<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-50305
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
EAGLE FAMILY FOODS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6719 13-398-3598
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
EAGLE FAMILY FOODS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2099 13-398-2757
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
220 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591, (914) 631-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JONATHAN F. RICH, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
EAGLE FAMILY FOODS HOLDINGS, INC.
EAGLE FAMILY FOODS, INC.
220 WHITE PLAINS ROAD
TARRYTOWN, NEW YORK 10591
(914) 631-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH A COPY TO:
STEVEN J. GARTNER, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING OFFERING REGISTRATION
BE REGISTERED REGISTERED PRICE(1) PRICE FEE
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<S> <C> <C> <C> <C>
8 3/4% Senior Subordinated
Notes Due 2008............... $115,000,000 100% $115,000,000 $33,925
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Guarantee...................... N/A N/A N/A N/A
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
---------------
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 THAT 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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
PROSPECTUS
EAGLE FAMILY FOODS, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 8 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2008 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
-----------
Eagle Family Foods, Inc., a Delaware corporation (the "Company" or "Eagle
Family Foods") and wholly-owned subsidiary of Eagle Family Foods Holdings,
Inc., a Delaware corporation ("Holdings", and together with the Company, the
"Registrants"), hereby offers to exchange (the "Exchange Offer") up to
$115,000,000 in aggregate principal amount of its 8 3/4% Series B Senior
Subordinated Notes Due 2008 (the "Exchange Notes") for up to $115,000,000 in
aggregate principal amount of its outstanding 8 3/4% Senior Subordinated Notes
Due 2008 issued in reliance upon an exemption from registration under the
Securities Act of 1933, as amended (the "Original Notes" and, together with the
Exchange Notes, the "Notes").
Upon consummation of the Exchange Offer, the terms of the Exchange Notes will
be substantially identical in all respects (including principal amount,
interest rate, maturity and ranking) to the terms of the Original Notes for
which they may be exchanged pursuant to the Exchange Offer, except that (i) the
Exchange Notes will be freely transferable by holders thereof (except as
provided below) and (ii) the Exchange Notes will be issued without any covenant
of the Registrants regarding registration. The Exchange Notes will be issued
under the indenture governing the Original Notes. The Exchange Notes will be
general unsecured obligations of the Company and will be subordinated in right
of payment to all existing and future Senior Indebtedness (as defined) of the
Company. The Exchange Notes will rank pari passu in right of payment with any
future Senior Subordinated Indebtedness (as defined) of the Company and will
rank senior in right of payment to all other subordinated indebtedness of the
Company. The Exchange Notes will be fully and unconditionally guaranteed on a
senior subordinated and unsecured basis by the parent-guarantor, Holdings (the
"Guarantor"). On the date of the issuance of the Exchange Notes, the Company
will not have any subsidiaries, however, the Indenture governing the Exchange
Notes will permit the Company to create, acquire or capitalize subsidiaries in
the future and will require that the Exchange Notes be guaranteed by all future
Domestic Subsidiaries (as defined) other than Intellectual Property
Subsidiaries (as defined) that are not wholly owned by the Company. The
Indenture permits the Company to incur additional indebtedness, including
Senior Indebtedness, subject to certain restrictions. See "Description of
Notes." As of March 31, 1998, the Company had $201.25 million of outstanding
Senior Indebtedness. Upon a Change of Control (as defined), each holder of the
Notes will have the right to require the Company to repurchase all or a portion
of such holder's Notes then outstanding at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase. The Company's ability to repurchase the Notes may be
limited by, among other things, the Company's financial resources at the time
of repurchase. For a complete description of the terms of the Exchange Notes,
including provisions relating to the ability of the Registrants to create
indebtedness that is senior or pari passu to the Exchange Notes, see
"Description of Notes." There will be no cash proceeds to the Registrants from
the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Original Notes accrued after the issuance of the Exchange Notes.
The Original Notes were originally issued and sold on January 23, 1998 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided pursuant to Rule
144A under the Securities Act and Regulation S under the Securities Act (the
"Initial Offering"). Accordingly, the Original Notes may not be reoffered,
resold or otherwise pledged, hypothecated or transferred in the United States
unless so registered or unless
<PAGE>
(Continued from front cover page)
an applicable exemption from the registration requirements of the Securities
Act is available. Based upon interpretations by the Staff (the "Staff") of the
Securities and Exchange Commission (the "Commission") issued to third parties,
the Registrants believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an "affiliate" of the Registrants within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Original Notes
directly from the Registrants or (iii) a broker-dealer who acquired Original
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes. Each broker-
dealer that receives Exchange 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 Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company and Holdings have
agreed that, for a period not to exceed 180 days after the Expiration Date (as
defined), the Company will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution." Any
holder that cannot rely upon such interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established trading market. Any Original Notes not tendered
and accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could
be adversely affected. Following consummation of the Exchange Offer, the
holders of Original Notes will continue to be subject to the existing
restrictions on transfer thereof and the Registrants will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Original Notes except under certain limited
circumstances. (See "Original Notes Registration Rights.") No assurance can be
given as to the liquidity of the trading market for either the Original Notes
or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at midnight, New York City time, on , 1998, unless extended (the
"Expiration Date"). The date of acceptance for exchange of the Original Notes
(the "Exchange Date") will be the first business day following the Expiration
Date, upon surrender of the Original Notes. Original Notes tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration
Date; otherwise such tenders are irrevocable.
----------------
SEE "RISK FACTORS" ON PAGE 13 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
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.
----------------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Registrants have filed with the Commission, a Registration Statement on
Form S-4 (the "Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Neither of the Registrants is currently subject to the periodic reporting
and other informational requirements of the Exchange Act. Pursuant to the
Indenture, the Registrants will file with the Commission and provide to the
holders of the Notes annual reports and the information documents and other
reports which are specified in Section 13 and 15(d) of the Exchange Act.
Periodic reports and other information filed by the Registrants with the
Commission may be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at its regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661 and Seven World Trade Center, Suite
1300, New York, NY 10048. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
companies that file electronically with the Commission. The address of such
site is http://www.sec.gov. Copies of such materials can also be obtained from
the Registrants upon request. Any such request should be directed to the
Secretary of the Registrants at 220 White Plains Road, Tarrytown, NY 10591,
telephone no. (914) 631-3100.
The Registrants' obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Notes are held of record
by fewer than 300 holders at the beginning of any fiscal year of the Company,
other than the fiscal year in which the Exchange Offer Registration Statement
(as defined) or any Shelf Registration Statement (as defined) becomes
effective. The Registrants have agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any of
the Notes remain outstanding, it will furnish to the holders of the Notes and
submit to the Commission (unless the Commission will not accept such
materials) (i) all quarterly and annual financial information that would be
required to be contained in filings with the Commission on Forms 10-Q and 10-K
if the Registrants were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Result of Operations" and,
with respect to the annual information only, a report thereon by the
Registrants' certified independent accountants, and (ii) all reports that
would be required to be filed with the Commission on Form 8-K if the
Registrants were required to file such reports. In addition, for so long as
any of the Notes remain outstanding, the Registrants have agreed to make
available upon request to any prospective purchaser of, or beneficial owner of
Notes in connection with any offer or sale thereof, the information required
by Rule 144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE SECRETARY OF THE REGISTRANTS AT 220 WHITE PLAINS ROAD, TARRYTOWN, NY
10591, TELEPHONE NO. (914) 631-3100. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY .
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR HOLDINGS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE REGISTRANTS SINCE THE DATE HEREOF.
----------------
The Company's registered trademarks include: Eagle(R); Eagle Brand, the
Dessert Maker(R); ReaLemon(R); ReaLime(R); Cremora(R); and None Such(R). In
addition, the Company is licensed to use a number of other registered
trademarks, including Borden(R); Elsie(R); and Elsie Design(R), on certain of
the Company's products. See "The Acquisition" and "Business--Trademarks,
Copyrights and Patents."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 13
Consequences of Failure to Exchange..................................... 13
Significant Leverage and Debt Service................................... 13
Subordination of Notes.................................................. 14
Restrictive Financial Covenants......................................... 15
Risks Relating to the Acquisition....................................... 15
Dependence on Key Personnel............................................. 16
Seasonality............................................................. 16
Competition............................................................. 16
Risk Associated with Implementation of a New Business Strategy.......... 17
Potential Price Fluctuations of Raw Materials........................... 17
Control by Certain Stockholders and Management.......................... 17
Potential Inability to Fund a Change of Control Offer................... 17
Compliance with Government Regulation................................... 17
Compliance with Environmental Regulations............................... 18
General Risks of Food Industry; Adverse Economic Conditions; Uncertainty
of Consumer Preferences; Product Liability Risks....................... 18
Subordination of Notes and Guarantees in a Future Holding Company
Structure.............................................................. 18
Risk of Unenforceability of the Guarantees of the Notes; Financial
Dependence of Guarantor on Company..................................... 19
Fraudulent Conveyance Statutes.......................................... 19
Absence of Public Market................................................ 20
THE ACQUISITION........................................................... 21
USE OF PROCEEDS........................................................... 23
CAPITALIZATION............................................................ 23
THE EXCHANGE OFFER........................................................ 24
Purpose of the Exchange Offer........................................... 24
Terms of the Exchange................................................... 24
Expiration Date; Extensions; Termination; Amendments.................... 25
How to Tender........................................................... 25
Terms and Conditions of the Letter of Transmittal....................... 27
Withdrawal Rights....................................................... 28
Acceptance of Original Notes for Exchange; Delivery of Exchange Notes... 28
Conditions to the Exchange Offer........................................ 28
Exchange Agent.......................................................... 29
Solicitation of Tenders; Expenses....................................... 29
Appraisal Rights........................................................ 30
Federal Income Tax Consequences......................................... 30
Other................................................................... 30
SELECTED FINANCIAL DATA................................................... 31
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT................ 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 36
BUSINESS.................................................................. 40
Overview................................................................ 40
Competitive Strengths................................................... 41
Industry Overview....................................................... 42
Business Strategy....................................................... 42
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Products and Markets.................................................... 43
Marketing, Sales and Distribution....................................... 45
Production and Facilities............................................... 46
Raw Materials and Suppliers............................................. 46
Competition............................................................. 46
Trademarks, Copyrights and Patents...................................... 46
Management Information Systems Initiatives.............................. 47
Employees............................................................... 47
Insurance............................................................... 47
Certain Legal and Regulatory Matters.................................... 47
MANAGEMENT................................................................ 49
Directors and Executive Officers........................................ 49
Employment Agreements................................................... 52
1998 Stock Plan......................................................... 52
SECURITY OWNERSHIP........................................................ 54
CERTAIN TRANSACTIONS...................................................... 57
DESCRIPTION OF SENIOR CREDIT FACILITIES................................... 58
DESCRIPTION OF NOTES...................................................... 60
General................................................................. 60
Principal, Maturity and Interest........................................ 60
Guarantees of the Notes................................................. 61
Subordination........................................................... 61
Subordination of Guarantees; Release of Domestic Subsidiary Guarantees.. 62
Optional Redemption..................................................... 63
Mandatory Redemption.................................................... 64
Repurchase at the Option of Holders of Notes............................ 64
Certain Covenants....................................................... 68
Events of Default and Remedies.......................................... 75
No Personal Liability of Directors, Officers, Employees and
Stockholders........................................................... 76
Legal Defeasance and Covenant Defeasance................................ 76
Transfer and Exchange................................................... 78
Amendment, Supplement and Waiver........................................ 78
Payments for Consent.................................................... 78
Concerning the Trustee.................................................. 79
Certain Definitions..................................................... 79
BOOK ENTRY; DELIVERY AND FORM............................................. 96
ORIGINAL NOTES REGISTRATION RIGHTS........................................ 101
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.............................. 104
PLAN OF DISTRIBUTION...................................................... 106
LEGAL MATTERS............................................................. 107
EXPERTS................................................................... 107
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
(ii)
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the notes thereto, appearing elsewhere in this Prospectus. As used in this
Prospectus, unless the context otherwise requires, all references herein to (i)
the "Company" mean (a) the business related to Eagle Brand, ReaLemon, Cremora,
None Such, Borden Egg Nog and Kava brands (the "BBNA Business") acquired by
Eagle Family Foods for periods prior to the purchase of certain assets of
Borden Foods Corporation ("BFC") and BFC Investments, L.P. ("BFC Investments")
(the "Acquisition") and (b) Eagle Family Foods following the completion of the
Acquisition and the Financing Transactions (as defined) (the "Transactions")
and (ii) "Holdings" mean Eagle Family Foods Holdings, Inc. Holdings is a
holding company that will not engage in any business other than holding the
capital stock of the Company. The Transactions were consummated on January 23,
1998. Except as otherwise indicated, (i) all references to market, category and
segment sales, distribution percentages, market share percentages and market
positions reflect the dollar market share for the 52-week period ended
September 14, 1997 for None Such and November 9, 1997 for all other products,
as gathered by Information Resources, Inc. projected from a sample of grocery
stores in the United States based on categories defined by the Company, (ii)
all references to brand awareness reflect female adult brand awareness data
gathered by Opinion Research Corporation International in 1996 for Eagle Brand
and Cremora and in 1995 for ReaLemon and (iii) all references to the Company's
sales refer to net sales.
THE COMPANY
The Company manufactures and markets a portfolio of leading dry-grocery food
products with widely recognized and established brands, including Eagle Brand,
ReaLemon and Cremora. In their defined markets within the United States, three
of the Company's six principal brands maintain the number one position, two
brands are the only products available and one brand holds the number two
position. The Company's leading market positions and well recognized brand
names have enabled the Company to consistently generate strong cash flow. For
the year ended December 31, 1997, the Company's sales were $229.3 million.
The Company's three largest product lines, Eagle Brand, ReaLemon and Cremora,
accounted for approximately 94% of the Company's 1997 sales. Eagle Brand and
the Company's other sweetened condensed milk products are collectively the
market leader in the U.S. sweetened condensed milk category, and account for a
72% share of this category. Sweetened condensed milk is a commonly used
ingredient in many popular dessert recipes such as cheesecake and pumpkin pie.
Eagle Brand is one of a small number of U.S. branded products with a heritage
that extends over 140 years. In 1997, the Company's sweetened condensed milk
products accounted for 48% of the Company's sales. The Company's ReaLemon
product lines are the market leaders in the lemon and lime juice category,
accounting for a 49% market share, and are the only nationally distributed
branded products in the category. ReaLemon, a convenient and cost effective
alternative to fresh squeezed lemon juice, is a popular ingredient in beverages
and marinades and is used in the preparation of foods such as poultry and fish.
In 1997, the ReaLemon product lines accounted for 25% of the Company's sales.
Cremora is the number two branded powdered non-dairy creamer in the U.S.,
accounting for an 11% market share. Powdered non-dairy creamer is used in
coffee and other hot beverages. In 1997, the Company's powdered non-dairy
creamer product lines accounted for 21% of the Company's sales. The Company's
other three brands accounted for 6% of the Company's 1997 sales and include
None Such, the leading brand of mincemeat pie filling with a 69%
1
<PAGE>
market share, Borden Egg Nog, the only shelf-stable egg nog, and Kava, the only
acid-neutralized coffee.
COMPETITIVE STRENGTHS
The following competitive strengths serve as the foundation for the Company's
business strategy:
. LEADING MARKET POSITIONS. In the United States, five of the Company's six
brands are the category leaders in their defined markets, while Cremora
maintains the number two position in its category. The Company believes
that its strong market shares enable it to achieve superior distribution
and shelf space allocation, realize economies of scale in trade promotion
and advertising, and provide a strong platform for introducing product
line extensions and new products.
. STRONG BRAND NAME RECOGNITION. The leading market positions of the
Company's largest products are supported by strong brand awareness. Eagle
Brand, ReaLemon and Cremora maintain brand awareness rates of 78%, 85%
and 73%, respectively, primarily due to the heritage of these brands. The
brand equity of the Company's products will represent a significant
competitive strength as the Company launches product line extensions and
seeks to build category growth.
. EXTENSIVE SALES AND DISTRIBUTION BASE. The Company maintains an
established national distribution base for its products, which are sold
to retail grocery stores and other channels directly and through a
comprehensive network of over 60 independent food brokers. Eagle Brand
and ReaLemon benefit from 100% national distribution, while Cremora
maintains broad distribution at 79%.
. STRONG OPERATING MARGINS. For the year ended December 31, 1997, the
Company's gross profit margin was 53.1%. The Company believes that its
strong margins result from the established brand equity of its product
portfolio, product quality and the strength of its sales and distribution
network. Management believes that, within the food manufacturing
industry, the Company has relatively low maintenance capital expenditure
requirements which support the Company's strong cash flow. The Company's
strong operating margins and annual cash flow provide it with financial
resources to fund its marketing, sales, distribution and new product
development efforts.
