<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
Registration No. 333-18859
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
INTERNATIONAL HOME FOODS, INC.
and Certain Subsidiaries identified in footnote (1) below
(Exact name of registrant as specified in its charter)
DELAWARE 2032 13-3377322
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1633 LITTLETON ROAD
PARSIPPANY, NEW JERSEY 07054
(201) 359-9920
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------
C. DEAN METROPOULOS
INTERNATIONAL HOME FOODS, INC.
1633 LITTLETON ROAD
PARSIPPANY, NEW JERSEY 07054
(201) 359-9920
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
COPIES TO:
JEFFREY A. CHAPMAN
JAMES A. KRAUSE
HAROLD J. HERMAN
VINSON & ELKINS L.L.P.
3700 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201-2975
(214) 220-7797
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
---------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. o
(1) The following direct and indirect subsidiaries of International Home
Foods, Inc. are Co-Registrants, each of which is incorporated in the
jurisdiction and has the I.R.S. Employer Identification Number indicated:
American Home Foods, Inc., a Delaware corporation (22-1577909); Luck's,
Incorporated, a Delaware corporation (56-0893581); M. Polaner, Inc., a
Delaware corporation (13-3711581); Heritage Brands Holdings, Inc., a
Delaware corporation (75-2555212); Heritage Brands, Inc., a Delaware
corporation (75-2555211); and Campfire Inc., a Delaware corporation
(31-1416330). Canadian Home Products Limited, a Canadian corporation and
direct subsidiary of International Home Foods, Inc., is also a
Co-Registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
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PROSPECTUS
OFFER FOR ALL OUTSTANDING
103/8% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
103/8% SENIOR SUBORDINATED NOTES DUE 2006
OF
INTERNATIONAL HOME FOODS, INC.
------------------------------------
Interest Payable May 1 and November 1
------------------------------------
International Home Foods, Inc. (the "Company") is offering upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal") (which
together constitute the "Exchange Offer") to exchange $1,000 principal amount
of its registered 10-3/8% Senior Subordinated Notes due 2006 (the "New Notes")
for each $1,000 principal amount of its unregistered 10-3/8% Senior Subordinated
Notes due 2006 (the "Old Notes") of which an aggregate principal amount of
$400,000,000 is outstanding. The form and terms of the New Notes are identical
to the form and terms of the Old Notes except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will not bear any legends restricting their transfer. The New Notes will
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the indenture (the "Indenture") governing the
Old Notes. The Exchange Offer is being made in order to satisfy certain
contractual obligations of the Company. See "The Exchange Offer" and
"Description of New Notes." The New Notes and the Old Notes are sometimes
collectively referred to herein as the "Notes."
Interest on the New Notes will be payable semiannually on May 1 and
November 1 of each year, commencing on May 1, 1997. The New Notes will mature
on November 1, 2006. Except as described below, the Company may not redeem the
New Notes prior to November 1, 2001. On or after such date, the Company may
redeem the New Notes, in whole or in part, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time to time on or prior to
November 1, 2000, the Company may, subject to certain requirements, redeem up
to $160 million of the aggregate principal amount of the Notes with the net
cash proceeds from one or more Equity Offerings (as defined in "Description of
New Notes - Certain Definitions") by the Company at a price equal to 110.375%
of the principal amount to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption, provided that at least $200
million of the aggregate principal amount of the Notes remains outstanding
after each such redemption. The New Notes will not be subject to any sinking
fund requirement. Upon the occurrence of a Change of Control (as defined in
"Description of New Notes - Change of Control"), (i) the Company will have the
option, at any time on or prior to November 1, 2001, to redeem the Notes, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as defined in "Description of New
Notes - Optional Redemption"), together with accrued and unpaid interest, if
any, to the date of redemption, and (ii) if the Company does not so redeem the
New Notes or if such Change of Control occurs after November 1, 2001, the
Company will be required to make an offer to repurchase the New Notes at a
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase. There can be no assurance
that the Company will have, or will have access to, funds available to
repurchase the Notes upon the occurrence of a Change of Control. See
"Description of New Notes."
The New Notes will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined in "Description of New
Notes - Ranking and Subordination") of the Company. The New Notes will rank
pari passu with any future Senior Subordinated Indebtedness (as defined in
"Description of New Notes - Certain Definitions") of the Company and will rank
senior to all other subordinated indebtedness of the Company. The New Notes
will be unconditionally guaranteed on an unsecured, senior subordinated basis
by the Subsidiary Guarantors (as defined in "Summary - Terms of New Notes"). The
Indenture permits the Company to incur additional indebtedness, including
Senior Indebtedness, subject to certain limitations. See "Description of New
Notes." As of September 30, 1996, on a pro forma basis after giving effect to
the Transaction (as defined in "Summary - The Transaction") and the Financing
(as defined in "Summary - The Transaction"), the aggregate principal amount of
the Company's outstanding Senior Indebtedness would have been approximately
$683 million (excluding unused commitments) and the Company would have had no
Senior Subordinated Indebtedness outstanding other than the New Notes. See
"Description of New Notes -- Ranking."
(Cover page continued on next page)
<PAGE> 3
The Exchange Offer will expire at 5:00 p.m., New York City time,
_______________, 1997, or such later date and time to which it is extended (the
"Expiration Date").
Each broker-dealer that receives New Notes for its own account
pursuant to this exchange offer in exchange for Old Notes must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. Each of the Company and the Subsidiary
Guarantors has agreed that, for a period of 90 days after the Expiration Date,
it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. Each holder of Old Notes that receives New
Notes pursuant to the exchange offer, other than a broker-dealer, must
represent that they are not engaging in or intending to engage in a
distribution of such New Notes. See "The Exchange Offer" and "Plan of
Distribution."
The Old Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. To the extent
Old Notes are tendered and accepted in the Exchange Offer, the principal amount
of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement (as defined in "Summary - The
Exchange Offer") and such Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity in the market for the Old
Notes could be adversely affected. No assurance can be given as to the
liquidity of the trading market for either the Old Notes or the New Notes.
------------------------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS" ON PAGE 16.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________ __, 1997
<PAGE> 4
"Chef Boyardee," "PAM," "Polaner," "Franklin Crunch 'n Munch"
(hereinafter "Crunch 'n Munch"), "Gulden's," "Campfire," "Marshmallow Munchie,"
"Ranch Style," "Luck's," "Dennison's," "Ro*Tel," "Jiffy Pop" and "G.
Washington's" are registered trademarks of the Company. "Wheatena," "Maypo" and
"Maltex" are registered trademarks licensed to the Company. This Prospectus
also includes trademarks of companies other than the Company.
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SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. As used in this Prospectus, unless the context requires otherwise,
(i) all references to "AHFP" mean American Home Food Products, Inc. and
affiliates, the branded food products business of American Home Products before
completion of the Transaction, and exclude Heritage Brands Holding, Inc.
("Heritage") and (ii) all references herein to the "Company" mean International
Home Foods, Inc. and its consolidated subsidiaries upon completion of the
Transaction, which include the business conducted by AHFP prior to the
Transaction and Heritage. For the fiscal year ended December 31, 1995, AHFP's
and Heritage's sales represented 94% and 6%, respectively, of the Company's
sales. Except as otherwise indicated, (i) all references to market, category
and segment sales reflect the 52-week period ended August 31, 1996, and all
references to market share percentages and market positions reflect the 26-week
period ended August 31, 1996, in each case as gathered by A.C. Nielsen for
United States markets, (ii) all market, category and segment data for national
grocery and snack food products reflect U.S. grocery and mass merchandiser
sales, and all market, category and segment data for southwestern cuisine
reflect regional grocery sales, in each case as gathered by A.C. Nielsen for
the United States markets, and (iii) all references to the Company's sales
refer to sales as reported in the historical financial statements of AHFP and
Heritage. Certain of the statements contained in this summary and elsewhere in
this Prospectus, including, but not limited to, information with respect to the
Company's business and liquidity and capital resources, are forward-looking
statements.
THE COMPANY
The Company is a leading North American manufacturer and marketer of a
diversified, well-established portfolio of shelf-stable food products with
popular brand names. In the United States, nine of the Company's eleven
principal brands command the number one position in their defined markets and
have a long history of stable revenue and cash flow. In the twelve month period
ended September 30, 1996, these nine brands accounted for 64% of the Company's
sales. In addition, many of the Company's largest brands also command leading
market positions in Canada and Puerto Rico. The Company's strong portfolio of
leading brands enables it to realize synergies in manufacturing, marketing,
distribution and raw material sourcing and provides the Company with a strong
presence in the United States as well as an attractive platform for
international expansion, particularly in Latin America. The Company's brand
name business is complemented by growing food service and private label
businesses and sales to the U.S. military. For the fiscal year ended December
31, 1995, the Company's pro forma net sales and net loss were $871.8 million
and $13.9 million, respectively; for the twelve months ended September 30, 1996,
the Company's pro forma net sales and net income were $970.2 million and $29.1
million, respectively. For the fiscal year ended December 31, 1995, the
Company's historical cash flows provided by (used in) operating, investing, and
financing activities were $145.5 million, $(24.2) million, and $(121.6
million), respectively; for the twelve months ended September 30, 1996, the
Company's historical cash flows provided by (used in) operating, investing, and
financing activities were $142.4 million, $(10.3) million, and $(131.9)
million, respectively. On a pro forma basis, earnings were insufficient to
cover fixed charges by $23.1 million for the year ended December 31, 1995; for
the twelve months ended September 30, 1996, the Company's pro forma ratio of
earnings to fixed charges was 1.5 (For purposes of this calculation,
"earnings" consists of income before income taxes and fixed charges. "Fixed
charges" consist of interest, amortization of deferred financing costs, and the
component of rental expense believed by management to be representative of the
interest factor thereon (deemed to be one-third of rental expense)). For the
year ended December 31, 1995 and the twelve months ended September 30, 1996,
the Company's pro forma EBITDA was $111.1 million and $172.5 million,
respectively. (EBITDA represents operating profit before income taxes,
interest, depreciation, and amortization).
The Company groups its brands into three general categories consisting
of national grocery, southwestern cuisine and snack foods. The Company's
national grocery group is anchored by its largest brand, the nationally
distributed family of Chef Boyardee prepared foods, which represented 41% of
the Company's sales in 1995. Chef Boyardee is one of the nation's most widely
recognized brands and is found in over half of American homes with children.
The Company's strong Chef Boyardee brand is complemented by other market
leading grocery products, including PAM cooking spray, Polaner fruit spreads
and spices and Gulden's mustard, as well as Maypo, Wheatena and Maltex hot
cereals and G. Washington's dry seasonings and broths. In the growing market
for southwestern cuisine, the Company's products include strong regional brands
such as Ranch Style and Luck's canned beans, Ro*Tel canned tomatoes with green
chilies and Dennison's chili, and in the snack foods category, the Company's
brands include Crunch 'n Munch glazed popcorn, Campfire marshmallows and
marshmallow crisp rice bars and Jiffy Pop unpopped popcorn.
COMPETITIVE STRENGTHS
Management believes that the following characteristics contribute to
the Company's position as a leading manufacturer and marketer of popular
branded food products and serve as a foundation for the Company's business
strategy.
O LEADING MARKET POSITIONS AND BRAND NAME RECOGNITION. In the United
States, nine of the Company's eleven principal brands have the number
one position in their defined markets. The Company's portfolio of
national grocery brands includes five national market leaders: Chef
Boyardee canned pasta; PAM
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cooking spray; Polaner fruit-juice-sweetened spreads; Chef Boyardee
pizza mix; and Gulden's mustard. In addition, three of the Company's
southwestern cuisine brands command leading positions in their
regional markets: Ro*Tel is the leading brand of canned tomatoes with
green chilies in the Southwest; and Ranch Style and Luck's are the
leading brands of canned beans in the Southwest and Southeast,
respectively. In the snack food category, the Company's brands
include market leader Crunch 'n Munch glazed popcorn. In today's
competitive food environment, the Company's recognizable portfolio of
leading brands provides a critical mass of brand name sales that (i)
allows the Company to realize synergies in manufacturing, marketing,
distribution and raw material sourcing, (ii) creates a position of
strength with retailers that is critical in maintaining and securing
valuable retail shelf space for existing and new brands and (iii)
provides a strong platform for introducing product line extensions
and new products. Collectively, U.S. sales of these nine market
leading brands accounted for $618 million, or 64% of the Company's
total sales, in the twelve month period ended September 30, 1996.
MARKET POSITION OF LEADING MAJOR BRANDS
<TABLE>
<CAPTION>
MARKET SHARE NUMBER TWO
---------------------------- COMPETITOR'S
BRAND CATEGORY/SEGMENT POSITION PERCENTAGE PERCENTAGE
- ----- ---------------- ---------- ---------- --------------
<S> <C> <C> <C>
LEADING NATIONAL GROCERY BRANDS
Chef Boyardee............ Canned Pasta........................... #1 58% 35%
PAM...................... Cooking Spray.......................... #1 53% 12%
Polaner.................. Fruit-Juice-Sweetened Spreads.......... #1 45% 29%
Chef Boyardee............ Pizza Mixes............................ #1 69%(1) 11%
Gulden's................. Brown Mustard.......................... #1 48% 28%
LEADING SOUTHWESTERN CUISINE BRANDS
Ranch Style.............. Canned Beans(2)........................ #1 in Southwest 26% 16%
Luck's................... Canned Beans(2)........................ #1 in Southwest 34% 21%
Ro*Tel................... Canned Tomatoes with Green Chiles...... #1 in Southwest 80% 13%
Dennison's............... Canned Chili........................... #3 in West(3) 19% NA
LEADING SNACK FOODS BRANDS
Crunch 'n Munch.......... Glazed Popcorn......................... #1 34% 26%
Campfire................. Marshmallow Crisp Rice Bars............ #1 12% NA
</TABLE>
- ------------
(1) Percentage is based on the 52 week period ended March 9, 1996.
(2) The canned beans category includes both the pork and beans and
miscellaneous beans categories. In their respective regions, Ranch Style
leads both categories with a total market share of 26%, and Luck's leads
the miscellaneous beans category with a market share of 34%.
(3) Dennison's has the #1 market share in California, which represents
approximately 65% of Dennison's sales.
O STABLE REVENUE AND CASH FLOW. The Company's portfolio of
established, leading branded products enables it to generate
stable revenue and cash flow. Through internal growth and
selective acquisitions, AHFP's sales and operating profit from
1987 to 1996 (based on the annualized nine months ended
September 30, 1996) increased at compound annual rates of 4.3%
and 3.5%, respectively. During this same period, sales of AHFP's
largest brand--Chef Boyardee--increased at a compound annual
rate of 3.2%. Consistently stable revenue and cash flow provide
resources that can be used to fund the Company's growth
strategy. See "Business-- Business Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
O STRONG OPERATING MARGINS. Management believes that the Company
benefits from one of the highest operating profit margins in the
branded food products industry. From 1991 to 1995, AHFP achieved
an average operating profit margin of 14.8%, and through the
first nine months of 1996 AHFP realized a 17.0% operating profit
margin. Management believes that its relatively high operating
profit margins result from the Company's leading market position
in high margin food categories as well as the cost efficiencies
gained from significant investment in the Company's
manufacturing and distribution network. Strong
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operating profit margins provide the Company with financial
resources to support its marketing, sales and distribution
efforts and give the Company flexibility in implementing
competitive pricing strategies for its products.
O WELL-DEVELOPED INFRASTRUCTURE. The Company's manufacturing plants
and distribution network reflect significant historical capital
investment. Due to this investment, management believes that the
Company's capital expenditures for the foreseeable future will be
limited primarily to maintenance levels.
Well-Maintained Manufacturing Facilities. The Company
produces its products primarily in two well-maintained
manufacturing facilities that are strategically located on
the East Coast (Milton, Pennsylvania) and West Coast
(Vacaville, California). Both plants have significant excess
capacity, with the Milton and Vacaville facilities operating
at only 55% and 28% of their respective capacities (based on
a five-day, two-shift work schedule). In addition, the
Company operates five smaller regional plants that are
capable of producing significant additional volume. This
excess capacity can be utilized to support the (i) growth of
the Company's existing branded and non-branded businesses,
(ii) introduction of new products and entry into new markets
and (iii) integration of strategic acquisitions.
Comprehensive Sales and Distribution Network. The Company has
a comprehensive U.S. direct sales force of approximately 110
people in nine regional offices, a national network of
approximately 90 food brokers, and 12 distribution points
throughout the United States. Management believes this
comprehensive sales and distribution network enables the
Company to deliver 85% of its sales volume to customers
within 24 hours and 100% within 48 hours. Management believes
that the Company's sales and distribution network has the
capacity to support substantial increases in volume.
O WELL-POSITIONED PRODUCTS IN GROWING MARKETS. The Company's
diversified portfolio of branded products are well-positioned to
meet the growing demand for convenient and healthy food products.
Many of the Company's products--such as Chef Boyardee canned
pasta--are quick and easy to prepare and nutritionally sound. As
such, management believes they are particularly appealing to
families with children. Several of the Company's other brands
also benefit from trends toward healthier eating, including PAM,
Polaner and Ranch Style. Furthermore, the Company's strong
regional presence in the market for southwestern cuisine provides
a platform to capitalize on this cuisine's growing national
popularity.
BUSINESS STRATEGY
The Company's strategy is to enhance its operating margins and
strengthen its position as a leading manufacturer and marketer of popular
branded food products. The Company plans to improve its profitability by
rationalizing its cost structure and consolidating suppliers. Furthermore, the
Company has identified several opportunities for revenue growth, including line
extending existing brands, expanding into attractive new markets and completing
strategic acquisitions. The Company intends to implement its strategy through
the following measures:
O ACHIEVE COST SAVINGS. Management believes that it can achieve
annual cost savings of approximately $21 million. These savings
are anticipated to be obtained through a reduction in salaries
and benefits of various departments throughout the Company
(plant locations, corporate office and administrative support
departments), $8.8 million; elimination of selected outside
warehouse facilities by consolidating and shipping product
direct to the customer, $1.5 million; implementation of a
distribution routing system, $2.6 million; benefits of a heat
recovery system recently installed, $1.0 million; consolidation
of suppliers of raw and packaging materials to obtain more
favorable prices, $5.0 million; and elimination of other
identified general and administrative costs, $2.1 million.
Elimination of less profitable SKU's and managing trade
promotion programs more efficiently are expected to add to the
savings identified. The estimated cost of achieving the
identified savings is approximately $2.0 million, primarily
related to the distribution routing system. In addition,
estimated increased stand alone overhead costs amount to $4.5
million. In addition, management believes that it can further
reduce unit manufacturing costs by increasing the capacity
utilization rate of its facilities by expanding into new markets
(as discussed below). Furthermore, as the Company implements
further cost saving measures and strategic acquisitions,
management believes that the Company's excess production capacity
will enable it to eliminate production facilities and thereby
generate incremental profits.
O LEVERAGE LEADING BRANDS. The Company intends to expand its
product offerings by leveraging its existing portfolio of
leading brands. Management believes that Chef Boyardee can serve
as a strong platform to expand the Company's canned pasta
product line into other quick meal products, that Crunch 'n
Munch, Campfire and Jiffy Pop can be the cornerstone of a
diversified snack foods business, and that Dennison's, Ranch
Style, Luck's and Ro*Tel can be utilized to develop a broader
southwestern cuisine business.
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Management also believes that many of these recognized brand
names can serve as a platform for expanding into new product
categories.
O PROMOTE CONSUMER-BASED MARKETING STRATEGY. The Company intends
to continue to refocus its marketing efforts towards building
brand equity through consumer advertising, primarily utilizing
television (a "pull" strategy), rather than focusing promotion
efforts on trade spending and discounting (a "push" strategy).
Advertising as a percentage of AHFP's total marketing expenses
increased from 16.3% in 1994 to 30.7% in the first nine months
of 1996. In addition, the Company intends to utilize its
advertising and marketing campaigns to increase brand usage,
including promoting Chef Boyardee canned pasta as an ideal
"fourth meal" product to be served after school and PAM cooking
spray as a healthier alternative to cooking oils, butter and
margarine.
O EXPAND INTO ATTRACTIVE NEW MARKETS. Management believes that
attractive opportunities exist to expand the Company's sales in
international markets with growing economies and attractive
demographics. In particular, management believes that the
Company's southwestern cuisine products (principally Dennison's,
Ranch Style and Ro*Tel) and its Chef Boyardee canned pasta
products can be efficiently and successfully expanded into the
growing Latin American markets. In addition, management believes
that it can utilize the Company's excess plant capacity to
facilitate further development of the Company's food service and
private label businesses.
O COMPLETE STRATEGIC ACQUISITIONS. The Company will pursue
opportunities to make acquisitions that complement and expand
its core businesses or that enable the Company to enter new
markets for its products. Since 1983, the Company has
successfully integrated six businesses into its existing
operations. The acquired businesses have enabled the Company to
enter or increase its presence in a number of key markets.
Management believes that additional strategic acquisition
opportunities exist and that incremental revenue and cash flow
can be generated by leveraging the Company's production,
distribution and administrative capabilities.
RECENT OPERATING PERFORMANCE
From 1987 to 1994, AHFP's sales and operating profit increased at
compound annual rates of 6.4% and 4.4%, respectively. In 1995, however, AHFP
experienced a substantial decline in sales and operating profit. AHFP's sales
and operating profit decreased from $997 million and $159 million,
respectively, in 1994 to $819 million and $69 million, respectively, in 1995.
The specific causes of these declines, however, have been subsequently
addressed by AHFP, as evidenced by the fact that during the first nine months
of 1996 versus the same period in 1995, sales increased to $704 million from
$609 million and operating profit increased to $120 million from $46 million.
The decline in sales and profitability in 1995 stemmed largely from a
prior "push" marketing strategy that relied heavily on trade promotions and
sales discounting. In the fourth quarter of 1994, AHFP offered significant
trade incentives to its customers, a practice similarly pursued in the fourth
quarter of 1993. These trade incentives resulted in forward buying by customers
in advance of consumer purchases, thereby significantly increasing customer
inventories of AHFP's products by the end of 1994. The reliance on trade
incentives as well as consumer promotions reduced marketing funds available to
support advertising, which builds brand equity and consumer loyalty, for AHFP's
core brands. Advertising funds available for AHFP's core products were further
diminished by the introduction in 1994 of Chef Boyardee Sesame Street canned
pasta. AHFP directed approximately $3 million, or 10% of its total advertising
expense in 1994, to the launch and support of this product.
During the first quarter of 1995, AHFP's sales were significantly
reduced as retailers sold the excess inventory of AHFP products that they held
at the end of 1994. This reduction was compounded by the effects of an
industry-wide reduction in inventory levels by the supermarket trade. In
addition, the Chef Boyardee Sesame Street product line proved unsuccessful and
was discontinued in 1995. To reduce costs and maintain profitability in the
face of declining sales, AHFP significantly reduced advertising spending during
the first half of 1995. This action, coupled with lower advertising spending
for AHFP's core brands in 1994, resulted in market share losses which further
depressed sales.
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<PAGE> 9
In response to the sharp declines in sales and profitability in the
first half of 1995, AHFP undertook a number of initiatives, including
installing a new management team in July of 1995. In addition, advertising
spending was substantially increased beginning in the fourth quarter of 1995 to
strengthen consumer brand support. Advertising expense in the fourth quarter of
1995 was approximately $14 million, which represented approximately one-third
of total advertising expense for all of 1995. The significant increase in
advertising spending in the fourth quarter of 1995 further depressed
profitability in that year, but provided the foundation for AHFP's growth in
sales and profitability in 1996. Management believes that the marked
improvement in sales and operating profit for the nine months ended September
30, 1996 over the same period in 1995 reflects the early success of these
initiatives. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OWNERSHIP AND MANAGEMENT
Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") is a private
investment firm based in Dallas, New York, St. Louis and Mexico City that
specializes in acquisitions, recapitalizations and other principal investing
activities. Since the firm's inception in 1989, Hicks Muse has completed
approximately 50 transactions having a combined transaction value exceeding $6
billion. Hicks Muse is combining its financial expertise with the operating
management experience of C. Dean Metropoulos & Co. ("Metropoulos & Co.").
Organized in 1993 by C. Dean Metropoulos, Metropoulos & Co. consists of a group
of senior operating executives who manage a portfolio of companies in the
branded food products business. Between 1983 and 1993, Mr. Metropoulos built
Stella Foods, Inc. ("Stella") into the nation's largest specialty cheese
manufacturer and marketer by growing Stella's revenues from $20 million to $800
million during the period. Hicks Muse and Metropoulos & Co. have established an
exclusive relationship to pursue acquisitions of food companies that
Metropoulos & Co. will manage. Hicks Muse is the controlling stockholder of,
and Metropoulos & Co. manages, the Company, Ghirardelli Chocolate Company and
Productos Del Monte S.A. de C.V. See "Management."
7
<PAGE> 10
THE TRANSACTION
The Old Notes were offered in connection with the purchase of an 80%
beneficial interest in American Home Food Products, Inc., based on a total
enterprise value of approximately $1.28 billion, and the purchase of Heritage
for $70 million.
In connection with the offering of Old Notes, AHFP Acquisition
Corporation (the "Merger Sub"), an indirect subsidiary of Hicks, Muse, Tate &
Furst Equity Fund III, L.P. ("Hicks Muse Fund III"), was merged (the "Merger")
with and into AHFP. As the surviving corporation in the Merger, AHFP redeemed
(the "Redemption") certain shares of its common stock held by a subsidiary of
American Home Products Corporation ("American Home Products") and changed its
name to International Home Foods, Inc. (which has been defined herein as the
"Company"). Immediately following the Merger, International Home Foods, Inc.
purchased Heritage (the acquisition of Heritage, collectively with the Merger
and the Redemption, is referred to herein as the "Transaction"). On the closing
date of the Transaction (the "Closing Date"), Hicks Muse Fund III, together
with certain other investors, and American Home Products owned 80% and 20%,
respectively, of the Company's common stock. See "The Transaction" and "Stock
Ownership and Certain Transactions."
The Company required approximately $1,347 million (assuming a Net
Asset Adjustment (as defined in "The Transaction") of $13 million) to
consummate the Transaction, consisting of $264 million paid to American Home
Products in the Merger, $958 million paid to American Home Products in the
Redemption, $70 million used in connection with the Company's acquisition of
Heritage and $55 million in fees and expenses. The funds required to consummate
the Transaction were provided by (i) the $400 million in gross proceeds from
the offering of Old Notes, (ii) the borrowing by the Company of $670 million in
connection with a new term loan facility with The Chase Manhattan Bank, Bankers
Trust Company and Morgan Stanley Senior Funding, Inc., each as agent-lender
(the "Term Loan Facilities"), (iii) the borrowing by the Company of $13 million
in connection with a new $100 million revolving credit facility with The Chase
Manhattan Bank, Bankers Trust Company and Morgan Stanley Senior Funding, Inc.,
each as agent-lender (the "Revolving Credit Facility" and, together with the
Term Loan Facility, the "Senior Bank Facilities") and (iv) the proceeds of $264
million of equity financing (the "Equity Proceeds") to be paid to a subsidiary
of American Home Products by an affiliate of Hicks Muse in the Merger (items
(i), (ii), (iii) and (iv) being referred to herein as the "Financing"). See
"Description of Senior Bank Facilities" and "The Transaction."
The following table sets forth the sources and uses of funds in
connection with the Transaction, assuming a Net Asset Adjustment of $13
million:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Senior Bank Facilities:
Revolving Credit Facility.................................. $ 13
Term Loan Facilities:
Tranche A.............................................. 300
Tranche B.............................................. 200
Tranche C.............................................. 170
The Notes............................................................... 400
Equity Proceeds (1)..................................................... 264
------
Total sources...................................... $1,347
======
USES:
Payments to American Home Products:
Merger consideration............................................ $ 264
Redemption Amount............................................... 958
------
1,222
Purchase of Heritage (2)................................................ 70
Fees and expenses (3)................................................... 55
------
Total uses......................................... $1,347
======
</TABLE>
- -------------
(1) Amount used by Hicks Muse Holding to acquire 80% of the equity interest of
the Company, which implies a total equity value of $330 million.
(2) Includes approximately $40 million to repay existing debt of Heritage and
approximately $30 million to acquire the equity of Heritage.
(3) Includes the discount to the Initial Purchasers, expenses in connection
with the offering of Old Notes, fees and expenses in connection with the
Senior Bank Facilities, and other legal and accounting fees and expenses
incurred in connection with the Transaction.
8
<PAGE> 11
THE EXCHANGE OFFER
The Exchange Offer applies to $400 million aggregate principal amount of
the Old Notes. The form and terms of the New Notes are the same as the form and
terms of the Old Notes except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their
transfer. The New Notes will evidence the same debt as the Old Notes and will
be entitled to the benefits of the Indenture pursuant to which the Old Notes
were issued. See "Description of New Notes."
The Exchange Offer.................. $1,000 principal amount of New Notes in
exchange for each $1,000 principal
amount of Old Notes. As of the date
hereof, Old Notes representing $400
million aggregate principal amount were
outstanding. The terms of the New Notes
and the Old Notes are substantially
identical.
Based on an interpretation by the
Commission's staff set forth in
no-action letters issued to third
parties unrelated to the Company, the
Company believes that, with the
exceptions discussed herein, New Notes
issued pursuant to the Exchange Offer
in exchange for Old Notes may be
offered for resale, resold and
otherwise transferred by any person
receiving the New Notes, whether or not
that person is the holder (other than
any such holder or such other person
that is an "affiliate" of the Company
within the meaning of Rule 405 under
the Securities Act), without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided that (i) the New Notes
are acquired in the ordinary course of
business of that holder or such other
person, (ii) neither the holder nor
such other person is engaging in or
intends to engage in a distribution of
the New Notes, and (iii) neither the
holder nor such other person has an
arrangement or understanding with any
person to participate in the
distribution of the New Notes. However,
the Company has not sought, and does
not intend to seek, its own no-action
letter, and there can be no assurance
that the Commission's staff would make
a similar determination with respect to
the Exchange Offer. See "The Exchange
Offer -- Purpose and Effect." Each
broker-dealer that receives New Notes
for its own account in exchange for Old
Notes, where those Old Notes were
acquired by the broker-dealer as a
result of its market-making activities
or other trading activities, must
acknowledge that it will deliver a
prospectus in connection with any
resale of those New Notes. See "Plan of
Distribution."
Exchange and Registration Rights
Agreement........................... The Old Notes were sold by the Company
on November 1, 1996 in a private
placement. In connection with the sale,
the Company entered into an Exchange
and Registration Rights Agreement with
the initial purchasers of the Old Notes
(the "Registration Rights Agreement")
providing for the Exchange Offer. See
"The Exchange Offer -- Purpose and
Effect."
Expiration Date....................... The Exchange Offer will expire at 5:00
P.M., New York City time,
_____________, 1997, or such later date
and time to which it is extended.
Withdrawal Rights..................... The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Old
Notes not accepted for exchange for any
reason will be returned without expense
to the tendering holder thereof as
promptly as practicable after the
expiration or termination of the
Exchange Offer.
9
<PAGE> 12
Interest on the New Notes
and Old Notes...................... Interest on each New Note will accrue
from November 1, 1996, the date of
issuance of the Old Notes. No interest
will be paid on the Old Notes accepted
for exchange.
Conditions to the Exchange
Offer.............................. The Exchange Offer is subject to
certain customary conditions, certain
of which may be waived by the Company.
See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.......................... Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a copy thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver the Letter of
Transmittal, or the copy, together with
the Old Notes and any other required
documentation, to the Exchange Agent at
the address set forth herein. Persons
holding Old Notes through the
Depository Trust Company (the "DTC")
and wishing to accept the Exchange
Offer must do so pursuant to the DTC's
Automated Tender Offer Program, by
which each tendering Participant (as
defined) will agree to be bound by the
Letter of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each holder will represent
to the Company that, among other
things, (i) any Exchange Notes to be
received by it will be acquired in the
ordinary course of its business, (ii)
it has no arrangement with any person
to participate in the distribution of
the Exchange Notes and (iii) it is not
an "affiliate," as defined in Rule 405
of the Securities Act, of the Company
or any of the Subsidiary Guarantors, or
if it is an affiliate, it will comply
with the registration and prospectus
delivery requirements of the Securities
Act to the extent applicable. If the
holder is not a broker-dealer, it will
be required to represent that it is not
engaged in, and does not intend to
engage in, the distribution of the
Exchange Notes. If the holder is a
broker-dealer that will receive
Exchange Notes for its own account in
exchange for Notes that were acquired
as a result of market-making activities
or other trading activities, it will be
required to acknowledge that it will
deliver a prospectus in connection with
any resale of such Exchange Notes.
Pursuant to the Registration Rights
Agreement, the Company is required to
file a registration statement for a
continuous offering pursuant to Rule
415 under the Securities Act in respect
of the Old Notes if existing Commission
interpretations are changed such that
the New Notes received by holders in
the Exchange Offer are not or would not
be, upon receipt, transferable by each
such holder (other than an affiliate of
the Company or any of the Subsidiary
Guarantors) without restriction under
the Securities Act. See "The Exchange
Offer -- Purpose and Effect."
Acceptance of Old Notes and
Delivery of New Notes.............. The Company will accept for exchange
any and all Old Notes which are
properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time,
on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer
will be delivered promptly following
the Expiration Date. See "The Exchange
Offer -- Terms on the Exchange Offer."
Exchange Agent....................... United States Trust Company of New York
is serving as Exchange Agent in
connection with the Exchange Offer.
10
<PAGE> 13
Federal Income Tax
Considerations..................... The exchange pursuant to the Exchange
Offer will not be a taxable event for
federal income tax purposes. See
"Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering.............. Old Notes that are not tendered or that
are tendered but not accepted will,
following the completion of the
Exchange Offer, continue to be subject
to the existing restrictions upon
transfer thereof. The Company will have
no further obligation to provide for
the registration under the Securities
Act of such Old Notes.
11
<PAGE> 14
TERMS OF NEW NOTES
Issuer............................... International Home Foods, Inc.
Securities Offered................... $400 million aggregate principal amount
of 10 3/8% Senior Subordinated Notes
due 2006 (the "New Notes").
Maturity............................. November 1, 2006.
Interest Payment Dates............... May 1 and November 1 of each year,
commencing on May 1, 1997.
Sinking Fund......................... None.
Optional Redemption.................. Except as described below, the Company
may not redeem the New Notes prior to
November 1, 2001. On or after such
date, the Company may redeem the New
Notes, in whole or in part, at the
redemption prices set forth herein,
together with accrued and unpaid
interest, if any, to the date of
redemption. In addition, at any time
and from time to time on or prior to
November 1, 2000, the Company may
redeem up to $160 million of the
aggregate principal amount of the Notes
with the net cash proceeds of one or
more Equity Offerings by the Company,
so long as there is a Public Market (as
defined in "Description of New Notes -
Certain Definitions") at the time of
redemption, at a redemption price equal
to 110.375% of the principal amount to
be redeemed, together with accrued and
unpaid interest, if any, to the date of
redemption, provided that at least $200
million of the aggregate principal
amount of the Notes remains outstanding
after each such redemption. See
"Description of New Notes -- Optional
Redemption."
