-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MEeVcwP3XJd6+tlWUxSXvxf4rXEkqwqQ1LVJEapINFymHhPHyVGf1sYhVGgNu44E dr1ZddH68vAQ7LJrnHHh5w== 0000750339-01-000003.txt : 20010329 0000750339-01-000003.hdr.sgml : 20010329 ACCESSION NUMBER: 0000750339-01-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001229 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SAFETY RAZOR CO CENTRAL INDEX KEY: 0000750339 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 541050207 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-60298 FILM NUMBER: 1582699 BUSINESS ADDRESS: STREET 1: 240 CEDAR KNOLLS RD STREET 2: SUITE 401 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 BUSINESS PHONE: 5042488000 MAIL ADDRESS: STREET 1: 240 CEDAR KNOLLS RD STREET 2: SUITE 401 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 10-K 1 0001.txt 2000 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-K ---------- [X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the fiscal year ended December 29, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act Of 1934 Commission File Number 0-21952 ---------- AMERICAN SAFETY RAZOR COMPANY (Exact name of registrant as specified in its charter) Delaware 54-1050207 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 240 Cedar Knolls Road, Suite 401 Cedar Knolls, New Jersey 07927 (Address of principal executive offices, including zip code) ---------- Registrant's telephone number, including area code: (973) 753-3000 ---------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to SecNone 12(g) of the Act: ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] There were 12,110,349 shares of the Registrant's Common Stock, par value $.01 per share, outstanding as of the close of business on March 16, 2001. Documents incorporated by reference - None. Table of Contents Part I Page Item 1. Business................................................ 1 Introduction to Our Business............................ 1 Product Lines........................................... 2 Sales and Marketing..................................... 3 Manufacturing........................................... 4 Raw Materials........................................... 5 Competition............................................. 5 Other Factors Affecting Our Business.................... 6 Merger.................................................. 8 Item 2. Properties.............................................. 8 Item 3. Legal Proceedings....................................... 9 Item 4. Submission of Matters to a Vote of Security Holders..... 10 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ............................................... 10 Item 6. Selected Financial Data................................. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21 Item 8. Financial Statements and Supplementary Data............. 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................ 22 Part III Item 10. Directors and Executive Officers of the Registrant...... 22 Item 11. Executive Compensation.................................. 25 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 27 Item 13. Certain Relationships and Related Transactions.......... 29 Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ............................................... 30 Signatures.............................................. 31 - ----------------------- Market share and product distribution data shown throughout were obtained through Information Resources Incorporated, a nationally recognized market research firm based in Chicago, Illinois, which provides the Company with scanner based product movement data from U.S. grocery stores with annual all commodity volume of at least $2 million and data from drug stores and mass merchandisers in major U.S. markets. PART I ITEM 1 - Business Introduction to Our Business Established in 1875, the American Safety Razor Company (together with its subsidiaries, the "Company") is a leading manufacturer of high-quality private label and value brand consumer products. We operate our business in three segments consisting of Razors and Blades (which includes three product lines: consumer shaving razors and blades, both store and value brand, blades and bladed hand tools and specialty industrial and medical blades); Cotton and Foot Care and Custom Bar Soap. We distribute our products principally through the following retail channels: national mass merchandisers (Wal-Mart, Target and Kmart), drug stores (CVS, Walgreens and RiteAid), supermarkets (Safeway, Publix and Albertson's) and home improvement centers (Home Depot, TruServ and Sherwin Williams). For the fiscal year ended December 29, 2000, we had net sales of $318.8 million. We are the largest manufacturer of private label and value brand consumer shaving razors and blades in the United States, and are the fourth largest manufacturer in the total domestic consumer shaving market (based on market research data for 2000 prepared by an independent market research firm). These products, which generated $142.0 million of 2000 net sales worldwide, represent 44.6% of total net sales and consisted of $78.1 million of domestic net sales and $63.9 million of international net sales. Our products provide consumers with a value-priced alternative to more heavily advertised premium priced brands, while providing retailers with attractive margins. Our shaving razor and blade products are primarily sold both under a retailer's store brand and under our value brand names such as Personna(R), GEM(R), Flicker(R), MBC(TM), Burma Shave(R), Acti-Flexx(TM) and Tri-Flexxx(TM). We market both complete razor and blade systems and components which can be used alone or with most other premium priced brands. Based on independent consumer tests, our products perform at levels comparable to the premium priced products. We are the only domestic provider of a complete line of private label disposable razors, blade shaving systems and replacement blades. We attribute our leadership in the private label and value brand markets to our long history of dedication to quality, low-cost manufacturing and competitive pricing. We believe that we are the largest single manufacturer of both premium and value-priced replacement blades for bladed hand tools (based on publicly available information and Company estimates). Our premium and value-priced blades and bladed hand tools are sold primarily under our Personna(R), American Line(TM) and Ardell(TM) brand names. These products generated $51.1 million of 2000 net sales representing 16.0% of total net sales. This product category capitalizes on our precision shaving blade technology and includes such items as single-edge blades, utility and carpet knives and replacement blades and paint scrapers. Our blades and bladed hand tools are sold to consumers and professionals through home-improvement centers/Do-It-Yourself retailers, retail paint chains and hardware stores and to professionals through wholesalers, distributors and specialty supply jobbers. We have leveraged our technical and manufacturing expertise by developing a line of high-quality specialty industrial and medical blades. These products generated $17.0 million of 2000 net sales, representing 5.3% of total net sales. These specialty industrial blades are used in manufacturing processes employed by a variety of industries including food-processing, fiber cutting and automotive. In addition, we manufacture and market carbon and stainless steel surgical blades, disposable scalpels and surgical prep blades for the U.S. health care markets under the Personna(R) brand name to customers including Allegiance Health Care, McKesson General Medical, Owens & Minor and Physicians Sales and Service. We believe we are the leading private label and value brand manufacturer of a full line of personal care cotton and foot care products in the United States. This segment generated $81.1 million of 2000 net sales, representing 25.4% of total net sales. Our cotton and foot care segment offers a full product line including cotton swabs, cotton balls, puffs, cosmetic pads, cotton rolls, pocket tissue, and foot care products. We have achieved market leadership in this category due to a series of strategic acquisitions, including Megas Beauty Care, Inc. in 1994, Absorbent Cotton Company in 1995 and the purchase of certain assets of the American White Cross ("AWC") business in 1997. We are a leading domestic manufacturer of cosmetic, bath, pharmaceutical and specialty custom bar soaps. This segment generated $27.6 million of 2000 net sales, representing 8.7% of total net sales, and is marketed primarily under customers' brand names. Our major customers include Estee Lauder, Johnson & Johnson, Gilchrist & Soames, Inc. and the NuSkin Corporation. 1 Operating Strategy In order to steadily grow our business, improve operations and lower our cost structure, our operating strategy is focused on five primary areas: o Increase trade penetration through improved sales and marketing efforts. We believe that private label and value brand products generally offer higher margins to retailers and significant savings to consumers over premium priced products. We intend to improve our trade channel penetration by leveraging our traditional strengths in key consumer product categories by improving the effectiveness of our sales and marketing efforts. Our marketing efforts will continue to focus on improved packaging and point of sale promotional activities. In addition, we expect to improve coordination between our sales and production functions to increase order-fill rates, reduce our inventory levels and improve efficiency in our production lines. o Expand international market penetration and enter new markets. The international market for the shaving razor and blade category is approximately four times the size of the U.S. market. We expect to expand into new markets while continuing to grow within our current markets. We will continue to develop relationships with distributors in targeted markets and establish local sales and marketing organizations to take advantage of specific regional opportunities. To this end, we acquired Wolco Holland B.V. in September 1998, which distributes shaving products into Northern European markets. In 2000, we established new sales offices in Brazil, Singapore and Australia. Our international sales in all our business segments were $71.7 million in 2000. o Develop and introduce new products. We are continuously evolving our primary product lines with product improvements, new innovations and line extensions. We launched our new three-blade shaving system, Tri-Flexxx(TM), to the U.S. market in the second quarter of 1999. This new shaving system is allowing us to address the new three blade standard being set by a competitor. We have also introduced a line of premium consumer disposal razors and plan to introduce a multi-purpose industrial hand tool during the second half of 2001. We will continue our focus on product improvements, new innovations and line extensions. o Continue to grow blades and bladed hand tools product line. Our blades and bladed hand tools product line is highly regarded for quality performance and maintains strong levels of professional loyalty. Sales of these products were $51.1 million in 2000. Historically, this part of our business has grown internally through increased market penetration in the professional and Do-it-Yourself retail channels. Our goal is to improve upon the historical steady growth in this strong product category by refocusing on new product introductions. o Reduce operating costs. We have implemented a number of initiatives to reduce operating costs and increase productivity and efficiency in our consumer shaving and cotton and foot care product lines. We have been able to reduce manufacturing costs in our consumer shaving product line by opening a highly automated blade manufacturing facility in Knoxville, Tennessee, and expanding our low-cost injection molding, assembly and packaging operation in Obregon, Mexico. The integration in 1997 of our industrial blade business into our Verona, Virginia facility permitted us to close manufacturing facilities in Union and Maplewood, New Jersey. In addition, since our acquisition of AWC, we have made significant progress in reorganizing our five cotton and foot care manufacturing facilities. Product Lines Our business operations are concentrated in three product segments: Razors and Blades; Cotton and Foot Care; and Custom Bar Soap. Within the Razors and Blades segment we offer three product lines: Consumer Shaving Razors and Blades; Blades and Bladed Hand Tools; and Specialty Industrial and Medical Blades. 2 The following table sets forth net sales and percentage of total net sales by segment and for product lines for the years ended December 29, 2000, December 31, 1999 and 1998.
2000 1999 1998 ---------------- ------------------ ---------------- (dollars in millions) Razors and blades Consumer shaving razors and blades $142.0 44.6% $134.3 42.7% $119.0 40.0% Blades and bladed hand tools 51.1 16.0 50.6 16.1 48.9 16.4 Specialty industrial and medical blades 17.0 5.3 16.6 5.3 16.1 5.4 ------ ----- ------ ----- ------ ----- Total 210.1 65.9 201.5 64.0 184.0 61.9 Cotton and foot care 81.1 25.4 84.3 26.8 87.3 29.3 Custom bar soap 27.6 8.7 29.0 9.2 26.2 8.8 ------ ----- ------ ----- ------ ----- Total $318.8 100.0% $314.8 100.0% $297.5 100.0% ====== ===== ====== ===== ====== =====
Consumer Shaving Razors and Blades. We design, manufacture and market a full line of shaving razors and blades, including single-edge, double-edge and injector blades, twin-blade fixed and pivoting head cartridges, moving-blade cartridges, three-blade cartridges, disposables, single-edge razors, women's shaving razors and special-purpose shaving blades. We provide both total shaving systems and components which can be used alone or with most other nationally recognized premium brands. These shaving products are marketed under our own brands or under store brands of our private label shaving razor and blade customers. Blades and Bladed Hand Tools. We design, manufacture and market replacement blades and bladed hand tools, such as single- edge blades, utility blades and knives, carpet blades and knives and paint scrapers primarily under our Personna(R), American Line(TM) and Ardell(TM) brand names. The majority of our blades and bladed hand tools are sold to retail customers through home improvement centers, retail paint chains and hardware stores and to professionals through wholesalers, distributors and specialty supply jobbers. Specialty Industrial and Medical Blades. We design, manufacture and market disposable blades for both the industrial and medical markets. Although the specialty industrial blade market is large and diverse, our products are specially designed for niche industrial applications. These specialty industrial blades perform many of the cutting, slicing or chopping functions involved in manufacturing processes employed by a variety of industries including food processing, fiber cutting and automotive. We manufacture and market carbon and stainless-steel surgical blades, disposable scalpels and surgical prep blades for the U.S. health care markets under the Personna(R) brand name. Cotton and Foot Care. We believe we are the largest private label manufacturers and distributors of cotton swabs, cotton balls and puffs and cotton cosmetic pads. In addition, we also manufacture cotton roll, foot care products and pocket tissue. All of the foregoing products are sold under retailers' private label as well as our own value brands: Personna(R), Megas(R), ACCO(R), Cottonettes(R) and Crystal(R). We believe that we are one of the few personal care cotton products manufacturers and distributors that can bleach its own cotton--a process integral to the production of cotton products. Custom Bar Soap. We manufacture custom-designed and formulated bar soap for sale to a broad variety of pharmaceutical, skin care and department store customers, primarily under such customers' own brand names. Our flexible manufacturing equipment, product design and development capabilities and reputation for high quality allow us to compete in all major custom bar soap market segments. Our 1997 expansion of synthetic soap manufacturing capacity in a new highly efficient manufacturing facility in Columbus, Indiana, and our planned 2001 expansion to the facility of 20,000 square feet, reflects our commitment to new product development and a competitive cost structure. Sales and Marketing Our sales and marketing organization is divided into the following five sales groups, based on distribution channel and target customers: (1) Domestic Consumer Products, (2) International Wet Shaving, (3) Do-it-Yourself and Industrial; (4) Medical and (5) Soap. Our products are sold through our major distribution channels utilizing internal sales and marketing resources, as well as third- party distributors and manufacturers' representatives. Our sales personnel receive a fixed salary plus a bonus based on sales performance and our earnings. 3 Domestic Consumer Products. Our private label and value brand shaving razors and blades and cotton and foot care products are sold through mass merchandisers, drug stores and supermarket chains. Our sales of consumer and personal care products are managed by a vice president who oversees field sales and related personnel. Marketing support for the value brand shaving razors and blades and cotton and foot care products focuses on temporary price reductions, point of sale promotions and direct mail advertisements and is managed by a senior vice president. To assist stores in promoting their private label shaving and cotton and foot care products, we help customers develop customized marketing programs, including managing product introductions and promotional planning support. In addition, such merchandising vehicles as trial-size programs, floor displays, point of purchase advertising, bonus sizes, coupons, rebates, store signs and promotional packs are available and incorporated into individual customers' programs. We also provide customers with market research to assist in determining the effectiveness of various marketing programs. International Wet Shaving. Our international shaving razors and blades sales effort is headed by a senior vice president who directs daily activities through group managers responsible for specific geographic regions. We use a variety of sales strategies and organizations, each tailored to the specific geographic locations in which we sell our products, including extensive use of local distributors. We have a manufacturing and packaging facility in Mexico, a manufacturing, warehousing and packaging facility in Nazareth Illit, Israel, warehousing and packaging operations in Puerto Rico and the United Kingdom, and warehousing facilities in Canada and Brazil to further our penetration in those markets. Do-it-Yourself and Industrial. We sell blades and bladed hand tools to national and regional chains of home-improvement/ Do-it-Yourself centers and paint centers as well as hardware co-op, wholesale buying groups, and industrial distributors. Specialty industrial blades are sold to direct users, original equipment manufacturers and to a wide variety of distributors who service professional and niche segments. Overall management of the industrial division is headed by a vice president with specific responsibilities assigned to a director of field sales, director of market development and a general manager in Europe. Marketing needs for the entire division are overseen by a marketing manager who reports to the vice president. Medical. We distribute medical blades to hospitals, nursing homes and other health care practitioners. Our medical blade sales efforts are headed by a vice president who oversees a number of regional managers. We focus our medical blade marketing efforts primarily through targeted trade-journal advertising, direct mail promotions and medical trade shows. Soap. Our soap sales effort is headed by a vice president--general manager who oversees a number of sales people and national account representatives who work with customers to custom design soap products and programs. We also utilize manufacturers' representatives to sell our products to customers in the hospitality industry, such as hotels, and to market our line of industrial and corporate promotional products. Manufacturing We are a fully integrated manufacturer of shaving razors and blades, blades for use with bladed hand tools and specialty industrial and medical blades. Our manufacturing processes include blade forming, heat treating and coating, plastic injection molding and assembly and packaging. Blades are manufactured at our facilities in Verona, Virginia, Knoxville, Tennessee, and Nazareth Illit, Israel. We operate a low-cost, highly efficient injection molding, packaging and assembly facility in Obregon, Mexico. During 2000, we expanded this facility by approximately 42,000 square feet. In July 1995, we purchased a new facility in Knoxville, Tennessee in order to develop a fully integrated shaving razors and blades manufacturing operation. During 1998, we completed our three-year manufacturing plan to develop this fully integrated facility which now performs all operations attendant to the manufacture, molding, assembly and packaging of shaving razors and blades. During 2000, we expanded our blade grinding and assembly capacity at this facility. In 1997, we restructured our industrial blade business, moving substantially all of our operations into a single facility in Verona, Virginia, and closed our manufacturing facilities in Union and Maplewood, New Jersey. Proprietary manufacturing processes allow us to produce a wide variety of products of different quantities, sizes and packaging while maintaining a high level of quality. We are continually working to improve our blade-making productivity by adding new technologies and/or manufacturing processes. Most of the processes that we use to manufacture products are proprietary. The production of our cotton and foot care products starts with the receipt of cotton fibers in bales. The cotton is bleached, either internally or through the use of contract bleachers. Once the cotton has been bleached, the cotton is processed into yarn which is then used either in the production of cotton balls, cotton swabs, cotton pads or other cotton products. Our cotton and foot care 4 products are manufactured at our facilities in Cleveland, Ohio, Valley Park, Missouri, Pomfret, Connecticut, Canavanas, Puerto Rico, and Nogales, Mexico. The manufacture of soap is a specialized process which involves the reaction between tallow (animal fat), vegetable oil or a fatty acid with a caustic substance (called an alkaline) and water. The resulting soap mixture is then treated with additives to decrease the harshness of the substance and to give the soap functional or cosmetic applications. We have the ability to produce soap through four different manufacturing processes, producing a variety of soap products with different characteristics. We manufacture soap in our Dayton, Ohio and Columbus, Indiana facilities. Raw Materials The principal raw materials used by us in the manufacture of razor and blade products are stainless and carbon steel, plastics and packaging supplies, all of which are normally readily available in the marketplace. While all raw materials are purchased from outside sources, we are not dependent upon any single supplier in our operations for any materials essential to our business or not otherwise commercially available to us. We have been able to obtain an adequate supply of raw materials, and no shortage of raw materials is currently anticipated. The principal raw materials used by us in the manufacture of our cotton and foot care products include cotton fiber, plastic and paper sticks for cotton swabs, foam insoles and packaging supplies. We have developed several different qualified sources for our key material requirements. We bleach cotton internally for a portion of our production requirements while also maintaining relationships with several sources for outside contract bleaching. The prices of certain of the raw materials used in our cotton and foot care operations are subject to commodity price volatility, particularly with respect to cotton fiber and paper sticks, which may affect the profitability of our cotton and foot care products. We have been able to obtain an adequate supply of high-quality raw materials, and no shortage of raw materials is currently anticipated. The principal raw materials used by us in the manufacture of our custom bar soap products are tallow, various chemicals, coconut oil, fatty acids, fragrances and packaging supplies. The prices of certain of the raw materials used by us, such as coconut oil and fatty acids, are volatile, which may affect the profitability of our soap products. We have been able to obtain an adequate supply of high-quality raw materials, and no shortage of raw materials is currently anticipated. Competition The shaving razor and blade market is competitive and sensitive to changing consumer preferences and demands and competition is based on quality, price and customer service. Our principal competitors in the shaving razor and blade market are Gillette, the Schick Division of Pfizer and Societe Bic, S.A. These competitors are substantially larger and have substantially greater resources than we do. We are the leading producer of private label and value brand shaving razors and blades in the United States where our primary competitors are smaller companies or companies with limited product offerings. Periodically, one of the premium brand shaving razor and blade manufacturers mentioned above attempts to compete with us by lowering prices or entering the private label market. In the blades and bladed hand tools and specialty industrial blades markets, competition is based on quality, price and customer service. We believe that we compete favorably on these bases and are a leading producer of blades and bladed hand tools and specialty industrial blades in the United States. We have a number of smaller competitors in blades and bladed hand tools such as I.B.U. and U.S. Blades. The medical blade market is dominated by a division of Becton Dickinson and Company. In cotton swabs, cotton balls, puffs, cotton cosmetic pads, pharmaceutical and beauty coils and foot care products, we compete on the basis of producing a complete line of high-quality private label and value brand products as well as quality, price and customer service. The market for these products is highly competitive, often attracting large national-brand manufacturers seeking to add incremental private label business. Companies such as Chesebrough-Pond's, Johnson & Johnson and Dr. Scholl's invest significant resources in their premium brands, partly in an attempt to reclaim market share lost to private label and value brand products. 5 The custom bar soap market is very fragmented with numerous participants, some of which have greater resources than we do. Competition in the custom bar soap market is based primarily on quality, price and customer service. Other Factors Affecting Our Business Intellectual Property We own a large number of U.S. and foreign trademarks used in connection with our blade, cotton and foot care and soap businesses. Such trademarks include "Personna(R)", "Tri-Flexxx(R)", "Acti-Flexx(R)", "MBC(TM)", "Comfort Touch(TM)", "GEM(R)", "Bump Fighter(R)", "Burma Shave(R)", "Flicker(R)", "Crystal(R)", "Personna Care(TM)", "Advance Comfort(TM)", "Megas(R)", "Omnibus(R)", "Centurion(R)", and "Kensington(R)". Many of our trademarks are registered in the United States Patent and Trademark Office or the corresponding trademark agencies in other countries. We consider our trademarks, in the aggregate, to be material to our business. In addition, we own or are licensed to use various U.S. and foreign patents covering the design and manufacture of certain of our products. We consider our portfolio of owned and licensed patents, in the aggregate, to be material to our business. In particular, the "MBC(TM)" and "Tri-Flexxx(TM)" patents are considered material to our business. We consider many of the processes which we use to manufacture our products to be proprietary. We have not, however, applied for patent protection for any of these processes. We instead rely on non-disclosure and non-compete agreements with employees to protect our proprietary rights in these processes. There can be no guarantee that these agreements will provide sufficient protection in this regard, or that such employees will not breach them. We take actions and devote resources to protect our intellectual property rights, including trademarks, patents, and proprietary processes. There can be no assurance that such actions and resources will be adequate to protect such rights, or that such rights will not be successfully challenged by third parties or government authorities. Moreover, no assurance can be given that others will not assert rights in, or ownership of, our intellectual property or that we will be able to resolve such conflicts successfully. In addition, the laws of certain foreign countries may not protect intellectual property to the same extent as do the laws of the United States. With respect to U.S. law, patent protection is limited in duration, and once a patent expires, competitors can make, have made, use or sell products or processes that are identical or similar to those once covered by the expired patent. Employees and Labor Relations As of December 29, 2000, we employed 2,516 people worldwide, including 1,975 hourly employees and 541 salaried employees. Four collective-bargaining agreements cover certain of our employees: the first agreement expires on September 27, 2003 and covers 350 employees at the Verona, Virginia plant; the second agreement expires on March 31, 2002 and covers 217 employees at the Dayton, Ohio plant; the third agreement expires on October 1, 2002 and covers 107 employees at our Valley Park, Missouri plant; and the fourth agreement expires on January 22, 2002 and covers 118 employees at our Nazareth Illit, Israel plant. In addition to the foregoing employees, we employ an aggregate of 1,183 hourly employees at our Knoxville, Tennessee; Cleveland, Ohio; Columbus, Indiana; Pomfret, Connecticut; Nogales, Mexico; Canavanas, Puerto Rico; Nottingham, England; Obregon, Mexico; and San Juan, Puerto Rico facilities, none of whose employees are covered by a collective-bargaining agreement. We consider our relations with our employees to be satisfactory. 6 Environmental Matters We are subject to various federal, state and local environmental laws and regulations and the environmental laws and regulations of the various foreign jurisdictions in which we do business. We anticipate that such laws and regulations will become increasingly stringent in the future. In December 1986, we entered into a Special Order with the predecessor agency of the Virginia Department of Environmental Quality ("VDEQ") pursuant to which we agreed to investigate and clean up groundwater contamination at our Verona, Virginia, razor- blade manufacturing facility. Pursuant to a plan of remediation approved by the VDEQ's executive director on February 18, 1988, and fully implemented in 1989, we built and currently operate a groundwater treatment facility to treat the contaminated groundwater. We regularly monitor the level of contamination in the groundwater. We are not presently aware of any additional contamination that is required to be remediated at this time at the Verona site. When we purchased the Maplewood, New Jersey, facility as part of the Ardell acquisition, we and the previous owners of Ardell entered into an Administrative Consent Order on March 31, 1989, with the New Jersey Department of Environmental Protection and Energy ("NJDEPE") obligating the previous owners of Ardell to perform soil and groundwater remediation under the New Jersey Environmental Cleanup and Responsibility Act. Through September 1996, the previous owners had assumed full financial and oversight responsibility for remediation of the site. At that time, in settlement of claims by Ardell under its insurance policies with Federal Insurance Company covering the periods March 6, 1979 to March 6, 1987, Federal Insurance Company assumed primary financial and oversight responsibility for the remediation. The costs to complete the remediation are being borne by Federal Insurance Company and the previous owners of Ardell. The previous owners have posted the requisite financial assurance bond with NJDEPE securing such remediation obligations. As security, a letter of credit was obtained by the sellers in favor of NJDEPE in the amount of $0.6 million which remains intact. We have incurred only limited costs to date regarding this matter and do not expect to incur any material future costs. The Valley Park, Missouri, plant facility of our Megas subsidiary, which was acquired on March 3, 1995, is located on a parcel of land which is the subject of a CERCLA investigation. This investigation is being undertaken in response to a release of "hazardous substances" from upgradient industries. The affected area, which includes the groundwater beneath a segment of the plant site, has been found to be contaminated by various chlorinated solvents including trichloroethylene ("TCE") and trichloroethane ("TCA"). The contaminated aquifer had been the source of municipal water supply wells. The results of a remedial investigation completed for EPA and the State of Missouri in January 1988 indicate that the source of the TCE contamination was located to the northwest of the Megas facility. The EPA and the State subsequently developed a remediation plan to address the TCE contamination and have executed a Consent Order with a potentially responsible party to implement the plan. The focus of their investigation has now turned to the remediation of the TCA contamination which the remedial investigation concluded was originating west southwest of the Megas facility. Megas does not use or have records of having used the identified "hazardous substances" in its facility and has not been found to be a potentially responsible party. We have reviewed the 1994 EPA limited remediation investigation report, performed limited soil gas analysis on site and reviewed groundwater monitoring results from wells installed by the Missouri Department of Natural Resources. These procedures have uncovered no contamination that could have contributed to the underlying plume. Based on our investigation to date, results of the soil gas analyses performed on site, discussions held with the Missouri Attorney General's office, and groundwater monitoring results, we believe that it is unlikely that Megas will be identified as a potentially responsible party in connection with the EPA Superfund site. In response to a possible release of water containing TCE outside its razor blade manufacturing plant in Knoxville, Tennessee, the Company had an environmental consulting firm take soil and groundwater samples for the presence of TCE. The sampling found relatively low levels of TCE in soil adjacent to the building and in the groundwater. Pursuant to Tennessee environmental law, the Company notified the Tennessee Department of Environmental Conservation ("TNDEC") and in September 1999 installed three monitoring wells and had the contaminated soil excavated and the groundwater at the property boundary sampled. Pursuant to Tennessee environmental law under the Voluntary Cleanup, Oversight and Assistance Program ("VOAP"), the Company has entered a Consent Order which approves the investigation and remediation plan and requires ongoing monitoring of groundwater. It is likely the TNDEC will require sampling and analysis of groundwater at the property boundary for at least another year and, possibly, the installation of a deep monitoring well to bedrock. If the analytic results remain within the same order of magnitude, the TNDEC likely will accept the remedial action to date and allow the closure of the monitoring wells. If the monitoring reveals substantially higher levels more extensive investigation and remediation may be required. After consultation with our advisors, we do not believe any of these matters should have a material effect on our consolidated 7 financial position or results of operations, regardless of any claims for indemnification. Merger Effective April 23, 1999, RSA Acquisition Corporation, an affiliate of J.W. Childs Equity Partners II, L.P. ("J.W. Childs"), completed its $14.20 per share cash tender offer for all outstanding shares of American Safety Razor Company (the "Predecessor") in accordance with a February 12, 1999 merger agreement, as amended on April 8, 1999, (the "Acquisition") upon the terms and subject to the conditions set forth in the offer to purchase (the "Stock Tender Offer"). Following completion of the Stock Tender Offer, there remained approximately 266,601 American Safety Razor Company shares outstanding. On July 1, 1999, RSA Acquisition Corporation and American Safety Razor Company completed a merger transaction (the "Merger") pursuant to which RSA Acquisition Corporation acquired the remaining shares of the Predecessor for $14.20 per share. The aggregate purchase price, including transaction costs of $1.0 million, paid for the common stock purchased in the Stock Tender Offer was approximately $173.0 million. Following the Merger, American Safety Razor Company and its subsidiaries (the "Company") became the surviving corporation and is a direct, wholly-owned subsidiary of RSA Holdings Corporation, which is wholly-owned by J.W. Childs, its affiliates and Company management. ITEM 2 - Properties As of March 16, 2001, we owned or leased the following facilities:
Lease Approximate Owned or Termination Products Location Type of Facility Square Feet Leased Date - -------- -------- ---------------- ------------ -------- ------------- Cedar Knolls, New Jersey Corporate headquarters 11,600 Leased October 2004 Shaving razors and Verona, Virginia Manufacturing, packaging, 307,000 Owned blades, blades and distribution and sales bladed hand tools and specialty industrial and medical blades Knoxville, Tennessee Manufacturing, packaging 125,000 Owned and distribution Bentonville, Arkansas Sales 2,000 Leased May 2003 Newmarket, Ontario, Canada Distribution and sales 2,500 Leased August 2005 Obregon, Mexico Manufacturing and packaging 139,000 Leased April 2006 Nazareth Illit, Israel Manufacturing, packaging 65,000 Leased July 2002 distribution and sales Nottinghamshire, Packaging, distribution 36,000 Leased July 2012 United Kingdom and sales Rio Grande, Packaging, distribution 26,000 Leased September 2010 Puerto Rico and sales Sao Paula, Brazil Distribution and sales 1,200 Leased April 2002 Cotton and foot care Cleveland, Ohio Manufacturing, packaging, 250,000 Leased April 2013 distribution and sales Valley Park, Missouri Manufacturing and packaging 107,000 Owned 8 Nogales, Mexico Manufacturing, packaging 86,000 Leased March 2003 and distribution Pomfret, Connecticut Manufacturing 14,000 Leased Month to Month Canavanas, Puerto Rico Manufacturing, packaging 22,000 Leased December 2008 and distribution Soap Dayton, Ohio Manufacturing, packaging, 270,000 Owned distribution and sales Columbus, Indiana Manufacturing, packaging, 20,000 Leased September 2005 distribution and sales
We supplement our distribution capabilities through public warehouse facilities. In addition, we use contract packagers in selected domestic and international markets. We believe that the variety of domestic and international locations gives us operating flexibility. We consider all of our facilities to be in good operating condition and adequate for our present purposes. Our production facilities are capable of being utilized at a higher capacity to support increased demand, if necessary. ITEM 3 - Legal Proceedings During 1998, the Company purchased bleached cotton from an outside supplier for use in its pharmaceutical coil business. The Company converted this cotton from incoming bales into a coil, which was shipped to its pharmaceutical customers to be used as filler in bottles of oral dosage forms of pharmaceutical products to prevent breakage. During the period from March through November of 1998, the process by which the Company's supplier bleached this cotton was changed by introducing an expanded hydrogen peroxide treatment. Subsequent testing indicated varying levels of residual hydrogen peroxide in the cotton processed during this time period and the supplier in November 1998 reduced the levels of residual hydrogen peroxide in its bleaching process. The Company, to date, has received complaints from a number of customers alleging defects in the cotton supplied them during the period and asserting these defects may have led to changes in their products pharmaceutical appearance, and with respect to a limited number of products, potency. No lawsuits have been filed by any of these customers. The Company has received written notice of claims for damages in the aggregate amount of approximately $117.0 million. In addition, $113.0 million of this amount is for alleged lost profits from two customers, which lost profits have not been substantiated. It is possible that additional damage claims might be forthcoming. On March 2, 1999, at the request of the Food and Drug Administration, the Company notified all (numbering approximately 85) of its pharmaceutical cotton coil customers that it was withdrawing from the market those lots of cotton coil which may contain elevated levels of hydrogen peroxide. The Company has notified its supplier that, in the Company's view, the supplier is primarily responsible for damages, if any, that may arise out of this matter. At this time, the Company's supplier has agreed to be responsible for the cost of fiber, bleaching and freight of returned product, but has not agreed to be responsible for any other damages and has expressed an intention to assert defenses to the Company's claims. The Company's insurance carriers have been timely notified of the existence of the claim and have agreed to provide defense in a reservation of rights letter, but are continuing to evaluate whether coverage would apply to all aspects of the claims. The Company is advised by outside counsel that it has strong legal arguments that the aggregate amount of insurance available for these claims would be sufficient to cover the magnitude of the claims currently expressed. The Company also has been advised by its outside counsel that it has a number of valid defenses to potential customer claims as well as a third party claim against its supplier for damages, if any, incurred by the Company. However, management cannot at this time make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome relating to this overall issue, and accordingly, there can be no assurance that the Company's exposure from this matter might not potentially exceed the combination of its insurance coverages and recourse to its supplier. It is therefore possible that the Company's results of operations or cash flows in a particular quarterly or annual period or its financial position could be significantly or adversely affected by an ultimate unfavorable outcome of this matter. 9 In June 1999, the Company received notice of the filing of a lawsuit by The Gillette Company ("Gillette") asserting claims for damages and injunctive relief for alleged patent infringement, misappropriation of trade dress, false advertising and breach of contract in connection with the marketing of the Company's two-bladed and three-bladed shaving cartridge systems (the MBC(TM) introduced in 1994 and the Tri-Flexxx(TM) introduced in 1999). In August 1999, the Company filed an answer and counterclaims in which it denied Gillette's allegations, sought a declaration that Gillette's patents are not infringed, are invalid and unenforceable, and asserted counterclaims against Gillette for damages and injunctive relief for, among other things, alleged antitrust violations and false advertising. In December 2000, the Company and Gillette resolved their differences on a mutually acceptable basis and the lawsuit was dismissed. The Company entered into a worldwide license relating to certain Gillette patents which was recorded as an intangible asset in December 2000 and is being amortized on a straight-line basis over the weighted average life of the patents of fourteen years. We are involved in various other legal proceedings from time to time incidental to the conduct of our business. We believe that any ultimate liability arising out of such proceedings will not have a materially adverse effect on our consolidated financial position or results of operations. ITEM 4 - Submission of Matters to a Vote of Security Holders None. PART II ITEM 5 - Market for Registrant's Common Equity and Related Stockholder Matters Our common stock, par value $.01 per share (the "Common Stock") was traded in the over-the-counter market and was included in the NASDAQ National Market under the symbol "RAZR" until June 30, 1999, at which time the Company's Common Stock was delisted as a result of the Acquisition and Merger of the Company. Information with respect to market prices of our Common Stock for the first two quarters in 1999 is presented under Item 8 of this Report. We have not paid and do not anticipate paying any cash dividends on the Common Stock in the foreseeable future. From time to time, the Company's Board of Directors intends to review our dividend policy. Any payment of dividends will be at the discretion of the Board of Directors and will be dependent on our earnings and financial requirements and other factors, including the restrictions imposed by the General Corporation Law of the State of Delaware on the payment of dividends and covenants in our credit agreement, dated as of April 23, 1999 (the "Credit Agreement") and the indenture relating to the 9 7/8% Series B Senior Notes described in Note 6 to our Consolidated Financial Statements under Item 8 of this Report. 10 ITEM 6 - Selected Financial Data The following data (in thousands, except per share data) should be read in conjunction with our Consolidated Financial Statements included under Item 8 of this Report and management's discussion and analysis of financial condition and results of operations included under Item 7 of this Report.
