Mary Kay Cosmetics, Inc.
June
05, 1991
INQUIRY LETTER
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK 10022-3897
(212) 735-3000
February 19, 1991
Securities Act of 1933
-- Sections 2(11) and 5
February 19, 1991
HAND DELIVERY
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Abigail Arms, Deputy Chief Counsel
Re: Mary Kay Cosmetics, Inc.
Dear Ms. Arms:
On December 6, 1990, our client, Mary Kay Cosmetics, Inc. (the
"Company"), issued and sold to a group of institutional investors $155 million
aggregate principal amount of its Guaranteed Fixed Rate Senior Secured Notes due
2000 (the "Unregistered Notes") in a private placement (the "Private Placement")
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to a contractual obligation described below, it is
contemplated that prior to February 28, 1991, the Company will register,
pursuant to Section 5 of the Securities Act, an exchange offer (the "Exchange
Offer") whereby the then holders of the Unregistered Notes (the "Exchange
Offerees") will be offered a new series of Fixed Rate Notes (the "Registered
Notes"), in exchange for their Unregistered Notes. The contractual terms of the
Registered Notes will be identical to the Unregistered Notes so exchanged. The
purpose of this letter is to request concurrence with our view that the Exchange
Offerees may resell the Registered Notes without any further registration under
the Securities Act and without delivering to the purchaser a prospectus that
meets the requirements of Section 10 of the Securities Act.
The Company
The Company is a Delaware corporation and a wholly owned subsidiary of
Mary Kay Corporation ("Holdings"). The Company is a direct selling company which
manufactures and distributes skin care, glamour and personal care products
through a worldwide network of self-employed sales representatives. The Company
was taken private in a leveraged buyout transaction in 1985. Holdings is
currently a reporting company under the Securities Exchange Act of 1934 (the
"Exchange Act"). After the Exchange Offer, Holdings will continue to be, and the
Company will become, a reporting company under the Exchange Act.
The
proceeds from the Private Placement, together with the proceeds from a
contemporaneous private placement of floating rate notes, were used to refinance
and repurchase certain indebtedness of the Company and Holdings and to partially
redeem options held by senior managers.
The Private Placement and Exchange
Offer
The Company offered the Unregistered Notes in the Private Placement only
to persons who represented to the Company that they are "accredited investors"
as defined in Rule 501 under the Securities Act. The Unregistered Notes are
currently held by 11 persons, each of whom is either an insurance company or a
mutual fund. Each of the purchasers in the Private Placement represented to the
Company that it was purchasing the Unregistered Notes for investment, without a
view to distribution thereof and with no present intention of distributing or
selling any of the Unregistered Notes. The Company agreed with the purchasers in
the Private Placement that, subject to certain conditions, it would either (a)
file a registration statement under the Securities Act with respect to the
Exchange Offer or (b) file a "shelf" registration statement under Securities Act
with respect to the Unregistered Notes, in either case prior to February 28,
1991. Pursuant to its agreement with such purchasers, the Company intends to
register the Exchange Offer under the Securities Act on Form S-1, thereby
offering to each holder of the Unregistered Notes a new series of Registered
Notes the contractual terms of which will be identical to the Unregistered Notes
so exchanged. The Company intends to effect the Exchange Offer as soon as
practical and, based on current plans, it is contemplated that a registration
statement with respect thereto (the "Registration Statement") will be filed with
the Securities and Exchange Commission (the "Commission") prior to February 28,
1991. If a Registration Statement with respect to the Exchange Offer (or the
Unregistered Notes) is not filed with the Commission prior to February 28, 1991,
the interest rate otherwise payable on the Unregistered Notes will increase by
0.5% per annum, plus an additional 0.25% per annum for each 90 day period
thereafter during which such Registration Statement is not filed (such increase
in interest rate not to exceed 1.00% per annum in the aggregate).
Status of and Resales by Exchange
Offerees
The Company wishes confirmation that resales of the Registered Notes by
the Exchange Offerees will be viewed no differently from resales by
nonaffiliated purchasers after the completion of any registered primary offering
of securities. Accordingly, the Company also requests confirmation that the
Exchange Offerees may resell the Registered Notes without any further
registration under the Securities Act and without delivering to the purchaser a
prospectus which meets the requirements of Section 10 of the Securities Act.
The Staff
has concurred with the foregoing views in situations with substantially similar
operative facts (see Exxon Capital Holdings Corporation (avail. May 13,
1988) and Equimark Corporation (avail. August 22, 1985)) notwithstanding
a position of the Staff issued almost 20 years ago which appears, at least in
part, to be to the contrary (see Meridian Industries, Inc. (avail.