. EXPERIENCED AND FOCUSED MANAGEMENT. The Company's new senior management
team, which assumed control of the Company upon the consummation of the
Acquisition, possesses considerable experience in the food products
industry. The new senior management team invested approximately $1.7
million in the equity of Holdings. In addition to management's purchase
of an equity interest in Holdings, Holdings has better aligned the
Company's new senior management team's incentives with the success of the
Company through the issuance of restricted stock and the adoption of
other incentive initiatives.
RECENT HISTORY
Borden, Inc. was incorporated in 1899 and has engaged in the manufacture and
distribution of a broad range of products including dairy products, industrial
chemicals, decorative products and a wide variety of food products. In December
1994, investors led by affiliates of Kohlberg Kravis Roberts & Co. ("KKR")
agreed to acquire all of the common stock of Borden, Inc. (the "KKR
2
<PAGE>
Acquisition"). Since the closing of the KKR Acquisition in 1995, BFC has
initiated a redesign of the BBNA Business. Between January 1, 1995 and December
31, 1997, BFC (i) invested approximately $14.6 million in market research and
technical research and development, (ii) rationalized product lines, (iii)
improved trade practices, and (iv) developed and tested new products which the
Company will seek to launch in the marketplace.
Management believes that the recent initiatives and investments undertaken by
BFC have positioned the Company favorably for future growth and profitability.
In addition, management believes that, notwithstanding BFC's efforts described
above, former management was principally focused on building Borden, Inc.'s
larger pasta and salty snack businesses, thereby resulting in the
undermarketing of the BBNA Business product lines. As a result, management
believes the products and operations acquired by the Company present
opportunities for sales growth and improved cost management. Management intends
to increase and to redirect marketing expenditures in order to strengthen brand
equity and to grow sales. Furthermore, management intends to launch line
extensions and new products which capitalize on prior investments in market
research, technical research and new product development, thereby realizing the
full potential of the Company's existing product lines as well as penetrating
new categories.
BUSINESS STRATEGY
The Company's goal is to increase its sales and profitability through the
following initiatives:
. GROW BASE BUSINESS.
Increase Consumer Marketing. The Company plans to increase marketing
expenditures on its existing brands to reverse a decline in marketing
expenditures that occurred between 1995 and 1997. The marketing strategies
will be redirected to emphasize consumer "pull" tactics, such as
advertising and consumer promotions, to enhance brand equity and generate
sales across the Company's product lines. Marketing will be directed
primarily toward building category growth and, to a lesser extent, gaining
market share.
Expand into New Distribution Channels. Industry data indicates that in the
last several years non-grocery distribution channels, such as food service
channels, mass merchandise retailers and super centers, have grown faster
than traditional grocery distribution channels. Management intends to
capitalize on this growth opportunity by establishing a dedicated sales
staff and expanding its broker network to focus on these alternative
distribution channels.
Target Ethnic Markets. Management believes that growth opportunities for
Eagle Brand exist in the Hispanic-American and Asian-American communities
and that consumption levels of sweetened condensed milk among these
communities are significantly higher than the national average. Management
plans to implement marketing efforts specifically targeted at increasing
brand awareness and usage in the Hispanic-American and Asian-American
communities.
. LAUNCH LINE EXTENSIONS AND NEW PRODUCTS. The Company intends to launch
line extensions and new products in order to capitalize on the $14.6
million invested by BFC in market research and technical research and
development from 1995 to 1997, as well as on the substantial brand equity
and consumer awareness of the Company's existing products. The Company
continues to consumer test several new products and expects to begin
rolling them out during 1998 and 1999. The Company also intends to
license certain of its widely recognized brand names to third parties.
. TARGET INTERNATIONAL MARKETS. The Company intends to expand into new
international markets by leveraging the strength of its existing brands.
The Company will specifically target distribution of Eagle Brand in Latin
American markets where management believes that consumption of sweetened
condensed milk is significantly higher than average U.S. per capita
consumption. In 1997, only 1% the Company's sales were generated outside
of the U.S. and Canada.
3
<PAGE>
. PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions of additional dry-grocery food brands with leading market
positions and significant growth opportunities. By adding new brands
through strategic acquisitions, the Company believes it can achieve
synergies in manufacturing, marketing and distribution across a growing
portfolio of leading food brands.
THE ACQUISITION
Pursuant to an Asset Purchase Agreement dated as of November 24, 1997, as
amended as of December 9, 1997 and January 15, 1998 (the "Asset Purchase
Agreement"), Eagle Family Foods acquired certain assets of BFC, BFC Investments
and certain of their affiliates for an aggregate purchase price of $376.5
million, subject to certain post-closing adjustments. The Acquisition was
consummated on January 23, 1998 (the "Acquisition Closing"). The assets
acquired by the Company include, among other things: (i) four manufacturing
facilities located in Wellsboro, Pennsylvania; Starkville, Mississippi;
Waterloo, New York; and Chester, South Carolina; (ii) all machinery and
equipment located at these facilities; (iii) the trademarks Eagle; Eagle Brand,
the Dessert Maker; ReaLemon; ReaLime; Cremora; Kava; None Such and certain
other trademarks in North America and in certain foreign territories; and (iv)
a non-compete and non-solicitation agreement from BFC and certain of its
affiliates. The Asset Purchase Agreement provided that BFC retained
receivables, trade payables and certain accrued liabilities related to the
operation of the BBNA Business. See "The Acquisition."
Financing for the Acquisition and related fees and expenses consisted of (i)
the $82.5 million equity contribution from Holdings (which was financed by
Holdings' issuance of preferred and common stock in that amount to GE
Investment Private Placement Partners II, a Limited Partnership ("GEI") and
Warburg, Pincus Ventures, L.P. ("Warburg" and together with GEI, the "Equity
Sponsors"), and certain members of the Company's management, including William
A. Lynch and John O'C. Nugent (the "Management Investors"), who contributed
approximately $1.7 million of such amount) (the "Equity Contribution"); (ii)
$115.0 million of Original Notes issued pursuant to the Initial Offering; and
(iii) senior secured credit facilities (the "Senior Credit Facilities") in an
aggregate principal amount of $245.0 million, consisting of a $175.0 million
term loan facility (the "Term Loan Facility") and a $70.0 million revolving
credit facility (the "Revolving Credit Facility"), under which $16.5 million
was drawn at the time of the Acquisition Closing. The Senior Credit Facilities,
the Offering and the Equity Contribution are referred to herein as the
"Financing Transactions".
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer........ The Company is offering to exchange (the "Exchange
Offer") up to $115,000,000 aggregate principal
amount of 8 3/4% Series B Senior Subordinated Notes
due 2008 (the "Exchange Notes") for up to
$115,000,000 aggregate principal amount of its
outstanding 8 3/4% Senior Subordinated Notes due
2008 (the "Original Notes"). Upon consummation of
the Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the Original
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that (i) the Exchange
Notes will be freely transferable by holders
thereof except as provided herein (see "The
Exchange Offer--Terms of the Exchange" and "--Terms
and Conditions of the Letter of Transmittal") and
(ii) the Exchange Notes will be issued without any
covenant regarding registration under the
Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the
Registrants within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who
acquired Original Notes directly from the
Registrants or (iii) broker-dealers who acquired
Original Notes as a result of market making or
other trading activities) without compliance with
the registration and prospectus delivery provisions
of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged
in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes.
Minimum Condition......... The Exchange Offer is not conditioned upon any min-
imum aggregate principal amount of Original Notes
being tendered for exchange.
Expiration Date.......... The Exchange Offer will expire at midnight, New
York City time, on , 1998 unless extended
(the "Expiration Date").
Exchange Date............. The first date of acceptance for exchange for the
Original Notes will be the first business day fol-
lowing the Expiration Date.
Conditions to the
Exchange Offer............ The obligation of the Registrants to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer--Conditions to the Exchange
Offer." The Registrants reserve the right to termi-
nate or amend the Exchange Offer at any time prior
to the Expiration Date upon the occurrence of any
such condition.
5
<PAGE>
Withdrawal Rights......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as prac-
ticable after the expiration or termination of the
Exchange Offer.
Procedures for Tendering
Original Notes............ See "The Exchange Offer--How to Tender."
Federal Income Tax
Consequences.............. In the opinion of Willkie Farr & Gallagher, the ex-
change of Original Notes for Exchange Notes by
holders will not be a taxable exchange for federal
income tax purposes, and holders will not recognize
any taxable gain or loss or any interest income as
a result of such exchange.
Effect on Holders of
Original Notes............ As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, the Registrants will have ful-
filled a covenant contained in the terms of the
Original Notes and the Exchange and Registration
Rights Agreement (the "Registration Rights Agree-
ment") dated January 23, 1998 between the Regis-
trants and Chase Securities Inc. and Merrill Lynch
Pierce, Fenner & Smith Incorporated, as initial
purchasers, and, accordingly, the holders of the
Original Notes will have no further registration or
other rights under the Registration Rights Agree-
ment, except under certain limited circumstances.
See "Original Notes Registration Rights". Holders
of the Original Notes who do not tender their Orig-
inal Notes in the Exchange Offer will continue to
hold such Original Notes and will be entitled to
all the rights and limitations applicable thereto
under the Indenture, dated as of January 23, 1998,
among the Company, Holdings, as guarantor, and IBJ
Schroder Bank & Trust Company, as Trustee (the
"Trustee"), relating to the Original Notes and the
Exchange Notes (the "Indenture"). All untendered,
and tendered but unaccepted, Original Notes will
continue to be subject to the restrictions on
transfer provided for in the Original Notes and the
Indenture. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes,
could be adversely affected. See "Risk Factors--
Consequences of Failure to Exchange."
TERMS OF THE NOTES
The Exchange Offer applies to $115,000,000 aggregate principal amount of the
Original Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Original Notes for which they may be exchanged except
that the Exchange Notes have been registered under the Securities Act and,
therefor, will not bear legends restricting the transfer thereof. The Exchange
Notes will evidence the same debt as the Original Notes and will be entitled to
the benefits of the Indenture. See "Description of Notes."
6
<PAGE>
Maturity.................. January 15, 2008.
Interest Payment Dates.... January 15 and July 15 of each year, commencing on
July 15, 1998.
Sinking Fund.............. None.
Optional Redemption....... Except as described below, the Company may not re-
deem the Notes prior to January 15, 2003. On or af-
ter such date, the Company may redeem the Notes, in
whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid in-
terest, if any, to the date of redemption. In addi-
tion, at any time on or prior to January 15, 2002,
the Company may, subject to certain requirements,
redeem up to 35% of the original aggregate princi-
pal amount of the Notes (calculated giving effect
to any issuance of Additional Notes) with the Net
Cash Proceeds of one or more Public Equity Offer-
ings by the Company or Holdings, at a price equal
to 108.75% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any,
to the date of redemption, provided that at least
65% of the original aggregate principal amount of
the Notes (as so calculated) remains outstanding
immediately after each such redemption. See "De-
scription of Notes--Optional Redemption."
Change of Control......... Upon the occurrence of a Change of Control, each
holder of Notes will have the right to require the
Company to make an offer to repurchase such hold-
er's Notes at a price equal to 101% of principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Notes--Repurchase at the Option of
Holders of Notes--Change of Control."
Guarantees................ The Notes are unconditionally guaranteed on a se-
nior subordinated and unsecured basis (the "Guaran-
tees") by Holdings and each future Domestic Subsid-
iary other than any Intellectual Property Subsidi-
ary that is not wholly owned by the Company (col-
lectively, the "Guarantors"). Each Guarantee is a
general obligation of the applicable Guarantor and
is subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full in
cash of all Senior Indebtedness of such Guarantor.
See "Description of Notes--Guarantees of the Notes"
and "--Certain Covenants--Future Note Guarantors."
Ranking................... The Notes are unsecured and are subordinated in
right of payment to all existing and future Senior
Indebtedness of the Company. The Notes rank pari
passu in right of payment with all existing and fu-
ture Senior Subordinated Indebtedness of the Com-
pany and rank senior in right of payment to all
other subordinated indebtedness of the Company. Af-
ter giving effect to the
7
<PAGE>
Transactions, including the application of the net
proceeds from the Initial Offering, the Company has
outstanding approximately $191.5 million aggregate
principal amount of Senior Indebtedness (exclusive
of unused commitments), all of which is Secured In-
debtedness, and the Company has no Senior Subordi-
nated Indebtedness outstanding other than the Notes
and no indebtedness that is subordinate or junior
in right of payment to the indebtedness represented
by the Notes. See "Description of Notes--Subordina-
tion," "Capitalization" and "The Acquisition."
Restrictive Covenants..... The Indenture restricts (i) the incurrence of addi-
tional Indebtedness (as defined) by the Company and
its subsidiaries, (ii) the payment of dividends or
distributions on, and redemption of, capital stock
of the Company and its subsidiaries and the redemp-
tion of certain subordinated obligations of the
Company and its subsidiaries, (iii) certain other
restricted payments, including, without limitation,
investments, (iv) sales of assets, (v) the creation
of liens, (vi) sale and leaseback transactions,
(vii) the sale or issuance of capital stock of sub-
sidiaries of the Company, (viii) mergers, consoli-
dations and sales of all or substantially all of
the assets of the Company and (ix) certain transac-
tions with affiliates. The Indenture also prohibits
certain restrictions on distributions from subsidi-
aries of the Company. However, all of these limita-
tions and prohibitions are subject to a number of
important qualifications and exceptions. In addi-
tion, a subsidiary of the Company may, under cer-
tain circumstances, be deemed to be an Unrestricted
Subsidiary (as defined) and, as an Unrestricted
Subsidiary, such subsidiary would not be subject to
the restrictions and prohibitions contained in the
Indenture. See "Description of Notes--Certain Cove-
nants" and "--Repurchase at the Option of Holders
of Notes--Asset Sales."
Exchange Offer and
Registration Rights....... The Company and Holdings agreed to file with the
Securities and Exchange Commission (the "Commis-
sion") on or prior to 90 days after the date of
original issuance of the Original Notes (the "Issue
Date"), a registration statement with respect to
the Exchange Offer for a series of Exchange Notes
and use their reasonable best efforts to consummate
such Exchange Offer on or prior to 180 days after
the original issuance of the Notes. Such Exchange
Notes will bear the rate of interest specified on
the cover page hereof for the Original Notes. If
the Company does not comply with certain covenants
set forth in the Exchange and Registration Rights
Agreement, the Company will be obligated to pay
certain liquidated damages to the holders of the
Original Notes. See "Exchange and Registration
Rights Agreement."
8
<PAGE>
Transfer Restrictions;
Absence of a Public
Market for the Original
Notes..................... The Original Notes have not been registered under
the Securities Act of 1933, as amended (the "Secu-
rities Act"), and are subject to restrictions on
transferability and resale. The Original Notes are
new securities and there is currently no estab-
lished market for the Notes. The Exchange Notes
generally will be freely transferable (subject to
the restrictions discussed elsewhere herein) but
will be new securities for which there will not
initially be a market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Original Notes or the Exchange
Notes. The Original Notes have been designated for
trading in the PORTAL market. The Initial Purchas-
ers have advised the Company that they currently
intend to make a market in the Original Notes and
the Exchange Notes. However, they are not obligated
to do so, and any market making activity with re-
spect to the Original Notes or the Exchange Notes
may be discontinued at any time without notice. The
Company does not intend to apply for listing of the
Original Notes or the Exchange Notes on any na-
tional securities exchange or for their quotation
on an automated dealer quotation system.
Use of Proceeds from
Initial Offering.......... There will be no proceeds to Holdings or the Com-
pany from the exchange pursuant to the Exchange Of-
fer. The proceeds of the Initial Offering, together
with a portion of the borrowings under the Senior
Credit Facilities and the proceeds of the Equity
Contribution, were used to finance the Acquisition
and to pay fees and expenses incurred in connection
with the Transactions. See "The Acquisition."
RISK FACTORS
Holders of Original Notes should carefully consider all of the information
set forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" prior to making a decision with respect to the
Exchange Offer. See "Risk Factors."
