intercreditor Arrangements--Amendment to
Collateral Documents" and "--Releases of Collateral,"
(iii) to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture if in compliance
with the provisions described under "--Successor Company" above,
(iv) to provide for uncertificated Notes in addition to or in place
of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code),
(v) to add guarantees with respect to the Notes, to secure the
Notes,
(vi) to add to the covenants of the Company for the benefit of the
Holders of the Notes or to surrender any right or power conferred
upon the Company,
(vii) to provide for issuance of the Exchange Notes under the
Indenture (including to provide for treatment of the Exchange
Notes and the Notes as a single class of securities) in
connection with the Exchange Offer, or
67
(viii) to comply with any requirement of the Commission in connection
with the qualification of the Indenture under the TIA or to
otherwise comply with the TIA, or to make any change that does
not adversely affect the rights of any Holder of the Notes.
The consent of the Holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all Holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
A consent to any amendment or waiver under the Indenture by any Holder of
Notes given in connection with a tender of such Holder's Notes will not be
rendered invalid by such tender.
TRANSFER
The original notes have been, and the exchange notes will be, issued in
registered form and will be transferable only upon the surrender of the Notes
being transferred for registration of transfer. The Company may require payment
of a sum sufficient to cover any tax, assessment or other governmental charge
payable in connection with certain transfers and exchanges. See "Book Entry;
Delivery and Form."
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate certain of its obligations under
the covenants described under "--Certain Covenants" and "--Change of Control"
above, the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment default
provision, the security default provisions, the guarantee provision and the
30-day covenant compliance provision, described under "--Defaults" above, and
the limitations contained in clauses (ii), (iii) and (iv) described under
paragraph (a) and clause (ii) described under paragraph (c) of "--Successor
Company" ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the Notes
may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in clause (iv)
(with respect to the covenants described under "Certain Covenants"), (vi),
(vii) (with respect only to Significant Subsidiaries), (viii), (ix) or (x)
under "--Defaults" above, or because of the failure of the Company to comply
with clause (ii), (iii) or (iv) described under paragraph (a) or clause (ii)
described under paragraph (c) of "--Successor Company" above. If the Company
exercises its legal defeasance option or its covenant defeasance option, the
Collateral will be released and each Guarantor will be released from all its
obligations under its guarantee.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest (if any)
on the Notes to redemption or maturity, as the case may be, and must comply
with certain other conditions, including (unless the Notes will mature or be
redeemed within 60 days) delivering to the Trustee an Opinion of Counsel to the
effect that Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
68
at the same times as would have been the case if such deposit and defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable federal income tax law).
CONCERNING THE TRUSTEE
Wilmington Trust Company is the Trustee under the Indenture and the
Collateral Agent for the benefit of the Holders under the Collateral Agency
Agreement and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
The following are certain definitions used in the Indenture and applicable
to the description of the Indenture and the Notes set forth herein.
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director
or officer (A) of such specified Person, (B) of any Subsidiary of such
specified Person or (C) of any Person described in clause (i) above. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Debt" means:
(1) in respect of any asset that is the subject of an Asset Disposition
at a time when such asset is included in the Collateral, Pari Passu
Debt or Debt of a Subsidiary or any other non-Debt obligation that, in
each case, is secured at such time by Collateral under a Lien that
takes priority over the Lien of the Security Documents; or
(2) in respect of any asset that is the subject of an Asset Disposition
at a time when such asset is not included in the Collateral but is
owned, directly or indirectly, by a Foreign Subsidiary the stock of
which is included in the Collateral, any Debt or other obligation
referred to in clause (1) above, any Debt of such Foreign Subsidiary
or any Debt of any other Foreign Subsidiary that is a Wholly Owned
Recourse Subsidiary, provided that such Foreign Subsidiary has not
guaranteed unsecured Debt of the Company or a Subsidiary Guarantor; or
(3) in respect of any other asset, any Pari Passu Debt or Debt of a
Wholly Owned Recourse Subsidiary or additionally, in the case of an
Asset Disposition by a Subsidiary that is not a Wholly Owned Recourse
Subsidiary, Debt of such Subsidiary.
"Applicable Pari Passu Debt" means:
(1) in respect of any asset that is the subject of an Asset Disposition
at a time when such asset is included in the Collateral, Pari Passu
Debt that is secured at such time by Collateral; or
(2) in respect of any asset that is the subject of an Asset Disposition
at a time when such asset is not included in the Collateral but is
owned, directly or indirectly, by a Foreign Subsidiary the stock of
which is included in the Collateral, Pari Passu Debt that is secured
at such time by Collateral; or
(3) in respect of any other asset, Pari Passu Debt.
69
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary of the Company (other than directors' qualifying
shares and other than Capital Stock of a Non-Recourse Subsidiary), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries (other than a
Non-Recourse Subsidiary) (including any disposition by means of a merger,
consolidation or similar transaction) other than:
(i) a disposition by a Subsidiary of the Company to the Company or
by the Company or a Subsidiary of the Company to a Wholly Owned
Recourse Subsidiary;
(ii) a disposition of property or assets by the Company or its
Subsidiaries at fair market value in the ordinary course of
business;
(iii) a disposition by the Company or its Subsidiaries of obsolete
assets in the ordinary course of business;
(iv) a disposition subject to or permitted by the provisions
described in "--Limitation on Restricted Payments" above;
(v) an issuance of employee stock options; and
(vi) a disposition by the Company or its Subsidiaries in which the
Company or its Subsidiaries receive as consideration Capital
Stock of (or similar interests in) a Person engaged in, or assets
that will be used in, the businesses of the Company and its
Wholly Owned Recourse Subsidiaries, or additionally, in the case
of a disposition by a Subsidiary of the Company that is not a
Wholly Owned Recourse Subsidiary, the business of such
Subsidiary, existing on the Issue Date or in businesses
reasonably related thereto, as determined by the Board of
Directors of the Company, the determination of which shall be
conclusive and evidenced by a resolution of the Board of
Directors of the Company, provided that if such disposition
involves assets consisting of Collateral, such Capital Stock is
pledged to the Collateral Agent as Collateral, subject to
Permitted Liens and the Collateral Agency Agreement.
"Bank Debt" means any and all amounts payable by the Company or any of its
Subsidiaries under or in respect of the Credit Agreement or any Refinancing
thereof, or any other agreements with lenders party to the foregoing, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof; provided, however,
that nothing in this definition shall permit the Company or any of its
Subsidiaries to Issue any Debt that is not permitted pursuant to "--Limitation
on Debt" above.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee thereof duly authorized to act on
behalf of such Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
70
"Collateral" means all property and assets that from time to time secure
the Notes pursuant to the applicable Security Documents and the Collateral
Agency Agreement.
"Collateral Agency Agreement" means the Collateral Agency Agreement dated
November 30, 2001 by and among the Company, the Trustee, JPMorgan Chase Bank,
as administrative agent under the Credit Agreement and as administrative agent
for the benefit of the holders of the Bank Obligations referred to therein, and
the Collateral Agent, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Collateral Agent" means Wilmington Trust Company in its capacity as
collateral agent under the Collateral Agency Agreement for the benefit of the
Holders, among others, until a successor replaces it in accordance with the
applicable provisions of the Collateral Agency Agreement, and thereafter means
such successor.
"Consolidated EBITDA Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of EBITDA for such period to (ii) Consolidated
Interest Expense for such period; provided, however, that:
(1) if the Company or any Subsidiary of the Company has Issued any Debt
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an Issuance of Debt, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt
had been Issued on the first day of such period and the discharge of
any other Debt Refinanced or otherwise discharged with the proceeds of
such new Debt as if such discharge had occurred on the first day of
such period;
(2) if since the beginning of such period the Company or any Subsidiary
of the Company shall have made any Asset Disposition, EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Debt of the Company or any Subsidiary of
the Company Refinanced or otherwise discharged with respect to the
Company and its continuing Subsidiaries in connection with such Asset
Dispositions for such period (or if the Capital Stock of any
Subsidiary of the Company is sold, the Consolidated Interest Expense
for such period directly attributable to the Debt of such Subsidiary
to the extent the Company and its continuing Subsidiaries are no
longer liable for such Debt after such sale); and
(3) if since the beginning of such period the Company or any Subsidiary
of the Company (by merger or otherwise) shall have made an Investment
in any Subsidiary of the Company (or any Person which becomes a
Subsidiary of the Company) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all of
an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma
effect thereto, as if such Investment or acquisition occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Debt Issued in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Debt bears a floating rate of interest and is being given pro forma effect, the
interest on such Debt shall be calculated as if the rate in effect on the date
of determination had been the applicable rate for the entire period.