Change of Control.................... Upon the occurrence of a Change of
Control, (i) the Company will have the
option, at any time on or prior to
November 1, 2001, to redeem the New
Notes in whole but not in part at a
redemption price equal to 100% of the
principal amount thereof plus the
Applicable Premium set forth herein,
plus accrued and unpaid interest, if
any, to the date of redemption, and
(ii) if the Company does not so redeem
the New Notes or if such Change of
Control occurs after November 1, 2001,
the Company will be required to make an
offer to repurchase the New Notes at a
price equal to 101% of the principal
amount thereof, together with accrued
and unpaid interest, if any, to the
date of purchase. There can be no
assurance that the Company will have,
or will have access to, funds available
to repurchase the Notes upon the
occurence of a Change of Control. See
"Description of New Notes -- Change of
Control."
Subsidiary Guarantees................ The New Notes will be unconditionally
guaranteed (the "Subsidiary
Guarantees") on an unsecured, senior
subordinated basis by each of the
Company's Subsidiaries existing on the
issue date of the Old Notes and by each
Subsidiary of the Company (other than
foreign Subsidiaries and Unrestricted
Subsidiaries) created or acquired
thereafter (collectively, the
"Subsidiary Guarantors"). See
"Description of New Notes -- Subsidiary
Guarantees."
Ranking.............................. The New Notes will be unsecured and
will be subordinated in right of
payment to all existing and future
Senior Indebtedness of
12
<PAGE> 15
the Company. The New Notes will rank
pari passu with any future Senior
Subordinated Indebtedness of the
Company and will rank senior to all
other subordinated indebtedness of the
Company. The Subsidiary Guarantees will
be general, unsecured obligations of
the Subsidiary Guarantors, subordinated
in right of payment to all existing and
future Guarantor Senior Indebtedness
(as defined in "Description of New
Notes - Certain Definitions") of the
Subsidiary Guarantors. As of September
30, 1996, on a pro forma basis after
giving effect to the Transaction and
the Financing, the aggregate principal
amount of the Company's outstanding
Senior Indebtedness would have been
$683 million (excluding unused
commitments) and the Company would have
had no Senior Subordinated Indebtedness
outstanding other than the Notes. As of
the same date, the aggregate principal
amount of Guarantor Senior Indebtedness
of the Subsidiary Guarantors
outstanding would have been $683
million (all of which would have
represented guarantees under the Senior
Bank Facilities). See "Description of
New Notes -- Ranking and
Subordination."
Restrictive Covenants................ The Indenture under which the New Notes
will be issued limits (i) the
incurrence of additional indebtedness
by the Company and its Restricted
Subsidiaries, (ii) the payment of
dividends on, and redemption of,
capital stock of the Company and its
Restricted Subsidiaries and the
redemption of certain subordinated
obligations of the Company and its
Restricted Subsidiaries, (iii)
investments, (iv) sales of assets and
Restricted Subsidiary stock, (v)
transactions with affiliates and (vi)
consolidations, mergers and transfers
of all or substantially all of the
Company's assets. The Indenture also
prohibits certain restrictions on
distributions from Restricted
Subsidiaries. However, all of these
limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of New Notes -- Certain
Covenants."
RISK FACTORS
Holders of Old Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the New Notes.
13
<PAGE> 16
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma
combined financial data of the Company for the periods ended and as of the
dates indicated. The unaudited summary pro forma combined statement of
operations data give effect to the Transaction and Financing as if they had
occurred on January 1, 1995. The unaudited summary pro forma combined balance
sheet data give effect to the Transaction and Financing as if they had occurred
on September 30, 1996. The unaudited summary pro forma combined financial data
do not purport to represent what the Company's results of operations or
financial condition would have actually been had the Transaction and Financing
been consummated as of such date or to project the Company's results of
operations or financial condition for any future period. The unaudited summary
pro forma combined financial data should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the notes thereto. See
"Unaudited Pro Forma Combined Financial Statements" and the separate historical
financial statements of AHFP and the notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
TWELVE
YEAR ENDED NINE MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996 1996
---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 871.8 $ 647.1 $ 745.5 $ 970.2
Cost of goods sold ......................... 427.9 320.0 355.5 463.4
------- ------- ------- --------
Gross profit................................ 443.9 327.1 390.0 506.8
Total marketing expenses ................... 188.5 141.9 145.1 191.7
Total other operating expenses ............. 177.1 132.7 122.2 166.6
------- ------- ------- --------
Operating profit ........................... $ 78.3 $ 52.5 $ 122.7 $ 148.5
======= ======= ======= ========
Net income (loss)........................... $ (13.9) $ (14.2) $ 28.8 $ 29.1
======= ======= ======= ========
BALANCE SHEET DATA (END OF PERIOD):
Total Assets................................ $ 930.9
Long-term debt (including current portion) 1,082.7
OTHER FINANCIAL DATA:
EBITDA...................................... $ 111.1 $ 77.2 $ 138.6 $ 172.5
Pro forma adjustments to EBITDA:
Post-retirement medical benefits......... 3.6 2.7 3.0 3.9
Loss on disposal of assets............... 0.8 0.0 0.1 0.9
------- ------- ------- --------
Adjusted EBITDA (1) $ 115.5 $ 79.9 $ 141.7 $ 177.3
======= ======= ======= ========
Historical cash flows provided by (used in):
Operating activities..................... 145.5 102.1 99.0 142.4
Investing activities..................... (24.2) (22.4) (8.5) (10.3)
Financing activities..................... (121.6) (80.3) (90.6) (131.9)
Depreciation and amortization............... 32.8 24.7 15.9 24.0
Capital expenditures........................ 30.1 27.7 12.9 15.3
Cash interest expense (2)................... 96.4 72.5 71.1 95.0
Ratio of earnings to fixed charges (3)...... (3) (3) 1.6x 1.5x
Ratio of Adjusted EBITDA to cash interest
expense.................................. 1.9x
Ratio of Adjusted EBITDA less capital
expenditures to cash interest
expense.................................. 1.7x
</TABLE>
- ----------------------
(1) Adjusted EBITDA represents operating profit before income taxes, interest,
depreciation, amortization, and certain other noncash charges related to
(i) post-retirement medical benefits and (ii) loss on disposal of assets.
Post-retirement medical benefits expense is expected to be a noncash
expense for the foreseeable future. While EBITDA and Adjusted EBITDA are
not intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as measure of liquidity,
they are included herein to provide additional information with respect to
the ability of the Company to meet its future debt service, capital
expenditures and working capital requirements. See "Management Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Excludes non-cash amortization of debt issuance cost. See note (c) to the
Unaudited Pro Forma Combined Statements of Operations.
(3) For purposes of this calculation, "earnings" consists of income before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of deferred financing costs and the component of rental
expense believed by management to be representative of the interest factor
thereon (deemed to be one-third of rental expense). On a pro forma basis,
earnings were insufficient to cover fixed charges by $23.1 million and
$23.7 million for the year ended December 31, 1995 and the nine months
ended September 30, 1995, respectively.
14
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data of
AHFP for the periods ended and as of the dates indicated. The summary
historical statement of operations data for the years ended December 31, 1993,
1994 and 1995 and the summary historical balance sheet data as of December 31,
1994 and 1995 are derived from the audited financial statements of AHFP
included elsewhere in this Prospectus. The summary historical statement of
operations data for the nine month periods ended September 30, 1995 and
September 30, 1996 and the summary historical balance sheet data as of
September 30, 1996 are derived from the unaudited financial statements of AHFP
included elsewhere in this Prospectus and which, in the opinion of management,
include all adjustments necessary for a fair presentation. The summary
historical statement of operations data for the years ended December 31, 1991
and 1992 and the summary historical balance sheet data as of September 30, 1995
and December 31, 1991, 1992 and 1993 are derived from the unaudited financial
statements of AHFP which are not included in this Prospectus and which, in the
opinion of management, include all adjustments necessary for a fair
presentation. This information should be read in conjunction with AHFP's
historical combined financial statements and related notes thereto appearing
elsewhere in this Prospectus and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." See also "Selected Historical
Financial and Operating Information."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 859.1 $ 865.8 $ 935.7 $ 997.3 $ 818.9 $ 609.1 $704.1
Cost of goods sold.......................... 411.9 402.6 432.0 463.1 398.2 297.0 333.9
------- ------- ------- -------- ------- ------- ------
Gross profit................................ 447.2 463.2 503.7 534.2 420.7 312.1 370.2
Marketing expenses:
Advertising.............................. 39.8 36.8 33.2 32.8 42.4 28.6 43.0
Consumer promotion....................... 22.7 26.2 21.5 25.5 23.5 20.3 13.3
Trade promotion.......................... 105.2 101.0 118.7 127.6 102.0 76.3 74.6
Other.................................... 15.2 15.2 16.5 14.9 18.5 14.7 9.3
------- ------- ------- -------- ------- ------- ------
Total marketing expenses.................... 182.9 179.2 189.9 200.8 186.4 139.9 140.2
Other operating expenses:
Selling.................................. 39.7 43.3 47.2 52.3 45.9 36.9 33.6
Storage, packing and shipping............ 52.6 51.0 57.6 63.4 55.3 41.4 41.2
Administrative........................... 14.3 17.0 20.5 23.2 23.6 18.4 14.2
General and other........................ 27.9 16.4 35.2 35.3 40.9 29.3 21.3
-------- ------- ------- -------- ------- ------- ------
Total other operating expenses.............. 134.5 127.7 160.5 174.2 165.7 126.0 110.3
Operating profit ........................... $ 129.8 $ 156.3 $ 153.3 $ 159.2 $ 68.6 $ 46.2 $119.7
======= ======= ======= ======== ======= ======= ======
Net income ................................. $ 81.1 $ 99.6 $ 92.4 $ 95.9 $ 39.2 $ 25.8 $ 74.2
======= ======= ======= ======== ======= ======= ======
BALANCE SHEET DATA (END OF PERIOD):
Inventories................................. $ 117.6 $ 108.7 $ 134.2 $ 148.0 $ 139.9 $ 146.8 $130.5
Property, plant and equipment, net.......... 132.5 140.5 152.0 169.7 176.8 179.3 173.5
Total assets................................ 326.8 387.3 496.0 540.5 463.6 493.0 457.2
OTHER FINANCIAL DATA:
EBITDA...................................... $ 148.8 $ 168.0 $ 178.3 $ 185.6 $ 98.7 $ 68.8 $133.4
Pro forma adjustments to EBITDA:
Post-retirement medical benefits.... 2.2 2.8 3.0 3.3 3.5 2.6 2.9
(Gain) loss on disposal of assets... (0.1) (1.0) 0.2 0.1 0.8 0.0 0.1
LIFO adjustment..................... 0.0 (4.6) 0.2 0.0 0.0 0.0 0.0
------- ------- ------- -------- ------- ------- ------
Adjusted EBITDA (1) $ 150.9 $ 165.2 $ 181.7 $ 189.0 $ 103.0 $ 71.4 $136.4
======= ======= ======= ======== ======= ======= ======
Cash flows provided by (used in):
Operating activities................ 103.3 113.5 88.5 83.4 145.5 102.1 99.0
Investing activities................ (14.6) (75.6) (89.6) (31.1) (24.2) (22.4) (8.5)
Financing activities................ (88.8) (37.9) 1.6 (51.6) (121.6) (80.3) (90.6)
Depreciation and amortization............... 19.2 11.8 25.0 26.4 30.1 22.6 13.7
Capital expenditures........................ 14.6 18.6 22.0 31.1 24.2 22.4 8.5
Ratio of earnings to fixed charges (2)...... 95.3x 102.7x 92.0x 92.8x 35.5x 34.6x 84.5x
</TABLE>
- ----------------------
(1) Adjusted EBITDA represents operating profit before depreciation,
amortization, and certain other noncash charges related to (i) post-
retirement medical benefits and (ii) (gain)loss on disposal of assets and
(iii) LIFO adjustments. Post-retirement medical benefits expense is expected
to be a noncash expense for the foreseeable future. While EBITDA and
Adjusted EBITDA are not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, they are included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) For purposes of this calculation, "earnings" consists of income before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of deferred financing costs and the component of rental
expense believed by management to be representative of the interest factor
thereon (deemed to be one-third of rental expense).
15
<PAGE> 18
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the New
Notes offered by this Prospectus.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. As of September 30, 1996, on a pro
forma basis after giving effect to the Transaction and the Financing as if they
had occurred on such date, the Company and its consolidated subsidiaries would
have had an aggregate of $1,083 million of outstanding indebtedness and a
stockholder's deficit of $251 million. The Indenture permits the Company to
incur additional indebtedness, including Senior Indebtedness, subject to
certain limitations. See "Capitalization" and "Description of New Notes."
The Company's high degree of leverage could have important
consequences to the holders of the New Notes, including but not limited to the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate purposes or
other purposes may be impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) certain of the Company's
borrowings are at variable rates of interest (including borrowings under the
Senior Bank Facilities), which expose the Company to the risk of increased
interest rates; (iv) the indebtedness outstanding under the Senior Bank
Facilities is secured and matures prior to the maturity of the Notes; (v) the
Company may be substantially more leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage; and (vi) the
Company's substantial degree of leverage may limit its flexibility to adjust to
changing market conditions, reduce its ability to withstand competitive
pressures and make it more vulnerable to a downturn in general economic
conditions or its business. See "Description of Senior Bank Facilities" and
"Description of New Notes."
INABILITY TO SERVICE DEBT
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which in turn will be subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
planned expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. On a pro forma basis, the Company's
income before income taxes and fixed charges was insufficient to cover fixed
charges by $23.1 million and $23.7 million for the year ended December 31, 1995
and the nine month period ended September 30, 1995, respectively. Fixed charges
consist of interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the interest
factor thereon (deemed to be one-third of rental expense). There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness in the future. In the
absence of such operating results and resources, the Company could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet its debt service and other obligations, and there
can be no assurance as to the timing of such sales or the proceeds that the
Company could realize therefrom. In addition, because the Company's obligations
under the Senior Bank Facilities bear interest at floating rates, an increase
in interest rates could adversely affect, among other things, the Company's
ability to meet its debt service obligations. The Company will be required to
make scheduled principal payments under the Senior Bank Facilities commencing
in May 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Senior Bank Facilities."
SUBORDINATION OF NOTES TO SENIOR INDEBTEDNESS
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the Company,
including all amounts owing under the Senior Bank Facilities. As of September
30, 1996, on a pro forma basis after giving effect to the Transaction and
Financing, the aggregate amount of such Senior Indebtedness of the Company
would have been approximately $683 million. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to the Company, assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there can be no assurance that there will be sufficient assets to pay
amounts due on all or any of the Notes. Similarly, the Indebtedness evidenced
by the Subsidiary Guarantees of the Notes by the Subsidiary Guarantors will be
subordinated to the prior payment in full of all existing and future Guarantor
Senior Indebtedness (as defined under "Description of New Notes"), including
all amounts owing pursuant to the Subsidiary Guarantors' guarantees of the
Senior Bank Facilities. As of September 30, 1996, on a pro forma basis
16
<PAGE> 19
after giving effect to the Transaction and the Financing, there would have been
approximately $683 million of Guarantor Senior Indebtedness outstanding (all of
which would have represented guarantees under the Senior Bank Facilities). See
"Description of New Notes -- Ranking and Subordination" and "-- Subsidiary
Guarantees."
FRAUDULENT CONVEYANCE
As part of the Transaction, American Home Products received $264
million in cash in the Merger and $945 million (not including an estimated Net
Asset Adjustment of $13 million) in cash in the Redemption, and American Home
Products' beneficial ownership in the Company was reduced to 20% of the
outstanding shares of common stock.
See "The Transaction."
The incurrence of indebtedness (such as the Notes) in connection with
the Transaction and payments to consummate the Transaction with the proceeds
thereof are subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy or reorganization case or a lawsuit by or
on behalf of creditors of the Company. Under these statutes, if a court were to
find that obligations (such as the Notes) were incurred with the intent of
hindering, delaying or defrauding present or future creditors or that the
Company received less than a reasonably equivalent value or fair consideration
for those obligations and, at the time of the occurrence of the obligations,
the obligor either (i) was insolvent or rendered insolvent by reason thereof,
(ii) was engaged or was about to engage in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital or
(iii) intended to or believed that it would incur debts beyond its ability to
pay such debts as they matured or became due, such court could void the
Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes. Some courts have held that an obligor's purchase of its own capital
stock does not constitute reasonably equivalent value or fair consideration for
indebtedness incurred to finance that purchase.
The measure of insolvency for purposes of a fraudulent conveyance
claim will vary depending upon the law of the jurisdiction being applied.
Generally, however, a company will be considered insolvent at a particular time
if the sum of its debts at that time is greater than the then fair value of its
assets or if the fair saleable value of its assets at that time is less than
the amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. The Company believes that, after
giving effect to the Transaction and the Financing, the Company was (i) neither
insolvent nor rendered insolvent by the incurrence of indebtedness in
connection with the Transaction and the Financing, (ii) in possession of
sufficient capital to run its business effectively and (iii) incurring debts
within its ability to pay as the same mature or become due.
There can be no assurance, however, as to what standard a court would
apply to evaluate the parties' intent or to determine whether the Company was
insolvent at the time of, or rendered insolvent upon consummation of, the
Transaction and Financing or that, regardless of the standard, a court would
not determine that the Company was insolvent at the time of, or rendered
insolvent upon consummation of, the Transaction and Financing.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for
the benefit of the Company (and only indirectly for the benefit of the
Subsidiary Guarantors), the obligations of the Subsidiary Guarantors thereunder
were incurred for less than reasonably equivalent value or fair consideration.
A court could avoid a Subsidiary Guarantor's obligation under its Subsidiary
Guarantee, subordinate the Subsidiary Guarantee to other indebtedness of a
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
RESTRICTIVE DEBT COVENANTS
The Senior Bank Facilities contain a number of significant covenants
that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, engage in certain transactions with
subsidiaries and affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facilities, the Company is required to comply
with specified financial ratios and tests, including
17
<PAGE> 20
minimum consolidated interest coverage (as defined; 1.50 to 1.00 for the period
from March 31, 1997 through March 31, 1998), minimum consolidated fixed charge
coverage (as defined; 1.00 to 1.00 for the period from March 31, 1997 through
December 31, 2000) and maximum consolidated leverage ratios (as defined; 6.50
to 1.00 for the period from March 31, 1997 through December 31, 1997). The
Company believes that, on a combined pro forma basis as of and for the twelve
months ended September 30, 1996, the Company would have been in compliance with
these financial ratios. See "Description of Senior Bank Facilities."
Since consummation of the Transaction and the Financing, the Company
has been in compliance with the covenants and restrictions contained in the
Senior Bank Facilities and in the Indenture. However, its ability to continue
to comply with such agreements may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants or restrictions could result in a default under the
Senior Bank Facilities and/or the Indenture, which would permit the senior
lenders or the holders of the Notes, as the case may be, to declare all amounts
borrowed thereunder to be due and payable, together with accrued and unpaid
interest, and the commitments of the senior lenders to make further extensions
of credit under the Senior Bank Facilities could be terminated. If the Company
were unable to repay its indebtedness to its senior lenders, such lenders could
proceed against the collateral securing such indebtedness as described under
"Description of Senior Bank Facilities."
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control (as defined under "Description of New
Notes"), the Company will be required to offer to purchase all of the
outstanding Notes at a price equal to 101% of the principal amount thereof to
the date of repurchase plus accrued and unpaid interest, if any, to the date of
repurchase. The Change of Control purchase feature of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company. In particular, a Change of Control may cause an acceleration of, or
require an offer to repurchase under, the Senior Bank Facilities and certain
other indebtedness, if any, of the Company and its subsidiaries, in which case
such indebtedness would be required to be repaid in full before repurchase of
the Notes. See "Description of Senior Bank Facilities" and "Description of New
Notes -- Change of Control." The inability to repay such indebtedness, if
accelerated, and to purchase all of the tendered Notes would constitute an
event of default under the Indenture. There can be no assurance that the
Company will have, or will have access to, funds available to repurchase the
Notes upon the occurrence of a Change of Control.
GENERAL RISKS OF FOOD INDUSTRY
The food products manufacturing industry is subject to the risk of
adverse changes in general economic conditions; adverse changes in local
markets resulting in greater risks inherent in the limited shelf life of food
products in case of oversupply; lack of attractiveness of a particular food
product line after its novelty has worn off; evolving consumer preferences and
nutritional and health-related concerns; federal, state and local food
processing controls; consumer product liability claims; the risk of product
tampering; and the availability and expense of liability insurance.
See "Business."
DEPENDENCE ON RAW MATERIALS
The primary raw materials used in the Company's operations include tin
cans, flour, meat, tomatoes, fruit and fruit-juice concentrates, beans and
peanuts. The Company purchases its raw materials, all of which are widely
available, from numerous suppliers. The prices of many of these raw materials
are affected by, among other things, agricultural policies of the United States
government and weather conditions. Movement in the price level of these raw
materials can have a corresponding impact on finished product costs, and hence,
gross margins. The ability of the Company to pass through increases in costs of
raw materials to its customers is dependent upon competitive conditions and
pricing methodologies employed in the various markets where the Company
operates. See "Business -- Raw Materials."
RISKS RELATING TO IMPLEMENTATION OF BUSINESS STRATEGY
The Company intends to pursue a business strategy of increasing cash
flow and revenue in its core business through a combination of cost savings,
marketing efforts, expansion of certain markets and lines of business, and
strategic acquisitions. No assurance can be given that the Company will be
successful in implementing this strategy.
See "Business -- Business Strategy."
GOVERNMENTAL REGULATION
The Company's operations are subject to extensive regulation by the
United States Food and Drug Administration, the United States Department of
Agriculture and other state and local authorities regarding the
18
<PAGE> 21
processing, packaging, storage, distribution, advertising and labeling of the
Company's products and environmental compliance. The Company's manufacturing
facilities and products are subject to periodic inspection by federal, state
and local authorities. The Company believes that it is currently in substantial
compliance with all material governmental laws and regulations and maintains
all material permits and licenses relating to its operations. Nevertheless,
there can be no assurance that the Company is in compliance with such laws and
regulations or that it will be able to comply with any future laws and
regulations. Failure by the Company to comply with applicable laws and
regulations could subject the Company to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions,
which could have a material adverse effect on the Company. See "Business --
Certain Legal and Regulatory Matters."
COMPETITION
The food products business is highly competitive. Numerous brands and
products compete for shelf space and sales, with competition based primarily on
price, quality and convenience. The Company competes with a significant number
of companies of varying sizes, including divisions or subsidiaries of larger
companies. A number of these competitors have broader product lines as well as
substantially greater financial and other resources available to them and lower
fixed costs, and there can be no assurance that the Company can compete
successfully with such other companies. In addition, many of the Company's
competitors may be substantially less leveraged. Competitive pressures or other
factors could cause the Company's products to lose market share or result in
significant price erosion, which could have a material adverse effect on the
Company. See "Business."
CONTROLLING STOCKHOLDER
An affiliate of Hicks Muse owns of record 80% of the common stock of
the Company and is able to direct the election of a majority of the members of
the Board of Directors of the Company and therefore direct the management and
policies of the Company. See "Stock Ownership and Related Transactions."
ENVIRONMENTAL MATTERS
The past and present business operations of the Company and the past
and present ownership and operation of real property by the Company are subject
to extensive and changing federal, state, local and foreign environmental laws
and regulations pertaining to the discharge of materials into the environment
and the handling and disposition of wastes (including solid and hazardous
wastes) or otherwise relating to protection of the environment. Compliance with
such laws and regulations is not expected to have a material impact on the
Company's capital expenditures, earnings or competitive position. No assurance
can be given, however, that additional environmental issues relating to
presently known matters or identified sites or to other matters or sites will
not require additional, currently unanticipated investigation, assessment or
expenditures. See "Business -- Certain Legal and Regulatory Matters."
ABSENCE OF PUBLIC MARKET
The Old Notes are designated for trading in the PORTAL market. There
is no established trading market for the New Notes. Although the initial
purchasers of the Old Notes have advised the Company that they currently intend
to make a market in the New Notes, they are not obligated to do so and they may
discontinue such market-making at any time without notice. The Company does not
currently intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. Accordingly,
there can be no assurance as to the development of any market or the liquidity
of any market that may develop for the New Notes. If such a market were to
exist, no assurance can be given as to the trading prices of the New Notes.
Future trading prices of the New Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's operating results
and the market for similar securities.
THE TRANSACTION
The Old Notes were offered in connection with (i) the purchase of an
80% beneficial interest in AHFP, formerly the food products segment of American
Home Products Corporation, based on a total enterprise value of $1.28 billion,
and (ii) the purchase of Heritage for $70 million.
Hicks Muse Fund III and certain other investors own all of the capital
stock of AHFP Holding Corporation ("Hicks Muse Holding") and American Home
Products owns all of the capital stock of AHP Subsidiary Holding
19
<PAGE> 22
Corporation ("AHP Subsidiary"). Prior to the Closing, Hicks Muse Holding owned
all of the capital stock of Merger Sub and AHP Subsidiary owned all of the
capital stock of AHFP. Hicks Muse Holding, Merger Sub, American Home Products,
AHP Subsidiary and AHFP entered into an Agreement of Sale and Plan of Merger
(the "Merger Agreement") pursuant to which Hicks Muse Holding acquired an 80%
interest in AHFP. The Merger Agreement contains customary representations,
warranties, covenants, conditions and indemnities by American Home Products,
AHP Subsidiary and Hicks Muse Holding.
Hicks, Muse, Tate & Furst Equity Fund II, L.P. and certain other
investors owned all of the capital stock of Heritage and sold Heritage to
International Home Foods, Inc. on the Closing Date immediately following
completion of the Merger and the Redemption.
On the Closing Date, (i) Merger Sub was merged into AHFP, with AHFP
being the surviving corporation, resulting in Hicks Muse Holding and AHP
Subsidiary holding 264,000,000 and 1,011,000,000 common shares of AHFP,
respectively, (ii) AHFP redeemed 945,000,000 common shares held by AHP
Subsidiary pursuant to the Redemption and changed its name to International Home
Foods, Inc. (which has been defined herein as the "Company") and (iii)
International Home Foods, Inc. acquired Heritage. As a result of the
Transaction, Hicks Muse Holding and AHP Subsidiary now own 80% (264 million
shares) and 20% (66 million shares), respectively, of the Company's common
stock.
Hicks Muse Holding and the Company required approximately $1,347
(assumes a Net Asset Adjustment of $13 million) to consummate the Transaction,
consisting of (i) $264 million paid by Hicks Muse Holding to AHP Subsidiary in
the Merger, (ii) $958 million, which includes a Net Asset Adjustment of $13
million, paid by the Company to AHP Subsidiary in the Redemption (the
"Redemption Amount"), (iii) $70 million paid by the Company in connection with
the acquisition of Heritage and (iv) $55 million in fees and expenses. The
funds required to consummate the Transaction were provided by (i) a $264
million equity contribution from Hicks Muse Fund III and certain other
investors to Hicks Muse Holding and (ii) the borrowing by the Company of $1,083
million, consisting of $400 million of gross proceeds from the offering of the
Old Notes, $670 million under the Term Loan Facility and $13 million under the
Revolving Credit Facility. The Redemption Amount is subject to increase or
decrease (the "Net Asset Adjustment"), on a dollar for dollar basis, to the
extent that the value of certain assets less certain liabilities ("Net Assets")
of the Company on the Closing Date were less than or greater than, as the case
may be, the higher of (i) the value of the Net Assets at June 30, 1996, or (ii)
the difference between the average value of the Net Assets over the immediately
preceding twelve months and $13 million.
20
<PAGE> 23
The following charts depict (i) the organizational structure of the
parties immediately prior to the Transaction and (ii) the organizational
structure of the Company upon completion of the Transaction:
[Organizational chart showing the organizational structure
of the parties immediately prior to the Transaction.]
[Organizational chart showing the organizational and ownership
structure of the Company upon completion of the Transaction.]
21
<PAGE> 24
The following table sets forth the sources and uses of funds in
connection with the Transaction.
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Senior Bank Facilities:
Revolving Credit Facility (1) ................................. $ 13
Term Loan Facilities:
Tranche A ................................................. 300
Tranche B ................................................. 200
Tranche C ................................................. 170
The Notes ....................................................... 400
Equity Proceeds (2) ............................................. 264
----------
Total sources ......................................... $ 1,347
==========
USES:
Payments to American Home Products:
Merger consideration .......................................... $ 264
Redemption Amount ............................................. 958
----------
1,222
Purchase of Heritage:
Purchase of equity interests .................................. 30
Repayment of indebtedness ..................................... 40
----------
70
Fees and expenses (3) ........................................... 55
----------
Total uses ............................................ $ 1,347
==========
</TABLE>
- ----------
(1) The Revolving Credit Facility provides for borrowings of up to $100
million. See "Description of Senior Bank Facilities."
(2) Amount used by Hicks Muse Holding to acquire 80% of the equity interest of
the Company, which implies a total equity value of approximately $330
million.
(3) Includes the discounts to the Initial Purchasers, expenses in connection
with the Offering, fees and expenses in connection with the Senior Bank
Facilities, and other legal and accounting fees and expenses incurred in
connection with the Transaction.
22
<PAGE> 25
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
The Company used the $400 million of gross proceeds from the Old Note
Offering, together with borrowings of approximately $683 million under the
Senior Bank Facilities, as follows: (i) $958 million to complete the
Redemption; (ii) $40 million to repay existing indebtedness of Heritage; (iii)
$30 million to purchase all of the equity of Heritage; and (iv) approximately
$55 million to pay fees and expenses. In addition, Hicks Muse Holding paid AHP
Subsidiary $264 million in the Merger. See "The Transaction."
CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization
of the Company as of September 30, 1996, after giving effect to the Transaction
and the Financing, assuming the Transaction and the Financing were consummated
on such date. This table should be read in conjunction with "The Transaction"
and "Unaudited Pro Forma Combined Financial Statements" included elsewhere
herein.
<TABLE>
<CAPTION>
PRO FORMA AS OF
SEPTEMBER 30, 1996
------------------
(DOLLARS IN MILLIONS)
<S> <C>
Long-term debt (including current maturities):
Revolving Credit Facility (1)............................... $ 13
Term Loan Facilities:
Tranche A............................................... 300
Tranche B............................................... 200
Tranche C............................................... 170
The Notes................................................... 400
------
Total long-term debt.................................... 1,083
Total stockholders' deficit (2)............................... (251)
------
Total capitalization.......................................... $ 832
======
</TABLE>
- ---------------
(1) The Revolving Credit Facility provides for borrowings of up to $100
million. See "Description of Senior Bank Facilities."
(2) As a result of the Transaction, the Company has a stockholder's deficit
for accounting purposes. However, Hicks Muse Holding paid $264 million for
80% of the common stock of the Company, which implies a total equity value
of $330 million.
23
<PAGE> 26
SELECTED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected historical financial and
operating information of AHFP for the periods ended and as of the dates
indicated. The selected historical statement of operations data for the years
ended December 31, 1993, 1994 and 1995 and the historical balance sheet data as
of December 31, 1994 and 1995 are derived from the audited financial statements
of AHFP included elsewhere in this Prospectus. The selected historical
statement of operations data for the nine months ended September 30, 1995 and
1996 and the selected historical balance sheet data as of September 30, 1996
are derived from the unaudited financial statements of AHFP included elsewhere
in this Prospectus and, which in the opinion of management, include all
adjustments necessary for a fair presentation. The selected historical
statement of operations data for the years ended December 31, 1991 and 1992 and
the selected historical balance sheet data as of September 30, 1995 and
December 31, 1991, 1992 and 1993 are derived from the unaudited financial
statements of AHFP which are not included in this Prospectus and which, in the
opinion of management, include all adjustments necessary for a fair
presentation. This table should be read in conjunction with AHFP's historical
combined financial statements and related notes thereto included elsewhere in
this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................ $ 859.1 $ 865.8 $ 935.7 $ 997.3 $ 818.9 $ 609.1 $ 704.1
Cost of goods sold ....................... 411.9 402.6 432.0 463.1 398.2 297.0 333.9
------------ ------------ ------------ ------------ ------------ ------------ ----------
Gross profit ............................. 447.2 463.2 503.7 534.2 420.7 312.1 370.2
Marketing expenses:
Advertising .......................... 39.8 36.8 33.2 32.8 42.4 28.6 43.0
Consumer promotion ................... 22.7 26.2 21.5 25.5 23.5 20.3 13.3
Trade promotion ...................... 105.2 101.0 118.7 127.6 102.0 76.3 74.6
Other ................................ 15.2 15.2 16.5 14.9 18.5 14.7 9.3
------------ ------------ ------------ ------------ ------------ ------------ ----------
Total marketing expenses ................. 182.9 179.2 189.9 200.8 186.4 139.9 140.2
Other operating expenses:
Selling .............................. 39.7 43.3 47.2 52.3 45.9 36.9 33.6
Storage, packing and shipping ........ 52.6 51.0 57.6 63.4 55.3 41.4 41.2
Administrative ....................... 14.3 17.0 20.5 23.2 23.6 18.4 14.2
General and other .................... 27.9 16.4 35.2 35.3 40.9 29.3 21.3
------------ ------------ ------------ ------------ ------------ ------------ ----------
Total other operating expenses ........... 134.5 127.7 160.5 174.2 165.7 126.0 110.3
Operating profit ..................... $ 129.8 $ 156.3 $ 153.3 $ 159.2 $ 68.6 $ 46.2 $ 119.7
============ ============ ============ ============ ============ ============ ==========
Net income ........................... $ 81.1 $ 99.6 $ 92.4 $ 95.9 $ 39.2 $ 25.8 $ 74.2
============ ============ ============ ============ ============ ============ ==========
BALANCE SHEET DATA (END OF PERIOD):
Inventories........................... $ 117.6 $ 108.7 $ 134.2 $ 148.0 $ 139.9 $ 146.8 $ 130.5
Property, plant and equipment, net.... 132.5 140.5 152.0 169.7 176.8 179.3 173.5
Total assets.......................... 326.8 387.3 496.0 540.5 463.6 493.0 457.2
OTHER FINANCIAL DATA:
EBITDA................................ $ 148.8 $ 168.0 $ 178.3 $ 185.6 $ 98.7 $ 68.8 $ 133.4
Pro forma adjustments to EBITDA:
Post-retirement medical benefits.. 2.2 2.8 3.0 3.3 3.5 2.6 2.9
(Gain) loss on disposal of assets. (0.1) (1.0) 0.2 0.1 0.8 0.0 0.1
LIFO adjustment................... 0.0 (4.6) 0.2 0.0 0.0 0.0 0.0
------------ ------------ ------------ ------------ ------------ ------------ ----------
Adjusted EBITDA (1)................... $ 150.9 $ 165.2 $ 181.7 $ 189.0 $ 103.0 $ 71.4 $ 136.4
============ ============ ============ ============ ============ ============ ==========
Cash flows provided by (used in):
Operating activities.......... 103.3 113.5 88.5 83.4 145.5 102.1 99.0
Investing activities.......... (14.6) (75.6) (89.6) (31.1) (24.2) (22.4) (8.5)
Financing activities.......... (88.8) (37.9) 1.6 (51.6) (121.6) (80.3) (90.6)
Depreciation and amortization......... 19.2 11.8 25.0 26.4 30.1 22.6 13.7
Capital expenditures.................. 14.6 18.6 22.0 31.1 24.2 22.4 8.5
Ratio of earnings to fixed
charges (2)......................... 95.3x 102.7x 92.0x 92.8x 35.5x 34.6x 84.5x
</TABLE>
- ----------------------
(1) Adjusted EBITDA represents operating profit before depreciation,
amortization and certain other noncash charges related to (i) post-
retirement medical benefits, (ii) (gain) loss on disposal of assets and
(iii) LIFO adjustments. Post-retirement medical benefits expense is
expected to be a noncash expense for the foreseeable future. While EBITDA
and Adjusted EBITDA are not intended to represent cash flow from operations
as defined by GAAP and should not be considered as an indicator of
operating performance or an alternative to cash flow (as measured by GAAP)
as a measure of liquidity, they are included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) For purposes of this calculation, "earnings" consist of income before
income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of deferred financing costs and the component of rental
expense believed by management to be representative of the interest
factor thereon (deemed to be one-third of rental expense).