Company Predecessor ------- ----------- Company Period Period ---------- from from Year April 24, January 1, Predecessor Ended 1999 to 1999 to ----------------------------------- December December April 23, Year ended December 31, Statement of Operations Data: 29, 2000 31, 1999 1999 1998 1997 (1) 1996 (2) ---------- ---------- ---------- ---------- ---------- ---------- Net sales $318,813 $227,159 $87,591 $297,488 $296,607 $260,636 Costs and expenses Cost of sales (3) 212,112 155,496 58,520 201,978 196,991 169,949 Selling, general and administrative expenses 72,948 52,567 21,429 63,516 60,206 54,867 Amortization of intangible assets 4,569 3,178 835 2,543 2,501 2,503 Special charges (4) - - - 3,003 - - Transaction expenses (5) - - 11,440 - - - Special termination benefits (6) 14,351 - - - - - -------- -------- ------- --------- -------- -------- Operating income (loss) 14,833 15,918 (4,633) 26,448 36,909 33,317 Interest expense 19,842 15,112 3,907 12,270 12,270 11,719 -------- -------- ------- --------- -------- -------- (Loss) income before income taxes and extraordinary item (5,009) 806 (8,540) 14,178 24,639 21,598 Income taxes (benefit) 199 1,453 (842) 4,076 9,570 8,425 -------- -------- ------- --------- -------- -------- (Loss) income before extraordinary item (5,208) (647) (7,698) 10,102 15,069 13,173 Extraordinary item, net of income tax benefit (7) - (611) (118) - - - -------- -------- ------- --------- -------- -------- Net (loss) income $ (5,208) $ (1,258) $(7,816) $ 10,102 $ 15,069 $ 13,173 ======== ======== ======= ======== ======== ======== Basic earnings per share: (Loss) income before extraordinary item $(0.43) $(0.05) $(0.64) $0.83 $1.25 $1.09 Extraordinary item - (0.05) (0.01) - - - -------- ------ ------ ----- ----- ----- Net (loss) income $(0.43) $(0.10) $(0.65) $0.83 $1.25 $1.09 ====== ====== ====== ===== ===== ===== Weighted average number of shares outstanding 12,110 12,110 12,110 12,107 12,094 12,093 ====== ====== ====== ====== ====== ====== Diluted earnings per share: (Loss) income before extraordinary item $(0.43) $(0.05) $(0.64) $0.83 $1.23 $1.09 Extraordinary item - (0.05) (0.01) - - - ------ ------ ------ ----- ----- ------ Net (loss) income $(0.43) $(0.10) $(0.65) $0.83 $1.23 $1.09 ====== ====== ====== ===== ===== ===== Weighted average number of shares outstanding 12,110 12,110 12,198 12,223 12,255 12,139 ====== ====== ====== ====== ====== ======
11
Company Predecessor ----------------------- ------------------------------------ December December 31, Balance Sheet Data: 29, 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Total assets $389,586 $402,871 $262,897 $254,081 $229,997 Long-term obligations, including current portion 191,023 185,616 127,333 123,612 112,181 Stockholders' equity 113,860 129,002 69,554 59,439 44,523
(1) Our results of operations include results for the Cotton Division of American White Cross, Inc. ("AWC") since its April 22, 1997, acquisition date. Results for the period ended December 31, 1997, include net sales of AWC of $21.1 million. (2) Our results of operations include results for Bond-America Israel Blades, Ltd., and its wholly-owned subsidiary, A.I. Blades, Inc. (collectively, "Bond") since its March 29, 1996, acquisition date. Results for the period ended December 31, 1996, include net sales of Bond of $11.2 million. (3) Cost of sales for the period from April 24, 1999 to December 31, 1999 includes additional inventory costs of $9.0 million resulting from adjusting the carrying value of acquired inventories to reflect their estimated fair market value at the Acquisition date. (4) See Note 14 to our Consolidated Financial Statements relating to the special charges in 1998. (5) Transaction expenses of $11.4 million were incurred in connection with the sale of the Predecessor (see Note 1 to our Consolidated Financial Statements). (6) Expenses relating to the special termination benefits of $14.4 million were incurred in connection with the early retirement program (see Note 8 to our Consolidated Financial Statements). (7) Extraordinary item relates to the early extinguishment of debt in 1999 (see Note 6 to our Consolidated Financial Statements). ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the Consolidated Financial Statements of our Company and notes thereto included under Item 8 of this Report. Additionally, management has prepared pro forma results of operations for 1999 to enable a more meaningful comparison between 2000 and 1999 results of operations and 1999 and 1998 results of operations. Accordingly, see "Year Ended December 29, 2000 Compared to Pro Forma Year Ended December 31, 1999" and "Pro Forma Year Ended December 31, 1999 Compared to Year Ended December 31, 1998" discussions below which compare the year ended December 31, 1999 on a pro forma basis, assuming the Acquisition and the related financing transactions had occurred on January 1, 1999, with 2000 and 1998 for a more meaningful comparison of operations. Forward-Looking Statements. Management's discussion and analysis of financial condition and results of operations and other sections of this Report contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Such forward-looking statements are identified by use of forward-looking words such as "anticipates," "believes," "plans," "estimates," "expects," and "intends" or words or phrases of similar expression. These forward-looking statements are subject to various assumptions, risks and uncertainties, including but not limited to, changes in political and economic conditions, demand for our products, acceptance of new products, technology developments affecting our products and to those discussed in our filings with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those contemplated by the forward- looking statements. Results of Operations American Safety Razor Company is a leading manufacturer of high-quality private label and value brand consumer products. We have three reportable segments, organized primarily on the basis of differences in products, which consist of Razors and Blades, Cotton and Foot Care and Custom Bar Soap. The razors and blades segment includes three product lines, consumer shaving razors and blades, both store and value brand, blades and bladed hand tools, and specialty industrial and medical blades. The cotton and foot care segment includes cotton swabs, cotton balls and puffs, cosmetic pads, tissues, pharmaceutical and beauty coil, and foot care products. The custom bar soap segment includes cosmetic/skin care, bath, pharmaceutical and specialty custom bar soaps. We distribute our products to the retail and professional trades in the United States and in selected international markets. The following table sets forth information with respect to our business segments: 12
Company Predecessor Company -------------------- ------------------- Predecessor ----------------- Period from Period from ----------------- Year Ended April 24, 1999 to January 1, 1999 to Year Ended December 29, 2000 December 31, 1999 April 23, 1999 December 31, 1998 ----------------- ----------------- -------------------- ----------------- (dollars in millions) Net Sales: Razors and blades $210.1 65.9% $146.3 64.4% $55.2 63.0% $184.0 61.9% Cotton and foot care 81.1 25.4 58.8 25.9 25.5 29.1 87.3 29.3 Custom bar soap 27.6 8.7 22.1 9.7 6.9 7.9 26.2 8.8 ------ ----- ------ ----- ----- ----- ------ ----- Total $318.8 100.0% $227.2 100.0% $87.6 100.0% $297.5 100.0% ====== ===== ====== ===== ===== ===== ====== ===== Operating Income (3): Razors and blades (1) (2) (4) $14.3 6.8% $11.4 7.8% $6.7 12.1% $21.0 11.4% Cotton and foot care (2) (4) (0.8) (1.0) 1.8 3.1 0.3 1.2 4.1 4.7 Custom bar soap (2) 1.3 4.7 2.7 12.2 (0.2) (2.9) 1.3 5.0 ----- ---- ----- ---- ---- ---- ----- --- Total $14.8 4.6% $15.9 7.0% $6.8 7.8% $26.4 8.9% ===== ==== ===== === ==== === ===== ===
(1) Operating income in 2000 for Razors and Blades includes expenses relating to special termination benefits of $14.4 million. (2) Operating income for the period from April 24, 1999 to December 31, 1999 for Razors and Blades, Cotton and Foot Care and Custom Bar Soap includes a purchase accounting adjustment to inventory of $8.8 million, $0.2 million and $0.05 million, respectively. (3) Operating income for the period from January 1, 1999 to April 23, 1999 excludes transaction expenses of $11.4 million incurred in connection with the sale of the Predecessor. (4) Operating income in 1998 for Razors and Blades and Cotton and Foot Care includes special charges of $2.8 million and $0.2 million, respectively. Overview Net sales are gross sales net of returns and cash discounts. Gross profit is net sales less cost of sales, which includes the costs necessary to make our products, including the costs of materials, production, warehousing and procurement, and the costs to ship our products to our customers, including freight and distribution. The principal elements of our cost to make our products are raw materials and packaging supplies, labor and manufacturing overhead. Raw materials, among other things, consist of steel (both carbon and stainless), cotton fiber, coconut oil, fatty acids and plastic resins. Labor costs consist primarily of hourly wages plus employee fringe benefits. Manufacturing overhead generally includes indirect labor, plant costs, depreciation and manufacturing supplies. Selling, general and administrative expenses include the costs incurred to support the sale and marketing of our products and the general and administrative costs of managing the business, including salaries and related benefits, commissions, advertising and promotion expenses, bad debts, travel and insurance. Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1999 The following unaudited pro forma condensed consolidated statement of operations has been prepared by management from the historical financial statements of the Predecessor for the period from January 1, 1999 to April 23, 1999, and the historical financial statements of the Company for the period from April 24, 1999 to December 31, 1999. The Acquisition, and the related financing transactions, are assumed to have occurred on January 1, 1999 (see Notes 1 and 6 to our Consolidated Financial Statements). The pro forma condensed consolidated statement of operations for the year ended December 31, 1999, is not necessarily indicative of the results of operations that would have occurred for the year ended December 31, 1999, had the Acquisition and relating financing transactions occurred on January 1, 1999. In preparation of the pro forma condensed consolidated statement of operations, management has made certain estimates and assumptions that affect the amounts reported in the unaudited pro forma condensed consolidated statement of operations. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1999, should 13 be read in conjunction with the historical financial statements and related notes thereto of the Company which are included in this Annual Report on Form 10-K for the year ended December 29, 2000.
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1999 (In Thousands) Predecessor Predecessor Company Company Historical Pro Forma Historical Pro Forma Period from Period From Period From Year January 1, 1999 January 1, 1999 April 24, 1999 Ended to April 23, Pro Forma to April 23, to December Pro Forma December 1999 Adjustments 1999 31, 1999 Adjustments 31, 1999 --------------- ----------- ---------------- -------------- ----------- ---------- Net sales $87,591 $ - $ 87,591 $227,159 $ - $314,750 Cost of sales: Cost of sales 58,520 460 (a) 58,980 146,488 - 205,468 Purchase accounting adjustment to inventory - 9,008 (b) 9,008 9,008 (9,008)(b) 9,008 ------- ------- -------- -------- ------ -------- Gross profit 29,071 (9,468) 19,603 71,663 9,008 100,274 Selling, general and administrative expenses 21,429 68 (c) 21,497 52,567 - 74,064 Amortization of intangible assets 835 638 (d) 1,473 3,178 - 4,651 Transaction expenses 11,440 - 11,440 - - 11,440 ------- ------- -------- -------- ------ -------- Operating (loss) income (4,633) (10,174) (14,807) 15,918 9,008 10,119 Interest expense 3,907 2,030 (e) 5,937 15,112 (138)(g) 20,911 ------- ------ -------- -------- ------ -------- (Loss) income before income taxes and extraordinary item (8,540) (12,204) (20,744) 806 9,146 (10,792) Income taxes (benefit) (842) (4,666)(f) (5,508) 1,453 3,631 (f) (424) ------- ------- -------- -------- ------ -------- (Loss) income before extraordinary item $(7,698) $(7,538) $(15,236) $ (647) $5,515 $(10,368) ======= ======= ======== ======= ====== ========
(a) Adjustment to provide pro forma depreciation expense resulting from the application of purchase accounting adjustments computed based on the remaining useful lives of plant and equipment. (b) Adjustment to reflect the impact on cost of sales of additional inventory costs resulting from adjusting the carrying value of acquired inventories to reflect their estimated fair market value assuming the Acquisition occurred on January 1, 1999. (c) Adjustment to reflect the elimination of amortization of unrecognized prior service cost and unrecognized gains related to the Predecessor's pension and postretirement benefit plans. (d) Adjustment to reflect the elimination of $705 of amortization related to historical goodwill and record pro forma amortization of $1,343 related to intangible assets including goodwill, trademarks and patents recorded in connection with the Acquisition. Goodwill and trademarks are being amortized over a 40-year useful life and patents are being amortized over a 15-year useful life. These periods are believed by management to be reasonable based on the expected lives of the underlying processes, products, and equipment assumed to be acquired. (e) Adjustment to reflect (i) the elimination of historical interest expense of $494 related to the Predecessor's credit facilities, loan commitment fees, and the amortization of deferred financing costs, (ii) pro forma amortization of $353 for the $8,001 in deferred financing costs incurred in connection with the financing, amortized over the respective lives of the Company's credit facilities, and (iii) pro forma interest expense of $2,171 on the Company's credit facilities related to the balances assumed to be outstanding on January 1, 1999. Interest expense has been computed assuming that the LIBOR-based interest rate (plus the applicable margin) 14 option is selected by the Company. Balances assumed to be outstanding on January 1, 1999, includes $5,000 under the revolving credit facility and $88,000 under the Term Loan Facility. In addition, the purchase of $30,700 in Senior Notes on June 10, 1999, was assumed to occur on January 1, 1999. (f) Adjustment to reflect the income tax consequences of the pro forma adjustments computed at the statutory rate of 39.7% excluding the net adjustment for goodwill of $451 which is not tax deductible. (g) Adjustment to reflect pro forma interest expense of $261 on the Company's credit facilities related to the balances assumed to be outstanding on April 24, 1999. Interest expense has been computed assuming that the LIBOR-based interest rate (plus the applicable margin) option is selected by the Company. Balances assumed to be outstanding on April 24, 1999, are the same as described in (e) above. Adjustment to reflect pro forma interest expense reduction of $399 related to the $30,700 in Senior Notes which were assumed to be purchased on April 24, 1999. Year Ended December 29, 2000 Compared to Pro Forma Year Ended December 31, 1999 Net Sales. Net sales for 2000 and pro forma 1999 were $318.8 million and $314.8 million, respectively, an increase of $4.0 million, or 1.3%. We did not experience any significant price increases in 2000 across our three business segments. Our increase in net sales for 2000 related primarily to volume increases. Razors and Blades. Net sales of our razors and blades segment for 2000 and pro forma 1999 were $210.1 million and $201.5 million, respectively, an increase of $8.6 million, or 4.3%. Net sales of shaving razors and blades for 2000 and pro forma 1999 were $142.0 million and $134.3 million, respectively, an increase of $7.7 million or 5.8%. Net sales of domestic value branded shaving products decreased 2.8% primarily reflecting a decline in promotional programs and inventory reductions by a key customer. In addition, net sales for pro forma 1999 were favorably affected by sales of the Revlon Perfect Finish(TM) shaving system which was discontinued in September 1999. Net sales of domestic private label shaving products increased 1.9% primarily reflecting sales gains relating to the Tri-Flexxx(TM) and Premier Comfort(TM) shaving products which was substantially offset by a decline in promotional programs by several customers and reduced sales volume to certain customers. Net sales of shaving products in international markets increased 15.8% (net of a 7% negative impact of unfavorable exchange rates) reflecting stronger sales in most of the Company's markets. The increase results primarily from increased sales of the Tri-Flexxx(TM) and long handle disposable shaving products and from increased sales penetration in existing and new markets. Net sales of blades and bladed hand tools for 2000 and pro forma 1999 were $51.1 million and $50.6 million, respectively, an increase of $0.5 million, or 1.0%. Net sales of specialty industrial and medical blades for 2000 and pro forma 1999 were $17.0 million and $16.6 million, respectively, an increase of $0.4 million, or 2.2%. Sales of specialty industrial products increased 10.0% reflecting strong distribution gains. Sales of medical products decreased 4.0% primarily reflecting inventory reductions by certain customers and consolidations within the healthcare industry. Cotton and Foot Care. Net sales of cotton and foot care products for 2000 and pro forma 1999 were $81.1 million and $84.3 million, respectively, a decrease of $3.2 million or 3.8%. The decrease results primarily from reduced sales volume resulting from issues related to the cotton coil matter (see Note 12 to our Consolidated Financial Statements and Item 3 - Legal Proceedings) and redesign of products by certain customers. Custom Bar Soap. Net sales of our custom bar soap products for 2000 and pro forma 1999 were $27.6 million and $29.0 million, respectively, a decrease of $1.4 million or 4.6%. The decrease results primarily from decreased sales volume to several pharmaceutical/skin care customers including repackaging of product for one customer, which was somewhat offset by increased sales volume to a specialty customer. Gross Profit. Gross profit increased $6.4 million to $106.7 million for 2000, from $100.3 million for pro forma 1999 due primarily to the purchase accounting adjustment to inventory of $9.0 million for pro forma 1999. As a percentage of net sales, gross profit was 33.5% for 2000 and 31.9% for pro forma 1999. Excluding the 1999 purchase accounting adjustment to inventory of $9.0 million, gross 15 profit decreased $2.6 million to $106.7 million for 2000, from $109.3 million for pro forma 1999, and as a percentage of net sales, gross profit was 33.5% for 2000, and 34.7% for pro forma 1999. Blade margins declined due primarily to product mix, higher material costs, higher depreciation expense related to capacity expansion projects and from the negative impact of unfavorable exchange rates. Cotton margins declined due primarily to higher material costs, higher absorption of manufacturing overheads over a lower sales base and higher manufacturing overheads which were somewhat offset by labor efficiencies. Soap margins declined due primarily to product mix, the repackaging of product for a customer and higher absorption of manufacturing overheads over a lower sales base. Operating and Other Expenses. Selling, general and administrative expenses were 22.9% of net sales for 2000, compared to 23.5% for pro forma 1999. The decrease primarily reflects a decrease in legal expenses, an increase in pension income and a decrease in employee bonuses which were somewhat offset by an increase in administrative overhead associated with the new corporate headquarters. Amortization of intangible assets was substantially unchanged at $4.6 million for 2000 and $4.7 million for pro forma 1999. Interest expense decreased $1.1 million to $19.8 million for 2000, from $20.9 million for pro forma 1999, due primarily to the write-off in July 1999 of $2.2 million of deferred financing costs and lower commitment fee expense in connection with the $52.5 million permanent reduction in the Company's term loan facility. The decrease was somewhat offset by increased interest expense resulting from additional borrowings under the Company's revolving credit facility and an increase in interest rates. Costs of $14.4 million associated with the early retirement program (see Note 8 to our Consolidated Financial Statements) are included in the consolidated statement of operations in the caption, "Special termination benefits". The Company's effective income tax rate was 4.0% for 2000, and (3.9)% for pro forma 1999, and varies from the United States statutory rate due primarily to nondeductible goodwill amortization, certain nondeductible transaction expenses in 1999, foreign taxes in excess of the U.S. tax rate and state income taxes, net of the federal tax benefit. Pro Forma Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Net Sales. Net sales for pro forma 1999 and 1998 were $314.8 million and $297.5 million, respectively, an increase of $17.3 million or 5.8%. We did not experience any significant price increases in 1999 across our three business segments. Our increase in net sales for 1999 related primarily to volume increases. Razors and Blades. Net sales of our razors and blades segment for pro forma 1999 and 1998 were $201.5 million and $184.0 million, respectively, an increase of $17.5 million or 9.5%. Net sales of shaving razors and blades for pro forma 1999 and 1998 were $134.3 million and $119.0 million, respectively, an increase of $15.3 million or 12.8%. Net sales of domestic value branded shaving products increased 32.1% compared to 1998, rebounding from weak sales in 1998, reflecting sales gains relating to the launch of the new Tri-Flexxx(TM) shaving product, an increase in promotional programs with several customers and overall increased distribution of the Company's shaving products. Net sales of domestic private label shaving products were substantially unchanged compared to 1998. Net sales of shaving products in international markets increased 9.2% (net of a 2% negative impact of unfavorable exchange rates) reflecting stronger sales in certain markets. Net sales of blades and bladed hand tools for pro forma 1999 and 1998 were $50.6 million and $48.9 million, respectively, an increase of $1.7 million or 3.6%. This growth primarily reflects increased sales of our Personna(R) and American Line(TM) brands of products as a result of distribution gains. Net sales of specialty industrial and medical blades for pro forma 1999 and 1998 were $16.6 million and $16.1 million, respectively, an increase of $0.5 million, or 3.2%. Sales of specialty industrial products decreased 6.3% due primarily to inventory adjustments by certain customers and mix shifts to lower priced blade products. Additionally, certain of our distributors experienced increased competition in their serviced niche markets. Sales of medical products increased 12.3% due primarily to increased distribution of certain products. Cotton and Foot Care. Net sales of cotton and foot care products for pro forma 1999 and 1998 were $84.3 million and $87.3 million, respectively, a decrease of $3.0 million, or 3.5%. This decrease results primarily from issues related to the cotton coil matter (see Note 12 to our Consolidated Financial Statements and Item 3 - Legal Proceedings) and the continuing integration and reorganization of the Company's cotton operations. 16 Custom Bar Soap. Net sales of our custom bar soap products for pro forma 1999 and 1998 were $29.0 million and $26.2 million, respectively, an increase of $2.8 million, or 10.5%. This increase results primarily from increased sales volume to certain of our pharmaceutical/skin care customers. Gross Profit. Gross profit increased $4.8 million to $100.3 million for pro forma 1999 from $95.5 million for 1998. As a percentage of net sales, gross profit was 31.9% for pro forma 1999 and 32.1% for 1998. Excluding the 1999 purchase accounting adjustment to inventory of $9.0 million, gross profit increased $13.8 million to $109.3 million for pro forma 1999, from $95.5 million for 1998, and as a percentage of net sales, gross profit was 34.7% for pro forma 1999, and 32.1% for 1998. Blade margins improved due to favorable product mix, lower material costs and lower manufacturing costs reflecting the Company's continuing efforts to reduce manufacturing costs. Soap margins improved due to lower material costs for certain raw materials. This improvement in blade and soap margins was somewhat offset by increased depreciation expense resulting from the Acquisition and by lower margins in the Company's cotton operations due to increased distribution costs and higher manufacturing overheads resulting primarily from issues related to the continuing integration and reorganization of the cotton operations. Operating and Other Expenses. Selling, general and administrative expenses were 23.5% of net sales for pro forma 1999, compared to 21.4% for 1998. This increase primarily reflects an increase in promotional support for our shaving blade products and an increase in legal fees resulting from the Gillette lawsuit. Amortization of goodwill and other intangible assets increased $2.2 million to $4.7 million for pro forma 1999 from $2.5 million for 1998, reflecting increased amortization of intangible assets related to the Acquisition. Interest expense increased $8.6 million to $20.9 million for pro forma 1999, from $12.3 million for 1998, due primarily to the write-off of approximately $2.2 million in connection with the reduction in the term loan facility and increased interest expense, commitment fees and amortization of deferred loan fees associated with debt incurred in connection with the Acquisition. This increase was somewhat offset by lower interest expense relating to the Company's $30.7 million purchase of its 9 7/8% Series B Senior Notes in June 1999. In connection with the Acquisition the Predecessor incurred approximately $11.4 million in transaction expenses related primarily to (i) amounts paid to redeem all of the outstanding options to purchase common stock of the Predecessor, (ii) costs incurred by or on behalf of the Predecessor in connection with the Acquisition, including legal and other advisory fees, and (iii) costs incurred by or on behalf of the Predecessor related to payments made to certain employees of the Predecessor in connection with the change of control. Costs of $0.7 million (net of tax benefit) associated with the purchase of the Senior Notes and repayment of the Terminated Credit Facility (see Note 6 to our Consolidated Financial Statements) are reflected in the consolidated statement of operations in the caption "Extraordinary item". Our effective income tax rate for pro forma 1999 and 1998 was (3.9)% and 28.7%, respectively, and varies from the United States statutory rate due primarily to nondeductible goodwill amortization, certain non-deductible transaction expenses, state income taxes, net of the federal tax benefit, and in 1998 due to a tax benefit relating to the settlement of tax issues. (See Note 9 to our Consolidated Financial Statements). Liquidity and Capital Resources Our primary sources of liquidity are cash flow from operations and borrowings under our revolving credit facility. For the year ended December 29, 2000, net cash provided by operating activities amounted to $9.4 million. For the period from April 24, 1999 to December 31, 1999, net cash provided by operating activities amounted to $19.3 million and for the period from January 1, 1999 to April 23, 1999, net cash used in operating activities amounted to $5.3 million. For the years ended December 31, 1998, net cash provided by operating activities amounted to $12.5 million. Net cash provided by operating activities for the year ended December 29, 2000 primarily reflects an increase in earnings excluding the expense relating to the special termination benefits of $14.4 million which was somewhat offset by net changes in the components of working capital, primarily accounts receivable and inventories. Net cash provided by operating activities for the period from April 24, 1999 to December 31, 1999 primarily reflects a decrease in inventories of $15.1 million due in part to the write-off of the purchase accounting adjustment of $9.0 million and a decrease in income taxes receivable of $3.7 million which was somewhat offset by a decline in net income, a decrease in accounts payable and an increase in accounts receivable. Net cash used in operating activities for the period from January 1, 1999 to April 23, 1999 primarily reflects the payment of transaction expenses of $11.4 million relating to the Acquisition, an increase in inventories of $7.7 million and an 17 increase in income taxes receivable of $2.3 million, which were somewhat offset by a decrease in accounts receivable. The increase in net cash provided by operating activities for 1998 compared to 1997 primarily reflects a decrease in trade receivables of $1.2 million reflecting the timing of customer payments as compared to an increase of $7.7 million in 1997, offset by a decline in net income and a decline in accounts payable. For the year ended December 29, 2000, net cash used in investing activities related primarily to capital expenditures of $15.4 million. For the period from April 24, 1999 to December 31, 1999 and for the period from January 1, 1999 to April 23, 1999, net cash used in investing activities related primarily to capital expenditures of $8.4 million and $3.6 million, respectively. For the year ended December 31, 1998, net cash used in investing activities amounted to $12.6 million and related primarily to capital expenditures of $11.4 million and the purchase of Wolco for $0.6 million. For the year ended December 29, 2000, net cash used in financing activities resulted from $9.3 million in net advances to the Company's parent which was somewhat offset by net borrowings of $5.3 million. For the period from April 24, 1999 to December 31, 1999, net cash used in financing activities resulted from $18.6 million in net advances to the Company's parent and deferred loan fees of $0.4 million which were substantially offset by net borrowings of $18.4 million. For the period from January 1, 1999 to April 23, 1999, net cash provided from financing activities resulted from net borrowings of $39.5 million which was reduced by net advances to the Company's parent of $24.2 million and deferred loan fees of $7.6 million. For the year ended December 31, 1998, net cash provided by financing activities was $2.1 million. Net cash provided by financing activities for 1998 resulted from net borrowings of $2.0 million. At December 29, 2000, long-term indebtedness amounted to $191.0 million (including the current portion of $11.9 million), and we had $8.9 million available for future borrowings and letters of credit under our revolving credit facility. The weighted-average interest rate incurred by us with respect to all our debt obligations was approximately 9.8% for the year ended December 29, 2000. On March 28, 2001, the Company amended its Credit Agreement which, among other things, modified the financial ratio requirements relating to the leverage, fixed charges and interest coverage ratios. These financial ratio requirements were modified to allow the Company to meet certain of the financial ratio requirements. In addition, the Company's principal stockholder has guaranteed $5.0 million of borrowings under the Company's existing revolving credit facility. On March 28, 2001, the Company entered into an additional revolving credit facility of $5.0 million which has been guaranteed by the principal stockholder. Our liquidity requirements are primarily the funding of working capital needs, which primarily consist of inventory and accounts receivable, capital expenditures and scheduled principal and interest payments on indebtedness. Capital expenditures in 2000 totaled $15.4 million, as compared to $12.1 million in 1999 and $11.4 million in 1998. We expect our capital expenditures to approximate $13.0 million in 2001. It is anticipated that these expenditures will fund purchases of equipment to support production capacity for new and existing products as well as routine on-going requirements. We believe that our cash on hand, anticipated funds from operations and the amounts available to us under our revolving credit facility will be sufficient to cover our working capital, capital expenditures, debt service requirements and tax obligations for at least the next 12 months. Our ability to fund operations, make capital expenditures and make scheduled principal and interest payments or to refinance our indebtedness will depend upon our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control. Market Risk The Company is exposed to various market risk factors such as fluctuating interest rates and changes in foreign currency rates. These risk factors can impact our results of operations, cash flows and financial position. We manage these risks through regular operating and financing activities and periodically use derivative financial instruments such as foreign exchange option and forward contracts and interest rate cap and swap agreements. These derivative instruments are placed with major financial institutions and are not for speculative or trading purposes. The following analysis presents the effect on the Company's earnings, cash flows and financial position as if the hypothetical changes in market risk factors occurred on December 29, 2000. Only the potential impacts of our hypothetical assumptions are analyzed. The analysis does not consider other possible effects that could impact our business. 18 Interest Rate Risk At December 29, 2000, the Company carried $191.0 million of outstanding debt on its books, with $120.9 million of that total held at variable interest rates. In October 1999, the Company entered into an interest rate cap agreement and an interest rate swap agreement with a bank covering $56,250,000 of its variable rate debt outstanding to manage its interest rate risk (see Note 6 to our Consolidated Financial Statements). Holding all other variables constant, if interest rates hypothetically increased or decreased by 10%, the impact on earnings, cash flow and financial position would not be material. In addition, if interest rates hypothetically increased or decreased by 10%, with all other variables held constant, the fair market value of our $69.3 million 9 7/8% Series B Senior Notes would increase or decrease by approximately $2.8 million. Foreign Currency Risk The Company sells to customers in foreign markets through our foreign operations and through export sales from our plants in the U.S. These transactions are often denominated in currencies other than the U.S. dollar. Our primary currency exposures are the Euro, British Pound Sterling, Canadian Dollar and Mexican Peso. The Company limits its foreign currency risk by operational means, mostly by locating its manufacturing operations in those locations where it has significant exposures in major currencies. The Company has entered into currency option contracts to minimize the risk of foreign currency fluctuations. The value of these contracts at December 29, 2000 was not material to the Company's earnings, cash flow and financial position. New Accounting Standards In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes standards for accounting and disclosure of derivative instruments. This new standard, as amended by FAS 137 and FAS 138, is effective for fiscal quarters of fiscal years beginning after June 15, 2000. The Company was required to adopt FAS 133 on December 30, 2000. The Company's use of derivative instruments is limited to interest rate cap and swap agreements and foreign currency options. The implementation of this new standard did not have a material effect on the Company's results of operations or financial position. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Interpretation clarifies guidance for certain issues that arose in the application of APB Opinion No. 25. The Company adopted the Interpretation on July 1, 2000, which did not have any effect on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 provides additional guidance relating to revenue recognition. The Company adopted SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, in the fourth quarter of 2000 and concluded that its revenue recognition policies were in compliance with SAB No. 101. In May 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-14, "Accounting for Certain Sales Incentives". EITF No. 00-14 addresses the recognition, measurement, and income statement classification of various sales incentives including discounts, coupons, rebates, and free products or services. EITF No. 00-14 requires a vendor to recognize discounts, coupons and rebate obligations as a reduction of revenue. The Company has historically followed the practice of recording the cost of discounts, coupons and rebates as a selling expense. The Company is required to adopt EITF No. 00-14 in the second quarter of 2001. At the time of adoption, the Company will reclassify prior quarters and prior year financial statements to conform to the new income statement classification. As the Company believes its current accounting practices relative to the timing and method of recognizing such costs is consistent with the consensus it is not expected that the adoption of the consensus will have any impact on the Company's financial position or results of operations. The Company is in the process of determining the amounts to be reclassified. In January 2001, the EITF reached a consensus on one of the issues currently under consideration within EITF Issue No. 00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future". This consensus requires a vendor to recognize a rebate or refund obligation as a reduction of 19 revenue based on a systematic and rational allocation of the costs of honoring rebates or refunds earned. The Company has historically followed the practice of recording the cost of such items as a selling expense. The Company is required to adopt the consensus in the first quarter of 2001. At the time of adoption, the Company will reclassify prior quarters and prior year financial statements to conform to the new income statement classification. As the Company believes its current accounting practices relative to the timing and method of recognizing such costs is consistent with the consensus it is not expected that the adoption of the consensus will have any impact on the Company's financial position or results of operations. The Company is in the process of determining the amounts to be reclassified. Contingencies Refer to Note 12 - Commitments, Contingencies and Other to our Consolidated Financial Statements for a discussion of legal contingencies. Inflation Inflation has not been material to our operations within the periods presented. 20 ITEM 7A - Quantitative and Qualitative Disclosures about Market Risk The information called for by this item is provided under the captions "Market Risk", "Interest Rate Risk" and "Foreign Currency Risk" under Part I, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Report. ITEM 8 - Financial Statements and Supplementary Data The consolidated financial statements of the registrant are submitted as a separate section of this Report starting on page 32. Information related to "Quarterly Data (Unaudited)" is summarized below:
2000 ---------------------------------------------------- First Second Third Fourth -------- -------- -------- -------- (In thousands, except per share and market price data) Net sales $77,209 $79,921 $83,434 $78,249 Gross profit 25,408 26,502 29,327 25,464 Special termination benefits - - - 14,351 (1) Net (loss) income (103) 1,695 1,888 (8,688) Earnings per share - net (loss) income Basic (0.01) 0.14 0.16 (0.72) Diluted (0.01) 0.14 0.16 (0.72) Market price High n/a n/a n/a n/a Low n/a n/a n/a n/a
1999 ----------------------------------------------------- First Second Third Fourth ------- -------- ------- -------- (In thousands, except per share and market price data) Net sales $70,287 $77,246 $86,080 $81,137 Gross profit 23,458 18,362 (2) 31,167 27,747 Transaction expenses - 11,440 (3) - - Income (loss) before extraordinary item 1,974 (13,397) 1,259 1,819 Extraordinary item - (729) - - Net income (loss) 1,974 (14,126) 1,259 1,819 Earnings per share - income (loss) before extraordinary item Basic 0.16 (1.11) 0.10 0.15 Diluted 0.16 (1.11) 0.10 0.15 Earnings per share - net income (loss) Basic 0.16 (1.17) 0.10 0.15 Diluted 0.16 (1.17) 0.10 0.15 Market price High 14.06 14.25 n/a n/a Low 9.88 11.81 n/a n/a
(1) Expenses relating to the special termination benefits incurred in connection with the early retirement program (see Note 8 to our Consolidated Financial Statements). (2) Includes additional inventory costs of $9.0 million resulting from adjusting the carrying value of acquired inventories to reflect their estimated fair market value at the Acquisition date. (3) Relates to expenses incurred in connection with the sale of the Predecessor (see Note 1 to our Consolidated Financial Statements). 21 ITEM 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On April 18, 2000, the Company dismissed PricewaterhouseCoopers LLP ("PWC"), which served as the Company's independent public accountants since 1994. PWC's reports on the financial statements for the year ended December 31, 1998, for the period from April 24, 1999 to December 31, 1999, and for the period from January 1, 1999 to April 23, 1999 did not contain an adverse opinion, disclaimer of opinion or qualification or modification as to uncertainty, audit scope or accounting principles. The change in the independent public accountants was approved by the Company's Board of Directors on April 18, 2000. During 1998 and 1999 and through April 18, 2000, there were no disagreements with PWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PWC would have caused PWC to make reference to the subject matter of the disagreements in connection with their report. On April 18, 2000, the Company engaged its new independent public accountants, Ernst & Young LLP, which was approved by the Company's Board of Directors on April 18, 2000. During 1998 and 1999 and through April 18, 2000, the Company did not consult with Ernst & Young LLP regarding the application of accounting principles or any reportable events. PART III ITEM 10 - Directors and Executive Officers of the Registrant The following table sets forth the name, age and position of each of the Company's directors, executive officers and other significant employees. All of the Company's officers are elected annually and serve at the discretion of the Company's Board of Directors. Name Age Position James D. Murphy 54 President, Chief Executive Officer and Director J. Andrew Bolt 44 Senior Vice President - Chief Financial Officer James W. Nelson 61 Senior Vice President - Manufacturing and Logistics Karen A. August 43 Senior Vice President - Consumer Products Mario E. Soussou 50 Senior Vice President - International Lawrence Friedman 54 Vice President and Secretary - General Counsel Gary R. Moorhead 52 Vice President - General Manager, Custom Bar Soap Paul W. Tonnesen 36 Vice President- Consumer Products Gary S. Wade 52 Vice President - Industrial/Specialty Adam L. Suttin 33 Vice President, Assistant Secretary and Director John W. Childs 59 Director Timothy J. Healy 51 Director Raymond B. Rudy 70 Director, Non-Executive Chairman Biographical Information Mr. Murphy joined the Company as President and Chief Executive Officer on April 23, 1999 in connection with the acquisition of American Safety Razor Company by RSA Acquisition Corporation, an affiliate of J.W. Childs Equity Partners II, L.P. (the "Acquisition"). He has nearly 25 years of experience in the packaged goods industry both domestically and internationally. He has held the senior management position in three companies over the last ten years as either Country Manager, Division President or President/CEO. Mr. Murphy is the former President and CEO of the Personal Care Group which was acquired by J.W. Childs in 1996 and sold to Playtex Products, Inc. in 1998. Prior to this, Mr. Murphy was Managing Director for Scott Paper, Ltd. from 1995 through 1996 with responsibility for the U.K. and Ireland. From 1983 to 1995, he held increasing levels of responsibility at L&F Products including President of the Canadian Division and President of the Personal Care Division. He also held senior management positions 22 at the Airwick Division of Ciba Geigy and American Home Products. Mr. Bolt joined the Company on November 6, 2000, and has served as Senior Vice President and Chief Financial Officer since that time. Mr. Bolt has 20 years of experience in financial and management positions, most recently as Chief Financial Officer of Maple Leaf Foods, USA, from 1995 until joining the Company. He previously served as Chief Financial Officer for Bidermann Industries and Federal Resources and held various positions with Ernst & Young. Mr. Nelson joined the Company as Senior Vice President - Manufacturing and Logistics on April 23, 1999 in connection with the Acquisition. From 1963 to 1998, Mr. Nelson has held senior management positions in manufacturing and logistics with consumer and health care product companies such as Reckitt and Colman, L&F Products, and Johnson and Johnson. Ms. August joined the Company as Senior Vice President - Consumer Products on April 23, 1999 in connection with the Acquisition. Ms. August has over 15 years of consumer packaged goods experience that spans a wide range of categories in personal care and household products. Prior to joining the Company, Ms. August was Vice President, Marketing for the Personal Care Group from 1996 to 1998. Prior to working at Personal Care Group, Ms. August held positions of increasing responsibility for L&F Products. Mr. Soussou joined the Company as Senior Vice President - International on April 23, 1999 in connection with the Acquisition. From 1996 to 1998 he was the Managing Director, International Business for the Personal Care Group where he oversaw the company's international business. From 1992 to 1995, Mr. Soussou was Vice President of Snapple Beverage Corporation. He was Director of International Business Development and Exports at Best Foods, Inc., where he held various positions of increasing responsibility between 1981 and 1992. Mr. Friedman joined the Company on April 3, 2000 and has served as Vice President and Secretary, General Counsel since that time. Prior to joining the Company, Mr. Friedman was Director, Group Legal Services for Reckitt & Colman, Inc., since 1997 and from 1990 to 1997 he was the Senior Vice President, General Counsel for Reckitt & Colman, Inc. From 1984 to 1990, Mr. Friedman was Vice President, General Counsel for Durkee-French Foods, Inc. Mr. Moorhead joined the Company in 1980, in connection with the acquisition of the Hewitt Soap Company and held various sales and marketing positions until April 1997, when he became Vice President - General Manager, Custom Bar Soap. Mr. Tonnesen joined the Company in October 1998 and has served as Vice President - Consumer Products since that time. Prior to joining the Company, Mr. Tonnesen was National Sales Manager for the Personal Care Group since 1996. From 1994 to 1996, Mr. Tonnesen was Eastern Zone Sales Manager at H.J. Heinz, Inc./Kraft General Foods. From 1991 to 1994, Mr. Tonnesen held various positions at Kraft General Foods. Mr. Wade has been employed in various sales, management and marketing positions in our industrial blade division since 1978. In 1990, Mr. Wade was appointed Vice President - Industrial/Specialty. Prior to joining the Company, Mr. Wade was employed in various sales and sales management positions with the General Products Division of Philip Morris U.S.A. Mr. Suttin became a member of the Company's Board of Directors on April 23, 1999 in connection with the Acquisition. He has been a Managing Director of J.W. Childs Associates, L.P. ("JWCA") since January 1998, and has been with JWCA since July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from August 1989, most recently holding the position of Associate. He is a director of Quality Stores, Inc., Empire Kosher Poultry, Inc. and DESA International, Inc. Mr. Childs became a member of the Company's Board of Directors on April 23, 1999 in connection with the Acquisition. He has been President of JWCA since July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from May 1987, most recently holding the position of Senior Managing Director. Prior to that, Mr. Childs was with the Prudential Insurance Company of America where he held various executive positions in the investment area ultimately serving as Senior Managing Director in charge of the Capital Markets Group. He is a director of Big V Supermarkets, Inc., Quality Stores, Inc., Chevys Holdings, Inc., Beltone Electronics Corp., Pan Am International Academy, Inc., DESA International, Inc., Edison Schools Inc., and Bass Pro Inc. Mr. Healy became a member of the Company's Board of Directors on April 23, 1999 in connection with the Acquisition. He has been a Managing Director of JWCA since July 1998. From 1991 to 1998, Mr. Healy was President and Chief Executive Officer of Select Beverages. Prior to 1991, he was Executive Vice President and Chief Operating Partner of National Beverage Corporation and from 1972 to 1986 he held various executive and marketing positions of increasing responsibility for Proctor & Gamble Co.; Frito- 23 Lay, Inc.; Heinz, USA; General Foods Corporation and the NutriSweet division of G.D. Searle & Co. He is the chairman of IDF Holdings, Inc. Mr. Rudy became a member of the Company's Board of Directors on April 23, 1999 in connection with the Acquisition. He has been a Managing Director of JWCA since July 1995. Prior to that time, he was Deputy Chairman and Director of Snapple Beverage Corporation from 1992 until the company was sold in 1994. From 1987 to 1989, Mr Rudy was President of Best Foods Subsidiaries of CPC International. From 1984 to 1986, Mr. Rudy was Chairman, President and CEO of Arnold Foods Company, Inc. He is Chairman of Beltone Electronics Corp., Vice Chairman of Empire Kosher Poultry, Inc. and a director of International Diverse Foods, Inc., Widmer Brothers Brewing Company and DESA International, Inc. 24 ITEM 11 - Executive Compensation The following table sets forth a summary of certain information regarding compensation paid or accrued by the Company for services rendered to the Company for the fiscal year ended December 29, 2000, and the two prior fiscal years, paid or awarded to those persons who were, at December 29, 2000: (i) the Company's chief executive officer, (ii) the Company's four most highly compensated executive officers other than the chief executive officer whose total annual salary and bonus exceeded $100,000 during such period (collectively, the "Named Executive Officers") and (iii) two additional individuals for whom disclosure would have been provided but for the fact that the individuals were not serving as an executive officer of the Company as of December 29, 2000.
Summary Compensation Table Long-Term Annual Compensation Compensation ---------------------- ----------------- Other Annual Securities Underlying Name and Principal Position Year Salary(1) Bonus(2) Compensation(3) Options - --------------------------- ---- --------- -------- --------------- ---------------------- James D. Murphy 2000 411,528 0 0 0 President and Chief 1999 274,364 372,500 0 0 Executive Officer 1998 0 0 0 0 James W. Nelson 2000 191,258 35,000 0 0 Senior Vice President - 1999 134,065 132,500 0 0 Manufacturing and Logistics 1998 0 0 0 0 Karen A. August 2000 205,988 35,000 0 0 Senior Vice President - 1999 135,400 130,000 Consumer Products 1998 0 0 0 0 Mariou E. Soussou 2000 205,988 48,000 0 0 Senior Vice President - 1999 137,050 130,000 0 0 International 1998 0 0 0 0 Gary S. Wade 2000 151,359 25,000 0 0 Vice President - Industrial/ 1999 141,828 84,500 32,000 (4) 0 Specialty 1998 134,678 64,300 0 0 Thomas H. Quinn 2000 0 0 0 0 Past Chairman and 1999 41,668 0 374,000 (5) 0 Chief Executive Officer 1998 125,000 0 0 0 Thomas G. Kasvin 2000 0 0 0 0 Past Senior Vice President-- 1999 150,003 105,000 1,191,250 (6) 0 Chief Financial Officer 1998 190,832 0 0 0
- ---------------------------------- (1) Includes amounts deferred under the Company's 401(k) plan. (2) The Company provides bonus compensation based on an individual's achievement of certain specified objectives, with additional rewards if certain operating objectives, including, among others, EBITDA, are met. The bonus plan is administered by the Company's Compensation Committee. (3) Except as indicated, no executive named in the table received any other annual compensation in an amount in excess of the lesser of either $50,000 or 10% of the total of annual salary and loans reported for him in the two preceding columns for the periods covered by this table. 25 (4) Payment related to the April 30, 1999 redemption of the Predecessor's stock options. (5) Payment pursuant to a Letter Agreement dated as of February 5, 1999 between the Company and Mr. Quinn. (6) Payment of $660,000 pursuant to an Employment Protection Agreement dated December 8, 1997 between the Company and Mr. Kasvin, payment of $300,000 pursuant to a Letter Agreement dated July 15, 1998 between the Company and Mr. Kasvin and payment of $231,250 related to the April 30, 1999 redemption of the Predecessor's stock options. In June 2000, RSA Holdings Corporation, the Company's parent, adopted a stock incentive plan, whereby stock options may be granted to directors, officers and other key employees of RSA Holdings Corporation and its subsidiaries to purchase a specified number of shares of common stock for a term not to exceed 10 years. The plan provides for the granting of options to purchase up to 110,000 shares of common stock of RSA Holdings Corporation. Grants of options to be issued to directors, officers and other key employees vest and become exercisable upon the attainment of certain performance goals at the end of certain performance periods, as defined in the plan or after nine years. At December 29, 2000, there were 93,700 stock options outstanding under the RSA Holdings Corporation stock plan. The following table shows RSA Holdings Corporation stock options exercised by each of the Named Executive Officers during the fiscal year ended December 29, 2000, including the aggregate value of gains on the date of exercise. In addition, this table includes the number of shares covered by both exercisable and non-exercisable stock options as of fiscal year-end, and the values for unexercised options based on the year-end value of the RSA Holdings Corporation common stock. Except as listed in the table, no other Named Executive Officer exercised any RSA Holdings Corporation stock options or beneficially owned unexercised RSA Holdings Corporation stock options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values Value of Unexercised Number of Unexercised In-the-Money Options at Shares Options at December 29, 2000 December 29, 2000 (1) Acquired Value ---------------------------- --------------------------- Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- -------- ----------- ------------- ----------- ------------- James D. Murphy 0 $0 7,200 28,800 $0 $0 James W. Nelson 0 0 1,500 6,000 0 0 Karen A. August 0 0 1,500 6,000 0 0 Mario E. Soussou 0 0 1,500 6,000 0 0 Gary S. Wade 0 0 1,000 4,000 0 0 - -----------------------
(1) Based on the difference between the estimated value on December 29, 2000, for the common stock and the option exercise price. Employment Agreements Effective August 9, 1999, the Company entered into an Employment Agreement (the "Employment Agreement") with Mr. James D. Murphy, to serve as President and Chief Executive Officer until December 31, 2003. Pursuant to the terms of the Employment Agreement, Mr. Murphy's benefits include, among other benefits,: (i) a base annual salary of $400,000, (ii) an annual cash bonus based on the Company's annual EBITDA target (as defined therein), (iii) one year's base salary upon termination of Mr. Murphy by the Company without cause, (iv) one year's base salary upon termination by Mr. Murphy of his employment with good reason, except that his base salary due for the one year period after termination shall be reduced by the amount of his base compensation in his new employment, and (v) one year's base salary as outlined in (iv) above, upon termination of Mr. Murphy by the Company without cause upon a change in control (as defined therein) and provided that the return hurdle (as defined therein) has not been satisfied. If the return hurdle has been satisfied, the Company will have no obligation to pay the base salary to Mr. Murphy. On March 3, 1995, Sterile Products Holdings, Inc., a wholly-owned subsidiary of the Company ("Holdings") and Sterile Products Corporation, d.b.a. Absorbent Cotton Company, Inc., a wholly-owned subsidiary of Holdings ("ACCO"), entered into an employment agreement with Mr. C. C. Van Noy (the "Van Noy Employment Agreement"). Pursuant to the terms of the Van Noy Employment Agreement, Mr. Van Noy served as the President of ACCO for two years and agreed not to compete with Holdings or 26 ACCO or disclose any confidential information during the period in which the Annual Retirement Payments (as hereinafter defined) are being paid to him. In exchange for his services and agreements not to compete or disclose certain information, Mr. Van Noy, who has retired and no longer performs services for the Company, is entitled to receive an annual payment of $75,000 (the "Annual Retirement Payments") for a ten year period. The Van Noy Employment Agreement provides that the Annual Retirement Payments shall be made to the beneficiary of Mr. Van Noy upon his death, subject to certain adjustments. On December 8, 1997, the Company entered into Employment Protection Agreements (the "Protection Agreements") with each of Messrs. Weathersby and Kasvin (the "Executive"). The Protection Agreement provides that, in the event of a Change of Control (as defined therein), the Company will pay the Executive a lump sum in cash (the "Change of Control Payment") equal to: (i) one year's base salary (six months in the case of Mr. Weathersby) and (ii) an amount equal to 100% of Executive's target bonus (50% in the case of Mr. Weathersby) for the fiscal year in which the Change of Control occurs. If, after a Change of Control, Executive's employment is terminated or is otherwise materially and adversely affected, Executive will be entitled to an additional lump sum payment equal to the Change of Control Payment. In addition, all stock options previously granted to the Executive, whether or not vested, shall become immediately exercisable. Executive shall have one year from such date to exercise the options. During 1999, Mr. Weathersby and Mr. Kasvin received payments aggregating $542,000 and $660,000, respectively, under their Employment Protection Agreements. In addition, Mr. Weathersby and Mr. Kasvin received payments aggregate $203,375 and $231,250, respectively, related to the April 30, 1999 redemption of the Predecessor's stock options. On July 15, 1998, the Company entered into a Letter Agreement with Mr. Kasvin, in which the Company agreed to pay Mr. Kasvin $300,000 on September 1, 1999 (above and beyond salary and other benefits which he is receiving) if he remained employed by the Company until that date (or was terminated by the Company without cause prior to that date). Mr. Kasvin remained on the payroll until September 30, 1999 and received a payment of $300,000 under the Letter Agreement. On November 9, 1998, the Company entered into a Separation and Release Agreement (the "Release Agreement") with Mr. James V. Heim, Senior Vice President of Consumer and Personal Products. Pursuant to the terms of the Release Agreement, Mr. Heim's employment with the Company ceased on November 30, 1998. In satisfaction of all Mr. Heim's claims for compensation, Mr. Heim received a lump sum payment from the Company of $322,500. Mr. Heim may exercise his stock options in the Company's stock until November 30, 1999. In furtherance of the Employee Patent and Confidential Information Agreement executed by Mr. Heim on June 3, 1996, Mr. Heim agreed that he would keep secret all confidential financial and proprietary matters of the Company and would not take with him any documents relating to the Company. Mr. Heim received a payment of $64,000 related to the April 30, 1999 redemption of the Predecessor's stock options. On February 5, 1999, the Company entered into a Letter Agreement with Thomas H. Quinn. Pursuant to the Letter Agreement, Mr. Quinn's employment with the Company will cease upon a change of control of the Company. In recognition of his service and dedication to the Company, Mr. Quinn is entitled to receive a lump sum payment, upon consummation of a change of control, from the Company of $374,000. Mr. Quinn received a payment of $374,000 under the Letter Agreement. ITEM 12 - Security Ownership of Certain Beneficial Owners and Management As of December 29, 2000, there were 12,110,349 shares of the Company's Common Stock outstanding which were owned 100% by the Company's parent, RSA Holdings Corporation. The following table sets forth as of December 29, 2000 certain information with respect to the number of shares of common stock of RSA Holdings Corporation beneficially owned by (i) each director of the Company who beneficially owned common stock, (ii) each executive officer of the Company as of December 29, 2000, named in the table under "Executive Compensation" under Item 11 of this Report, who beneficially owned common stock, (iii) all directors and executive officers of the Company as a group and (iv) each person or entity that beneficially owned (directly or together with affiliates) more than 5% of the common stock. The Company believes that each individual or entity named has sole investment and voting power with respect to shares of common stock indicated as beneficially owned by them, except as otherwise noted. 27
Common Stock Beneficially Percentage Name Owned(1) Ownership(1) - ---- ----------- ------------ Directors and Executive Officers: John W. Childs (2) 45,320 4.4% Timothy J. Healy 1,944 * Raymond B. Rudy 2,500 * Adam L. Suttin (3) 6,105 * James D. Murphy 13,867 1.4% J. Andrew Bolt 0 * James W. Nelson 3,722 * Karen A. August 3,722 * Lawrence Friedman 1,111 * Mario E. Soussou (4) 6,500 * Gary R. Moorhead 578 * Paul W. Tonnesen 817 * Gary S. Wade 4,378 * All directors and executive officers as a group (13 persons) 90,564 8.8% Other Principal Stockholders: J.W. Childs Equity Partners II, L.P. (5) 904,097 88.3%
- --------------------------- * Indicates beneficial ownership of less than 1% of shares of common stock. (1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. (2) Includes 556 shares of common stock held by Richard Childs and 556 shares of common stock held by James Childs for each of which Mr. Childs disclaims beneficial ownership. (3) Includes 276 shares of common stock held by the Suttin Irrevocable Family Trust, 599 shares of common stock held by the Suttin Family Trust II and 2,281 shares of common stock held by the Eugene Suttin IRA for each of which Mr. Suttin disclaims beneficial ownership. (4) Includes 111 shares of common stock held by the Isabelle Soussou Trust and 111 shares of common stock held by the Moriella Soussou Trust for each of which Mr. Soussou disclaims beneficial ownership. (5) Shares of common stock shown as beneficially owned by J.W. Childs Equity Partners II, L.P. are owned by RSA Holdings Corporation, which is wholly owned by J.W. Childs Equity Partners II, L.P. J.W. Childs Advisors II, L.P. is the sole general partner of J.W. Childs Equity Partners II, L.P. J.W. Childs Associates, L.P. is the sole general partner of J.W. Childs Advisors II L.P. J. W. Childs Associates, Inc. is a corporation, the officers of which are Messrs. John W. Childs, Steven G. Segal, Adam L. Suttin, Glenn A. Hopkins, Dana L. Schmaltz, Edward D. Yun and Allan A. Dowds. Messrs. Childs and Suttin are directors of the Company. Each of Messrs. Childs, Segal, Suttin and Hopkins may be deemed to share beneficial ownership of the shares shown as beneficially owned by J. W. Childs Equity Partners II, L.P. Each of these individuals disclaims such beneficial ownership. Messrs. Raymond B. Rudy and Timothy J. Healy are directors of the Company and are also Managing Directors of J.W. Childs Associates, L.P. Messrs. Rudy and Healy disclaim that they are the beneficial owners of any shares beneficially owned by J.W. Childs Equity Partners II, L.P. Each of the foregoing has a business address c/o J.W. Childs Equity Partners, One Federal Street, 21st Floor, Boston, MA 02110. 28 ITEM 13 - Certain Relationships and Related Transactions J.W. Childs. J.W. Childs owns approximately 88% of RSA Holdings Corporation, which beneficially owns 100% of the Company's Common Stock. The President of J.W. Childs is Mr. John W. Childs, the Senior Managing Director is Mr. Steven G. Segal and the other Managing Directors are Messrs. John V. Bock, Jr., Glenn A. Hopkins, Jerry D. Horn, Timothy J. Healy, Raymond B. Rudy and Adam L. Suttin. Messrs. Childs, Healy, Rudy and Suttin are directors of the Company. J.W. Childs assisted the Company in negotiating the Acquisition and arranging the financing therefor, and was paid a fee of $3.0 million and reimbursed for its expenses in connection therewith, which aggregated $0.2 million. From time to time in the future, J.W. Childs may receive customary investment banking fees for services rendered to the Company in connection with divestitures, acquisitions and certain other transactions. In addition, pursuant to a management agreement entered into with the Company, J.W. Childs will render management, consulting and financial services to the Company for an annual fee of $240,000. See "Directors and Executive Officers of the Registrant" and "Security Ownership of Certain Beneficial Owners and Management." The Jordan Company. On July 12, 1995, the Company and TJC Management Corporation, an affiliate of The Jordan Company, entered into an advisory agreement (the "Advisory Agreement"). The Advisory Agreement provided for the payment by the Company to TJC Management Corporation of (a) up to 2% of the aggregate consideration paid by the Company and/or its subsidiaries in connection with acquisitions or paid to the Company in connection with a sale of the Company and/or its subsidiaries and (b) up to 1% of the amount obtained pursuant to any debt, equity or other refinancing. In accordance with Company policy, the Advisory Agreement was (i) approved by a majority of the members of the Company's Board and by a majority of the disinterested members of the Company's Board and (ii) deemed by the Company's Board to be subject to terms and conditions no less favorable to the Company than could be obtained from unaffiliated third parties. Pursuant to the terms of the Advisory Agreement, on May 28, 1997, the Company paid to TJC Management Corporation $196,000 as compensation for providing investment banking and other consulting services rendered in connection with the acquisition by a subsidiary of the Company of certain assets of AWC. Messrs. Jordan, Zalaznick, Boucher and Lowden were directors of the Predecessor and are partners of The Jordan Company. On February 12, 1999, the Company and TJC Management Corporation amended and restated the Advisory Agreement (the "Amended Advisory Agreement"). The Company's Board unanimously approved the Amended Advisory Agreement. Pursuant to the Amended Advisory Agreement, the Company and TJC Management Corporation agreed upon a flat $2,500,000 fee for financial advisory services which was paid at closing of the Stock Tender Offer. The financial advisory fee in the Amended Advisory Agreement represents a reduction from the base fee of up to 2% which would otherwise have been paid in connection with the Stock Tender Offer. In accordance with Company policy, the Amended Advisory Agreement was (i) approved by a majority of the members of the Company's Board and a majority of the disinterested members of the Company's Board and (ii) deemed by the Company's Board to be subject to terms and conditions no less favorable to the Company than could be obtained from unaffiliated third parties. During the fiscal year 1999, the Company paid to The Jordan Company an aggregate of $15,000 as compensation for Messrs. Jordan, Zalaznick, Boucher and Lowden serving as members of the Company's Board prior to the Acquisition. Indemnification Agreements. The Company is party to indemnification agreements with each of the past members of the Company's Board pursuant to which the Company has agreed to indemnify and hold harmless each director from liabilities incurred as a result of such director's status as a director of the Company, subject to certain limitations. 29 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) (1), (2) and (3)--The response to this portion of Item 14 is submitted as a separate section of this Report starting on page 32. (b) Reports on Form 8-K filed in the fourth quarter of 2000. None (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this Report starting on page 73. (d) Financial Statement Schedule--The response to this portion of Item 14 is submitted as a separate section of this Report on page 72. 30 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 28th day of March 2001. AMERICAN SAFETY RAZOR COMPANY /s/James D. Murphy ----------------------------------------------- James D. Murphy Director, President and Chief Executive Officer Power of Attorney Each person whose signature appears below hereby constitutes and appoints James D. Murphy and Adam L. Suttin, and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned and to file the same, with all exhibits thereto, in any and all capabilities, to sign any and all amendments (including post-effective exhibits thereto, and other documents in connection therewith) with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities as of the 28th day of March 2001. Signature Title --------- ----- /s/James D. Murphy Director, President and - -------------------------- Chief Executive Officer James D. Murphy /s/J. Andrew Bolt Senior Vice President - -------------------------- Chief Financial Officer (Principal Financial J. Andrew Bolt Officer and Principal Accounting Officer) /s/Adam L. Suttin Director, Vice President and Assistant Secretary - -------------------------- Adam L. Suttin /s/John W. Childs Director - -------------------------- John W. Childs /s/Timothy J. Healy Director - -------------------------- Timothy J. Healy /s/Raymond B. Rudy Director, Non-Executive Chairman - -------------------------- Raymond B. Rudy 31 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) and (2), (c) and (d) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULE YEAR ENDED DECEMBER 29, 2000 AMERICAN SAFETY RAZOR COMPANY CEDAR KNOLLS, NEW JERSEY 32 FORM 10-K--ITEM 14(a)(1) AND (2) American Safety Razor Company List of Financial Statements and Financial Statement Schedule The following consolidated financial statements of American Safety Razor Company are included in Item 8: Consolidated Balance Sheets--December 29, 2000 and December 31, 1999 Consolidated Statements of Operations--For the year ended December 29, 2000, for the period from April 24, 1999 to December 31, 1999 (the Company), for the period from January 1, 1999 to April 23, 1999, and for the year ended December 31, 1998 (Predecessor) Consolidated Statements of Comprehensive Income--For the year ended December 29, 2000, for the period from April 24, 1999 to December 31, 1999 (the Company), for the period from January 1, 1999 to April 23, 1999, and for the year ended December 31, 1998 (Predecessor) Consolidated Statements of Cash Flows--For the year ended December 29, 2000, for the period from April 24, 1999 to December 31, 1999 (the Company), for the period from January 1, 1999 to April 23, 1999, and for the year ended December 31, 1998 (Predecessor) Notes to Consolidated Financial Statements--December 29, 2000 Report of Independent Accountants The following consolidated financial statement schedule of American Safety Razor Company is included in Item 14(d): Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 33 AMERICAN SAFETY RAZOR COMPANY CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
Company ---------------------------- December 29, December 31, 2000 1999 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 2,142 $ 12,500 Accounts receivable, less allowances of $3,415 in 2000, and $4,213 in 1999 51,697 46,252 Inventories 61,628 54,404 Deferred income taxes 5,394 6,814 Prepaid expenses 970 1,882 -------- -------- Total current assets 121,831 121,852 Property and equipment, net 91,814 89,991 Intangible assets, net: Goodwill, trademarks, patents and licenses 156,814 159,675 Other 5,292 6,826 -------- -------- 162,106 166,501 Prepaid pension cost and other 13,835 24,527 -------- -------- Total assets $389,586 $402,871 ======== ======== Liabilities and stockholder's equity Current liabilities: Accounts payable $ 15,217 $ 13,711 Accrued expenses 12,281 13,607 Payroll and related liabilities 4,673 6,045 Accrued interest 3,342 3,294 Income taxes payable 2,931 185 Current maturities of long-term obligations 11,925 10,508 -------- -------- Total current liabilities 50,369 47,350 Long-term obligations 179,098 175,108 Retiree health and insurance benefits 26,916 26,025 Pension and other liabilities 1,188 1,308 Deferred income taxes 18,155 24,078 -------- -------- Total liabilities 275,726 273,869 -------- -------- Contingent liabilities and commitments Stockholder's equity: Common stock, $.01 par value, 25,000,000 shares authorized; 12,110,349 shares issued and outstanding in 2000 and 1999 121 121 Additional paid-in capital 172,843 172,843 Advances to RSA Holdings Corporation, net (52,061) (42,714) Accumulated deficit (6,466) (1,258) Accumulated other comprehensive (loss) income (577) 10 -------- -------- 113,860 129,002 Total liabilities and stockholder's equity $389,586 $402,871 ======== ======== See accompanying notes.