71
"Consolidated Interest Expense" means, for any period, the sum of:
(a) the interest expense, net of any interest income, of the Company
and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries) for such period as determined in accordance with
GAAP consistently applied; plus
(b) Preferred Stock dividends in respect of Preferred Stock of the
Company or any Subsidiary of the Company (other than a
Non-Recourse Subsidiary) held by Persons other than the Company
or a Wholly Owned Recourse Subsidiary; plus
(c) the cash contributions to an employee stock ownership plan of
the Company and its Subsidiaries (other than Non-Recourse
Subsidiaries) to the extent such contributions are used by an
employee stock ownership plan to pay interest.
"Consolidated Net Income" means with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted to the extent included in calculating such net income (or loss),
by excluding:
(i) all extraordinary gains or losses;
(ii) the portion of net income (or loss) of such Person and its
consolidated Subsidiaries attributable to minority interests in
unconsolidated Persons except to the extent that, in the case of
net income, cash dividends or distributions have actually been
received by such Person or one of its consolidated Subsidiaries
(subject, in the case of a dividend or distribution received by a
Subsidiary of such Person, to the limitations contained in clause
(v) below) and, in the case of net loss, such Person or any
Subsidiary of such Person has actually contributed, lent or
transferred cash to such unconsolidated Person;
(iii) net income (or loss) of any other Person attributable to any
period prior to the date of combination of such other Person with
such Person or any of its Subsidiaries on a "pooling of
interests" basis;
(iv) net gains or losses in respect of dispositions of assets by such
Person or any of its Subsidiaries (including pursuant to a
sale-and-leaseback arrangement) other than in the ordinary course
of business;
(v) the net income of any Subsidiary of such Person to the extent
that the declaration of dividends or distributions by that
Subsidiary of that income is not at the time permitted, directly
or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Subsidiary or its
shareholders;
(vi) any net income or loss of any Non-Recourse Subsidiary, except
that such Person's equity in the net income of any such
Non-Recourse Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Non-Recourse Subsidiary during such
period to such Person as a dividend or other distribution; and
(vii) the cumulative effect of a change in accounting principles;
provided, however, that in using Consolidated Net Income for
purposes of calculating the Consolidated EBITDA Coverage Ratio at
any time, net income of a Subsidiary of the type described in
clause (v) of this definition shall not be excluded.
"Consolidated Net Worth" of any Person means, at any date, all amounts
which would, in conformity with GAAP, be included under shareholders' equity on
a consolidated balance sheet of such Person as at such date, less (x) any
amounts attributable to Redeemable Stock and (y) any amounts attributable to
Exchangeable Stock.
"Credit Agreement" means the Second Amended and Restated Credit Agreement
dated November 30, 2001 by and among the Company, JPMorgan Chase Bank,
Citibank, N.A. and others, as agents, and the lenders named therein, as the
same may be amended, restated, supplemented or otherwise modified from time to
time.
72
"Debt" of any Person means, without duplication:
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by Notes, debentures, bonds or other
similar instruments for the payment of which such Person is
responsible or liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and
other accrued current liabilities arising in the ordinary course
of business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar
credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment (including liquidation preference) or other
repurchase of, in the case of a Subsidiary of the Company, any
Preferred Stock and, in the case of any other Person, any
Redeemable Stock (but excluding in each case any accrued
dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or
liable, directly or indirectly, as obligor, guarantor or
otherwise, including guarantees of such obligations and
dividends; and
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed
by such Person), the amount of such obligation being deemed to be
the lesser of the value of such property or assets or the amount
of the obligation so secured.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulting Subsidiary" means any Subsidiary of the Company (other than a
Non-Recourse Subsidiary) with respect to which an event described under clauses
(vi), (vii) or (viii) in "--Defaults" above has occurred and is continuing.
"Depository" means, with respect to the Notes issuable or issued in whole
or in part in global form, The Depository Trust Company, until a successor
shall have been appointed and become such pursuant to the applicable provisions
of the Indenture and, thereafter, "Depository" shall mean or include such
successor.
"EBITDA" means, for any period, the Consolidated Net Income of the Company
for such period, plus the following to the extent included in calculating such
Consolidated Net Income:
(i) income tax expense;
(ii) Consolidated Interest Expense;
(iii) depreciation expense;
(iv) amortization expense;
(v) all other noncash charges (excluding any noncash charge to the
extent that it requires an accrual of or a reserve for cash
disbursements for any future period); and
73
(vi) foreign currency gains or losses.
"Escrow Agreement" means the escrow agreement dated November 26, 2001 by
and among the Company and Wilmington Trust Company, as escrow agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock of a Person which by its
terms or otherwise is required to be exchanged or converted or is exchangeable
or convertible at the option of the holder into another security (other than
Capital Stock of such Person which is neither Exchangeable Stock nor Redeemable
Stock).
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is
organized under the laws of any jurisdiction outside of the United States, (ii)
is organized under the laws of Puerto Rico or the U.S. Virgin Islands, (iii)
has substantially all its operations outside of the United States, or (iv) has
substantially all its operations in Puerto Rico or the U.S. Virgin Islands.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time, except that for purposes of calculating
the Consolidated EBITDA Coverage Ratio, it shall mean generally accepted
accounting principles in the United States as in effect on the Issue Date.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such other Person (whether arising
by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "guarantee" used as a verb has a corresponding meaning.
"Guarantees" means the Parent Guarantee and the Subsidiary Guarantees.
"Guarantors" means, collectively, the Parent Guarantor and the Subsidiary
Guarantors.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such Person against
changes in interest rates or foreign exchange rates.
"Holder" or "Securityholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Indenture Documents" means the Indenture, the Notes, the Guarantees, the
Escrow Agreement, the Collateral Agency Agreement and the Security Documents.
"Investment" in any Person means any loan or advance to, any net payment
on a guarantee of, any acquisition of Capital Stock, equity interest,
obligation or other security of, or capital contribution or other investment
in, such Person. Investments shall exclude advances to customers and suppliers
in the ordinary course of business. The term "Invest" used as verb has a
corresponding meaning. For purposes of the definitions of "Non-Recourse
Subsidiary" and "Restricted Payment" and for purposes of "--Limitation on
Restricted Payments" above, (i) "Investment" shall include a designation after
the Issue Date of a Subsidiary of the Company as a Non-Recourse Subsidiary, and
such Investment shall be valued at an amount equal to the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is designated a Non-Recourse Subsidiary; and (ii) any property
transferred to or from a Non-Recourse Subsidiary shall be valued at its fair
market value at the time of such transfer, in each
74
case as determined in good faith by the Board of Directors of the Company, and
if such property so transferred (including in a series of related transactions)
has a fair market value, as so determined by the Board of Directors, in excess
of $10,000,000, such determination shall be confirmed by an independent
appraiser.
"Issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary of another Person (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary of such other Person. The term
"Issuance" or "Issued" has a corresponding meaning.
"Issue Date" means the date of original issue of the original Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or in the
state where the principal office of the Trustee is located.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Mafco Consolidated Group" means the "Affiliated Group" (within the
meaning of Section 1504(a)(1) of the Code) of which Mafco Holdings is the
common parent.
"Mafco Holdings" means Mafco Holdings Inc., a Delaware corporation, and
its successors.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Debt or other obligations
relating to such properties or assets or received in any other noncash form)
therefrom, in each case net of:
(i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required or estimated in good
faith to be required to be accrued as a liability under GAAP, as
a consequence of such Asset Disposition;
(ii) all payments made on any Debt which is secured by any assets
subject to such Asset Disposition, in accordance with the terms
of any Lien upon or other security agreement of any kind with
respect to such assets, or which must by its terms, or in order
to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from or in
connection with such Asset Disposition and;
(iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition;
provided, however, that in connection with an Asset Disposition to a Subsidiary
of the Company (other than a Wholly Owned Recourse Subsidiary), Net Available
Cash will be deemed to be a percentage of Net Available Cash (as calculated
above) equal to (A) 100% minus (B) the Company's percentage ownership in such
Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or estimated in
good faith to be payable as a result thereof.