24
<PAGE> 27
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements (the
"Unaudited Pro Forma Combined Financial Statements") of the Company are based
on the audited and unaudited financial statements of AHFP which are included
elsewhere in this Prospectus and the financial statements of Heritage, as
adjusted to illustrate the estimated effects of the Transaction and the
Financing. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Combined Financial Statements and accompanying notes
should be read in conjunction with the historical financial statements of AHFP,
and other financial information pertaining to the Company including "The
Transaction," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
The Unaudited Pro Forma Combined Financial Statements have been
prepared to give effect to the Transaction and the Financing (and the
application of the net proceeds therefrom) as though such transactions had
occurred as of September 30, 1996, for the balance sheet and for the periods
beginning January 1, 1995, for the statements of operations. The Merger and
Redemption were treated as a taxable asset purchase for federal and state income
tax purposes and as a recapitalization for financial accounting purposes. The
subsequent acquisition of Heritage was accounted for using the purchase method
of accounting. The total purchase price of Heritage was allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values. The allocation of the Heritage purchase price reflected
in the Unaudited Pro Forma Combined Financial Statements is preliminary, but is
not expected to differ materially from the purchase price allocation reflected
herein.
The Unaudited Pro Forma Combined Financial Statements do not purport
to be indicative of what the Company's financial position or results of
operation would actually have been had the Transaction and Financing been
completed on such date or at the beginning of the periods indicated or to
project the Company's results of operations for any future period.
25
<PAGE> 28
INTERNATIONAL HOME FOODS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Historical
------------------------ Pro Forma
AHFP Heritage Adjustments Pro Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............................. $ -- $ 0.5 $ -- $ 0.5
Accounts receivable, net............................... 55.7 4.6 -- 60.3
Inventories............................................ 130.5 4.3 -- 134.8
Other current assets................................... 1.9 4.4 -- 6.3
------ ------ ------ ------
Total current assets............................. 188.1 13.8 -- 201.9
Property, plant & Equipment, net............................ 173.5 13.1 -- 186.6
Intangible assets, net...................................... 95.6 34.2 50.6 (a) 180.4
Deferred taxes.............................................. 362.0 (b) 362.0
------ ------ ------ ------
Total assets..................................... $457.2 $ 61.1 $412.6 $930.9
====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 17.0 $ 5.9 $ -- $ 22.9
Accrued liabilities.................................... 61.4 1.6 2.0 (c) 65.0
Current portion of long-term obligations............... 39.6 (13.6) (d) 26.0
------ ------ ----- ------
Total current liabilities........................ 78.4 47.1 (11.6) 113.9
Long-term obligations, less current maturities.............. 1,056.7 (d) 1,056.7
Other long-term liabilities................................. 10.2 0.6 -- 10.8
Stockholders' equity (deficit).............................. 368.6 13.4 (632.5) (e) (250.5)
------ ------ ------ ------
Total liabilities and stockholders' equity....... $457.2 $ 61.1 $412.6 $930.9
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Balance Sheet
26
<PAGE> 29
INTERNATIONAL HOME FOODS, INC.
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
(a) Adjustment reflects the allocation of the purchase price of Heritage to the
fair value of the assets acquired and liabilities assumed resulting in an
increase of $17.0 million in goodwill. Adjustment also reflects the
capitalized portion of deferred financing fees of $33.6 million associated
with the Notes and the Senior Bank Facilities.
(b) Adjustment reflects the increase in the deferred tax assets of the Company
since, for federal and state income tax purposes, the Merger and Redemption
is a taxable business combination. The Merger and Redemption is a qualified
stock purchase for income tax purposes. The buyer and seller have jointly
elected to treat the transaction as an asset acquisition under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended. As a result,
there is a step-up in tax basis which will provide future tax deductions of
$952.7 million which are expected to reduce future tax payments by
approximately $362.0 million as shown below:
<TABLE>
<S> <C>
AHFP total enterprise value ................................ $1,275.00
Plus: Net Asset Adjustment ................................ 12.7
Plus: tax deductible transaction fees (1) ................. 33.6
Less: AHFP historical stockholder's equity ................ 368.6
---------
Excess of purchase price over net assets acquired .......... 952.7
Statutory tax rate ......................................... 38.0%
---------
Deferred tax asset(2)....................................... $ 362.0
=========
</TABLE>
- ---------------
(1) Tax deductible transaction fees which are included in the estimated
$55.0 million of fees and expenses associated with the Transaction.
(2) Components of temporary differences will be determined upon final
purchase price allocation for income tax purposes; such allocation is
expected to relate principally to intangible assets which, for income
tax purposes, will be amortized over 15 years.
(c) Adjustment reflects management's estimate of accruals for non-recurring
expenses related to rationalizing general and administrative functions
following the consummation of the Transaction. The accruals relate to
estimated involuntary termination benefits for nonunion employees. Benefit
arrangements were communicated to the employee group prior to September 30,
1996. The item will result in an expense in the period in which the
Transaction is consummated. In connection with the rationalization, 36
management personnel (primarily at the Company's corporate headquarters
and Milton, Pennsylvania administrative facility), 13 marketing and sales
personnel (primarily at the Company's corporate headquarters and field
locations, respectively), 24 technical personnel (primarily at the Milton,
Pennsylvania facility), and 30 administrative staff (primarily at the
Milton, Pennsylvania and Canada facilities) were terminated. See note (a)
to the International Home Foods, Inc. Unaudited Pro Forma Combined
Statements of Operations included herein.
(d) Adjustments reflect indebtedness incurred under (i) the Notes of $400.0
million and (ii) the Senior Bank Facilities of $682.7 million, less
repayment of the existing indebtedness of Heritage of $39.6 million.
(e) Adjustments reflect the net effect of the items discussed below:
<TABLE>
<S> <C>
Historical stockholders' equity:
AHFP stockholders' equity as of September 30, 1996 ................ $ 368.6
Heritage stockholders' equity as of September 30, 1996 ............ 13.4
--------
Total historical stockholders' equity ....................... 382.0
Pro forma adjustments to historical stockholders' equity:
Elimination of Heritage historical stockholders' equity (1) ....... (13.4)
Effect of the Merger, Redemption and related fees (2) ............. (1,243.1)
Effect of equity proceeds for distribution
to AHP Subsidiary in connection with the Merger(3) .............. 264.0
Tax effect of business combination (4) ............................ 362.0
Effect of non-recurring expenses (see note (c) above) ............. (2.0)
--------
Net pro forma adjustment to historical stockholder's equity........... (632.5)
--------
Pro forma stockholders' deficit ...................................... $ (250.5)
========
</TABLE>
- ---------------
(1) Adjustment reflects the elimination of the net stockholders' equity of
Heritage based on the purchase method of accounting.
(2) The Merger and Redemption was treated as a recapitalization for
financial accounting purposes. The adjustment reflects (i) $264.0 million
paid to AHP Subsidiary in the Merger, (ii) $957.7 million paid to AHP
Subsidiary in the Redemption and (iii) fees of $21.4 million (including
$19.0 million paid to Hicks Muse Partners as a cash financial advisory fee,
pursuant to the "Financial Advisory Agreement") associated with the
Redemption, which are included in the estimated $55.0 million of fees and
expenses associated with the Transaction and Financing.
(3) Adjustment reflects the equity contribution by Hicks Muse Holding of
$264.0 million in connection with the Merger.
(4) Recording the deferred tax asset described in (b) results in an increase
in paid-in capital.
27
<PAGE> 30
INTERNATIONAL HOME FOODS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
AHFP HERITAGE ADJUSTMENTS TOTAL
------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 818.9 $ 52.9 $ -- $ 871.8
Cost of goods sold........................................... 398.2 29.7 -- 427.9
------- -------- --------- --------
Gross profit................................................. 420.7 23.2 -- 443.9
Marketing expenses........................................... 186.4 2.1 -- 188.5
Selling, general and administrative expenses................. 151.2 12.8 (4.3)(a) 159.7
Other expenses, net.......................................... 14.5 2.5 0.4 (b) 17.4
------- -------- --------- --------
Operating profit............................................. 68.6 5.8 3.9 78.3
Interest expense............................................. 2.8 98.6 (c) 101.4
------- -------- --------- --------
Income (loss) before provision for income taxes.............. 68.6 3.0 (94.7) (23.1)
Provision for (benefit from) income taxes.................... 29.4 1.1 (39.7)(d) (9.2)
------- -------- --------- --------
Net income (loss)............................................ $ 39.2 $ 1.9 $ (55.0) $ (13.9)
======= ======== ========= ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Statements of Operations
28
<PAGE> 31
INTERNATIONAL HOME FOODS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
AHFP HERITAGE ADJUSTMENTS TOTAL
------ -------- ----------- -----
<S> <C> <C> <C> <C>
Net sales.................................................... $ 609.1 $ 38.0 $ -- $ 647.1
Cost of goods sold........................................... 297.0 23.0 -- 320.0
------- -------- ------------- --------
Gross profit................................................. 312.1 15.0 -- 327.1
Marketing expenses........................................... 139.9 2.0 -- 141.9
Selling, general and administrative expenses................. 115.8 7.8 (3.1)(a) 120.5
Other expenses, net.......................................... 10.2 1.7 0.3 (b) 12.2
------- -------- ------------- --------
Operating profit............................................. 46.2 3.5 2.8 52.5
Interest expense............................................. 2.1 74.1(c) 76.2
------- -------- ------------- --------
Income (loss) before provision for income taxes.............. 46.2 1.4 (71.3) (23.7)
Provision for (benefit from) income taxes.................... 20.4 0.7 (30.6)(d) (9.5)
------- -------- ------------- --------
Net income (loss)............................................ $ 25.8 $ 0.7 $ (40.7) $ (14.2)
======= ======== ============= ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Statements of Operations
29
<PAGE> 32
INTERNATIONAL HOME FOODS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
AHFP HERITAGE ADJUSTMENTS TOTAL
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................... $ 704.1 $ 41.4 $ -- $ 745.5
Cost of goods sold........................................... 333.9 21.6 -- 355.5
------- -------- ------------ ---------
Gross profit................................................. 370.2 19.8 -- 390.0
Marketing expenses........................................... 140.2 4.9 -- 145.1
Selling, general and administrative expenses................. 108.1 12.5 (2.7)(a) 117.9
Other expenses, net.......................................... 2.2 1.8 0.3 (b) 4.3
------- -------- ------------ ---------
Operating profit............................................. 119.7 0.6 2.4 122.7
Interest expense............................................. 2.5 72.2(c) 74.7
------- -------- ------------ ---------
Income (loss) before provision for income taxes.............. 119.7 (1.9) (69.8) 48.0
Provision for (benefit from) income taxes.................... 45.5 (0.7) (25.6)(d) 19.2
------- -------- ----------- ---------
Net income (loss)............................................ $ 74.2 $ (1.2) $ (44.2) $ 28.8
======= ======== =========== =========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Statement of Operations
30
<PAGE> 33
INTERNATIONAL HOME FOODS, INC.
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(a) Adjustment reflects cost savings net of increases in corporate overhead as
follows:
<TABLE>
<CAPTION> NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------
1995 1995 1996
------------------- ------------- -------------
<S> <C> <C> <C>
DESCRIPTION OF SAVINGS
Reduction of salaries and benefits (1)............... $ 8.8 $ 6.7 $ 6.2
Increase in corporate overhead (2)................... (4.5) (3.6) (3.5)
--- ------ ------
Net cost savings (3)................ $ 4.3 $ 3.1 $ 2.7
===== ====== ======
</TABLE>
- ---------------
(1) The reduction of salaries and benefits relates to certain general
and administrative headcount reductions. In connection with the
rationalization, 36 management personnel (primarily at the
Company's corporate headquarters and Milton, Pennsylvania
administrative facility), 13 marketing and sales personnel
(primarily at the Company's corporate headquarters and field
locations, respectively), 24 technical personnel (primarily at
the Milton, Pennsylvania facility), and 30 administrative staff
(primarily at the Milton, Pennsylvania and Canada facilities)
were terminated.
(2) Increase in corporate overhead reflects certain estimated costs
related to services to be provided by C. Dean Metropoulos & Co.
related to the development and maintenance of investment banking
relationships, long-term strategic planning, reviews of potential
acquisition candidates, communications with the financial
community, and other services which are beyond the required stand
alone corporate overhead costs included in the historical results
of operations of AHFP and Heritage. Historical stand alone costs
include an amount equivalent to the $1.0 million annual oversight
and monitoring services fee to be paid to Hicks Muse Partners.
(3) Net cost savings relate to selling, general and administrative
expenses.
In addition to the cost savings above, management anticipates
achieving additional cost savings of approximately $12.5 million
annually. However, there can be no assurance that these additional
cost savings will be realized. There can be no assurance that other
costs and expenses of the Company will not increase, thereby lowering
or offsetting management's estimated cost savings. See "Business --
Business Strategy -Achieve Cost Savings."
(b) Adjustment reflects the increase in amortization of goodwill associated
with the acquisition of Heritage. Goodwill is amortized over 40 years.
31
<PAGE> 34
(c) Adjustment reflects interest expense associated with the Notes, the
Senior Bank Facilities and amortization of deferred financing fees,
net of interest related to the existing indebtedness of Heritage.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31,----------------
1995 1995 1996
------ ------ ------
<S> <C> <C> <C>
Senior Bank Facilities:
Revolving Credit Facility at 8 1/4 ................ $ 1.0 $ 0.8 $ 0.8
Term Loan Facilities:
Tranche A at 7 7/8% ............................ 22.4 17.0 15.6
Tranche B at 8 3/8% ............................ 16.6 12.4 12.4
Tranche C at 8 7/8% ............................ 14.9 11.2 11.2
The Notes at 103/8% .................................... 41.5 31.1 31.1
------ ------ ------
Cash interest expense .................................. 96.4 72.5 71.1
Amortization of deferred financing fees (1) ............ 5.0 3.7 3.6
------ ------ ------
Pro forma interest expense ............................. 101.4 76.2 74.7
Elimination of historical interest expense ............. (2.8) (2.1) (2.5)
------ ------ ------
Net adjustment ......................................... $ 98.6 $ 74.1 $ 72.2
====== ====== ======
</TABLE>
---------------
(1) Adjustment reflects the amortization of deferred financing fees
associated with the Notes and the Senior Bank Facilities. Deferred
financing fees are amortized by the effective interest method over
the term of the related debt.
(2) The effects of a 1/8% increase or decrease in interest rates would
increase or decrease total interest expense by approximately $0.8
million and would increase or decrease net income (loss) by
approximately $0.5 million in each of the periods represented.
(d) The tax effect of the pro forma adjustments is based on the estimated
applicable combined effective tax rate of 40% for the periods presented.
32
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
AHFP is a manufacturer and marketer of branded food products. The
following analysis discusses the results of operations of AHFP for the years
ended December 31, 1993, 1994 and 1995, all derived from the financial
statements of AHFP.
RECENT OPERATING PERFORMANCE
From 1987 to 1994, AHFP's sales and operating profit increased at
compounded annual rates of 6.4% and 4.4%, respectively. In 1995, however, AHFP
experienced a substantial decline in sales and operating profit. AHFP's sales
and operating profit decreased from $997.3 million and $159.2 million,
respectively, in 1994 to $818.9 million and $68.6 million, respectively, in
1995. The specific causes of these declines, however, have been subsequently
addressed by AHFP, as evidenced by the fact that during the first nine months
of 1996, versus the same period in 1995, sales increased to $704.1 million from
$609.1 million and operating profit increased to $119.7 million from $46.2
million.
The decline in sales and profitability in 1995 stemmed largely from a
prior "push" marketing strategy that relied heavily on trade promotions and
sales discounting. In the fourth quarter of 1994, AHFP offered significant
trade incentives to its customers, a practice similarly pursued in the fourth
quarter of 1993. These trade incentives resulted in forward buying by customers
in advance of consumer purchases, thereby significantly increasing customer
inventories of AHFP's products by the end of 1994. The reliance on trade
incentives as well as consumer promotions reduced marketing funds available to
support advertising, which builds brand equity and consumer loyalty, for AHFP's
core brands. Advertising funds available for AHFP's core products were further
diminished by the introduction in 1994 of Chef Boyardee Sesame Street canned
pasta. AHFP directed approximately $3 million, or 10% of its total advertising
expense in 1994, to the launch and support of this product.
During the first quarter of 1995, AHFP's sales were significantly
reduced as retailers sold the excess inventory of AHFP's products that they
held at the end of 1994. This reduction was compounded by the effects of an
industry-wide reduction in inventory levels by the supermarket trade. In
addition, the Chef Boyardee Sesame Street product line proved unsuccessful and
was discontinued in 1995. To reduce costs and maintain profitability in the
face of declining sales, AHFP significantly reduced advertising spending during
the first half of 1995. This action, coupled with lower advertising spending
for AHFP's core brands in 1994, resulted in market share losses which further
depressed sales.
In response to the sharp declines in sales and profitability in the
first half of 1995, AHFP undertook a number of initiatives, including
installing a new management team in July 1995. In addition, advertising
spending was substantially increased beginning in the fourth quarter of 1995 to
strengthen consumer brand support. Advertising expense in the fourth quarter of
1995 was approximately $14 million, which represented approximately one-third
of total advertising expense for all of 1995. The significant increase in
advertising spending in the fourth quarter of 1995 further depressed
profitability in that year, but provided the foundation for AHFP's growth in
sales and profitability in 1996. Management believes that the marked
improvement in sales and operating profit for the nine months ended September
30, 1996 over the same period in 1995 reflects the early success of these
initiatives.
33
<PAGE> 36
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- -----------------------------------
1993 1994 1995 1995 1996
---------------- ---------------- ---------------- --------------- ------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $935.7 100.00% $997.3 100.0% $818.9 100.0% $609.1 100.0% $704.1 100.0%
Cost of goods sold...... 432.0 46.2% 463.1 46.4% 398.2 48.6% 297.0 48.8% 333.9 47.4%
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............ 503.7 53.8% 534.2 53.6% 420.7 51.4% 312.1 51.2% 370.2 52.6%
Marketing expenses:
Advertising............. 33.2 3.5% 32.8 3.3% 42.4 5.2% 28.6 4.7% 43.0 6.1%
Consumer promotion...... 21.5 2.3% 25.5 2.5% 23.5 2.9% 20.3 3.3% 13.3 1.9%
Trade promotion......... 118.7 12.7% 127.6 12.8% 120.0 12.4% 76.3 12.5% 74.6 10.6%
Other................... 16.5 1.8% 14.9 1.5% 18.5 2.3% 14.7 2.4% 9.3 1.3%
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
Total marketing
expenses................ 189.9 20.3% 200.8 20.1% 186.4 22.8% 139.9 22.9% 140.2 19.9%
Other operating expense:
Selling................. 47.2 5.0% 52.3 5.3% 45.9 5.6% 36.9 6.1% 33.6 4.8%
Storage, Packing and
shipping.............. 57.6 6.1% 63.4 6.4% 55.3 6.7% 41.4 6.8% 41.2 5.9%
Administrative.......... 20.5 2.2% 23.2 2.3% 23.6 2.9% 18.4 3.0% 14.2 2.0%
General and other....... 35.2 3.8% 35.3 3.5% 40.9 5.0% 29.3 4.8% 21.3 3.0%
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
Total other operating
expenses................ 160.5 17.1% 174.2 17.5% 165.7 20.2% 126.0 20.7% 110.3 15.7%
Operating profit........ 153.3 16.4% 159.2 16.0% 68.6 8.4% 46.2 7.6% 119.7 17.0%
Provision for
income taxes............ 60.9 6.5% 63.3 6.4% 29.4 3.6% 20.4 3.4% 45.5 6.5%
------ ------ ------ ----- ------ ----- ------ ----- ------ -----
Net income.............. $ 92.4 9.9% $ 95.9 9.6% $ 39.2 4.8% $ 25.8 4.2% $ 74.2 10.5%
====== ====== ====== ===== ====== ====== ====== ===== ====== =====
</TABLE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Sales. AHFP's sales were $704.1 million for the nine months ended
September 30, 1996, as compared to $609.1 million for the same period in 1995,
an increase of $95.0 million, or 15.6%. In 1995, sales were depressed,
particularly in the first quarter, as retailers sold the excess inventory of
AHFP's products that they held at the end of 1994. The sales weakness in 1995
was compounded by the effects of an industry wide reduction in inventory levels
by the supermarket trade. In contrast, during the 1996 period, AHFP's customers
did not have excess inventory of AHFP's products and the general inventory
reductions pursued by the retail trade in 1996 were not as significant as those
pursued in 1995. As a result, during the 1996 period, AHFP's sales to the
retail trade more closely matched the retail trade's actual sales to consumers.
AHFP's sales in the 1996 period also benefited from new management's emphasis
on improving merchandising and building brand awareness through increased media
advertising. Management believes that these efforts have begun to yield market
share gains across most of AHFP's major product lines, in comparison to market
share losses experienced in 1995, which further depressed sales in that year.
Cost of Goods Sold. Cost of goods sold was $333.9 million for the nine
months ended September 30, 1996, as compared to $297.0 million for the same
period in 1995, an increase of $36.9 million, or 12.4%. Expressed as a
percentage of sales, cost of goods sold decreased to 47.4% in the 1996 period
from 48.8% in the 1995 period. The decrease in cost of goods sold as a
percentage of sales was primarily attributable to a higher absorption of
overhead charges as a result of higher sales volume.
Total Marketing Expenses. Total marketing expenses were $140.2 million
for the nine months ended September 30, 1996, as compared to $139.9 million for
the same period in 1995, an increase of $0.3 million, or 0.2%. Expressed as a
percentage of sales, total marketing expense declined from 22.9% in the 1995
period to 19.9% in the 1996 period, primarily as a result of a reduction in
consumer and trade promotion spending as a percentage of sales. AHFP's total
marketing expenses, excluding media advertising, declined from 18.2% of sales
in the 1995 period to 13.8% of sales in the 1996 period as a result of a
reduction in coupon promotions and improved management of trade spending. Media
advertising during the 1996 period increased by approximately 50%, to $43.0
million, or 6.1% of sales, from $28.6 million, or 4.7% of sales, during the
1995 period as a result of management's renewed emphasis on consumer
advertising to build brand equity and consumer loyalty.
Other Operating Expenses. Other operating expenses were $110.3 million
for the nine months ended September 30, 1996, as compared to $126.0 million for
the same period in 1995, a decrease of $15.7 million, or 12.5%. Expressed as a
percentage of sales, other operating expenses declined to 15.7% in the 1996
period from 20.7% in the 1995 period. This decrease was principally due to (i)
a reduction in the commission percentage paid to brokers, (ii) improved
efficiencies in logistics and (iii) administrative headcount reductions.
Cash Flows. For the nine months ended September 30, 1996 and 1995, cash
flows from operations were $99.0 million and $102.1 million respectively.
Comparing the 1996 to 1995 periods, the material changes in operating cash flows
were from increases in net income ($48.4 million), changes in inventories ($8.3
million), accounts payable and accruals ($2.9 million). These were offset by
lower depreciation and amortization of $8.9 million (approximately $7.8 million
of this decline was due to a three year non-compete agreement that was fully
amortized in 1995) and material working capital sources related to lower
accounts receivable ($54.8 million). The significant sales loading that occurred
in the fourth quarter of 1994 resulted in unusually high accounts receivable
balances as of December 31, 1994, and this created a significant inflow of cash
in 1995 as these receivables were collected. Investing activities consisted of
purchases of plant and equipment of $8.5 million and $22.4 million for the
respective 1996 and 1995 periods. The financing activities consisted of a
reduction of $10.3 million in dividends paid and changes in the parent company's
investment and advances account which, in aggregate, represent the net change in
the Company's cash flow for the two comparable 1996 and 1995 periods ($3.1
reduction in cash from operations offset by a decrease in investing activities
of $13.9 million).
34
<PAGE> 37
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Sales. AHFP's sales were $818.9 million in 1995, as compared to $997.3
million in 1994, a decrease of $178.4 million, or 17.9%. Of the $178.4 million
decrease, management believes $104 million was attributable to retailers
selling excess inventory of AHFP products during 1995 that they accumulated by
the end of 1994 and to management's strategy of reducing discounts and
incentives which had been offered by AHFP to its retail customers in the fourth
quarters of 1994 and 1993. Of the $104 million decrease, (i) approximately $90
million related to excess sales to grocery retailers in the fourth quarters of
1993 and 1994 and (ii) approximately $14 million was due to unusual discounts
and incentives given to mass merchandisers in 1994 which were not repeated in
1995. In addition, management believes that $56 million of the 1995 sales
decrease was due to (i) market share erosion across many of AHFP's major
product lines caused by a significant reduction in media advertising support
for these brands in 1994 and the first half of 1995 and (ii) the failure of
Chef Boyardee Sesame Street canned pasta. Moreover, management believes $18
million was due to an industry-wide reduction in inventory levels by the
supermarket trade.
Cost of Goods Sold. Cost of goods sold was $398.2 million in 1995, as
compared to $463.1 million in 1994, a decrease of $64.9 million, or 14.0%.
Expressed as a percentage of sales, cost of goods sold increased to 48.6% in
1995 from 46.4% in 1994. The increase in cost of goods sold as a percentage of
sales was primarily attributable to underabsorbed overhead charges as a result
of lower sales. In addition, cost of goods sold includes estimated costs of $5
million related to the discontinuation of Chef Boyardee Sesame Street canned
pasta. This $5 million amount reflects inventory write-offs of $0.7 million,
accrued contractual royalty payments of $1.0 million and a $3.3 million
estimate of the reduced margins realized on sales of the product resulting from
price discounting following its termination.
Total Marketing Expenses. Total marketing expenses were $186.4 million
in 1995, as compared to $200.8 million in 1994, a decrease of $14.4 million, or
7.2%. This decrease was primarily due to a decrease in trade and consumer
promotions of $27.6 million, offset in part by an increase in media advertising
of $9.6 million. Expressed as a percentage of sales, however, total marketing
expenses increased to 22.8% in 1995 from 20.1% in 1994, primarily as a result
of the increase in media advertising expenditures. Management increased media
advertising expenditures by $9.5 million, or 121%, during the last three months
of 1995 over the corresponding 1994 period in an effort to reverse the erosion
in market share of AHFP's major product lines.
Other Operating Expenses. Other operating expenses were $165.7 million
in 1995, as compared to $174.2 million in 1994, a decrease of $8.5 million, or
4.9%. Expressed as a percentage of sales, other operating expenses increased to
20.2% in 1995 from 17.5% in 1994, primarily as a result of lower sales, and an
increase in general and other expenses of $5.6 million principally related to
an increase in post retirement benefits costs and severance for administrative
headcount reductions.
Cash Flows. For the twelve months ended December 31, 1995 and 1994,
cash flows from operations were $145.5 million and $83.4 million respectively,
or an increase of $62.1 million. Comparing the 1995 to 1994 periods, the
significant changes in operating cash flows were from increased depreciation
and amortization ($3.8 million), sources due to changes in working capital
related to lower accounts receivable ($86.4 million), lower inventories and
other assets ($24.2 million), and higher accounts payable and accruals ($5.1
million). These were offset by lower net income ($56.7 million). Investing
activities consisted of purchases of plant and equipment of $24.2 million and
$31.1 million for the respective 1995 and 1994 periods. The financing
activities consisted of a net increase of $70.0 million in dividends paid and
changes in the parent company's investment and advances account which, in
aggregate, represent the change in the Company's net cash flow for the two
comparable 1995 and 1994 periods ($62.1 increase in cash from operations plus
the decrease in investing activities of $6.9 million).
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Sales. AHFP's sales were $997.3 million in 1994, as compared to $935.7
million in 1993, an increase of $61.6 million, or 6.6%. This increase was
primarily attributable to the introduction of Chef Boyardee Sesame Street
canned pasta in 1994, which had sales of $19.2 million in 1994, and the
combined growth in PAM and Polaner sales of $45.8 million, which was partially
offset by an $8.2 million decline in Crunch 'n Munch sales caused by fewer
promotions to mass merchandisers. Sales of PAM products increased $14.7 million
to $85.8 million in 1994 from $71.1 million in 1993, an increase of 20.6%,
primarily as the result of certain trade incentives that were offered to the
retail trade in the fourth quarter of 1994. Sales of Polaner products increased
$31.1 million to $72.2 million in 1994 from $41.1 million in 1993, an increase
of 75.7%. Polaner sales in 1994 reflected a full year of sales based on
nationwide distribution, while sales in 1993 included only ten months of sales
(Polaner was acquired by AHFP in February 1993) that were primarily limited to
regional distribution.
Cost of Goods Sold. Cost of goods sold was $463.1 million in 1994, as
compared to $432.0 million in 1993, an increase of $31.1 million, or 7.2%.
Expressed as a percentage of sales, cost of goods sold remained relatively
constant at 46.4% in 1994 compared to 46.2% in 1993.
Total Marketing Expenses. Total marketing expenses were $200.8 million
in 1994, as compared to $189.9 million in 1993, an increase of $10.9 million,
or 5.7%. Expressed as a percentage of sales, marketing expenses were 20.1% in
1994, essentially unchanged from 20.3% in 1993.
35
<PAGE> 38
Other Operating Expenses. Other operating expenses were $174.2 million
in 1994, as compared to $160.5 million in 1993, an increase of $13.7 million,
or 8.5%. Expressed as a percentage of sales, other operating expenses increased
to 17.5% in 1994 from 17.1% in 1993, primarily as a result of modest increases
in selling expenses and storage, packing and shipping costs as a percentage of
sales.
Cash Flows. For the twelve months ended December 31, 1994 and 1993,
cash flows from operations were $83.5 million and $88.5 million respectively,
or a decrease of $5.0 million. Comparing the 1994 to 1993 periods the material
increases in operating cash flows were from higher net income ($3.6 million)
and increased depreciation and amortization ($1.4 million). Working capital
changes represented a net use of funds totaling $10.0 million (working capital
assets increased by $6.4 million and liabilities decreased by $4.3 million).
Investing activities decreased by $58.5 million due to the purchase of Polaner
in 1993 for $67.6 million reduced by higher purchases of plant and equipment
in 1994 of $9.1 million. The financing activities consisted of a net increase
of $53.2 million in dividends paid and changes in the parent company's
investment and advances account which, in aggregate, represent the change in
the Company's net cash flow for the two comparable 1994 and 1993 periods ($5.0
decrease in cash from operations offset by the decrease in investing activities
of $58.5 million).
HERITAGE
The following table sets forth certain historical financial
information with respect to Heritage.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED --------------------------------------
DECEMBER 31, 1995 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales ....................................................... $53.0 100.0% $38.1 100.0% $41.4 100.0%
Cost of sales ................................................... 29.7 56.0% 23.0 60.4% 21.6 52.2%
----- ----- ----- ----- ----- -----
Gross Profit .................................................... 23.3 44.0% 15.1 39.6% 19.8 47.8%
Operating expenses:
Selling ..................................................... 2.8 5.3% 2.7 7.1% 2.7 6.5%
Trade promotion ............................................. 4.9 9.2% 1.3 3.4% 5.3 12.8%
Marketing ................................................... 2.1 4.0% 2.0 5.2% 4.9 11.8%
Distribution ................................................ 3.6 6.8% 2.7 7.1% 3.2 7.7%
General and administrative .................................. 2.3 4.3% 1.5 3.9% 1.7 4.1%
Amortization ................................................ 1.8 3.4% 1.4 3.7% 1.4 3.4%
----- ----- ----- ----- ----- -----
Total operating expenses ........................................ 17.5 33.0% 11.6 30.4% 19.2 46.4%
Operating profit ................................................ 5.8 10.9% 3.5 9.2% 0.6 1.4%
Interest expense................................................. 2.8 5.3% 2.1 5.5% 2.4 5.8%
----- ----- ----- ----- ----- -----
Income (loss) before income taxes ............................... 3.0 5.6% 1.4 3.6% (1.8) (4.4)%
Provision for (benefit from) income taxes ....................... 1.1 2.1% 0.7 1.8% (0.7) (1.7)%
----- ----- ----- ----- ----- -----
Net income (loss) ............................................... $ 1.9 3.5% $ 0.7 1.8% $(1.1) (2.7)%
===== ===== ===== ===== ===== =====
</TABLE>
Sales of Heritage were $41.4 million for the nine months ended
September 30, 1996, as compared to $38.1 million for the same period in 1995,
an increase of $3.3 million, or 8.7%. This growth was primarily due to the
introduction of Campfire Marshmallow Munchie marshmallow crisp rice bars in
supermarkets in late 1995, which was partially offset by lower sales of this
product to convenience stores and warehouse clubs. Cost of sales was $21.6 for
the nine months ended September 30, 1996, as compared to $23.0 million for the
same period in 1995, a decrease of $1.4 million, or 6.1%. Expressed as a
percentage of sales, cost of sales decreased to 52.2% in the 1996 period from
60.4% in the 1995 period. The decrease in cost of sales as a percentage of
sales was primarily attributable to significant improvements in manufacturing
efficiency as a result of the installation of a new marshmallow crisp rice bar
manufacturing line in mid-1995. Operating expenses were $19.2 million for the
nine months ended September 30, 1996, as compared to $11.6 million for the same
period in 1995, an increase of $7.6 million, or 65.5%. Expressed as a
percentage of sales, operating expenses increased to 46.4% in the 1996 period
from 30.4% in the 1995 period. The increase in operating expenses as a
percentage of sales was primarily due to an increase in trade promotions and
marketing expenses related to the introduction of Campfire Marshmallow Munchie
in supermarkets in late 1995.