9
<PAGE>
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain unaudited summary pro forma combined
financial data of the Company for the year ended December 31, 1997. The
unaudited summary pro forma combined statement of operations data give effect
to the Transactions as if they had occurred on January 1, 1997. The unaudited
summary pro forma combined financial data do not purport to represent what the
Company's results of operations would have actually been had the Acquisition
and Financing Transactions been consummated as of such date or to project the
Company's results of operations for any future period. The unaudited summary
pro forma combined financial data should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Statement of Operations and the notes
thereto. See "Unaudited Pro Forma Condensed Combined Statement of Operations"
and the separate historical financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................................... $229,370
Gross profit............................................. 123,655
Distribution expense..................................... 12,844
Marketing expense(/3/)................................... 51,705
General & administrative expense(/3/).................... 22,800
Operating income......................................... 36,306
Interest expense......................................... 25,959
Income before income taxes............................... 10,426
OTHER FINANCIAL DATA:
Gross profit margin...................................... 53.9%
Depreciation and amortization(/1/)....................... $ 14,790
Capital expenditures..................................... 3,154
Cash interest expense(/2/)............................... 25,068
BALANCE SHEET DATA (ACTUAL AS OF JANUARY 23, 1998):
Total assets............................................. $380,047
Total debt, including current maturities................. 306,500
Stockholder's equity..................................... 67,803(a)
</TABLE>
- - - - --------
(a) Reflects initial equity of $82.5 million less an after tax write-off of in-
process research and development.
See Notes to Unaudited Summary Pro Forma Combined Financial Data.
10
<PAGE>
NOTES TO UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA
EBITDA represents income before income taxes, interest expense, depreciation
and amortization. While EBITDA is 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, it is included herein to provide additional
information with respect to the ability of the Company to meet its debt
service capital expenditures and working capital requirements. Pro forma
EBITDA financial data for the year ended December 31, 1997 is as follows:
<TABLE>
<S> <C>
EBITDA........................................................ $50,205
EBITDA margin................................................. 21.9%
Ratio of EBITDA to cash interest expense...................... 2.0
</TABLE>
(1) Includes amortization of debt issuance costs which is included in interest
expense in unaudited summary pro forma combined statement of operations
data.
(2)Cash interest expense is defined as interest expense less amortization of
debt issuance costs.
(3) Reflects elimination of historical allocated marketing and general
administrative expenses and of historical allocated and actual market costs
from marketing and general and administrative expenses.
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data of the BBNA
Business and the Company for the years ended and as of the dates indicated and
is derived from audited and unaudited financial data of the Company. The
summary historical statement of operations data for the years ended December
31, 1995, 1996 and 1997 and the summary historical balance sheet data as of
December 31, 1996 and 1997 and as of January 23, 1998 are derived from the
audited financial statements of the Company included elsewhere in this
Prospectus. The summary historical balance sheet data as of December 31, 1995
are derived from the unaudited financial statements of the Company not included
in this Prospectus and, in the opinion of management, include all adjustments
necessary for a fair presentation. For periods prior to January 1, 1995 and the
KKR Acquisition of Borden, the BBNA Business was not managed and its financial
results were not reported as a separate business. Expense and capital
expenditures data for the years ended December 31, 1993 and 1994 and the
selected historical balance sheet data as of December 31, 1993 are not
available. This information should be read in conjunction with the 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."
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $229,822 $231,203 $225,263 $230,384 $229,370
Cost of goods sold...... 96,038 102,148 102,712 110,357 107,674
-------- -------- -------- -------- --------
Gross profit............ $133,784 $129,055 122,551 120,027 121,696
======== ========
Distribution expense.... NA NA 15,691 14,640 13,464
Marketing expense....... NA NA 63,804 62,705 55,074
General & administrative
expense................ NA NA 13,289 13,483 13,184
-------- -------- -------- -------- --------
Operating income........ NA NA $ 29,767 $ 29,199 $ 39,974
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and
amortization........... NA NA $ 6,010 $ 5,937 $ 6,174
Capital expenditures.... NA NA 2,079 3,726 3,154
<CAPTION>
AS OF
JANUARY 23,
1998(b)
-----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD AND AS OF
JANUARY 23, 1998):
Inventories............. NA $ 12,053 $ 13,317 $ 13,239 $ 15,820 $ 20,100
Net property and
equipment.............. NA 13,613 16,044 16,649 16,070 23,950
Total assets............ NA 55,765 160,586 157,857 153,786 380,047
Total debt, including
current maturities..... 306,500
Stockholder's equity.... 67,803/(a)/
</TABLE>
- - - - --------
(a) Reflects initial equity of $82.5 million less an after tax write-off of in-
process research and development.
(b) Reflects the Acquisition and Financing Transactions resulting in a new
basis of accounting.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Original Notes for the Exchange Notes offered hereby, holders
of Original Notes should consider carefully the following factors, which may
be generally applicable to the Original Notes as well as the Exchange Notes:
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original 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 original Notes may not be offered or sold, unless registered
under the Securities Act and applicable state securities laws, or pursuant to
an exemption therefrom. Except as provided herein, the Registrants do not
intend to register the Original Notes under the Securities Act. In addition,
any holder of Original Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Original Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for
the original Notes not tendered could be adversely affected. See "The Exchange
Offer" and "Original Notes Registration Rights."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. After giving effect to the Transactions,
including the net proceeds from the Offering of the Original Notes in the
manner described in "Use of Proceeds," the Company had total outstanding debt
of approximately $306.5 million (exclusive of unused commitments). In
addition, subject to certain restrictions in the Senior Credit Facilities and
in the Indenture, the Company and its future subsidiaries may incur additional
indebtedness (including additional Senior Indebtedness) from time to time to
finance capital expenditures or acquisitions or for other purposes. At the
Acquisition Closing, the Company had borrowing capacity of up to $53.5 million
under the Revolving Credit Facility, primarily for working capital needs.
The level of the Company's indebtedness and the high degree of leverage
could have important consequences to holders of the Notes, including: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to debt service and will not be available for other purposes; (ii)
the Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures, acquisitions, research and development
or other purposes may be limited; (iii) certain of the Company's borrowings
will be at variable rates of interest, which could result in higher interest
expense in the event of increases in interest rates; (iv) all the indebtedness
outstanding under the Senior Credit Facilities will be secured by
substantially all the assets of the Company and will mature prior to the
maturity of the Notes; and (v) the Company's level of indebtedness could limit
its flexibility in reacting to changes in its industry or economic conditions
generally.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and by financial, business and
other factors, certain of which are beyond its control, as well as the
availability of borrowings under the Revolving Credit Facility or any
successor facilities. The Company will require substantial amounts of cash to
fund scheduled payments of principal and interest on its outstanding
indebtedness. There can be no assurance, however, that the Company will
13
<PAGE>
be able to generate sufficient cash flow from operations or that borrowings
will be available under the Revolving Credit Facility or any successor
facility in an amount sufficient to enable the Company to service its
outstanding indebtedness. If the Company is not able to generate sufficient
cash from operations or borrow under the Revolving Credit Facility or a
successor facility, then the Company may be required to take certain actions,
including delaying or reducing capital expenditures, seeking to restructure or
refinance its existing indebtedness, selling material assets or operations or
seeking additional equity. There can be no assurance that such actions could
be effected or would be effective in allowing the Company to meet such
obligations. The failure to generate sufficient cash flow, to make such
borrowings or to achieve such alternatives could significantly adversely
affect the market value of the Notes and the Company's ability to pay the
principal of, and interest on, the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
SUBORDINATION OF NOTES
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, including borrowings under the Senior
Credit Facilities. Each Guarantee is a general obligation of the applicable
Guarantor and will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full in cash of all Senior Indebtedness of
such Guarantor. In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or a
Guarantor, the assets of the Company or such Guarantor, as the case may be,
will be available to pay obligations on the Notes or the Guarantee, as the
case may be, only after all Senior Indebtedness of the Company or the
Guarantor, as the case may be, has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding or any Guarantee. In addition, under certain circumstances, the
Company and each Guarantor will not be able to make payment of its obligations
under the Notes or the applicable Guarantee in the event of a default under
certain Senior Indebtedness of the Company or such Guarantor. After giving
effect to the Transactions, the aggregate principal amount of Senior
Indebtedness of the Company was $191.5 million (exclusive of unused
commitments), and the aggregate amount of Senior Indebtedness of the
Guarantors, consisting entirely of a guarantee of the Senior Credit Facilities
provided by Holdings, was $191.5 million. Additional Senior Indebtedness may
be incurred by the Company and the Guarantors from time to time, subject to
certain restrictions. See "Description of Notes--Subordination."
In addition to being contractually subordinated to all existing and future
Senior Indebtedness of the Company and the Guarantors, the Notes and the
Guarantees are unsecured and thus effectively rank junior in right of payment
to any Secured Indebtedness of the Company or the Guarantors, as the case may
be, including the indebtedness outstanding under the Senior Credit Facilities,
which is secured by a lien on substantially all the assets of the Company and
the Guarantors. The Notes and the Guarantees do not have the benefit of such
collateral. If an event of default were to occur under the Senior Credit
Facilities (or any other Secured Indebtedness of the Company or the
Guarantors, as the case may be), the lenders thereunder would have the right
to exercise the remedies available to them under the Senior Credit Facilities
and under applicable law. Accordingly, such lenders would have the right to
foreclose upon such collateral to the exclusion of the holders of the Notes,
notwithstanding the existence of an event of default with respect to the
Notes. In such event, such assets would first be used to repay in full all
amounts outstanding under the Senior Credit Facilities (and any other Secured
Indebtedness of the Company or the Guarantors, as the case may be), and it is
possible that there would be insufficient assets remaining after satisfaction
in full of all such indebtedness to satisfy in full all claims of holders of
the Notes.
14
<PAGE>
RESTRICTIVE FINANCIAL COVENANTS
The Indenture restricts, among other things, the ability of the Company and
its subsidiaries, as the case may be, to incur additional indebtedness, to pay
dividends or distributions on, and to redeem, capital stock of the Company and
its subsidiaries as well as to redeem certain subordinated obligations, to
make certain other restricted payments, including, without limitation,
investments, to engage in sales of assets, to incur liens, to engage in sale
and leaseback transactions, to sell or issue capital stock of subsidiaries of
the Company, to engage in mergers, consolidations and sales of all or
substantially all of the assets of the Company and to enter into certain
transactions with affiliates. In addition, the Senior Credit Facilities
contain other and more restrictive covenants that, among other things,
prohibit the Company from prepaying other indebtedness (including the Notes).
The Senior Credit Facilities also require the Company to maintain specified
financial ratios and tests under which the Company is required to achieve
certain financial and operating results. The restrictive covenants contained
in the Indenture and the Senior Credit Facilities may limit the ability of the
Company to respond to changing business and economic conditions, to secure
additional financing, if needed, and to engage in transactions that might be
beneficial to the Company. Moreover, the ability of the Company to meet the
financial ratios and tests contained in the Senior Credit Facilities may be
affected by events beyond its control, and there can be no assurance that the
Company will meet those ratios and tests. A breach of any of these covenants
could result in a default under the Senior Credit Facilities. Upon the
occurrence of an event of default under the Senior Credit Facilities, the
lenders thereunder could elect to declare all amounts outstanding under the
Senior Credit Facilities, together with accrued interest, to be immediately
due and payable. If the Company were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure that
indebtedness. See "--Subordination of Notes." If the indebtedness outstanding
under the Senior Credit Facilities were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes. See "Description of Senior Credit Facilities."
RISKS RELATING TO THE ACQUISITION
The Company was recently formed for the purpose of the Acquisition. The
Company's business was previously operated as the BBNA Business of BFC and BFC
Investments. There can be no assurance that the Company will not encounter
unanticipated problems or expenses in establishing Eagle Family Foods as an
independent company. In addition, there can be no assurance that the Company,
under its new management, will be able to achieve results comparable to those
achieved by the BBNA Business.
BFC and its affiliates historically provided computer, accounting and human
resources support, warehouse space, a network of third party distribution
services and a network of regional food brokers. In connection with the
Acquisition, the Company entered into the Master Customer Services Agreement
(as defined) pursuant to which BFC and its affiliates provide various trade
marketing, distribution, transactions processing, information systems and
accounting services for period of up to 18 months after the Acquisition
Closing. When these services are no longer available, there can be no
assurance that the Company will be able to perform or obtain these services at
costs comparable to those currently anticipated by the Company. The Company
sells its products through a network of over 60 independent food brokers.
Although the Company believes that it will be able to negotiate broker
agreements on substantially the same terms as those included in the agreements
between BFC and the brokers, there can be no assurance that the Company will
be able to do so. The Company entered into the Canadian Agreements (as
defined) in connection with the Acquisition pursuant to which BFC and its
affiliates have agreed to manufacture and distribute sweetened condensed milk
for the Company in Canada at prices based on historical manufacturing costs
for a period of 12 months from the Acquisition Closing. The Company assumed
the Kava Co-Pack Agreement (as defined), pursuant to which CFN (as defined)
will manufacture acid-neutralized coffee
15
<PAGE>
at a price based on a formula of weighted average price of soluble coffee
powder and manufacturing costs. The Company obtains its supply of shelf-stable
egg nog under a seasonal purchase order, which, although not currently in
effect, the Company expects to renew. There can be no assurance that, in
respect of the Canadian Agreements, the Kava Co-Pack Agreement and the
Company's shelf-stable egg nog purchase order, the Company will be able to
enter into new arrangements on substantially the same terms as those in effect
during the operation of the BBNA Business by BFC.
Moreover, pursuant to the Asset Purchase Agreement, the Company is
responsible for certain liabilities attributed to events prior to the
Acquisition Closing, subject to certain limited rights of indemnification.
There can be no assurance that significant liabilities will not materialize or
that, if such liabilities materialize, the Company will receive sufficient
indemnification payments or have sufficient financial resources to satisfy all
obligations relating thereto.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations will be dependent, to a significant
extent, on its executives and other key management personnel. Several members
of the Company's senior management are new to the Company. The Company entered
into employment agreements containing non-competition provisions with William
A. Lynch, its Chairman and Chief Operating Officer, and John O'C. Nugent, its
Chief Executive Officer and President, and entered entering into similar
arrangements with its other executive officers. There can be no assurance the
Company will be able to retain its executive officers and other key management
personnel or attract additional qualified management in the future. The
Company has not obtained any key man life insurance with respect to any of its
key members of management. If Mr. Lynch or Mr. Nugent becomes unable to
continue in his present role, or if the Company is unable to attract and
retain other skilled employees, the Company's business could be adversely
affected. See "Management."
SEASONALITY
The Company's sales, net income and cash flows are affected by a seasonal
bias toward the fourth quarter of the year due to increased sales during the
holiday season. Three of the Company's six product lines (Eagle Brand and the
Company's other sweetened condensed milk products, Borden Egg Nog and None
Such) are consumed primarily during the November and December holiday seasons.
In recent years, approximately 45% of the Company's sales have occurred in the
last quarter of the year. As a result of this seasonality, the Company's
working capital requirements have historically increased throughout the year,
peaking in October, which will require the Company to draw upon the Revolving
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
COMPETITION
The Company competes in highly competitive markets with a significant number
of companies of varying sizes, including divisions or subsidiaries of larger
companies. Competition is primarily based on price and quality. A number of
these competitors have multiple product lines, have substantially greater
financial and other resources available to them and may be substantially less
leveraged than the Company, and there can be no assurance that the Company can
compete successfully with such other companies. Competitive pressures or other
factors could cause the Company's products to lose market share or could
result in significant price erosion, both of which would have a material
adverse effect on the Company's results of operations. See "Business--
Competition."
16
<PAGE>
RISK ASSOCIATED WITH IMPLEMENTATION OF A NEW BUSINESS STRATEGY
The Company intends to pursue a business strategy of increasing cash flow
and revenue in its core business through a combination of marketing efforts,
expansion of certain markets and product lines, and strategic acquisitions. No
assurance can be given that the Company will be successful in implementing
this strategy. See "Business--Business Strategy."
POTENTIAL PRICE FLUCTUATIONS OF RAW MATERIALS
The Company purchases agricultural commodities (including milk, sugar, lemon
and lime juice concentrate, vegetable oil and corn syrup), flavors, other raw
materials and packaging from growers, commodity processors, importers, other
food companies and packaging manufacturers. While all such materials are
available from numerous independent suppliers, commodity raw materials are
subject to fluctuations in price attributable to, among other things, change
in crop size and federal and state agricultural programs. For example, milk
prices reached historic highs in 1996 but have subsequently returned to normal
levels. The Company does not, nor does it expect in the near future, to engage
in any hedging activities or commodity trading relating to its supply of raw
materials. Future price fluctuations in respect of commodity raw materials
used by the Company could have a material adverse effect on the performance of
the Company. See "Business--Raw Materials and Suppliers."