34 AMERICAN SAFETY RAZOR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Company Predecessor ---------------------- ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- Net sales $318,813 $227,159 $87,591 $297,488 Cost of sales: Cost of sales 212,112 146,488 58,520 201,978 Purchase accounting adjustment to inventory - 9,008 - - -------- -------- ------- -------- Gross profit 106,701 71,663 29,071 95,510 Selling, general and administrative expenses 72,948 52,567 21,429 63,516 Amortization of intangible assets 4,569 3,178 835 2,543 Special charges - - - 3,003 Transaction expenses - - 11,440 - Special termination benefits 14,351 - - - -------- -------- ------- -------- Operating income (loss) 14,833 15,918 (4,633) 26,448 Interest expense 19,842 15,112 3,907 12,270 -------- -------- ------- -------- (Loss) income before income taxes and extraordinary item (5,009) 806 (8,540) 14,178 Income taxes (benefit) 199 1,453 (842) 4,076 -------- -------- ------- -------- (Loss) income before extraordinary item (5,208) (647) (7,698) 10,102 Extraordinary item, net of income tax benefit - (611) (118) - -------- -------- ------- -------- Net (loss) income $ (5,208) $ (1,258) $(7,816) $ 10,102 ======== ======== ======= ======== Basic earnings per share: (Loss) income before extraordinary item $(0.43) $(0.05) $(0.64) $0.83 Extraordinary item - (0.05) (0.01) - ------ ------ ------ ----- Net (loss) income $(0.43) $(0.10) $(0.65) $0.83 ====== ====== ====== ===== Weighted average number of shares outstanding 12,110 12,110 12,110 12,107 ====== ====== ====== ====== Diluted earnings per share: (Loss) income before extraordinary item $(0.43) $(0.05) $(0.64) $0.83 Extraordinary item - (0.05) (0.01) - ------ ------ ------ ----- Net (loss) income $(0.43) $(0.10) $(0.65) $0.83 ====== ====== ====== ===== Weighted average number of shares outstanding 12,110 12,110 12,198 12,223 ====== ====== ====== ======
See accompanying notes. 35 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
Company Predecessor ------------------------ ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- Net (loss) income $(5,208) $(1,258) $(7,816) $10,102 Other comprehensive (loss) income: Foreign currency translation adjustments (587) 10 (116) (91) ------- ------- ------- ------- Comprehensive (loss) income $(5,795) $(1,248) $(7,932) $10,011 ======= ======= ======= =======
See accompanying notes. 36 AMERICAN SAFETY RAZOR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Company Predecessor ------------------------ ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- Operating activities Net (loss) income $(5,208) $(1,258) $(7,816) $10,102 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Extraordinary item - 611 118 - Special termination benefits 14,351 - - - Depreciation 13,577 8,319 3,270 9,634 Amortization 4,569 3,178 835 2,543 Interest and financing costs 1,468 3,264 180 553 Deferred income taxes (4,503) (1,980) 232 (381) Retiree health and insurance benefits 831 926 224 836 Pension and other (4,306) (2,062) (943) (2,126) Changes in operating assets and liabilities net of effects of acquisitions: Accounts receivable (5,445) (9,464) 7,710 1,186 Inventories (7,224) 15,111 (7,748) (2,186) Income taxes receivable - 3,667 (2,252) (93) Prepaid expenses 912 84 205 (927) Accounts payable 1,506 (2,153) 1,723 (1,671) Accrued and other expenses (3,900) 835 (1,072) (1,328) Income taxes payable 2,746 185 - (3,601) ------- ------- ------- ------- Net cash provided by (used in) operating activities 9,374 19,263 (5,334) 12,541 ------- ------- ------- ------- Investing activities Capital expenditures (15,400) (8,430) (3,638) (11,375) Acquisitions, net of cash acquired - - - (571) Other, net (237) (29) 49 (663) ------- ------- ------- ------- Net cash used in investing activities (15,637) (8,459) (3,589) (12,609) ------- ------- ------- ------- Financing activities Repayment of long-term obligations (34,017) (32,906) (21,909) (1,397) Proceeds from borrowings 39,349 51,294 61,400 3,380 Deferred loan fees (80) (395) (7,606) - Proceeds from exercise of stock options - - 2 104 Advances to RSA Holdings Corporation, net (9,347) (18,559) (24,155) - ------- ------- ------- ------- Net cash (used in) provided from financing activities (4,095) (566) 7,732 2,087 ------- ------- ------- ------- Net (decrease) increase in cash and cash equivalents (10,358) 10,238 (1,191) 2,019 Cash and cash equivalents, beginning of period 12,500 2,262 3,453 1,434 ------- ------- ------- ------- Cash and cash equivalents, end of period $ 2,142 $12,500 $ 2,262 $ 3,453 ======= ======= ======= ======= See accompanying notes.
37 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. MERGER Effective April 23, 1999, RSA Acquisition Corporation, an affiliate of J.W. Childs Equity Partners II, L.P. ("J.W. Childs"), completed its $14.20 per share cash tender offer for all outstanding shares of American Safety Razor Company (the "Predecessor") in accordance with a February 12, 1999 merger agreement, as amended on April 8, 1999, (the "Acquisition") upon the terms and subject to the conditions set forth in the offer to purchase (the "Stock Tender Offer"). Following completion of the Stock Tender Offer, there remained approximately 266,601 American Safety Razor Company shares outstanding. On July 1, 1999, RSA Acquisition Corporation and American Safety Razor Company completed a merger transaction (the "Merger") pursuant to which RSA Acquisition Corporation acquired the remaining shares of the Predecessor for $14.20 per share. The aggregate purchase price, including transaction costs of $1.0 million, paid for the common stock purchased in the Stock Tender Offer was approximately $173.0 million. Following the Merger, American Safety Razor Company and its subsidiaries (the "Company") became the surviving corporation and is a direct, wholly-owned subsidiary of RSA Holdings Corporation, which is wholly-owned by J.W. Childs, its affiliates and Company management. Subsequent to the Acquisition and pursuant to the terms of its Indenture, the Company made an offer to purchase all of its $100 million 9 7/8% Series B Senior Notes due August 1, 2005 (the "Senior Notes"). In response thereto in June 1999, $30.7 million of the Senior Notes were validly tendered and retired by the Company. The Company has accounted for the Acquisition as a purchase. The allocation of the purchase price resulted in purchase adjustments being applied to the assets acquired and liabilities assumed. The total purchase price of approximately $172,964,000 was allocated to the acquired assets and assumed liabilities based on their respective fair values at April 23, 1999 as follows: Working capital $ 76,555,000 Property, plant and equipment 89,880,000 Intangible assets, including goodwill 173,496,000 Prepaid pension and other assets 46,827,000 Long-term debt (163,685,000) Other liabilities (50,109,000) ------------ $172,964,000 ============ As a result of the Acquisition and new basis of accounting, the Company's financial statements for the year ended December 29, 2000, and for the period from April 24, 1999 to December 31, 1999 are not comparable to the Predecessor's financial statements for the period from January 1, 1999 to April 23, 1999 and for the year ended December 31, 1998. As a result of the application of purchase accounting the Company's depreciation expense and amortization of intangible assets increased and the Company adjusted the carrying value of acquired inventories to reflect their estimated fair market value, which adjustment of $9,008,000 increased cost of sales in the April 24, 1999 to December 31, 1999 reporting period. In addition, certain fees and expenses incurred relating to the above transactions aggregating $11,440,000 were expensed and are included in the Predecessor's consolidated statement of operations in the caption "Transaction expenses". The primary components of the 1999 Transaction expenses are (i) amounts paid to redeem all of the outstanding options to purchase common stock of the Predecessor, (ii) costs incurred by or on behalf of the Predecessor in connection with the Acquisition, including legal and other advisory fees, and (iii) costs incurred by or on behalf of the Predecessor related to payments made to certain employees of the Predecessor in connection with the change of control. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company The Company is a leading manufacturer of high-quality private label and value brand consumer products. The Company's principal products consist of consumer shaving razors and blades, blades and bladed hand tools, specialty industrial and medical blades, cotton and foot care products, and custom bar soaps principally sold to the retail and professional trades in the United States and in selected international markets. 38 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accordingly, actual results could differ from those estimates. Effective January 1, 2000, the Company changed its calendar year ending December 31 to a 52-53 week fiscal year ending on the Friday closest to December 31. The change in fiscal year did not have a material effect on the Company's financial position, results of operations or cash flows for the year ended December 29, 2000. Principles of Consolidation The consolidated financial statements include the accounts of American Safety Razor Company and its subsidiaries, all of which are wholly owned. The consolidated financial statements also include the accounts of Wolco Holland B.V. ("Wolco") since its acquisition date on September 18, 1998 (See Note 13). All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of sales (including shipping costs) are recognized upon shipment of products or delivery of products to customers based upon shipping terms and passage of title of products to customers. Inventories Inventories are stated at the lower of cost or market. In connection with the Acquisition, in 1999 the Company's new owners adopted the first-in, first-out ("FIFO") method of valuation of inventories for financial reporting purposes. Cost for approximately 59 percent of inventories for 1998 were determined by the Predecessor using the last-in, first-out ("LIFO") method. Cost for 1998 of the remaining inventories, operating supplies and inventories of foreign and certain domestic subsidiaries, were determined by the FIFO method. Long-Lived Assets Property and equipment are stated on the basis of cost. Expenditures for renewals and betterments are capitalized, and expenditures for repairs and maintenance are expensed as incurred. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets, which are as follows: Land improvements 4-20 years Buildings and improvements 10-40 years Machinery and equipment 2-15 years Intangible assets are stated on the basis of cost. Goodwill and trademarks are being amortized on a straight-line basis over a forty-year period. Patents are being amortized on a straight-line basis over a fifteen-year period. Licenses are being amortized on a straight-line basis over the weighted average life of the patents of fourteen years. The Company periodically reviews its long-lived assets to assess recoverability or impairment based on expectations of undiscounted cash flows and the assets' carrying amount. Any impairment in carrying value would be recognized in operating results if a permanent decline in value were to occur. Noncompete agreements are being amortized using the straight-line method over the terms of the related agreements. Deferred loan costs are being amortized using the effective interest method over the term of the related long-term obligations. Advertising Expenses Advertising costs are expensed when incurred and approximated $1,028,000 in 2000, $997,000 for the period from April 24, 1999 to December 31, 1999, $259,000 for the period from January 1, 1999 to April 23, 1999 and $912,000 in 1998. Foreign Currency Translation The accounts of the Company's foreign subsidiaries are generally measured using local currency as the functional currency. Accordingly, assets and liabilities are translated into U.S. dollars at period-end exchange rates, and income and expense are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translations are excluded from net earnings and accumulated as a separate component of accumulated other comprehensive income or loss. The Company does not provide income taxes on such gains and losses because the earnings of foreign subsidiaries are permanently invested. Gains and losses from foreign currency transactions are included in earnings and currency losses approximated $1,364,000 in 2000, $1,160,000 for the period from 39 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 24, 1999 to December 31, 1999, $129,000 for the period from January 1, 1999 to April 23, 1999 and $778,000 for the year ended December 31, 1998. The effect of exchange rate changes on cash is not material. Financial Instruments The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, debt obligations, foreign currency options and interest rate cap and swap agreements. Because of their short maturity, the carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value. Fair value of debt obligations is based on quoted market prices for the same or similar issues or discounted cash flows. Fair value of foreign currency options are based on quoted market prices. Fair value of interest rate cap and swap agreements are based on dealer quotes, considering current interest rates. The Company periodically hedges certain foreign currency exposures through the use of foreign currency forward contracts and foreign currency options. Certain of these contracts, although intended and economically effective as a hedge of certain of the Company's foreign currency exposures, do not qualify for hedge accounting. Gains and losses on contracts qualifying for hedge accounting treatment are deferred and offset against foreign exchange gains or losses on the underlying transaction. Gains and losses on contracts not qualifying for hedge accounting treatment are included in current income. Premiums paid are amortized on a straight-line basis over the term of the related contract. The Company also periodically hedges exposure to fluctuating interest rates through the use of interest rate cap and swap agreements. As interest rates change, the differential paid or received is recognized in interest expense of the period. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company restricts its cash and cash equivalents to financial institutions with high credit ratings and credit risk on accounts receivable is minimized due to the diverse geographic areas covered by the Company's operations and its diverse customer base. Earnings Per Share Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share includes the dilutive effects of options, warrants and convertible securities. The difference between the weighted average number of shares outstanding for computing basic earnings per share and diluted earnings per share is related to the Predecessor's employee stock options outstanding which were assumed to be converted for the diluted earnings per share calculation when the average market price of the Predecessor's common stock for the period exceeded the exercise price of the employee stock options which were outstanding. Statement of Cash Flows The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company paid income taxes of $1,735,000 in 2000, $582,000 for the period from April 24, 1999 to December 31, 1999 and the Predecessor paid income taxes of $806,000 for the period from January 1, 1999 to April 23, 1999 and $9,994,000 in 1998. The Company paid interest of $18,618,000 in 2000, $11,174,000 for the period from April 24, 1999 to December 31, 1999 and the Predecessor paid interest of $5,564,000 for the period from January 1, 1999 to April 23, 1999 and $11,802,000 in 1998. Supplemental non-cash investing and financing activities related to the 1998 Wolco acquisition consist of (in thousands): Fair value of assets acquired, net of cash $2,626 Liabilities assumed (877) Seller financing (1,178) ------ Cash paid $ (571) ====== Liabilities assumed include acquired debt of $506,000. Stock Options The Predecessor followed Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Predecessor's employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized. The Predecessor provides additional pro forma disclosures of the fair-value based method in accordance with Statement of Financial 40 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (See Note 10). Income Taxes Income taxes are determined based on FAS No. 109, "Accounting for Income Taxes." Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on differences between financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Segment Reporting The Company provides segment disclosures pursuant to FAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" (See Note 11). New Accounting Standards In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes standards for accounting and disclosure of derivative instruments. This new standard, as amended by FAS 137 and FAS 138, is effective for fiscal quarters of fiscal years beginning after June 15, 2000. The Company was required to adopt FAS 133 on December 30, 2000. The Company's use of derivative instruments is limited to interest rate cap and swap agreements and foreign currency options. The implementation of this new standard did not have a material effect on the Company's results of operations or financial position. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Interpretation clarifies guidance for certain issues that arose in the application of APB Opinion No. 25. The Company adopted the Interpretation on July 1, 2000, which did not have any effect on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 provides additional guidance relating to revenue recognition. The Company adopted SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, in the fourth quarter of 2000 and concluded that its revenue recognition policies were in compliance with SAB No. 101. In May 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-14, "Accounting for Certain Sales Incentives". EITF No. 00-14 addresses the recognition, measurement, and income statement classification of various sales incentives including discounts, coupons, rebates, and free products or services. EITF No. 00-14 requires a vendor to recognize discounts, coupons and rebate obligations as a reduction of revenue. The Company has historically followed the practice of recording the cost of discounts, coupons and rebates as a selling expense. The Company is required to adopt EITF No. 00-14 in the second quarter of 2001. At the time of adoption, the Company will reclassify prior quarters and prior year financial statements to conform to the new income statement classification. As the Company believes its current accounting practices relative to the timing and method of recognizing such costs is consistent with the consensus it is not expected that the adoption of the consensus will have any impact on the Company's financial position or results of operations. The Company is in the process of determining the amounts to be reclassified. In January 2001, the EITF reached a consensus on one of the issues currently under consideration within EITF Issue No. 00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future". This consensus requires a vendor to recognize a rebate or refund obligation as a reduction of revenue based on a systematic and rational allocation of the costs of honoring rebates or refunds earned. The Company has historically followed the practice of recording the cost of such items as a selling expense. The Company is required to adopt the consensus in the first quarter of 2001. At the time of adoption, the Company will reclassify prior quarters and prior year financial statements to conform to the new income statement classification. As the Company believes its current accounting practices relative to the timing and method of recognizing such costs is consistent with the consensus it is not expected that the adoption of the consensus will have any impact on the Company's financial position or results of operations. The Company is in the process of determining the amounts to be reclassified. 41 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INVENTORIES Inventories consisted of: Company ------------------------ December December 29, 2000 31, 1999 --------- --------- (In thousands) Raw materials $29,240 $27,928 Work in process 5,110 4,521 Finished goods 22,810 18,098 Operating supplies 4,468 3,857 ------- ------- $61,628 $54,404 ======= ======= 4. PROPERTY AND EQUIPMENT Property and equipment consisted of: Company ------------------------ December December 29, 2000 31, 1999 --------- --------- (In thousands) Land and land improvements $ 3,975 $ 3,928 Buildings and improvements 7,319 7,107 Machinery and equipment 92,556 82,728 Construction in progress 9,888 4,635 ------- ------- 113,738 98,398 Less accumulated depreciation (21,924) (8,407) ------- ------- $91,814 $89,991 ======= ======= 5. INTANGIBLE ASSETS Intangible assets consisted of: Company ------------------------ December December 29, 2000 31, 1999 ---------- --------- (In thousands) Goodwill $149,414 $149,414 Trademarks 6,624 6,624 Patents and licenses 8,057 6,570 Noncompete agreements 689 689 Deferred loan costs and other 9,648 9,568 -------- -------- 174,432 172,865 Less accumulated amortization (12,326) (6,364) -------- -------- $162,106 $166,501 ======== ======== 42 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LONG-TERM OBLIGATIONS Long-term obligations consist of the following:
Company ------------------------- December December 29, 2000 31, 1999 --------- --------- (In thousands) Term loans, due January 2005 $104,875 $112,500 Revolving loans, due January 2005 15,900 - 9 7/8% Series B Senior Notes, due August 2005 69,300 69,300 9% subordinated note - 1,250 Other: 3% Virginia Small Business Financing Authority Note, due March 30, 2002 779 1,118 Other obligations 169 1,448 -------- -------- 191,023 185,616 Less current maturities 11,925 10,508 -------- -------- $179,098 $175,108 ======== ========
On April 23, 1999 and concurrent with the Acquisition described in Note 1, the Company entered into a $190,000,000 credit agreement (the "Credit Agreement"), which provided for term loan commitments in the aggregate amount of $165,000,000 (the "Term Loan Facility") and a revolving credit facility commitment of $25,000,000, and terminated its existing revolving credit facility (the "Terminated Credit Facility"). Borrowings under the Term Loan Facility of $88,000,000 and borrowings under the revolving credit facility of $5,000,000 and internally generated funds of $1,986,000 were used to purchase $30,700,000 face value of the Company's Senior Notes which were validly tendered (see Note 1), pay expenses and accrued interest of $1,402,000 incurred in connection with the purchase of the Senior Notes, pay the outstanding balances of $18,811,000 including accrued interest on the Terminated Credit Facility and other short-term debt, pay fees and expenses of $19,918,000 related to the acquisition and financing and advance funds totaling $24,155,000 to RSA Acquisition Corporation to fund a portion of the Acquisition described in Note 1. In connection with the purchase of the Senior Notes in June 1999, the Company paid a premium over par and wrote-off deferred financing costs in the aggregate gross amount of $969,000. These expenses, net of the related tax benefit of $358,000, are reflected in the Company's consolidated statement of operations in the caption "Extraordinary item" for the period from April 24, 1999 to December 31, 1999. In addition, the Predecessor wrote-off deferred financing costs, in the aggregate gross amount of $186,000 in connection with the termination of the Terminated Credit Facility. These expenses, net of the related tax benefit of $68,000, are reflected in the Predecessor's consolidated statement of operations in the caption "Extraordinary item" for the period from January 1, 1999 to April 23, 1999. Effective July 5, 1999, the Company permanently reduced the amount available for future borrowings under its Term Loan Facility by $52.5 million to $112.5 million which represented the amount of borrowings outstanding under the Term Loan Facility at December 31, 1999. In connection with the reduction in the Term Loan Facility, the Company wrote off deferred financing costs in the aggregate amount of $2,103,000. These expenses are reflected in the Company's consolidated statement of operations in the caption, "Interest expense" for the period from April 24, 1999 to December 31, 1999. The Term Loan Facility expires on January 31, 2005 and principal payments under this facility began on January 31, 2000 and continue quarterly until the expiration date. Principal payments are based on a percentage of principal balance outstanding on the respective payment date as defined in the Credit Agreement. The revolving credit facility also expires on January 31, 2005 and borrowings under this facility are required to be repaid by the expiration date. Interest is based on the bank's prime rate or the London Interbank Offered Rate plus a margin as defined in the Credit Agreement. The weighted-average interest rate on the Company's outstanding revolving 43 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS loans was approximately 9.7% at December 29, 2000. The weighted-average interest rate on the Company's outstanding Term Loans was approximately 9.8% at December 29, 2000. The weighted-average interest rate incurred with respect to all debt obligations was approximately 9.8% for the year ended December 29, 2000, and 9.5% for the period from April 24, 1999 to December 31, 1999 and 9.3% for the period from January 1, 1999 to April 23, 1999. The Senior Notes require semi-annual interest payments on August 1 and February 1 of each year and a principal payment of $69,300,000 on August 1, 2005. The 9 7/8% Series B Senior Notes are guaranteed by certain domestic subsidiaries of the Company. The 9% subordinated note was issued in connection with an acquisition and was paid on June 10, 2000. The Virginia Small Business Financing Authority note requires semi-annual payments of $185,000 through September 2001 with a final payment of $435,000 due March 2002. Other obligations include debt obligations of several of the Company's subsidiaries. Maturities of long-term obligations subsequent to December 29, 2000, approximate $11,925,000 in 2001, $14,609,000 in 2002, $15,147,000 in 2003, $15,334,000 in 2004, and $134,008,000 in 2005. The Company's accounts receivable, inventories and property and equipment are pledged as collateral for the Virginia Small Business Financing Authority note and accounts receivable and inventories are pledged as collateral under the Credit Agreement. The Credit Agreement limits the ability of the Company, among other limitations, to incur certain additional indebtedness, places certain restrictions on the payment of dividends and limits the amount of annual capital expenditures. The Credit Agreement also contains certain financial covenants which require the Company, among other requirements, to meet certain financial ratios relating to leverage, fixed charges and interest coverage (see Note 15 relating to the amendment of the Credit Agreement). The indenture related to the 9 7/8% Series B Senior Notes limits the ability of the Company, among other limitations, to pay dividends, make certain other restricted payments or incur certain additional indebtedness unless it meets a cash flow coverage ratio, as defined. In addition, the Company may be required to offer to purchase Senior Notes equal to 100% of the principal amount thereof, with the proceeds of certain asset sales, as defined. In October 1999, the Company entered into an interest rate cap agreement and an interest rate swap agreement with a bank. The interest rate cap agreement covers $28,125,000 of variable rate debt, has an interest rate cap of 6.5% over a 3 month LIBOR period and expires in October 2001. The interest rate swap agreement also covers $28,125,000 of variable rate debt and expires in October 2001. Under the terms of this agreement, the interest rate is fixed at 5.98% over a 3 month LIBOR period as long as the 3 month LIBOR remains below 6.5%. If the 3 month LIBOR is greater than or equal to 6.5%, but less than or equal to 7.00% then no payment is required by the Company or the bank. If the 3 month LIBOR is greater than 7.00%, the swap becomes a cap at an interest rate of 7.00%. Under these agreements the Company reduced its interest expense in 2000 by an immaterial amount. 7. FINANCIAL INSTRUMENTS At December 29, 2000 and December 31, 1999, the carrying value of the Company's financial instruments, excluding foreign currency options and interest rate cap and swap agreements, approximate their fair values except for the 9 7/8% Series B Senior Notes which had a fair value of approximately $67,568,000 at December 29, 2000 and $67,221,000 at December 31, 1999. At December 29, 2000 and December 31, 1999, there were no foreign exchange forward contracts outstanding. At December 29, 2000, the Company held foreign currency options with a notional amount of 9,000,000 Euros, which expire in monthly amounts through June 2001. At December 29, 2000, the carrying value of these contracts was a $302,000 liability which approximated their fair value. At December 29, 2000, the Company had $56,250,000 of variable rate debt covered by interest rate cap and swap agreements. At December 29, 2000, the fair value of these agreements was not significant. 8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS The Company and certain subsidiaries have defined benefit pension plans covering substantially all employees. Benefits are generally based on employee years of service and compensation. The Company's funding policy is to contribute such amounts as are necessary 44 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to provide assets sufficient to meet the benefits to be paid to plan members. The Company also sponsors several defined benefit postretirement medical and life insurance plans providing benefits to certain employees who have worked a minimum of five years and attained age 55 while in service with the Company. The Company requires salaried employees retiring after April 1, 1993, to have 20 years of service after age 40 to receive full benefits and has implemented maximum payment limits for certain of its hourly employees. Salaried employees hired after May 1, 1991, are not eligible to participate in these postretirement benefit plans. The plans are contributory, with retiree contributions adjusted annually, and contain other cost- sharing features such as deductibles and coinsurance. The Company's policy is to fund the costs of these medical and life insurance benefit plans as they become due. In the third quarter of 2000, the Company's Board of Directors approved an early retirement program which covered certain hourly employees at its Verona, Virginia plant. Employees' eligibility for the early retirement program was based on age and years of service. Participants were provided enhanced retirement benefits including additional years of credited service, a social security bridge and certain postretirement benefits. The early retirement program was offered to eligible employees between November 1, 2000 and December 15, 2000. The offer was accepted by a majority of eligible employees. The special termination benefits and related curtailment loss related to the early retirement program approximated $14,351,000 which were expensed in the fourth quarter of 2000 and are included in the consolidated statement of operations in the caption, "Special termination benefits". 45 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables reconcile the changes in benefit obligations and plan assets in 2000 and 1999, and reconcile the funded status to prepaid or accrued cost at December 29, 2000 and December 31, 1999:
Other Post- Pension Benefits Retirement Benefits ---------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In thousands) Change in benefit obligation: Benefit obligation, beginning of year $ 95,576 $102,679 $ 23,714 $ 24,294 Service cost 2,209 2,550 510 560 Interest cost 7,357 6,995 1,950 1,732 Employee contributions - - 70 73 Effect of discount rate change 2,863 (11,412) 567 (1,387) Effect of mortality assumption change 6,299 - - - Curtailments (1,669) - 739 - Special termination benefits 14,291 - (282) - Plan amendments related to changes in benefits - 1,035 (302) 149 Effect of health care cost trend rate change - - - 143 Actuarial (gain) loss 501 (275) 830 (682) Benefits paid (6,938) (5,996) (1,590) (1,168) -------- -------- -------- -------- Benefit obligation, end of year $120,489 $ 95,576 $ 26,206 $ 23,714 ======== ======== ======== ======== Change in plan assets: Plan assets at fair value, beginning of year $123,923 $122,222 $ - $ - Actual return on plan assets 8,950 7,575 - - Employer contributions 163 122 1,520 1,095 Employee contributions - - 70 73 Benefits paid (6,938) (5,996) (1,590) (1,168) -------- -------- -------- -------- Plan assets at fair value, end of year $126,098 $123,923 $ - $ - ======== ======== ======== ======== Reconciliation of prepaid (accrued) cost: Funded status of the plans $ 5,609 $ 28,347 $(26,206) $(23,714) Unrecognized prior service cost 839 967 (136) 141 Unrecognized net (gain) loss 6,813 (5,527) (574) (2,452) -------- -------- -------- -------- Prepaid (accrued) cost, end of year $ 13,261 $ 23,787 $(26,916) $(26,025) ======== ======== ======== ========
The benefit obligation, plan assets at fair value and prepaid cost (accrued cost in 1999) for the pension plans with the benefit obligation in excess of plan assets were $67,130,000, $65,943,000 and $995,000, respectively, as of December 29, 2000, and $1,049,000, $893,000 and $221,000, respectively, as of December 31, 1999. 46 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assumptions used for financial reporting purposes to compute benefit obligations and net benefit income or cost, and the components of net periodic benefit income or cost, are as follows (in thousands, except percentages):
Other Post- Pension Benefits Retirement Benefits ------------------------------ --------------------------- Company Predecessor Company Predecessor ----------------- ---------- -------------- ---------- 2000 1999 1998 2000 1999 1998 ------ ------ ------------ ------ ------ ---------- Weighted-average assumptions for benefit obligations: Discount rate 7.75% 8.00% 7.00% 7.75% 8.00% 7.00% Rate of compensation increases 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Expected return on plan assets 11.00% 11.00% 11.00% n/a n/a n/a Weighted-average assumptions for net benefit income or cost: Discount rate 8.00% 7.00% 7.25% 8.00% 7.00% 7.25% Rate of compensation increases 4.00% 4.00% 5.00% 4.00% 4.00% 5.00% Expected return on plan assets 11.00% 11.00% 11.00% n/a n/a n/a Rate of increase in per capita cost of covered health care benefits n/a n/a n/a 6.50% 7.00% 7.50%
Pension Benefits ------------------------------------------------- Company Predecessor ------------------------ ------------------------ Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- Components of net periodic benefit income (cost): Service cost $(2,209) $(1,744) $ (806) $(2,585) Interest cost (7,357) (4,624) (2,371) (6,794) Expected return on plan assets 13,351 8,380 4,032 11,383 Special termination benefits (14,291) - - - Net amortization and deferral (118) (68) (8) (94) -------- ------- ------- ------- Net periodic benefit (cost) income $(10,624) $ 1,944 $ 847 $ 1,910 ======== ======= ======= =======
Other Post-Retirement Benefits ------------------------------------------------ Company Predecessor ---------------------- ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- Components of net periodic benefit income (cost): Service cost $ (510) $ (374) $(186) $ (548) Interest cost (1,950) (1,157) (575) (1,714) Special termination benefits 282 - - - Curtailment loss (342) - - - Net amortization and deferral 3 (141) 188 419 ------- ------- ----- ------- Net periodic benefit cost $(2,517) $(1,672) $(573) $(1,843) ======= ======= ===== =======
47 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net benefit income or cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. The rates for the per capita cost of covered health care benefits were assumed to decrease gradually to 5.50% in year 2003, and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 29, 2000, by $918,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 2000 by $118,000. The net pension asset is comprised of a prepaid pension asset of $13,347,000 in 2000 and $24,007,000 in 1999 and an accrued pension liability of $86,000 in 2000 and $220,000 in 1999. As a result of the application of purchase accounting in 1999, the Company increased its prepaid pension asset by $15,904,000 and increased its pension liability by $220,000 to reflect their fair market value at the Acquisition date. In addition in 1999, the liability for other postretirement benefits was increased by $1,073,000 to reflect fair market value at the Acquisition date. Amortization of unrecognized prior service cost is based on the expected future service of active employees expected to receive benefits. The plan assets are primarily invested in listed common stocks, bonds, cash equivalents, and U.S. government debt securities. The Company and certain subsidiaries sponsor defined contribution benefit plans for substantially all U.S. employees. The plans permit employees to contribute up to 15% of their salary to the plan. The Company also makes contributions to certain of the plans which approximated $246,000 in 2000, $109,000 for the period from April 24, 1999 to December 31, 1999, $51,000 for the period from January 1, 1999 to April 23, 1999, and $136,000 in 1998. 9. TAXES ON INCOME The provision for taxes on income is comprised of the following:
Company Predecessor ---------------------- -------------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 --------- ---------- ---------- ---------- (In thousands) Current: Federal $2,490 $1,065 $ (850) $4,541 State and local 457 611 (262) 319 Foreign 1,755 1,757 38 (403) ----- ----- ------ ----- Total current 4,702 3,433 (1,074) 4,457 ----- ----- ------ ----- Deferred: Federal (4,201) (1,718) 207 (557) State and local (468) (195) 31 (34) Foreign 166 (67) (6) 210 ------ ------ ------ ------ Total deferred (4,503) (1,980) 232 (381) ------ ------ ------ ------ Total provision for income taxes $ 199 $1,453 $ (842) $4,076 ====== ====== ====== ======
The Company is included in its parent company's consolidated federal income tax return and has calculated its federal tax provision on a separate return basis. The Company's state tax provision for 2000 and for the period from April 24, 1999 to December 31, 1999 reflects the state tax benefit of the unconsolidated parent company. This benefit is approximately $100,000 in 2000 and $230,000 for the period from April 24, 1999 to December 31, 1999. The Company has not provided taxes of approximately $1,428,000 on the undistributed pre-tax earnings of $19,336,000 of foreign 48 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS subsidiaries as it is the intent of the Company to support these subsidiaries with such earnings. Income before income taxes attributable to foreign operations for 2000, for the period from April 24, 1999 to December 31, 1999, for the period from January 1, 1999 to April 23, 1999, and for 1998 was approximately $5,207,000, $5,474,000, $516,000, and $265,000, respectively. The Company's effective income tax rate varies from the United States statutory rate as follows:
Company Predecessor ---------------------- ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 ---------- ---------- ---------- ---------- United States rate (35)% 35% (35)% 35% Foreign taxes in excess of (less than) U.S. rate 16 12 (2) (2) State income taxes, net of federal tax benefit (1) 26 (2) 2 Goodwill amortization 26 109 3 5 Transaction expenses - - 26 - Tax liability adjustments - - - (11) Other--net (2) (2) - - -- ---- --- --- Effective income tax rate 4% 180% (10)% 29% = === ==== ==
At December 29, 2000 and December 31, 1999, the Company had deferred tax liabilities and assets which have been netted by tax jurisdiction for presentation purposes. Included in the deferred tax liabilities-other are the Company's estimated tax liabilities relating to tax issues. The significant components of these amounts at December 29, 2000 and December 31, 1999 are as follows: Company ------------------------ December December 29, 2000 31, 1999 --------- --------- (In thousands) Deferred tax liabilities: Property and equipment $14,254 $15,837 Employee benefits 5,520 9,437 Goodwill, trademarks and patents 4,722 4,888 Inventories 283 - Other 4,250 4,084 -------- ------- Total deferred tax liabilities 29,029 34,246 Deferred tax assets: Employee benefits 12,177 11,441 Selling and promotion costs 1,868 1,537 Inventories 1,610 1,947 Interest 28 1,442 Other 585 615 ------- ------- Total deferred tax assets 16,268 16,982 ------- ------- Net deferred tax liabilities $12,761 $17,264 ======= ======= As a result of the application of purchase accounting in 1999, the Company decreased its deferred tax assets by $1,043,000 and increased its deferred tax liabilities by $16,467,000 to reflect the differences between financial statement amounts and tax bases of assets and liabilities. 49 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The deferred tax liabilities and assets are disclosed in the consolidated balance sheets at December 29, 2000 and December 31, 1999 as follows: Company ----------------------- December December 29, 2000 31, 1999 -------- ---------- (In thousands) Noncurrent deferred income tax liabilities $18,155 $24,078 Current deferred income tax assets 5,394 6,814 ------- -------- Net deferred tax liabilities $12,761 $17,264 ======= ======= During 1998, the Predecessor recognized a $1,546,000 reduction in its provision for income taxes as a result of settling prior years' IRS examination issues. The settlement of these issues did not have a materially adverse impact on the 1998 consolidated financial position or results of operations of the Predecessor. 10. STOCKHOLDER'S EQUITY In June 2000, RSA Holdings Corporation, the Company's parent, adopted a stock incentive plan, whereby stock options may be granted to directors, officers and other key employees of RSA Holdings Corporation and its subsidiaries to purchase a specified number of shares of common stock for a term not to exceed 10 years. The plan provides for the granting of options to purchase up to 110,000 shares of common stock of RSA Holdings Corporation. Grants of options to be issued to directors, officers and other key employees vest and become exercisable upon the attainment of certain performance goals at the end of certain performance periods, as defined in the plan or after nine years. At December 29, 2000, there were 93,700 stock options outstanding under the RSA Holdings Corporation stock plan. In accordance with FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of APB Opinion No. 25, "Accounting for Stock Issued to Employees", the Company has accounted for the provisions of the RSA Holdings Corporation stock plan in its consolidated financial statements. Accordingly, because the exercise price of the stock options equaled the fair market value of the underlying stock on the measurement date, no compensation expense was recognized. The Predecessor had an incentive stock option plan whereby incentive stock options were granted to directors, officers and other key employees to purchase a specified number of shares of common stock at a price not less than the fair market value on the date of grant and for a term not to exceed 10 years. The plan provided for the granting of options to purchase up to 750,000 shares of common stock. Grants of options for 10,000 shares of common stock for each of two new directors issued in June 1993 became exercisable in five equal installments commencing one year from the date of grant. Grants of options issued to key management employees became 40% exercisable two years following the date of grant and the remainder were exercisable over the following three years in equal annual installments. The plan also provided for the granting of stock appreciation rights ("SARs") to officers and key employees with terms of ten years. The terms of the SARs are determined at the time of grant. Upon exercise, holders of SARs are paid, at the option of the Predecessor, cash or common stock in an amount equal to the appreciation in market value of such stock between the grant date and the exercise date. In connection with the Acquisition, the Predecessor redeemed all of its outstanding options to purchase common stock at an aggregate purchase price of $1,162,000. The Company does not have an incentive stock option plan. Pro forma information regarding net income and earnings per share is required by FAS Statement No. 123, "Accounting for Stock- Based Compensation," and has been determined as if the Predecessor had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. Significant weighted-average assumptions used in the model for valuing stock options granted during 1997 and 1996 are as follows: 50 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1997 1996 ---- ---- Risk-free interest rate 6.9% 6.6% Expected life of the option 7.9 years 8.0 years Expected volatility of stock .268 .261 Expected dividend yield 0% 0% For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The Predecessor's pro forma information follows (in thousands, except for earnings per share data): Period from Year Ended January 1, 1999 December to April 23, 1999 31, 1998 ----------------- ---------- Net (loss) income As reported $(7,816) $10,102 Pro forma (7,974) 9,600 Earnings per share As reported Basic $(0.65) $0.83 Diluted (0.65) 0.83 Pro forma Basic (0.66) 0.79 Diluted (0.66) 0.79 Stock options granted during 1997 (net of forfeitures) aggregated 120,500 shares and the weighted-average estimated fair value at the date of grant was $7.47 per share. There were no stock options granted by the Predecessor during 1999 or 1998. Stock option plan activity of the Predecessor is summarized below:
Exercise Price Per Share ----------------------------- Number of Weighted Shares Range Average -------- ------------ ------- Outstanding at December 31, 1997 482,200 $8.63-$15.38 $11.03 Exercised in 1998 (12,000) 8.63 8.63 Cancelled in 1998 (5,500) 8.63-15.38 10.93 -------- ------------ ------ Outstanding at December 31, 1998 464,700 8.63-15.38 11.09 Exercised - March 19, 1999 (300) 8.63 8.63 Redeemed - April 23, 1999 (457,600) 8.63-11.00 11.04 Cancelled - April 23, 1999 (6,800) 8.63-15.38 15.08 -------- ------------ ------ Outstanding at April 23, 1999 - $ - $ - ======== ============ ======
Stock options outstanding at December 31, 1998, aggregated 464,700 shares and had a weighted-average remaining contractual life of 6.9 years and a weighted-average exercise price of $11.09 per share. Stock options exercisable at December 31, 1998 and 1997 totaled 232,600 and 142,460 shares, respectively. Stock options exercisable at December 31, 1998, had a weighted-average exercise price of $9.20 per share. Stock options reserved for future grant at December 31, 1998 and 1997 totaled 268,100 and 262,600 shares, respectively. 51 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in the components of stockholder's equity are as follows:
Predecessor ---------------------------------------------------------------------------------------- Common Stock Advances Retained Accumulated ----------------------------- to RSA Earnings Other Par Additional Holdings (Accumulated Comprehensive Shares Value Capital Corporation Deficit) (Loss) Income Total ---------- ----- ---------- ----------- ------------ ------------- --------- (In thousands, except share data) Balance at December 31, 1998 12,110,049 $121 $ 65,905 $ - $ 4,457 $(929) $69,554 Exercise of stock options 300 - 2 - - - 2 Foreign currency translation - - - - - (116) (116) Purchase accounting transactions - - 106,936 (24,155) 3,359 1,045 87,185 Net loss - - - - (7,816) - (7,816) ---------- ---- -------- -------- -------- ------- -------- Balance at April 23, 1999 12,110,349 $121 $172,843 $(24,155) $ - $ - $148,809 ========== ==== ======== ======== ======== ======= ========
Company ---------------------------------------------------------------------------------------- Common Stock Advances Retained Accumulated ----------------------------- to RSA Earnings Other Par Additional Holdings (Accumulated Comprehensive Shares Value Capital Corporation Deficit) Income (Loss) Total ---------- ----- ---------- ----------- ------------ ------------- --------- (In thousands, except share data) Balance at April 23, 1999 12,110,349 $121 $172,843 $(24,155) $ - $ - $148,809 Foreign currency translation - - - - - 10 10 Advances to RSA Holdings Corporation, net - - - (18,559) - - (18,559) Net loss - - - - (1,258) - (1,258) ---------- --- ------- -------- ------- ----- -------- Balance at December 31, 1999 12,110,349 121 172,843 (42,714) (1,258) 10 129,002 Foreign currency translation - - - - - (587) (587) Advances to RSA Holdings, net - - - (9,347) - - (9,347) Net loss - - - - (5,208) - (5,208) ---------- ---- -------- -------- ------- ----- -------- Balance at December 29, 2000 12,110,349 $121 $172,843 $(52,061) $(6,466) $(577) $113,860 ========== ==== ======== ======== ======= ===== ========
Accumulated other comprehensive (loss) income consists entirely of foreign currency translation adjustments at December 29, 2000, December 31, 1999 and April 23, 1999. These amounts have not been tax effected. Net advances to RSA Holdings Corporation for 2000 of $9,347,000 relate primarily to the $10,000,000 reduction in RSA Holdings Corporation outstanding note payable including accrued interest. Net advances to RSA Holdings Corporation for the period from April 24, 1999 to December 31, 1999 of $18,559,000 relate primarily to the $15,000,000 reduction in RSA Holdings Corporation outstanding note payable including accrued interest and the repurchase of the outstanding shares of the Predecessor's Common Stock, which remained outstanding following the Stock Tender Offer, for $3,362,000. 11. SEGMENT INFORMATION The Company has three reportable segments, organized primarily on the basis of differences in products, which consist of Razors and Blades, Cotton and Foot Care and Custom Bar Soap. The razors and blades segment includes three product lines, consumer shaving razors and blades, both store and value brand, blades and bladed hand tools, and specialty industrial and medical blades. The cotton and foot care segment includes cotton swabs, cotton balls and puffs, cosmetic pads, tissues, pharmaceutical and beauty coil, and foot care products. The custom bar soap segment includes cosmetic/skin care, bath, pharmaceutical and specialty custom bar soaps. The Company evaluates performance and allocates resources to its segments based on operating income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (See Note 2). 52 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Sales Operating Income (Loss) --------------------------------------------- -------------------------------------------- Company Predecessor Company Predecessor --------------------- ---------------------- ---------------------- --------------------- Period Period Period Period from from from from Year April 24, January 1, Year Year April 24, January 1, Year Ended 1999 to 1999 to Ended Ended 1999 to 1999 to Ended December December April 23 December December December April 23, December 29, 2000 31, 1999 1999 31, 1998 29, 2000 31, 1999 1999 31, 1998 --------- --------- ---------- --------- --------- --------- --------- --------- (In thousands) Razors and Blades $210,116 $146,318 $55,189 $183,979 $14,343 $11,368 $ 6,761 $20,969 Cotton and Foot Care 81,103 58,767 25,551 87,339 (837) 1,847 264 4,111 Custom Bar Soap 27,594 22,074 6,851 26,170 1,327 2,703 (218) 1,368 -------- -------- ------- -------- ------- ------- ------- ------- $318,813 $227,159 $87,591 $297,488 14,833 15,918 6,807 26,448 ======== ======== ======= ======== Transaction expenses - - 11,440 - ------- ------- ------- ------- Operating income (loss) 14,833 15,918 (4,633) 26,448 Interest expense 19,842 15,112 3,907 12,270 ------- ------- ------- ------- (Loss) income before income taxes and extraordinary item $(5,009) $ 806 $(8,540) $14,178 ======= ======= ======= =======
Additions to Long-Lived Assets -------------------------------------------- Company Predecessor --------------------- --------------------- Year-End Assets Period Period -------------------------------- from from Company Company Predecessor Year April 24, January 1, Year -------- -------- ----------- Ended 1999 to 1999 to Ended December December December December December April 23, December 29, 2000 31, 1999 31, 1998 29, 2000 31, 1999 1999 31, 1998 --------- --------- --------- --------- ---------- ---------- -------- (In thousands) Razors and Blades $303,088 $315,932 $186,328 $14,561 $5,624 $113,885 $ 8,362 Cotton and Foot Care 57,168 56,569 50,940 1,981 1,065 6,970 3,700 Custom Bar Soap 29,330 30,370 25,629 425 994 427 964 -------- -------- -------- ------- ------ -------- ------- $389,586 $402,871 $262,897 $16,967 $7,683 $121,282 $13,026 ======== ======== ======== ======= ====== ======== =======
Depreciation and Amortization ------------------------------------------------- Company Predecessor ----------------------- ------------------------ Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 --------- ---------- ---------- ---------- (In thousands) Razors and Blades $14,170 $8,973 $2,769 $ 8,162 Cotton and Foot Care 2,930 1,867 917 2,876 Custom Bar Soap 1,046 657 419 1,139 ------- ------- ------ ------- $18,146 $11,497 $4,105 $12,177 ======= ======= ====== =======
Operating income in 2000 for Razors and Blades includes special termination benefits of $14,351,000. Operating income for the period from April 24, 1999 to December 31, 1999 for Razors and Blades, Cotton and Foot Care and Custom Bar Soap includes a purchase accounting adjustment to inventory of $8,793,000, $169,000 and $46,000, respectively. Operating income in 1998 for Razors and Blades and Cotton and Foot Care includes special charges of $2,819,000 and $184,000, respectively. 53 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below reports net sales and long-lived assets (including intangible assets) by geographic area. Transfers between geographic areas are made at arms-length pricing. With the exception of the United States and the United Kingdom, no country exceeded 10% of net sales and only the United States exceeded 10% of long-lived assets in any year. Revenues were allocated to geographic areas based on the location to which the product was shipped.
Geographic Areas (In thousands) Company Predecessor --------------------- ----------------------- Period Period from from Year April 24, January 1, Year Ended 1999 to 1999 to Ended December December April 23, December 29, 2000 31, 1999 1999 31, 1998 --------- --------- ---------- --------- Net sales: United States $253,139 $184,863 $71,618 $243,660 Foreign 65,674 42,296 15,973 53,828 -------- -------- ------- -------- Total $318,813 $227,159 $87,591 $297,488 ======== ======== ======= ======== December December 31, 29, 2000 1999 1998 -------- -------- -------- Long-lived assets United States $241,384 $243,590 $134,996 Foreign 12,536 12,902 11,480 -------- -------- -------- Total $253,920 $256,492 $146,476 ======== ======== ========
The Company's foreign operations are located principally in the United Kingdom, the Caribbean, Canada, Mexico, Brazil, Europe and Israel. Export sales from United States operations aggregated $5,988,000 for 2000, $4,628,000 for the period from April 24, 1999 to December 31, 1999, $1,398,000 for the period from January 1, 1999 to April 23, 1999, and $5,793,000 in 1998. Sales to one of the Company's customers in the Razors and Blades and Cotton and Foot Care segments for 2000, for the period from April 24, 1999 to December 31, 1999, for the period from January 1, 1999 to April 23, 1999, and for 1998 amounted to approximately 12%, 12%, 13% and 11% of consolidated net sales, respectively. 12. COMMITMENTS, CONTINGENCIES AND OTHER Cotton Matter: During 1998, the Company purchased bleached cotton from an outside supplier for use in its pharmaceutical coil business. The Company converted this cotton from incoming bales into a coil, which was shipped to its pharmaceutical customers to be used as filler in bottles of oral dosage forms of pharmaceutical products to prevent breakage. During the period from March through November of 1998, the process by which the Company's supplier bleached this cotton was changed by introducing an expanded hydrogen peroxide treatment. Subsequent testing indicated varying levels of residual hydrogen peroxide in the cotton processed during this time period and the supplier in November 1998 reduced the levels of residual hydrogen peroxide in its bleaching process. The Company, to date, has received complaints from a number of customers alleging defects in the cotton supplied them during the period and asserting these defects may have led to changes in their products pharmaceutical appearance, and with respect to a limited number of products, potency. No lawsuits have been filed by any of these customers. The Company has received written notice of claims for damages in the aggregate amount of approximately $117.0 million. In addition, $113.0 million of this amount is for alleged lost profits from two customers, which lost profits have not been substantiated. It is possible that additional damage claims might be forthcoming. On March 2, 1999, at the request of the Food and Drug Administration, the Company notified all (numbering approximately 85) of its pharmaceutical cotton coil customers that it was withdrawing from the market those lots of cotton coil which may contain elevated 54 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS levels of hydrogen peroxide. The Company has notified its supplier that, in the Company's view, the supplier is primarily responsible for damages, if any, that may arise out of this matter. At this time, the Company's supplier has agreed to be responsible for the cost of fiber, bleaching and freight of returned product, but has not agreed to be responsible for any other damages and has expressed an intention to assert defenses to the Company's claims. The Company's insurance carriers have been timely notified of the existence of the claim and have agreed to provide defense in a reservation of rights letter, but are continuing to evaluate whether coverage would apply to all aspects of the claims. The Company is advised by outside counsel that it has strong legal arguments that the aggregate amount of insurance available for these claims would be sufficient to cover the magnitude of the claims currently expressed. The Company also has been advised by its outside counsel that it has a number of valid defenses to potential customer claims as well as a third party claim against its supplier for damages, if any, incurred by the Company. However, management cannot at this time make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome relating to this overall issue, and accordingly, there can be no assurance that the Company's exposure from this matter might not potentially exceed the combination of its insurance coverages and recourse to its supplier. It is therefore possible that the Company's results of operations or cash flows in a particular quarterly or annual period or its financial position could be significantly or adversely affected by an ultimate unfavorable outcome of this matter. Other Matters: In June 1999, the Company received notice of the filing of a lawsuit by The Gillette Company ("Gillette") asserting claims for damages and injunctive relief for alleged patent infringement, misappropriation of trade dress, false advertising and breach of contract in connection with the marketing of the Company's two-bladed and three-bladed shaving cartridge systems (the MBC(TM) introduced in 1994 and the Tri-Flexxx(TM) introduced in 1999). In August 1999, the Company filed an answer and counterclaims in which it denied Gillette's allegations, sought a declaration that Gillette's patents were not infringed, were invalid and unenforceable, and asserted counterclaims against Gillette for damages and injunctive relief for, among other things, alleged antitrust violations and false advertising. In December 2000, the Company and Gillette resolved their differences on a mutually acceptable basis and the lawsuit was dismissed. The Company entered into a worldwide license relating to certain Gillette patents which was recorded as an intangible asset in December 2000 and is being amortized on a straight-line basis over the weighted average life of the patents of fourteen years. The Company is subject to other litigation incidental to the conduct of its business and is also subject to government agency regulations relating to its products, environmental matters, taxes and other aspects of its business. While the ultimate outcome of proceedings against the Company cannot be predicted with certainty, management does not expect that these matters will have a materially adverse effect on the consolidated financial position or results of operations of the Company. In connection with the change in control of the Company in 1999 and termination of employment, certain executives of the Predecessor received payments aggregating $1.9 million. In addition in 1999, The Jordan Company, as advisor to the transaction, received a fee of $2.5 million. The Company leases buildings, office space and equipment under operating lease agreements which expire on various dates through 2013. Certain leases contain renewal or purchase options which may be exercised by the Company. Rent for leases amounted to approximately $4,093,000 for 2000, $2,709,000 for the period from April 24, 1999 to December 31, 1999, $1,376,000 for the period from January 1, 1999 to April 23, 1999 and $3,918,000 in 1998. Future minimum rental commitments under all noncancellable operating leases at December 29, 2000 approximate $3,376,000 in 2001, $2,759,000 in 2002, $2,338,000 in 2003, $2,215,000 in 2004 and $1,984,000 in 2005. 13. ACQUISITION On September 18, 1998, the Predecessor purchased all of the capital stock of Wolco Holland B.V. ("Wolco") for an aggregate purchase price of approximately $2,626,000 net of cash acquired, including assumed liabilities of $877,000 and acquisition related expenses. Wolco is a packager and distributor of razor products to private label accounts in certain European markets. The acquisition was financed by borrowings under the Predecessor's revolving credit facility, internally generated funds and seller financing of $1,178,000 and has been accounted for under the purchase method of accounting. 55 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pro forma results of operations for the year ended December 31, 1998, as if the Wolco acquisition occurred as of the beginning of the period, are not presented as the effects are not material. 14. SPECIAL CHARGES During 1998, the Predecessor recorded an aggregate charge of approximately $3,003,000, which was comprised of approximately $1,000,000 related to the Predecessor's decision to discontinue one of its product lines, approximately $1,803,000 for certain severance and employee benefits related to the termination of certain employees, and approximately $200,000 related to the shutdown of the Predecessor's cotton operations in Sparks, Nevada. Employee terminations resulted primarily from the consolidation of the Predecessor's sales forces and the termination of certain other management employees. 15. SUBSEQUENT EVENT On March 28, 2001, the Company amended its Credit Agreement which, among other things, modified the financial ratio requirements relating to the leverage, fixed charges and interest coverage ratios. These financial ratio requirements were modified to allow the Company to meet certain of the financial ratio requirements. In addition, the Company's principal stockholder has guaranteed $5.0 million of borrowings under the Company's existing revolving credit facility. On March 28, 2001, the Company entered into an additional revolving credit facility of $5.0 million which has been guaranteed by the principal stockholder. 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Company's $69,300,000 of 9 7/8% Series B Senior Notes due 2005 have been guaranteed, on a joint and several basis by certain domestic subsidiaries of the Company, which guarantees are senior unsecured obligations of each guarantor and will rank pari passu in right of payment with all other indebtedness of each guarantor. However, the guarantee of one of the guarantor subsidiaries ranks junior to its outstanding subordinated note. The following condensed consolidating financial information presents condensed consolidating financial statements as of December 29, 2000 and December 31, 1999, for the year ended December 29, 2000, for the period from April 24, 1999 to December 31, 1999 (the Company), for the period from January 1, 1999 to April 23, 1999 and for the year ended December 31, 1998 (Predecessor), of American Safety Razor Company - the parent company, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis), and elimination entries necessary to combine such entities on a consolidated basis. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that such information would not be material to the holders of the Series B Senior Notes. 56 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheets December 29, 2000
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Assets Current assets: Cash and cash equivalents $ 97 $ 191 $ 1,854 $ - $ 2,142 Accounts receivable, net 22,304 11,393 18,331 (331) 51,697 Advances receivable--subsidiaries 66,995 - - (66,995) - Inventories 31,915 15,679 14,979 (945) 61,628 Income taxes and prepaid expenses 3,788 2,278 298 - 6,364 -------- ------- ------- --------- -------- Total current assets 125,099 29,541 35,462 (68,271) 121,831 Property and equipment, net 60,767 23,993 7,054 - 91,814 Intangible assets, net 134,978 22,161 4,967 - 162,106 Prepaid pension cost and other 4,533 9,281 21 - 13,835 Investment in subsidiaries 33,687 - 5,297 (38,984) - -------- ------- ------- --------- -------- Total assets $359,064 $84,976 $52,801 $(107,255) $389,586 ======== ======= ======= ========= ======== Liabilities and stockholder's equity Current liabilities: Accounts payable, accrued expenses and other $ 23,731 $ 8,300 $ 6,413 $ - $ 38,444 Advances payable--subsidiaries - 50,472 17,799 (68,271) - Current maturities of long-term obligations 11,875 50 - - 11,925 -------- ------ ------- -------- ------- Total current liabilities 35,606 58,822 24,212 (68,271) 50,369 Long-term obligations 178,979 119 - - 179,098 Retiree benefits and other 17,495 10,609 - - 28,104 Deferred income taxes 12,820 4,792 543 - 18,155 -------- ------ ------- --------- -------- Total liabilities 244,900 74,342 24,755 (68,271) 275,726 -------- ------ ------- --------- -------- Stockholder's equity Common stock 121 - 2 (2) 121 Additional paid-in capital 172,843 12,948 23,736 (36,684) 172,843 Advances to RSA Holdings Corporation, net (52,061) - - - (52,061) (Accumulated deficit) retained earnings (6,464) (2,314) 5,187 (2,875) (6,466) Dividends 302 - (302) - - Accumulated other comprehensive loss (577) - (577) 577 (577) -------- ------- ------- --------- -------- 114,164 10,634 28,046 (38,984) 113,860 -------- ------- ------- --------- -------- Total liabilities and stockholder's equity $359,064 $84,976 $52,801 $(107,255) $389,586 ======== ======= ======= ========= ========
57 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheets December 31, 1999
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Assets Current assets: Cash and cash equivalents $ 6,221 $ 1,180 $ 5,081 $ 18 $ 12,500 Accounts receivable, net 19,927 12,906 13,751 (332) 46,252 Advances receivable--subsidiaries 59,790 - - (59,790) - Inventories 29,825 13,322 11,947 (690) 54,404 Income taxes and prepaid expenses 6,511 1,912 273 - 8,696 -------- ------- ------- --------- -------- Total current assets 122,274 29,320 31,052 (60,794) 121,852 Property and equipment, net 58,005 24,731 7,255 - 89,991 Intangible assets, net 138,404 22,994 5,103 - 166,501 Prepaid pension cost and other 16,133 8,373 21 - 24,527 Investment in subsidiaries 32,506 - 8,587 (41,093) - -------- ------- ------- --------- -------- Total assets $367,322 $85,418 $52,018 $(101,887) $402,871 ======== ======= ======= ========= ======== Liabilities and stockholder's equity Current liabilities: Accounts payable, accrued expenses and other $ 19,299 $10,830 $ 6,714 $ (1) $ 36,842 Advances payable--subsidiaries - 44,289 16,504 (60,793) - Current maturities of long-term obligations 7,964 1,417 1,127 - 10,508 -------- ------- ------- ---------- --------- Total current liabilities 27,263 56,536 24,345 (60,794) 47,350 Long-term obligations 174,954 154 - - 175,108 Retiree benefits and other 16,750 10,583 - - 27,333 Deferred income taxes 19,353 4,392 333 - 24,078 -------- ------- ------- --------- -------- Total liabilities 238,320 71,665 24,678 (60,794) 273,869 -------- ------- ------- --------- -------- Stockholder's equity Common stock 121 485 87 (572) 121 Additional paid-in capital 172,843 12,463 23,391 (35,854) 172,843 Advances to RSA Holdings Corporation, net (42,714) - - - (42,714) (Accumulated deficit) retained earnings (1,258) 805 3,852 (4,657) (1,258) Accumulated other comprehensive income 10 - 10 (10) 10 -------- ------- ------- --------- -------- 129,002 13,753 27,340 (41,093) 129,002 -------- ------- ------- --------- -------- Total liabilities and stockholder's equity $367,322 $85,418 $52,018 $(101,887) $402,871 ======== ======= ======= ========= ========
58 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Operations Year Ended December 29, 2000
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Net sales $166,259 $109,552 $70,657 $(27,655) $318,813 Cost of sales 93,246 93,239 53,282 (27,655) 212,112 -------- -------- ------- -------- -------- Gross profit 73,013 16,313 17,375 - 106,701 Selling, general and administrative expenses 45,917 14,989 12,042 - 72,948 Amortization of intangible assets 3,601 833 135 - 4,569 Special termination benefits 14,351 - - - 14,351 -------- -------- ------- --------- -------- Operating income 9,144 491 5,198 - 14,833 Operating income (expense): Equity in earnings (losses) of affiliates 1,508 - (3,290) 1,782 - Interest expense (17,252) (4,876) 2,286 - (19,842) -------- -------- ------- -------- -------- (Loss) income before income taxes (6,600) (4,385) 4,194 1,782 (5,009) Income taxes (benefit) (1,394) (1,266) 2,859 - 199 -------- -------- ------- -------- -------- Net (loss) income $ (5,206) $ (3,119) $ 1,335 $ 1,782 $ (5,208) ======== ======== ======= ======== ========
59 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Operations For the Period from April 24, 1999 to December 31, 1999
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Net sales $116,497 $81,359 $44,001 $(14,698) $227,159 Cost of sales: Cost of sales 64,162 66,064 30,825 (14,563) 146,488 Purchase accounting adjustment to inventory 7,910 215 883 - 9,008 ------- ------- ------- -------- -------- Gross profit 44,425 15,080 12,293 (135) 71,663 Selling, general and administrative expenses 35,643 9,904 7,020 - 52,567 Amortization of intangible assets 2,466 626 86 - 3,178 ------- ------- ------- ------- -------- Operating income 6,316 4,550 5,187 (135) 15,918 Operating income (expense): Equity in earnings (losses) of affiliates 5,205 - (22) (5,183) - Interest expense (13,514) (2,996) 1,398 - (15,112) ------- ------- ------- ------- ------- (Loss) income before income taxes and extraordinary item (1,993) 1,554 6,563 (5,318) 806 Income taxes (benefit) (1,346) 743 2,056 - 1,453 ------- ------- ------- ------- ------- (Loss) income before extraordinary item (647) 811 4,507 (5,318) (647) Extraordinary item 611 - - - 611 ------- ------- ------- ------- ------- Net (loss) income $(1,258) $ 811 $4,507 $(5,318) $(1,258) ======= ======= ====== ======= =======
60 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Operations For the Period from January 1, 1999 to April 23, 1999
Predecessor ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ (In thousands) Net sales $46,889 $32,731 $17,136 $(9,165) $87,591 Cost of sales 26,237 28,514 12,934 (9,165) 58,520 ------- ------- ------- ------- ------- Gross profit 20,652 4,217 4,202 - 29,071 Selling, general and administrative expenses 13,665 3,860 3,904 - 21,429 Amortization of intangible assets 470 318 47 - 835 Transaction expenses 11,440 - - - 11,440 ------- ------- ------- ------- ------- Operating (loss) income (4,923) 39 251 - (4,633) Operating income (expense): Equity in earnings (losses) of affiliates (135) - (394) 529 - Interest expense (3,193) (1,300) 586 - (3,907) ------- ------- ------- ------- ------- (Loss) income before income taxes and extraordinary item (8,251) (1,261) 443 529 (8,540) Income taxes (benefit) (553) (570) 281 - (842) ------- ------- ------- ------- ------- (Loss) income before extraordinary item (7,698) (691) 162 529 (7,698) Extraordinary item 118 - - - 118 ------- ------- ------- ------- ------- Net (loss) income $(7,816) $ (691) $ 162 $ 529 $(7,816) ======= ======= ======= ======= =======
61 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Income Year Ended December 31, 1998
Predecessor -------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Net sales $150,691 $114,126 $55,141 $(22,470) $297,488 Cost of sales 85,333 96,508 42,607 (22,470) 201,978 -------- -------- ------- -------- -------- Gross profit 65,358 17,618 12,534 - 95,510 Selling, general and administrative expenses 40,840 11,822 10,854 - 63,516 Amortization of intangible assets 1,477 984 82 - 2,543 Special charges 2,725 184 94 - 3,003 -------- -------- ------ -------- -------- Operating income 20,316 4,628 1,504 - 26,448 Other income (expense): Equity in earnings of affiliates 1,645 - 180 (1,825) - Interest expense (8,270) (4,193) 193 - (12,270) -------- -------- ------ -------- -------- Income before income taxes 13,691 435 1,877 (1,825) 14,178 Income taxes 3,589 8 479 - 4,076 -------- -------- ------ -------- -------- Net income $ 10,102 $ 427 $1,398 $ (1,825) $ 10,102 ======== ======== ====== ======== ========
62 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Comprehensive Income For the Year Ended December 29, 2000
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ (In thousands) Net (loss) income $(5,206) $(3,119) $1,335 $1,782 $(5,208) Other comprehensive loss: Foreign currency translation adjustments (587) - (587) 587 (587) ------- -------- ------ ------ ------- Comprehensive (loss) income $(5,793) $(3,119) $ 748 $2,369 $(5,795) ======= ======= ====== ====== =======