SEASONALITY
AHFP's inventory levels are moderately seasonal and affected by the
growing season for commodity products such as tomatoes, fruits, beans and
peanuts. As these products are harvested in August through October, inventory
levels tend to grow during this period.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes and interest and principal payments
under the Senior Bank Facilities represent significant cash requirements for
the Company. The Notes will require semiannual interest payments of $20.8
million commencing in May 1997. Borrowings under the Senior Bank Facilities
bear interest at floating rates and require interest payments on varying dates
depending on the interest rate option selected by the Company. Borrowings under
the Senior Bank Facilities consist of $670 million under the Term Loan
Facilities, comprised of a $300 million Tranche A Term Loan Facility maturing
in 2003, a $200 million Tranche B Term Loan Facility maturing in 2004, and a
$170 million Tranche C Term Loan Facility maturing in 2005. In addition, the
Senior Bank Facilities include a $100 million Revolving Credit Facility. The
Term Loan Facilities required periodic principal repayments in increasing
amounts prior to the maturity of each Term Loan Facility. The Revolving Credit
Facility terminates and all amounts outstanding
36
<PAGE> 39
thereunder mature on November 1, 2003 or the date on which the Tranche A Term
Loans are repaid in full. See "Description of Senior Bank Facilities."
The Company's remaining liquidity demands will be for capital
expenditures and for working capital needs. For 1996, the Company has made
capital expenditures of approximately $ 12,000,000 million. The Company expects
to spend approximately $20 million on capital projects in 1997 primarily to
maintain facilities and equipment. For the foreseeable future, the Company
expects that its capital expenditures will be limited primarily to maintenance
levels. The Senior Bank Facilities impose annual limits on the Company's capital
expenditures and investments. In addition, to achieve cost savings in excess of
the $21 million described herein (see "Business -- Business Strategy -- Achieve
Cost Savings," and "Unaudited Pro Forma Financial Statements"), the Company has
incurred approximately $4.2 million of expenditures related to the restructuring
of its operations in the period in which the Transaction was consummated.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Revolving Credit Facility. As of December
31, 1996, the Company had $100 million available for borrowings under the
Revolving Credit Facility. See "Description of Senior Bank Facilities."
37
<PAGE> 40
BUSINESS
OVERVIEW
The Company is a leading North American manufacturer and marketer of a
diversified, well-established portfolio of shelf-stable food products with
popular brand names. In the United States, nine of the Company's eleven
principal brands command the number one position in their defined markets and
have a long history of stable revenue and cash flow. In the twelve month period
ended September 30, 1996, these nine brands accounted for 64% of the Company's
sales. In addition, many of the Company's largest brands also command leading
market positions in Canada and Puerto Rico. The Company's strong portfolio of
leading brands enables it to realize synergies in manufacturing, marketing,
distribution and raw material sourcing and provides the Company with a strong
presence in the United States as well as an attractive platform for
international expansion, particularly in Latin America. The Company's brand
name business is complemented by growing food service and private label
businesses and sales to the U.S. military. For the fiscal year ended December
31, 1995 and the twelve months ended September 30, 1996, the Company's sales
and net income (loss) were $872 million and ($14 million), respectively, and
$970 million and $29 million, respectively.
The Company groups its brands into three general categories consisting
of national grocery, southwestern cuisine and snack foods. The Company's
national grocery group is anchored by its largest brand, the nationally
distributed family of Chef Boyardee prepared foods, which represented 41% of
the Company's sales in 1995. Chef Boyardee is one of the nation's most widely
recognized brands and is found in over half of American homes with children.
The Company's strong Chef Boyardee brand is complemented by other market
leading grocery products, including PAM cooking spray, Polaner fruit spreads
and spices and Gulden's mustard, as well as Maypo, Wheatena and Maltex hot
cereals and G. Washington's dry seasonings and broths. In the growing market
for southwestern cuisine, the Company's products include strong regional brands
such as Ranch Style and Luck's canned beans, Ro*Tel canned tomatoes with green
chilies and Dennison's chili, and in the snack foods category, the Company's
brands include Crunch 'n Munch glazed popcorn, Campfire marshmallows and
marshmallow crisp rice bars and Jiffy Pop unpopped popcorn.
COMPETITIVE STRENGTHS
Management believes that the following characteristics contribute to
the Company's position as a leading manufacturer and marketer of popular
branded food products and serve as a foundation for the Company's business
strategy.
O LEADING MARKET POSITIONS AND BRAND NAME RECOGNITION. In the
United States, nine of the Company's eleven principal brands
command the number one position in their defined markets. The
Company's portfolio of national grocery brands includes five
national market leaders: Chef Boyardee canned pasta; PAM cooking
spray; Polaner fruit-juice-sweetened spreads; Chef Boyardee
pizza mix; and Gulden's mustard. In addition, three of the
Company's southwestern cuisine brands command leading positions
in their regional markets: Ro*Tel is the leading brand of canned
tomatoes with green chilies in the Southwest; and Ranch Style
and Luck's are the leading brands of canned beans in the
Southwest and Southeast, respectively. In the snack food
category, the Company's brands include market leader Crunch 'n
Munch glazed popcorn. In today's competitive food environment,
the Company's recognizable portfolio of leading brands provides
a critical mass of brand name sales that (i) allows the Company
to realize synergies in manufacturing, marketing, distribution
and raw material sourcing, (ii) creates a position of strength
with retailers that is critical in maintaining and securing
valuable retail shelf space for existing and new brands and
(iii) provides a strong platform for introducing product line
extensions and new products. Collectively, U.S. sales of these
nine market leading brands accounted for $618 million, or 64%,
of the Company's total sales in the twelve month period ended
September 30, 1996.
38
<PAGE> 41
MARKET POSITION OF LEADING MAJOR BRANDS
<TABLE>
<CAPTION>
MARKET SHARE NUMBER TWO
--------------------------- COMPETITOR'S
BRAND CATEGORY/SEGMENT POSITION PERCENTAGE PERCENTAGE
- ----- ---------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
LEADING NATIONAL GROCERY BRANDS
Chef Boyardee............ Canned Pasta........................... #1 58% 35%
PAM...................... Cooking Spray.......................... #1 53% 12%
Polaner.................. Fruit-Juice-Sweetened Spreads.......... #1 45% 29%
Chef Boyardee............ Pizza Mixes............................ #1 69%(1) 11%
Gulden's................. Brown Mustard.......................... #1 48% 28%
LEADING SOUTHWESTERN CUISINE BRANDS
Ranch Style.............. Canned Beans(2)........................ #1 in Southwest 26% 16%
Luck's................... Canned Beans(2)........................ #1 in Southwest 34% 21%
Ro*Tel................... Canned Tomatoes with Green Chiles...... #1 in Southwest 80% 13%
Dennison's............... Canned Chili........................... #3 in West(3) 19% NA
LEADING SNACK FOODS BRANDS
Crunch 'n Munch.......... Glazed Popcorn......................... #1 34% 26%
Campfire................. Marshmallow Crisp Rice Bars............ #1 12% NA
</TABLE>
- ------------
(1) Percentage is based on the 52 week period ended March 9, 1996.
(2) The canned beans category includes both the pork and beans and
miscellaneous beans categories. In their respective regions, Ranch Style
leads both categories with a total market share of 26%, and Luck's leads
the miscellaneous beans category with a market share of 34%.
(3) Dennison's has the #1 market share in California, which represents
approximately 65% of Dennison's sales.
O STABLE REVENUE AND CASH FLOW. The Company's portfolio of established,
leading branded products enables it to generate stable revenue and
cash flow. Through internal growth and selective acquisitions, AHFP's
sales and operating profit from 1987 to 1996 (based on the annualized
nine months ended September 30, 1996) increased at compound annual
rates of 4.3% and 3.5%, respectively. During this same period, sales
of AHFP's largest brand -- Chef Boyardee -- increased at a compound
annual rate of 3.2%. Consistently stable revenue and cash flow
provide resources that can be used to fund the Company's growth
strategy. See "Business Strategy."
O STRONG OPERATING MARGINS. Management believes that the Company
benefits from one of the highest operating profit margins in the
branded food products industry. From 1991 to 1995, AHFP achieved an
average operating profit margin of 14.8% and through the first nine
months of 1996 AHFP realized a 17.0% operating profit margin.
Management believes that its relatively high operating profit margins
result from the Company's leading market position in high margin food
categories as well as the cost efficiencies gained from significant
investment in the Company's manufacturing and distribution network.
Strong operating profit margins provide the Company with financial
resources to support its marketing, sales and distribution efforts
and give the Company flexibility in implementing competitive pricing
strategies for its products.
O WELL-DEVELOPED INFRASTRUCTURE. The Company's manufacturing plants and
distribution network reflect significant historical capital
investment. Due to this investment, management believes that the
Company's capital expenditures for the foreseeable future will be
limited primarily to maintenance levels.
Well-Maintained Manufacturing Facilities. The Company produces
its products primarily in two well-maintained manufacturing
facilities that are strategically located on the East Coast
(Milton, Pennsylvania) and West Coast (Vacaville, California).
Both plants have significant excess capacity, with the Milton and
Vacaville facilities operating at only 55% and 28% of their
respective capacities (based on a five-day, two-shift work
schedule). In addition, the Company operates five smaller
regional plants that are capable of producing significant
additional volume. This excess capacity can be utilized to
support the (i) growth of the Company's existing branded and
nonbranded businesses, (ii) introduction of new products and
entry into new markets and (iii) integration of strategic
acquisitions.
39
<PAGE> 42
Comprehensive Sales and Distribution Network. The Company has a
comprehensive U.S. direct sales force of approximately 110 people
in nine regional offices and a national network of approximately
90 food brokers, and 12 distribution points located throughout
the United States. Management believes this comprehensive sales
and distribution network enables the Company to deliver 85% of
its sales volume to customers within 24 hours and 100% within 48
hours. Management believes that the Company's sales and
distribution network has the capacity to support substantial
increases in volume.
O WELL-POSITIONED PRODUCTS IN GROWING MARKETS. The Company's diversified
portfolio of branded products are well-positioned to meet the growing
demand for convenient and healthy food products. Many of the Company's
products--such as Chef Boyardee canned pasta--are quick and easy to
prepare and nutritionally sound. As such, management believes they are
particularly appealing to families with children. Several of the
Company's other brands also benefit from trends toward healthier
eating, including PAM, Polaner and Ranch Style. Furthermore, the
Company's strong regional presence in the market for southwestern
cuisine provides a platform to capitalize on this cuisine's growing
national popularity.
BUSINESS STRATEGY
The Company's strategy is to enhance its operating margins and
strengthen its position as a leading manufacturer and marketer of popular
branded food products. The Company plans to improve its profitability by
rationalizing its cost structure and consolidating suppliers. Furthermore, the
Company has identified several opportunities for revenue growth, including line
extending existing brands, expanding into attractive new markets and completing
strategic acquisitions. The Company intends to implement its strategy through
the following measures:
O ACHIEVE COST SAVINGS. Management believes that it can achieve
annual cost savings of approximately $21 million. These savings are
anticipated to be obtained through a reduction in salaries and
benefits of various departments throughout the Company (plant
locations, corporate office and administrative support departments),
$8.8 million; elimination of selected outside warehouse facilities by
consolidating and shipping product direct to the customer, $1.5
million; implementation of a distribution routing system, $2.6
million; benefits of a heat recovery system recently installed, $1.0
million; consolidation of supplier of raw and packaging materials to
obtain more favorable prices, $5.0 million; and elimination of other
identified general and administrative costs, $2.1 million.
Elimination of less profitable SKU's and managing trade promotion
programs more efficiently are expected to add to the savings
identified. The estimated cost of achieving the identified savings is
approximately $2.0 million, primarily related to the distribution
routing system. In addition, estimated increased stand alone overhead
costs amount to $4.5 million. In addition, management believes that
it can further reduce unit manufacturing costs by increasing the
capacity utilization rate of its facilities by expanding into new
markets (as discussed below). Furthermore, as the Company implements
further cost saving measures and strategic acquisitions, management
believes that the Company's excess production capacity will enable it
to eliminate production facilities and thereby generate incremental
profits.
O LEVERAGE LEADING BRANDS. The Company intends to expand its product
offerings by leveraging its existing portfolio of leading brands.
Management believes that Chef Boyardee can serve as a strong platform
to expand the Company's canned pasta product line into other quick
meal products, that Crunch 'n Munch, Campfire and Jiffy Pop can be
the cornerstone of a diversified snack foods business, and that
Dennison's, Ranch Style, Luck's and Ro*Tel can be utilized to develop
a broader southwestern cuisine business. Management also believes
that many of these recognized brand names can serve as a platform for
expanding into new product categories.
O PROMOTE CONSUMER-BASED MARKETING STRATEGY. The Company intends to
continue to refocus its marketing efforts towards building brand
equity through consumer advertising, primarily utilizing television
(a "pull" strategy), rather than focusing promotion efforts on trade
spending and discounting (a "push" strategy). Advertising as a
percentage of AHFP's total marketing expenses increased from 16.3% in
1994 to 30.7% in the first nine months of 1996. In addition, the
Company intends to utilize its advertising and marketing campaigns to
increase brand usage, including promoting Chef Boyardee canned pasta
as an ideal "fourth meal" product to be served after school and PAM
cooking spray as a healthier alternative to cooking oils, butter and
margarine.
O EXPAND INTO ATTRACTIVE NEW MARKETS. Management believes that
attractive opportunities exist to expand the Company's sales in
international markets with growing economies and attractive
demographics. In particular, management believes that the Company's
southwestern cuisine (particularly Dennison's, Ranch Style and
Ro*Tel) and its Chef Boyardee canned pasta products can be
efficiently and successfully expanded into the growing Latin American
markets. In addition, management believes that it can utilize the
Company's excess plant capacity to facilitate further development of
the Company's food service and private label businesses.
O COMPLETE STRATEGIC ACQUISITIONS. The Company will pursue opportunities
to make acquisitions that complement and expand its core businesses or
that enable the Company to enter new markets for its products.
40
<PAGE> 43
Since 1983, the Company has successfully integrated six businesses
into its existing operations. The acquired businesses have enabled the
Company to enter or increase its presence in a number of key markets.
Management believes that additional strategic acquisition
opportunities exist and that incremental revenue and cash flow can be
generated by leveraging the Company's production, distribution and
administrative capabilities.
INDUSTRY
The U.S. food industry is characterized by relatively stable growth
based on modest price and population increases. Over the last ten years, the
industry has experienced consolidation as competitors have shed non-core
business lines and made strategic acquisitions to complement category
positions, maximize economies of scale in raw material sourcing and production
and expand retail distribution. The importance of sustaining strong
relationships with retailers has become a critical success factor for food
companies and is driving many initiatives such as category management. Food
companies with category leadership positions and strong retail relationships
have increasingly benefited from these initiatives as a way to maintain shelf
space and maximize distribution efficiencies.
Consumer demand for food products in the United States is being
strongly influenced by the growth of the "baby boomer" population. The changing
lifestyles and needs of these individuals--now between the ages of 31 and
50--have driven the introduction of nutritious foods that are convenient to
prepare and provide quick family meal alternatives. The primary target market
for convenience foods includes baby boomer parents and approximately 42 million
children between the ages of 3 and 12.
In addition to the U.S. market, certain international markets with
above-average population growth and expanding economies (such as Latin America)
offer substantial growth potential for the industry, especially for companies
with existing international sales of popular U.S. brands. Moreover, the food
service and private label markets provide alternative opportunities for growth
by branded food companies.
PRODUCTS AND MARKETS
In the United States, the Company manufactures and markets popular
branded food products that are leaders within their respective markets. The
Company's domestic branded food business is complemented by a strong presence
in Canada and Puerto Rico, growing food service and private label businesses
and sales to the U.S. military.
41
<PAGE> 44
The Company groups its brands into three general categories consisting
of national grocery, southwestern cuisine and snack foods. The following table
sets forth sales for each of the Company's brands for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, Nine Months Ended September 30,
-------------------------------------------------------------------------------------------------------
1993 1994 1995 1995 1996
------------------ ------------------- ------------------- ------------------- -------------------
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NATIONAL GROCERY GRANDS
Chef Boyardee........... $ 437 45.0% $ 452 43.6% 354 40.6% $ 265 40.9% $ 306 41.0%
PAM..................... 71 7.3% 86 8.3% 67 7.7% 46 7.1% 62 8.3%
Polaner................. 41 4.2% 72 6.9% 60 6.9% 46 7.1% 46 6.2%
Gulden's................ 17 1.8% 18 1.7% 17 1.9% 14 2.2% 13 1.7%
All Other (1)........... 8 0.8% 5 0.5% 4 0.5% 0.4% 3 0.4%
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
Total Grocery........... 574 59.1% 633 61.0% 502 57.6% 374 57.7% 430 57.6%
SOUTHWESTERN CUISINE BRANDS
Ranch Style............. 44 4.5% 47 4.5% 41 4.7% 32 4.9% 34 4.6%
Luck's.................. 28 2.9% 28 2.7% 27 3.1% 19 2.9% 21 2.8%
Dennison's.............. 29 3.0% 27 2.6% 19 2.2% 14 2.2% 16 2.1%
Ro*Tel.................. 22 2.3% 26 2.5% 19 2.2% 12 1.9% 18 2.4%
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
Total Southwestern...... 123 12.7% 128 12.3% 106 12.2% 77 11.9% 89 11.9%
SNACK FOODS BRANDS
Crunch 'n Munch......... 62 6.4% 53 5.1% 40 4.6% 31 4.8% 36 4.8%
Campfire................ 36 3.7% 40 3.9% 53 6.0% 39 6.0% 41 5.6%
Jiffy Pop............... 8 8.0% 6 0.6% 5 0.6% 3 0.5% 4 0.5%
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
Total Snack............. 106 10.9% 99 9.6% 98 11.2% 73 11.3% 81 10.9%
OTHER MARKETS
Canada.................. 57 5.8% 55 5.3% 53 6.1% 41 6.3% 38 5.1%
Food service............ 34 3.5% 40 3.9% 37 4.2% 27 4.2% 34 4.6%
Private label........... 30 3.1% 31 3.0% 32 3.7% 24 3.7% 29 3.9%
Puerto Rico and 25
International........... 2.6% 30 2.9% 24 2.7% 17 2.6% 29 3.9%
Military................ 22 2.3% 21 2.0% 20 2.3% 15 2.3% 146 19.6%
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
TOTAL SALES............. $ 971 $ 1,037 $ 872 $ 648 $ 746
====== ======= ====== ====== ======
</TABLE>
- ---------------
(1) Includes Wheatena, Maypo and Maltex.
NATIONAL GROCERY BRANDS (57.6% of 1995 Sales). The Company's portfolio of
national grocery brands consists primarily of Chef Boyardee, PAM, Polaner and
Gulden's, each of which commands leading national positions in their defined
markets. These brands have broad consumer recognition that has been developed
through strong marketing and advertising support.
Chef Boyardee. Created by Hector Boiardi in 1929 and acquired by the
Company in 1946, Chef Boyardee is one of the nation's most recognizable brand
names. The Chef Boyardee product line consists of canned pasta, microwave
pasta, pizza kits, dry dinners and pizza and spaghetti sauces. Chef Boyardee
products are found in over half of all American homes with children. Management
believes that Chef Boyardee products appeal to families with children because
they are generally convenient, easy to prepare and inexpensive relative to
other quick meal and snacking alternatives. Canned pasta is purchased most
frequently by women with children between the ages of 3 and 12.
Chef Boyardee has consistently held the number one share in the $520
million canned pasta market. The Company separates the canned pasta category
into two segments: "All Family" and "Kids." The "All Family" segment represents
canned pasta products primarily consumed by children over the age of six as
well as adults. The "Kids" segment represents canned pasta products typically
in the shapes of popular cartoon and comic book characters that are primarily
consumed by children age six and under. The Company's "All Family" canned pasta
line consists primarily of Beef Ravioli, Mini-Ravioli, Spaghetti & Meatballs
and Beefaroni, and accounts for approximately 80% of the Company's canned pasta
sales. The Company's "Kids" canned pasta line features Spiderman, X-Men,
Teenage Mutant Ninja Turtles, the ABC's and dinosaurs and accounts for
approximately 20% of the Company's canned pasta sales.
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<PAGE> 45
As the table below indicates, Chef Boyardee is the leading brand in
the canned pasta category with a 58% market share, followed by the Campbell
Soup Company's Franco American brand at 35%. The remaining seven percent of
this category is fragmented, with private label accounting for approximately
five percent.
<TABLE>
<CAPTION>
MARKET SHARE
---------------------------------
CHEF FRANCO
SEGMENT SIZE BOYARDEE AMERICAN OTHER
------- --------------------- -------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
"All Family" .................................................... $ 297 83% 9% 8%
"Kids" .......................................................... 223 24% 71% 5%
-----
Total Canned Pasta ............................... $ 520 58% 35% 7%
</TABLE>
As indicated in the table above, Chef Boyardee holds a dominant
position in its core "All Family" category while Franco American products have
the number one position in the "Kids" category. Management believes that its
"All Family" products compete primarily within the broader category of prepared
or quick meals.
Management intends to continue to build Chef Boyardee's brand equity
through strong advertising support and packaging that aggressively promotes the
Chef Boyardee brand name. In addition, management believes that sales of Chef
Boyardee products can be enhanced by (i) leveraging the Company's dominant
position in the "All Family" category by targeting advertising campaigns toward
children ages 9 to 13, the older segment of the brand's traditional consumer
base, (ii) encouraging greater use of Chef Boyardee products, particularly as
an after school snack, and (iii) promoting the nutritional benefits of Chef
Boyardee versus other quick meal alternatives.
PAM. PAM established the market for non-stick cooking spray with its
introduction in the 1960's. The Company's PAM products include Original, Butter
and Olive Oil flavored non-stick cooking sprays. The Company's advertising and
marketing strategy for PAM emphasizes PAM's image as a superior product in
comparison to other cooking sprays. Management believes that consumers perceive
PAM to be a pure, high quality, non-stick spray that does not interfere with
the taste of food. As a result of PAM's image and performance, the brand enjoys
a loyal customer base and a premium price.
In grocery outlets, the non-stick cooking spray category has grown at
a compound annual rate of approximately 13% from 1993 to 1995. Management
believes that this rapid sales growth has been driven by a trend toward
healthier eating and cooking. Several well-known chefs and numerous cookbooks
and magazine recipes have advocated cooking sprays in lieu of fattier oils and
spreads. PAM is the market leader in the $161 million non-stick cooking spray
category with 53% of the market, while CPC International, Inc.'s Mazola,
Procter & Gamble Co.'s Crisco and ConAgra, Inc.'s Wesson have market shares of
12%, 5% and 4%, respectively. Private label accounts for most of the remaining
market share with approximately 18%.
Management intends to capitalize on PAM's premium image and the trend
toward healthier eating by identifying and promoting new usage occasions
through advertising campaigns and on-package and in-store recipe suggestions.
Polaner. The Polaner brand is comprised of a broad array of products
competing within the general fruit spread (including jams, jellies, preserves
and fruit-juice-sweetened spreads) and wet spices markets. The focal point of
the Company's Polaner marketing efforts are the "All-Fruit"
fruit-juice-sweetened line of spreads that accounted for approximately 74% of
all Polaner brand sales in 1995. The Company emphasizes Polaner's premium image
and quality in order to differentiate the brand from its competitors.
Fruit spreads are a $705 million category, with the
fruit-juice-sweetened segment representing $110 million of the category. The
fruit-juice-sweetened segment consists of premium products that contain less
sugar than other spreads such as jams and preserves. The primary consumers of
fruit-juice-sweetened spreads are women over the age of 35 with higher incomes.
Since the Polaner brand was acquired by the Company and expanded to national
distribution less than three years ago, its market share in the
fruit-juice-sweetened segment has increased from 32% in 1993 to 45% currently
(grocery only). Polaner's nearest competitor in this segment is J.M. Smucker
Co.'s Simply Fruit at 29%. Management believes that Polaner's market share will
continue to grow as a result of the Company's successful advertising campaign.
43
<PAGE> 46
Gulden's. Charles Gulden created Gulden's mustard in New York City in
1862 and received a number of awards in international food competitions. The
Company acquired the brand in 1962. Gulden's mustard is the leader in the brown
mustard segment with a 48% market share, followed by French's Deli Style with a
28% market share. Brown mustard is a $39 million segment of the $271 million
mustard category. The brown mustard grocery segment grew at a compound annual
rate of 8.5% between 1993 and 1995.
Other Grocery Brands. A number of smaller brands complete the
Company's national grocery brand portfolio, including Maypo, Wheatena and
Maltex hot cereals and G. Washington's dry seasonings and broths.
SOUTHWESTERN CUISINE BRANDS (12.2% of 1995 Sales). On a regional basis, the
Company offers products in the growing southwestern cuisine market for beans,
chili and tomato-based items. Canned beans and canned chili are $970 million
and $300 million categories, respectively, in grocery outlets, with the West
and Southwest representing approximately two-thirds of total U.S. canned chili
volume. Tomatoes with green chilies is a $35 million category, with the
Southwest representing approximately two-thirds of total U.S. volume.
A number of the Company's products in the southwestern cuisine
categories, including Dennison's black bean chili with chorizo sausage and beef
and Ro*Tel diced tomatoes with green chilies, are targeted at the U.S. Hispanic
population which is expected to increase 30% between 1995 and 2005 according to
the most recent Bureau of Census report. In addition, management believes that
the growing national market for beans, which is being driven by trends toward
healthier eating, will benefit the Company's Ranch Style brand. In general,
southwestern cuisine products have enjoyed above average growth over the past
five years.
Ranch Style. Ranch Style beans were created in the early 1930's and
soon became known for their authentic western-style flavor. The Company
purchased the brand in 1983. The Ranch Style line consists of barbecue beans,
refried beans, other beans and chili. The brand is marketed primarily in the
southwestern United States where it led the region with a 24% share of the
miscellaneous canned bean market and 35% share of the pork and beans market.
With ingredients that are low in fat and high in protein, Ranch Style products
are positioned to satisfy the growing trend toward healthy eating. While Ranch
Style has a strong brand loyalty in the Southwest, management believes the
brand can be expanded into adjacent markets, including Mexico, and into other
Latin American markets. On a combined basis, Ranch Style leads the canned beans
category in the Southwest with a 26% market share.
Luck's. Luck's was created in the early 1950's in Seagrove, North
Carolina. The Company acquired the product line in 1967. Luck's is the leader
in the $62 million miscellaneous bean market in the Southeast with a 34% market
share. The Luck's product family primarily includes bean products known for
their traditional southern-style flavor.
Dennison's. The Company's Dennison's product line was originated by
Mrs. May Belle Dennison in 1915 and was purchased by the Company in 1954. The
Dennison's line consists primarily of chili with beans, chili without beans,
extra hot chili and recently introduced black bean and vegetarian chili. These
products are marketed as the "Stand Up" chili with a distinctly extra thick and
hearty profile. The brand has traditionally been marketed in the West where it
has a 19% share of the region's $106 million canned chili market.
Ro*Tel. The Company's Ro*Tel brand, which consists of diced tomatoes
with green chilies and whole tomatoes with green chilies, has an 80% market
share in the Southwest. The Company acquired Ro*Tel in 1992. The brand is known
as a zesty, robust and flavorful tomato ingredient used primarily in
combination with processed cheese as a dip for tortilla chips. The Company's
marketing strategy for Ro*Tel has primarily consisted of print advertising
campaigns and on-package recipes which feature Ro*Tel as the secret ingredient
that can be used to enhance traditional dishes. The Company recently introduced
two product extensions, "mild" and "extra hot." In addition, management has
initiated a program to expand Ro*Tel sales outside the Southwest and is
planning to market Ro*Tel in Mexico.
SNACK FOODS BRANDS (11.2% of 1995 Sales). In the snack food category, the
Company's brands include Crunch 'n Munch glazed popcorn, Campfire marshmallows
and marshmallow crisp rice bars and Jiffy Pop unpopped popcorn.
Crunch 'n Munch. Crunch 'n Munch, a combination of popcorn and fresh
dry roasted peanuts coated with a butter toffee glaze, was created in 1966.
Crunch 'n Munch, which holds the number one position in the glazed popcorn
segment, is now offered in three flavors (Buttery Toffee, Caramel and Fat Free
Buttery Toffee) with a fourth flavor (Almond Supreme) currently being test
marketed. Crunch 'n Munch is positioned as a snack to satisfy the salty and
sweet
44
<PAGE> 47
cravings of consumers. The Company believes that the brand's new package
design, which emphasizes the Crunch 'n Munch brand name, and its new fat free
product, as well as further product extensions, will allow it to increase its
consumer base. Moreover, management believes that the brand can achieve
significantly higher levels of sales with greater marketing support.
Glazed popcorn is an $82 million segment within the $5 billion snack
category, a category which grew at an annual rate of five percent from 1992 to
1995. Glazed popcorn products are purchased by consumers of all ages. Younger
households are more likely to purchase Borden, Inc.'s Cracker Jack due to its
appeal to kids, while older households are more likely to purchase Crunch 'n
Munch due to its appeal to adults. Crunch 'n Munch commands a 34% market share,
followed by Cracker Jack at 26%. No other competitor accounts for more than 10%
of the market.
Campfire. The Company's Campfire product line consists of marshmallows
and marshmallow crisp rice bars. The Campfire brand name enjoys broad consumer
recognition, as it is the oldest brand name in the marshmallow category.
Campfire Marshmallow Munchie is the second leading marshmallow crisp rice bar
with a 12% market share of this $127 million market, behind Kellogg Company's
Rice Krispies brand with an 85% market share. Campfire marshmallow is the
second leading brand in the $105 million grocery marshmallow market with a 8.0%
market share for the twelve weeks ended August 11, 1996. Favorite Brands,
Inc.'s Kraft Jet Puff brand is the market leader with a 41.0% market share for
the same period, with private label accounting for the balance of the market.
Management believes that Campfire sales will continue to grow over the
next several years due to (i) growth in the marshmallow crisp rice bar
category, and (ii) gaining a larger share of the retail marshmallow and
marshmallow crisp rice bar markets through enhanced distribution.
OTHER MARKETS (19.0% of 1995 Sales). The Company's branded business in the
United States is complemented by a strong presence in Canada and Puerto Rico,
growing food service and private label businesses, and sales to the U.S.
military.
Canada. The Company markets Chef Boyardee canned pasta, PAM cooking
spray, Crunch 'n Munch glazed popcorn and certain other products in Canada. The
Company commands the number one market share position in canned pasta, cooking
spray and glazed popcorn sales in Canada, with Chef Boyardee canned pasta, PAM
and Crunch 'n Munch having 56%, 68% and 53% shares of their respective markets.
Food Service. The Company supplies many of its products to
restaurants, institutions, schools, ballparks, the vending trade, distributors
and chain accounts. Management believes that opportunities exist to utilize the
Company's excess plant capacity to facilitate expansion of this line of
business.
Private Label. The primary products manufactured by the Company under
private labels are prepared pasta and jams and jellies. Private label
represents an additional opportunity for growth and the utilization of excess
plant capacity.
Puerto Rico and International. The Company markets Chef Boyardee
canned pasta, Jiffy Pop and Crunch 'n Munch in Puerto Rico. Chef Boyardee, with
over 25 years of sales in Puerto Rico, commands 98% of the Puerto Rican canned
pasta market. In addition, the Company's products are exported to over 35
countries.
Military. The Company sells many of its products to U.S. military
bases both domestically and abroad. Products sold to the military include Chef
Boyardee canned pasta, PAM cooking spray, Crunch 'n Munch glazed popcorn,
Polaner fruit spreads and Ranch Style beans.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing programs consist of advertising, consumer
promotions and trade promotions. The Company's advertising program is comprised
of television, newspaper and magazine advertising aimed at increasing consumer
awareness of the Company's brands and building customer loyalty. Consumer
promotions include targeted coupons and on-package offers designed to generate
trial usage and increase purchase frequency. The Company's trade promotions
focus on obtaining retail display support and achieving key price points. For
1996, the Company's budgeted marketing expenditures are $170 million, which
consists of $100 million for trade promotions, $58 million for advertising
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<PAGE> 48
and $12 million for consumer marketing. The Company intends to continue to
refocus its marketing efforts towards building brand equity through consumer
advertising rather than trade spending and discounting. See "Business
Strategy."
The Company sells its products in the United States through its direct
sales force and a network of food brokers. The Company maintains regional sales
offices in New Jersey, North Carolina, Georgia, Illinois, Texas, California,
Utah, Ohio and Florida. The Company's products reach all major classes of
trade, including grocery wholesalers and distributors, grocery stores and
supermarkets, convenience stores, drug and mass merchants and warehouse clubs.
The Company distributes its products in the United States through 12
distribution points, four of which are owned by the Company and eight of which
are leased. The Company operates three full-service distribution centers, two
of which are owned by the Company, that distribute substantially all of the
Company's product lines. The Company's distribution system uses a combination
of common carrier trucking, Company trucks and inter-modal rail transport. In
Canada, the Company operates six distribution points, one of which is
Company-owned. Management believes that the Company's comprehensive U.S. sales
and distribution network enable the Company to deliver 85% of its sales volume
to customers with 24 hours and 100% within 48 hours. Management believes that
the Company's sales and distribution network has the capacity to support
substantial increases in volume.
None of the Company's customers represent more than ten percent of the
Company's sales.
COMPETITION
The food products business is highly competitive. Numerous brands and
products compete for shelf space and sales, with competition based primarily on
price, quality and convenience. The Company competes with a significant number
of companies of varying sizes, including divisions or subsidiaries of larger
companies. A number of these competitors have broader product lines as well as
substantially greater financial and other resources available to them.
RAW MATERIALS
The primary raw materials used in the Company's operations include tin
cans, flour, meat, tomatoes, fruit and fruit-juice concentrates, beans and
peanuts. The Company purchases its raw materials, all of which are widely
available, from numerous suppliers.
PRODUCTION AND FACILITIES
The Company operates the manufacturing plants described in the
following table. All of these plants are owned by the Company, other than the
Utah facility, which the Company leases under an operating lease with an
initial term that expires in 1999 and containing a renewal option for an
additional five year term. Management believes that the Company's manufacturing
plants have sufficient capacity to accommodate the Company's planned growth
over the next five years.