CONTROL BY CERTAIN STOCKHOLDERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Holdings, which in turn is owned
by the Equity Sponsors and the Management Investors. Accordingly, the Equity
Sponsors and the Management Investors control Holdings and the Company and
have the power to elect all of their respective directors, appoint new
management and approve any action requiring the approval of the holders of
Holdings' and the Company's common stock, including adopting amendments to
their respective Certificates of Incorporation and approving mergers or sales
of substantially all of their assets. See "Management." The members of the
Company's Board of Directors elected by Holdings will have the authority to
make decisions affecting the capital structure of the Company, including the
issuance of additional stock, the implementation of stock repurchase programs
and declaration of dividends, subject to restrictions imposed by the Indenture
and the Senior Credit Facilities. See "Security Ownership."
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, each holder of Notes will have the right to
require the Company to make an offer to repurchase such holder's Notes at 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of repurchase. However, the Senior Credit Facilities prohibit
the repurchase of the Notes by the Company in the event of certain events
constituting a Change of Control unless and until such time as the outstanding
indebtedness under the Senior Credit Facilities is repaid in full. In the
event of a Change of Control, there can be no assurance that the Company would
have sufficient financial resources available to satisfy all of its
obligations under the Senior Credit Facilities and the Notes. The Company's
failure to repurchase the Notes would result in an event of default under the
Indenture and the Senior Credit Facilities, each of which could have adverse
consequences for the Company and the holders of the Notes. Moreover, the
Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of outstanding indebtedness of the Company.
COMPLIANCE WITH GOVERNMENT REGULATION
The Company is subject to numerous federal, state and local laws and
regulations concerning, among other things, health and safety matters, food
manufacture, product labeling and advertising,
17
<PAGE>
including the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the Food and Drug Administration (the "FDA"). Compliance with
existing federal, state and local laws and regulations is not expected to have
a material adverse effect upon the earnings or competitive position of the
Company. However, the Company cannot predict the effect, if any, of laws and
regulations that may be enacted in the future, or of changes in the
enforcement of existing laws and regulations that are subject to extensive
regulatory discretion. See "Business--Certain Legal and Regulatory Matters--
Public Health."
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
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 and local environmental laws and
regulations. As a result, the Company is involved from time to time in
administrative and judicial proceedings, claims and inquiries relating to
environmental matters. In connection with the Acquisition, the Company assumed
all past and future environmental liabilities related to the BBNA Business.
The Company will be indemnified, however, by BFC and BFC Investments with
respect to certain environmental liabilities occurring prior to the
Acquisition Closing. This indemnification is limited in time and amount, and
there can be no assurance that material environmental liabilities will not be
incurred after the indemnification period or will not be in excess of the
indemnified amount or that the Company will be able to pursue successfully any
indemnification claims against BFC. In addition, compliance with more
stringent laws or regulations or stricter interpretation of existing laws, may
require additional expenditures by the Company, some of which may be material.
See "Business-- Certain Legal and Regulatory Matters--Environmental Matters."
GENERAL RISKS OF FOOD INDUSTRY; ADVERSE ECONOMIC CONDITIONS; UNCERTAINTY OF
CONSUMER PREFERENCES; PRODUCT LIABILITY RISKS
Food product manufacturing companies are subject to the risks of adverse
changes in general economic conditions, lack of attractiveness of a particular
food product after a "novelty" period, evolving consumer preference and
nutritional and health-related concerns, federal, state and local food
processing controls, consumer product liability claims, risks of product
tampering and the availability and expense of liability insurance. There can
be no assurance that the Company will not be impacted by these risks or that
any such impact will not have a material adverse affect on the performance of
the Company.
SUBORDINATION OF NOTES AND GUARANTEES IN A FUTURE HOLDING COMPANY STRUCTURE
Pursuant to the Indenture, the Company has the right to transfer the
trademarks, patents, copyrights and other intangible assets relating to the
BBNA Business (an "Inter-Company Intangible Asset Transfer") to one or more
Intellectual Property Subsidiaries, subject to certain conditions. See
"Description of Notes--Certain Definitions (Intellectual Property
Subsidiary)." In addition, the Company may create, acquire or capitalize other
subsidiaries from time to time. In the event an Inter-Company Intangible Asset
Transfer occurs, or if the Company otherwise creates, acquires or capitalizes
subsidiaries, principal and interest payments on the Notes will be dependent
in part on the receipt by the Company of cash dividends, advances and other
payments from such Intellectual Property Subsidiaries or other subsidiaries.
The Notes will be effectively subordinated to all then existing and future
liabilities of such Intellectual Property Subsidiaries (although the
Intellectual Property Subsidiaries will be prohibited from incurring
indebtedness and from engaging in activity other than owning their assets and
licensing such assets to the Company and other activities incidental thereto).
The Notes also will be effectively subordinated to all existing and future
liabilities (including trade payables) of other subsidiaries unless such
subsidiaries are Guarantors of the Notes. Any right of the holders of the
Notes to participate in the distribution of the assets of any Intellectual
Property Subsidiaries or subsidiaries which do not guarantee the Notes will be
subject to the claims of creditors of such Intellectual Property Subsidiaries
or other subsidiaries. The Indenture permits
18
<PAGE>
such subsidiaries (but not Intellectual Property Subsidiaries) to incur
indebtedness in the future provided certain financial and other conditions are
met. See "Description of Notes--Certain Covenants--Limitation on Incurrence of
Indebtedness," "--Guarantees of the Notes" and "--Future Note Guarantors."
RISK OF UNENFORCEABILITY OF THE GUARANTEES OF THE NOTES; FINANCIAL DEPENDENCE
OF GUARANTOR ON COMPANY
The Notes are unconditionally guaranteed on a senior subordinated and
unsecured basis by Holdings and each future Domestic Subsidiary of the Company
other than any Intellectual Property Subsidiary that is not wholly owned by
the Company. The holders of the Notes have no direct claim against any of the
Guarantors other than a claim created by a Guarantee, which may be subject to
legal challenge in a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to a Guarantor. If such challenges were to be
upheld, the Guarantees would be invalid and unenforceable. To the extent that
any of the Guarantees are not enforceable, the rights of holders of the Notes
to participate in any distribution of assets of the relevant Guarantor upon
bankruptcy, liquidation, dissolution, reorganization or similar event will, as
is the case with the other unsecured creditors of the Company, be subject to
prior claims of creditors of that Guarantor.
In addition, Holdings is a holding company with no significant assets other
than the capital stock of the Company, and Holdings has no significant
independent operations. Holdings, therefore, will be dependent upon the
receipt of dividends or other distributions from the Company to fund any
obligations that it incurs, including obligations as a Guarantor of the Notes.
The Indenture will not, however, permit dividend payments (other than those
based on the Company's income) or other distributions from the Company to
Holdings other than for certain specified purposes as described under
"Description of Notes--Certain Covenants--Limitation on Restricted Payments."
The Senior Credit Facilities will contain similar or more restrictive
provisions. See "Description of Senior Credit Facilities." Accordingly, if the
Company should at any time be unable to pay interest on or principal of the
Notes, it is highly unlikely that Holdings would be able to meet its
obligations as a Guarantor of the Notes.
FRAUDULENT CONVEYANCE STATUTES
The incurrence of indebtedness (such as the Notes) and the use of proceeds
thereof are 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 the Company. Under these statutes, if
a court were to find that obligations (such as the Notes) were incurred with
the intent of delaying, hindering or defrauding present or future creditors or
that the obligor received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the incurrence of the
obligations, the obligor (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
or subordinate the obligations in question.
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, with respect to a particular
date, if on such date (i) the present fair market value (or present fair
saleable value) of the assets of the company is less than the total amount
required to pay the probable liabilities of the company on its total existing
debts and liabilities (including contingent liabilities) as they become
absolute and matured, (ii) the company is unable to realize upon its assets
and pay its debts and other liabilities, contingent obligations and
commitments as they mature and
19
<PAGE>
become due in the normal course of business or (iii) the company is incurring
debts or liabilities beyond its ability to pay as such debts and liabilities
mature.
In addition, the 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
Guarantors. In such a case, the analysis set forth above would generally
apply, except that the Guarantees could also be subject to the claim that,
since the Guarantees were incurred for the benefit of the Company (and only
indirectly for the benefit of the Guarantors), the obligations of the
Guarantors thereunder were incurred for less than reasonably equivalent value
or fair consideration. A court could void any of the Guarantors' obligations
under the Guarantees, subordinate the Guarantees to other indebtedness of a
Guarantor or take other action detrimental to the holders of the Notes.
ABSENCE OF PUBLIC MARKET
The Notes are new securities for which there currently is no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the Original Notes and the Exchange Notes they are
not obligated to do so and any such market making activity may be discontinued
at any time without notice. In addition, such market making activity may be
limited during the pendency of the Exchange Offer or the effectiveness of a
shelf registration statement in lieu thereof. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Original
Notes and the Exchange Notes.
The Original Notes have been designated for trading in the PORTAL market by
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act). The Company does not intend to apply for listing of the Original Notes
or the Exchange Notes, offered hereby on any securities exchange or for their
quotation on an automated dealer quotation system.
The liquidity of, and trading market for, the Original Notes or the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities. Such declines may adversely affect such liquidity and
trading markets independently of the financial performance of, or prospects
for, the Company.
20
<PAGE>
THE ACQUISITION
GENERAL
Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement, Eagle
Family Foods agreed to acquire certain assets of BFC, BFC Investments and
certain of their affiliates for an aggregate purchase price of $387.5 million
subject to certain closing and post-closing adjustments as described below.
The purchase price paid in the Acquisition was to be increased or decreased,
pursuant to a post-closing adjustment, if the Company's inventory was greater
or less than $14.0 million at the Acquisition Closing. The purchase price paid
in the Acquisition was $376.5 million. The assets acquired by the Company
include, among other things: (i) four manufacturing facilities located in
Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and
Chester, South Carolina; (ii) all machinery and equipment located at these
facilities; (iii) certain machinery and equipment located at a Canadian BFC
facility; (iv) the trademarks Eagle; Eagle Brand, the Dessert Maker; ReaLemon;
ReaLime; Cremora; Kava; None Such and certain other trademarks in North
America and in certain foreign territories; (v) copyrights and other
intellectual property used principally in connection with the BBNA Business;
(vi) inventories (raw materials, packaging materials and finished goods)
principally related to the BBNA Business; (vii) business information, files
and records relating principally to the operation of the BBNA Business; (viii)
rights under certain contracts, licenses, purchase orders and other
arrangements and permits relating principally to the operation of the BBNA
Business; and (ix) a non-compete and non-solicitation agreement from BFC and
certain of its affiliates. In connection with the Acquisition, BFC retained
receivables, trade payables and certain accrued liabilities relating to the
BBNA Business. The Company assumed all other accrued liabilities including
workmen's compensation, product liability, automobile liability and general
liability claims, as well as all other liabilities relating to the BBNA
Business that were not specifically retained by BFC, subject to certain
limited rights of indemnification. The Asset Purchase Agreement contains
customary representations, warranties, covenants, conditions and certain
indemnification provisions.
Certain Licensing Arrangements. In connection with the Acquisition, BDH Two,
Inc., Borden, Inc. and certain other affiliates of BFC granted the Company a
perpetual, exclusive and royalty-free license to use certain trademarks,
including the Borden and Elsie trademarks throughout the world (other than
Africa, South America, Central America and the Caribbean (with the exception
of Puerto Rico)), on products on which they are currently used in the BBNA
Business, together with certain product extensions. In addition, BFC assigned
its rights under a license from Southern Foods Group, L.P. to use the Meadow
Gold trademark on sweetened condensed milk in the United States (the "Meadow
Gold License"). The Meadow Gold License is royalty-free and has a five year
term which is renewable automatically for subsequent five year terms, and is
terminable at the option of the licensee upon one year's notice and, under
certain limited circumstances, by the licensor. The Company granted BFC a
perpetual, exclusive and royalty-free license to use the ReaLemon and ReaLime
trademarks in certain foreign markets including Europe, Hong Kong and the
Middle East on products on which they are currently used, together with
product extensions.
Master Customer Services Agreement. At the Acquisition Closing, the Company
and BFC entered into a master customer services agreement (the "Master
Customer Services Agreement"), pursuant to which BFC and its affiliates
provide various trade marketing, distribution, transactions processing,
information systems and accounting services for a period of up to 18 months
after the Acquisition Closing. Certain services provided at specified rates
for such services. However, a significant portion of the services provided at
no charge for either 90 days, and thereafter at the agreed upon rates for such
services, or 135 days, and thereafter at a formula price increasing in 25%
increments each 60 day period thereafter to 100% of the agreed upon rates for
such services 315 days after the Acquisition Closing and thereafter.
21
<PAGE>
Canadian Agreements. The Company and BFC's Canadian affiliate entered into a
Contract Packaging Agreement, a Transportation and Warehousing Agreement and a
Sales Representation Agreement (collectively, the "Canadian Agreements"). The
Canadian Agreements provide that BFC's Canadian affiliate manufacture and
package all of the Company's requirements for sweetened condensed milk
products in Canada, and warehouse and sell such products using machinery and
equipment which have been acquired by the Company. The Canadian Agreements
terminate one year from the Acquisition Closing, unless renewed by mutual
agreement. The Contract Packaging Agreement and the Transportation and
Warehousing Agreement are each terminable on 90 days' notice by either party
and the Sales Representation Agreement is terminable on 30 days' notice by
either party.
Puerto Rico Distribution Agreement. At the Acquisition Closing, the Company
entered into an exclusive distribution agreement (the "Puerto Rico
Distribution Agreement") with Borden Foods Puerto Rico, Inc. ("BFPR"),
pursuant to which BFPR distributes products specified from time to time by the
Company in Puerto Rico, upon terms established by the Company. The Puerto Rico
Distribution Agreement will terminate six months from the Acquisition Closing.
Kava Co-Pack Agreement. In connection with the Acquisition Closing, BFC
assigned to the Company its rights under its existing supply contract (the
"Kava Co-Pack Agreement") with Chock Full O' Nuts Corp. ("CFN"). The Kava Co-
Pack Agreement provides that CFN exclusively furnishes the Company with its
requirements, within a specified minimum and maximum range, of acid
neutralized coffee at a price based on a formula of weighted average price of
soluble coffee powder and manufacturing costs. The Kava Co-Pack Agreement is
automatically renewed each April 1 for an annual term unless terminated by
either party by notice not less than 60 days prior to the expiration of the
annual term.
FINANCING OF THE ACQUISITION
Eagle Family Foods was formed to consummate the Acquisition. Financing for
the Acquisition and related fees and expenses consisted of (i) the $82.5
million Equity Contribution by Holdings (which was financed by Holdings'
issuance of preferred and common stock in that amount to GEI and Warburg, as
the Equity Sponsors, together with the Management Investors, who contributed
approximately $1.7 million of such amount); (ii) $115.0 million of Original
Notes issued pursuant to the Initial Offering; and (iii) the Senior Credit
Facilities in an aggregate principal amount of $245.0 million, consisting of
the Term Loan Facility and the Revolving Credit Facility, under which $16.5
million was drawn at the time of the Acquisition Closing.
The following table sets forth the sources and uses of funds at the
consummation of the Transactions:
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES:
Senior Credit Facilities
Revolving Credit Facility(/1/)......................... $ 16,500
Term Loan Facility..................................... 175,000
The Notes................................................ 115,000
Equity Contribution...................................... 82,500
--------
Total sources........................................ $389,000
========
USES:
Purchase price........................................... $376,500
Fees and expenses(/2/)................................... 11,767
Cash remaining with the Company.......................... 733
--------
Total uses........................................... $389,000
========
</TABLE>
- - - - --------
(1) Consists of a $70.0 million Revolving Credit Facility, under which the
Company had $16.5 million outstanding upon the Acquisition Closing. See
"Description of Senior Credit Facilities."
(2) Fees and expenses including amounts accrued.
22
<PAGE>
USE OF PROCEEDS
There will be no proceeds to Holdings or the Company from the exchange
pursuant to the Exchange Offer. The proceeds to the Company from the Initial
Offering, together with the proceeds from borrowings under the Senior Credit
Facilities and the Equity Contribution, were used to fund the purchase price
for the Acquisition and to pay related fees and expenses.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 23, 1998 after giving effect to the Transactions. This table should be
read in conjunction with the Financial Statements and notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 23, 1998
-------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Debt (including current maturities):
Revolving Credit Facility(/1/)..................... $ 16,500
Term Loan Facility................................. 175,000
The Notes.......................................... 115,000
--------
Total Debt....................................... 306,500
Total Stockholder's Equity, reduced by research and
development write-off(/2/).......................... 67,803
--------
Total Capitalization................................. $374,303
========
</TABLE>
- - - - --------
(1) Consists of a $70.0 million Revolving Credit Facility, under which the
Company had $16.5 million outstanding upon the Acquisition Closing.