January 31, 1972)).
In
Meridian Industries, Inc., the issuer, whose common stock was held by
approximately 1,800 persons, proposed to register an exchange offer to 40
persons holding in the aggregate approximately 65% of its outstanding common
stock. Although the exchange offerees in Meridian Industries, Inc.
included nonaffiliates of the issuer, the majority of the shares subject to the
exchange offer where held by various directors and officers of the issuer. The
Staff concluded that each of the persons accepting the exchange offer (including
the stockholders who were not affiliated with the issuer) would be deemed to be
an underwriter and any resale by them would require the delivery of a current
prospectus.
In
Equimark Corporation (offer to exchange preferred stock for notes), the
Staff appears to have concurred with the view that no prospectus delivery
requirement applies to exchange offerees with respect to exchange offers similar
to the one presented here and in Exxon Capital Holdings Corporation so
long as the exchange offerees were not in the business of underwriting or
trading in securities. In Equimark Corporation, the Staff noted that, in
addition, the preferred stock could be resold pursuant to Rule 144(k) by such
exchange offerees due to the length of their holding period of the notes.
We see no
reason why the Exchange Offer should be viewed any differently from the exchange
offer described in Exxon Capital Holdings Corporation, particularly since
the Exchange Offer concerns the registration of non-voting debt securities to be
issued in exchange for non-voting debt securities.
It is our
understanding that (i) none of the Exchange Offerees is an affiliate of the
Company, (ii) the Registered Notes will be acquired by the Exchange Offerees in
the ordinary course of business, (iii) there is no agreement or understanding
between any of the Exchange Offerees and any person with respect to any resale
or distribution of the Unregistered Notes or the Registered Notes and (iv) none
of the Exchange Offerees is in the business of underwriting or trading in
securities.
Prior to
the effective date of the Registration Statement, the Company would provide a
letter to the Staff (i) stating that the Company is registering the Exchange
Offer in reliance on the Staff position enunciated in Exxon Capital Holdings
Corporation and this letter and (ii) including a representation
substantially to the following effect:
The
Company has not entered into any arrangement or understanding with any person to
distribute the Registered Notes to be received in the Exchange Offer and, to the
best of the Companys information and belief, each person participating in the
Exchange Offer is acquiring the Registered Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the Registered Notes to be received in the Exchange
Offer. In this regard, the Company will make each person participating in the
Exchange Offer aware that if such person is participating in the Exchange Offer
for the purpose of distributing the Registered Notes to be acquired in the
Exchange Offer, such person (i) could not rely on the Staff position enunciated
in Exxon Capital Holdings Corporation or interpretive letters to similar
effect and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. The Company acknowledges that such a secondary resale transaction
by such person participating in the Exchange Offer for the purpose of
distributing the Registered Notes should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K promulgated under the Securities Act.
In order
to avoid an increase in interest rate payable on the Unregistered Notes as
described above, the Company wishes to comply with its registration obligations
as soon as practical. Accordingly, your prompt response to this letter will be
greatly appreciated.
If for any
reason you are unable to provide the requested confirmation, we respectfully
request an opportunity to discuss this matter with you prior to your issuance of
any written response.
Should you
have any questions or require any further information, please call Eileen Nugent
Simon at (212) 735-3176, Lou R. Kling at (212) 735-2770 or Gregory A. Fernicola
at (212) 735-2918.
In
accordance with Release No. 33-6269 under the Securities Act, enclosed are seven
copies of this letter.
Very truly yours,
Eileen Nugent Simon
Lou R. Kling
STAFF REPLY LETTER
June 5, 1991
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: Mary Kay Cosmetics, Inc. ("Company")
Incoming letter dated February 19,
1991
Based on the facts presented, it is the Divisions view that the
described holders of privately placed Guaranteed Fixed Rate Senior Secured Notes
due 2000 ("Unregistered Notes") who exchange such securities for similar
securities to be issued pursuant to a registered exchange offer ("Registered
Notes") may resell the Registered Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act of 1933, provided that
such holder acquires the Registered Notes in the ordinary course of its business
and has no arrangement or understanding with any person to participate in the
distribution of the Registered Notes. This position assumes that the holder is
not affiliated with the Company. Further, prior to effectiveness of the
registration statement, the issuer should provide a supplemental letter to the
staff that contains the statement and representation substantially in the form
set forth on page 5 of your letter.
Because
this position is based on the facts and representations contained in your
letter, it should be noted that any different facts or conditions might require
another result.
Sincerely,
Abigail Arms
Deputy Chief Counsel
|