46
<PAGE> 49
<TABLE>
<CAPTION>
LOCATION SQUARE FEET PRODUCTS MANUFACTURED
- -------- ----------- ---------------------
<S> <C> <C>
Milton, Pennsylvania................. 895,000 Canned pasta, microwave products,
mustard, glazed popcorn, pizza kits, dinner
kits and sauces
Vacaville, California................ 354,800 Canned pasta, microwave products,
tomatoes with green chilies, chili and
tomato paste
Fort Worth, Texas.................... 204,800 Beans and chili
Seagrove, North Carolina............. 198,000 Beans, vegetables, fruit and popcorn
Niagara Falls, Canada................ 165,500 Canned pasta, pizza kits, dinner kits, sauces
and glazed popcorn
Highspire, Pennsylvania.............. 29,000 Cereals
Clearfield, Utah..................... 210,000 Marshmallows and marshmallow crisp rice
bars
</TABLE>
The Company has also entered into co-packing (third party
manufacturing) agreements with several manufacturers for Polaner fruit spreads
and spices, PAM cooking spray and G. Washington's dry seasonings and broths. In
1995, these plants produced approximately eight million cases of finished
product for the Company, as compared to approximately 50 million cases of
products produced by the Company. All of these co-packing plants produce for
other companies except for a co-packer in Roseland, New Jersey that exclusively
produces Polaner fruit spreads for the Company.
In addition to the manufacturing facilities described above, the
Company owns or leases 12 distribution points throughout North America. See
"Marketing, Sales and Distribution."
TRADEMARKS
The Company owns a number of registered trademarks, including Chef
Boyardee, PAM, Franklin Crunch 'n Munch, Polaner, Gulden's, Jiffy Pop,
Dennison's, Luck's, Ranch Style, Ro*Tel, Campfire, Marshmallow Munchie and G.
Washington's. Wheatena, Maypo and Maltex are registered trademarks licensed to
the Company. Management is not aware of any fact that would have a materially
adverse impact on the continuing use of these trademarks.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 3,000
people. Approximately 68% of the Company's employees are unionized. Of the
unionized employees, approximately 81% are represented by the United Food &
Commercial Workers International Union (part of the AFL-CIO-CLC) and have
collective bargaining agreements which extend into the year 2001. Approximately
18% of such unionized employees were covered by an agreement which expires or
is subject to renegotiation during the next 12 months. The Company intends to
renegotiate this agreement.
CERTAIN LEGAL AND REGULATORY MATTERS
Public Health. The Company is subject to the Food, Drug and Cosmetic
Act and regulations promulgated thereunder by the Food and Drug Administration
(the "FDA"). This comprehensive regulatory program governs, among other things,
the manufacturing, composition and ingredients, labeling, packaging and safety
of food. For example, the FDA regulates manufacturing practices for foods
through its current "good manufacturing practices" regulations and specifies
the recipes for certain foods. In addition, the Nutrition Labeling and
Education Act of 1990 prescribes the format and content of certain information
required to appear on the labels of food products. The Company is subject to
regulation by certain other governmental agencies, including the U.S.
Department of Agriculture. Although the Company has voluntarily recalled
products from time to time in the past, no such recall has had a material
effect on the Company's results of operations.
47
<PAGE> 50
The operations and products of the Company are also subject to state
and local regulation through such measures as licensing of plants, enforcement
by state health agencies of various state standards and inspection of
facilities. Enforcement actions for violations of federal, state and local
regulations may include seizure and condemnation of products, cease and desist
orders, injunctions or monetary penalties. Management believes that the
Company's facilities and practices are sufficient to maintain compliance with
applicable government regulations, although there can be no assurances in this
regard.
Federal Trade Commission. The Company is subject to certain
regulations by the Federal Trade Commission ("FTC"). Advertising of the
Company's products is subject to regulation by the FTC pursuant to the Federal
Trade Commission Act and the regulations promulgated thereunder.
Employee Safety Regulations. The Company is subject to certain health
and safety regulations, including regulations issued pursuant to the
Occupational Safety and Health Act. These regulations require the Company to
comply with certain manufacturing, health and safety standards to protect its
employees from accidents.
Environmental. The Company's operations and properties are subject to
a wide variety of increasingly complex and stringent federal, state and local
laws and regulations governing the use, storage, handling, generation,
treatment, emission, release, discharge and disposal of certain materials,
substances and wastes, the remediation of contaminated soil and groundwater,
and the health and safety of employees. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to environmental
matters.
The Company has been named as a potentially responsible party
(a "PRP") at two federal Superfund sites. At the first site, the United States
Environmental Protection Agency ("EPA") has concluded that the Company is a de
minimis party, but EPA has withdrawn a de minimis settlement offer it made to
the Company and other de minimis parties at the site. However, a PRP group at
the site has recently made a de minimis settlement offer similar to the one
previously made by EPA. Under the PRP group's offer, the Company would be
credited for monies it had previously contributed toward the performance of a
Remedial Investigation/Feasibility Study, and it would not be required to make
any additional payments to resolve its liability at this site. The Company is
presently evaluating this offer. At the second site, the Company has received a
de minimis settlement offer from EPA under which the Company could resolve its
liability at the site for a payment of approximately $200,000. The Company has
not accepted EPA's offer, because it is contesting the assumptions under the
EPA's calculation of the Company's liability share.
Based upon its experience to date, the Company believes that the
future cost of compliance with existing environmental laws and regulations, and
liability for known environmental claims, will not have a material adverse
effect on the Company's financial statements as a whole. However, future events,
such as changes in existing laws and regulations or their interpretation, and
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.
Insurance. The Company maintains general liability, product liability,
property, workers' compensation and other insurance in amounts and on terms
that it believes are customary for companies similarly situated.
Litigation. The Company, in the ordinary course of business, is
involved in various legal proceedings in which its exposure is not considered
material to the Company.
48
<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company. All directors hold office until the next
annual meeting of stockholders of the Company and until their successors have
been duly elected and qualified. All officers serve at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C>
C. Dean Metropoulos................. 49 Chairman of the Board and Chief Executive Officer
N. Michael Dion..................... 39 Senior Vice President and Chief Financial Officer
William J. Feeney................... 44 Senior Vice President of Sales
Scott D. Foos....................... 34 Executive Vice President
Albert J. Soricelli, Jr. ........... 43 Senior Vice President of International, New Ventures,
Canada and Food Service
Stephen Van Tassell................. 41 Senior Vice President of New Product Development
Thomas O. Hicks..................... 50 Director
Charles W. Tate..................... 51 Director
Alan B. Menkes...................... 37 Director
Michael J. Levitt................... 37 Director
M. L. Lowenkron..................... 65 Director
Roger T. Staubach................... 54 Director
L. Hollis Jones..................... 42 Director
</TABLE>
A brief biography of each director and executive officer follows:
C. Dean Metropoulos has served as Chairman of the Board of Directors
and Chief Executive Officer of the Company since the closing of the
Transaction. Mr. Metropoulos is the Chief Executive Officer of C. Dean
Metropoulos & Co., a management services company. From 1983 through 1993, Mr.
Metropoulos served as President and Chief Executive Officer of Stella Foods,
Inc. Before then, Mr. Metropoulos served in a variety of U.S. and international
executive positions with GTE Corporation, including Vice President and General
Manager-Europe and Vice President and Controller, GTE International. Mr.
Metropoulos also serves as a director of The Morningstar Group Inc. and
Ghiradelli Chocolate Company.
N. Michael Dion joined the Company as a Senior Vice President and its
Chief Financial Officer in December 1996. Prior to joining the Company, Mr.
Dion was the Vice President of Finance for C. Dean Metropoulos & Co., a
management services company, and for LBJ Holdings, Inc., a Connecticut based
baking company controlled by the principals of C. Dean Metropoulos & Co. In
connection with his capacity with C. Dean Metropoulos & Co., Mr. Dion served as
a financial advisor to The Morningstar Group Inc. and to Ghiradelli Chocolate
Company. Prior to joining C. Dean Metropoulos & Co., Mr. Dion was the Vice
President of Finance for Stella Foods, Inc. from 1990 through December 1994.
Before joining Stella Foods, Mr. Dion held various positions with Aquatech,
Inc., Karl Suss America and Coopers & Lybrand, L.L.P. Mr. Dion holds a B.S. in
Business Administration and Finance and Accounting from the University of
Vermont.
William J. Feeney has been the Company's Senior Vice President of
Sales since 1995. He has a total of 24 years of experience with the Company,
primarily in sales management, as well as senior positions in marketing. Mr.
Feeney received his B.S. from the State University of New York.
Scott D. Foos has served as the Senior Vice President of Operations of
the Company since 1994. He joined the Company in 1992 and, before becoming
Senior Vice President, was Vice President and Chief Information Officer. Before
joining the Company, Mr. Foos was a Consulting Senior Manager with Andersen
Consulting. Mr. Foos received a B.S. from the State University of New York at
Albany.
Albert J. Soricelli joined the Company in 1979 and was promoted to
Senior Vice President of International, New Ventures, Canada and Food Service
in 1989. Before joining the Company, Mr. Soricelli held positions with
International Playtex, P.R. Mallory and International PepsiCo. Mr. Soricelli
received his M.B.A. and his B.B.A. from Iona College.
Stephen Van Tassel has been the Company's Senior Vice President of New
Product Development since August 1, 1995. He joined the Company in 1992, and
before becoming Senior Vice President, held various positions with the
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<PAGE> 52
Company, primarily in product management. Before joining the Company,
Mr. Van Tassel held positions with General Mills and ConAgra. Mr. Van Tassel
received his B.A. from Bowdoin College and his M.B.A. from Dartmouth College.
Thomas O. Hicks has been a director of the Company since the closing
of the Transaction. Mr. Hicks has been Chairman and Chief Executive Officer of
Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Mr.
Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its
Co-Chairman and Co-Chief Executive Officer through 1989. Mr. Hicks also serves
as a director of Chancellor Broadcasting Company, Berg Electronics Corp.,
Sybron International Corporation and Neodata Corporation.
Charles W. Tate has been a director of the Company since the closing
of the Transaction. Mr. Tate is a Managing Director and Principal of Hicks
Muse. Before joining Hicks Muse in 1991, Mr. Tate had been at Morgan Stanley &
Co. since 1972, most recently as a Managing Director in the merchant banking
division and prior thereto in the mergers and acquisitions department. Mr. Tate
also serves as a director of The Morningstar Group Inc., International Wire
Group, Inc., Berg Electronics Corp., DESA Holdings Corporation, Hat Brands
Holding Corporation and Heritage Brands Holdings, Inc.
Alan B. Menkes has been a director of the Company since the closing of
the Transaction. Mr. Menkes is a Managing Director and Principal of Hicks Muse.
Before joining Hicks Muse in 1992, Mr. Menkes was employed by The Carlyle
Group, a Washington D.C.-based private investment firm, most recently as a
Senior Vice President. Mr. Menkes also serves as a director of Hedstrom
Holdings, Inc.
Michael J. Levitt has been a director of the Company since the closing
of the Transaction. Mr. Levitt is a Managing Director and Principal of Hicks
Muse. Before joining Hicks Muse, Mr. Levitt was a Managing Director and Deputy
Head of Investment Banking with Smith Barney Inc. from 1993 through 1995. From
1986 through 1993, Mr. Levitt was with Morgan Stanley & Co. Incorporated, most
recently as a Managing Director responsible for the New York based Financial
Entrepreneurs Group. Mr. Levitt also serves as a director of Ghirardelli
Chocolate Company.
M. L. Lowenkron has been a director of the Company since November
1996. From January 1995 through May 1996, Mr. Lowenkron served as President and
Chief Executive Officer of G. Heileman Brewing Co. Mr. Lowenkron served as
Chairman of the Board and Chief Executive Officer of A&W Brands, Inc. ("A&W")
from December 1991 to October 1993, had served as President of A&W and its
predecessors from 1980 to October 1993. Mr. Lowenkron serves as a Director of
Hat Brands, Inc., Triarc Companies Inc., Depuy Inc. and 7 Up/RC Bottling
Company of Southern California Inc. Mr. Lowenkron also serves as First Vice
Chairman of the National Easter Seal Society.
Roger T. Staubach has been a director of the Company since November
1996. Since 1983, Mr. Staubach has served as the Chairman and Chief Executive
Officer of The Staubach Company, a diversified real estate company. Mr.
Staubach also serves as a director of Halliburton Company, Brinker
International, Inc., Columbus Realty Trust and First USA, Inc., and as a
trustee of American AAdvantage Funds.
L. Hollis Jones became a director of the Company on January 3, 1997.
Since August of 1995, Mr. Jones has been the President and Chief Operating
Officer of The Morningstar Group Inc. From January 1994 until July 1995, Mr.
Jones was President of his own management consulting firm, Hollis Jones, Inc.
From February 1983 until forming his own management consulting firm, Mr. Jones
held various positions of increasing responsibility at Campbell Taggart, Inc.,
a subsidiary of Anheuser-Busch, including President of its diversified division
(June 1991 - June 1992) and Vice President-General Manager of its bakery
division (June 1992 - January 1994).
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for 1996 and 1995 the compensation
awarded to or earned by each person serving as the Company's Chief Executive
Officer during 1996 and the four most highly compensated executive officers of
the Company other than the Company's Chief Executive Officer at the end of 1996
(the "Named Executive Officers").
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<PAGE> 53
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS COMPENSATION ($) (1)
- --------------------------- ---- ------------ ------------ ------------- --------------------
<S> <C> <C> <C> <C> <C>
C. Dean Metropoulos
Chief Executive Officer(5).............. 1996 150,000 -- 18,750,000(4) --
1995 -- -- -- --
Kenneth J. Martin
President(3)............................ 1996 309,616 1,233,333 7,033,400(4) 7,108
1995 280,000 230,000 (2) 30,000 7,528
Stephen Van Tassel
Senior Vice President of New Products
Development.......................... 1996 179,900 60,000 505,000(4) 4,500
1995 174,800 -- 7,000 5,240
Albert J. Soricelli, Jr.
Senior Vice President of International,
New Ventures, Canada and Food
Service.............................. 1996 166,904 100,000 410,000(4) 4,547
1995 162,000 -- 10,000 4,868
William J. Feeney
Senior Vice President of Sales.......... 1996 164,808 120,000 710,000(4) 4,500
1995 155,000 -- 6,000 4,126
</TABLE>
- ---------------
(1) Amounts represent employer contributions to savings and retirement
plans.
(2) Includes cash in the amount of $115,000 and stock of American Home
Products in the amount of $115,000.
(3) Kenneth J. Martin resigned from the Company in January 1997.
(4) Messrs. Metropoulos, Martin, Van Tassel, Soricelli and Feeney were
granted options to acquire 18,750,000, 7,000,000, 500,000, 400,000 and
700,000 shares of the Company's common stock, respectively, and 0,
33,400, 5,000, 10,000 and 10,000 shares of American Home Products
common stock, respectively, during 1996. See "Option Grants in Last
Fiscal Year" below.
(5) Mr. Metropoulos has an annual base salary of $900,000 and is eligible
to receive an annual bonus of up to the same amount.
The following table contains information about stock options granted
by the Company and by American Home Products to the Named Executive Officers
in 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Option Terms ($) (1)
Option Employees in Exercise Price Expiration ---------------------------
Name Granted 1996 Per Share Date (1) 5% 10%
- ---- --------------- ----------------- ----------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options Granted by the Company
C. Dean Metropoulos......... 18,750,000 48.22% $1.00 11-01-2006 11,791,774 29,882,671
Kenneth J. Martin........... 7,000,000 18.00% $1.00 11-01-2006 4,402,262 11,156,197
Stephen Van Tassel.......... 500,000 1.29% $1.00 11-01-2006 314,450 796,850
Albert J. Soricelli, Jr..... 400,000 1.03% $1.00 11-01-2006 251,560 637,480
William J. Feeney........... 700,000 1.80% $1.00 11-01-2006 440,230 1,115,590
Options Granted by American Home Products
C. Dean Metropoulos -- -- -- -- -- --
Kenneth J. Martin 33,400 .42% $53.0625 05-23-2006 60,462(2) 121,039(2)
Stephen Van Tassel 5,000 * $53.0625 05-23-2006 9,126(2) 18,120(2)
Albert J. Soricelli, Jr. 10,000 .13% $53.0625 05-23-2006 18,252(2) 36,239(2)
William J. Feeney 10,000 .13% $53.0625 05-23-2006 18,252(2) 36,239(2)
</TABLE>
- ---------------
(1) These gains are based on assumed rates of stock price appreciation of 5%
and 10% compounded annually from the date the option was granted through
November 1, 2006, the expiration date of the options.
(2) The initial expiration of these options was May 23, 2006. By their terms,
however, these options terminated on January 31, 1997, three months
following consummation of the Transaction. Potential realizable value
amounts represent hypothetical gains that could be achieved for the options
if they had been exercised at the end of such three month period. These
gains are based on assumed rates of stock price appreciation of 5% and 10%
from the date the option was granted through January 31, 1997, the
accelerated expiration date of the options.
The following table provides information about the number of shares of
stock of the Company and of American Home Products issued upon exercises by the
Named Executive Officers during 1996 and the value realized by the Named
Executive Officers. The table also provides information about the number and
value of options exercisable for shares of stock of the Company and of American
Home Products held by the Named Executive Officers at December 31, 1996.
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<PAGE> 54
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT DECEMBER 31, MONEY OPTIONS AT
SHARES 1995 DECEMBER 31, 1995 ($) (1)
ACQUIRED ON VALUE -------------------------------- -----------------------------
NAME EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options of the Company
C. Dean Metropoulos -- -- 18,750,000 -- 0 --
Kenneth J. Martin -- -- -- 7,000,000 -- 0
Stephen Van Tassel -- -- -- 500,000 -- 0
Albert J. Soricelli, Jr. -- -- -- 400,000 -- 0
William J. Feeney -- -- -- 700,000 -- 0
Options of American Home Product(2)
C. Dean Metropoulos -- -- -- -- -- --
Kenneth J. Martin 55,000 982,959 0 -- -- --
Stephen Van Tassel 10,400 182,475 1,600 -- 32,800 --
Albert J. Soricelli, Jr. 15,400 331,961 9,000 -- 220,219 --
William J. Feeney 47,800 1,446,793 11,600 -- 286,125 --
</TABLE>
(1) Based upon a value of the Company's common stock of $1.00 per share,
the amount paid by Hicks Muse Holding in the Transaction, and upon a
value of American Home Products common stock of $58.625 per share, the
closing market price on December 31, 1996.
(2) In addition to the amounts set forth in the table above, options
granted to Messrs. Martin, Tassel, Soricelli and Feeney by American
Home Products during 1996 were canceled in connection with the
Transaction. Messrs. Martin, Tassel, Soricelli and Feeney received
$271,375, $40,625, $81,250 and $81,250, respectively, in connection
with these cancellations.
BENEFIT PLANS
Stock Option Plan. On November 1, 1996, the Company adopted the
International Home Foods, Inc. 1996 Stock Option Plan (the "Plan") providing
for the grant of options to purchase up to 45,000,000 shares of the Company's
common stock. The terms of the plan are as follows.
The Plan is intended to provide incentives to the key employees of the
Company or its subsidiaries and to non-employees providing bona fide
consulting, advisory or other services to the Company or its subsidiaries to
align their interests with those of the stockholders of the Company through the
awarding of stock options. The Plan may be administered by the Company's full
Board of Directors or a designated committee thereof (the full Board or such
committee hereafter referred to as the "Committee"). The Committee will have
the authority, subject to the terms of the Plan, to determine when and to whom
to make grants under the plan, the number of shares to be covered by the
grants, the types and terms of the grants, and the exercise price of stock
options. Moreover, the Committee will have the authority, subject to the
provisions of the Plan, to establish such rules and regulations as it deems
necessary for the proper administration of the Plan and to make such
determinations and interpretations and to take such action in connection with
the Plan and any grants thereunder as it deems necessary or advisable. The
Committee's determinations and interpretations under the Plan shall be binding
and conclusive on all participants and their legal representatives and need not
be uniform and may be made by the Committee selectively among persons who
receive, or are eligible to receive, grants under the Plan. To date, grants and
awards with respect to 38,880,000 shares of common stock have been made under
the Plan.
The Committee may grant either "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or "nonqualified options" in respect of shares of the Company's common
stock. The exercise price of a stock option may
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<PAGE> 55
not be less than 100% of the fair market value of the underlying shares of
common stock on the date of grant. The exercise period for stock options will
be determined by the Committee and may not exceed ten years from the date of
grant (except upon death or disability of an optionee in which case, the
expiration date may be 180 days after death or disability).
The Board of Directors may amend, suspend or terminate the Plan at any
time except that, unless approved by stockholders of the Company, no such
amendment may (i) increase the maximum number of shares to which options may be
granted under the Plan, except for adjustments to reflect stock dividends or
other recapitulations affecting the number or kind of outstanding shares, (ii)
decrease the minimum exercise price of an incentive option, or (iii) change the
requirements as to eligibility for the grant of incentive options. Options
granted under the Plan are subject to adjustment in the event of certain
changes affecting the Company's common stock.
In the event of a Change in Control (as defined in the Plan), all
outstanding stock options may, subject to the sole discretion of the Committee,
become immediately exercisable. The Committee may, upon the occurrence of a
Change in Control of the Company, accelerate the termination of outstanding
options.
Stock options may be transferred by a participant only by will or by
the laws of descent and distribution, and may be exercised only by the
participant during his lifetime. If a participant dies and the applicable award
agreement so provides, options may be exercised by the person or persons to
whom the participant's rights pass within 180 days after the participant's
death. In no case (other than in the event of the participant's death or
disability) may options be exercised later than the expiration date of the
stock options specified in the grant.
Except as expressly provided otherwise in any optionee's agreement
relating to the grant of options under the Plan, in the event an optionee's
employment with the Company or a related entity terminates or a Change in
Control occurs, the Company or its designees shall have the right to purchase
from the optionee (or optionee's representatives) (i) the number of shares of
common stock previously acquired upon exercise of an option and (ii) the
optionee's right to acquire of shares of the Company's common stock pursuant to
options granted under the Plan which an optionee can acquire upon exercise
immediately prior to such purchase. The purchase price to be paid is calculated
on the basis of the fair market value (as defined in the Option Plan) of the
Company's common stock multiplied by the number of shares of common stock to be
acquired (less the aggregate exercise price in the event such purchase option
is exercised with respect to the optionee's right to acquire the Company's
common stock).
The transfer of shares of the Company's common stock issued upon
exercise of options granted under the Plan is subject to the Company's right of
first refusal.
Retirement Plan. It is anticipated that the Company will adopt a
retirement plan for the Company's management and employees.
COMPENSATION OF DIRECTORS
The directors of the Company did not receive compensation from the
Company for services rendered in that capacity during the period prior to the
consummation of the Transaction. Directors who are officers, employees or
otherwise affiliates of the Company do not receive compensation for their
services as directors. Directors of the Company are entitled to reimbursement
of their reasonable out-of-pocket expenses in connection with their travel to
and attendance at meetings of the board of directors or committees thereof. No
determination has yet been made with respect to annual fees or board attendance
fees, if any, to be paid to directors of the Company who are not also officers,
employees, or otherwise affiliates of the Company. In connection with their
appointment as directors, Messrs. Lowenkron and Staubach have each been granted
non-qualified stock options under the Plan to purchase 100,000 shares of the
Company's common stock for $1.00 per share and Mr. Jones has been granted a
non-qualified stock option under the Plan to purchase 10,159 shares of the
Company's common stock for $1.00 per share. These options are fully vested and
expire 10 years from their date of grant.
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<PAGE> 56
STOCK OWNERSHIP AND CERTAIN TRANSACTIONS
STOCK OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the shares of the common stock of the Company by each
person who beneficially owns more than five percent of the outstanding shares
of common stock of the Company and by the directors and certain executive
officers of the Company, individually and as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF SHARES OF SHARES
5% STOCKHOLDERS: --------------- --------------
<S> <C> <C>
Hicks Muse Parties (1).................................................. 264,000,000 80.0%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
American Home Products Parties (2)...................................... 66,000,000 20.0%
Five Giralda Farms
Madison, New Jersey 07940
OFFICERS AND DIRECTORS:
C. Dean Metropoulos (3)........................................ 18,750,000 5.4%
Thomas O. Hicks (1)............................................ 264,000,000 80.0%
M.L. Lowenkron(4).............................................. 100,000 *
Roger T. Staubach(4)........................................... 100,000 *
L. Hollis Jones (5)............................................ 10,159 *
All executive officers and directors as a group (10 persons)... 282,960,159 81.1%
</TABLE>
- ---------------
* Less than one-tenth of 1%.
(1) Includes shares owned of record by Hicks Muse Holding, a corporation
controlled by Hicks Muse Fund III. The ultimate general partner of Hicks
Muse Fund III is Hicks, Muse Fund III Incorporated. Thomas O. Hicks is a
controlling stockholder of Hicks, Muse Fund III Incorporated and serves as
its Chairman of the Board, Chief Executive Officer, Chief Operating
Officer, President and Secretary. Accordingly, Mr. Hicks may be deemed to
be the beneficial owner of these shares. Mr. Hicks disclaims beneficial
ownership of these shares.
(2) Includes shares expected to be owned of record by AHP Subsidiary, a
subsidiary of American Home Products.
(3) Includes 18,750,000 shares issuable to Mr. Metropoulos upon the exercise
of stock options that are currently exercisable.
(4) Includes 100,000 shares issuable upon the exercise of stock options that
are currently exercisable.
(5) Includes 10,159 shares issuable upon the exercise of stock options that are
currently exercisable.
CERTAIN TRANSACTIONS
The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements,
including the Merger Agreement.
Hicks Muse Holding, American Home Products and the Company have agreed
that, for so long as American Home Products beneficially owns at least five
percent of the common stock of the Company, Hicks Muse Holding and the Company
will, at the request of American Home Products, use all reasonable efforts to
cause there to be nominated and elected to the Board of Directors of the
Company one designee of American Home Products.
American Home Products has agreed, until the earlier of (i) the fifth
anniversary of the Merger and (ii) the date on which a third party acquires
control of the Company without the consent of Hicks Muse Holding, not to sell
or otherwise dispose of any of the common stock it holds in the Company without
first notifying Hicks Muse Holding and affording Hicks Muse Holding an
opportunity to offer to buy the shares on terms proposed by Hicks Muse Holding.
In the event that American Home Products rejects Hicks Muse Holding's offer,
American Home Products will be permitted to sell not less than 90% of the
shares it proposed to sell in its notice to Hicks Muse Holding to a third party
on per share terms no less favorable to American Home Products than those set
forth in Hicks Muse Holding's offer; provided that, before selling such shares
at a price per share less than 110% of the price per share set forth in Hicks
Muse Holding's offer, American Home Products will be required to offer to sell
such shares to Hicks Muse Holding at such higher price
54
<PAGE> 57
per share. These restrictions on transfer will not apply to a sale of shares by
American Home Products under a registration statement filed under the
Securities Act or under Rule 144 under the Securities Act.
Hicks Muse Holding has agreed that, if it proposes to sell or dispose
of shares of the common stock it holds in the Company in a single transaction
or series of related transactions, then it will offer to include in the
proposed sale or disposition a designated number of shares held by American
Home Products not to exceed the product of (i) the number of shares to be sold
by Hicks Muse Holding to the proposed transferee multiplied by (ii) a fraction
the numerator of which is the number of shares held by American Home Products
and the denominator of which is the number of shares held by each of Hicks Muse
Holding and American Home Products in the aggregate. If American Home Products
accepts the offer, Hicks Muse Holdings must reduce, to the extent necessary,
the number of shares it otherwise would have sold in the proposed sale so as to
permit American Home Products to sell the number of shares that it is entitled
to sell under the foregoing terms. American Home Products' "co-sale" rights
described above do not apply to (i) a sale pursuant to a public offering
registered under the Securities Act, (ii) a sale in accordance with Rule 144
under the Securities Act, (iii) a sale to an affiliate of Hicks Muse or (iv) a
sale or sales in a single transaction or series of related transactions which,
in the aggregate, do not involve more than ten percent of the shares
outstanding.
At the closing of the Merger, American Home Products, Hicks Muse
Holding and the Company entered into a registration rights agreement under
which each of American Home Products and Hicks Muse Holding is entitled to
exercise three demand and seven "piggy-back" rights to require the Company to
register the common stock of the Company held by them for sale under the
Securities Act. The demand rights may only be exercised commencing six months
after the date on which the Company consummates its initial underwritten public
offering of common stock registered under the Securities Act. In addition, the
demand rights may only be exercised with respect to a number of shares that is
at least equal to the lesser of (i) five percent of the number of shares then
outstanding and (ii) that number of shares having an estimated aggregate
offering price of at least $20 million. The exercise of the demand and
piggy-back rights are subject to such other limitations and conditions as are
customary in registration rights agreements.
At the closing of the Merger, the Company and American Home Products
entered into a transition services agreement under which American Home Products
will, until six months after the Merger, furnish to the Company for a fee
certain facilities and services. In addition, American Home Products will
assist the Company for a period of up to 90 days after the Merger in the
administration of the Company's welfare benefit plans in consideration of the
Company's agreement to pay American Home Products compensation based on past
practices.
On the Closing Date, the Company entered into a ten-year agreement
(the "Monitoring and Oversight Agreement") with an affiliate of Hicks Muse
("Hicks Muse Partners") pursuant to which the Company will pay Hicks Muse
Partners an annual fee of $1 million for oversight and monitoring services to
the Company. The annual fee is adjustable at the end of each fiscal year to an
amount equal to 0.1% of the consolidated net sales of the Company, but in no
event may the fee be less than $1 million. Messrs. Thomas O. Hicks, Charles W.
Tate, Alan B. Menkes and Michael J. Levitt, directors of the Company, are each
principals of Hicks Muse Partners. In addition, the Company agreed to indemnify
Hicks Muse Partners, its affiliates and shareholders, and their respective
directors, officers, agents, employees and affiliates from and against all
claims, actions, proceedings, demands, liabilities, damages, judgments,
assessments, losses and costs, including fees and expenses, arising out of or
in connection with the services rendered by Hicks Muse Partners thereunder. The
Monitoring and Oversight Agreement makes available the resources of Hicks Muse
Partners concerning a variety of financial and operational matters. The
services that have been and will continue to be provided by Hicks Muse Partners
could not otherwise be obtained by the Company without the addition of
personnel or the engagement of outside professional advisors. In management's
opinion, the fees provided for under the Monitoring and Oversight Agreement
reasonably reflect the benefits received and to be received by the Company.
On the Closing Date, the Company also entered into an agreement (the
"Financial Advisory Agreement") pursuant to which Hicks Muse Partners received
a cash financial advisory fee of approximately $19 million upon the closing of
the Transaction as compensation for its services as financial advisor for the
Transaction. Hicks Muse Partners also will be entitled to receive a fee equal
to 1.5% of the "transaction value" (as defined) for each "add-on transaction"
(as defined) in which the Company is involved. The term "transaction value"
means the total value of any add-on transaction, including, without limitation,
the aggregate amount of the funds required to complete the add-on transaction
(excluding any fees payable pursuant to the Financial Advisory Agreement and
any fees, if any, paid to any other person or entity for financial advisory,
investment banking, brokerage or any other similar services rendered in
connection with such add-on transaction) including the amount of any
indebtedness, preferred stock or similar items assumed (or
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<PAGE> 58
remaining outstanding). The term "add-on transaction" means any future proposal
for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly or
indirectly involving the Company or any of its subsidiaries and any other
person or entity. The Financial Advisory Agreement makes available the
resources of Hicks Muse Partners concerning a variety of financial and
operational matters. The services that have been and will continue to be
provided by Hicks Muse Partners could not otherwise be obtained by the Company
without the addition of personnel or the engagement of outside professional
advisors. In management's opinion, the fees provided for under the Financial
Advisory Agreement reasonably reflect the benefits received and to be received
by the Company.
Concurrently with the Merger and Redemption, International Home Foods,
Inc. purchased Heritage from an affiliate of Hicks Muse based on a total
enterprise value of $70 million. International Home Foods, Inc. used
approximately $40 million of the proceeds of the Financing to repay existing
debt of Heritage and approximately $30 million to acquire the outstanding
equity of Heritage. The affiliate of Hicks Muse formed Heritage in 1994 to
acquire (i) the Campfire marshmallow business from Borden, Inc. for
approximately $5 million and (ii) Angela Marie's, Inc., a manufacturer of
marshmallow crisp rice bars, for approximately $35 million. See "The
Transaction."
The Company has entered into indemnification agreements with each of
its directors and executive officers under which the Company will indemnify the
director or officer to the fullest extent permitted by law, and to advance
expenses, if the director or officer becomes a party to or witness or other
participant in any threatened, pending or completed action, suit or proceeding
(a "Claim") by reason of any occurrence related to the fact that the person is
or was a director, officer, employee, agent or fiduciary of the Company or a
subsidiary of the Company or another entity at the Company's request (an
"Indemnifiable Event"), unless a reviewing party (either outside counsel or a
committee appointed by the Board of Directors) determines that the person would
not be entitled to indemnification under applicable law. In addition, if a
change in control or a potential change in control of the Company occurs and if
the person indemnified so requests, the Company will establish a trust for the
benefit of the indemnitee and fund the trust in an amount sufficient to satisfy
all expenses reasonably anticipated at the time of the request to be incurred
in connection with any Claim relating to an Indemnifiable Event. The reviewing
party will determine the amount deposited in the trust. An indemnitee's rights
under his indemnification agreement will not be exclusive of any other rights
under the Company's Certificate of Incorporation or By-laws or applicable law.
56
<PAGE> 59
DESCRIPTION OF SENIOR BANK FACILITIES
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to the underlying agreements of the
Senior Bank Facilities, which have been filed as exhibits to the registration
statement of which this Prospectus is a part.
The Chase Manhattan Bank ("Chase"), Bankers Trust Company and Morgan
Stanley Senior Funding, Inc. ("Morgan") provided the Company with senior
secured credit facilities (the "Senior Bank Facilities") in an aggregate
principal amount of $770 million, of which (i) $670 million was in the form of
term loans (the "Term Loan Facilities") and (ii) $100 million will be available
on a revolving credit basis for general corporate purposes.
The Senior Bank Facilities consists of (a) a 6 1/2 year Tranche A
Senior Secured Term Loan Facility providing for term loans to the Company in a
principal amount of $300 million (the "Tranche A Term Facility"); (b) an 8 year
Tranche B Senior Secured Term Loan Facility providing for term loans to the
Company in a principal amount of $200 million (the "Tranche B Term Facility");
(c) a 9 year Tranche C Senior Secured Term Loan Facility providing for term
loans to the Company in a principal amount of $170 million (the "Tranche C Term
Facility" and collectively with the Tranche A Term Facility and the Tranche B
Term Facility, the "Term Facilities"); and (d) a Senior Secured Revolving
Credit Facility providing for revolving loans to the Company and the issuance
of letters of credit for the account of the Company in an aggregate principal
and stated amount at any time not to exceed $100 million (of which not more
than $25 million may be represented by Letters of Credit) (the "Revolving
Facility").