Borrowings under the Revolving Credit Facility are available for general
corporate purposes, including the funding of working capital needs. See
"Description of Senior Credit Facilities."
(2) The Company's initial equity of $82.5 million was reduced by a purchase
accounting write-off for research and development in-process of $23.9
million, net of related tax benefit.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Registration Rights Agreement.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal"), $1,000 in principal amount of
Exchange Notes for each $1,000 in principal amount of the Original Notes. The
terms of the Exchange Notes are identical in all respects to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the Exchange Notes will generally be freely transferable by
holders thereof, and the holders of the Exchange Notes (as well as remaining
holders of any Original Notes) will not be entitled to registration rights
under the Registration Rights Agreement. See "Original Notes Registration
Rights." The Exchange Notes will evidence the same debt as the Original Notes
and will be entitled to the benefits of the Indenture. See "Description of
Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Registrants believe that Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Registrants within the meaning of
Rule 405 under the Securities Act, (ii) a broker-dealer who acquired Original
Notes directly from the Registrants or (iii) broker-dealers who acquired
Original Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged
in, and do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a distribution of such Exchange Notes. Each
broker- dealer that receives Exchange Notes for its own account in exchange
for Notes, where such 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 Exchange
Notes. See "Plan of Distribution." 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. Broker-dealers who acquired Original Notes as a result of
market making or other trading activities may use this Prospectus, as
supplemented or amended, in connection with resales of the Exchange Notes. The
Registrants have agreed that, for a period not to exceed 180 days after the
Exchange Date, they will make this Prospectus available to any broker-dealer
for use in connection with any such resale. Any holder that cannot rely upon
such interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Tendering holders of Original Notes 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 the Original Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance
of the Exchange Notes, such interest to be payable with the first interest
payment on the Exchange Notes, but will not receive any payment in respect of
interest on the Original Notes accrued after the issuance of the Exchange
Notes.
24
<PAGE>
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means midnight, New York City time, on , 1998, unless the
Registrants in their sole discretion extend the period during which the
Exchange Offer is open, in which event the term "Expiration Date" means the
latest time and date on which the Exchange Offer, as so extended by the
Registrants, expires. The Registrants reserve the right to extend the Exchange
Offer at any time and from time to time on or prior to the Expiration Date by
giving written notice to IBJ Schroder Bank & Trust Company (the "Exchange
Agent") and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service. During any extension of the Exchange Offer, all Original Notes
previously tendered pursuant to the Exchange Offer will remain subject to the
Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Registrants expressly reserve the right to (i) terminate
the Exchange Offer and not accept for exchange any Original Notes for any
reason, including if any of the events set forth below under "Conditions to
the Exchange Offer" shall have occurred and shall not have been waived by the
Registrants and (ii) amend the terms of the Exchange Offer in any manner,
whether before or after any tender of the Original Notes. If any such
termination or amendment occurs, the Registrants will notify the Exchange
Agent in writing and will either issue a press release or give written notice
to the holders of the Original Notes as promptly as practicable. Unless the
Registrants terminate the Exchange Offer prior to midnight, New York City
time, on the Expiration Date, the Registrants will exchange the Exchange Notes
for the Original Notes promptly after the Expiration Date.
If the Registrants waive any material condition to the Exchange Offer, or
amend the Exchange Offer in any other material respect, and if at the time
that notice of such waiver or amendment is first published, sent or given to
holders of Original Notes in the manner specified above, the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the fifth business day from, and including, the date that such notice is
first so published, sent or given, then the Exchange Offer will be extended
until the expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Registrants to record holders of Original
Notes and will be furnished to brokers, banks and similar persons whose names,
or the names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Registrants of Original Notes by a holder thereof pursuant
to one of the procedures set forth below will constitute an agreement between
such holder and the Registrants in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Original Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with the certificate or certificates representing the Original Notes being
tendered and any required signature guarantees (or a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure
described below), to the Exchange Agent at its address set forth on the back
cover of this Prospectus on or prior to the Expiration Date or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original
25
<PAGE>
Notes are to be reissued) in the name of the registered holder, the signature
of such signer need not be guaranteed. In any other case, the tendered
Original Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Registrants and duly executed by the
registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a firm (an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program (an "Eligible
Program") within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Original Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note
register for the Original Notes, the signature on the Letter of Transmittal
must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to
register ownership of the Original Notes in such beneficial owner's name or
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Original Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Original Notes by causing the Book-
Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide his taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Registrants and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected
if the Exchange Agent has received at its office listed on the back cover
hereof on or prior to the Expiration Date a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address
of the tendering holder, the names in which the Original Notes are registered
and, if possible, the certificate numbers of the Original Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, the Original Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Original Notes being tendered by the above-described
26
<PAGE>
method (or a timely Book-Entry Confirmation) are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents),
the Registrants may, at their option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are being delivered with this Prospectus
and the related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Original Notes
(or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Registrants, whose determination will be final and binding.
The Registrants reserve the absolute right to reject any or all tenders not in
proper form or the acceptances for exchange of which may, in the opinion of
counsel to the Registrants, be unlawful. The Registrants also reserve the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or irregularities in tenders of any particular holder whether or not
similar defects or irregularities are waived in the case of other holders.
None of the Registrants, the Exchange Agent or any other person will be under
any duty to give notification of any defects or irregularities in tenders or
shall incur any liability for failure to give any such notification. The
Registrants' interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Registrants and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered Original Notes, and that, when the same are accepted for exchange,
the Registrants will acquire good and unencumbered title to the tendered
Original Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Registrants to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Original Notes. The
Transferor further agrees that acceptance of any tendered Original Notes by
the Registrants and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Registrants of its obligations under the
Registration Rights Agreement and that the Registrants shall have no further
obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the Transferor
shall be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Registrants within the meaning of Rule 405 under the
Securities Act, that it is not a broker-dealer that owns Original Notes
acquired directly from the Registrants or an affiliate of the Registrants,
that it is
27
<PAGE>
acquiring the Exchange Notes offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such Exchange Notes or (b) that
it is an "affiliate" (as so defined) of the Registrants or of the initial
purchasers in the original offering of the Original Notes, and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus. Any such notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered
Original Notes to be withdrawn, the certificate numbers of Original Notes to
be withdrawn, the principal amount of Original Notes to be withdrawn (which
must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name
of the registered holder of such Original Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Registrants that the person withdrawing the
tender has succeeded to the beneficial ownership of the Original Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Original
Notes promptly following receipt of notice of withdrawal. All questions as to
the validity of notices of withdrawals, including time of receipt, will be
determined by the Registrants, and such determination will be final and
binding on all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn
and the issuance of the Exchange Notes will be made on the Exchange Date. For
the purposes of the Exchange Offer, the Registrants shall be deemed to have
accepted for exchange validly tendered Original Notes when, as and if the
Registrants have given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving Exchange Notes from the Registrants and
causing the Original Notes to be assigned, transferred and exchanged. Upon the
terms and subject to the conditions of the Exchange Offer, delivery of
Exchange Notes to be issued in exchange for accepted Original Notes will be
made by the Exchange Agent promptly after acceptance of the tendered Original
Notes. Original Notes not accepted for exchange by the Registrants will be
returned without expense to the tendering holders (or in the case of Original
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the procedures described above, such
non-exchanged Original Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) promptly following the Expiration Date or,
if the Registrants terminate the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Registrants will not be required to issue Exchange
Notes in respect of any properly tendered Original Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News
28
<PAGE>
Service) or, at its option, modify or otherwise amend the Exchange Offer, if
(a) there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof, or (iii) resulting in a material delay in the ability of the
Registrants to accept for exchange or exchange some or all of the Original
Notes pursuant to the Exchange Offer; (b) any statute, rule, regulation, order
or injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any government or governmental
authority, domestic or foreign, or any action shall have been taken, proposed
or threatened, by any government, governmental authority, agency or court,
domestic or foreign, that in the sole judgment of the Registrants might
directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the sole judgment of the Registrants,
might result in the holders of Exchange Notes having obligations with respect
to resales and transfers of Exchange Notes which are greater than those
described in the interpretations of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or (c) a material adverse change shall have occurred
in the business, condition (financial or otherwise), operations, or prospects
of the Registrants.
The foregoing conditions are for the sole benefit of the Registrants and may
be asserted by them with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Registrants) giving rise to such condition or may be waived by the Registrants
in whole or in part at any time or from time to time in their sole discretion.
The failure by the Registrants at any time to exercise any of the foregoing
rights will not be deemed a waiver of any such right, and each right will be
deemed an ongoing right which may be asserted at any time or from time to
time. In addition, the Registrants have reserved the right, notwithstanding
the satisfaction of each of the foregoing conditions, to terminate or amend
the Exchange Offer.
Any determination by the Registrants concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Registrants will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such
Original Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or qualification of the Indenture under the Trust Indenture
Act of 1939 (the "Trust Indenture Act").
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the back cover page of this
Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Registrants have 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 for soliciting acceptances of the Exchange Offer. The
Registrants will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Registrants will also pay brokerage
houses and other
29
<PAGE>
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting and legal fees, will
be paid by the Company and are estimated at approximately $600,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Registrants. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Registrants since the respective
dates as of which information is given herein. The Exchange Offer is not being
made to (nor will tenders be accepted from or on behalf of) holders of
Original Notes in any jurisdiction in which the making of the Exchange Offer
or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Registrants may, at their discretion, take such
action as it may deem necessary to make the Exchange Offer in any such
jurisdiction and extend the Exchange Offer to holders of Original Notes in
such jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Registrants by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders will not be a
taxable exchange for federal income tax purposes, and holders will not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged
to consult their financial and tax advisors in making their own decisions on
what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Registrants will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Rights Agreement. Holders of the Original
Notes who do not tender their certificates in the Exchange Offer will continue
to hold such certificates and will be entitled to all the rights, and
limitations applicable thereto, under the Indenture, except for any such
rights under the Registration Rights Agreement, which by their terms terminate
or cease to have further effect as a result of the making of this Exchange
Offer. See "Description of Notes." All untendered Original Notes will continue
to be subject to the restriction on transfer set forth in the Indenture. To
the extent that Original Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Original Notes could be adversely
affected. See "Risk Factors--Consequences of Failure to Exchange."
The Registrants may in the future seek to acquire untendered Original Notes
in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Registrants have no present plan to acquire
any Original Notes which are not tendered in the Exchange Offer.
30
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the BBNA Business
and the Company for the years ended and as of the dates indicated and is
derived from audited and unaudited financial data of the Company. The selected
historical statement of operations data for the years ended December 31, 1995,
1996 and 1997 and the selected historical balance sheet data as of December
31, 1996 and 1997 and January 23, 1998 are derived from the audited financial
statements of the Company included elsewhere in this Prospectus. The selected
historical balance sheet data as of December 31, 1995 are derived from the
unaudited financial statements of the Company not included in this Prospectus
and, in the opinion of management, include all adjustments necessary for a
fair presentation. For periods prior to January 1, 1995 and the KKR
Acquisition of Borden, the BBNA Business was not managed and its financial
results were not reported as a separate business. Expense and the capital
expenditures data for the years ended December 31, 1993 and 1994 and the
selected historical balance sheet data as of December 31, 1993 are not
available. This information should be read in conjunction with the 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."
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $229,822 $231,203 $225,263 $230,384 $229,370
Cost of goods sold...... 96,038 102,148 102,712 110,357 107,674
-------- -------- -------- -------- --------
Gross profit............ $133,784 $129,055 122,551 120,027 121,696
======== ========
Distribution expense.... NA NA 15,691 14,640 13,464
Marketing expense....... NA NA 63,804 62,705 55,074
General & administrative
expense................ NA NA 13,289 13,483 13,184
-------- -------- -------- -------- --------
Operating income........ NA NA $ 29,767 $ 29,199 $ 39,974
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and
amortization........... NA NA $ 6,010 $ 5,937 $ 6,174
Capital expenditures.... NA NA 2,079 3,726 3,154
<CAPTION>
AS OF
JANUARY 23,
1998(b)
-----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD AND AS OF
JANUARY 23, 1998):
Inventories............. NA $ 12,053 $ 13,317 $ 13,239 $ 15,820 $ 20,100
Net property and
equipment.............. NA 13,613 16,044 16,649 16,070 23,950
Total assets............ NA 55,765 160,586 157,857 153,786 380,047
Total debt, including
current maturities..... 306,500
Stockholder's equity.... 67,803/(a)/
</TABLE>
- - - - --------
(a) Reflects initial equity of $82.5 million less an after tax write-off of
in-process research and development.
(b) Reflects the Acquisition and Financing Transactions resulting in a new
basis of accounting.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
Pursuant to the Asset Purchase Agreement, Eagle Family Foods acquired
certain assets of BFC, BFC Investments and certain of their affiliates for an
aggregate purchase price of $376.5 million, subject to certain post-closing
adjustments. The Acquisition was consummated on the Acquisition Closing and
will be accounted for as a purchase. The assets acquired by the Company
include, among other things: (i) four manufacturing facilities located in
Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and
Chester, South Carolina; (ii) all machinery and equipment located at these
facilities; (iii) the trademarks Eagle; Eagle Brand, the Dessert Maker;
ReaLemon; ReaLime; Cremora; Kava; None Such and certain other trademarks in
North America and in certain foreign territories; and (iv) a non-compete and
non-solicitation agreement from BFC and certain of its affiliates. The Asset
Purchase Agreement provided that BFC retained receivables, trade payables and
certain accrued liabilities related to the operation of the BBNA Business. See
"The Acquisition."
Financing for the Acquisition and related fees and expenses consisted of (i)
the $82.5 million equity contribution from Holdings which was financed by
Holdings' issuance of preferred and common stock in that amount to the Equity
Sponsors and the Management Investors, who contributed approximately $1.7
million of such amount; (ii) $115.0 million of Original Notes issued pursuant
to the Initial Offering; and (iii) the Senior Credit Facilities in an
aggregate principal amount of $245.0 million, consisting of the Term Loan
Facility and the Revolving Credit Facility, under which $16.5 million was
drawn at the time of the Acquisition Closing.
The following unaudited pro forma condensed combined financial statement
(the "Unaudited Pro Forma Condensed Combined Statement of Operations") of the
Company is based on the audited financial statements of the Company which are
included elsewhere in this Prospectus, as adjusted to illustrate the estimated
effects of the Acquisition and Financing Transactions. The unaudited pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Unaudited Pro Forma Condensed
Combined Statement of Operations and accompanying notes should be read in
conjunction with the historical financial statements of the Company and other
financial information pertaining to the Company including "The Acquisition,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
The Unaudited Pro Forma Condensed Combined Statement of Operations has been
prepared to give effect to the Transactions as if they had occurred on January
1, 1997. The Acquisition was accounted for using the purchase method of
accounting. The total purchase price for the Company will be allocated first
to tangible and identifiable intangible assets and liabilities based upon
independent appraisals and management's estimates of their fair market values,
with the remainder allocated to goodwill. The Unaudited Pro Forma Condensed
Combined Statement of Operations does not purport to be indicative of what the
Company's financial position or results of operation would actually have been
had the Acquisition and Financing Transactions been completed at the beginning
of the period indicated or to project the Company's results of operations for
future periods.
Pursuant to the Master Customer Services Agreement entered into as part of
the Asset Purchase Agreement, BFC and its affiliates provide various
transition services that replace, at the Company's option, substantially all
of the corporate infrastructure services at varying prices depending on the
service. A significant portion of the services will be provided at no charge
for either 90 days, and thereafter at the agreed upon rates for such services,
or 135 days, and thereafter at a formula price increasing in 25% increments
each 60 day period thereafter to 100% of the agreed upon rates for such
services 315 days after the Acquisition Closing and thereafter. The Unaudited
Pro Forma Condensed Combined Financial Statement does not reflect any cost
savings that may be achieved by the Company as a result of the terms of the
Master Customer Services Agreement. See "The Acquisition--Master Customer
Services Agreement."
32
<PAGE>
EAGLE FAMILY FOODS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BBNA
(PREDECESSOR) PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- ---------
<S> <C> <C> <C>
Sales............................. $229,370 $229,370
Cost of goods sold................ 107,674 $ (1,959)(/1/) 105,715
-------- -------- --------
Gross profit...................... 121,696 1,959 123,655
Distribution expense.............. 13,464 (620)(/2/) 12,844
Marketing expense................. 55,074 (3,369)(/3/) 51,705
General & administrative expense.. 13,184 9,616 (/4/) 22,800
-------- -------- --------
Operating income.................. 39,974 (3,668) 36,306
Interest expense.................. -- 25,959 (/5/) 25,959
Other income...................... 79 79
-------- -------- --------
Income before taxes............... 40,053 (29,627) 10,426
Income taxes...................... 16,236 (12,222)(/7/) 4,014(/6/)
-------- -------- --------
Net income........................ $ 23,817 $(17,405) $ 6,412
======== ======== ========
</TABLE>
<TABLE>
<S> <C>
OTHER FINANCIAL DATA:
Depreciation and amortization(/8/)....................................... 14,790
Capital expenditures..................................................... 3,154
Cash interest expense.................................................... 25,068
Ratio of earnings to fixed charges(/9/).................................. 1.4
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Statement of
Operations.