Condensed Consolidating Statements of Comprehensive Income For the Period from April 24, 1999 to December 31, 1999
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ (In thousands) Net (loss) income $(1,258) $811 $4,507 $(5,318) $(1,258) Other comprehensive income: Foreign currency translation adjustments 10 - 10 (10) 10 ------- ---- ------ ------- ------- Comprehensive (loss) income $(1,248) $811 $4,517 $(5,328) $(1,248) ======= ==== ====== ======= =======
Condensed Consolidating Statements of Comprehensive Income For the Period from January 1, 1999 to April 23, 1999
Predecessor ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ (In thousands) Net (loss) income $(7,816) $(691) $162 $529 $(7,816) Other comprehensive loss: Foreign currency translation adjustments - - (116) - (116) ------- ----- ---- ---- ------- Comprehensive (loss) income $(7,816) $(691) $ 46 $529 $(7,932) ======= ===== ==== ==== =======
63 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Comprehensive Income Year Ended December 31, 1998
Predecessor ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ (In thousands) Net income $10,102 $427 $1,398 $(1,825) $10,102 Other comprehensive loss: Foreign currency translation adjustments - - (91) - (91) ------- ---- ------ ------- ------- Comprehensive income $10,102 $427 $1,307 $(1,825) $10,011 ======= ==== ====== ======= =======
64 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Cash Flows For the Year Ended December 29, 2000
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Operating activities Net cash provided by (used in) operating activities $14,218 $(3,290) $(1,809) $ 255 $ 9,374 Investing activities Capital expenditures (11,450) (2,405) (1,545) - (15,400) Other (238) - 1 - (237) Investment in subsidiaries (260) - 260 - - Advances from (to) subsidiaries (7,205) - - 7,205 - ------- ------- ------- ----- ------- Net cash used in investing activities (19,153) (2,405) (1,284) 7,205 (15,637) Financing activities Repayment of long-term obligations (31,413) (1,477) (1,127) - (34,017) Proceeds from borrowings 39,349 - - - 39,349 Deferred loan fees (80) - - - (80) Advances to RSA Holdings Corporation, net (9,347) - - - (9,347) Advances from (to) subsidiaries - 6,183 1,295 (7,478) - Dividends 302 - (302) - - ------- ------- ------- ------ ------- Net cash (used in) provided from financing activities (1,189) 4,706 (134) (7,478) (4,095) Net decrease in cash and cash equivalents (6,124) (989) (3,227) (18) (10,358) Cash and cash equivalents, beginning of period 6,221 1,180 5,081 18 12,500 ------- ------- ------- ------ ------- Cash and cash equivalents, end of period $ 97 $ 191 $ 1,854 $ - $ 2,142 ======= ======= ======= ====== =======
65 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Cash Flows For the Period from April 24, 1999 to December 31, 1999
Company ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ----------- ------------ ------------ ------------ (In thousands) Operating activities Net cash provided by operating activities $9,110 $2,871 $8,419 $(1,137) $19,263 Investing activities Capital expenditures (5,427) (2,075) (928) - (8,430) Other (29) - - - (29) Advances from (to) subsidiaries 1,767 - - (1,767) - ------ ------ ------ ------- ------- Net cash used in investing activities (3,689) (2,075) (928) (1,767) (8,459) Financing activities Repayment of long-term obligations (31,173) (1,415) (318) - (32,906) Proceeds from borrowings 51,100 194 - - 51,294 Deferred loan fees (395) - - - (395) Advances to RSA Holdings Corporation, net (18,559) - - - (18,559) Advances from (to) subsidiaries - 1,308 (4,230) 2,922 - ------- ------ ------ ------- ------- Net cash provided from (used in) financing activities 973 87 (4,548) 2,922 (566) Net increase in cash and cash equivalents 6,394 883 2,943 18 10,238 Cash and cash equivalents, beginning of period (173) 297 2,138 - 2,262 ------ ------ ------ ------- ------- Cash and cash equivalents, end of period $6,221 $1,180 $5,081 $ 18 $12,500 ====== ====== ====== ======= =======
66 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Cash Flows For the Period from January 1, 1999 to April 23, 1999
Predecessor ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ (In thousands) Operating activities Net cash (used in) provided by operating activities $(7,841) $1,545 $ 518 $ 444 $(5,334) Investing activities Capital expenditures (2,538) (824) (276) - (3,638) Other 49 - - - 49 Advances from (to) subsidiaries 1,997 - - (1,997) - ------- ------ ------ ------ ------- Net cash used in investing activities (492) (824) (276) (1,997) (3,589) Financing activities Repayment of long-term obligations (21,464) (62) (383) - (21,909) Proceeds from borrowings 61,400 - - - 61,400 Deferred loan fees (7,606) - - - (7,606) Proceeds from exercise of stock options 2 - - - 2 Advances to RSA Holdings Corporation, net (24,155) - - - (24,155) Advances from (to) subsidiaries - (468) (1,085) 1,553 - ------- ------ ------ ------ ------- Net cash provided from (used in) financing activities 8,177 (530) (1,468) 1,553 7,732 Net (decrease) increase in cash and cash equivalents (156) 191 (1,226) - (1,191) Cash and cash equivalents, beginning of period (17) 106 3,364 - 3,453 ------- ------ ------ ------ ------ Cash and cash equivalents, end of period $ (173) $ 297 $2,138 $ - $2,262 ======= ====== ====== ====== ======
67 AMERICAN SAFETY RAZOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statements of Cash Flows Year Ended December 31, 1998
Predecessor ------------------------------------------------------------------- Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (In thousands) Operating activities Net cash provided by (used in) operating activities $13,429 $(1,593) $ 383 $ 322 $12,541 ------- ------- ------ ------ ------- Investing activities Capital expenditures (7,205) (3,976) (194) - (11,375) Purchase of Wolco, net of cash acquired - - (571) - (571) Other (719) - 56 - (663) Investment in subsidiaries (3,481) - 3,481 - - Advances from (to) subsidiaries (5,481) - - 5,481 - ------- ------- ------ ------ ------- Net cash (used in) provided from investing activities (16,886) (3,976) 2,772 5,481 (12,609) ------- ------- ------ ------ ------- Financing activities Repayment of long-term obligations (320) (192) (885) - (1,397) Proceeds from borrowings 3,300 - 80 - 3,380 Proceeds for exercise of stock options 104 - - - 104 Advances from (to) subsidiaries - 5,434 377 (5,811) - ------- ------- ------ ------ ------- Net cash provided from (used in) financing activities 3,084 5,242 (428) (5,811) 2,087 ------- ------- ------ ------ ------- Net (decrease) increase in cash and cash equivalents (373) (327) 2,727 (8) 2,019 Cash and cash equivalents, beginning of period 356 433 637 8 1,434 ------- ------- ------ ------ ------- Cash and cash equivalents, end of period $ (17) $ 106 $3,364 $ - $ 3,453 ======= ======= ====== ====== =======
68 Report of Independent Auditors The Board of Directors and Stockholder, American Safety Razor Company We have audited the accompanying consolidated balance sheet of American Safety Razor Company and subsidiaries as of December 29, 2000, and the related consolidated statements of operations, comprehensive income, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all materials respects, the consolidated financial position of American Safety Razor Company and subsidiaries at December 29, 2000, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP March 9, 2001, except for Note 15, as to which the date is March 28, 2001 Richmond, Virginia 69 Report of Independent Accountants To the Board of Directors and Shareholder of American Safety Razor Company In our opinion, the consolidated balance sheet at December 31, 1999 and the consolidated statements of operations, comprehensive income and cash flows for the period from April 24, 1999 to December 31, 1999, listed in the accompanying index appearing under Item 14(a)(1) on page 33, present fairly, in all material respects, the financial position of American Safety Razor Company and its subsidiaries (the "Company") at December 31, 1999 and the results of their operations and their cash flows for the period from April 24, 1999 to December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule information for the period from April 24, 1999 to December 31, 1999, listed in the accompanying index appearing under Item 14(a)(2) on page 33, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have not audited the consolidated financial statements of the Company for any period subsequent to December 31, 1999. PricewaterhouseCoopers LLP Richmond, Virginia February 11, 2000 70 Report of Independent Accountants To the Board of Directors and Shareholder of American Safety Razor Company In our opinion, the consolidated balance sheet at December 31, 1998 and the consolidated statements of operations, comprehensive income and cash flows for the period from January 1, 1999 to April 23, 1999, and for the year ended December 31, 1998, listed in the accompanying index appearing under Item 14(a)(1) on page 33, present fairly, in all material respects, the financial position of American Safety Razor Company and its subsidiaries (the "Predecessor") at December 31, 1998 and the results of their operations and their cash flows for the period from January 1, 1999 to April 23, 1999 and for the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule information for the period from January 1, 1999 to April 23, 1999 and for the year ended December 31, 1998, listed in the accompanying index appearing under Item 14(a)(2) on page 33, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Predecessor's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We have not audited consolidated financial statements of the Predecessor for any period subsequent to April 23, 1999. PricewaterhouseCoopers LLP Richmond, Virginia February 11, 2000 71 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AMERICAN SAFETY RAZOR COMPANY (IN THOUSANDS)
Company ----------------------------------------------------------------- Additions ---------------------- Balance Charged to Charged Balance Beginning Costs and to Other End of Description of Period Expenses Accounts Deductions Period - ----------- ---------- ---------- -------- ---------- -------- Year ended 12-29-00 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $1,254 $ (184) $ - $ 50 (1) $1,020 Allowance for discounts and other deductions 2,959 3,570 - 4,134 (2) 2,395 ------ ------ ---- ------ ------ $4,213 $3,386 $ - $4,184 $3,415 ====== ====== ==== ====== ====== Period from April 24, 1999 to December 31, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $1,113 $ 593 $ - $ 452 (1) $1,254 Allowance for discounts and other deductions 2,329 3,128 - 2,498 (2) 2,959 ------ ------ ---- ------ ------ $3,442 $3,721 $ - $2,950 $4,213 ====== ====== ==== ====== ======
Predecessor ----------------------------------------------------------------- Additions --------------------- Balance Charged to Charged Balance Beginning Costs and to Other End of Description of Period Expenses Accounts Deductions Period - ----------- ---------- ---------- -------- ---------- -------- Period from January 1, 1999 to April 23, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $ 966 $ 464 $ - $ 317 (1) $1,113 Allowance for discounts and other deductions 1,991 1,923 - 1,585 (2) 2,329 ------ ------ ---- ------ ------ $2,957 $2,387 $ - $1,902 $3,442 ====== ====== ==== ====== ====== Year ended 12-31-98 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $1,363 $ 212 $ - $ 609 (1) $ 966 Allowance for discounts and other deductions 2,098 5,209 - 5,316 (2) 1,991 ------ ------ ---- ------ ------ $3,461 $5,421 $ - $5,925 $2,957 ====== ====== ==== ====== ====== (1) Accounts written off, net of recoveries (2) Discounts and deductions taken by customers
72
INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 2.1 Stock Sale and Purchase Agreement for the Registrant, dated April 12, 1989, by, between, and among J. Gray Ferguson, Arthur J. Gajarsa, Joseph F. Hackett and William L. Robbins, III, the Registrant and ASR Acquisition Corp. (A)............... (2) 2.2 Agreement for Purchase and Sale of Stock, dated April 17, 1989, by and among Howard E. Strauss, Bert Ghavami, and Ardell Acquisition Corp.(A)........................ (2) 2.3 Amendment No. 1 to Agreement for Purchase and Sale of Stock, dated April 28, 1989, by and among Howard E. Strauss, Bert Ghavami, and Ardell Acquisition Corp........................................................................ (2) 2.4 Agreement for Purchase and Sale of Stock of Megas Beauty Care, Inc. dated May 16, 1994 between Megas Holdings, Inc. and Robert Bender (A)......................... (3) 2.5 Stock Purchase Agreement dated February 7, 1995, by and among Sterile Products Holdings, Inc. and C. C. (Jack) Van Noy, George P. Goemans, Tamalpais Capital, and Newtek Venture (A)......................................................... (4) 2.6 Asset Purchase Agreement, dated as of March 6, 1996, by and among MLO Razor Company (1996) Ltd. ("Purchaser"), and Bond-America Israel Blades Ltd. ("Seller"), Nostrum Establishment and Kaftor VePerach Ltd., the stockholders of Seller (individually each an "Owner" and collectively, the "Owners") and Robert Mandel, Daniel ----- ------ Mandel, Alfred Mernone, Shulamit Weiman, Noam Weiman, Efrat Gershoni and Ayin Mor Ltd. (individually each a "Beneficial Owner" ---------------- and collectively the "Beneficial Owners" and together with the ----------------- Owners, the "Stockholders"). (A)........................................................ (7) ------------ 2.7 Amendment No. 1 to Asset Purchase Agreement (the "Amendment"), dated as of March 25, 1996, by and among Bond Blades International Ltd. (formerly known as MLO Razor Company (1996) Ltd.), ("Purchaser"), --------- and Bond-America Israel Blades Ltd., ("Seller"), Nostrum Establishment ------ and Kaftor VePerach Ltd., the stockholders of Seller (individually each an "Owner" and collectively, the "Owners") and Robert Mandel, ----- ------ Daniel Mandel, Alfred Mernone, Shulamit Weiman, Noam Weiman, Efrat Gershoni and Ayin Mor Ltd. (individually each a "Beneficial Owner" ---------------- and collectively the "Beneficial Owners" and together with the ----------------- Owners, the "Stockholders")............................................................. (7) ------------ 2.8 Asset Purchase Agreement, dated as of March 6, 1996, by and among American Safety Razor Company ("Purchaser"), and A.I. Blades, Inc. --------- ("Seller") and Bond-America Israel Blades, Ltd., the sole stockholder ------ of Seller ("Bond"), Nostrum Establishment and Kaftor VePerach Ltd., ---- Robert Mandel, Daniel Mandel, Alfred Mernone, Shulmait Weiman, Noam Weiman, Efrat Gershoni and Ayin Mor Ltd. (individually each a "Beneficial Owner" and collectively the "Beneficial Owners" and ---------------- ----------------- together with Bond, the "Stockholders"). (A)........................................... (7) ------------
73
Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 2.9 Amendment No. 1 to Asset Purchase Agreement (the "Amendment"), dated as of March 25, 1996, by and among American Safety Razor Company ("Purchaser"), and A.I. Blades, Inc. ("Seller") and --------- ------ Bond-America Israel Blades Ltd., the sole stockholder of Seller ("Bond"), Nostrum Establishment and Kaftor VePerach Ltd., ---- Robert Mandel, Daniel Mandel, Alfred Mernone, Shulamit Weiman, Noam Weiman, Efrat Gershoni and Ayin Mor Ltd. (individually each a "Beneficial Owner" and collectively the "Beneficial Owners" and ---------------- ----------------- together with Bond, the "Stockholders")................................................. (7) ------------ 2.10 Agreement and Plan of Merger, dated as of February 12, 1999 by and among RSA Holdings Corp. of Delaware, RSA Acquisition Corp. and American Safety Razor Company. (A)...................................................... (9) 2.11 Amendment Agreement, dated as of April 8, 1999, to the Agreement and Plan of Merger, dated as of February 12, 1999, by and among RSA Holdings Corp. of Delaware, RSA Acquisition Corp. and American Safety Razor Company.................... (10) 2.12 Second Amendment Agreement, dated as of April 23, 1999, to the Agreement and Plan of Merger, dated as of February 12, 1999, by and among RSA Holdings Corp. of Delaware, RSA Acquisition Corp. and American Safety Razor Company................................................................................. (11) 2.13 Offer to Purchase for Cash all Outstanding Shares of Common Stock of American Safety Razor Company, dated February 22, 1999. ................................ (9) 2.14 Supplement to the Offer to Purchase for Cash all Outstanding Shares of Common Stock of American Safety Razor Company, dated April 13, 1999..................... (10) 3.1 Amended and Restated Certificate of Incorporation of the Registrant....................... (1) 3.2 Amended and Restated By-laws of the Registrant............................................ (1) 4.1 Specimen of Stock Certificate............................................................. (2) 4.2 Recapitalization Agreement, dated May 24, 1993, among the Registrant and its Stockholders............................................................................ (1) 4.3 Subscription Agreement, dated April 28, 1989, by and among the Registrant, JZCC and Allsop.............................................................................. (2) 4.4 Registration Rights Agreement, dated as of August 3, 1995, among the Registrant, the Guarantors and the Initial Purchasers, relating to the Senior Notes................. (6) 4.5 Indenture governing the Senior Notes, dated as of August 3, 1995, by and among the Registrant, the Guarantors and the Trustees......................................... (5) 4.6 Preferred Stock Exchange Agreement, dated June 14, 1993, among the Registrant and the holders of Preferred Stock.......................................................... (1) 4.7 Common Stock Conversion Agreement, dated May 24, 1993, among the Registrant and the holders of Common Stock............................................................. (1)
74
Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 4.8(a) Stockholders Agreement, dated April 14, 1989, between the Registrant and its Stockholders............................................................................ (2) 4.8(b) Shareholder's Agreement, dated February 12, 1999, among RSA Holdings Corp. of Delaware, RSA Acquisition Corp., and Principal Holders.................................. (10) 4.9 First Amendment to the Stockholders Agreement, dated April 28, 1989, between the Registrant and its Stockholders......................................................... (2) 4.10 Second Amendment to the Stockholders Agreement, dated December 29, 1992, between the Registrant and its Stockholders .................................................... (2) 4.11 Third Amendment to the Stockholders Agreement, dated June 15, 1993, among the Registrant and certain of its Stockholders.............................................. (1) 4.12 $2,500,000 Subordinated Secured Note, due June 10, 2000, executed by Megas Holdings, Inc. in favor of Robert Bender................................................ (3) 4.13 Junior Security Agreement, dated June 10, 1994, by Megas Beauty Care, Inc. (formerly Megas Holdings, Inc.) in favor of Robert Bender......................................... (4) 4.14 Multicurrency Credit Agreement, dated as of August 3, 1995, among the Registrant, the Guarantors and First National Bank of Chicago, as agent, including exhibits............. (5) 4.15 Guarantees of the Guarantors pursuant to the Multicurrency Credit Agreement............... (6) 4.16 Security Agreement, dated August 3, 1995, between the Registrant and First National Bank of Chicago, as agent, including schedules.......................................... (6) 4.17 Guarantor Security Agreements, dated August 3, 1995, by and among the Guarantors and First National Bank of Chicago, as agent, including schedules....................... (6) 4.18 $190,000,000 Credit Agreement, dated as of April 23, 1999, among RSA Acquisition Corp., ("Purchaser"), the Registrant ("Borrower"), RSA Holdings Corp. of Delaware ("Holdings"), and the Initial Lenders, The Swing Line Bank and Initial Issuing Bank and NationsBank, N.A. ("Administrative Agent")........................................................... (13) 4.19 Amendment No. 1 to the Credit Agreement dated as of April 23, 1999, among RSA Acquisition Corp., ("Purchaser"), the Registrant ("Borrower"), RSA Holdings Corp. of Delaware ("Holdings"), and the Initial Lenders, the Swing Line Bank and the Initial Issuing Bank and NationsBank, N.A. ("Administrative Agent")........................................................... (14) 4.20 Amendment No. 2 to the Credit Agreement dated as of March 28, 2001, among the Registrant ("Borrower"), RSA Holdings Corp. of Delaware ("Holdings"), and the Lenders, the Issuing Bank and Swing Line Bank, the Syndication Agent, the Co-Arrangers and Bank of America ("Administrative Agent")................................................................ 4.21 Credit Agreement, dated as of March 28, 2001, among the Registrant ("Borrower") and Bank of America, N.A. ("Lender")................................................................ 10.1(a) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and William C. Weathersby (B)................................................ (1)
75
Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 10.1(b) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and William L. Robbins (B)................................................... (1) 10.1(c) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and George L. Pineo (B)...................................................... (1) 10.1(d) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and Gary S. Wade (B)......................................................... (1) 10.1(e) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and Joseph F. Hackett (B).................................................... (1) 10.1(f) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and Thomas G. Kasvin (B)..................................................... (1) 10.1(g) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and Thomas B. Boyd (B)....................................................... (1) 10.1.(h) Non-Disclosure/Non-Compete Agreement, dated June 15, 1993, between the Registrant and Bruce L. Stichter (B).................................................... (1) 10.2(a) Indemnification Agreement, dated June 15, 1993, between the Registrant and Thomas H. Quinn (B)..................................................................... (1) 10.2(b) Indemnification Agreement, dated June 15, 1993, between the Registrant and William C. Weathersby (B)............................................................... (1) 10.2(c) Indemnification Agreement, dated June 15, 1993, between the Registrant and Jonathan F. Boucher (B)................................................................. (1) 10.2(d) Indemnification Agreement, dated June 15, 1993, between the Registrant and John W. Jordan, II (B).................................................................. (1) 10.2(e) Indemnification Agreement, dated June 15, 1993, between the Registrant and David W. Zalaznick (B).................................................................. (1) 10.2(f) Indemnification Agreement, dated June 15, 1993, between the Registrant and John R. Lowden (B)...................................................................... (1) 10.2(g) Indemnification Agreement, dated June 15, 1993, between the Registrant and Paul D. Rhines (B)...................................................................... (1) 10.2(h) Indemnification Agreement, dated June 15, 1993, between the Registrant and D. Patrick Curran (B)................................................................... (1) 10.2(i) Indemnification Agreement, dated June 15, 1993, between the Registrant and William C. Ballard, Jr. (B)............................................................. (1) 10.3(a) Financial Advisory Agreement, dated July 12, 1995, between the Registrant and TJC Management Corp..................................................................... (6) 10.3(b) Amended and Restated Financial Advisory Agreement, dated February 12, 1999, between the Registrant and TJC Management Corp.......................................... (12)
76
Sequentially Exhibit Numbered Number Description Page - ------- ----------- ------------ 10.4 Settlement Agreement, dated June 5, 1992, by and between Warner-Lambert Company and the Registrant.............................................................. (2) 10.5 Administrative Consent Order, dated March 13, 1989, between the Registrant and the New Jersey Department of Environmental Protection and Energy.................... (2) 10.6(a) Employment Agreement, dated March 3, 1995, by and between Sterile Products Holdings, and Sterile Products Corporation and C. C. Van Noy (B).......................... (4) 10.6(b) Employment Protection Agreement, dated December 8, 1997, by and between the Registrant and William C. Weathersby (B).................................................. (8) 10.6(c) Employment Protection Agreement, dated December 8, 1997, by and between the Registrant and James V. Heim (B).......................................................... (8) 10.6(d) Employment Protection Agreement, dated December 8, 1997, by and between the Registrant and Thomas G. Kasvin (B)....................................................... (8) 10.7 The American Safety Razor Company Stock Option Plan....................................... (1) 10.8 Confidentiality Agreement dated as of December 4, 1997 between PaineWebber Incorporated and J. W. Childs Associates, L.P........................................... (10) 10.9 Confidentiality Agreement dated as of January 12, 1999 between PaineWebber Incorporated and J. W. Childs Associates, L.P........................................... (10) 10.10 RSA Holdings Corp. of Delaware 1999 Stock Incentive Plan.................................. (14) 10.11 Employment Agreement, dated August 9, 1999, by and between the Registrant and James D. Murphy (B) 16 Letter re Change in Certifying Accountant................................................. (4), (15) 21 List of Subsidiaries of the Registrant
- ----------------------- (1) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for the fiscal year ended December 31, 1993. (2) Incorporated by reference to the exhibits filed with the Registrant's Form S-1 Registration Statement (No. 33-60298). (3) Incorporated by reference to the exhibits filed with the Registrant's Form 8-K/A, dated June 10, 1994 relating to the acquisition of Megas Beauty Care, Inc. (4) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for the fiscal year ended December 31, 1994. (5) Incorporated by reference to the exhibits filed with the Registrant's Form 8-K, dated August 15, 1995. (6) Incorporated by reference to the exhibits filed with the Registrant's Form S-4 Registration Statement (No. 33-96046). (7) Incorporated by reference to the exhibits filed with the Registrant's Form 10-Q for the quarter ended March 31, 1996. (8) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K/A for the fiscal year ended 77 December 31, 1997. (9) Incorporated by reference to the exhibits filed with the Registrant's Schedule 14D-9, dated February 22, 1999. (10) Incorporated by reference to the exhibits filed with the Registrant's Schedule 14D-9, dated April 13, 1999. (11) Incorporated by reference to the exhibits filed with the Registrant's Schedule 14D-1, dated April 23, 1999. (12) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for the fiscal year ended December 31, 1998. (13) Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for the fiscal year ended December 31, 1999. (14) Incorporated by reference to the exhibits filed with the Registrant's Form 10-Q for the quarter ended June 30, 2000. (15) Incorporated by reference to the exhibits filed with the Registrant's Form 8-K, dated April 20, 2000. (A) Disclosure schedules relating to the representations and warranties have not been filed; such schedules will be filed supplementally upon the request of the Securities and Exchange Commission. (B) This exhibit is a management contract or compensatory plan or arrangement required to be identified in this Form 10-K pursuant to Item 14(c) of this Report. 78 Exhibit 21 LIST OF SUBSIDIARIES OF THE REGISTRANT (1): Subsidiary American Safety Razor Corporation American Safety Razor Australia PTY Limited American Safety Razor do Brasil, Ltda. American Safety Razor of Canada Limited ASR Holdings, Inc. The Hewitt Soap Company, Inc. Industrias Manufactureras ASR de Puerto Rico, Inc. Megas Beauty Care, Inc. Megas de Puerto Rico, Inc. Personna International de Mexico, S.A. de C.V. Personna International Limited Personna International UK Limited Personna International de Puerto Rico, Inc. Personna International Israel, Ltd. Valley Park Realty, Inc. Wolco Holland B.V. (1) Each subsidiary is 100% owned by the Company or certain of its subsidiaries. EX-4 2 0002.txt AMENDED CREDIT AGREEMENT AMENDMENT NO. 2 TO THE CREDIT AGREEMENT AMENDMENT NO. 2 TO THE CREDIT AGREEMENT dated as of March 28, 2001 (this "Amendment") among American Safety Razor Company, a Delaware corporation (the "Borrower"), RSA Holdings Corp. of Delaware, a Delaware corporation ("Holdings"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof under the caption "Lenders" (the "Lenders"), Bank of America, N.A., as successor by merger to NationsBank, N.A. ("BofA"), as Issuing Bank and Swing Line Bank, DLJ Capital Funding, Inc. ("DLJ") as the syndication agent (in such capacity, the "Syndication Agent") for the Facilities (as defined therein), DLJ and Banc of America Securities LLC, as successor by merger to NationsBanc Montgomery Securities LLC, as co-arrangers (the "Co-Arrangers"), and BofA, as the administrative and collateral agent (the "Administrative Agent") for the Lender Parties (and together with the Syndication Agent and the Co-Arrangers, the "Agents"). PRELIMINARY STATEMENTS: (1) The Borrower, Holdings, the Lenders and the Agents have entered into a Credit Agreement dated as of April 23, 1999 (as amended, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms defined in the Credit Agreement and not otherwise defined in this Amendment are used herein as therein defined. (2) The parties hereto have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. Amendments. Subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Credit Agreement is hereby amended, effective as of the date hereof, as follows: (a) Section 1.01 is hereby amended by inserting the following definitions thereto in proper alphabetical order: "`Amendment No. 2 to the Credit Agreement' means Amendment No. 2 to the Credit Agreement dated as of March 28, 2001."; "`BofA' means Bank of America, N.A."; "`BofA Credit Agreement' means the credit agreement dated as of the date hereof between the Borrower, as borrower, and BofA, as lender, pursuant to which BofA has agreed to lend the Borrower up to $5,000,000."; "`BofA Loan Documents' means the BofA Credit Agreement, the BofA Loan Guaranty and the promissory note delivered in connection with the BofA Credit Agreement."; "`BofA Loan Guaranty' means the guaranty dated the date hereof made by J.W. Childs Equity Partners II, L.P. in favor of BofA pursuant to the BofA Credit Agreement."; and "`BofA Loan Termination Date' means the `Termination Date' as defined in the BofA Credit Agreement.". "`J.W. Childs Senior Bank Guaranty' means the guaranty dated the date hereof made by J.W. Childs Equity Partners II, L.P. in favor of the Working Capital Lenders. (b) Clause (a) of the definition of "Consolidated EBITDA" contained in Section 1.01 is hereby amended by adding the following language before the word "plus" therein: "provided that the total amount of pension income included in the determination of net income shall not exceed (A) for each quarter of the fiscal year 2001, $525,000 accrued during that quarter and (B) for each quarter of the fiscal year 2002, $400,000, accrued during that quarter". (c) The definition of "Consolidated EBITDA" contained in Section 1.01 is hereby further amended by deleting the period at the end thereof and replacing it with the following: "plus (c) the sum of (i) costs incurred during the fiscal year 2000 by the Borrower and its Subsidiaries in connection with the settlement, payment of a judgment of a court of competent jurisdiction or other final disposition of a 1998 claim brought against Megas Beauty Care, Inc. by a former employee thereof, in a maximum amount not to exceed $1,000,000, (ii) for determination during the fiscal years 2001 and 2002, restructuring costs in connection with the rationalization of the Borrower's cotton and soap businesses in a maximum aggregate amount not to exceed $1,500,000 in cash expenses and $2,500,000 in non-cash expenses for both years and (iii) fees and expenses (including the reasonable fees of counsel to the Borrower) associated with the negotiation and execution of Amendment No. 2 to the Credit Agreement and the BofA Loan Documents in an aggregate amount not to exceed $500,000.". (d) Section 2.01(c) is hereby amended by deleting the period at the end of the first sentence thereof and replacing it with the following: "provided, further, that (i) for the period beginning on the Effective Date and ending on March 31, 2002, or such earlier date on which the Borrower has provided to the Lender notice of Borrower's Consolidated EBITDA for fiscal year 2001, no additional Working Capital Advances shall be made at any time when the aggregate amount of Working Capital Advances, Swing Line Advances, Letter of Credit Advances and the Available Amount of all Letters of Credit then outstanding is greater than $20,000,000, unless the unused portion of BofA's commitment under the BofA Loan Documents is equal to zero, and (ii) for the period beginning on March 31, 2002, or such earlier date on which the Borrower has provided notice to the Lender of its Consolidated EBITDA for fiscal year 2001, no additional Working Capital Advances shall be made at any time when the aggregate amount of Working Capital Advances, Swing Line Advances, Letter of Credit Advances and the Available Amount of all Letters of Credit then outstanding is greater than $20,000,000 unless (x) Consolidated EBITDA of the Borrower and its Subsidiaries for the fiscal year 2001 is greater than or equal to $48,925,000 or (y) the unused portion of BofA's commitment under the BofA Loan Documents is equal to zero. ". (e) Section 2.14 is hereby amended by adding to the end thereof the following: "The proceeds of the Working Capital Advances shall not be used to repay amounts borrowed under or in respect of the BofA Loan Documents, whether at scheduled maturity or otherwise.". (f) Section 5.02(b)(i) is hereby amended by deleting the word "and" at the end of clause (B) thereof, inserting the word "and" at the end of clause (C) thereof and by adding to the end thereof a new clause (D) to read as follows: "(D) Debt under the BofA Loan Documents; provided, that, the amount of Debt otherwise permitted under Section 5.02(b)(iii)(H) shall be reduced by the aggregate amount of `Loans' outstanding under the BofA Loan Documents;". (g) Section 5.02(j) is hereby amended by deleting the word "and" at the end of clause (i) thereof and replacing it with a comma, deleting the period at the end thereof and replacing it with a comma and by adding a new clause (iii) to the end thereof to read as follows: "(iii) prepayments of amounts owing under the BofA Credit Agreement in accordance with the terms thereof, provided, that, no Default has occurred or is continuing and the aggregate amount of outstanding Working Capital Advances is equal to or less than $20,000,000. ". (h) Section 5.04(a) is hereby amended by deleting the table contained therein and replacing it with the following table:
---------------------------------- ----------------------- -------------------------- (Subordinated Notes (Subordinated Notes Not Each Month During Issued) Issued) Quarter Ending In Ratio Ratio ---------------------------------- ----------------------- -------------------------- June 30, 1999 6.25 4.70 September 30, 1999 6.25 4.70 December 31, 1999 6.25 4.70 March 31, 2000 6.25 4.70 June 30, 2000 6.25 4.50 September 30, 2000 6.25 4.25 December 31, 2000 5.50 4.25 March 31, 2001 5.50 4.00 June 30, 2001 5.50 4.00 September 30, 2001 5.00 4.00 December 31, 2001 5.00 4.00 March 31, 2002 5.00 3.90 June 30, 2002 5.00 3.75 September 30, 2002 4.50 3.50 December 31, 2002 4.50 3.25 March 31, 2003 4.50 2.75 June 30, 2003 4.50 2.75 September 30, 2003 3.75 2.75 December 31, 2003 3.75 2.25 and thereafter ---------------------------------- ----------------------- --------------------------
(i) Section 5.04(b) is hereby amended by deleting the table contained therein and replacing it with the following table:
-------------------------------------- ---------------------- ----------------------- (Subordinated Notes (Subordinated Notes Issued) Not Issued) Quarter Ending In Ratio Ratio -------------------------------------- ---------------------- ----------------------- June 30, 1999 1.00 1.00 September 30, 1999 1.00 1.00 December 31, 1999 1.00 1.00 March 31, 2000 1.00 1.00 June 30, 2000 1.00 1.00 September 30, 2000 1.00 1.00 December 31, 2000 1.00 1.10 March 31, 2001 1.00 1.00 June 30, 2001 1.00 1.00 September 30, 2001 1.00 1.00 December 31, 2001 1.00 1.00 March 31, 2002 1.00 1.00 June 30, 2002 1.00 1.05 September 30, 2002 1.00 1.05 December 31, 2002 1.00 1.05 March 31, 2003 1.00 1.10 through June 30, 2005 September 30, 2005 1.00 1.00 and thereafter -------------------------------------- ---------------------- -----------------------