The full amount of each Term Facility was required to be drawn in a
single drawing on the Closing Date and amounts repaid or prepaid under any Term
Facility may not be reborrowed. Loans under the Revolving Facility will be
available from the Closing Date until the earlier of (a) the date which is 6
1/2 years after the Closing Date (the "Scheduled Revolving Credit Termination
Date") and (b) the date on which the Tranche A Term Loans mature or are repaid
in full (the "Revolving Credit Termination Date"). Letters of Credit under the
Revolving Facility will be available at any time after the Closing Date. No
Letter of Credit shall have an expiration date after the earlier of (a) one
year from the date of its issuance and (b) five business days before the
Scheduled Revolving Credit Termination Date. Letters of Credit may be renewed
for one-year periods, provided that no Letter of Credit shall extend beyond the
time specified in clause (b) of the previous sentence.
Loans under the Tranche A Term Facility will amortize over six and
one-half years in thirteen semi-annual installments in the following amounts:
(a) $12.5 million for first two installments, (b) $15 million for the third and
fourth installments, (c) $20 million for the fifth and sixth installments, (d)
$25 million for the seventh and eighth installments, (e) $27.5 million for the
ninth installment, (f) $30 million for the tenth and eleventh installments, (g)
$32.5 million for the twelfth installment and (h) $35 million for the
thirteenth installment. Loans made under the Tranche B Term Facility will
amortize over eight years in sixteen semi-annual installments in the following
amounts: (a) $250,000 for the first thirteen installments, (b) $26.75 million
for the fourteenth installment and (c) $85 million for the remaining two
installments. Loans made under the Tranche C Term Facility will amortize over
nine years in eighteen semi-annual installments in the following amounts: (a)
$250,000 for the first fifteen installments, (b) $1.25 million for the
sixteenth installment and (c) $82.5 million for the last two installments.
The Company is required to make mandatory prepayments of loans, and
revolving credit commitments will be mandatorily reduced, in amounts, at times
and subject to certain exceptions, (a) in respect of 75% of consolidated excess
cash flow of the Company starting with fiscal year 1997 (such amount may be
reduced to 50% of excess cash flow for each fiscal year of the Company
(commencing with the 1998 fiscal year) based upon the achievement of certain
performance targets) and (b) in respect of 100% of the net proceeds of certain
dispositions of material assets or the stock of subsidiaries or the issuance of
capital stock or the incurrence of certain indebtedness by the Company or any
of its subsidiaries. At the Company's option, loans may be prepaid, and
revolving credit commitments may be permanently reduced, in whole or in part at
any time in certain minimum amounts. Prepayments of the Term Loans shall be
applied to the Tranche A Term Loans, the Tranche B Term Loans and the Tranche C
Term Loans ratably and to the installments thereof ratably in accordance with
the then remaining number of installments and may not be reborrowed, provided
that the first $40 million of optional prepayments of the Term Loans may be
applied to such installments as the Borrower may elect (other than the first
thirteen installments in respect of the Tranche B Term Loans and the first
sixteen installments in respect of the Tranche C Term Loans).
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The obligations of the Company under the Senior Bank Facilities are
unconditionally and irrevocably guaranteed by each of the Company's direct or
indirect domestic subsidiaries (collectively, the "Guarantors"). In addition,
the Senior Bank Facilities is secured by first priority or equivalent security
interests in (i) all the capital stock of, or other equity interests in, each
direct or indirect domestic subsidiary of the Company and 65% of the capital
stock of, or other equity interests in, each direct foreign subsidiary of the
Company, or any of its domestic subsidiaries and (ii) all tangible and
intangible assets (including, without limitation, intellectual property and
owned real property) of the Company and the Guarantors (subject to certain
exceptions and qualifications).
At the Company's option, the interest rates per annum applicable to
the Senior Bank Facilities will be either Adjusted LIBOR (as defined) plus a
margin ranging from 2.50% to 3.50% or the Alternate Base Rate (as defined) plus
a margin ranging from 1.50% to 2.50%. The Alternate Base Rate is the highest of
(a) Chase's Prime Rate, (b) the secondary market rate for certificates of
deposit (grossed up for maximum statutory reserve requirements) plus 1% and (c)
the Federal Funds Effective Rate plus 0.5%. The margin in respect of the
Tranche A Term Loan Facility and the Revolving Credit Facility will be subject
to reduction after the first anniversary of the Closing Date based on the
achievement of certain performance targets to be determined.
The Company will pay a commission on the face amount of all
outstanding letters of credit at a per annum rate equal to the Applicable
Margin then in effect with respect to LIBOR loans under the Revolving Facility
minus the Fronting Fee (as defined). A fronting fee equal to 1/4% per annum on
the face amount of each Letter of Credit (the "Fronting Fee") shall be payable
quarterly in arrears to the issuing lender for its own account. The Company
will also pay a per annum fee equal to 0.50% on the undrawn portion of the
commitments in respect of the Revolving Facility (the "Commitment Fee"). The
Commitment Fee shall be subject to reduction after the first anniversary of the
Closing Date based on the achievement of certain performance targets to be
determined.
The Senior Bank Facilities also contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, repay other indebtedness or
amend other debt instruments, pay dividends, create liens on assets, make
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, or engage in certain transactions with affiliates, amend the
Indenture and otherwise restrict corporate activities. In addition, under the
Senior Bank Facilities the Company is required to comply with specified minimum
interest coverage, maximum leverage and minimum fixed charge coverage ratios.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on November 1, 1996 in a
private placement in reliance on Section 4(2) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D promulgated thereunder. In connection
with that placement, the Company and the Subsidiary Guarantors entered into the
Registration Rights Agreement which requires that the Company and the
Subsidiary Guarantors file a registration statement under the Securities Act
with respect to the New Notes on or prior to 60 days after the date of issuance
of the Old Notes (the "Issue Date") and, upon the effectiveness of that
registration statement, offer to the holders of the Old Notes the opportunity
to exchange their Old Notes for a like principal amount of New Notes, which
will be issued without a restrictive legend and may be reoffered and resold by
the holder without registration under the Securities Act. The Registration
Rights Agreement further provides that the Company and the Subsidiary
Guarantors must use their reasonable best efforts to cause the registration
statement with respect to the Exchange Offer to be declared effective within
135 days following the Issue Date. A copy of the Registration Rights Agreement
has been filed as an exhibit to the registration statement of which this
Prospectus is a part.
In order to participate in the Exchange Offer, a holder must represent
to the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company or any of the Subsidiary Guarantors, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution
of the New Notes. If the holder is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity
of the market for the Old Notes could be adversely affected. No assurance can
be given as to the liquidity of the trading market for either the Old Notes or
the New Notes.
Based on an interpretation by the Commission's staff set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that, with the exceptions discussed herein, New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person receiving the New Notes, whether
or not that person is the holder (other than any such holder or such other
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Notes are acquired in the ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution of the New Notes, and (iii) neither the
holder nor such other person has an arrangement or understanding with any
person to participate in the distribution of the New Notes. The Company has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the Commission's staff would make a similar determination
with respect to the Exchange Offer. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where those Old Notes were
acquired by the broker-dealer as a result of its market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of those New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not
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intend to register the Old Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so. Based on an
interpretation by the staff of the Commission set forth in a series of
no-action letters issued to third parties, the Company believes that, except as
set forth in the next sentence, New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Old Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Old Notes being tendered for
exchange. The Company will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the
form and terms of the Old Notes except that the New Notes have been registered
under the Securities Act and will not bear legends restricting their transfer.
The New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $400,000,000 aggregate principal
amount of the Old Notes were outstanding. The Company has fixed the close of
business on _______________ as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent. As of such date, there were
_____ registered holders of the Old Notes. Holders of Old Notes do not have any
appraisal or dissenters' rights under the General Corporation Law of the State
of Delaware or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old
Notes when, as, and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the New Notes from the Company. If any
tendered Old Notes are not accepted for exchange because of an invalid tender,
the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time,
on _______________, 1997, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. In order to
extend the Exchange Offer, the Company will notify the Exchange Agent of any
extension by oral or written notice prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date, unless
otherwise required by applicable law or regulation. The Company reserves the
right, in its sole discretion, (i) to delay accepting any Old Notes, to extend
the Exchange Offer or, if any of the conditions set forth under "The Exchange
Offer -- Conditions" shall not have been satisfied, to terminate the Exchange
Offer, by giving oral or written
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notice of such delay, extension or termination to the Exchange Agent, or (ii)
to amend the terms of the Exchange Offer in any manner.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from November 1, 1996, the date of
original issuance of the Old Notes. No interest will be paid on the Old Notes
accepted for exchange.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange
Offer. Except as set forth under "The Exchange Offer -- Book Entry Transfer,"
to tender in the Exchange Offer a holder must complete, sign and date the
Letter of Transmittal, or a copy thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal or copy to the Exchange Agent prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if that procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "DTC" or the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the Old Notes, Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth under "The Exchange Offer -- Exchange Agent" prior to the Expiration
Date.
The tender by a holder that is not withdrawn before the Expiration
Date will constitute an agreement between that holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND
PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in the beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
herein) unless Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box titled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible guarantor institution that
is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
Exchange Medallion Program, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
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If the Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among
other things, (i) the New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, (ii) if it is not a
broker-dealer, neither the holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes, (iii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes, and (iv) neither the
holder nor any such other person is an "affiliate" (as defined in Rule 405 of
the Securities Act) of the Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Company),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
In all cases, issuance of New Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed Letter
of Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering holder thereof (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any
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financial institution that is a participant in the Book-Entry Transfer Facility
system may make book-entry delivery of Old Notes being tendered by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in
any case other than as set forth in the following paragraph, be transmitted to
and received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
The DTC's Automated Tender Offer Program ("ATOP") is the only method
of processing exchange offers through the DTC. To accept the Exchange Offer
through ATOP, participants in the DTC must send electronic instructions to the
DTC through the DTC's communication system in place of sending a signed, hard
copy Letter of Transmittal. The DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Notes through
ATOP, the electronic instructions sent to the DTC and transmitted by the DTC to
the Exchange Agent must contain the character by which the participant
acknowledges its receipt of and agrees to be bound by the Letter of
Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old
Notes and the Old Notes are not immediately available, or time will not permit
such holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written
or (for DTC participants) electronic ATOP transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer -- Procedures for Tendering" at any time on
or prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company
shall not be required to accept for exchange, or exchange New Notes for, any
Old Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or
any applicable interpretation of the staff of the Commission in the
good faith interpretation of the Company; or
(b) any action or proceeding is instituted or threatened in
any court or by any governmental agency that might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(c) any governmental approval has not been obtained, which
approval the Company shall deem necessary for the consummation of the
Exchange Offer.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility), (ii) extend the Exchange
Offer and retain all Old Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Old Notes
(see "-- Withdrawal Rights") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days (in the discretion of the Company), depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five-to-ten-business-day period.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions, requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail,
by Overnight Courier or by Hand:
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
By Hand:
United States Trust Company of New York
111 Broadway
Lower Level
Corporate Trust Window
New York, New York 10006
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By Overnight Courier:
United States Trust Company of New York
770 Broadway
New York, New York 10003
Attn: Corporate Trust
By Facsimile:
(212) 420-6152
Confirm by Telephone:
(800) 548-6565
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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DESCRIPTION OF NEW NOTES
GENERAL
The Old Notes were and the New Notes will be issued under an
Indenture, dated as of November 1, 1996 (the "Indenture"), among the Company,
the Subsidiary Guarantors and United States Trust Company of New York, as
Trustee (the "Trustee"), a copy of which is available upon request to the
Company. The terms of the New Notes are identical in all material respects to
the Old Notes, except that the New Notes have been registered under the
Securities Act and, therefor, will not bear legends restricting their transfer.
Upon the issuance of the New Notes, the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of certain provisions of the Indenture and the New
Notes does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture (including
the definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act) and the New Notes. The Old Notes and the New Notes are
sometimes collectively referred to herein as the "Notes."
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, the City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Register.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of New
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Old Notes that remain outstanding after the consummation of the
Exchange Offer and New Notes issued in connection with the Exchange Offer will
be entitled to vote or consent on all matters as a single class of securities
under the Indenture.
TERMS OF NOTES
The Notes will be unsecured, senior subordinated obligations of the
Company, limited to $400 million aggregate principal amount, and will mature on
November 1, 2006. Each New Note will bear interest at the rate per annum shown
on the front cover of this Prospectus from the date of issuance, or from the
most recent date to which interest has been paid or provided for, payable
semiannually on May 1 and November 1 of each year commencing on May 1, 1997 to
holders of record at the close of business on the April 15 or October 15
immediately preceding the interest payment date.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the
option of the Company prior to November 1, 2001. On and after such date, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
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If redeemed during the 12-month period commencing on November 1 of the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ -------------
<C> <C>
2001......................................................... 105.188%
2002......................................................... 103.458%
2003......................................................... 101.729%
2004 and thereafter.......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to November 1,
2000, the Company may redeem in the aggregate up to $160 million principal
amount of Notes with the proceeds of one or more Equity Offerings by the
Company so long as there is a Public Market at the time of such redemption, at
a redemption price (expressed as a percentage of principal amount) of 110.375%,
plus accrued and unpaid interest, if any, to the redemption date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date); provided, however, that at least
$200 million aggregate principal amount of the Notes must remain outstanding
after each such redemption.
At any time on or prior to November 1, 2001, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 nor more than 60 days prior notice
(but in no event more than 90 days after the occurrence of such Change of
Control) mailed by first-class mail to each holder's registered address, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued and unpaid interest, if any, to, the date
of redemption (the "Redemption Date") (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
"Applicable Premium" means, with respect to a Note at any Redemption
Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such time of (1) the redemption price of
such Note at November 1, 2001 (such redemption price being described under "--
Optional Redemption") plus (2) all required interest payments due on such Note
through November 1, 2001, computed using a discount rate equal to the Treasury
Rate plus 100 basis points, over (B) the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to November 1, 2001; provided, however, that if
the period from the Redemption Date to November 1, 2001 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to November 1, 2001
is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
Selection. In the case of any partial redemption, selection of the
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate, although no Note of $1,000 in original principal amount
or less will be redeemed in part. If any Note is to be redeemed in part only,
the notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note.
RANKING AND SUBORDINATION
The payment of the principal of, premium (if any), and interest on the
Notes is subordinated in right of payment, as set forth in the Indenture, to
the payment when due of all Senior Indebtedness of the Company. However,
payment from the money or the proceeds of U.S. Government Obligations held in
any defeasance trust described under "Defeasance" below is not subordinate to
any Senior Indebtedness or subject to the restrictions described herein. As of
September 30, 1996, on a pro forma basis after giving effect to the Transaction
and the Financing, the outstanding Senior Indebtedness of the Company would
have been $683 million (exclusive of unused commitments). Although the
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Indenture contains limitations on the amount of additional Indebtedness that
the Company may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "Certain Covenants -- Limitation on Indebtedness"
below.
"Senior Indebtedness" is defined, whether outstanding on the Issue
Date or thereafter issued, as the Bank Indebtedness and all other Indebtedness
of the Company, including interest and fees thereon, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that the obligations in respect of such Indebtedness are not
superior in right of payment to the Notes; provided, however, that Senior
Indebtedness will not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, foreign, local or other taxes
owed or owing by the Company, (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), or (4) any
Indebtedness, Guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including any Senior Subordinated Indebtedness
and any Subordinated Obligations.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, no Subsidiary Guarantor shall incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any
Guarantor Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor or is contractually subordinated in right of payment to Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
The Company may not pay principal of, premium (if any), or interest
on, the Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when
due or (ii) any other default on Senior Indebtedness occurs and the maturity of
such Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and any such acceleration has
been rescinded or such Senior Indebtedness has been paid in full. However, the
Company may pay the Notes without regard to the foregoing if the Company and
the Trustee receive written notice approving such payment from the
Representative of the Senior Indebtedness with respect to which either of the
events set forth in clause (i) or (ii) of the immediately preceding sentence
has occurred and is continuing. During the continuance of any default (other
than a default described in clause (i) or (ii) of the second preceding
sentence) with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company may not pay the Notes
for a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of
such default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is no longer continuing or (iii) because such
Designated Senior Indebtedness has been repaid in full). Notwithstanding the
provisions described in the immediately preceding sentence, unless the holders
of such Designated Senior Indebtedness or the Representative of such holders
have accelerated the maturity of such Designated Senior Indebtedness, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period. Not more than one Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation or dissolution or reorganization or bankruptcy of
or similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the holders of the Notes are entitled to receive any
payment, and until the Senior Indebtedness is paid in full, any payment or
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness as their interests may appear. If a distribution is made to
holders of the Notes that, due to the
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<PAGE> 71
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders
or the Representative of the Designated Senior Indebtedness receive notice of
such acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture,
in the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness (including the Notes) may recover less, ratably, than
holders of Senior Indebtedness and may recover more, ratably, than the holders
of Senior Subordinated Indebtedness.
SUBSIDIARY GUARANTIES
Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, to each holder and the Trustee, on a senior subordinated basis, the
full and prompt payment of principal of and interest on the Notes, and of all
other obligations of the Company under the Indenture.
The Indebtedness evidenced by each Subsidiary Guaranty (including the
payment of principal of, premium, if any, and interest on the Notes) will be
subordinated to Guarantor Senior Indebtedness on the same basis as the Notes
are subordinated to Senior Indebtedness. As of September 30, 1996, on a pro
forma basis after giving effect to the Transaction and the Financing, there
would have been approximately $683 million of Guarantor Senior Indebtedness
(all of which would have represented guarantees of borrowings under the Credit
Agreement). Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company's Restricted Subsidiaries may incur,
under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Guarantor Senior
Indebtedness. See "Certain Covenants -- Limitation on Indebtedness" below. See
"-- Ranking and Subordination" above.
The obligations of each Subsidiary Guarantor are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the Credit Agreement) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Subsidiary Guarantee or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Subsidiary Guarantor
under the Subsidiary Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each Subsidiary Guarantor may consolidate with or merge into or sell
its assets to the Company or another Subsidiary Guarantor without limitation.
Each Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a corporation, partnership or trust other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor). Upon the sale or disposition of a Subsidiary Guarantor
(or all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the
Company, which sale or disposition is otherwise in compliance with the
Indenture (including the covenant described under "Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock"), such Subsidiary Guarantor
shall be deemed released from all its obligations under the Indenture and its
Subsidiary Guarantee and such Subsidiary Guarantee shall terminate; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under the Credit Agreement and all of
its guarantees of, and under all of its pledges of assets or other security
interests which secure, any other Indebtedness of the Company shall also
terminate upon such release, sale or transfer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require the Company to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to
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101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries to
any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of the Indenture), other than to Hicks
Muse, Metropoulos & Co. or any of their Affiliates, officers and
directors (the "Permitted Holders"); or
(ii) a majority of the Board of Directors of the Company
shall consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the
Permitted Holders) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 50% of the ordinary
voting power for the election of directors of the Company.
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on a record date to receive
interest on the relevant interest payment date); (2) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (3) the procedures determined by the Company, consistent
with the Indenture, that a holder must follow in order to have its Notes
purchased.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Indenture, the Company will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
The definition of "Change of Control" includes, among other
transactions, a disposition of all or substantially all of the property and
assets of the Company and its Subsidiaries. With respect to the disposition of
property or assets, the phrase "all or substantially all" as used in the
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is
the choice of law under the Indenture) and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the property or assets of a
Person, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Company is required to make an offer to repurchase the
Notes as described above.
The occurrence of certain of the events that would constitute a Change
of Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company and its Subsidiaries may also contain prohibitions
of certain events that would constitute a Change of Control or require such
Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the
exercise by the holders of their right to require the Company to repurchase the
Notes could cause a default under such Senior Indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchase on
the Company. Finally, the Company's ability to pay cash to the holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. Even if sufficient funds were
otherwise available, the terms of the Bank Indebtedness will prohibit the
Company's prepayment of Notes prior to their scheduled maturity. Consequently,
if the Company is not able to prepay the Bank Indebtedness and any other Senior
Indebtedness containing similar restrictions or obtain requisite consents, as
described above, the Company will be unable to fulfill its repurchase
obligations if holders of Notes exercise their repurchase rights following a
Change of Control, thereby resulting in a default under the Indenture.
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CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness; provided, however,
that the Company and any of its Restricted Subsidiaries may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio
would be greater than 2.00:1.00, if such Indebtedness is Incurred on
or prior to the second anniversary of the Issue Date, and 2.25:1.00,
if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to (A) the Credit Agreement
(including, without limitation, any renewal, extension, refunding,
restructuring, replacement or refinancing thereof referred to in
clause (ii) of the definition thereof) or (B) any other agreements or
indentures governing Senior Indebtedness; provided, however, that the
aggregate principal amount of all Indebtedness Incurred pursuant to
this clause (i) does not exceed $770 million at any time outstanding,
less the aggregate principal amount thereof repaid with the net
proceeds of Asset Dispositions (to the extent, in the case of a
repayment of revolving credit Indebtedness, the commitment to advance
the loans repaid has been terminated); (ii) Indebtedness represented
by Capitalized Lease Obligations, mortgage financings or purchase
money obligations, in each case Incurred for the purpose of financing
all or any part of the purchase price or cost of construction or
improvement of property used in a Related Business or Incurred to
Refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the
date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal
amount of any Indebtedness Incurred pursuant to this clause (ii) shall
not exceed $25 million at any time outstanding; (iii) Permitted
Indebtedness; and (iv) Indebtedness (other than Indebtedness described
in clauses (i) - (iii)) in a principal amount which, when taken
together with the principal amount of all other Indebtedness Incurred
pursuant to this clause (iv) and then outstanding, will not exceed $75
million (it being understood that any Indebtedness Incurred under this
clause (iv) shall cease to be deemed Incurred or outstanding for
purposes of this clause (iv) (but shall be deemed to be Incurred for
purposes of paragraph (a)) from and after the first date on which the
Company or its Restricted Subsidiaries could have Incurred such
Indebtedness under the foregoing paragraph (a) without reliance upon
this clause (iv)).
(c) Neither the Company nor any Restricted Subsidiary shall
Incur any Indebtedness under paragraph (b) above if the proceeds
thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations of the Company unless such Indebtedness shall
be subordinated to the Notes to at least the same extent as such
Subordinated Obligations. No Subsidiary Guarantor shall Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are
used, directly or indirectly, to Refinance any Guarantor Subordinated
Obligation of such Subsidiary Guarantor unless such Indebtedness shall
be subordinated to the obligations of such Subsidiary Guarantor under
the Subsidiary Guaranty to at least the same extent as such Guarantor
Subordinated Obligation.
(d) In addition, the Company shall not Incur any Secured
Indebtedness which is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the Notes equally and
ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien. No Subsidiary Guarantor shall Incur
any Secured Indebtedness which is not Guarantor Senior Indebtedness
unless contemporaneously therewith effective provision is made to
secure such Subsidiary Guarantor's obligations under the Subsidiary
Guaranty equally and ratably with such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien.
(e) The Company will not permit any Unrestricted Subsidiary
to incur any Indebtedness other than Non-Recourse Debt; provided,
however, if any such Indebtedness ceases to be Non-Recourse Debt, such
event shall be deemed to constitute an incurrence of Indebtedness by
the Company or a Restricted Subsidiary.
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Limitation on Layering. The Company shall not Incur any Indebtedness
if such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is contractually subordinated in right of payment to Senior
Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness
if such Indebtedness is contractually subordinate or junior in ranking in any
respect to any Guarantor Senior Indebtedness of such Subsidiary Guarantor
unless such Indebtedness is Guarantor Senior Subordinated Indebtedness of such
Subsidiary Guarantor or is contractually subordinated in right of payment to
Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor.
Limitation on Restricted Payments. (a) The Company shall not, and
shall not permit any of its Restricted Subsidiaries, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on or in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or distributions payable in its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase such
Capital Stock, and (B) dividends or distributions payable to the Company or a
Restricted Subsidiary of the Company (and if such Restricted Subsidiary is not
a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata
basis), (ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company held by Persons other than a Restricted Subsidiary
of the Company or any Capital Stock of a Restricted Subsidiary of the Company
held by any Affiliate of the Company, other than another Restricted Subsidiary
(in either case, other than in exchange for its Capital Stock (other than
Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of purchase,
repurchase or acquisition) or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to in clauses (i) through (iv) as a "Restricted
Payment"), if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); or (2) the Company is not able to incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) under "Limitation on
Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
as to which financial results are available (but in no event ending more than
135 days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B)
the aggregate net proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other capital
contributions subsequent to the Issue Date (other than net proceeds received
from an issuance or sale of such Capital Stock to a Subsidiary of the Company
or an employee stock ownership plan or similar trust); provided, however, that
the value of any non cash net proceeds shall be as determined by the Board of
Directors in good faith, except that in the event the value of any non cash net
proceeds shall be $25 million or more, the value shall be as determined in
writing by an independent investment banking firm of nationally recognized
standing; (C) the aggregate Net Cash Proceeds received by the Company from the
issue or sale of its Capital Stock (other than Disqualified Stock) to an
employee stock ownership plan or similar trust subsequent to the Issue Date;
provided, however, that if such plan or trust Incurs any Indebtedness to or
Guaranteed by the Company or any of its Restricted Subsidiaries to finance the
acquisition of such Capital Stock, such aggregate amount shall be limited to
such Net Cash Proceeds less such Indebtedness Incurred to or Guaranteed by the
Company or any of its Restricted Subsidiaries and any increase in the
Consolidated Net Worth of the Company resulting from principal repayments made
by such plan or trust with respect to Indebtedness Incurred by it to finance
the purchase of such Capital Stock; (D) the amount by which Indebtedness of the
Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company convertible or exchangeable
for Capital Stock of the Company (less the amount of any cash, or other
property, distributed by the Company upon such conversion or exchange); (E) the
amount equal to the net reduction in Investments (other than Permitted
Investments) made by the Company or any of its Restricted Subsidiaries in any
Person resulting from (i) repurchases or redemptions of such Investments by
such Person, proceeds realized upon the sale of such Investment to an
unaffiliated purchaser, and repayments of loans or advances or other transfers
of assets by such Person to the Company or any Restricted Subsidiary of the
Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments;
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provided, however, that no amount shall be included under this clause (E) to
the extent it is already included in Consolidated Net Income; and (F) the
aggregate Net Cash Proceeds received by a Person in consideration for the
issuance of such Person's Capital Stock (other than Disqualified Stock) which
are held by such Person at the time such Person is merged with and into the
Company in accordance with the "Merger and Consolidation" covenant subsequent
to the Issue Date; provided, however, that concurrently with or immediately
following such merger the Company uses an amount equal to such Net Cash
Proceeds to redeem or repurchase the Company's Capital Stock.
(b) The provisions of paragraph (a) shall not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee
stock ownership plan or similar trust); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption
of Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock"
below; provided, however, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments; (iv) dividends paid
within 60 days after the date of declaration if at such date of declaration
such dividend would have complied with this provision; provided, however, that
such dividend shall be included in the calculation of the amount of Restricted
Payments; (v) payments of dividends on the Company's common stock after an
initial public offering of common stock of the Company in an annual amount not
to exceed 6% of the gross proceeds (before deducting underwriting discounts and
commissions and other fees and expenses of the offering) received by the
Company from shares of common stock sold for the account of the Company (and
not for the account of any stockholder) in such initial public offering; (vi)
payments by the Company to repurchase Capital Stock or other securities of the
Company from members of management of the Company in an aggregate amount not to
exceed $15 million; (vii) payments to enable the Company to redeem or
repurchase stock purchase or similar rights granted by the Company with respect
to its Capital Stock in an aggregate amount not to exceed $1 million; (viii)
payments, not to exceed $200,000 in the aggregate, to enable the Company to
make cash payments to holders of its Capital Stock in lieu of the issuance of
fractional shares of its Capital Stock; (ix) payments made pursuant to any
merger, consolidation or sale of assets effected in accordance with the "Merger
and Consolidation" covenant; provided, however, that no such payment may be
made pursuant to this clause (ix) unless, after giving effect to such
transaction (and the incurrence of any Indebtedness in connection therewith and
the use of the proceeds thereof), the Company would be able to Incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Indebtedness" covenant such that, after Incurring that $1.00
of additional Indebtedness, the Consolidated Coverage Ratio would be greater
than 3.5:1.00; and (x) the redemption payment to be made by the Company on the
Issue Date pursuant to the Merger Agreement and any amount paid subsequent to
the Issue Date adjusting such redemption payment in accordance with the terms
of the Merger Agreement; provided, however, that in the case of clauses (v),
(vi), (vii), (viii) and (ix) no Default or Event of Default shall have occurred
or be continuing at the time of such payment or as a result thereof.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other obligation owed to the Company, (ii) make any loans
or advances to the Company or (iii) transfer any of its property or assets to
the Company; except: (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, including the Credit
Agreement; (b) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness issued by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company and outstanding on such date (other than
Indebtedness issued as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary of the Company or was acquired by the Company); (c) any
encumbrance or restriction with respect to such a Restricted Subsidiary
pursuant to an agreement evidencing Indebtedness Incurred without violation of
the Indenture or effecting a refinancing of Indebtedness issued pursuant to an
agreement referred to in clauses (a) or (b) or this clause (c) or contained in
any amendment to an agreement referred to in clauses (a) or (b) or this clause
(c); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any of such agreement, refinancing
agreement or amendment,
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taken as a whole, are no less favorable to the holders in any material respect,
as determined in good faith by the senior management of the Company or Board of
Directors of the Company, than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in agreements in effect at, or entered
into on, the Issue Date; (d) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture, (C) that is included in a licensing agreement to
the extent such restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from the
value of property or assets of the Company or any of its Subsidiaries in any
manner material to the Company or any such Restricted Subsidiary; (e) in the
case of clause (iii) above, restrictions contained in security agreements,
mortgages or similar documents securing Indebtedness of a Restricted Subsidiary
to the extent such restrictions restrict the transfer of the property subject
to such security agreements; (f) any restriction with respect to such a
Restricted Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or disposition; and
(g) encumbrances or restrictions arising or existing by reason of applicable
law.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by the Company's senior management or
the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition,
(ii) at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company or any Restricted Subsidiary elects (or is
required by the terms of any Senior Indebtedness), to prepay, repay or purchase
(x) Senior Indebtedness or (y) Indebtedness (other than Preferred Stock) of a
Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the
Company) within 180 days from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash; (B) second, within one year from the
receipt of such Net Available Cash, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A), at the
Company's election either (x) to the investment in or acquisition of Additional
Assets or (y) to prepay, repay or purchase (1) Senior Indebtedness or (2)
Indebtedness (other than Preferred Stock) of a Wholly-Owned Subsidiary (in each
case other than Indebtedness owed to the Company); (C) third, within 45 days
after the later of the application of Net Available Cash in accordance with
clauses (A) and (B) and the date that is one year from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to
purchase Notes at par plus accrued and unpaid interest, if any, thereon; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to (w) the investment
in or acquisition of Additional Assets, (x) the making of Temporary Cash
Investments, (y) the prepayment, repayment or purchase of Indebtedness of the
Company or Indebtedness of any Subsidiary (other than Indebtedness owed to the
Company) or (z) any other purpose otherwise permitted under the Indenture, in
each case within the later of 45 days after the application of Net Available
Cash in accordance with clauses (A), (B) and (C) or the date that is one year
from the receipt of such Net Available Cash; provided, however, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A), (B), (C) or (D) above, the Company or such Restricted Subsidiary
shall retire such Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased. Notwithstanding the foregoing provisions, the
Company and its Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance herewith except to the extent that the aggregate
Net Available Cash from all Asset Dispositions which are not applied in
accordance with this covenant at any time exceed $15 million. The Company shall
not be required to make an offer for Notes pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as
provided in clauses (A) and (B)) is less than $25 million for any particular
Asset Disposition (which lesser amounts shall be carried forward for purposes
of determining whether an offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be
cash: (x) the assumption by the transferee of Senior Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary of the Company and the
release of the Company or such Restricted Subsidiary from all liability on such
Senior Indebtedness or Indebtedness in connection with such Asset Disposition
(in which case the Company shall, without further action, be deemed to have
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applied such assumed Indebtedness in accordance with clause (A) of the
preceding paragraph) and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries will be permitted to consummate an Asset Swap if (i) at the time
of entering into such Asset Swap or immediately after giving effect to such
Asset Swap, no Default or Event of Default shall have occurred or be continuing
or would occur as a consequence thereof, (ii) in the event such Asset Swap
involves an aggregate amount in excess of $10 million, the terms of such Asset
Swap have been approved by a majority of the members of the Board of Directors
of the Company, and (iii) in the event such Asset Swap involves an aggregate
amount in excess of $50 million, the Company has received a written opinion
from an independent investment banking firm of nationally recognized standing
that such Asset Swap is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase
Notes tendered pursuant to an offer by the Company for the Notes at a purchase
price of 100% of their principal amount plus accrued and unpaid interest, if
any, to the purchase date in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate purchase price of the Notes tendered pursuant to the offer is less
than the Net Available Cash allotted to the purchase of the Notes, the Company
will apply the remaining Net Available Cash in accordance with clause
(a)(iii)(D) above.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or conduct any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company other than a Wholly-Owned Subsidiary (an "Affiliate Transaction")
unless: (i) the terms of such Affiliate Transaction are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate; (ii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $5 million, the terms of
such transaction have been approved by a majority of the members of the Board
of Directors of the Company and by a majority of the disinterested members of
such Board, if any (and such majority or majorities, as the case may be,
determines that such Affiliate Transaction satisfies the criteria in (i)
above); and (iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $15 million, the Company has received a written opinion
from an independent investment banking firm of nationally recognized standing
that such Affiliate Transaction is fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(b) The foregoing paragraph (a) shall not apply to (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company, (iii) loans or advances to
employees in the ordinary course of business of the Company or any of its
Restricted Subsidiaries, (iv) any transaction between Wholly-Owned
Subsidiaries, (v) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of the Company and its
Restricted Subsidiaries, in each case in the ordinary course of business, (vi)
transactions pursuant to agreements as in existence on the Issue Date, (vii)
any employment, non-competition or confidentiality agreements entered into by
the Company or any of its Restricted Subsidiaries with its employees in the
ordinary course of business, (viii) payments made in connection with the
Transaction, including fees to Hicks Muse, (ix) the issuance of Capital Stock
of the Company (other than Disqualified Stock) and (x) any obligations of the
Company pursuant to the Monitoring and Oversight Agreement and the Financial
Advisory Agreement.
Limitation on Capital Stock of Restricted Subsidiaries. The Company
will not permit any of its Restricted Subsidiaries to issue any Capital Stock
(other than Preferred Stock) to any Person (other than to the Company or a
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Wholly-Owned Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly-Owned Subsidiary of the Company) to own any Capital Stock
(other than Preferred Stock) of a Restricted Subsidiary of the Company, if in
either case as a result thereof such Restricted Subsidiary would no longer be a
Restricted Subsidiary of the Company; provided, however, that this provision
shall not prohibit (x) the Company or any of its Restricted Subsidiaries from
selling, leasing or otherwise disposing of all of the Capital Stock of any
Restricted Subsidiary or (y) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary in compliance with the Indenture.