"Non-Convertible Capital Stock" means, with respect to any corporation,
any non-convertible Capital Stock of such corporation and any Capital Stock of
such corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
75
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
neither the Company nor its Subsidiaries (other than a Non-Recourse Subsidiary)
(A) provide credit support (including any undertaking, agreement or instrument
which would constitute Debt), (B) is directly or indirectly liable or (C)
constitute the lender and (ii) no default with respect to which (including any
rights which the holders thereof may have to take enforcement action against
the assets of a Non-Recourse Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of the Company or its Subsidiaries
(other than Non-Recourse Subsidiaries) to declare a default on such other Debt
or cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of the Company (i) which has
been designated as such by the Company, (ii) which has no Debt other than
Non-Recourse Debt and (iii) which is in the same line of business as the
Company and its Wholly Owned Recourse Subsidiaries existing on the Issue Date
or in businesses reasonably related thereto.
"Obligations" means (a) the full and punctual payment of Principal of and
interest, if any, on the Notes when due, whether at maturity, by acceleration,
by redemption or otherwise, and all other monetary obligations of the Company
under this Indenture and the Notes and (b) the full and punctual performance of
all other obligations of the Company under this Indenture and the Notes.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Vice Chairman, the President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, an Assistant Treasurer,
Secretary or an Assistant Secretary, of the Company and delivered to the
Trustee. One of the Officers signing an Officers' Certificate given pursuant to
the last paragraph under "--Defaults" above shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company (or to Parent or one of its Subsidiaries or the
Trustee).
"Parent" means Revlon, Inc., a Delaware corporation, and any other Person
which acquires or owns directly or indirectly 80% or more of the voting power
of the Voting Stock of the Company.
"Parent Guarantee" means a guarantee on the terms set forth in the
Indenture by the Parent Guarantor of the Company's obligations with respect to
the Notes.
"Parent Guarantor" means Revlon, Inc., a Delaware corporation, and its
successors.
"Pari Passu Debt" means the following obligations, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, and whether at any
time owing actually or contingent:
(i) all obligations consisting of the Bank Debt, the Notes, the 9%
Senior Notes and the 8 1/8% Senior Notes;
(ii) all obligations consisting of the principal of and premium (if
any) and accrued and unpaid interest (including interest accruing
on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company), and all fees, expenses
and other amounts in respect of (A) indebtedness of the Company
for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of
which the Company is responsible or liable;
(iii) all Capital Lease Obligations of the Company;
(iv) all obligations of the Company (A) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar
credit transaction, (B) under interest rate swaps, caps, collars,
options and similar arrangements and foreign currency hedges
entered into in respect of any obligations described in clauses
(i), (ii) and (iii) or (C) Issued or assumed as the deferred
purchase price of property and all conditional sale obligations
of the Company and all obligations of the Company under any title
retention agreement;
76
(v) all obligations of other Persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons
for the payment of which, in either case, the Company is
responsible or liable as obligor, guarantor or otherwise,
including by means of any agreement which has the economic effect
of a guarantee; and
(vi) all obligations consisting of Refinancings of any obligation
described in clauses (i), (ii), (iii), (iv) or (v);
unless, in the case of any particular obligation, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes. However, Pari Passu Debt will not include:
(1) any obligation of the Company to any Subsidiary of the Company or any
Permitted Affiliate Debt;
(2) any liability for Federal, state, local or other taxes owed or owing
by the Company;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any indebtedness, guarantee or obligation of the Company (including
the 8 5/8% Senior Subordinated Notes) that is subordinate or junior in
any respect to any other indebtedness, guarantee or obligation of the
Company; or
(5) that portion of any Debt which at the time of Issuance is issued in
violation of the Indenture; provided, however, that in the case of
this clause (5), (A) any Debt Issued to any person who had no actual
knowledge that the Issuance of such Debt was not permitted under the
Indenture and who received on the date of Issuance thereof a
certificate from an officer of the Company to the effect that the
Issuance of such Debt would not violate the Indenture shall constitute
Pari Passu Debt and (B) any Debt arising from the honoring by a bank
or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business shall
constitute Pari Passu Debt provided that such Debt would normally be
extinguished within three Business Days of Issuance.
"Permitted Affiliate" means any individual that is a director or officer
of the Company, of Parent, of a Subsidiary of the Company or of an Unrestricted
Affiliate; provided, however, that such individual is not also a director or
officer of Mafco Holdings or any Person that controls Mafco Holdings.
"Permitted Affiliate Debt" means (i) Debt Issued to an Affiliate of the
Company representing amounts owing by the Company pursuant to the Tax Sharing
Agreement and (ii) Debt Issued to an Affiliate of the Company to the extent of
cash actually received by the Company, which cash either is required to be
advanced or contributed to the Company pursuant to the terms of the Credit
Agreement or any Refinancing thereof or, if not advanced or contributed to the
Company, would lead to a default under the Credit Agreement or any Refinancing
thereof.
"Permitted Holders" means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee or
other personal representative (collectively, "heirs")) or any Person
controlled, directly or indirectly, by Ronald O. Perelman or his heirs.
"Permitted Transactions" means (i) any transaction or series of similar
transactions (including the purchase, sale, lease or exchange of any property
or the rendering of any service) between the Company or any Subsidiary of the
Company, on the one hand, and any Affiliate of the Company or any legal or
beneficial owner of 10% or more of the voting power of Voting Stock of the
Company or an Affiliate of any such owner, on the other hand, existing on, or
pursuant to an agreement in effect on, the Issue Date and disclosed on a
schedule to the Indenture and any amendments thereto which do not adversely
affect the rights of the Holders and (ii) any Tax Sharing Agreement.
77
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Primary First-Lien Obligations" means at any time, the obligations that
are represented by the Person serving at that time as the Controlling Party
under (and as defined in) in the Collateral Agency Agreement.
"principal" of a Note as of any date means the principal of the Note as of
such date.
"Public Debt" means obligations of the Company or of a Guarantor evidenced
by bonds, debentures, notes and similar instruments issued in a manner and
pursuant to documentation customary in the intended market for obligations
publicly traded or traded in the high yield bond or other private placement or
similar market primarily among financial institutions (other than any such
obligations that are traded primarily among commercial banks).
"Public Equity Offering" means an underwritten public offering of equity
securities of the Company or Revlon, Inc. pursuant to an effective registration
statement under the Securities Act.
"Put Amount" as of any date means, with respect to each $1,000 principal
amount of Notes, 101% of the outstanding principal amount thereof as of the
date of repurchase.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Notes or is redeemable at the option of the holder thereof at
any time on or prior to the first anniversary of the Stated Maturity of the
Notes.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in exchange
or replacement for, such Debt. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Costs" means, with respect to any Debt being Refinanced, any
premium actually paid thereon and reasonable costs and expenses, including
underwriting discounts, in connection with such Refinancing.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means, collectively, the pledge agreements, security
agreements and mortgages listed on Schedule II of the Indenture and all other
security documents delivered to the Collateral Agent on November 30, 2001
granting a security interest in any assets of any Person to secure the
Obligations, in each case as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Shelf Registration Statement" has the meaning ascribed thereto in the
Registration Agreement.
"Significant Subsidiary" means:
(i) any Subsidiary (other than a Non-Recourse Subsidiary) of the
Company which at the time of determination either (A) had assets
which, as of the date of the Company's most recent quarterly
consolidated balance sheet, constituted at least 5% of the
Company's total assets on a consolidated basis as of such date,
in each case determined in accordance with GAAP, or (B) had
revenues for the 12-month period ending on the date of the
Company's most recent quarterly consolidated statement of income
which constituted at least 5% of the Company's total revenues on
a consolidated basis for such period; or
(ii) any Subsidiary of the Company (other than a Non-Recourse
Subsidiary) which, if merged with all Defaulting Subsidiaries (as
defined below) of the Company, would at the time of
78
determination either (A) have had assets which, as of the date of the
Company's most recent quarterly consolidated balance sheet, would have
constituted at least 10% of the Company's total assets on a consolidated
basis as of such date or (B) have had revenues for the 12-month period
ending on the date of the Company's most recent quarterly consolidated
statement of income which would have constituted at least 10% of the
Company's total revenues on a consolidated basis for such period (each
such determination being made in accordance with GAAP).
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the principal of such security is
due and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).