(j) Section 5.04(c) is hereby amended by deleting the table contained therein with the following table:
-------------------------------- ------------------------ --------------------------- (Subordinated Notes (Subordinated Notes Not Issued) Issued) Quarter Ending In Ratio Ratio -------------------------------- ------------------------ --------------------------- June 30, 1999 1.50 2.25 September 30, 1999 1.50 2.25 December 31, 1999 1.50 2.25 March 31, 2000 1.50 2.25 June 30, 2000 1.50 2.25 September 30, 2000 1.50 2.25 December 31, 2000 1.75 2.50 March 31, 2001 1.75 2.50 June 30, 2001 1.75 2.50 September 30, 2001 2.00 2.50 December 31, 2001 2.00 2.60 March 31, 2002 2.00 2.70 June 30, 2002 2.00 2.80 September 30, 2002 2.25 2.90 December 31, 2002 2.50 2.90 March 31, 2003 2.50 3.50 June 30, 2003 2.50 3.50 September 30, 2003 2.75 3.50 December 31, 2003 2.75 3.50 March 31, 2004 2.75 3.50 June 30, 2004 2.75 3.50 September 30, 2004 2.75 3.50 December 31, 2004 3.00 3.50 and thereafter -------------------------------- ------------------------ ---------------------------
(k) Section 6.01 is hereby amended by adding after the end of clause (n) thereof a new clause (o) to read as follows: "(o) any provision of the J.W. Childs Senior Bank Guaranty after delivery thereof shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on or enforceable against J.W. Childs Equity Partners II, L.P.;" SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the date first above written when, and only when: (a) the Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, Holdings and the Required Lenders or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment; (b) each Subsidiary Guarantor shall have executed a consent to this Amendment in the form attached hereto; (c) the Administrative Agent shall have received an executed copy of the J.W. Childs Senior Bank Guaranty in form and substance satisfactory to the Lender Parties. (d) each of the BofA Loan Documents shall have been executed by the parties thereto and all conditions precedent to the effectiveness thereof shall have been satisfied; (e) each Lender that executes this Amendment shall have received payment of the amendment fee referred to in Section 5(b); and (f) in addition to the foregoing, this Amendment is subject to the provisions of Section 9.01 of the Credit Agreement. SECTION 3. Representations and Warranties of the Borrower. Each of the Borrower and Holdings represents and warrants as follows: (a) the representations and warranties contained in each Loan Document are correct in all material respects on and as of the date hereof, before and after giving effect to this Amendment, as though made on and as of the date hereof, other than any such representations or warranties that by their terms, refer to a specific date, in which case, as of such specific date; (b) no Default has occurred and is continuing under the Credit Agreement, as amended hereby, or would result from this Amendment. SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by this Amendment. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or any Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. Costs, Expenses; Taxes; Fees, Etc. (a) The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. (b) Concurrently with the effectiveness of this Amendment, the Borrower shall pay to each Lender that executes this Amendment on or prior to 10:00 a.m. (New York time) on Wednesday, March 28, 2001, for its own account, an amendment fee equal to 0.25 of 1% of such Lender's Commitment as on the date hereof. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. AMERICAN SAFETY RAZOR COMPANY By /s/J. Andrew Bolt --------------------------------- Name: J. Andrew Bolt Title: Senior Vice President and Chief Financial Officer RSA HOLDINGS CORP. OF DELAWARE By /s/Adam Suttin ---------------------- Name: Adam Suttin Title: Vice President BANK OF AMERICA, N.A., as Administrative Agent and as Lender By /s/W. Larry Hess ------------------------- Name: W. Larry Hess Title: Managing Director BANC OF AMERICA SECURITIES LLC, as Co-Arranger By /s/W. Larry Hess ------------------------- Name: W. Larry Hess Title: Managing Director LENDERS BHF (USA) CAPITAL CORPORATION By /s/Christopher J. Ruzzi --------------------------- Name: Christopher J. Ruzzi Title: Vice President By /s/Lisa Moraglia -------------------- Name: Lisa Moraglia Title: Associate BLACK DIAMOND INTERNATIONAL FUNDING, LTD. By /s/David Dyer ----------------- Name: David Dyer Title: Director COMERICA BANK By /s/Marc D. Adams --------------------- Name: Marc D. Adams Title: Associate - Private Equity Group FLEET BANK N.A. By /s/Michael J. Sullivan --------------------------- Name: Michael J. Sullivan Title: Vice President KZH SOLEIL-2 LLC By /s/Kimberly Rowe ------------------------ Name: Kimberly Rowe Title: Authorized Agent KZH SOLEIL LLC By /s/Kimberly Rowe ------------------------ Name: Kimberly Rowe Title: Authorized Agent MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By /s/Sheila Finnerty ----------------------------- Name: Sheila Finnerty Title: Senior Vice President OLYMPIC FUNDING TRUST SERIES 1999-1 By /s/Ann E. Morris ------------------------ Name: Ann E. Morris Title: Authorized Agent THE PROVIDENT BANK By /s/Steve Touvelle --------------------- Name: Steve Touvelle Title: VP SRF TRADING INC. By /s/Ann E. Morris ----------------------------- Name: Ann E. Morris Title: Asst. Vice President STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By /s/James R. Fellows --------------------------------------- Name: James R. Fellows Title: Senior Vice President Stein Roe & Farnham Incorporated, as Advisor to the Stein Roe Floating Rate Limited Liability Company LIBERTY-STEINROE ADVISOR FLOATING RATE ADVANTAGE FUND, by Stein Roe & Farmham Incorporated As Advisor By /s/James R. Fellows ------------------------------ Name: James R. Fellows Title: Sr. Vice President & Portfolio Manager SRF 2000 LLC By /s/Ann E. Morris ---------------------------- Name: Ann E. Morris Title: Asst. Vice President BLACK DIAMOND CLO 2000-1 LTD. By /s/David Dyer -------------------------- Name: David Dyer Title: Director SUMMIT BANK By /s/Michael J. Sullivan --------------------------- Name: Michael J. Sullivan Title: Vice President VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By /s/Darvin D. Pierce ---------------------- Name: Darvin D. Pierce Title: Principal VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By /s/Darvin D. Pierce ---------------------- Name: Darvin D. Pierce Title: Principal VAN KAMPEN CLO I, LIMITED BY: VAN KAMPEN MANAGEMENT INC., as Collateral Manager By /s/Darvin D. Pierce ---------------------- Name: Darvin D. Pierce Title: Principal VAN KAMPEN CLO II, LIMITED BY: VAN KAMPEN MANAGEMENT INC., as Collateral Manager By /s/Darvin D. Pierce ---------------------- Name: Darvin D. Pierce Title: Principal Consent to Amendment No. 2 to ASR Credit Agreement CONSENT Dated as of March 28, 2001 Each of the undersigned corporations, as a Guarantor under the Subsidiary Guaranty dated as of April 23, 1999 (the "Guaranty") in favor of the Secured Parties under the Credit Agreement referred to in the foregoing Amendment, hereby consents to such Amendment and hereby confirms and agrees that notwithstanding the effectiveness of such Amendment, the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendment, each reference in the Guaranty to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended by such Amendment. SUBSIDIARY GUARANTORS AMERICAN SAFETY RAZOR CORPORATION By /s/J. Andrew Bolt ---------------------- Name: J. Andrew Bolt Title: Vice President RSA HOLDINGS CORP. OF DELAWARE By /s/Adam Suttin ---------------------- Name: Adam Suttin Title: Vice President PERSONNA INTERNATIONAL DE PUERTO RICO, INC. By /s/J. Andrew Bolt ---------------------- Name: J. Andrew Bolt Title: Vice President THE HEWITT SOAP COMPANY, INC. By /s/J. Andrew Bolt ---------------------- Name: J. Andrew Bolt Title: Vice President MEGAS BEAUTY CARE, INC. By /s/J. Andrew Bolt ---------------------- Name: J. Andrew Bolt Title: Vice President VALLEY PARK REALTY, INC. By /s/J. Andrew Bolt ---------------------- Name: J. Andrew Bolt Title: Vice President EX-4 3 0003.txt CREDIT AGREEMENT CREDIT AGREEMENT Dated as of March 28, 2001 AMERICAN SAFETY RAZOR COMPANY, a Delaware corporation (the "Borrower"), and BANK OF AMERICA, N.A. (together with its successors and assigns, the "Lender"), agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. Capitalized terms not otherwise defined in this Agreement shall have the same meanings as specified therefor in the Credit Agreement dated as of April 23, 1999 (as amended, supplemented or otherwise modified, the "Existing Credit Agreement") among the Borrower, RSA Holdings Corp. of Delaware, a Delaware corporation, the lender parties party thereto, DLJ Capital Funding, Inc. ("DLJ"), as syndication agent, DLJ and Banc of America Securities LLC, as successor by merger to NationsBanc Montgomery Securities LLC, as co-arrangers, and BofA, as successor by merger to NationsBank, N.A., as administrative agent and collateral agent for the lender parties thereunder. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "2001 EBITDA" means Consolidated EBITDA of the Borrower and its Subsidiaries for the fiscal year 2001 as reported to the Administrative Agent in accordance with the provisions of the Existing Credit Agreement. "Applicable Lending Office" means the Lender's Domestic Lending Office in the case of a Base Rate Loan and the Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Bank of America, N.A., in New York, New York, from time to time, as its prime rate; and (b) 0.50% per annum above the Federal Funds Rate. "Base Rate Loan" means a Loan that bears interest as provided in Section 2.06(a)(i). "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Loans, on which dealings are carried on in the London interbank market. "Commitment" has the meaning specified in Section 2.01. "Convert", "Conversion" and "Converted" each refers to a conversion of Loans of one Type into Loans of the other Type pursuant to Section 2.07 or 2.08. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Domestic Lending Office" means the office of the Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto, or such other office of the Lender as the Lender may from time to time specify to the Borrower. "Effective Date" has the meaning specified in Section 3.01. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means the office of the Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto, or such other office of the Lender as the Lender may from time to time specify to the Borrower. "Eurodollar Rate" means, for any Interest Period for a Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum appearing on page 3750 (or any successor page) of the Dow Jones Markets Telerate Screen as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period and for a term comparable to such Interest Period; provided that, if for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period for a Eurodollar Rate Loan, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a term comparable to such Interest Period (and, if more than one rate is specified on Reuters Screen LIBO Page at such time, the applicable rate shall be the arithmetic mean of all such rates), by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "Eurodollar Rate Loan" means a Loan that bears interest as provided in Section 2.06(a)(ii). "Eurodollar Rate Reserve Percentage" means, for any Interest Period for a Eurodollar Rate Loan, the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined) having a term equal to such Interest Period. "Event of Default" has the meaning specified in Section 5.01. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by it. "Guarantor" means J.W. Childs Equity Partners II, L.P., a Delaware limited partnership. "Guaranty" has the meaning specified in Section 3.01(e)(ii). "Indemnified Party" has the meaning specified in Section 6.04(b). "Interest Period" means, for each Eurodollar Rate Loan, the period commencing on the date of such Eurodollar Rate Loan or the date of the Conversion of any Base Rate Loan into such Eurodollar Rate Loan and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one week or one, two, three or six months, as the Borrower may, upon notice received by the Lender not later than 12:00 Noon (New York time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period that ends after the Termination Date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (c) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. . "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Loan" means a Loan by the Lender to the Borrower pursuant to Article II, and refers to a Base Rate Loan or a Eurodollar Rate Loan (each of which shall be a "Type" of Loan). "BofA Loan Documents" means, collectively, this Agreement, the Note and the Guaranty. "BofA Loan Material Adverse Effect" means (a) a Material Adverse Effect or (b) a material adverse effect on (i) the assets, business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or the Guarantor, (ii) the rights and remedies of the Lender under any BofA Loan Document or (iii) the ability of any BofA Loan Party to perform its Obligations under any BofA Loan Document to which it is or is to be a party. "BofA Loan Parties" means the Borrower and the Guarantor. "Note" means a promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to the Lender resulting from the Loans made by the Lender hereunder. "Notice of Loan" has the meaning specified in Section 2.02. "Other Taxes" has the meaning specified in Section 2.12(b). "Taxes" has the meaning specified in Section 2.12(a). "Termination Date" means the earlier of (a) March 31, 2003 and (b) the date of termination in whole of the Commitment pursuant to Section 2.04 or 5.01. SECTION 1.02. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". ARTICLE II AMOUNTS AND TERMS OF THE LOANS SECTION 2.01. The Loans. The Lender agrees, on the terms and conditions hereinafter set forth, to make Loans to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed $5,000,000 (the "Commitment"); provided, however, that after March 31, 2002, or such earlier date on which the Borrower has provided to the Lender notice of Borrower's Consolidated EBITDA for fiscal year 2001, the Lender shall only make Loans to the Borrower hereunder if either (i) 2001 EBITDA is less than $48,925,000 or (ii) the aggregate amount of the Unused Working Capital Commitments under the Existing Credit Agreement is equal to zero. Each Loan shall be in a minimum amount of $250,000 or an integral multiple of $50,000 in excess thereof. Within the limits of the Commitment, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09 and reborrow under this Section 2.01. SECTION 2.02. Making the Loans. (a) Each Loan shall be made on notice, given not later than 12:00 Noon (New York time) on the third Business Day prior to the date of the proposed Loan in the case of a Eurodollar Rate Loan, or the first Business Day prior to the date of the proposed Loan in the case of a Base Rate Loan, by the Borrower to the Lender. Each such notice of a Loan (a "Notice of Loan") shall be by telephone, confirmed immediately in writing, or telecopier or telex, specifying therein the requested (i) date of such Loan, (ii) Type of such Loan, (iii) aggregate amount of such Loan, and (iv) in the case of a Eurodollar Rate Loan, initial Interest Period for such Loan. Upon fulfillment of the applicable conditions set forth in Article III, the Lender will make such funds available to the Borrower at its Applicable Lending Office. ` (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Loans for any Loan if the amount of such Loan is less than $250,000 or if the obligation of the Lender to make Eurodollar Rate Loans shall then be suspended pursuant to Section 2.07 or 2.10(c) and (ii) no more than five separate Eurodollar Rate Loans may be outstanding at any time. (c) Each Notice of Loan shall be irrevocable and binding on the Borrower. In the case of any Loan that the related Notice of Loan specifies it to be a Eurodollar Rate Loan, the Borrower shall indemnify the Lender against any loss, cost or expense incurred by the Lender as a result of any failure to fulfill on or before the date specified in the Notice of Loan for such Loan the applicable conditions set forth in Article III and if, as a result of such failure, the related Loan is not made on such date, the Borrower will pay to the Lender an amount equal to the present value (calculated in accordance with this Section 2.02(c)) of interest for the Interest Period specified in such Notice of Loan on the amount of such Loan, at a rate per annum equal to the excess of (a) the Eurodollar Rate that would have been in effect for such Interest Period over (b) the Eurodollar Rate applicable on the date of determination to a deemed Interest Period ending on the last day of such Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the Interest Period specified in such Notice of Loan from such day to the date of such repayment or termination at an interest rate per annum equal to the interest rate determined pursuant to the immediately preceding sentence, and by adding all such amounts for all such days during such period. The determination by the Lender of such amount of interest shall be conclusive and binding, absent manifest error. SECTION 2.03. Commitment Fee. The Borrower agrees to pay to the Lender a commitment fee on the average daily unused portion of the Commitment at a rate per annum equal to 0.375%, payable in arrears quarterly on the last Business Day of each March, June, September and December, commencing March 31, 2001, and on the Termination Date. SECTION 2.04. Termination or Reduction of the Commitments. Subject to the approval of the Required Lenders, the Borrower shall have the right, upon at least five Business Days' notice to the Lender, to terminate in whole or reduce in part the unused portion of the Commitment, provided that each partial reduction shall be in the minimum amount of $250,000 or an integral multiple of a $50,000 in excess thereof. SECTION 2.05. Repayment. The Borrower shall repay to the Lender on the Termination Date the aggregate principal amount of the Loans then outstanding. SECTION 2.06. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Loans. During such periods as such Loan is a Base Rate Loan, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time minus (y) 0.50% per annum, payable in arrears quarterly on the last Business Day of each March, June, September and June during such periods and on the date such Base Rate Loan shall be Converted or paid in full. (ii) Eurodollar Rate Loans. During such periods as such Loan is a Eurodollar Rate Loan, a rate per annum equal at all times during each Interest Period for such Loan to the sum of (x) the Eurodollar Rate for such Interest Period for such Loan plus (y) 1.75% per annum, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Loan shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of a Default under paragraph (a) or (f) of Article V, the Borrower shall pay interest on (i) the unpaid principal amount of each Loan, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Loan pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Loan on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above, and, in all other cases, on Base Rate Loans pursuant to clause (a)(i) above. SECTION 2.07. Interest Rate Determination. (a) The Lender shall give prompt notice to the Borrower of the applicable interest rate determined by the Lender for purposes of Section 2.06(a)(i) or (ii). (b) If, with respect to any Eurodollar Rate Loans, the Lender determines that the Eurodollar Rate for any Interest Period for such Loans will not adequately reflect the cost to the Lender of making, funding or maintaining the Eurodollar Rate Loans for such Interest Period, the Lender shall forthwith so notify the Borrower, whereupon (i) each such Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Loan, and (ii) the obligation of the Lender to make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended until the Lender shall notify the Borrower that the circumstances causing such suspension no longer exist. (c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Loans in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Lender will forthwith so notify the Borrower and such Loans will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Loans. (d) On the date on which the unpaid principal amount of any Eurodollar Rate Loan shall be reduced, by payment or prepayment or otherwise, to less than $250,000, such Loans shall automatically Convert into Base Rate Loans. (e) Upon the occurrence and during the continuance of any Default under Section 5.01(a) or 5.01(f) or any Event of Default, (i) each Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Loan and (ii) the obligation of the Lender to make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended. SECTION 2.08. Optional Conversion of Loans. The Borrower may on any Business Day, upon notice given to the Lender not later than 12:00 Noon (New York time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10(c), Convert any Loan of one Type into a Loan of the other Type; provided, however, that any Conversion of a Eurodollar Rate Loan into a Base Rate Loan shall be made only on the last day of the Interest Period for such Eurodollar Rate Loan then in effect, any Conversion of a Base Rate Loan into a Eurodollar Rate Loan shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Loan shall result in more separate Loans than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Loan to be Converted, and (iii) if such Conversion is into a Eurodollar Rate Loan, the duration of the initial Interest Period for such Loan. Each notice of Conversion shall be irrevocable and binding on the Borrower. SECTION 2.09. Optional Prepayments. The Borrower may, upon at least one Business Day's notice in the case of Base Rate Loans and three Business Days' notice in the case of Eurodollar Rate Loans, in each case to the Lender received not later than 12:00 Noon (New York time) stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Loans in whole or in part, together with accrued interest to the date of such prepayment on the aggregate principal amount so prepaid; provided, however, that (x) each partial prepayment shall be in a minimum aggregate principal amount of $250,000 or an integral multiple of $50,000 in excess thereof and (y) if any prepayment of a Eurodollar Rate Loan shall be made other than on the last day of an Interest Period therefor, the Borrower shall also pay any amounts owing pursuant to Section 6.04(c); provided, further, that no prepayment shall be permitted to be made pursuant to this Section 2.09 at any time when the aggregate amount of outstanding Working Capital Advances under the Existing Credit Agreement is in excess of $20,000,000. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to the Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Loans (excluding for purposes of this Section 2.10 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which the Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, upon demand by the Lender, pay to the Lender additional amounts sufficient to compensate the Lender for such increased cost; provided, however, that the Borrower shall not be responsible for costs under this Section 2.10(a) arising more than 90 days prior to receipt by the Borrower of the certificate from the Lender pursuant to this Section 2.10(a) with respect to such costs; and provided further that the Lender claiming additional amounts under this Section 2.10(a) agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost that may thereafter accrue and would not, in the reasonable judgment of the Lender, be otherwise disadvantageous to the Lender. A certificate as to the amount of such increased cost (together with a schedule setting forth in reasonable detail the calculation thereof) submitted to the Borrower by the Lender, shall be conclusive and binding for all purposes, absent manifest error. In determining such amount, the Lender may use any reasonable averaging and attribution methods. (b) If the Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender and that the amount of such capital is increased by or based upon the existence of the Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by the Lender, the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender or such corporation in the light of such circumstances, to the extent that the Lender reasonably determines such increase in capital to be allocable to the existence of the Lender's commitment to lend hereunder; provided, however, that the Borrower shall not be responsible for costs under this Section 2.10(b) arising more than 90 days prior to receipt by the Borrower of the certificate from the Lender pursuant to this Section 2.10(b) with respect to such costs. A certificate as to such amounts (together with a schedule setting forth in reasonable detail the calculation thereof) submitted to the Borrower by the Lender shall be conclusive and binding for all purposes, absent manifest error. In determining such amount, the Lender may use any reasonable averaging and attribution methods. (c) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for the Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then, on notice thereof and demand therefor by the Lender to the Borrower, (i) each Eurodollar Rate Loan will automatically, upon such demand, Convert into a Base Rate Loan and (ii) the obligation of the Lender to make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended until the Lender shall notify the Borrower that the Lender has determined that the circumstances causing such suspension no longer exist; provided, however, that, before making any such demand, the Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow the Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans and would not, in the judgment of the Lender, be otherwise disadvantageous to the Lender. SECTION 2.11. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Note, irrespective of any right of counterclaim or set-off, not later than 12:00 Noon (New York time) on the day when due in U.S. dollars to the Lender for the account of its Applicable Lending Office, in same day funds. (b) The Borrower hereby authorizes the Lender, if and to the extent payment owed to the Lender is not made when due hereunder or under the Note, to charge from time to time against any or all of the Borrower's accounts with the Lender any amount so due. The Lender hereby agrees to notify the Borrower promptly after any such setoff and application shall be made by the Lender; provided, however, that the failure to give such notice shall not affect the validity of such charge. (c) All computations of interest and fees shall be made by the Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fees, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. SECTION 2.12. Taxes. (a) Any and all payments by the Borrower hereunder or under the Note shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of the Lender, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which the Lender is organized or any political subdivision thereof and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of the Lender's Applicable Lending Office or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder and under the Note being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Note to the Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.12) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other governmental authority in accordance with applicable law. (b) In addition, the Borrower hereby agrees to pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Note or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Note (hereinafter referred to as "Other Taxes"). (c) The Borrower shall indemnify the Lender for and hold it harmless against the full amount of Taxes and Other Taxes, and the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by the Lender and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date on which the Lender makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Lender, at its address referred to in Section 6.02, the original or a certified copy of a receipt evidencing such payment, to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Lender. In the case of any payment hereunder or under the Note by or on behalf of the Borrower through an account or branch outside the United States or by or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Lender, at its address referred to in Section 6.02, an opinion of counsel acceptable to the Lender stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e) of this Section 2.14, the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. SECTION 2.13. Use of Proceeds. The proceeds of the Loans shall be available (and the Borrower agrees that it shall use such proceeds) solely to provide working capital from time to time to the Borrower and its Subsidiaries. ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01. Section 2.01 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) The Lender shall have received a true and complete copy of Amendment No. 2 to the Existing Credit Agreement dated as of March 28, 2001. All of the conditions precedent to the effectiveness of such Amendment No. 2 shall have been satisfied or shall be satisfied concurrently with the effectiveness of this Agreement. (b) All governmental and third party consents and approvals necessary in connection with any BofA Loan Document or any of the transactions contemplated thereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Lender that restrains, prevents or imposes materially adverse conditions upon any BofA Loan Document or any of the transactions contemplated thereby. (c) The Borrower shall have paid all accrued fees and expenses of the Lender (including the accrued fees and expenses of counsel to the Lender). (d) On the Effective Date, the following statements shall be true and the Lender shall have received a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating that: (i) The representations and warranties contained in, and incorporated by reference from the Existing Credit Agreement into, this Agreement and the other BofA Loan Documents are correct in all material respects on and as of the Effective Date (except for any such representation and warranty that, by its terms, refers to a specific date other than the Effective Date, in which case as of such specific date), and (ii) No event has occurred and is continuing that constitutes a Default. (e) The Lender shall have received on or before the Effective Date the following, each dated such day and in form and substance satisfactory to the Lender: (i) The Note to the order of the Lender. (ii) A guaranty in favor of the Lender (as amended, supplemented or other wise modified from time to time in accordance with its terms, the "Guaranty"), duly executed by the Guarantor. (iii) Certified copies of the resolutions of the Board of Directors of the Borrower and of the Guarantor approving this Agreement, the Note and the Guaranty, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Note and the Guaranty. (iv) A certificate of the Secretary or an Assistant Secretary of each of the Borrower and the Guarantor certifying the names and true signatures of the officers of the Borrower or the Guarantor, as the case may be, authorized to sign the BofA Loan Documents to which it is or is to be a party and the other documents to be delivered in connection herewith. (v) A favorable opinion of Simpson, Thacher & Bartlett, counsel for the Guarantor and Holdings and its Subsidiaries. (f) The Lender shall have received a schedule of the Guarantor's Unencumbered Liquid Assets (defined in the Guaranty) as of March 27, 2001, prepared in such a form and detail as is acceptable to the Lender. SECTION 3.02. Conditions Precedent to Each Loan. The obligation of the Lender to make a Loan shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Loan (a) the following statements shall be true (and each of the giving of the applicable Notice of Loan and the acceptance by the Borrower of the proceeds of such Loan shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Loan such statements are true): (i) the representations and warranties contained in, and incorporated by reference from the Existing Credit Agreement into, this Agreement and the other BofA Loan Documents are correct in all material respects on and as of the date of such Loan, before and after giving effect to such Loan and to the application of the proceeds therefrom, as though made on and as of such date (except for any such representation and warranty that, by its terms, refers to a specific date other than date of such Loan, in which case as of such specific date), and (ii) no event has occurred and is continuing, or would result from such Loan or from the application of the proceeds therefrom, that constitutes a Default; and (b) the Lender shall have received (i) a certificate of the Guarantor, signed by a duly authorized officer thereof, certifying that the Guarantor is in compliance with the requirements of Section 7(d) of the Guaranty, and (ii) such other approvals, opinions or documents as the it shall have reasonably requested. ARTICLE IV INCORPORATION BY REFERENCE SECTION 4. 01 Incorporation by Reference. (a) All of the representations and warranties and covenants of the Existing Credit Agreement (including, without limitation, all defined terms used therein and exhibits and schedules to the Existing Credit Agreement referred to therein) are specifically incorporated herein by reference with the same force and effect as if the same were set out in this Agreement in full. Except as otherwise provided herein: (i) all references in such incorporated provisions to the "Administrative Agent" (other than in Sections 5.01(m) and (o)), a "Lender Party", the "Lender Parties" (other than in Section 5.01(o)), a "Lender" or the "Lenders" or words of similar import , to "this Agreement", "hereof", "hereto" or "hereunder" or words of similar import or to a "Note" or the "Notes", "thereof", "thereto" or "thereunder" or words of similar import shall, without further reference, mean and refer to the Lender under this Agreement, to this Agreement and to the Note, respectively; (ii) all references in such incorporated provisions to the "Borrower" or to "Material Adverse Effect" shall, without further reference, mean and refer to the Borrower hereunder and to BofA Loan Material Adverse Effect, respectively; (iii) for purposes of the representations and warranties in Sections 4.01(a), (b), (c), (d), (e), (i), (j), (k), (l) and (m) of the Existing Credit Agreement, all references in such incorporated provisions to a "Loan Party" or words of similar import, to a "Loan Document", the "Loan Documents", "thereof", "thereto" or "thereunder" or words of similar import or to an "Advance", the "Advances", a "Borrowing" or the "Borrowing" or words of similar import shall, without further reference, mean and refer to a BofA Loan Party, to a BofA Loan Document or the BofA Loan Documents, as appropriate, and to a Loan or the Loans, as appropriate, respectively; (iv) for purposes of the first sentence of each of Sections 5.01, 5.02, 5.03 and 5.04, all references in such incorporated provisions to an "Advance", a "Letter of Credit" or words of similar import or to a "Commitment" or words of similar import shall, without further reference, mean and refer to a Loan or the Commitment hereunder, respectively; and (v) except as otherwise provided in subclauses (i), (ii), (iii) and (iv) above, the defined terms used in the incorporated provisions shall have the meanings ascribed thereto in the Existing Credit Agreement. Similarly, to the extent any word or phrase is defined in this Agreement, any such word or phrase appearing in any of the provisions so incorporated by reference from the Existing Credit Agreement shall have the meaning given to it in this Agreement. The incorporation by reference into this Agreement of certain of the terms and provisions of the Existing Credit Agreement is for convenience only, and this Agreement and the Existing Credit Agreement shall at all times be, and be deemed to be and be treated as, separate and distinct loan obligations. The incorporation by reference into this Agreement of certain of the terms and provisions of the Existing Credit Agreement shall not be affected or impaired by any subsequent expiration or termination of the Existing Credit Agreement. (b) The Borrower, by its execution of this Agreement, hereby agrees to amend and restate this Agreement at the request of the Lender to set forth in full the provisions incorporated by reference herein from the Existing Credit Agreement and to modify the terms and provisions of this Agreement, as appropriate, to provide for the inclusion of additional lenders upon any assignment or proposed assignment by the Lender of its rights and obligations hereunder effected in accordance with Section 6.07. In addition, the Borrower hereby agrees to notify the Lender promptly and in any event within three Business Days of any amendment, supplement or other modification to the Existing Credit Agreement and, at the request of the Lender, to enter into any amendment or supplement to this Agreement proposed by the Lender to incorporate comparable amendments, supplements or other modifications to this Agreement. ARTICLE V EVENTS OF DEFAULT SECTION 5.