33
<PAGE>
EAGLE FAMILY FOODS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1997 reflects the Transactions as if they had occurred
on January 1, 1997.
<TABLE>
<CAPTION>
YEAR
ENDED
DEC. 31,
1997
--------
<S> <C>
(1)Reflects the following:
Estimated reduction of depreciation expense due to increase in
remaining useful life of property and equipment net of increase in
value resulting from allocation of acquisition purchase price...... $ (411)
Elimination of allocated costs...................................... (2,048)
Estimated additional employee benefits required on a stand-alone ba-
sis................................................................ 500
-------
$(1,959)
=======
</TABLE>
The value of the assets and the remaining useful lives were based
on an independent appraisal considering the state of the buildings
and equipment and their use.
The valuation and remaining useful lives are as follows:
<TABLE>
<CAPTION>
ASSET AVERAGE
VALUATION LIVES
--------- --------
<S> <C> <C>
Land..................................................... $ 470
Buildings and improvements............................... 6,161 15 years
Machinery and Equipment.................................. 17,319 7 years
-------
$23,950
=======
</TABLE>
<TABLE>
<S> <C>
(2)Reflects elimination of allocated distribution expense............ $ (620)
=======
(3)Reflects the following:
Elimination of marketing expense and allocations..................... $(8,447)
Estimated additional marketing expense required on a stand-alone
basis............................................................... 5,078
-------
$(3,369)
=======
(4)Reflects the following:
Elimination of general and administrative expense and allocations.... $(7,240)
Estimated additional general and administrative expense required on
a stand-alone basis................................................. 8,720
Reflects elimination of BBNA amortization for trademarks and
goodwill ........................................................... (2,925)
Represents amortization expense for the following:
Covenant not to compete and not to solicit amounting to $21,000 to
be amortized over contract
period of 5 years................................................... 4,200
Other Intangibles amounting to $274,458 amortized over 40 years...... 6,861
-------
11,061
-------
$ 9,616
=======
(5)Reflects interest expense as follows:
Interest resulting from $16,500 Revolving Credit Facility at an
assumed rate
of 7.625%........................................................... $ 1,258
Interest resulting from $175,000 Term Loan Facility at an assumed
rate
of 7.875%........................................................... 13,748
Interest resulting from $115,000 Senior Subordinated Notes at a rate 10,062
of 8.75%............................................................ -------
Cash Interest Expense.............................................. 25,068
Capitalized debt issuance costs amounting to $9,291 to be amortized
over debt obligation period ranging from 6 to 11 years using the
interest method .................................................... 891
-------
Total Interest Expense............................................. $25,959
=======
(6)Reflects an income tax provision based on an assumed rate of $ 4,014
38.5%.............................................................. =======
</TABLE>
(7) Reflects the difference between historical BBNA Business taxes provided
and the assumed pro forma tax provision.
34
<PAGE>
(8) Includes amortization of debt issuance costs which is included in
interest expense in Unaudited Pro Forma Condensed Combined Statement of
Operations.
(9) 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 a portion of lease expense.
(10) The following non-recurring pre-tax charges were not reflected in the
Unaudited Pro Forma Condensed Combined Statement of Operations:
<TABLE>
<S> <C>
Research and development in process with no alternative use to be
written off concurrent with acquisition on January 23, 1998......... $23,900
=======
Master Customer Services Agreement to be amortized over expected term
of use of one year.................................................. $17,300
=======
Additional cost of sales due to increase in fair value of inventory.. $ 5,029
=======
</TABLE>
The Company has reflected in the balance sheet as of January 23, 1998 the
write-off of research and development in process in accumulated deficit, net
of related taxes of $9,202.
(11) EBITDA represents income before income taxes, interest expense,
depreciation and amortization. While EBITDA is 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, it is included herein
because management believes EBITDA provides useful information with
respect to the ability of the Company to meet its debt service, capital
expenditures and working capital requirements. Pro forma EBITDA for the
year ended December 31, 1997 amounted to $50,205.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Eagle Family Foods was formed to consummate the acquisition of the BBNA
Business, a portfolio of leading dry-grocery food products with widely
recognized and established brands, including Eagle Brand, ReaLemon and
Cremora. The Acquisition was accounted for using the purchase method of
accounting. Financing for the Acquisition and related fees and expenses
consisted of (i) the $82.5 million Equity Contribution by Holdings (which was
financed by Holdings' issuance of preferred and common stock in that amount to
GEI and Warburg, as the Equity Sponsors, together with the Management
Investors, who contributed approximately $1.7 million of such amount); (ii)
$115.0 million of Original Notes issued pursuant to the Initial Offering; and
(iii) the Senior Credit Facilities in an aggregate principal amount of $245.0
million, consisting of the Term Loan Facility and the Revolving Credit
Facility, under which $16.5 million was drawn at the time of the Acquisition
Closing. Prior to the Acquisition, (i) Eagle Family Foods had not had any
significant assets or liabilities, and had not conducted any business, other
than in connection with the Transactions, and (ii) the BBNA Business operated
as a business unit of BFC and was not accounted for as a distinct legal
entity.
Over the past three years, BFC has undertaken several important initiatives
relating to a redesign of the BBNA Business. Between January 1, 1995 and
December 31, 1997, BFC invested approximately $14.6 million in market research
and technical research and development which resulted in the introduction of
several sweetened condensed milk product line extensions and in the
development of new products which the Company intends to launch in the
marketplace. BFC also sought to improve trade practices through policies aimed
at improving controls on discounts and deductions to the retail trade and
reducing inefficient trade promotion spending and trade incentives that
encouraged forward buying by customers. Historically, significant trade
incentives had been periodically offered to BBNA Business customers across its
product lines. In 1995, management began to reduce these trade incentives.
Historical expenses consist in part of corporate allocations from BFC and
Borden, Inc. that were charged to the BBNA Business. Allocations include
certain marketing, general and administrative costs incurred at the corporate
level such as executive management, group and general insurance, retirement
benefits, accounting, legal, tax, credit and information services, as well as
costs for resources such as sales and administration that were shared with
other operating entities of BFC and its affiliates. For a discussion of the
allocation methodology used, see Note 2 to the Company's Combined Financial
Statements for the years ended December 31, 1997, 1996 and 1995 included
elsewhere in this Prospectus. Management believes that the level of the
historical operating expenses for the BBNA Business may not be indicative of
the actual expenses required to operate the Company on a stand-alone basis.
Management is establishing a new corporate infrastructure to operate the
Company on a stand-alone basis. Certain non-cash expenses such as the in-
process research and development and master services agreement will be
expensed during the first year. In addition, the Company has debt service and
interest expense that did not exist under the BBNA Business. See "Unaudited
Pro Forma Condensed Combined Statement of Operations."
Set forth below is a discussion of the financial condition and results of
operations of the BBNA Business for the fiscal years ended December 31, 1995,
1996 and 1997. The following discussion should be read in conjunction with the
Combined Financial Statements of the Company and the notes thereto, and the
Unaudited Pro Forma Condensed Combined Financial Statement, included elsewhere
in this Prospectus. References herein to 1995, 1996 and 1997 refer to the
Company's fiscal years ended December 31, 1995, 1996 and 1997, respectively,
unless the context otherwise requires.
36
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations of the Company as a
percentage of sales for the years ended 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Sales................................................ 100.0% 100.0% 100.0%
Cost of goods sold................................... 45.6 47.9 46.9
------- ------- -------
Gross profit......................................... 54.4 52.1 53.1
Distribution expense................................. 7.0 6.4 5.9
Marketing expense.................................... 28.3 27.2 24.0
General & administrative expense..................... 5.9 5.9 5.7
------- ------- -------
Operating Income..................................... 13.2% 12.6% 17.4%
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales. The Company's sales were $229.3 million for the year ended December
31, 1997, as compared to $230.4 million in 1996, a decrease of $1.1 million,
or 0.5%. The decrease reflected an increase of $4.1 million in sales of
sweetened condensed milk, offset by decreases of $0.4 million in ReaLemon
product line sales, $3.9 million in non-dairy creamer sales and $1.0 million
in Borden Egg Nog sales.
Cost of Goods Sold. Cost of goods sold was $107.7 million for the year ended
December 31, 1997, as compared to $110.4 million in 1996, a decrease of $2.7
million, or 2.4%. Expressed as a percentage of sales, cost of goods sold in
1997 decreased 1% from the prior year, to 46.9%, primarily as a result of milk
prices returning to normal levels.
Distribution Expense. Distribution expense was $13.5 million for the year
ended December 31, 1997, as compared to $14.6 million in 1996, a decrease of
$1.1 million, or 7.5%. Expressed as a percentage of sales, distribution
expense decreased to 5.9% in 1997 from 6.4% in the prior year. The decrease in
distribution expense was primarily the result of the realization of
efficiencies within the distribution system, thereby lowering overall
distribution expense.
Marketing Expense. Marketing expense was $55.1 million for the year ended
December 31, 1997, as compared to $62.7 million in 1996, a decrease of $7.6
million, or 12.1%. Expressed as a percentage of sales, marketing expense
decreased to 24.0% in 1997 from 27.2% in 1996. Trade promotion expenses in the
1997 period decreased 9.6%, or $2.1 million, primarily as the result of the
elimination of off-season trade promotions and a lower level of new product
introduction activity. Advertising and consumer promotion expenses in the 1997
period decreased 12.3%, or $2.5 million, primarily as the result of a
reduction in higher advertising and consumer promotion expenses incurred in
1996 to support line extensions introduced in that year. Other marketing
expenses (advertising and promotion management, variable sales, field
sales/sales support and market research) declined $3.0 million primarily as
the result of sales force reductions and a decrease in market research
expense.
General & Administrative ("G&A") Expense. Total G&A expense was $13.2
million for the year ended December 31, 1997, as compared to $13.5 million for
the prior year, a decrease of $0.3 million, or 2.2%. Expressed as a percentage
of sales, G&A expense decreased to 5.7% in 1997 from 5.9% in the prior year.
Operating Income. As a result of the factors discussed above, the Company's
operating income was $40.0 million for the year ended December 31, 1997, as
compared to $29.2 million in the prior period, an increase of $10.8 million,
or 37.0%.
37
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales. The Company's sales were $230.4 million for the year ended December
31, 1996, as compared to $225.3 million in 1995, an increase of $5.1 million,
or 2.3%. The increase was primarily due to a $2.5 million increase in sales of
non-dairy creamer products and a $2.3 million increase in ReaLemon product
lines sales. Non-dairy creamer sales increased primarily due to higher prices
for private label, increased industrial sales and increased sales of branded
Cremora as the Company abandoned its previous "every day low price" strategy
and replaced it with a strategy focused on couponing and advertising Cremora's
premium taste. ReaLemon sales increased primarily due to the introduction of
the 15 oz. squeeze bottle.
Cost of Goods Sold. Cost of goods sold was $110.4 million for the year ended
December 31, 1996, as compared to $102.7 million in 1995, an increase of $7.7
million, or 7.5%. Expressed as a percentage of sales, cost of goods sold
increased to 47.9% in 1996 from 45.6% in 1995. The increase in cost of goods
sold as a percentage of sales was primarily the result of increased milk and
lemon concentrate prices in the period. Milk prices reached historic highs in
1996 and lemon and lime concentrate prices rose in 1996 relative to 1995.
Distribution Expense. Distribution expense was $14.6 million for the year
ended December 31, 1996, as compared to $15.7 million in 1995, a decrease of
$1.1 million, or 7.0%. Expressed as a percentage of sales, distribution
expense decreased to 6.4% in 1996 from 7.0% in 1995. The decrease in
distribution expense was primarily the result of the rationalization of the
distribution system through the closure of two warehouses.
Marketing Expense. Marketing expense was $62.7 million for the year ended
December 31, 1996, as compared to $63.8 million in 1995, a decrease of $1.1
million, or 1.7%. Expressed as a percentage of sales, marketing expense
decreased to 27.2% in 1996 from 28.3% in 1995. Trade promotion expenses in
1996 decreased 17.8%, or $4.7 million, compared to 1995, primarily as the
result of BFC management's de-emphasis of "push" marketing tactics. As a
result of the Company's new strategy, advertising and consumer promotion
expenses increased 11.6%, or $2.1 million, in 1996, as compared to 1995.
Market research expense increased $1.2 million, or 39.0%, in 1996 to support
the Company's line extensions and new product development efforts. Other
selling expenses increased 2.5%, or $0.4 million.
General & Administrative Expense. Total G&A expense was $13.5 million for
the year ended December 31, 1996, as compared to $13.3 million in 1995, an
increase of $0.2 million, or 1.5%. Expressed as a percentage of sales, G&A
expense was 5.9% in 1996 and 1995.
Operating Income. As a result of the factors discussed above, the Company's
operating income was $29.2 million for the year ended December 31, 1996, as
compared to $29.8 million in 1995, a decrease of $0.6 million, or 2.0%.
LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Transactions, interest payments on the Notes and
interest and principal payments under the Senior Credit Facilities represent
significant cash requirements for the Company. Borrowings under the Senior
Credit Facilities bear interest at floating rates and require interest
payments on varying dates. Borrowings under the Senior Credit Facilities
consist principally of the $175.0 million Term Loan Facility maturing in 2005.
In addition, the Senior Credit Facilities include the $70.0 million Revolving
Credit Facility maturing in 2004, of which $16.5 million was outstanding at
the Acquisition Closing. The Term Loan Facility amortizes $1.0 million in each
of the years 1998 through 2002, and $10.0 million, $40.0 million and $120.0
million in the years 2003, 2004 and 2005, respectively. See "Description of
Senior Credit Facilities."
38
<PAGE>
The Company's remaining liquidity needs are for capital expenditures and
increases in working capital. The Company expects to spend no more than $12.0
million on capital projects in 1998, of which $5.0 million is expected to fund
management information systems initiatives, $2.5 million is expected to fund
maintenance expenditures in existing facilities and the balance is expected to
fund discretionary capital projects associated with new products. See
"Business--Management Information Systems Initiatives." The Senior Credit
Facilities impose annual limits on the Company's capital expenditures and
investments.
The Company's primary sources of liquidity will be cash flows from
operations and borrowings under the Revolving Credit Facility. Immediately
after consummation of the Transactions, approximately $53.5 million was
available to the Company for borrowings under the Revolving Credit Facility.
See "Description of Senior Credit Facilities."
SEASONALITY
The Company's sales, net income and cash flows are affected by a seasonal
bias toward the fourth quarter of the year due to increased sales during the
holiday season. Three of the Company's six major product lines (Eagle Brand
and the Company's other sweetened condensed milk products, Borden Egg Nog and
None Such) are consumed primarily during the November and December holiday
seasons. In recent years, approximately 45% of the Company's sales have
occurred in the last quarter of the year. As a result of this seasonality, the
Company's working capital needs have historically increased throughout the
year, peaking in October, which will require the Company to draw additional
amounts on its Revolving Credit Facility.
INFLATION
The Company does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
audited financial statements of the Company included elsewhere in this
Prospectus.
RECENTLY ISSUED ACCOUNTING STATEMENTS
The Financial Accounting Standards Board has recently issued two new
accounting standards, Statement No. 130, "Reporting Comprehensive Income" and
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These statements will affect the disclosure requirements for the
1998 reporting period. The Company is currently evaluating the effect of these
new statements.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on the Company's intention to create a fully stand-alone dedicated
management information system early in 1999 that incorporates software that
recognizes four digits, the Company does not believe the Year 2000 issue will
have a material adverse impact on the operations of the Company.
The Company is in the process of initiating formal communications with all
of its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues, and the Company's current assessments are based on
presently available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have material
adverse effect on the Company.
39
<PAGE>
BUSINESS
OVERVIEW
The Company manufactures and markets a portfolio of leading dry-grocery food
products with widely recognized and established brands, including Eagle Brand,
ReaLemon and Cremora. In their defined markets within the United States, three
of the Company's six principal brands maintain the number one position, two
brands are the only products available and one brand holds the number two
position. The Company's leading market positions and well recognized brand
names have enabled the Company to consistently generate strong cash flow. For
the year ended December 31, 1997, the Company's sales were $229.3 million.