"Subordinated Obligation" means any Debt of the Company (whether
outstanding on the date hereof or hereafter Issued) which is subordinate or
junior in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantee" means a guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect
to the Notes.
"Subsidiary Guarantors" means, collectively, the Subsidiaries of the
Company party to the Indenture and any Subsidiary that executes a Subsidiary
Supplemental Indenture pursuant to the Indenture.
"Tax Sharing Agreement" means:
(i) that certain agreement dated June 24, 1992, as amended, among
the Company, certain of its Subsidiaries, Revlon Holdings, Inc.,
Revlon, Inc. and Mafco Holdings; and
(ii) any other tax allocation agreement between the Company or any of
its Subsidiaries with any direct or indirect shareholder of the
Company with respect to consolidated or combined tax returns
including the Company or any of its Subsidiaries but only to the
extent that amounts payable from time to time by the Company or
any such Subsidiary under any such agreement do not exceed the
corresponding tax payments that the Company or such Subsidiary
would have been required to make to any relevant taxing authority
had the Company or such Subsidiary not joined in such
consolidated or combined returns, but instead had filed returns
including only the Company or its Subsidiaries (provided that any
such agreement may provide that, if the Company or any such
Subsidiary ceases to be a member of the affiliated group of
corporations of which Mafco Holdings is the common parent for
purposes of filing a consolidated Federal income tax return (such
cessation, a "Deconsolidation Event"), then the Company or such
Subsidiary shall indemnify such direct or indirect shareholder
with respect to any Federal, state or local income, franchise or
other tax liability (including any related interest, additions or
penalties) imposed on such shareholder as the result of an audit
or other adjustment with respect to any period prior to such
Deconsolidation Event that is attributable to the Company, such
Subsidiary or any predecessor business thereof (computed as if
the Company, such Subsidiary or such predecessor business, as the
case may be, were a stand-alone entity that filed separate tax
returns as an independent corporation), but only to the extent
that any such tax liability exceeds any liability for taxes
recorded on the books of the Company or such Subsidiary with
respect to any such period).
79
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the
United States of America or any agency thereof, in each case,
maturing within 360 days of the date of acquisition thereof;
(ii) investments in time deposit accounts, certificates of deposit
and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company (including
the Trustee) which is organized under the laws of the United
States of America, any state thereof or any foreign country
recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250.0
million and whose debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by any
registered broker dealer or mutual fund distributor;
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above
entered into with a nationally recognized broker-dealer;
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other
than an Affiliate or Subsidiary of the Company) organized and in
existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of
"P-2" (or higher) according to Moody's Investors Service, Inc. or
"A-2" (or higher) according to Standard and Poor's Corporation;
(v) securities with maturities of six months or less from the date
of acquisition backed by standby or direct pay letters of credit
issued by any bank satisfying the requirements of clause (ii)
above; and
(vi) securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Corporation or "A" by Moody's
Investors Service, Inc.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
"Trustee" means the party named in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Affiliate" means a Person (other than a Subsidiary of the
Company) controlled (as defined in the definition of an "Affiliate") by the
Company, in which no Affiliate of the Company (other than (x) a Wholly Owned
Recourse Subsidiary of the Company, (y) a Permitted Affiliate and (z) another
Unrestricted Affiliate) has an Investment.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "Certain Covenants--Limitation on Debt,"
whenever it is necessary to determine whether the Company has complied with any
covenant in the Indenture or a Default has occurred and an amount is expressed
in a currency other than U.S. dollars, such amount will be treated as the U.S.
Dollar Equivalent determined as of the date such amount is initially determined
in such currency.
80
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Recourse Subsidiary" means a Subsidiary of the Company
(other than a Non-Recourse Subsidiary) all the Capital Stock of which (other
than directors' qualifying shares) is owned by (i) the Company, (ii) the
Company and one or more Wholly Owned Recourse Subsidiaries or (iii) one or more
Wholly Owned Recourse Subsidiaries.
BOOK ENTRY; DELIVERY AND FORM
The original notes were and the exchange notes will be initially issued in
the form of one or more Global Securities registered in the name of The
Depository Trust Company ("DTC") or its nominee.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the Notes represented by such Global Security purchased by such Persons in the
offering. Such accounts shall be designated by the initial purchasers.
Ownership of beneficial interests in a Global Security will be limited to
Persons that have accounts with DTC ("participants") or Persons that may hold
interests through participants. Ownership of beneficial interests in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in such Global Security other than participants). The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
Payment of principal of and interest on Notes represented by a Global
Security will be made in immediately available funds to DTC or its nominee, as
the case may be, as the sole registered owner and the sole holder of the Notes
represented thereby for all purposes under the Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Security, DTC will immediately credit, on its book entry
registration and transfer system, the accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the principal
or face amount of such Global Security as shown on the records of DTC. Payments
by participants to owners of beneficial interests in a Global Security held
through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of
such participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Notes only if:
(a) DTC notifies the Company that it is unwilling or unable to continue
as a depositary for such Global Security or if at any time DTC ceases to be
a clearing agency registered under the Exchange Act,
(b) the Company in its discretion at any time determines not to have all
the Notes represented by such Global Security, or
(c) there shall have occurred and be continuing a Default or an Event of
Default with respect to the Notes represented by such Global Security.
Any Global Security that is exchangeable for certificated Notes pursuant
to the preceding sentence will be exchanged for certificated Notes in
authorized denominations and registered in such names as DTC or any successor
depositary holding such Global Security may direct. Subject to the foregoing, a
Global Security is not exchangeable, except for a Global Security of like
denomination to
81
be registered in the name of DTC or any successor depositary or its nominee. In
the event that a Global Security becomes exchangeable for certificated Notes,
(a) certificated Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof,
(b) payment of principal of, and premium, if any, and interest on, the
certificated Notes will be payable, and the transfer of the certificated
Notes will be registerable, at the office or agency of the Company
maintained for such purposes, and
(c) no service charge will be made for any registration of transfer or
exchange of the certificated Notes, although the Company may require
payment of a sum sufficient to cover any tax or governmental charge imposed
in connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Security for all purposes under
the Indenture and the Notes. Except as set forth above, owners of beneficial
interests in a Global Security will not be entitled to have the Notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
such Global Security. Accordingly, each Person owning a beneficial interest in
a Global Security must rely on the procedures of DTC or any successor
depositary, and, if such Person is not a participant, on the procedures of the
participant through which such Person owns its interest, to exercise any rights
of a Holder under the Indenture. The Company understands that under existing
industry practices, in the event that the Company requests any action of
Holders or that an owner of a beneficial interest in a Global Security desires
to give or take any action which a Holder is entitled to give or take under the
Indenture, DTC or any successor depositary would authorize the participants
holding the relevant beneficial interest to give or take such action and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised the Company that DTC is a limited purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (which may include the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations some of whom
(or their representatives) own DTC. Access to DTC's book entry system is also
available to others, such as banks, brokers, dealers and trust companies, that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee or
the initial purchasers will have any responsibility for the performance by DTC
or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
82
DESCRIPTION OF THE COLLATERAL AND INTERCREDITOR ARRANGEMENTS
The following summary of our collateral and intercreditor arrangements is
subject to and qualified in its entirety by reference to the detailed
provisions of the security and pledge agreements, the collateral agency
agreement and the other agreements relating to collateral. We urge you to read
those agreements and the indenture governing the notes because they, and not
this description, define your rights as a holder of notes. Copies of such
agreements are available upon request to us.
COLLATERAL
The original notes are and the exchange notes will be secured on a
second-priority basis by liens on substantially the same assets that secure our
borrowings under the 2001 credit agreement on a first-priority basis. The
second-priority liens on the collateral run in favor of a collateral agent for
the benefit of the holders of the notes and certain other permitted future
obligations described below and are subject to the terms of the collateral
agency agreement described below.
The collateral securing the notes consists primarily of the following
assets that are owned by us and our domestic subsidiaries or, in the case of
our capital stock, by Revlon, Inc., subject to certain limited exceptions:
o our capital stock;
o the capital stock of our domestic subsidiaries;
o 66% of the capital stock of foreign subsidiaries held directly by us or
a domestic subsidiary;
o our facility located in Oxford, North Carolina;
o domestic inventory, equipment and accounts receivable; and
o U.S. patents, copyrights, trademarks and other domestic intangibles.