SEC Reports. The Company will file with the Trustee and provide to the
holders of the Notes, within 15 days after it files them with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may by rules and regulations prescribe) which the Company files with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. In the event
that the Company is not required to file such reports with the Commission
pursuant to the Exchange Act, the Company will nevertheless deliver such
Exchange Act information to the holders of the Notes within 15 days after it
would have been required to file it with the Commission.
Merger and Consolidation. The Company shall not consolidate with or
merge with or into, or convey, transfer or lease all or substantially all its
assets to, any Person, unless: (i) the resulting, surviving or transferee
Person (the "Successor Company") shall be a corporation, partnership, trust or
limited liability company organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been incurred by the Successor Company or such Restricted Subsidiary at the
time of such transaction), no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such transaction,
the Successor Company would be able to incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness"; and
(iv) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released from the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company and (2) the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction to realize tax or other
benefits.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the
Indenture: (i) a default in any payment of interest on any Note when due,
continued for 30 days, whether or not such payment is prohibited by the
provisions described under "Ranking and Subordination" above, (ii) a default in
the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment is prohibited by the provisions described under
"Ranking and Subordination" above, (iii) the failure by the Company to comply
with its obligations under "Certain Covenants -- Merger and Consolidation"
above, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "Change of Control"
above or under covenants described under "Certain Covenants" above (in each
case, other than a failure to purchase Notes which shall constitute an Event of
Default under clause (ii) above), other than "-- Merger and Consolidation," (v)
the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Restricted Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default
and the total amount of such Indebtedness unpaid or accelerated exceeds $20
million and such default shall not have been cured or such acceleration
rescinded after a 10 day period (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment or
decree for the payment of money in excess of $20 million (to the extent not
covered by insurance) is rendered against the
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Company or a Significant Subsidiary and such judgment or decree shall remain
undischarged or unstayed for a period of 60 days after such judgment becomes
final and non-appealable (the "judgment default provision") or (ix) any
Subsidiary Guaranty by a Significant Subsidiary ceases to be in full force and
effect (except as contemplated by the terms of the Indenture) or any Subsidiary
Guarantor that is a Significant Subsidiary denies or disaffirms its obligations
under the Indenture or its Subsidiary Guaranty and such Default continues for
10 days. However, a default under clauses (iv) and (v) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does
not cure such default within the time specified in clauses (iv) and (v) hereof
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes by notice
to the Company may declare the principal of and accrued and unpaid interest, if
any, on all the Notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be due and payable immediately.
if an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on all the Notes will become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holders. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing,
(ii) holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or
expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or of exercising any
trust or power conferred on the Trustee. The Trustee, however, may refuse to
follow any direction that conflicts with law or the Indenture or that the
Trustee determines is unduly prejudicial to the rights of any other holder or
that would involve the Trustee in personal liability. Prior to taking any
action under the Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any Note, the Trustee
may withhold notice if and so long as its board of directors, a committee of
its board of directors or a committee of its Trust officers in good faith
determines that withholding notice is in the interests of the Noteholders. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each holder of an
outstanding New Note affected, no amendment may, among other things, (i) reduce
the amount of Notes whose holders must consent to an amendment, (ii) reduce the
stated rate of or extend the stated time for payment of interest on any New
Note, (iii) reduce the principal of or extend the Stated Maturity of any Note,
(iv) reduce the premium payable upon the redemption or repurchase of any New
Note or change the time at which any New Note may be redeemed as described
under "Optional Redemption" above, (v) make any New Note payable in money other
than that stated in the New Note, (vi) impair the right of any holder to
receive payment of principal of and interest
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on such holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Notes or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f) (2) (B) of the
Code), to add further Guarantees with respect to the Notes, to secure the
Notes, to add to the covenants of the Company for the benefit of the holders or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any holder or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act. However, no amendment may be made to
the subordination provisions of the Indenture that adversely affects the rights
of any holder of Senior Indebtedness then outstanding unless the holders of
such Senior Indebtedness (or any group or representative thereof authorized to
give a consent) consent to such change.
The consent of the holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company
is required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under covenants
described under "Certain Covenants" (other than "Merger and Consolidation"),
the operation of the cross acceleration provision, the bankruptcy provisions
with respect to Significant Subsidiaries, the judgment default provision and
the Subsidiary Guaranty provision described under "Events of Default" above and
the limitations contained in clauses (iii) and (iv) under "Certain Covenants --
Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries), (viii) or (ix) under "Events of
Default" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "Certain Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or a Restricted Subsidiary of the Company;
(iii) Capital Stock constituting a minority interest in any Person that at such
time is a Restricted Subsidiary of the Company; or (iv) Permitted Investments
of the type and in the amounts described in clause (viii) of the definition
thereof; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business, (iv) dispositions of property for net proceeds which, when taken
collectively with the net proceeds of any other such dispositions under this
clause (iv) that were consummated since the beginning of the calendar year in
which such disposition is consummated, do not exceed 1.5% of the consolidated
book value of the Company's assets as of the most recent date prior to such
disposition for which a consolidated balance sheet of the Company has been
regularly prepared, and (v) transactions permitted under "Certain Covenants --
Merger and Consolidation" above.
"Asset Swap" means the execution of a definitive agreement, subject
only to customary closing conditions that the Company in good faith believes
will be satisfied, for a substantially concurrent purchase and sale, or
exchange, of Productive Assets between the Company or any of its Restricted
Subsidiaries and another Person or group of affiliated Persons; provided,
however, that any amendment to or waiver of any closing condition that
individually or in the aggregate is material to the Asset Swap shall be deemed
to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which
such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any indebtedness, the quotient obtained by dividing (i) the sum of the products
of the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or redemption
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on
the Issue Date or thereafter incurred, payable by the Company under or in
respect of the Credit Agreement and any related notes, collateral documents,
letters of credit and guarantees, including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post filing interest
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is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof.
"Capitalized Lease Obligations" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date such lease may be terminated without
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Consolidated Cash Flow" for any period means the Consolidated Net
Income for such period, plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) income tax expense, (ii)
Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization
expense, (v) exchange or translation losses on foreign currencies, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
Notes) and less, to the extent added in calculating Consolidated Net Income,
(x) exchange or translation gains on foreign currencies and (y) non-cash items
(excluding such non-cash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes), in each case for such period. Notwithstanding the foregoing, the income
tax expense, depreciation expense and amortization expense of a Subsidiary of
the Company shall be included in Consolidated Cash Flow only to the extent (and
in the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Consolidated Cash Flow for the period
of the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters: provided, however,
that (1) if the Company or any of its Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage
Ratio is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to (A) such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period (provided that if such
Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
minimum balance of such Indebtedness (as determined in good faith by senior
management of the Company and assuming a constant level of sales) shall be
deemed outstanding for purposes of this calculation) and (B) the discharge of
any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period any
Indebtedness of the Company or any of its Restricted Subsidiaries has been
repaid, repurchased, defeased or otherwise discharged (other than Indebtedness
under a revolving credit or similar arrangement unless such revolving credit
Indebtedness has been permanently repaid and has not been replaced),
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Indebtedness had been repaid, repurchased,
defeased or otherwise discharged on the first day of such period, (3) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
shall have made any Asset Disposition or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Asset Disposition,
Consolidated Cash Flow for such period shall be reduced by an amount equal to
the Consolidated Cash Flow (if positive) attributable to the assets which are
the subject of such Asset Disposition for such period or increased by an amount
equal to the Consolidated Cash Flow (if negative) attributable thereto for such
period, and Consolidated Interest Expense for such period shall be (i) reduced
by an amount equal to the Consolidated Interest Expense attributable to any
Indebtedness of the Company or any of its Restricted Subsidiaries repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale) and (ii) increased by
interest income attributable to the assets which are the subject of such Asset
Disposition for such period, (4) if since the beginning of such period the
Company or any of its Restricted Subsidiaries (by merger or
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otherwise) shall have made an Investment in any Restricted Subsidiary of the
Company (or any Person which becomes a Restricted Subsidiary of the Company) or
an acquisition of assets, including any Investment in a Restricted Subsidiary
of the Company or any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary of the Company or was merged with or into the
Company or any Restricted Subsidiary of the Company since the beginning of such
period) shall have made any Asset Disposition, Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary of the Company during
such period, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Restricted Subsidiaries, plus, to the
extent not included in such interest expense, (i) interest expense attributable
to capital leases, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Company or any such Restricted
Subsidiary under any Guarantee of Indebtedness or other obligation of any other
Person, (vii) net payments (whether positive or negative) pursuant to Interest
Rate Agreements, (viii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust and (ix) cash and
Disqualified Stock dividends in respect of all Preferred Stock of Subsidiaries
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly Owned Subsidiary and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs and (b) interest
income. Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any person acquired by the Company or any of its Restricted
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition, (ii) any net income of any Restricted Subsidiary of
the Company if such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of distributions by
such Restricted Subsidiary, directly or indirectly, to the Company (other than
restrictions in effect on the Issue Date with respect to a Restricted
Subsidiary of the Company and other than restrictions that are created or exist
in compliance with the "Limitation on Restrictions on Distributions from
Restricted Subsidiaries" covenant), (iii) any gain or loss realized upon the
sale or other disposition of any assets of the Company or its consolidated
Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
which are not sold or otherwise disposed of in the ordinary course of business
and any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person, (iv) any extraordinary gain or loss, (v) the cumulative
effect of a change in accounting principles, (vi) restructuring charges or
writeoffs recorded within the one year period following the Issue Date in an
aggregate amount not to exceed $25 million,(vii) the net income of any Person,
other than a Restricted Subsidiary, except to the extent of the lesser of (A)
dividends or distributions paid to the Company or any of its Restricted
Subsidiaries by such Person and (B) the net income of such Person (but in no
event less than zero), and the net loss of such Person (other than an
Unrestricted Subsidiary) shall be included only to the extent of the aggregate
Investment of the Company or any of its Restricted Subsidiaries in such Person
and (viii) any non-cash expenses attributable to grants or exercises of
employee stock options. Notwithstanding the foregoing, for the purpose of the
covenant described under "Certain Covenants -Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a
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Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Continuing Director" means, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company on the
date of the Indenture, (ii) was nominated for election or elected to the Board
of Directors of the Company with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election, or (iii) is a representative of a Permitted
Holder.
"Credit Agreement" means (i) the Credit Agreement to be entered into
among the Company, The Chase Manhattan Bank, as Administrative Agent, Bankers
Trust Company, as Syndication Agent, and the lenders parties thereto from time
to time, as the same may be amended, supplemented or otherwise modified from
time to time and (ii) any renewal, extension, refunding, restructuring,
replacement or refinancing thereof (whether with the original Administrative
Agent and lenders or another administrative agent or agents or other lenders
and whether provided under the original Credit Agreement or any other credit or
other agreement or indenture).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness in
the case of the Company, (ii) any Guarantee by a Subsidiary Guarantor of the
Bank Indebtedness in the case of such Subsidiary Guarantor and (iii) any other
Senior Indebtedness in the case of the Company or Guarantor Senior Indebtedness
in the case of such Subsidiary Guarantor which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date
of determination, the holders thereof are committed to lend up to, at least $10
million and is specifically designated by the Company or such Subsidiary
Guarantor in the instrument evidencing or governing such Senior Indebtedness or
Guarantor Senior Indebtedness as "Designated Senior Indebtedness" for purposes
of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable) or upon the happening
of any event (i) matures or is mandatorily redeemable pursuant to a sinking
fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock (excluding capital stock which is
convertible or exchangeable solely at the option of the Company or a Restricted
Subsidiary) or (iii) is redeemable at the option of the holder thereof, in
whole or in part, in each case on or prior to the Stated Maturity of the Notes,
provided, that only the portion of Capital Stock which so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so redeemable
at the option of the holder thereof prior to such Stated Maturity shall be
deemed to be Disqualified Stock.
"Equity Offering" means an offering for cash by the Company of its
common stock, or options, warrants or rights with respect to its common stock.
"Financial Advisory Agreement" means the Financial Advisory Agreement
between Hicks Muse Partners and the Company as in effect on the Issue Date.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of
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the accounting profession. All ratios and computations based on GAAP contained
in the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter issued, any
Guarantee of the Bank Indebtedness by such Subsidiary Guarantor, all other
Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the Company
and all Indebtedness of such Subsidiary Guarantor, including interest and fees
thereon, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that the obligations of such
Subsidiary Guarantor in respect of such Indebtedness are not superior in right
of payment to the obligations of such Subsidiary Guarantor under the Subsidiary
Guaranty; provided, however, that Guarantor Senior Indebtedness shall not
include (1) any obligations of such Subsidiary Guarantor to the Company or any
other Subsidiary of the Company, (2) any liability for Federal, state, local or
other taxes owed or owing by such Subsidiary Guarantor, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities) or (4) any Indebtedness, Guarantee or obligation of such
Subsidiary Guarantor that is expressly subordinate or junior in right of
payment to any other Indebtedness, Guarantee or obligation of such Subsidiary
Guarantor, including any Guarantor Senior Subordinated Indebtedness and
Guarantor Subordinated Obligations of such Subsidiary Guarantor.
"Guarantor Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty and any other Indebtedness of such Subsidiary Guarantor
that specifically provides that such Indebtedness is to rank pari passu in
right of payment with the obligations of such Subsidiary Guarantor under the
Subsidiary Guaranty and is not subordinated by its terms in right of payment to
any Indebtedness or other obligation of such Subsidiary Guarantor which is not
Guarantor Senior Indebtedness of such Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a
Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the obligations of such Subsidiary Guarantor
under the Subsidiary Guaranty pursuant to a written agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, (v) all
Capitalized Lease Obligations and all
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Attributable Indebtedness of such Person, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person, (vii) all Indebtedness of other Persons
to the extent Guaranteed by such Person, (viii) the amount of all obligations
of such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Restricted Subsidiary of the
Company, any Preferred Stock of such Restricted Subsidiary to the extent such
obligation arises on or before the Stated Maturity of the Notes (but excluding,
in each case, any accrued dividends) and (ix) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding principal amount of all unconditional obligations as described
above, as such amount would be reflected on a balance sheet prepared in
accordance with GAAP, and the maximum liability of such Person, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations described above at such date.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time that such Subsidiary is so re-designated a
Restricted Subsidiary; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors and evidenced by a resolution of such Board of Directors certified in
an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Monitoring and Oversight and Agreement" means the Monitoring and
Oversight Agreement between Hicks Muse Partners and the Company as in effect on
the Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets subject to such Asset Disposition)
therefrom, in each case net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
foreign and local taxes required to be paid or accrued as a liability under
GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to any Person
owning a beneficial interest in assets subject to sale or minority interest
holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and retained
by the Company or any Restricted Subsidiary of the Company after such Asset
Disposition and (v) any portion of the purchase price from an
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Asset Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); provided,
however, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Permitted Indebtedness" means (i) Indebtedness of the Company owing
to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted
Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly-Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by the
issuer thereof; (ii) Indebtedness represented by (x) the Notes, (y) any
Indebtedness (other than the Indebtedness described in clauses (i), (ii) and
(iv) of paragraph (b) of the covenant described under "Limitation on
Indebtedness" and other than Indebtedness Incurred pursuant to clause (i) above
or clauses (iv), (v) or (vi) below) outstanding on the Issue Date and (z) any
Refinancing Indebtedness Incurred in respect of any Indebtedness described in
this clause (ii) or Incurred pursuant to paragraph (a) of the covenant
described under "Limitation on Indebtedness"; (iii) (A) Indebtedness of a
Restricted Subsidiary Incurred and outstanding on the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary
or was otherwise acquired by the Company); provided, however, that at the time
such Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a)
of the covenant described under "Limitation on Indebtedness" above after giving
effect to the Incurrence of such Indebtedness pursuant to this clause (iii) and
(B) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(iii); (iv) Indebtedness (A) in respect of performance bonds, bankers'
acceptances and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries to their customers in the ordinary course of their
business, (B) in respect of performance bonds or similar obligations of the
Company or any of its Restricted Subsidiaries for or in connection with
pledges, deposits or payments made or given in the ordinary course of business
in connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations, (C)
arising from Guarantees to suppliers, lessors, licensees, contractors,
franchises or customers of obligations (other than Indebtedness) incurred in
the ordinary course of business and (D) under Currency Agreements and Interest
Rate Agreements; provided, however, that in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements
are entered into for bona fide hedging purposes of the Company or its
Restricted Subsidiaries (as determined in good faith by the Board of Directors
or senior management of the Company) and correspond in terms of notional
amount, duration, currencies and interest rates, as applicable, to Indebtedness
of the Company or its Restricted Subsidiaries Incurred without violation of the
Indenture or to business transactions of the Company or its Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business; (v) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the disposition of
any business assets or Restricted Subsidiary of the Company (other than
Guarantees of Indebtedness or other obligations Incurred by any Person
acquiring all or any portion of such business assets or Restricted Subsidiary
of the Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the Company or any
of its Restricted Subsidiaries in connection with
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such disposition; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (v), when taken together with all
Indebtedness Incurred pursuant to this clause (v) and then outstanding, shall
not exceed $20 million; (vi) Indebtedness consisting of (A) Guarantees by the
Company or a Restricted Subsidiary of Indebtedness Incurred by a Wholly-Owned
Subsidiary without violation of the Indenture and (B) Guarantees by a
Restricted Subsidiary of Senior Indebtedness Incurred by the Company without
violation of the Indenture (so long as such Restricted Subsidiary could have
Incurred such Indebtedness directly without violation of the Indenture); and
(vii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness is
extinguished within two business days of its incurrence.
"Permitted Investment" means an Investment by the Company or any of
its Restricted Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company;
provided, however, that the primary business of such Wholly-Owned Subsidiary is
a Related Business; (ii) another Person if as a result of such Investment such
other Person becomes a Wholly-Owned Subsidiary of the Company or is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly-Owned Subsidiary of the Company; provided,
however, that in each case such Person's primary business is a Related
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any of its Restricted Subsidiaries, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees for purposes of purchasing the
Company's common stock in an aggregate amount outstanding at any one time not
to exceed $10 million and other loans and advances to employees made in the
ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any of its Restricted Subsidiaries or in satisfaction of judgments
or claims; (viii) a Person engaged in a Related Business or a loan or advance
to the Company the proceeds of which are used solely to make an Investment in a
Person engaged in a Related Business or a Guarantee by the Company of
Indebtedness of any Person in which such Investment has been made; provided,
however, that no Permitted Investments may be made pursuant to this clause
(viii) to the extent the amount thereof would, when taken together with all
other Permitted Investments made pursuant to this clause (viii), exceed $50
million in the aggregate (plus, to the extent not previously reinvested, any
return of capital realized on Permitted Investments made pursuant to this
clause (viii), or any release or other cancellation of any Guarantee
constituting such Permitted Investment); (ix) Persons to the extent such
Investment is received by the Company or any Restricted Subsidiary as
consideration for asset dispositions effected in compliance with the covenant
described under "Limitations on Sales of Assets and Subsidiary Stock"; (x)
prepayments and other credits to suppliers made in the ordinary course of
business consistent with the past practices of the Company and its Restricted
Subsidiaries; and (xi) Investments in connection with pledges, deposits,
payments or performance bonds made or given in the ordinary course of business
in connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision hereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Productive Assets" means assets of a kind used or usable by the
Company and its Restricted Subsidiaries in the Company's business or any
Related Business.
A "Public Market" exists at any time with respect to the common stock
of the Company if (a) the common stock of the Company is then registered with
the Securities and Exchange Commission pursuant to Section 12(b) or 12(g) of
Exchange Act and traded either on a national securities exchange or in the
National Association of Securities Dealers Automated Quotation System and (b)
at least 15% of the total issued and outstanding common stock of the Company
has been distributed prior to such time by means of an effective registration
statement under the Securities Act 1933.
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"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness existing on the
date of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness, provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the earlier of
(A) the first anniversary of the Stated Maturity of the Notes and (B) Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the lesser of (A) the Average Life of
the Notes and (B) the Average Life of the Indebtedness being refinanced, and
(iii) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to (or 101% of, in the case of a refinancing of the Notes in
connection with a Change of Control) or less than the sum of the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the date of the Indenture, as reasonably determined
by the Company's Board of Directors.
"Representative" means any trustee, agent or representative (if any)
of an issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Secured Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor secured by a Lien.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness
is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision.
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means each Subsidiary of the Company in
existence on the Issue Date and each Subsidiary (other than foreign
subsidiaries and Unrestricted Subsidiaries) created or acquired by the Company
after the Issue Date.
"Subsidiary Guaranty" means the Guarantee of the Notes by a Subsidiary
Guarantor.
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"Temporary Cash Investments" means any of the following: (i) any
Investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long-term debt, or whose parent holding
company's long-term debt, is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act), (iii) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v)
above.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any Restricted Subsidiary of the
Company that is not a Subsidiary of the Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under "Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness under clause (a) of
"Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the
Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Old Notes were issued, and the
certificates representing the New Notes will be issued, in fully registered
form, without coupons. The Old Notes are represented by two permanent global
certificates in definitive, fully registered form without interest coupons in
the aggregate amount of $398,500,000 (the "Initial Global Notes") and by three
Certificated Securities (as defined below) in the amount of $500,000 each.
Except as described in the next paragraph, the New Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes") and will be deposited with, or on behalf
of, the DTC (the "Depositary"), and registered in the name of Cede & Co., as
the DTC's nominee or will remain in the custody of the Trustee pursuant to a
FAST Balance Certificate Agreement between the DTC and the Trustee. If any
holder of Old
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Notes whose interest in such Old Notes is represented by an Initial Global Note
fails to tender in the Exchange Offer, the Company may issue and deliver to
such holder a separate certificate representing such holder's Old Notes in
registered form without interest coupons.
New Notes exchanged for Old Notes originally purchased by or
transferred to (i) institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) who are not "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
("QIBs") or (ii) QIBs who elect to take physical delivery of their certificates
(collectively, "Non-Global Purchasers") will be issued in registered form
without interest coupons (the "Certificated Securities"). Upon the transfer to
a QIB of Certificated Securities initially issued to a Non-Global Purchaser,
such Certificated Securities will, unless the transferee requests otherwise or
the Global Note has previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in the Global Note.
The Depository has advised the Company that it is (i) a limited
purpose trust company organized under the laws of the State of New York, (ii) a
member of the Federal Reserve System, (iii) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing
Agency" registered pursuant to Section 17A of the Exchange Act. The Depository
was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. The Depository's Participants include
securities brokers and dealers (including the initial purchasers of the Old
Notes), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. QIBs may elect
to hold New Notes purchased by them through the Depository. QIBs who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through Participants or Indirect Participants. Persons that are
not QIBs may not hold New Notes through the Depository.
The Company has been advised by the Depository that upon deposit of
the Global Notes, (i) the Depository will credit the accounts of Participants
with portions of the principal amount of the Global Notes and (ii) ownership of
the New Notes evidenced by the Global Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants),
the Depository's Participants and the Depository's Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer New Notes
or to pledge the New Notes as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered owner of
the Global Notes, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Notes for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names and will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to giving of any directions, instruction or approval to
the Trustee thereunder. As a result, the ability of a person having a
beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Payments with respect to the principal of, premium, if any, and
interest on any New Notes represented by a Global Note registered in the name
of the Depository or its nominee on the applicable record date will be payable
by the Trustee to or at the direction of the Depository or its nominee in its
capacity as the registered Holder of the Global Note representing such New
Notes under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the New Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payment and for any and all other purposes whatsoever. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of New Notes
(including principal, premium, if any, and interest), or to immediately credit
the accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of the Depository. Payments
by the Participants and the
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Indirect Participants to the beneficial owners of New Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository
is no longer willing or able to act as a depository and the Company is unable
to locate a qualified successor within 90 days, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
New Notes in definitive form under the Indenture, or (iii) upon the occurrence
of certain other events, then, upon surrender by the Depository of its Global
Notes, Certificated Securities will be issued to each person that the
Depository identifies as the beneficial owner of the New Notes represented by
the Global Notes. In addition, subject to certain conditions, any person having
a beneficial interest in a Global Note may, upon request to the Trustee,
exchange such beneficial interest for Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominee of any thereof) and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by
the Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the New Notes to be issued).
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
New Notes. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of Old Notes for New Notes will not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder will have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. Each of the Company and the Subsidiary
Guarantors has agreed that, for a period of 90 days after the Expiration Date,
it will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
________________, 199__, all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
Neither the Company nor the Subsidiary Guarantors will receive any
proceeds from any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the New Notes or
a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes. Any broker-dealer that resells New Notes that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus for any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and the Subsidiary Guarantors have
jointly and severally agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the Holders of the Old Notes) other
than commissions or concessions of any broker-dealers and will indemnify the
Holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for
the Company by Vinson & Elkins L.L.P., Dallas, Texas.
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EXPERTS
The consolidated balance sheets of American Home Food Products as of
December 31, 1995 and 1994 and the consolidated statements of operations and
Parent Company's Investment and Advances, and cash flows of American Home Food
Products for each of the three years in the period ended December 31, 1995,
included in this prospectus, have been included herein in reliance on the report
of Arthur Andersen LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
On December 13, 1996, the Company dismissed Arthur Andersen LLP as its
independent accountants. The decision to dismiss Arthur Andersen LLP was made by
the Company's management and was ratified by the Board of Directors. The
reports of Arthur Andersen LLP on the financial statements of the Company for
fiscal years 1994 and 1995 are unqualified and do not contain an adverse or
disclaimer of opinion and were not modified as to uncertainty, audit scope or
accounting principles. During 1993, 1994, 1995, and through this date of
dismissal in 1996 there were no disagreements with Arthur Andersen LLP on any
matter of accounting principles or practices, financial statement disclosures
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Arthur Andersen LLP would have caused them to make reference
to the subject matter of the disagreements in its reports. Coopers and Lybrand
L.L.P. was engaged as the Company's independent accountants in December 1996.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement
(the "Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules filed therewith. Statements
contained in this Prospectus concerning the provisions of any contract,
agreement or other document referred to herein or therein are not necessarily
complete, but contain a summary of the material terms of such contracts,
agreements or other documents. With respect to each contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for the complete contents of the exhibit, and each
statement concerning its provisions is qualified in its entirety by such
reference. The Registration Statement may be inspected, without charge, at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its regional offices at 7 World Trade Center, New York, New York, 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2551. Copies
of such materials may also be obtained by mail at prescribed rates from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such materials may also be
obtained from the web site that the Commission maintains at www.sec.gov.
92
<PAGE> 95
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN HOME FOOD PRODUCTS
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS........................... F-2
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets as of December
31, 1994, 1995 and (unaudited) as
of September 30, 1996.............. F-3
Combined Statements of Operations and
Parent Company's Investment and
Advances for the years ended
December 31, 1993, 1994 and 1995
and (unaudited) for the nine months
ended September 30, 1995 and
1996............................... F-4
Combined Statements of Cash Flows for
the years ended December 31, 1993,
1994 and 1995 and (unaudited) for
the nine months ended September 30,
1995 and 1996...................... F-5
Notes to Combined Financial
Statements......................... F-6
</TABLE>
All schedules are omitted because the required information is not
applicable or because the required information is included in the combined
financial statements or related notes.
F-1
<PAGE> 96
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Home Products Corporation:
We have audited the accompanying combined balance sheets of American Home
Food Products identified in Note 1, as of December 31, 1995 and 1994, and the
related combined statements of operations and parent company's investment and
advances, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of American Home Food Products as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
October 11, 1996
F-2
<PAGE> 97
AMERICAN HOME FOOD PRODUCTS
COMBINED BALANCE SHEETS
(IN THOUSANDS OF U. S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
------------------- SEPTEMBER 30, 1996
1994 1995 1996 PRO FORMA
-------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash....................................... $ -- $ -- $ -- $ 500
Accounts receivable, net of allowance for
doubtful accounts of $1,474, $1,663 and
$1,782 at December 31, 1994, 1995 and
September 30, 1996, respectively........ $107,384 $ 45,674 $ 55,733 60,300
Inventories................................ 147,953 139,850 130,466 134,800
Prepaid expenses and other current
assets.................................. 4,883 3,832 1,939 6,300
-------- -------- -------- ----------
Total current assets............... 260,220 189,356 188,138 201,900
PROPERTY, PLANT AND EQUIPMENT, net........... 169,698 176,755 173,520 186,600
INTANGIBLE ASSETS, net (primarily
goodwill).................................. 110,453 97,443 95,436 180,400
DEFERRED TAXES............................... -- -- -- 362,000
OTHER........................................ 106 93 75 --
-------- -------- -------- ----------
Total assets....................... $540,477 $463,647 $457,169 $ 930,900
======== ======== ======== ==========
LIABILITIES AND PARENT COMPANY'S INVESTMENT AND ADVANCES
CURRENT LIABILITIES:
Accounts payable........................... $ 15,670 $ 13,092 $ 16,977 $ 22,900
Accrued salaries, wages and benefits....... 9,075 9,272 10,581 12,600
Accrued advertising and promotion.......... 24,518 27,465 32,884 32,900
Other accrued liabilities.................. 13,800 18,902 17,905 19,500
Current portion of long term obligations... -- -- -- 26,000
-------- -------- -------- ----------
Total current liabilities.......... 63,063 68,731 78,347 113,900
LONG-TERM OBLIGATIONS, LESS CURRENT
MATURITIES................................. -- -- -- 1,056,700
OTHER NONCURRENT LIABILITIES, primarily
accrued royalties.......................... 10,275 9,919 10,189 10,800
COMMITMENTS AND CONTINGENCIES
PARENT COMPANY'S INVESTMENT AND ADVANCES
(DEFICIT).................................. 467,139 384,997 368,633 (250,500)
-------- -------- -------- ----------
Total liabilities and parent
company's investment and
advances......................... $540,477 $463,647 $457,169 $ 930,900
======== ======== ======== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 98
AMERICAN HOME FOOD PRODUCTS
COMBINED STATEMENTS OF OPERATIONS AND
PARENT COMPANY'S INVESTMENT AND ADVANCES
(IN THOUSANDS OF U. S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
-------- -------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................... $935,715 $997,321 $ 818,861 $609,139 $704,103
COST OF SALES........................... 432,031 463,137 398,122 296,979 333,880
-------- -------- --------- -------- --------
Gross profit.................. 503,684 534,184 420,739 312,160 370,223
MARKETING EXPENSES...................... 189,850 200,757 186,396 139,876 140,168
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 146,906 160,996 151,257 115,776 108,215
OTHER EXPENSE, net...................... 13,624 13,215 14,479 10,266 2,096
-------- -------- --------- -------- --------
Income before provision for
income taxes................ 153,304 159,216 68,607 46,242 119,744
PROVISION FOR INCOME TAXES.............. 60,946 63,296 29,414 20,422 45,576
-------- -------- --------- -------- --------
Net income.................... 92,358 95,920 39,193 25,820 74,168
PARENT COMPANY'S INVESTMENT AND
ADVANCES, beginning of period......... 330,106 423,551 467,139 467,139 384,997
ADVANCES WITHDRAWALS AND DIVIDENDS,
net................................... 1,087 (52,332) (121,335) (79,724) (90,532)
-------- -------- --------- -------- --------
PARENT COMPANY'S INVESTMENT AND
ADVANCES, end of period............... $423,551 $467,139 $ 384,997 $413,235 $368,633
======== ======== ========= ======== ========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-4
<PAGE> 99
AMERICAN HOME FOOD PRODUCTS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U. S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................... $ 92,358 $ 95,920 $ 39,193 $ 25,820 $ 74,168
Adjustments to reconcile net
income to net cash provided
from operating activities --
Depreciation and
amortization.................. 24,991 26,389 30,154 22,569 13,717
Changes in working capital --
Accounts receivable........... (15,584) (24,711) 61,710 44,740 (10,059)
Inventories................... (19,094) (13,802) 8,103 1,107 9,384
Prepaid expenses and other
current assets.............. 1,260 (1,259) 1,051 1,440 1,894
Other noncurrent assets....... 30 (19) 13 29 16
Accounts payable.............. 363 (2,728) (2,578) (1,889) 3,885
Accrued salaries, wages and
benefits.................... 1,191 (369) 197 (5) 1,310
Accrued advertising and
promotion................... 1,945 8,073 2,947 4,247 5,419
Other accrued liabilities..... 1,360 (4,424) 5,102 4,405 (998)
Other......................... (320) 379 (356) (368) 270
-------- -------- --------- -------- --------
Net cash provided from
operating activities... 88,500 83,449 145,536 102,095 99,006
-------- -------- --------- -------- --------
INVESTING ACTIVITIES:
Purchases of plant and equipment,
net........................... 22,030 31,117 24,201 22,372 8,475
Purchase of business............. 67,557 0 0 0 0
-------- -------- --------- -------- --------
Net cash used in
investing activities... (89,587) (31,117) (24,201) (22,372) (8,475)
-------- -------- --------- -------- --------
FINANCING ACTIVITIES:
Dividends paid to parent
company....................... (85,012) (93,761) (5,818) (1,924) (1,461)
Change in parent company's
investment and advances,
net........................... 86,598 42,134 (115,793) (78,369) (89,171)
-------- -------- --------- -------- --------
Net cash provided from
(used in) financing
activities............. 1,586 (51,627) (121,611) (80,293) (90,632)
-------- -------- --------- -------- --------
EFFECT OF EXCHANGE RATES........... (499) (705) 276 570 101
-------- -------- --------- -------- --------
INCREASE (DECREASE) IN CASH........ $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ========= ======== ========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-5
<PAGE> 100
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
(DATA WITH REGARD TO SEPTEMBER 30, 1996 AND 1995
AND FOR THE NINE MONTHS THEN ENDED ARE UNAUDITED)
(1) DESCRIPTION OF BUSINESS:
The accompanying financial statements include the operations of the
following indirect wholly-owned subsidiaries of American Home Products
Corporation ("AHPC" or the "Parent"): American Home Food Products, Inc. and its
subsidiary M. Polaner, Inc., ("AHFP, Inc."), American Home Foods, Inc., Luck's
Incorporated, all of which are Delaware corporations, Canadian Home Products
Limited (a Canadian corporation), and certain related assets owned by AHPC and
its subsidiaries.