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) the Borrower shall fail to pay any principal of any Loan when the same shall become due and payable or (ii) the Borrower shall fail to pay any interest on any Loan, or any BofA Loan Party shall fail to make any other payment under any BofA Loan Document, in each case under this clause (ii) within three Business Days after the same becomes due and payable; or (b) any representation or warranty made by any BofA Loan Party or any Loan Party (or any of their respective officers) under (or incorporated by reference into) or in connection with any BofA Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) the Borrower or Holdings, as the case may be, shall fail to perform or observe any term, covenant or agreement contained in Section 2.13 herein or Section 5.01(e), 5.01(m), 5.01(p) or 5.01(q), 5.02 or 5.04 of the Existing Credit Agreement, as incorporated by reference herein pursuant to Section 4.01, or (ii) the Guarantor shall fail to perform or observe any term, covenant or agreement contained in the Guaranty; or (d) the Borrower or Holdings shall fail to perform any other term, covenant or agreement contained in any BofA Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days; or (e) (i) any BofA Loan Party or Holdings or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of one or more items of Debt of the BofA Loan Parties and Holdings and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding in an aggregate principal or notional amount of at least $5,000,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreements or instruments relating to all such Debt; or (ii) any other event shall occur or condition shall exist under the agreements or instruments relating to one or more items of Debt of the BofA Loan Parties and Holdings and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding in an aggregate principal or notional amount of at least $5,000,000, and such other event or condition shall continue after the applicable grace period, if any, specified in all such agreements or instruments, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or (iii) one or more items of Debt of the BofA Loan Parties and Holdings and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding in an aggregate principal or notional amount of at least $5,000,000 shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled or required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) any BofA Loan Party, Holdings or any of the Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any BofA Loan Party, Holdings or any of the Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 45 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any BofA Loan Party, Holdings or any of the Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) one or more judgments or orders for the payment of money in excess of $5,000,000 shall be rendered against, any BofA Loan Party, Holdings or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (ii) there shall be any period of at least thirty consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment, order or payment shall be disregarded for the purposes of this Section 5.01(g) to the extent that (A) the amount of such judgment, order or payment is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and, in the case of such judgment, order or payment, has not disputed the claim made for payment, of the amount of such judgment or order or payment; or (h) (i) any provision of any BofA Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any BofA Loan Party intended to be a party to it, or any such BofA Loan Party shall so state in writing, or (ii) any provision of any Loan Document after delivery thereof pursuant to Section 3.01, 5.01(m) or 5.01(q) of the Existing Credit Agreement shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on or enforceable against any Loan Party intended to be a party to it, or any such Loan Party shall so state in writing; or (j) a Change of Control shall occur; or (k) any ERISA Event shall have occurred with respect to a Plan and the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Guarantor, the Loan Parties and the ERISA Affiliates related to such ERISA Event) exceeds $5,000,000; or (l) the Guarantor, any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Guarantor, the Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $5,000,000; or (m) the Guarantor, any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Guarantor, the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs by an amount exceeding $5,000,000; then, and in any such event, the Lender (i) may, by notice to the Borrower, declare the Commitment and the obligation of the Lender to make Loans to be terminated, whereupon the same shall forthwith terminate, and (ii) may, by notice to the Borrower, declare the Note, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitment and the obligation of the Lender to make Loans shall automatically be terminated and (B) the Note, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VI MISCELLANEOUS SECTION 6.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Note, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 6.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Borrower, at its address at 240 Cedar Knolls Road, Cedar Knolls, New Jersey 07927. Attention: Andrew Bolt; if to the Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; or in the case of each party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when mailed, telecopied or telegraphed be effective when deposited in the mails, telecopied or delivered to the telegraph company, respectively, except that notices and communications to the Lender pursuant to Article II or III shall not be effective until received by the Lender. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or any other BofA Loan Document to be executed and delivered hereunder shall be effective as delivery of an originally executed counterpart thereof. SECTION 6.03. No Waiver; Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 6.04. Costs and Expenses. (a) The Borrower agrees to pay on demand (i) all costs and expenses of the Lender in connection with the preparation, execution, delivery, administration, modification and amendment of the BofA Loan Documents and the other documents to be delivered hereunder and thereunder (including, without limitation, (A) all due diligence, transportation, computer, duplication, consultant and audit expenses and (B) the reasonable fees and expenses of counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under the BofA Loan Documents) and (ii) all costs and expenses of the Lender in connection with the enforcement of the BofA Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar preceding affecting creditor's rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Lenders with respect thereto. The Borrower further agrees to pay on demand all costs and expenses of the Lender, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this the BofA Loan Documents and the other documents to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and expenses of counsel for the Lender in connection with the enforcement of rights under this Section 6.04(a). (b) The Borrower agrees to indemnify and hold harmless the Lender and each of its Affiliates and its officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) BofA Loan Documents, any of the transactions contemplated herein or therein or the actual or proposed use of the proceeds of the Loans or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 6.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any BofA Loan Party, any Loan Party, its directors, shareholders or creditors or an Indemnified Party, or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against the Lender, any of its affiliates, or any of its directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to BofA Loan Documents, any of the transactions contemplated herein or therein or the actual or proposed use of the proceeds of the Loans. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Loan is made by the Borrower to or for the account of the Lender other than on the last day of the Interest Period for such Loan, as a result of a payment or Conversion pursuant to Section 2.07(d) or (e), 2.09 or 2.10(c), acceleration of the maturity of the Note pursuant to Section 5.01 or for any other reason, the Borrower shall pay to the Lender an amount equal to the present value (calculated in accordance with this Section 6.04(c)) of interest for the remaining portion of the relevant Interest Period on the amount of such Loan, at a rate per annum equal to the excess of (i) the Eurodollar Rate that would have been in effect for such Interest Period over (ii) the Eurodollar Rate applicable on the date of determination to a deemed Interest Period ending on the last day of such Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the relevant Interest Period from such day to the date of such repayment or termination at an interest rate per annum equal to the interest rate determined pursuant to the immediately preceding sentence, and by adding all such amounts for all such days during such period. The determination by the Lender of such amount of interest shall be conclusive and binding, absent manifest error. (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.10, 2.12 and 6.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Note. SECTION 6.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request by or the actions of the Lender specified by Section 5.01 to declare the Note due and payable pursuant to the provisions of Section 5.01, the Lender and each of its affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender or such affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by the Lender, whether or not the Lender shall have made any demand under this Agreement or the Note and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender and its affiliates under this Section 6.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Lender and its affiliates may have. SECTION 6.06. Binding Effect. This Agreement shall become effective (other than Section 2.01, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Lender and, thereafter, shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender. SECTION 6.07. Assignments and Participations. (a) The Lender may assign to one or more Persons reasonably satisfactory to the Borrower all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Loans owing to it and the Note held by it). In connection with any such assignment, the Borrower agrees to execute and deliver such documentation as the Lender or any such permitted assignee may reasonably request to evidence such assignment and the rights and obligations of such assignee hereunder. (b) The Lender may sell participations to one or more banks or other entities (other than any BofA Loan Party or any of its affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Loans owing to it and the Note held by it); provided, however, that (i) the Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Lender shall remain the holder of the Note for all purposes of this Agreement, (iv) the Borrower, shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or the Note, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Note or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (c) The Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 6.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to any BofA Loan Party or any Loan Party furnished to the Lender by or on behalf of the Borrower. (d) Notwithstanding any other provision set forth in this Agreement, the Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Loans owing to it and the Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 6.08. Governing Law. This Agreement and the Note shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 6.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 6.10. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, the Note or the Guaranty, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Note in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, the Note or the Guaranty in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 6.11. Waiver of Jury Trial. Each of the Borrower and the Lender hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or any other BofA Loan Document, the Loans or the actions of the Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. AMERICAN SAFETY RAZOR COMPANY By /s/J. Andrew Bolt ----------------------------------- Name: J. Andrew Bolt Title: Senior Vice President and Chief Financial Officer BANK OF AMERICA, N.A. By /s/W. Larry Hess --------------------------- Name: W. Larry Hess Title: Managing Director SCHEDULE I APPLICABLE LENDING OFFICES Name of Lender BANK OF AMERICA, N.A. Domestic Lending Office: Credit: Administrative: Eurodollar Lending Office: Credit: Administrative: U.S.$5,000,000 Dated March 28, 2001 FOR VALUE RECEIVED, the undersigned, AMERICAN SAFETY RAZOR COMPANY, a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of BANK OF AMERICA, N.A. (the "Lender") for the account of its Applicable Lending Office on the Termination Date (each as defined in the Credit Agreement referred to below) the principal sum of U.S.$5,000,000 or, if less, the aggregate principal amount of the Loans made by the Lender to the Borrower pursuant to the Credit Agreement dated as of March 28, 2001 between the Borrower and the Lender (as amended or modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined) outstanding on the Termination Date. The Borrower promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to the Lender in same day funds. Each Loan owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note. This Promissory Note is the Note referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of Loans by the Lender to the Borrower from time to time during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Loan being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. AMERICAN SAFETY RAZOR COMPANY By /s/J. Andrew Bolt --------------------------------- Name: J. Andrew Bolt Title: Senior Vice President and Chief Financial Officer LOANS AND PAYMENTS OF PRINCIPAL ============ =============== ================== ================== ============ Amount of Amount of Principal Paid Unpaid Principal Notation Date Loan or Prepaid Balance Made By - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ - ------------ --------------- ------------------ ------------------ ------------ ============ =============== ================== ================== ============ EX-10 4 0004.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (James D. Murphy) THIS AGREEMENT (this "Agreement") is entered into as of this 9th day of August, 1999 by and between James D. Murphy (the "Executive") and American Safety Razor Company, a Delaware corporation (the "Company"). WHEREAS, the Company has entered into an Agreement and Plan of Merger, dated as of February 12, 1999, by and among the Company, RSA Holdings Corp. of Delaware ("Holdings"), and RSA Acquisition Corp. ("Acquisition") which contemplates the Merger of Acquisition with and into the Company (the "Merger") and is to be capitalized as of the closing of such Merger; and WHEREAS, the Company desires to obtain the benefit of the experience, supervision and services of the Executive in connection with the Merger and thereafter and desires to employ the Executive upon the terms and conditions hereinafter set forth, and the Executive is willing and able to accept such employment on such terms and conditions. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: 1. Employment Duties. From and after the date of the Merger, the Company shall employ the Executive, and the Executive agrees to serve and accept employment, for the Term (as hereinafter defined), as President and Chief Executive Officer of the Company, subject to the direction and control of the Board of Directors of the Company (the "Board"), and, in connection therewith, to reside in the United States and to oversee and direct the operations of the Company and to perform such other duties consistent with the responsibilities of a President and Chief Executive Officer. During the Term, the Executive shall devote all of his time, energy, experience and talents during regular business hours, and as otherwise reasonably necessary, to such employment, shall devote his best efforts to advance the interests of the Company and shall not engage in any other business activities of a material nature, as an employee, director, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of the Board. 2. Term of Employment. The Term of the Executive's employment hereunder shall commence on the date of the Merger and continue until December 31, 2003 (the "Term"), unless sooner terminated pursuant to this Agreement. 3. Compensation; Reimbursement. Commencing on the date of the Merger, the Company shall pay or provide to the Executive as follows, in full satisfaction for his services provided pursuant hereto: (a) Base Salary. A base salary payable in equal monthly installments at the rate of $400,000 per annum during the Term ("Base Salary"). The Board will annually review the Base Salary payable to the Executive hereunder beginning in 2000. Necessary withholding taxes, FICA contributions and the like shall be deducted from such Base Salary. (b) Cash Bonus. For each fiscal year a cash bonus pool will be established for the Executive if the Company achieves (as determined by the Board) 90% or more of the EBITDA target for such year as set forth in the Company's annual budget as approved by the Board (the "Annual EBITDA Target"). Such bonus pool will equal 0% of Executive's Base Salary if the Company has achieved 90% of the Annual EBITDA Target for such year and will increase on a linear basis to 75% of Executives Base Salary (the "Plan Bonus") if the company has achieved 100% of the Annual EBITDA Target. If the Company achieves in excess of 100% of the Annual EBITDA Target, the Plan Bonus will be increased by 3.5% for each 1.0% of performance above the Annual EBITDA Target (e.g. if 110% of the Annual EBITDA Target is achieved, the bonus pool will equal 101.25% of Executives Base Salary. For each fiscal year, two-thirds of such cash bonus pool, calculated as aforesaid, shall be paid to the Executive as bonus compensation. Payment of the remaining one-third shall be subject to the discretion of the Compensation Committee of the Board based on the Company's having achieved certain pre-set operating objectives for each such fiscal year. (c) Perquisites. The Company shall lease, for the benefit and use of the Executive, an automobile of the Executive's choice, with all insurance and other expenses relating thereto, the cost thereof in the range of $800 per month. (d) Benefits. Such health, life, disability, vacation, pension, sick leave and other benefits as are generally made available by the Company to its executive employees. (e) Stock Options. In addition to the compensation payable to the Executive as set forth hereinabove, the Executive shall be entitled to receive certain stock options pursuant to one or more executive or employee stock option plans to be adopted by Holdings. 4. Termination. Unless this Agreement terminates at the expiration of the Term, this Agreement may be terminated as follows: 4.1 Upon Death. If the Executive dies during the Term, this Agreement shall automatically terminate as of the close of business on the date of his death, and the Executive's legal representatives shall be entitled to receive, and the Company shall pay or cause to be paid, the Executive's Base Salary in monthly installments for one year following such termination. 4.2 Upon Disability. If during the Term the Executive shall become physically or mentally disabled, whether totally or partially, either permanently or so that the Executive is unable substantially and competently to perform his duties hereunder for a period of ninety (90) consecutive days or for ninety (90) days during any six (6) month period during the Term, the Company may terminate the Executive's employment hereunder. In the case of such termination, the Company shall (i) pay to the Executive the Executive's Base Salary in monthly installments for one year following such termination, and (ii) provide health insurance coverage to the Executive and his covered dependents for one year from the date thereof. 4.3 For Cause. This Agreement may be terminated at any time by the Company, effective immediately upon written notice to the Executive and a reasonable opportunity to cure (except in the case of matters which the Board of Directors determines in good faith are not able to be cured), for Cause and all of the Executive's rights to payments (other than payment for services already rendered) and any other benefits otherwise due hereunder shall cease immediately. The Company shall have "Cause" for termination of the Executive if any of the following has occurred: (a) Executive's continued failure, whether willful, intentional or negligent, after written notice to perform substantially his duties hereunder (other than as a result of a Disability); (b) dishonesty in the performance of Executive's duties hereunder; (c) an act or acts on Executive's part constituting a felony under the laws of the United States or any state thereof; (d) any other willful act or omission on Executive's part which is materially injurious to the financial condition or business reputation of the Company or any of its subsidiaries; or (e) the Executive has breached any provision or covenant contained in this Agreement, including, without limitation, the covenants contained in Section 5 hereof. 4.4 Without Cause. The Company shall have the right to terminate the employment of the Executive without Cause at any time upon thirty (30) days' written notice, and upon such termination the Executive shall have the right to receive (i) the Executive's Base Salary in monthly installments for one year following Executive's termination, and (ii) health insurance coverage for himself and his covered dependents for one year from the date of termination. Notwithstanding the foregoing, if during the period in which benefits continue according to the preceding sentence, the Executive finds other employment, the continuation of his health insurance coverage hereunder shall cease if his subsequent employer provides such coverage. It is further acknowledged and agreed by the parties that the actual damages to the Executive in the event of termination under this Section 4.4 would be difficult if not impossible to ascertain, and, therefore, the parties agree that the salary and benefit continuation provisions set forth hereinabove shall be the Executive's sole and exclusive remedy in the case of termination under this Section 4.4 and shall, as liquidated damages or severance pay or both, be considered for all purposes in lieu of any other rights or remedies, at law or in equity, which the Executive may have in the case of such termination. It is acknowledged and agreed that termination of this Agreement upon expiration of the Term hereof shall not be deemed to constitute a termination without Cause for purposes of this Agreement, any other agreement to which the Company and the Executive are parties, or for any other purpose. 4.5 Resignation Without Good Reason. The Executive shall have the right to terminate this Agreement upon sixty (60) days' written notice to the Company, and upon such termination all of the Executive's rights to payment (other than payment for services already rendered) and any other benefits otherwise due hereunder shall cease immediately. 4.6 Resignation For Good Reason. The Executive shall have the right to terminate this Agreement at any time, effective upon thirty (30) days' written notice to the Company, for Good Reason, and upon such termination, the Executive shall have the right to receive from the Company the Executive's Base Salary in monthly installments for one year and health care coverage for himself and his covered dependents for one year from the date of termination. Notwithstanding the foregoing, if within such one-year period after termination, the Executive finds other employment, (i) his Base Salary due for the one-year period after termination shall be reduced by the amount of his base compensation in his new employment, and (ii) the continuation of his health insurance coverage hereunder shall cease. The Executive shall have "Good Reason" for termination of this Agreement if, other than for Cause, any of the following has occurred: (a) the Executive's Base Salary or Cash Bonus opportunity as defined in Section 3b have been reduced other than in connection with an across-the-board reduction of executive compensation imposed by the Board of Directors in response to negative financial results or other adverse circumstances affecting the Company; (b) the Company has reduced or reassigned, in any material respect, the duties of the Executive hereunder as President and Chief Executive Officer; or (c) the Company changes the place of employment of the Executive to a location which is over fifty miles from Cedar Knolls, NJ. 4.7 Termination upon Change of Control. Notwithstanding any provision in this Agreement to the contrary, if the Executive is terminated by the Company without Cause upon a Change in Control (as hereinafter defined), then the provisions of this Section 4.7 shall apply and the Executive shall not receive any payments or benefits, except as provided herein. If the Executive is given the opportunity (regardless of whether he exercises such opportunity in whole, part or not at all) to sell or dispose of, on the same terms as afforded other selling equity holders, and in the same transaction or transactions, all but not less than all of the shares of common stock (including any vested options to purchase common stock) then held by him in the Company: (i) if the Return Hurdle (as hereinafter defined) has been satisfied, then the Company shall have no obligation to pay any salary and/or benefits set forth in this Section 4, and (ii) if the Return Hurdle has not been satisfied, then the Executive shall be treated hereunder as if he resigned his employment with the Company for Good Reason pursuant to Section 4.6 hereof. For purposes hereof: A "Change in Control" shall be deemed to have occurred if (i) any person, or any two or more persons acting as a group, and all affiliates of such person or persons (a "Group"), who prior to such time owned less than fifty percent (50%) of the then outstanding capital stock of Holdings, shall acquire such additional shares of Holding's capital stock in one or more transactions or series of transactions, and after such transaction or transactions such person or group and affiliates beneficially own fifty percent (50%) or more of Holding's outstanding capital stock, (ii) the Company shall sell all or substantially all of its assets to any Group which, immediately prior to the time of such transaction, owned less than fifty percent (50%) of the then outstanding capital stock of Holdings, or (iii) Holdings or the Company shall merge with or consolidate into any Group which, immediately prior to the time of such transaction, owned less than fifty percent (50%) of the then outstanding capital stock of Holdings, and shall not be the surviving corporation of such merger on consolidation. The "Return Hurdle" shall be satisfied if in any Change in Control the Executive receives a realized return on his investment in equity securities of Holdings equal to two times the cost of such investment. For purposes hereof, a realized return shall mean the (i) cash, (ii) market value of registered, publicly traded and tradable securities not subject to transfer restrictions or restrictions under Rule 144 of the Securities Act of 1933, as amended, and/or (iii) fair value (as determined by the Board of Directors of the Company acting in good faith) of all other securities, in each case received (or, in the case of a recapitalization transaction, retained) by Executive in any Change in Control. 5. Protection of Confidential Information; Non-Competition. ------------------------------------------------------- 5.1 Acknowledgment. The Executive agrees and acknowledges that in the course of rendering services to the Company and its clients and customers he will have access to and become acquainted with confidential information about the professional, business and financial affairs of the Company. The Executive acknowledges that the Company is engaged in a highly competitive business and the success of the Company in the marketplace depends upon its good will and reputation for quality and dependability. The Executive agrees and acknowledges that reasonable limits on his ability to engage in activities competitive with the Company are warranted to protect its substantial investment in developing and maintaining its status in the marketplace, reputation and good will. The Executive recognizes that in order to guard the legitimate interests of the Company it is necessary for it to protect all confidential information. The existence of any claim or cause of action by Executive against the Company shall not constitute and shall not be asserted as a defense to the enforcement by the Company of this Agreement. The Executive further agrees that his obligations under Sections 5.2 and 5.3 shall be absolute and unconditional. 5.2 Confidential Information. During and at all times after the Term, the Executive shall keep secret all confidential matters and materials of the Company (including subsidiaries or affiliates), including, without limitation, know-how, trade secrets, mail order and customer lists, pricing policies, operational methods, any information relating to the Company's (including any subsidiaries or affiliates) products, processes, customers and services and other business and financial affairs of the Company (collectively, the "Confidential Information"), to which he has had or may have access and shall not disclose such Confidential Information to any person other than the Company, its authorized employees and such other persons to whom the Executive has been instructed to make disclosure by the Board, in each case only to the extent required in the course of the Executive's service to the Company or as otherwise expressly required in connection with court process. "Confidential Information" shall not include any information which is in the public domain during the period of service of the Executive, provided such information is not in the public domain as a consequence of disclosure by the Executive in violation of this Agreement. 5.3 Non-Competition and Non-Solicitation. In consideration of the Company's obligations hereunder, during the period of the Executive's employment (for purposes of this Section 5.3, the "Employment Period"), and for a period of one (1) year thereafter, the Executive shall not, in any capacity, whether for his own account or for any other person or organization, directly or indirectly, (i) within the United States and Canada (a) own, operate, manage, or control, or (b) serve as an officer, director, partner, employee, agent, consultant, advisor or developer or in any similar capacity to, or (c) have any financial interest in, or aid or assist anyone else in the conduct of, any person or enterprise which competes directly with any product line of the Company which is material to the business of the Company or call upon, solicit, divert, take away or attempt to solicit any of the customers or suppliers or any other business contacts of the Company; or (ii) for the lesser of (x) three (3) years after the end of the Employment Period and (y) one year after a Change of Control has occurred, solicit, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Company (including any subsidiaries or affiliates thereof) to discontinue his or her relationship with the Company or such subsidiaries or affiliates. 5.4 Modification. The parties agree and acknowledge that the duration, scope and geographic area of the covenants described in this Section 5 are fair, reasonable and necessary in order to protect the good will and other legitimate interests of the Company, that adequate consideration has been received by the Executive for such obligations, and that these obligations do not prevent the Executive from earning a livelihood. If, however, for any reason any court of competent jurisdiction determines that the restrictions in this Section 5 are not reasonable, that consideration is inadequate or that the Executive has been prevented unlawfully from earning a livelihood, such restrictions shall be interpreted, modified or rewritten to include as much of the duration, scope and geographic area identified in this Section 5 as will render such restrictions valid and enforceable. 5.5 Remedies for Breach. The Company and the Executive agree that the restrictive covenants contained in this Agreement are severable and separate, and the unenforceability of any specific covenant herein shall not affect the validity of any other covenant set forth herein. In the event that a court of competent jurisdiction should determine that the time or territorial restrictions are unreasonable in their scope, then, and in that event, the court shall insert reasonable limitations and enforce the restriction in accordance therewith. The Executive acknowledges that the Company will suffer irreparable harm as a result of a breach of such restrictive covenants by the Executive for which an adequate monetary remedy does not exist and a remedy at law may prove to be inadequate. Accordingly, in the event of any actual or threatened breach by the Executive of any provision of this Agreement, the Company shall, in addition to any other remedies permitted by law, be entitled to obtain remedies in equity, including, without limitation, specific performance, injunctive relief, a temporary restraining order, and/or a permanent injunction in any court of competent jurisdiction, to prevent or otherwise restrain a breach of Sections 5.2 and 5.3, without the necessity of proving damages, posting a bond or other security, and to recover any and all costs and expenses, including reasonable counsel fees, incurred in enforcing this Agreement against the Executive, and the Executive hereby consents to the entry of such relief against him and agrees not to contest such entry. Such relief shall be in addition to and not in substitution of any other remedies available to the Company. The existence of any claim or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants. The Executive shall not defend on the basis that there is an adequate remedy at law. 6. Notices. All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered personally, (b) upon confirmation of receipt when such notice or other communication is sent by facsimile or telex, (c) one day after delivery to an overnight delivery courier, or (d) on the fifth day following the date of deposit in the United States mail if sent first class, postage prepaid, by registered or certified mail. The addresses for such notices shall be as follows: (a) For notices and communications to the Company American Safety Razor Company 240 Cedar Knolls Road Cedar Knolls, NJ 07927 Fax: (973) 326-9004 Attn: Chief Financial Officer with a copy to: J.W. Childs Associates, Inc. One Federal Street Boston, Massachusetts 02110 Fax: (617) 753-1101 Attn: Adam L. Suttin (b) For notices and communications to the Executive, to the address set forth below his signature hereto. Any party hereto may, by notice to the other, change its address for receipt of notices hereunder. 7. General. ------- 7.1 Governing Law. This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state. 7.2 Amendment: Waiver. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument executed by both of the parties hereto or, in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 7.3 Successors and Assigns. This Agreement shall be binding upon the Executive, without regard to the duration of his employment by the Company or reasons for the cessation of such employment, and inure to the benefit of his administrators, executors, heirs and assigns, although the obligations of the Executive are personal and may be performed only by him. This Agreement shall also be binding upon and inure to the benefit of the Company and its subsidiaries, successors and assigns, including any corporation with which or into which the Company or its successors may be merged or which may succeed to its assets or business. 7.4 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be considered to have the force and effect of an original. 7.5 Attorneys' Fees. Each arty shall bear the costs of any legal and other fees and expenses which may be incurred in respect of enforcing its respective rights under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as an instrument under seal as of the date first above written. AMERICAN SAFETY RAZOR COMPANY By: /s/Adam Suttin -------------------------------- Name: Adam Suttin Title: Vice President EXECUTIVE: /s/James D. Murphy JAMES D. MURPHY Address: 21 Bissell Road Lebanon, NJ 08833 -----END PRIVACY-ENHANCED MESSAGE-----