The collateral is also subject to liens in favor of holders of certain of
our other debt and non-debt obligations as follows:
First, in addition to the 2001 credit agreement and the notes, the
indenture for the notes permits us to incur additional secured debt that
can be secured by a lien on the same collateral subject to the limit
described in the next sentence. We are also permitted by the indenture to
refinance the 2001 credit agreement, the notes and any such additional
secured debt, in whole or in part, with debt secured by a lien on the same
collateral so long as the aggregate principal amount of the debt so secured
under the 2001 credit agreement, the notes, any such additional secured
debt and any refinancings thereof does not exceed $675.0 million when
incurred.
Second, certain other lines of credit at some of our foreign subsidiaries
are or will be guaranteed by us, and our obligations under those guarantees
will also be secured by a lien on the collateral. As at December 31, 2001,
in addition to foreign borrowings under the 2001 credit agreement, there
was approximately $2.5 million outstanding under those lines of credit and
in the future we may have up to a total of $30 million available under
those or other lines at our foreign subsidiaries secured by the collateral.
Third, certain types of our other obligations, such as those arising
under our hedging, foreign exchange and cash management arrangements, are
and may in the future also be secured by a lien on the collateral. See
"Description of Notes -- Certain Covenants -- Limitations on Liens."
If Revlon, Inc. or any of its subsidiaries, including us, but excluding
any foreign subsidiaries in respect of foreign borrowings, grants a lien on
additional assets in the future for the benefit of the lenders under the 2001
credit agreement or any replacement thereof (or, if neither the 2001 credit
agreement nor any replacement thereof then exists, to other holders of
first-lien obligations), we will also be required by the indenture governing
the notes to grant a second-priority lien on those additional assets to the
collateral agent for the benefit of the holders of the notes and any other
second-lien obligations.
83
The foreign lines of credit that are secured by the collateral, as well as
borrowings by certain of our foreign subsidiaries under a portion of the 2001
credit agreement, may also be secured by assets of our foreign subsidiaries
that are not included in the collateral. In addition, other permitted debt may
be secured by other assets not included in the collateral to the extent
permitted by the indenture.
The obligations referred to in clauses "Second" and "Third" above share
the first-priority liens on the collateral with the 2001 credit agreement.
Except in certain circumstances, the indenture for the notes permits the other
obligations described above to share either the first-priority liens or the
second-priority liens on the collateral as we elect. See "Description of Notes
- -- Certain Covenants -- Limitation on Liens."
EXERCISE OF REMEDIES AND APPLICATION OF PROCEEDS
All rights against the collateral of the second-lien collateral agent and
the holders of second-lien obligations, including the holders of the notes, are
subject to the terms and provisions of the collateral agency agreement.
The decision of whether, and to what extent, to exercise remedies against
the collateral will be solely at the direction of the controlling party under
the collateral agency agreement. Initially, and for so long as the 2001 credit
agreement is in effect, the controlling party under the collateral agency
agreement will be the administrative agent under the 2001 credit agreement,
acting at the direction of the lenders under the 2001 credit agreement. In the
future, the controlling party will be a representative of holders of first-lien
obligations during any period while any first-lien obligations exist.
The second-lien collateral agent and the holders of the second-lien
obligations, including the holders of the notes, do not have any right to
initiate or direct the exercise of remedies against the collateral while any
first-lien obligations exist. As a result, even following an Event of Default
under the indenture governing the notes and an acceleration of the debt
evidenced by the notes, neither the trustee nor the holders of the notes have
any right or ability to exercise or cause the exercise of remedies against the
collateral while any first-lien obligations exist. During any period when no
first-lien obligations exist, the controlling party will be the trustee under
the indenture or another representative of the holders of the second-lien
obligations, in each case, acting at the direction of a majority in interest of
those holders.
The controlling party is not entitled to direct, and the collateral agent
will have no right to commence, the exercise of remedies against the collateral
except upon certain bankruptcy events or upon our failure to pay the principal
amount due on any obligations included in the class that the controlling party
represents at any date when the principal amount of such obligations shall have
been declared or become due and payable or at final maturity. If the
second-lien collateral agent or any holder of notes receives any cash proceeds
or other monies in respect of the collateral by exercise of rights of set-off
or otherwise at any time when the controlling party would be entitled to direct
the exercise of remedies against the collateral, such proceeds or monies are
required to be delivered to the controlling party to be applied in accordance
with the collateral agency agreement.
The cash proceeds of any sales of, or collections on, any collateral
received upon or during the exercise of remedies will be applied pursuant to
the collateral agency agreement in the following order of priority:
o First, to the payment of all collection and collateral administration
expenses of the first-lien collateral agent (or, if no first-lien
obligations then exist, the second-lien collateral agent);
o Second, to the payment of all first-lien obligations, including the 2001
credit agreement, the other foreign lines and our hedging, foreign
exchange and cash management liabilities described above;
84
o Third, to the payment of all second-lien obligations, including the
notes, on a pro rata basis; and
o Fourth, to us.
RELEASES OF COLLATERAL
The indenture and the collateral agency agreement permit the
second-priority liens on the collateral to be released in the following
circumstances:
First, if we wish to sell, transfer or otherwise dispose of any asset
included in the collateral in a transaction that will not violate the asset
disposition covenant in the indenture governing the notes, then we will be
entitled to a release of the second-priority lien on that asset in order to
complete that sale or disposition. If the net proceeds of that transaction
are required by the indenture governing the notes to be reinvested in
assets, the reinvestment assets will be subject to the second-priority
liens as well as the first-priority liens.
Second, if we wish to obtain the release of an asset from the
second-priority lien under other circumstances, we will be entitled to do
so if we mail written notice of our request to the trustee and the holders
of the notes and if we do not receive written objections from holders of at
least 25% in principal amount of the notes within 20 business days after
that mailing. If we receive such objections, then we will not be entitled
to that release unless we obtain the consent of at least 66 2/3% in
principal amount of the notes.
Third, in addition to the releases described above, if the controlling
party under the collateral agency agreement consents to any release of an
asset from the first-priority lien or if no first-priority lien then
exists, then we will be entitled to the release of that asset from the
second-priority lien upon request if (i) the aggregate value of all
collateral released under this clause (i) does not exceed $5 million per
annum on a cumulative basis, (ii) we provide substitute additional
collateral having a fair value at least equal to the fair value of the
collateral that is so released and which shall also be subject to the
first-lien collateral documents or (iii) the release relates solely to
assets, property or business being acquired or constructed after November
26, 2001 and is to enable all or part of the purchase price of, or Capital
Lease Obligations with respect to, such assets, property or business to be
secured by a "purchase money lien" (a lien permitted by clause (3) under
"Description of Notes--Limitation on Liens" that relates solely to such
assets, property or business).
Fourth, if all of the stock of any of our subsidiaries that is pledged to
the collateral agent is released from the second-priority lien under any of
the circumstances described above, then we will be entitled to the release
of the assets of that subsidiary from the second-priority liens as well. If
any notice given under paragraph "Second" above relates to the release of
all the stock of a subsidiary, the notice must also state that all the
assets of the subsidiary comprising collateral will be released as well. If
the stock of any of our subsidiaries is released under the circumstances
described in clause (ii) in paragraph "Third" above, the substitute
additional collateral must have a fair value at least equal to the fair
value (without duplication) of the stock of the subsidiary and the assets
of the subsidiary so released.
The second-lien collateral agent, for itself and on behalf of each holder
of notes, has granted the first-lien collateral agent a power of attorney to
accomplish the purposes of the foregoing release provisions (except with
respect to paragraph "Second" above) in the place of the second-lien collateral
agent.
AMENDMENT TO COLLATERAL DOCUMENTS
We are not permitted to amend or modify, or seek a consent under, any of
the security agreements, pledge agreements, mortgages or other documents that
create the second-priority liens on the collateral in any way that would be
adverse to the holders of the notes in any material respect except in the
following circumstances:
85
First, if the controlling party under the collateral agency agreement
agrees to any amendment or waiver of, or consent under, any provision of
the first-lien collateral documents, then such amendment, waiver or consent
will automatically apply to the comparable provision of the comparable
second-lien collateral document. Any amendments, waivers or consents that
effect a release of collateral from the second liens, however, will not be
permitted except as provided under "Releases of Collateral" above.