On September 5, 1996, AHPC and AHP Subsidiary Holding Corporation and other
parties entered into an agreement (the "Agreement") pursuant to which an
affiliate of Hicks Muse Equity Fund III, L.P. will acquire an 80% interest in
AHFP, Inc. for approximately $1,222,000. All of the other entities and
operations of the food products business of AHPC will be contributed into AHFP,
Inc., all of which will constitute the Company. In connection with the
Agreement, AHFP Inc. will receive approximately $264,000 of equity financing and
will incur indebtedness of approximately $1,083,000, approximately $958,000 of
which will be used to redeem shares of common stock of AHFP Inc. held by a
subsidiary of AHPC. As a result, AHPC will continue to beneficially own
approximately 20% of AHFP, Inc. Immediately after this transaction, the Company
will purchase Heritage Brands Holdings, Inc. and subsidiaries ("Heritage") for
approximately $70,000 in an acquisition which will be accounted for using the
purchase method of accounting. The pro forma effects of this transaction have
been presented in the accompanying unaudited pro forma combined balance sheet
which has been prepared as though the transactions occurred on September 30,
1996. The unaudited pro forma combined balance sheet does not purport to be
indicative of what the combined financial position would actually have been had
the transaction been completed on September 30, 1996.
The Company is in a single industry which manufactures and markets a
diversified portfolio of shelf-stable food products. These products include
entrees, side dishes, spreadable fruit products, snacks and other food products.
The Company sells its products primarily in the United States and Canada. The
Company is not dependent on any single or major group of customers for its
sales.
The accompanying combined financial statements have been prepared in
accordance with generally accepted accounting principles and necessarily include
amounts based on judgments and estimates made by management. Actual results
could differ from these estimates. All significant intercompany accounts and
transactions have been eliminated in preparing the combined statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories --
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis. Inventories are as follows --
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Raw materials................................. $ 53,635 $ 53,523 $ 30,295
Work in progress.............................. 5,569 3,769 23,911
Finished goods................................ 88,749 82,558 76,260
-------- -------- --------
Total............................... $147,953 $139,850 $130,466
======== ======== ========
</TABLE>
F-6
<PAGE> 101
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment --
Property, plant and equipment is stated at cost. Normal maintenance and
repairs are expensed. Additions and improvements either to provide necessary
capacity, improve the efficiency of production or to modernize the facilities
are capitalized. Depreciation is calculated using the straight-line method over
the estimated useful lives; generally 40 years for building and leasehold
improvements, 15 years for machinery and equipment and 5 years for furniture and
fixtures. Property, plant and equipment consisted of --
<TABLE>
<CAPTION>
DECEMBER 31
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Land.................................... $ 4,494 $ 4,494 $ 4,589
Buildings and leasehold improvements.... 93,641 101,622 106,600
Machinery and equipment................. 160,878 172,093 170,375
Furniture and fixtures.................. 15,154 18,893 19,388
-------- -------- --------
274,167 297,102 300,952
Less -- accumulated depreciation and
amortization.......................... 104,469 120,347 127,432
-------- -------- --------
Total......................... $169,698 $176,755 $173,520
======== ======== ========
</TABLE>
Intangible Assets --
Early in 1993, the Company acquired a manufacturer and distributor of shelf
stable fruit-juice-sweetened spreads for approximately $67,500. This acquisition
was accounted for as a purchase, and accordingly, the net assets acquired were
recorded at their approximate fair value as of the acquisition date. The pro
forma effect on the Company's results of operations as if the acquisition had
occurred at the beginning of 1993 was not significant. Goodwill represents the
excess of cost over the fair value of net assets acquired and is being amortized
on the straight-line method primarily over 40 years. In connection with the
acquisition, the Company also acquired certain other intangible assets including
a noncompete agreement which was amortized over approximately three years.
<TABLE>
<CAPTION>
DECEMBER 31
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Goodwill (amortization -- primarily 40
years)................................ $110,579 $110,579 $110,579
Other intangible assets
(amortization -- 3 years)............. 31,000 0 0
-------- -------- --------
141,579 110,579 110,579
Accumulated amortization................ 31,126 13,136 15,143
-------- -------- --------
Net intangible assets......... $110,453 $ 97,443 $ 95,436
======== ======== ========
</TABLE>
Amortization of intangibles included in other expense, net in the combined
statements of operations totaled $13,045, $13,010 and $13,010 for the years
ended December 31, 1993, 1994 and 1995 and $9,757 and $2,007 for the nine months
ended September 30, 1995 and 1996. All fully amortized intangibles have been
retired.
The Company continually reviews goodwill to evaluate whether changes have
occurred that would suggest goodwill may be impaired based on the estimated cash
flows of the entity acquired over the remaining amortization period. If this
review indicates that the remaining estimated useful life of goodwill requires
revision or that the goodwill is not recoverable, the carrying amount of the
goodwill is reduced by the estimated shortfall of cash flows on a discounted
basis.
During 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued.
F-7
<PAGE> 102
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The effect of adopting this pronouncement in 1996 was not significant.
Research and Development --
Research and development costs are charged to expense as incurred and
amounted to $6,538, $6,782 and $6,447 for the years ended December 31, 1993,
1994 and 1995 and $5,093 and $7,415 for the nine months ended September 30, 1995
and 1996.
Allowance for Doubtful Accounts and Sales Returns --
The following summarizes the allowance for doubtful accounts and sales
returns and their related activity --
<TABLE>
<CAPTION>
WRITE-OFFS AND
BEGINNING CHARGED REDUCTIONS, NET ENDING
DESCRIPTION BALANCE TO EXPENSE OF RECOVERIES BALANCE
----------- --------- ---------- --------------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and
sales returns and allowances --
Year ended December 31, 1993.......... $3,189 $ 444 $507 $3,126
Year ended December 31, 1994.......... 3,126 588 240 3,474
Year ended December 31, 1995.......... 3,474 1,103 513 4,064
</TABLE>
Parent Company Investment and Advances --
Parent company's investment and advances includes the stockholder's equity
of the individual AHPC subsidiaries described in Note 1. The equity of the
individual subsidiaries represents the original investment by the Parent, plus
accumulated net income and net advances, withdrawals and dividends. Cash
receipts are transferred to AHPC by daily cash sweeps, and AHPC makes funds
available for operating expenses.
Interim Financial Information --
The unaudited combined financial statements presented herein have been
prepared by the Company without audit and, in the opinion of management, contain
all adjustments necessary to present fairly and on a basis consistent with the
combined financial statements for the year ended December 31, 1995, the
Company's combined financial position as of September 30, 1996, and the results
of their operations and cash flows for the nine months ended September 30, 1995
and 1996.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the entire year.
Currency Translation --
The assets and liabilities of Canadian Home Products Limited are translated
into United States dollars at period end exchange rates. Profit and loss account
items are translated using monthly average exchange rates. Translation
adjustments are accumulated in parent company investment and advances and are
not significant.
(3) INCOME TAXES:
The operations of the Company are included in the consolidated tax returns
of AHPC. The Company is charged by AHPC based on the statutory tax rates without
any regard for temporary differences. Accordingly, the Company has no deferred
tax assets or liabilities since those amounts are being paid or
F-8
<PAGE> 103
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
received by the parent. Deferred tax assets and liabilities would reflect
temporary differences between assets and liabilities for financial reporting
purposes and Federal income tax purposes. Such temporary differences are
primarily attributable to depreciation, allowances for doubtful accounts, trade
promotion accruals and other accruals and have not been significant.
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic................................. $51,796 $54,558 $24,126 $16,032 $38,754
Foreign.................................. 3,278 2,567 2,411 1,979 994
State.................................... 5,872 6,171 2,877 2,411 5,828
------- ------- ------- ------- -------
$60,946 $63,296 $29,414 $20,422 $45,576
======= ======= ======= ======= =======
</TABLE>
A reconciliation between the Company's effective tax rate and U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
U.S. statutory rate........................................ 35% 35% 35% 35% 35%
State tax, net of Federal benefit.......................... 3 3 3 3 3
Amortization of other intangibles and purchase price over
fair value............................................... 2 2 5 6 --
-- -- -- -- --
Effective tax rate......................................... 40% 40% 43% 44% 38%
== == == == ==
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
The combined statements of operations include the costs of certain
administrative and other services provided by AHPC. These services include
treasury, tax, personnel, legal, environmental, safety, public relations, audit
and other related costs which on an annualized basis approximated $2,500 for
each period presented. The costs have been allocated on a basis which management
believes are representative of costs which would have been incurred by the
Company on a stand alone basis.
AHPC also charges the Company for its share of group insurance costs
(medical, dental, basic life, etc.), based on AHPC's historical claims
experience and current claim trends and the ratio of the Company's employees to
total AHPC domestic employees. The charges, which are reflected in the statement
of operations amounted to $11,416, $11,733 and $11,941 for the years ended
December 31, 1993, 1994 and 1995, and $8,985 and $8,598 for the nine months
ended September 30, 1995 and 1996.
The combined statements of operations include rent for 35,000 square feet
of space in AHPC's corporate headquarters. The rent expense related to this
space amounted to $817, $965 and $905 for the years ended December 31, 1993,
1994 and 1995, and $679 and $651 for the nine months ended September 30, 1995
and 1996.
Various self-insurance coverages are provided to the Company through AHPC
consolidated programs. Auto, property, product liability and other insurance
coverages provided by AHPC are allocated to the Company based on past claim
history, exposure, trends and judgment. The charges, which are reflected in the
statements of operations, amounted to $411, $426 and $421 for the years ended
December 31, 1993, 1994 and 1995, and $314 and $321 for the nine months ended
September 30, 1995 and 1996.
The Company buys advertising through a wholly-owned subsidiary of AHPC. The
rates at which it buys advertising reflect the rates obtained by the
consolidated purchasing of AHPC. The charges, which
F-9
<PAGE> 104
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
are reflected in the statements of operations, amounted to $33,235, $32,839 and
$42,386 for the years ended December 31, 1993, 1994 and 1995, and $28,609 and
$42,974 for the nine months ended September 30, 1995 and 1996.
Following is an analysis of the activity in the Parent Company's Investment
and Advances account for the years ended December 31, 1993, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning balance --
Parent Company's Investment and
Advances....................... $330,106 $423,551 $467,139 $467,139 $384,997
Net income.......................... 92,358 95,920 39,193 25,820 74,168
Distribution of Net income through
Parent Company's Investment and
Advances account.................. (92,358) (95,920) (39,193) (25,820) (74,168)
-------- -------- -------- -------- --------
330,106 423,551 467,139 467,139 384,997
-------- -------- -------- -------- --------
Changes in other assets &
liabilities through the account:
Depreciation & amortization....... 24,991 26,389 30,154 22,569 13,717
Accounts receivable............... (15,584) (24,711) 61,710 44,740 (10,059)
Inventories....................... (19,094) (13,802) 8,103 1,107 9,384
Prepaid expenses & other current
assets......................... 1,260 (1,259) 1,051 1,440 1,893
Other noncurrent assets........... 30 (19) 13 29 18
Accounts payable.................. 363 (2,728) (2,578) (1,889) 3,885
Accrued salaries, wages &
benefits....................... 1,191 (369) 197 (5) 1,309
Accrued advertising & promotion... 1,945 8,073 2,947 4,247 5,419
Other accrued liabilities......... 1,360 (4,424) 5,102 4,405 (997)
Other............................. (320) 379 (356) (368) 270
Purchases of plant & equipment
net............................ (89,587) (31,117) (24,201) (22,372) (8,475)
-------- -------- -------- -------- --------
(93,445) (43,588) 82,142 53,903 16,364
-------- -------- -------- -------- --------
Ending balance --
Parent Company's Investment and
Advances....................... $423,551 $467,139 $384,997 $413,236 $368,633
======== ======== ======== ======== ========
</TABLE>
(5) EMPLOYEE BENEFIT PLANS:
The Company participates in certain AHPC defined benefit plans, which
provide retirement benefits to substantially all nonunion and certain union
employees, as well as union sponsored multiemployer plans. The amount charged
and contributed to these AHPC and union sponsored plans totaled $2,236, $2,651
and $2,762 for the years ended December 31, 1993, 1994 and 1995, and $2,059 and
$2,848 for the nine months ended September 30, 1995 and 1996.
The Company provides postretirement health care and life insurance benefits
for retired employees. Employees become eligible for these benefits after
attaining specified age and service requirements. The Company is charged for
actual retiree benefit costs based on the ratio of the Company's participants to
F-10
<PAGE> 105
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
total AHPC participants. The postretirement health care costs included in the
statement of operations amounted to $2,996, $3,334 and $3,494 for the years
ended December 31, 1993, 1994 and 1995, and $2,611 and $2,933 for the nine
months ended September 30, 1995 and 1996.
The Company has not provided certain disclosures required by Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions"
since, under the AHPC plans, the assets are not segregated or restricted by
subsidiary and the benefit obligations will not be assumed by the Company.
Further, certain disclosures prescribed by Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," have not been provided since the AHPC plan is unfunded and the
benefit obligations will not be assumed by the Company.
The Company also participates in certain defined contribution plans
sponsored by AHPC. Contributions to these plans are based on a percentage of the
employee's compensation. Expense recognized for these plans totaled $958, $1,082
and $1,027 for the years ended December 31, 1993, 1994 and 1995, and $808 and
$849 for the nine months ended September 30, 1995 and 1996.
(6) COMMITMENTS AND CONTINGENCIES:
The Company has ongoing royalty arrangements with several parties,
primarily representing licensing agreements for the use of characters in the
Company's canned pasta and wet spices businesses. The combined statements of
operations include royalty costs amounting to $1,943, $2,065 and $3,136 for the
years ended December 31, 1993, 1994 and 1995, and $2,477 and $1,632 for the nine
months ended September 30, 1995 and 1996.
There is also a royalty obligation in connection with the Company's
acquisition of the cereals business in 1988. The agreement includes a minimum
annual royalty of $750, payable annually, as well as a $10,250 balloon payment
due on December 31, 1997. As of December 31, 1995 and September 30, 1996, $9,873
and $10,085, respectively, have been accrued towards the annual minimum royalty
for each of the periods and the appropriate shares of the balloon obligation.
There are no minimum royalty requirements after December 31, 1997, however, an
ongoing royalty of 4% of net sales will continue.
In the ordinary course of business, the Company enters into contracts for
the purchase of certain of its raw materials.
In the ordinary course of business, the Company is involved in various
pending or threatened litigation claims. The Company has responsibility for
environmental, safety and cleanup obligations under various local, state and
Federal laws, including the Comprehensive Environmental Response, Compensation
and Liability Act, commonly known as Superfund. The Company has been identified
as a potentially responsible party at two Superfund sites. Although the outcome
of any legal proceeding cannot be predicted with certainty, management believes
through its discussions with counsel and the United States Environmental
Protection Agency that its proportionate share of any liability arising from
such matters in the aggregate will not have a material adverse effect on the
combined financial statements.
(7) GUARANTOR FINANCIAL DATA:
As described in Note 1, AHFP, Inc. expects to issue unsecured senior
subordinated notes which will mature in 2006. The notes will be subordinated to
all future senior indebtedness and senior to all other subordinated
indebtedness. The notes will be redeemable on or after 2001 at specified
declining percentages of the principal amount thereof. In addition, prior to
2000, the Company will be able to redeem up to $160 million of the principal
amount of the Notes, subject to certain requirements. Separate financial
statements of the subsidiary guarantors have not been presented because the
Company believes they would not be material to investors. All of the Company's
subsidiaries (American Home
F-11
<PAGE> 106
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foods, Inc., Luck's Incorporated, Canadian Home Products Limited and M. Polaner,
Inc.) will fully and unconditionally guarantee the notes, on a joint and several
basis. Upon completion of the purchase of Heritage (see Note 1), Heritage will
also fully and unconditionally guarantee the notes on a joint and several basis.
Accordingly, the following financial information presents the combined financial
statements of the Company, accounting for American Home Foods, Inc., Luck's
Incorporated, Canadian Home Products Limited and M. Polaner, Inc. on an equity
basis.
STATEMENT OF INCOME --
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales........................... $818,691 $849,840 $686,911 $508,067 $605,666
Costs and expenses:
Cost of sales..................... 372,815 385,410 331,238 244,940 279,670
Selling, general and
administrative................. 287,539 295,741 277,184 208,187 206,463
Other expense, net................ 3,712 4,190 4,777 2,948 2,631
-------- -------- -------- -------- --------
Income before provision for
income taxes and equity in
undistributed earnings of
affiliates................... 154,625 164,499 73,712 51,992 116,902
Provision for income taxes.......... 57,279 60,972 26,867 19,043 44,199
-------- -------- -------- -------- --------
Income before equity in
undistributed earnings of
affiliates................... 97,346 103,527 46,845 32,949 72,703
Equity in undistributed earnings of
affiliates........................ (4,988) (7,607) (7,652) (7,129) 1,465
-------- -------- -------- -------- --------
Net income................ $ 92,358 $ 95,920 $ 39,193 $ 25,820 $ 74,168
======== ======== ======== ======== ========
</TABLE>
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Accounts receivable, net............................ $ 91,685 $ 35,926 $ 45,736
Inventories......................................... 60,860 62,180 60,870
Other current assets................................ 3,229 2,378 1,104
Property, plant and equipment, net.................. 45,957 52,677 50,882
Intangible and other assets......................... 67,230 65,419 64,062
Investments in affiliates not consolidated.......... 243,376 220,436 203,166
-------- -------- --------
Total assets................................ $512,337 $439,016 $425,820
======== ======== ========
Liabilities and Parent Company's investment and
advances:
Liabilities:
Current liabilities.............................. $ 35,040 $ 44,208 $ 47,119
Other noncurrent liabilities..................... 10,158 9,811 10,068
-------- -------- --------
Total liabilities........................... 45,198 54,019 57,187
-------- -------- --------
Parent Company's investment and advances.............. 467,139 384,997 368,633
-------- -------- --------
Total liabilities and parent company's
investment and advances................... $512,337 $439,016 $425,820
======== ======== ========
</TABLE>
F-12
<PAGE> 107
AMERICAN HOME FOOD PRODUCTS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1993 1994 1995 1995 1007
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income........................ $ 92,358 $ 95,920 $ 39,193 $ 25,820 $ 74,168
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................. 4,800 5,320 6,825 4,781 4,747
Changes in working capital:
Accounts receivable.......... (14,988) (20,135) 55,759 43,033 (9,810)
Inventories.................. (184) (8,477) (1,320) (7,121) 1,310
Other current assets......... 660 (890) 851 1,360 1,274
Current and noncurrent
liabilities............... 5,176 301 8,821 8,468 3,169
-------- -------- -------- -------- --------
Net cash provided by
operating activities.... 87,822 72,039 110,129 76,341 74,858
Cash used in investing activities:
Purchase of plant and
equipment, net............... 6,666 12,655 11,734 10,268 1,596
Purchase of Business........... 67,557 -- -- -- --
Cash used in financing activities:
Change in investment and
advances..................... (13,599) (59,384) (98,395) (66,073) (73,262)
-------- -------- -------- -------- --------
Net increase (decrease) in
cash.................... $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ======== ======== ========
</TABLE>
F-13
<PAGE> 108
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY
INITIAL PURCHASER OF THE OLD NOTES. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Summary...................................... 3
Risk Factors................................. 16
The Transaction.............................. 19
Use of Proceeds.............................. 23
Capitalization............................... 23
Selected Historical Financial and
Operating Information...................... 24
Unaudited Pro Forma Combined
Financial Statements....................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................. 33
Business..................................... 38
Management................................... 49
Stock Ownership and Certain Transactions..... 54
Description of Senior Bank Facilities........ 57
The Exchange Offer........................... 59
Description of New Notes..................... 66
Certain United States Federal Income
Tax Considerations......................... 90
Plan of Distribution......................... 91
Legal Matters................................ 91
Experts...................................... 92
Available Information........................ 92
UNTIL , 1996 (90 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN
THE NOTES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
$400,000,000
INTERNATIONAL HOME
FOODS, INC.
10 3/8% SENIOR SUBORDINATED
NOTES DUE 2006
PROSPECTUS
___________ ___, 1997
================================================================================
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Ten of the Certificate of Incorporation of the Registrant
provides that the Registrant shall indemnify its officers and directors to the
maximum extent allowed by the Delaware General Corporation Law. Pursuant to
Section 145 of the Delaware General Corporation Law, the Registrant generally
has the power to indemnify its current and former directors against expenses
and liabilities incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in those
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the Registrant, and
with respect to any criminal action, so long as they had no reasonable cause to
believe their conduct was unlawful. With respect to suits by or in the right of
the Registrant, however, indemnification is generally limited to attorneys'
fees and other expenses and is not available if the person is adjudged to be
liable to the Registrant, unless the court determines that indemnification is
appropriate. The statute expressly provides that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant also has the power to purchase and maintain insurance for its
directors and officers and has purchased a policy providing such insurance.
The preceding discussion of the Registrant's Certificate of
Incorporation and Section 145 of the Delaware General Corporation Law is not
intended to be exhaustive and is qualified in its entirety by the Certificate
of Incorporation and Section 145 of the Delaware General Corporation Law.
The Registrant has entered into indemnification agreements with the
Registrant's directors and officers. Pursuant to such agreements, the
Registrant will, to the extent permitted by applicable law, indemnify such
persons against all expenses, judgments, fines and penalties incurred in
connection with the defense or settlement of any actions brought against them
by reason of the fact that they were directors or officers of the Registrant or
assumed certain responsibilities at the direction of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------- -----------------------
<S> <C>
2.1* -- Agreement of Sale and Plan of Merger (the "Merger Agreement")
entered into among AHP subsidiary Holding Corporation, American
Home Food Products, Inc., AHFP Holding Corporation and AHFP
Acquisition Corporation dated as of September 5, 1996+
2.2* -- First Amendment to Agreement of Sale and Plan of Merger dated
as of October 31, 1996+
3.1* -- Certificate of Incorporation; Certificate of Amendment to
Certificate of Incorporation of International Home Foods, Inc.
filed with the Delaware Secretary of State on October 30, 1996
3.2* -- Bylaws of International Home Foods, Inc.
3.3* -- Certificate of Incorporation of American Home Foods, Inc.
3.4* -- Bylaws of American Home Foods, Inc.
3.5* -- Certificate of Incorporation of Luck's, Incorporated
3.6* -- Bylaws of Luck's, Incorporated
3.7* -- Certificate of Incorporation of M. Polaner, Inc.
3.8* -- Bylaws of M. Polaner, Inc.
3.9* -- Certificate of Continuance of Canadian Home Products Limited
3.10*-- By-Laws of Canadian Home Products Limited
3.11*-- Certificate of Incorporation of Heritage Brands Holdings, Inc.
3.12*-- Bylaws of Heritage Brands Holdings, Inc.
3.13*-- Certificate of Incorporation of Heritage Brands, Inc.
3.14*-- Bylaws of Heritage Brands, Inc.
3.15*-- Certificate of Incorporation of Campfire, Inc.
</TABLE>
II-1
<PAGE> 110
<TABLE>
<S> <C>
3.16* -- Bylaws of Campfire, Inc.
4.1* -- Registration Rights Agreement made as of November 1, 1996 by and among International Home Foods,
Inc. (formerly American Home Food Products, Inc.), AHP Subsidiary Holding Corporation and AHFP
Holding Corporation
4.2* -- Indenture dated as of November 1, 1996 between the Company and United States Trust Company of
New York
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1* -- Transitional Services Agreement dated as of November 1, 1996 between American Home Products
Corporation and International Home Foods, Inc.
10.2* -- Financial Advisory Agreement dated as of November 1, 1996 by and between International Home Foods,
Inc. and Hicks, Muse & Company Partners, L.P. ("HMCo")
10.3* -- International Home Foods, Inc. 1996 Stock Option Plan
10.4* -- Nonqualified Stock Option Agreement dated November 1, 1996 by and between International Home
Foods, Inc. and C. Dean Metropoulos
10.5* -- Nonqualified Stock Option Agreement dated November 1, 1996 by and between International Home
Foods, Inc. and Kenneth J. Martin
10.6* -- Nonqualified Stock Option Agreement dated November 12, 1996 by and between International Home
Foods, Inc. and M.L. Lowenkron
10.7* -- Nonqualified Stock Option Agreement dated November 12, 1996 by and between International Home
Foods, Inc. and Roger T. Staubach
10.8* -- Indemnification Agreement dated November 1, 1996 between International Home Foods, Inc. and C.
Dean Metropoulos, together with a schedule identifying substantially identical documents and setting
forth the material details in which those documents differ from the foregoing documents
10.9* -- Credit Agreement among International Home Foods, Inc., as
Borrower, the Several Lenders, Morgan Stanley Senior Funding,
Inc., as Document Agent, Bankers Trust Company, as Syndication
Agent, and The Chase Manhattan Bank as Administrative Agent
dated as of November 1, 1996
10.10* -- Monitoring and Oversight Agreement dated as of November 1, 1996 by and between International Home
Foods, Inc. and HMCo.
10.11* -- Nonqualified Stock Option Agreement dated January 3, 1997, by
and between International Home Foods, Inc. and L. Hollis Jones
12.1* -- Ratio of Earnings to Fixed Charges
12.2* -- Pro Forma Ratio of Earnings to Fixed Charges
16.1** -- Letter regarding change to certifying accountants
21.1* -- Subsidiaries of the Company
23.1** -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.2* -- Consent of Vinson & Elkins L.L.P. (included in their opinion
filed as Exhibit 5.1 hereto)
24.1* -- Powers of Attorney (set forth on signature page)
25.1* -- Form T-1 of United States Trust Company of New York
27.1* -- Financial Data Schedule
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- -----------------
* Previously filed
** Filed herewith
+ The Company will furnish upon request of the Commission any omitted schedule.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a
II-2
<PAGE> 111
fundamental change in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
INTERNATIONAL HOME FOODS, INC.
By: /s/ C. Dean Metropoulos
--------------------------------------------
C. Dean Metropoulos, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos Chairman of the Board and Chief Executive February 13, 1997
- ---------------------------------- Officer (Principal Executive Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- ---------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
Director February __, 1997
- ---------------------------------
L. Hollis Jones
* Director February 13, 1997
- ----------------------------------
Thomas O. Hicks
* Director February 13, 1997
- ----------------------------------
Charles W. Tate
* Director February 13, 1997
- ----------------------------------
Alan B. Menkes
* Director February 13, 1997
- ----------------------------------
Michael J. Levitt
Director February __, 1997
- ----------------------------------
M.L. Lowenkron
* Director February 13, 1997
- ----------------------------------
Roger T. Staubach
* By /s/ C. DEAN METROPOULOS
-----------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
AMERICAN HOME FOODS, INC.
By: /s/ C. Dean Metropoulos
-----------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- --------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- --------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
* Director February 13, 1997
- ---------------------------------
Thomas O. Hicks
* Director February 13, 1997
- ---------------------------------
Charles W. Tate
* Director February 13, 1997
- ---------------------------------
Alan B. Menkes
* Director February 13, 1997
- ---------------------------------
Michael J. Levitt
*By /s/ C. Dean Metropoulos
-----------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-5
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day
of February, 1997.
LUCK'S, INCORPORATED
By: /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- ---------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- ---------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
* Director February 13, 1997
- ----------------------------------
Charles W. Tate
* Director February 13, 1997
- ----------------------------------
Alan B. Menkes
* Director February 13, 1997
- ----------------------------------
Michael J. Levitt
*By /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-6
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day
of February, 1997.
M. POLANER, INC.
By: /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- --------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- --------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
* Director February 13, 1997
- ---------------------------------
Thomas O. Hicks
* Director February 13, 1997
- ---------------------------------
Charles W. Tate
* Director February 13, 1997
- ---------------------------------
Alan B. Menkes
* Director February 13, 1997
- ---------------------------------
Michael J. Levitt
* By /s/ C. Dean Metropoulos
----------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-7
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
CANADIAN HOME PRODUCTS LIMITED
By: /s/ C. Dean Metropoulos
-----------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- ---------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- ---------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
* Director February 13, 1997
- ----------------------------------
Thomas O. Hicks
* Director February 13, 1997
- ----------------------------------
Charles W. Tate
* Director February 13, 1997
- ----------------------------------
Alan B. Menkes
* Director February 13, 1997
- ----------------------------------
Michael J. Levitt
* By /s/ C. Dean Metropoulos
-----------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-8
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
HERITAGE BRANDS HOLDINGS, INC.
By: /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director February 13, 1997
- ----------------------- (Principal Executive
C. Dean Metropoulos Officer
* Chief Financial Officer February 13, 1997
- ----------------------- (Principal Financial and
N. Michael Dian Accounting Officer)
* Director February 13, 1997
- -----------------------
Thomas O. Hicks
* Director February 13, 1997
- -----------------------
Charles W. Tate
* Director February 13, 1997
- -----------------------
Alan B. Menkes
* Director February 13, 1997
- -----------------------
Michael J. Levitt
* By /s/ C. Dean Metropoulos
----------------------------
C. Dean Metropoulos
Attorney-in-fact
</TABLE>
II-9
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
HERITAGE BRANDS, INC.
By: /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- ----------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- ----------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dorn
* Director February 13, 1997
- -----------------------------------
Thomas O. Hicks
* Director February 13, 1997
- -----------------------------------
Charles W. Tate
* Director February 13, 1997
- -----------------------------------
Alan B. Menkes
* Director February 13, 1997
- -----------------------------------
Michael J. Levitt
</TABLE>
*By /s/ C. Dean Metropoulos
-------------------------------
C. Dean Metropoulos
Attorney-in-fact
II-10
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this second amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on the 13th day of
February, 1997.
CAMPFIRE, INC.
By: /s/ C. Dean Metropoulos
------------------------------
C. Dean Metropoulos, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- --------- ----
<S> <C> <C>
/s/ C. Dean Metropoulos President and Director (Principal Executive February 13, 1997
- ----------------------------------------- Officer)
C. Dean Metropoulos
* Chief Financial Officer February 13, 1997
- ----------------------------------------- (Principal Financial and Accounting Officer)
N. Michael Dion
* Director February 13, 1997
- -----------------------------------------
Thomas O. Hicks
* Director February 13, 1997
- -----------------------------------------
Charles W. Tate
* Director February 13, 1997
- -----------------------------------------
Alan B. Menkes
* Director February 13, 1997
- -----------------------------------------
Michael J. Levitt
</TABLE>
*By /s/ C. Dean Metropoulos
-------------------------------------
C. Dean Metropoulos
Attorney-in-fact
II-11
<PAGE> 120
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1* -- Agreement of Sale and Plan of Merger (the "Merger Agreement")
entered into among AHP subsidiary Holding Corporation, American
Home Food Products, Inc., AHFP Holding Corporation and AHFP
Acquisition Corporation dated as of September 5, 1996+
2.2* -- First Amendment to Agreement of Sale and Plan of Merger dated
as of October 31, 1996+
3.1* -- Certificate of Incorporation; Certificate of Amendment to
Certificate of Incorporation of International Home Foods, Inc.
filed with the Delaware Secretary of State on October 30, 1996
3.2* -- Bylaws of International Home Foods, Inc.
3.3* -- Certificate of Incorporation of American Home Foods, Inc.
3.4* -- Bylaws of American Home Foods, Inc.
3.5* -- Certificate of Incorporation of Luck's, Incorporated
3.6* -- Bylaws of Luck's, Incorporated
3.7* -- Certificate of Incorporation of M. Polaner, Inc.
3.8* -- Bylaws of M. Polaner, Inc.
3.9* -- Certificate of Continuance of Canadian Home Products Limited
3.10*-- By-Laws of Canadian Home Products Limited
3.11*-- Certificate of Incorporation of Heritage Brands Holdings, Inc.
3.12*-- Bylaws of Heritage Brands Holdings, Inc.
3.13*-- Certificate of Incorporation of Heritage Brands, Inc.
3.14*-- Bylaws of Heritage Brands, Inc.
3.15*-- Certificate of Incorporation of Campfire, Inc.
</TABLE>
<PAGE> 121
<TABLE>
<S> <C>
3.16* -- Bylaws of Campfire, Inc.
4.1* -- Registration Rights Agreement made as of November 1, 1996 by and among International Home Foods,
Inc. (formerly American Home Food Products, Inc.), AHP Subsidiary Holding Corporation and AHFP
Holding Corporation
4.2* -- Indenture dated as of November 1, 1996 between the Company and United States Trust Company of
New York
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1* -- Transitional Services Agreement dated as of November 1, 1996 between American Home Products
Corporation and International Home Foods, Inc.
10.2* -- Financial Advisory Agreement dated as of November 1, 1996 by and between International Home Foods,
Inc. and Hicks, Muse & Company Partners, L.P. ("HMCo")
10.3* -- International Home Foods, Inc. 1996 Stock Option Plan
10.4* -- Nonqualified Stock Option Agreement dated November 1, 1996 by and between International Home
Foods, Inc. and C. Dean Metropoulos
10.5* -- Nonqualified Stock Option Agreement dated November 1, 1996 by and between International Home
Foods, Inc. and Kenneth J. Martin
10.6* -- Nonqualified Stock Option Agreement dated November 12, 1996 by and between International Home
Foods, Inc. and M.L. Lowenkron
10.7* -- Nonqualified Stock Option Agreement dated November 12, 1996 by and between International Home
Foods, Inc. and Roger T. Staubach
10.8* -- Indemnification Agreement dated November 1, 1996 between International Home Foods, Inc. and C.
Dean Metropoulos, together with a schedule identifying substantially identical documents and setting
forth the material details in which those documents differ from the foregoing documents
10.9* -- Credit Agreement among International Home Foods, Inc., as
Borrower, the Several Lenders, Morgan Stanley Senior Funding,
Inc., as Document Agent, Bankers Trust Company, as Syndication
Agent, and The Chase Manhattan Bank as Administrative Agent
dated as of November 1, 1996
10.10* -- Monitoring and Oversight Agreement dated as of November 1, 1996 by and between International Home
Foods, Inc. and HMCo.
10.11* -- Nonqualified Stock Option Agreement dated January 3, 1997, by
and between International Home Foods, Inc. and L. Hollis Jones
12.1* -- Ratio of Earnings to Fixed Charges
12.2* -- Pro Forma Ratio of Earnings to Fixed Charges
16.1** -- Letter regarding change to certifying accountants
21.1* -- Subsidiaries of the Company
23.1** -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.2* -- Consent of Vinson & Elkins L.L.P. (included in their opinion
filed as Exhibit 5.1 hereto)
24.1* -- Powers of Attorney (set forth on signature page)
25.1* -- Form T-1 of United States Trust Company of New York
27.1* -- Financial Data Schedule
99.1* -- Form of Letter of Transmittal
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- -----------------
* Previously filed
** Filed herewith
+ The Company will furnish upon request of the Commission any omitted schedule.
<PAGE> 1
Exhibit 16.1
Securities and Exchange Commission
450 Fifth Street, NW
Washington D.C. 20549
Dear Sirs:
We have read the second paragraph of the Expert section on page 92 of Amendment
No. 2 to Form S-4 filed on Registration Statement Number 333-18859 dated
February 14, 1997 of International Home Foods, Inc. filed with the Securities
and Exchange Commission and are in agreement with the statements contained
therein.
ARTHUR ANDERSEN LLP
New York, New York
February 13, 1997
<PAGE> 1
Exhibit 23.1
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this Amendment
No. 2 to Form S-4 filed on registration statement No. 333-18859.
ARTHUR ANDERSEN LLP
New York, New York
February 13, 1997