The Company's three largest product lines, Eagle Brand, ReaLemon and
Cremora, accounted for approximately 94% of the Company's 1997 sales. Eagle
Brand and the Company's other sweetened condensed milk products are
collectively the market leader in the U.S. sweetened condensed milk category,
and account for a 72% share of this category. Sweetened condensed milk is a
commonly used ingredient in many popular dessert recipes such as cheesecake
and pumpkin pie. Eagle Brand is one of a small number of U.S. branded products
with a heritage that extends over 140 years. In 1997, the Company's sweetened
condensed milk products accounted for 48% of the Company's sales. The
Company's ReaLemon product lines are the market leaders in the lemon and lime
juice category, accounting for a 49% market share, and are the only nationally
distributed branded products in the category. ReaLemon, a convenient and cost
effective alternative to fresh squeezed lemon juice, is a popular ingredient
in beverages and marinades and is used in the preparation of foods such as
poultry and fish. In 1997, the ReaLemon product lines accounted for 25% of the
Company's sales. Cremora is the number two branded powdered non-dairy creamer
in the U.S., accounting for an 11% market share. Powdered non-dairy creamer is
used in coffee and other hot beverages. In 1997, the Company's powdered non-
dairy creamer product lines accounted for 21% of the Company's sales. The
Company's other three brands accounted for 6% of the Company's 1996 sales and
include None Such, the leading brand of mincemeat pie filling with a 69%
market share, Borden Egg Nog, the only shelf-stable egg nog, and Kava, the
only acid-neutralized coffee.
The Company's principal executive office is located at 220 White Plains
Road, Tarrytown, New York 10591, and the telephone number is (914) 631-3100.
The Company was incorporated in the State of Delaware in November 1997.
40
<PAGE>
COMPETITIVE STRENGTHS
The following competitive strengths serve as the foundation for the
Company's business strategy:
. LEADING MARKET POSITIONS. In the United States, five of the Company's six
brands are the category leaders in their defined markets, while Cremora
maintains the number two position in its category. Eagle Brand faces
limited branded competition and ReaLemon, the only national branded
product in its category, faces competition primarily from private label
products. The Company believes that its strong market shares enable it to
achieve superior distribution and shelf space allocation, realize
economies of scale in trade promotion and advertising, and provide a
strong platform for introducing product line extensions and new products.
MARKET POSITION OF THE COMPANY'S PRODUCT LINES
<TABLE>
<CAPTION>
COMPANY NUMBER TWO
MARKET SHARE BRANDED
COMPANY'S ------------------- COMPETITOR'S
PRODUCT LINE PRINCIPAL BRAND POSITION PERCENTAGE PERCENTAGE
------------ --------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Sweetened condensed milk Eagle Brand 1 72% 10%
Lemon & lime juice ReaLemon and ReaLime 1 49% 8%
Non-dairy creamer Cremora 2 11% NA
Shelf-stable egg nog Borden Egg Nog 1 100% 0%
Mincemeat pie filling None Such 1 69% 18%
Acid-neutralized coffee Kava 1 100% 0%
</TABLE>
. STRONG BRAND NAME RECOGNITION. The leading market positions of the
Company's largest products are supported by strong brand awareness. Eagle
Brand, ReaLemon and Cremora maintain brand awareness rates of 78%, 85%
and 73%, respectively, primarily due to the heritage of these brands.
Eagle Brand, the Company's oldest brand, was introduced 141 years ago.
ReaLemon has been a staple in American homes for over 60 years, while
Cremora has been marketed for over 35 years. In addition to their long
histories, Eagle Brand and ReaLemon are listed as key ingredients in a
number of widely disseminated classic American recipes. The brand equity
of the Company's products will represent a significant competitive
strength as the Company launches product line extensions and seeks to
build category growth.
. EXTENSIVE SALES AND DISTRIBUTION BASE. The Company maintains an
established national distribution base for its products, which are sold
to retail grocery stores and other channels directly and through a
comprehensive network of over 60 independent food brokers. Eagle Brand
and ReaLemon benefit from 100% national distribution, while Cremora
maintains broad distribution at 79%. Eagle Brand and ReaLemon are
particularly successful in securing shelf-space as consumers typically
purchase these products as part of a larger basket of ingredients,
resulting in greater sales for retailers.
. STRONG OPERATING MARGINS. For the year ended December 31, 1997, the
Company's gross profit margin was 53.1%. The Company believes that its
strong margins result from the established brand equity of its product
portfolio, product quality and the strength of its sales and distribution
network. Management believes that, within the food manufacturing
industry, the Company has relatively low maintenance capital expenditure
requirements which support the Company's strong cash flow. The Company's
strong operating margins and annual cash flow provide it with financial
resources to fund its marketing, sales, distribution and new product
development efforts.
. EXPERIENCED AND FOCUSED MANAGEMENT. The Company's new senior management
team, which assumed control of the Company upon the consummation of the
Acquisition, possesses considerable experience in the food products
industry. The Company's Chief Executive Officer and President, John O'C.
Nugent, has 30 years of consumer products experience. In the past
41
<PAGE>
ten years, he has held general manager positions with Unilever's food
operations, both in the United States and the United Kingdom, and was most
recently President of Johnson & Johnson Consumer Products, Inc. William A.
Lynch, the Company's Chairman and Chief Operating Officer, has 25 years of
experience in the consumer packaged goods industry, including senior
marketing positions at Borden, Inc. for all of the Company's six brands,
new products and their related food broker system. During the past ten
years, Mr. Lynch founded and operated a number of successful
entrepreneurial ventures. The new senior management team invested
approximately $1.7 million in the equity of Holdings. In addition to
management's purchase of an equity interest in Holdings, Holdings has
better aligned the Company's new senior management team's incentives with
the success of the Company through the issuance of restricted stock and
the adoption of other incentive initiatives.
INDUSTRY OVERVIEW
The U.S. food industry is characterized by relatively stable annual growth
based on modest price and population increases. Over the last ten years,
management believes the industry has experienced consolidation as competitors
have shed non-core business lines and made strategic acquisitions to
strengthen category positions, generate economies of scale in distribution,
production and raw material sourcing and create leverage relative to the
retail grocery trade through better service and broader market presence.
Grocery retailers have also utilized mergers and acquisitions to consolidate
within their industry. Growth in the mass merchandiser channel has outpaced
growth in the retail grocery channel, and mass merchandisers have consequently
increased their share of food sales relative to the retail grocery and drug
store channels. Furthermore, the convenience store channel has maintained a
constant presence within the total grocery industry. To expand their potential
markets, management believes that food companies are broadening their
distribution channels to include greater focus on mass merchandisers and other
alternative distribution channels. In the opinion of management another growth
opportunity in the U.S. for branded food companies is the food service
distribution channel, which supplies restaurants, hospitals, schools and other
institutions. In addition to the U.S. market, management believes that certain
international markets with above average population growth and expanding
economies offer significant growth opportunities for U.S. companies. These
international markets include Latin America, Central Europe, Russia and the
Pacific Rim.
BUSINESS STRATEGY
The Company's goal is to increase its sales and profitability through the
following initiatives:
. GROW BASE BUSINESS.
Increase Consumer Marketing. The Company plans to increase marketing
expenditures on its existing brands to reverse a decline in marketing
expenditures that occurred between 1995 and 1997. The marketing
strategies will be redirected to emphasize consumer "pull" tactics, such
as advertising and consumer promotions, to enhance brand equity and
generate sales across the Company's product lines. Marketing will be
directed primarily toward building category growth and, to a lesser
extent, gaining market share.
Expand into New Distribution Channels. Industry data indicates that in
the last several years non-grocery distribution channels, such as food
service channels, mass merchandise retailers and super centers, have
grown faster than traditional grocery distribution channels. Management
intends to capitalize on this growth opportunity by establishing a
dedicated sales staff and expanding its broker network to focus on these
alternative distribution channels.
42
<PAGE>
Target Ethnic Markets. Management believes that growth opportunities for
Eagle Brand exist in the Hispanic-American and Asian-American communities
and that consumption levels of sweetened condensed milk among these
communities are significantly higher than the national average.
Management plans to implement marketing efforts specifically targeted at
increasing brand awareness and usage in the Hispanic-American and Asian-
American communities.
. LAUNCH LINE EXTENSIONS AND NEW PRODUCTS. The Company intends to launch
line extensions and new products in order to capitalize on the $14.6
million invested by BFC in market research and technical research and
development from 1995 to 1997, as well as on the substantial brand equity
and consumer awareness of the Company's existing products. The Company
continues to consumer test several new products and expects to begin
rolling them out during 1998 and 1999. These initiatives will build on
several recent line extensions. For example, the Company in 1994 and 1995
extended its Eagle Brand line to include a range of fat-free and low-fat
sweetened condensed milk products which generated approximately
$14.0 million in sales in 1997. In 1997, a chocolate flavored sweetened
condensed milk product was launched and the Company will use consumer-
generated information, as well as product research, to optimize the
presentation and positioning of this new product. The Company also
intends to license certain of its widely recognized brand names to third
parties.
. TARGET INTERNATIONAL MARKETS. The Company intends to expand into new
international markets by leveraging the strength of its existing brands.
The Company will specifically target distribution of Eagle Brand in Latin
American markets where management believes that consumption of sweetened
condensed milk is significantly higher than average U.S. per capita
consumption. In 1997, only 1% of the Company's sales were generated
outside of the U.S. and Canada.
. PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions of additional dry-grocery food brands with leading market
positions and significant growth opportunities. Given that four of the
Company's six principal brands are used in the preparation of desserts,
one area of acquisition focus will be on brands in the dessert segment.
By adding new brands through strategic acquisitions, the Company believes
it can achieve synergies in manufacturing, marketing and distribution
across a growing portfolio of leading food brands.
PRODUCTS AND MARKETS
The Company manufactures and markets a portfolio of widely recognized, dry-
grocery food products that are leaders within their respective markets. The
portfolio is comprised of the Company's three largest product lines, Eagle
Brand, ReaLemon and Cremora, and three other brands, Borden Egg Nog, None Such
and Kava. The retail grocery channel is the Company's primary distribution
channel, with additional sales to mass merchandisers, food service customers,
the U.S. military and industrial and private label businesses. The Company's
U.S. food business is complemented by a strong presence in Canada and Puerto
Rico.
The following table sets forth sales data for each of the Company's product
lines:
<TABLE>
<CAPTION>
PERCENTAGE
PRODUCT LINE COMPANY'S PRINCIPAL BRANDS 1997 SALES OF SALES
------------ -------------------------- ----------- ----------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Sweetened condensed milk Eagle Brand $109.5 47.8%
Lemon & lime juice ReaLemon and ReaLime 58.4 25.5
Non-dairy creamer Cremora 47.8 20.8
Shelf-stable egg nog Borden Egg Nog 4.3 1.9
Mincemeat pie filling None Such 5.0 2.1
Acid-neutralized coffee Kava 4.3 1.9
------ -----
Total $229.3 100.0%
====== =====
</TABLE>
43
<PAGE>
EAGLE BRAND. The Company manufactures and markets Eagle Brand and additional
sweetened condensed milk products. Sweetened condensed milk is used by
consumers as a topping and an ingredient in dessert recipes and a number of
other food recipes. With a heritage that extends over 140 years, Eagle Brand
sweetened condensed milk is the leading product in the Company's sweetened
condensed milk business and one of the oldest and most trusted brand names in
the U.S. Eagle Brand enjoys strong consumer awareness, with a brand awareness
rate of 78%. In addition to classic Eagle Brand sweetened condensed milk, the
Company's other branded sweetened condensed milk products include Magnolia and
Meadow Gold, Eagle Brand low fat and fat free products, Eagle Brand Amaretto
flavored sweetened condensed milk, and Eagle Brand Creamy Chocolate flavor,
which the Company began shipping in September 1997. The Company's Eagle Brand
products carry the Borden and Elsie trademarks, thereby enhancing the brand
awareness of this line. Management believes significant new product
opportunities exist for expanding into new categories, capitalizing on the
strength of the Eagle Brand equity.
Eagle Brand is the leader of the sweetened condensed milk category, with a
62% dollar market share. Total dollar market share for the Company's sweetened
condensed milk line, including Magnolia and Meadow Gold, is 72%. Eagle Brand
has a U.S. distribution base of 100%. In addition to U.S. sales, Eagle Brand
products are sold in Canada.
The retail grocery channel is the primary outlet for the Company's sweetened
condensed milk products and accounted for approximately 75% of the Company's
sweetened condensed milk sales for the year ended December 31, 1997. The
balance of the Company's sweetened condensed milk sales are made through other
channels, including mass merchandisers, food service customers, export
markets, the U.S. military and a co-pack relationship with a third-party
distributor.
REALEMON. The Company manufactures and markets ReaLemon lemon juice and
ReaLime lime juice from concentrate. Consumers use ReaLemon and ReaLime
primarily as a flavoring or recipe ingredient, such as for accenting
beverages, marinating poultry, meat and fish, enhancing salad dressings and
complementing other food and beverage products. ReaLemon's success is
supported by consumer trust in the brand's "fresh lemon taste" and over 60
year heritage. In recent surveys commissioned by the Company, ReaLemon is
consistently ranked significantly higher than the competition on the top four
imagery attributes contributing to purchase interest ("high quality," "fresh
lemon taste," "brand you can trust" and "doesn't taste watered down").
Management believes that the brand's considerable strength provides a solid
platform for new products and licensing opportunities. The Company currently
has a licensing arrangement with Brach & Brock Confections, Inc. to
manufacture "ReaLemon" candies. Management believes the Company can increase
revenues of ReaLemon through new product introductions and licensing
opportunities, including licensing its use in frozen concentrate, sauces and
marinades, candy and cough drops. The Company intends to increase usage
through in-store promotion campaigns and tie-ins with complementary products.
ReaLemon and ReaLime are the only nationally branded shelf-stable products
within the U.S. retail lemon and lime juice market. The ReaLemon product lines
account for 49% dollar market share of the total lemon and lime juice
category. The product lines' strength are further demonstrated by their 100%
national distribution. The retail grocery channel is the primary outlet for
the Company's ReaLemon product lines and accounted for approximately 82% of
ReaLemon sales in the year ended December 31, 1997. The Company also markets
the ReaLemon product lines to mass merchandisers, food service customers,
export markets and the U.S. military.
CREMORA. The Company manufactures and markets powdered non-dairy creamer
under the Cremora brand name and also manufactures powdered non-dairy creamer
for private label and industrial customers. Non-dairy creamer is used as a
lightener in hot beverages, such as coffee and
44
<PAGE>
tea. Branded Cremora is sold primarily through the retail grocery channel and
accounted for 50% of the Company's 1997 powdered non-dairy creamer sales.
Private label sales accounted for 31% of sales, with the balance primarily
attributable to bulk sales to industrial customers (who use non-dairy creamer
in producing other food products).
Cremora, with an 11% dollar market share, holds the number two position in
the powdered non-dairy creamer market. Introduced in 1962, Cremora has 73%
brand awareness and a 79% national distribution base. Management believes that
it can use Cremora's strong brand equity to boost sales through new marketing
campaigns and by introducing a superior, reformulated product, line extensions
and new products.
BORDEN EGG NOG. Borden Egg Nog is marketed by the Company and supplied by a
third party through a seasonal purchase order arrangement. Borden Egg Nog is
the only shelf-stable egg nog available in the market and competes with
refrigerated egg nog. Egg nog is generally consumed during the holidays as a
beverage or mixed with liquors as a cocktail. As such, sales of Borden Egg Nog
are highly seasonal, with approximately 90% of sales occurring in the last
three months of the year. Borden Egg Nog is distributed through the retail
grocery channel.
NONE SUCH. The Company manufactures and markets two flavors of None Such:
Regular and Brandy & Rum. None Such mincemeat is used in pies, cookies and
pastries, and is consumed primarily during the holiday season. None Such has a
heritage dating back to 1885, and holds a 69% dollar share of the mincemeat
category. None Such is distributed through the retail grocery channel.
Management believes that the product's strong brand equity could be used in
line extensions to increase sales.