Second, if we wish to obtain an amendment or waiver or seek a consent
under any second-lien collateral document under other circumstances, we
will be entitled to do so if we mail written notice of our request to the
trustee and the holders of the notes and if we do not receive written
objections from holders of at least 25% in principal amount of the notes
within 20 business days after that mailing. If we receive such objections,
then we will not be entitled to effect that amendment or waiver, and such
consent will not be effective, unless we obtain the consent of a majority
in principal amount of the notes.
86
DESCRIPTION OF OTHER INDEBTEDNESS
Each of the following summaries of our indebtedness is subject to and
qualified in its entirety by reference to the detailed provisions of the
respective agreements and instruments to which each summary relates. Copies of
such agreements and instruments are available upon request to us or the initial
purchasers.
THE 2001 CREDIT AGREEMENT
The 2001 credit agreement provides up to $250.0 million in credit
facilities and is comprised of two senior secured facilities provided by a
syndicate of lenders: a term loan facility of $117.9 million (the "Term Loan
Facility"), and a $132.1 million multi-currency revolving credit facility (the
"Revolving Credit Facility", together with the Term Loan Facility, the "Credit
Facilities"). The Revolving Credit Facility is available (i) to us in revolving
credit loans denominated in U.S. dollars (the "Revolving Credit Loans"), (ii)
to us as swing loans (subject to a sub-limit of no more than $30.0 million)
and/or letters of credit (subject to a sub-limit of no more than $50.0 million)
denominated in U.S. dollars (the "Letters of Credit") and (iii) to us and
certain of our international subsidiaries designated from time to time in
revolving credit loans and bankers' acceptances denominated in U.S. dollars and
other currencies (the "Local Loans").
The Credit Facilities (other than the Local Loans) bear interest at a rate
equal to, at our option, either (i) the Alternate Base Rate (as defined in the
2001 credit agreement) plus 3.75%; or (B) the Eurodollar Rate (as defined in
the 2001 credit agreement) plus 4.75%. Local Loans bear interest at a rate
equal to the Eurocurrency Rate (as defined in the 2001 credit agreement) or, if
the lender making the Local Loan agrees, the local lender rate, in each case
plus 4.75%. The Credit Facilities require the payment of the following fees:
(i) 0.75% of the average daily unused portion of the Revolving Credit Facility,
(ii) 0.25% of the outstanding amount of any Local Loan, and (iii) 4.75% of the
aggregate undrawn face amounts of outstanding Letters of Credit. In addition,
we paid certain facility and other fees to the lenders and agents upon closing
of the 2001 credit agreement. Prior to its termination date, the commitments
under the Credit Facilities will be reduced by: (i) the net proceeds received
from sales of assets by us or our subsidiaries and (ii) the net proceeds from
the issuance by Revlon, Inc., us or any of our subsidiaries of certain
indebtedness for borrowed money, subject, in each case, to certain limited
exceptions. The 2001 credit agreement will terminate on May 30, 2005.
The Credit Facilities, subject to certain exceptions and limitations, are
supported by guarantees from Revlon, Inc. and our domestic subsidiaries and,
with respect to the Local Loans, by us. Our obligations under the Credit
Facilities and the obligations under the aforementioned guarantees are secured
on a first-priority basis, subject to certain limited exceptions, primarily by
(i) a mortgage on our facility in Oxford, North Carolina; (ii) our capital
stock, the capital stock of our domestic subsidiaries and 66% of the capital
stock of our first tier foreign subsidiaries; (iii) domestic intellectual
property and intangibles; (iv) domestic inventory, equipment and accounts
receivable; and (v) certain assets of certain international subsidiaries who
are borrowers of Local Loans (to support their borrowings only). The 2001
credit agreement provides that the liens on the stock and property described
above may be shared from time to time with specified types of other obligations
incurred or guaranteed by us, such as interest rate hedging obligations and
certain working capital lines and permits second-priority liens on such stock
and property to secure the notes.
The 2001 credit agreement contains various restrictive covenants
prohibiting us and our subsidiaries from (i) with certain exceptions, incurring
additional indebtedness or guarantees, (ii) making dividend, tax sharing
payments and other restricted payments to any of our parent companies or
affiliates, including payments under such tax sharing agreements on account of
U.S. federal gains taxes due with respect to asset sales, in each case with
certain exceptions, (iii) creating liens or other encumbrances on our assets or
revenues, granting negative pledges or selling or transferring any of our
assets except in the ordinary course of business, all subject to certain
limited exceptions, (iv) with certain exceptions, engaging in merger or
acquisition transactions, (v) prepaying indebtedness, subject to certain
limited exceptions, and modifying the terms of certain indebtedness and
material contractual obligations, (vi) making investments, subject to certain
limited exceptions,
87
and (vii) entering into transactions with our affiliates other than upon terms
no less favorable to us or our subsidiaries than would be obtained in an
arms'-length transaction. In addition to the foregoing, the 2001 credit
agreement contains financial covenants requiring us to maintain minimum EBITDA
levels and a ratio of debt outstanding under the 2001 credit agreement to
EBITDA and covenants that limit the amount of our capital expenditures.
The "Events of Default" under the 2001 credit agreement include:
(i) nonpayment of any principal, interest or other fees when due,
subject in the case of interest and fees to a grace period,
(ii) non-compliance with the covenants in the 2001 credit agreement
or the ancillary security documents, subject in certain instances
to grace periods,
(iii) the institution of any bankruptcy, insolvency or similar
proceeding by or against us, any of our subsidiaries or Revlon,
Inc.,
(iv) a default by Revlon, Inc. or any of its subsidiaries on certain
debt instruments,
(v) the failure by us, certain of our subsidiaries or Revlon, Inc.
to pay certain material judgments,
(vi) a change of control such that (A) Revlon, Inc. does not own 100%
of our capital stock, (B) any person (or group of persons acting
in concert) other than Ronald O. Perelman (or his heirs, estate
or other personal representative or affiliates) controls us, or
if Ronald O. Perelman (or his heirs, estate or other personal
representatives or affiliates) does not control us, any other
person (or group of persons acting in concert) owns more than 25%
of our voting power or (C) one third or more of the directors
serving on our board of directors did not either serve as a
director on the date of the closing of the 2001 credit agreement
or was not nominated as a director by at least two thirds of such
continuing directors,
(vii) the failure of Revlon, Inc. to contribute to us as a capital
contribution all of the net proceeds it receives from the sale of
(A) any of its equity securities or (B) any of our capital stock,
(viii) the failure of any of our, our subsidiaries' or Revlon, Inc.'s
representations or warranties in any of the documents entered
into in connection with the 2001 credit agreement to be correct
in all material respects when made or confirmed,
(ix) the conduct by Revlon, Inc. of any meaningful business
activities other than those that are customary for a publicly
traded holding company which is not itself an operating company,
including the ownership of meaningful assets (other than our
capital stock) or, subject to limited exceptions, the incurrence
of debt, and
(x) the failure of certain of our affiliates which hold our or our
subsidiaries' indebtedness to be party to a valid and enforceable
agreement prohibiting such affiliate from demanding or retaining
payments in respect of such indebtedness.
The events of default under the 2001 credit agreement include other
customary events of default for such types of agreements.
8 1/8% SENIOR NOTES
The 8 1/8% Senior Notes due 2006, or the 8 1/8% Senior Notes, are senior
unsecured obligations of Revlon and rank pari passu in right of payment with
all our existing and future Pari Passu Debt (as defined in the indenture
relating to the 8 1/8% Senior Notes, or the 8 1/8% Senior Notes Indenture),
including the 12% Senior Secured Notes, the 9% Senior Notes and the
indebtedness under the 2001 credit agreement, and are senior to the 8 5/8%
Senior Subordinated Notes and to all our future subordinated indebtedness. The
8 1/8% Senior Notes are effectively subordinated to the outstanding indebtedness
and other liabilities of our subsidiaries. Interest is payable on February 1
and August 1.
88
The 8 1/8% Senior Notes may be redeemed at our option in whole or from time
to time in part at any time on or after February 1, 2002 at the redemption
prices set forth in the 8 1/8% Senior Notes Indenture plus accrued and unpaid
interest, if any, to the date of redemption.
Upon a Change of Control (as defined in the 8 1/8% Senior Notes Indenture),
we will have the option to redeem the 8 1/8% Senior Notes in whole at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of redemption plus the Applicable Premium
(as defined in the 8 1/8% Senior Notes Indenture) and, subject to certain
conditions, each holder of the 8 1/8% Senior Notes will have the right to
require us to repurchase all or a portion of such holder's 8 1/8% Senior Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of repurchase.
The 8 1/8% Senior Notes Indenture contains covenants that, among other
things, limit (i) the issuance of additional debt and redeemable stock by us,
(ii) the incurrence of liens, (iii) the issuance of debt and preferred stock by
our subsidiaries, (iv) the payment of dividends on our capital stock and that
of our subsidiaries and the redemption of our capital stock and certain
subordinated obligations, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all our assets. The 8 1/8% Senior Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
9% SENIOR NOTES
The 9% Senior Notes due 2006, or the 9% Senior Notes, are senior unsecured
obligations of Revlon and rank pari passu in right of payment with all our
existing and future Pari Passu Debt (as defined in the indenture relating to
the 9% Senior Notes, or the 9% Senior Notes Indenture), including the 12%
Senior Secured Notes, the 8 1/8% Senior Notes and the indebtedness under the
2001 credit agreement, and are senior to the 8 5/8% Senior Subordinated Notes
and to all our future subordinated indebtedness. The 9% Senior Notes are
effectively subordinated to outstanding indebtedness and other liabilities of
our subsidiaries. Interest is payable on May 1 and November 1.
The 9% Senior Notes may be redeemed at our option in whole or from time to
time in part at any time on or after November 1, 2002 at the redemption prices
set forth in the 9% Senior Notes Indenture plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any time prior to November 1,
2001, we may redeem up to 35% of the aggregate principal amount of the 9%
Senior Notes originally issued at a redemption price of 109% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the date
fixed for redemption, with, and to the extent we receive, the net cash proceeds
of one or more Public Equity Offerings (as defined in the 9% Senior Notes
Indenture), provided that at least $162.5 million aggregate principal amount of
the 9% Senior Notes remains outstanding immediately after the occurrence of
each such redemption.
Upon a Change in Control (as defined in the 9% Senior Notes Indenture), we
will have the option to redeem the 9% Senior Notes in whole at a redemption
price equal to the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of redemption plus the Applicable Premium (as
defined in the 9% Senior Notes Indenture) and, subject to certain conditions,
each holder of the 9% Senior Notes will have the right to require us to
repurchase all or a portion of such holder's 9% Senior Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of repurchase.
The 9% Senior Notes Indenture contains covenants that, among other things,
limit (i) the issuance of additional debt and redeemable stock by us, (ii) the
incurrence of liens, (iii) the issuance of debt and preferred stock by our
subsidiaries, (iv) the payment of dividends on our capital stock and that of
our subsidiaries and the redemption of our capital stock and certain
subordinated obligations, (v) the sale of assets and subsidiary stock, (vi)
transactions with affiliates and (vii) consolidations, mergers and transfers of
all or substantially all our assets. The 9% Senior Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
89
8 5/8% SENIOR SUBORDINATED NOTES
The 8 5/8% Notes due 2008, or the 8 5/8% Senior Subordinated Notes, are
general unsecured obligations of Revlon and are (i) subordinate in right of
payment to all our existing and future Senior Debt (as defined in the indenture
relating to the 8 5/8% Senior Subordinated Notes, or the 8 5/8% Senior
Subordinated Notes Indenture) of Revlon, including the 12% Senior Secured
Notes, the 9% Senior Notes, the 8 1/8% Senior Notes and the indebtedness under
the 2001 credit agreement, (ii) pari passu in right of payment with all our
future senior subordinated debt, if any, and (iii) senior in right of payment
to all our future subordinated debt, if any. The 8 5/8% Senior Subordinated
Notes are effectively subordinated to the outstanding indebtedness and other
liabilities of our subsidiaries. Interest is payable on February 1 and August
1.
The 8 5/8% Senior Subordinated Notes may be redeemed at our option in whole
or from time to time in part at any time on or after February 1, 2003 at the
redemption prices set forth in the 8 5/8% Senior Subordinated Notes Indenture
plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined in the 8 5/8% Senior Subordinated
Notes Indenture), we will have the option to redeem the 8 5/8% Senior
Subordinated Notes in whole at a redemption price equal to the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
redemption plus the Applicable Premium (as defined in the 8 5/8% Senior
Subordinated Notes Indenture) and, subject to certain conditions, each holder
of the 8 5/8% Senior Subordinated Notes will have the right to require us to
repurchase all or a portion of such holder's 8 5/8% Senior Subordinated Notes at
a price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
The 8 5/8% Senior Subordinated Notes Indenture contains covenants that,
among other things, limit (i) the issuance of additional debt and redeemable
stock by us, (ii) the incurrence of liens, (iii) the issuance of debt and
preferred stock by our subsidiaries, (iv) the payment of dividends on our
capital stock and that of our subsidiaries and the redemption of our capital
stock, (v) the sale of assets and subsidiary stock, (vi) transactions with
affiliates, (vii) consolidations, mergers and transfers of all or substantially
all of our assets and (viii) the issuance of additional subordinated debt that
is senior in right of payment to the 8 5/8% Senior Subordinated Notes. The
8 5/8% Senior Subordinated Notes Indenture also prohibits certain restrictions
on distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of important qualifications.
The 8 1/8% Senior Notes Indenture, the 8 5/8% Senior Subordinated Notes
Indenture and the 9% Senior Notes Indenture contain customary events of default
for debt instruments of such type.
OTHER INDEBTEDNESS
During 1992, Revlon Holdings Inc. (or "Holdings") an affiliate and
indirect wholly-owned subsidiary of Mafco Holdings, made an advance of $25.0
million to us, evidenced by subordinated noninterest-bearing demand notes. The
notes were subsequently adjusted by offsets and additional amounts loaned by
Holdings to us. In 1998, approximately $6.8 million due to us from Holdings was
offset against the notes payable to Holdings. At December 31, 2001, the balance
of $24.1 million is evidenced by noninterest-bearing promissory notes payable
to Holdings that are subordinated to our obligations under the 2001 credit
agreement.
90
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain material United States federal
income tax consequences of the exchange of original notes for exchange notes
pursuant to the exchange offer and of the ownership and disposition of exchange
notes. The summary is based on the Internal Revenue Code of 1986, as amended,
(or the "Code"), and regulations, rulings and judicial decisions as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
The discussion applies only to beneficial owners that purchased the original
notes pursuant to the initial offering and that hold the notes as capital
assets within the meaning of Section 1221 of the Code. This summary is for
general information only and does not address all aspects of United States
federal income taxation that may be relevant to holders of the notes in light
of their particular circumstances or to holders subject to special rules, and
it does not address the effects of any state, local or foreign tax laws.
PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF EXCHANGING ORIGINAL NOTES FOR
EXCHANGE NOTES AND OF OWNING AND DISPOSING OF EXCHANGE NOTES.
The exchange of original notes for exchange notes pursuant to the exchange
offer will not constitute a taxable event for holders because there will be no
"significant modification" of the notes for U.S. federal income tax purposes.
Accordingly, the exchange notes will be treated as a continuation of the
original notes in the hands of the holders. Therefore, if you exchange your
original notes for exchange notes pursuant to the exchange offer:
o you will not recognize gain or loss in connection with the exchange
offer;
o you will have the same adjusted tax basis in the exchange notes that you
had in the original notes immediately prior to the exchange offer;
o you will have the same holding period in the exchange notes that you had
in the original notes immediately prior to the exchange; and
o the United States federal income tax consequences associated with owning
the original notes will continue to apply to the exchange notes.
TAX CONSEQUENCES TO UNITED STATES PERSONS
For purposes of the following discussion, a "United States person" means a
beneficial owner of an exchange note that is, for United States federal income
tax purposes:
o an individual citizen or resident of the United States,
o a corporation (or other entity treated as a corporation for United
States federal income tax purposes) created or organized in or under the
laws of the United States, any State or the District of Columbia, or
o an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
If a partnership holds exchange notes, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding exchange notes should consult
their tax advisors.
Stated Interest
Stated interest on an exchange note will generally be taxable to a United
States person as ordinary interest income at the time it is accrued or received
in accordance with the United States person's method of accounting for tax
purposes.
Original Issue Discount
As a continuation of the original notes, the exchange notes will be
treated as having been issued with original issue discount (or "OID") for
United States federal income tax purposes. In general, the
91
amount of OID with respect to an original note was equal to the excess of the
note's stated redemption price at maturity (i.e., the face amount of the note)
over its issue price (i.e., the cost of the original note).
Each United States person, regardless of the holder's accounting method,
generally must include in ordinary income a portion of the remaining OID not
previously included in income for each day during each taxable year in which an
exchange note is held, determined by using a constant yield-to-maturity method
that reflects compounding of interest. This means that each United States
person holding an exchange note will be required to include amounts in income
without a corresponding receipt of cash attributable to such income.
A United States person's adjusted tax basis in an exchange note will
generally equal the original note's issue price, increase by OID included in
income with respect to the original or exchange note.
Disposition of Exchange Notes
Upon the sale, exchange, redemption, retirement or other disposition of an
exchange note, a United States person will recognize taxable gain or loss equal
to the difference between the amount realized on the disposition and the United
States person's adjusted tax basis in the exchange note. For these purposes,
the amount realized does not include any amount attributable to accrued
interest on the exchange note, which amounts are taxable as interest as
described above.
Gain or loss realized on the sale, exchange, redemption, retirement or
other disposition of an exchange note will be capital gain or loss. Prospective
investors should consult their tax advisors regarding the treatment of capital
gains (which may be taxed at lower rates than ordinary income for taxpayers who
are individuals, trusts or estates) and losses (the deductibility of which is
subject to limitations).
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to various
payments or principal and interest on the exchange notes and to the proceeds of
sale or redemption of a note unless a holder is an exempt recipient, such as a
corporation. Backup withholding tax will apply to these payments if a holder
fails to provide its taxpayer identification number or certification of foreign
or other exempt status, or if the holder fails to report the full amount of any
interest income. For 2002, the backup withholding rate is 30%.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against a holder's United States federal income tax
liability if the required information is furnished to the IRS.
TAX CONSEQUENCES TO NON-UNITED STATES PERSONS
The following is a summary of certain United States federal tax
consequences that will apply to non-United States persons. The term "non-United
States person" means a beneficial owner of an exchange note that is not a
United States person.
Stated Interest and OID
A 30% United States federal withholding tax will not apply to any payment
of interest (including OID) on an exchange note to a non-United States person,
provided that the holder:
o does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled to
vote within the meaning of section 871(h)(3) of the Code,
o is not a controlled foreign corporation that is related to us through
stock ownership, and
92
o either (a) provides its name and address, and certifies, under penalties
of perjury, that it is not a United States person, which certification may
be made on an IRS W-8BEN or successor form, or (b) holds its exchange
notes through various foreign intermediaries and satisfies the
certification requirements of applicable Treasury regulations. Special
certification and other rules apply to certain non-United States persons
that are entities rather than individuals.
If a non-United States person cannot satisfy the requirements described
above, payments of interest (including OID) will be subject to the 30% United
States federal withholding tax, unless the holder provides us with a properly
executed (1) IRS Form W-8BEN, or successor form, claiming an exemption from or
reduction in withholding under the benefit of a tax treaty or (2) IRS Form
W-8ECI, or successor form, stating that interest paid on the exchange note is
not subject to withholding tax because it is effectively connected with its
conduct of a trade or business in the United States.
If a non-United States person is engaged in a trade or business in the
United States and interest (including OID) on an exchange note is effectively
connected with the conduct of that trade or business, such holder (although
exempt from the 30% withholding tax) will be subject to United States federal
income tax on that interest (including OID) on a net income basis in the same
manner as if such holder were a United States person as defined under the Code.
In addition, if the holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or lower applicable treaty rate) of its
earnings and profits for the taxable year, subject to adjustments, that are
effectively connected with its conduct of a trade or business in the United
States. For this purpose, interest (including OID) will be included in earnings
and profits.
Disposition of Exchange Notes
The 30% United States federal withholding tax will not apply to any gain
that a non-United States person realizes on the sale, exchange, redemption,
retirement or other disposition of an exchange note.
Any gain realized on the disposition of an exchange note generally will
not be subject to United States federal income tax unless that gain is
effectively connected with the conduct of a trade or business in the United
States by the holder, the holder is an individual who is present in the United
States for 183 days or more in the taxable year of that disposition and other
conditions are met or the gain represents accrued interest, in which case the
rules for interest described above will apply.
United States Federal Estate Tax
The estate of an individual non-United States person will not be subject
to United States federal estate tax on an exchange note beneficially owned by
the individual at the time of his death, provided that (1) such individual did
not own 10% or more of the total combined voting power of all classes of our
voting stock (within the meaning of the Code and the U.S. Treasury regulations)
and (2) interest (including OID) on the exchange note would not have been, if
received at the time of the individual's death, effectively connected with his
conduct of a trade or business in the United States.
Information Reporting and Backup Withholding
In general, subject to the discussions above under "--Stated Interest and
OID," a holder will not be subject to backup withholding and information
reporting with respect to payments that we make to the holder provided that we
do not have actual knowledge that the holder is a United States person and the
holder has given us the statement or provided the certifications described
above under "--Stated Interest and OID."
In addition, subject to the discussion above under "--Disposition of
Exchange Notes," a holder will not be subject to backup withholding or
information reporting with respect to the proceeds of the sale or other
disposition of an exchange note within the United States or conducted through
certain United States-related financial intermediaries if the payor receives
the statements or certifications described above and does not have actual
knowledge that the holder is a United States person, as defined under the Code,
or the holder otherwise establishes an exemption.
93
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against a holder's United States federal income tax
liability provided the required information is furnished to the IRS.
Non-United States persons should consult their tax advisors concerning the
applicability of the above tax consequences to their particular situations,
including the necessity of satisfying various certification requirements, and
concerning the applicability of other taxes, such as estate taxes and state and
local taxes.
94
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for original notes where
the original notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days after
the expiration date of the exchange offer, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale.
These resales may be made at market prices prevailing at the time of resale, at
prices related to these prevailing market prices or negotiated prices. Any
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
broker-dealer and/or the purchasers of any of the exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account in the exchange offer and any broker or dealer that participates in a
distribution of the exchange notes may be deemed to be an underwriter within
the meaning of the Securities Act, and any profit on the resale of exchange
notes and any commission or concessions received by those persons may be deemed
to be underwriting compensation under the Securities Act. And such
broker-dealer must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
including the delivery of a prospectus that contains information with respect
to any selling holder required by the Securities Act in connection with any
resale of the exchange notes. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of its original notes
directly from us:
o may not rely on the applicable interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings Corp., SEC no-action letter
(May 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter (June 5,
1991) and Shearman & Sterling, SEC no-action letter (July 2, 1993); and
o must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
For a period of 180 days after the expiration date 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 these
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the performance of our obligations in relation to the exchange
offer. We will indemnify the holders of the notes, including any
broker-dealers, against various liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes will be passed
upon for us by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York and
certain other legal matters with respect to the exchange notes offered hereby
will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Skadden, Arps, Slate, Meagher & Flom LLP and Paul, Weiss,
Rifkind, Wharton & Garrison have from time to time represented, and may
continue to represent, MacAndrews & Forbes and certain of its affiliates
(including us and Revlon, Inc.) in connection with certain legal matters.
95
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended December 31, 2001 have been audited by KPMG LLP,
independent certified public accountants, 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 consolidated financial statements of Revlon, Inc. and its subsidiaries
and the related financial statement schedule incorporated in this prospectus by
reference from the Annual Report on Form 10-K of Revlon, Inc. for the year
ended December 31, 2001 have been audited by KPMG LLP, independent certified
public accountants, 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to our offering of the exchange notes. This
prospectus does not contain all of the information in the registration
statement. You will find additional information about us and the exchange notes
in the registration statement. Any statements made in this prospectus
concerning the provisions of legal documents are not necessarily complete and
you should read the documents that are filed as exhibits to the registration
statement.
Revlon Consumer Products Corporation is subject to the informational
requirements of the Exchange Act, and in accordance therewith files reports and
other information with the SEC. Such reports and other information can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Office of the SEC located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. The SEC
also maintains a website that contains reports, proxy and information
statements and other information. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The website address is
http://www.sec.gov.
96
================================================================================
$363,000,000
[REVLON LOGO]
REVLON CONSUMER PRODUCTS CORPORATION
Offer for All Outstanding 12% Senior Secured Notes due 2005
in Exchange for 12% Senior Secured Exchange Notes due 2005,
Which Have Been Registered Under
the Securities Act of 1933
--------------
PROSPECTUS
--------------
May 13, 2002
================================================================================