KAVA. Kava is marketed by the Company and co-packed by a third party
pursuant to the Kava Co-Pack Agreement. Kava is a unique instant coffee,
differentiated as the only brand that is "90% acid-neutralized." Management
believes that Kava's customer loyalty is significantly higher than that of
most other instant coffee brands, and is well positioned to remain high given
the brand's unique position as an acid-neutralized product. Management
believes that Kava's strong brand equity and unique product attributes provide
an excellent platform for targeted marketing efforts and line extensions.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing programs consist of media advertising, consumer
promotions, trade promotion and co-promotion of certain products as
ingredients in recipes. Media advertising, including television, print and
radio advertising, is employed for Eagle Brand, ReaLemon and Cremora in an
effort to continuously build brand equity and awareness. Since many of the
Company's brands are purchased primarily as ingredients for recipes, the
Company frequently promotes recipes incorporating its brands and has co-
promoted these brands with other food companies, such as Tyson Foods, Inc. and
Keebler Corporation, whose products are also incorporated into these recipes.
The Company also promotes its seasonal brands, None Such and Borden Egg Nog,
with recipe promotions during the holiday season. In recent years, total
marketing expenditures have declined due primarily to reductions in trade
promotion expenses in order to de-emphasize "push" marketing tactics.
Management intends to reverse the decline in marketing expenditures by
increasing marketing spending and redirecting such spending to advertising and
consumer promotions, emphasizing consumer "pull" tactics in an effort to grow
brand equity and increase sales.
The Company sells its retail products in the U.S. through over 60
independent food brokers who represent the Company to the retail grocery
trade. The Company also sells its products to non-grocery channels directly
and through brokers, depending on the size and needs of the customer.
45
<PAGE>
PRODUCTION AND FACILITIES
The Company believes that its production systems are among the lowest cost,
highest-quality manufacturing systems in the markets in which the Company
competes. Except for Kava and sweetened condensed milk in Canada, which are
produced under co-pack arrangements pursuant to the Kava Co-Pack Agreement and
the Canadian Agreements, and Borden Egg Nog, which the Company obtains under a
seasonal purchase order, the Company produces all of its products in four
Company-owned manufacturing facilities, as described in the following table.
Management believes that the Company's manufacturing plants have sufficient
capacity to accommodate the Company's needs for the foreseeable future.
The following table sets forth the location, approximate size and products
manufactured at each of the Company's manufacturing facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET PRODUCTS MANUFACTURED
-------- ----------- ---------------------
<S> <C> <C>
Wellsboro, Pennsylvania 119,000 Sweetened condensed milk, mincemeat pie
filling
Starkville, Mississippi 49,000 Sweetened condensed milk
Waterloo, New York 102,100 Lemon juice and lime juice
Chester, South Carolina 77,300 Powdered non-dairy creamer
</TABLE>
In addition to the manufacturing facilities described above, the Company
leases 9,792 square feet of office space in Tarrytown, New York, leases 14,366
square feet of office and laboratory space in Columbus, Ohio, leases 34,000
square feet of warehouse space in Chester, South Carolina and uses public
warehouse space in numerous locations in variable amounts as needed.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used in the Company's operations include milk,
sugar, lemon and lime juice concentrate, vegetable oil, corn syrup and
packaging materials. The Company purchases its raw materials, all of which are
widely available, from numerous independent suppliers. Acid-neutralized coffee
and egg nog are obtained in final product from co-packers.
COMPETITION
The food industry is highly competitive. Numerous brands and products
compete for shelf-space and sales, with competition based primarily on price
and quality. The Company competes with a significant number of competitors of
varying sizes, including divisions or subsidiaries of larger companies. The
most significant branded competition encountered by the Company is Nestle's
Coffee-mate, which competes with Cremora. However, most of the competition
encountered by the Company is from private label brands. A number of these
branded and private label competitors have broader product lines as well as
substantially greater financial and other resources available to them.
TRADEMARKS, COPYRIGHTS AND PATENTS
The Company owns a number of trademarks, licenses and patents. The Company's
principal trademarks include Eagle; Eagle Brand, the Dessert Maker; ReaLemon;
ReaLime; Cremora; and None Such which the Company has registered in the United
States and various foreign countries. The Company holds a perpetual, exclusive
and royalty-free license to use the Borden and Elsie trademarks on products on
which they are currently used in the BBNA Business, together with certain
product extensions. The Borden and Elsie trademarks are currently used on (i)
the entire line of Eagle Brand products including condensed or evaporated
milk, and (ii) shelf-stable egg nog. The Borden trademark is also currently
used on Cremora non-dairy creamer. The Company also holds a perpetual,
exclusive and royalty-free license to use the Borden trademark on None Such
mincemeat,
46
<PAGE>
Magnolia condensed or evaporated milk, and Kava acid-neutralized coffee. In
addition, as assignee from BFC, the Company holds an exclusive and royalty-
free license from Southern Foods Group, L.P. to use the Meadow Gold trademark
on sweetened condensed milk in the United States for a five year term, which
is renewable automatically for subsequent five year terms and terminable at
the option of the Company upon one year's notice and, under certain limited
circumstances, by the licensor. Such brand names are considered to be of
fundamental importance to the business of the Company due to their brand
identification and ability to maintain brand loyalty. The Company has granted
BFC an exclusive, perpetual, royalty-free license to use the ReaLemon and
ReaLime trademarks in certain foreign markets including Europe, the Middle
East and Hong Kong. A third party owns the Cremora trademark in Africa and the
Middle East. The Company also owns various patents and copyrights associated
with the business. The Company is able to transfer its trademarks, licenses
and patents to its Intellectual Property Subsidiaries, subject to the consent
of the Banks (as defined). See "The Acquisition" and "Description of the Notes
- - - - --Certain Covenants--Merger, Consolidation or Sale of Assets."
MANAGEMENT INFORMATION SYSTEMS INITIATIVES
Historically, the Company has relied upon affiliates of Borden, Inc. for its
management information systems requirements. The Company, in conjunction with
outside consultants, intends to create a fully stand-alone dedicated
management information system capable of supporting the Company's growth over
a period of years. Management expects the development and installation of this
system to be substantially completed and the system to be operational during
the first half of 1999. Based on consultants' estimates and preliminary bids
by experienced systems integrators, the Company has budgeted capital
expenditures in 1998 and 1999 consisting of $3.2 million to fund the
acquisition of hardware and software for this project and $6.7 million for
nonrecurring, development expenses to fund anticipated information technology
consulting and other related costs. The actual costs related to this
initiative, as well as future costs of operation of the system, may differ
materially from management's estimates.
EMPLOYEES
As of March 31, 1998, the Company employed a total of 335 people, including
195 hourly and 140 salaried employees. The Wellsboro, Pennsylvania and
Starkville, Mississippi plants are the only unionized Company plants. Union
employees represent approximately 28% of the Company's total work force. At
Wellsboro, the United Food and Commercial Workers Union-Local 174 has a
contract expiring in February 2000 and at Starkville, the Teamsters Local 984
has a contract expiring on January 31, 2001. Management believes that
relations with the Company's employees and unions are generally good.
INSURANCE
Historically, the BBNA Business generally relied on self insurance for
losses and liabilities relating to workers' compensation, health and welfare
claims, physical damage to property, business interruption and comprehensive
general, product and vehicle claims. Since the Acquisition Closing, the
Company has entered into insurance policies on customary terms for comparable
companies to cover risks associated with such exposures.
CERTAIN LEGAL AND REGULATORY MATTERS
Public Health. The Company is subject to the Federal Food, Drug and Cosmetic
Act and regulations promulgated thereunder by the FDA. This comprehensive
regulatory program governs, among other things, the manufacturing, composition
and ingredients, labeling, packaging and safety
47
<PAGE>
of food. In addition, the Nutrition Labeling and Education Act of 1990, as
amended, prescribes the format and content of certain information required to
appear on the labels of food products. The Company is also subject to
regulation by certain other governmental agencies.
The operations and the 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 violative products, cease and desist
orders, injunctions and/or monetary penalties. Management believes that the
Company's facilities and practices are in compliance with applicable
government regulations in all material respects.
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 Matters. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees. The Company's
operations and properties are subject to a wide variety of increasingly
complex and stringent federal, state and local environmental regulations
governing the storage, handling, generation, treatment, emission, and disposal
of certain 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. 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 business or financial position. In
connection with the Acquisition, the Company assumed all past and future
environmental liabilities related to the BBNA Business. The Company will be
indemnified, however, by BFC and BFC Investments with respect to certain
environmental liabilities occurring prior to the Acquisition Closing. This
indemnification is limited in time and amount, and there can be no assurance
that material environmental liabilities will not be incurred after the
indemnification period or in excess of the indemnified amount or that the
Company will be able to pursue successfully any indemnification claims against
BFC. In addition, 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.
Legal Proceedings. The Company is subject to litigation in the ordinary
course of its business. The Company is not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on the Company.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors of Holdings and the Company and executive officers of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - - ---- --- --------
<S> <C> <C>
William A. Lynch................ 50 Chairman of the Board of Directors and
Chief Operating Officer
John O'C. Nugent................ 56 Chief Executive Officer, President and
Director
Craig A. Steinke................ 41 Chief Financial Officer, Vice President and
Treasurer
Jonathan F. Rich................ 51 Vice President, General Counsel and
Secretary
Tamar K. Bernbaum............... 47 Vice President, Marketing
James A. Byrne.................. 53 Vice President, Human Resources
Virginia Cappello............... 46 Vice President, Market Research
Frederick M. Dale, Jr. ......... 42 Vice President, Manufacturing
Paul F. Keida................... 47 Vice President, Technology
Richard A. Lumpp................ 51 Vice President, Sales
A.L. Stanley.................... 53 Vice President, Food Service &
International
Andreas T. Hildebrand........... 30 Director
Edward A. Johnson............... 35 Director
Kewsong Lee..................... 32 Director
Howard H. Newman................ 50 Director
Donald W. Torey................. 41 Director
Paul W. Van Orden............... 70 Director
</TABLE>
WILLIAM A. LYNCH has served as Chairman of the Board of Directors of
Holdings and the Company and Chief Operating Officer of Holdings and the
Company since their respective dates of formation. In the past ten years, Mr.
Lynch founded, owned, and acted as Chief Executive Officer of a number of
entrepreneurial ventures including Group 1 Capital, Ltd. (founded in 1990),
Audio One, Inc. (founded in 1989), and Consumer Products, Inc. (founded in
1986). Mr. Lynch possesses extensive experience in the consumer products
industry, having served, prior to 1985, in a variety of management positions
for Bristol-Myers Squibb Co., Borden, Inc., Calgon Consumer Products Company
and The Procter & Gamble Company.
JOHN O'C. NUGENT has served as a Director of Holdings and the Company and
Chief Executive Officer and President of Holdings and the Company since their
respective dates of formation. From 1993 through 1996, he served as the
President of Johnson & Johnson Consumer Products, Inc., where he was
responsible for the consumer business and pharmaceutical products division.
Prior to that, Mr. Nugent spent eight years with Unilever occupying a series
of marketing and general management positions. Most recently, he served as
Senior Vice President (General Manager) of the Van den Bergh Consumer Products
Division in the U.S. prior to an assignment in the United Kingdom where he was
Director (COO position) of Van den Bergh, Ltd. Mr. Nugent's background in
consumer products extends over thirty years, with experience at Borden, Inc.,
Calgon Consumer Products Company and The Procter & Gamble Company, where he
held a variety of marketing and management positions. His present service as a
director includes membership on the board of Small Planet Foods. His past
service as a director includes membership on the boards of the Association of
National Advertisers, Cosmetics Toiletries and Fragrance Association and the
National Association of Margarine Manufacturers.
CRAIG A. STEINKE has served as Chief Financial Officer, Vice President and
Treasurer of Holdings and the Company since January 1998. From 1996 through
1998, Mr. Steinke has served as Senior Vice President and Group General
Manager of BHP Copper, a business group of Broken Hill Proprietary Co., Ltd
("BHP"). From 1992 through 1996, Mr. Steinke held President, Vice President
49
<PAGE>
and Controller positions at the Metals Division of Magma Copper Co. Prior to
1992, Mr. Steinke held a variety of positions at Arthur Andersen LLP and the
Chief Financial Officer position at Hayward Lumber Co.
JONATHAN F. RICH has served as Vice President, General Counsel and
Sectretary of Holdings and the Company since their respective dates of
formation. From 1990 through 1996, Mr. Rich served as Vice President and
General Counsel of Nabisco International, a $1.6 billion operating unit of
Nabisco, Inc. Prior to that, he served two years as the Associate General
Counsel for Del Monte Foods Company. Mr. Rich is a member of the New York Bar.
His past service as a director includes membership on the board of Grupo
Gamesa, S.A. de C.V., one of Mexico's largest food manufacturers.
TAMAR K. BERNBAUM has served as Vice President, Marketing of the Company
since January 1998. From 1991 through 1997, Ms. Bernbaum held Director of
Trade Marketing and Category Manager for Trade Marketing positions at
Unilever's Van Den Bergh Foods division. From 1983 through 1991, Ms. Bernbaum
served as Senior Product Manager and Product Manager at Unilever's Ragu Foods
Company division. Prior to 1983, Ms. Bernbaum held a variety of management
positions at Colgate-Palmolive Company and Nestle Inc.
JAMES A. BYRNE has served as Vice President, Human Resources of the Company
since its formation in November 1997. From 1990 through 1995, Mr. Byrne served
as the Director of Human Resources for Wyeth-Lederle Vaccines and Pediatrics &
Lederle Consumer Health Products. Prior to that, Mr. Byrne spent 22 years at
American Cyanamid Co. in a variety of human resources management positions.
VIRGINIA CAPPELLO has served as Vice President, Market Research of the
Company since January 1998. From 1997 through January 1998, Ms. Cappello
served as Director of International Research for MasterCard International Inc.
From 1987 through 1997, she served as Group Market Research Manager of
Unilever's Van Den Bergh Foods division. From 1980 through 1987, Ms. Cappello
held Group Market Research Manager and Senior Market Research Manager
positions serving both the domestic and international operations of
International Playtex, Inc. Prior to 1980, Ms. Cappello held management
positions at Evaluative Criteria, Inc., Lebhar Friedman Research, Erdos &
Morgan, Inc. and O'Brian Sherwood Associated, Inc.
FREDERICK M. DALE, JR. has served as Vice President, Manufacturing of the
Company since December 1997. From 1996 through 1997, Mr. Dale served as
Director of Operations for BFC. From 1993 until 1996, Mr. Dale was Plant
Manager of Borden, Inc.'s Wellsboro, Pennsylvania sweetened condensed milk
manufacturing plant. Prior to 1993, Mr. Dale held management positions with
Borden, Inc., PepsiCo, Inc. and Cadbury Schweppes plc.
PAUL F. KEIDA has served as Vice President, Technology of the Company since
December 1997. From 1995 through 1997, Mr. Keida served as Vice President of
Research and Development of Borden, Inc. For 19 years prior to 1995, Mr. Keida
held a variety of management positions at Borden, Inc. in the technology
research and development areas.
RICHARD A. LUMPP has served as Vice President, Sales of the Company since
December 1997. From 1996 through 1997, Mr. Lumpp served as Senior Vice
President of Neo, Inc., an Information Resources, Inc. affiliate. Between 1995
and 1996, Mr. Lumpp served as a Principal at CSC Weston Group. Between 1993
and 1995, Mr. Lumpp held Senior Vice President of Client Service and Vice
President of Sales positions with Information Resources, Inc. Prior to 1993,
Mr. Lumpp held a variety of management positions at Unilever's Van den Bergh
Foods and Ragu Foods Company divisions, The Gillette Company and Johnson &
Johnson.
A.L. STANLEY has served as Vice President, Food Service & International of
the Company since December 1997. From 1994 through 1997, Mr. Stanley served as
Vice President, Sales of BFC where
50
<PAGE>
he was responsible for the marketing of BBNA Business products as well as
several other products. From 1981 through 1994, Mr. Stanley held several Vice
President and management positions at James River Corporation. Prior to 1981,
Mr. Stanley held a variety of management positions at American Can Company.
ANDREAS T. HILDEBRAND has served as a Director of Holdings and the Company
since their respective dates of formation. Mr. Hildebrand has served as a Vice
President in the Private Equity Group of General Electric Investment
Corporation ("GEIC") since May 1997, and as an Investment Manager and Senior
Financial Analyst since 1993. Prior to joining GEIC, Mr. Hildebrand was an
Economic Analyst in the office of Massachusetts Governor William Weld. Mr.
Hildebrand presently serves as a director of several privately held companies.
EDWARD A. JOHNSON has served as a Director of Holdings and the Company since
April 1998. Mr. Johnson has served as a Vice President of Warburg, Pincus
Ventures, Inc. ("WPV") since January 1997. From 1994 to 1996, Mr. Johnson was
an associate at E.M. Warburg, Pincus & Co., LLC ("EMW LLC"). Prior to joining
EMW LLC, he was a consultant at The Boston Consulting Group from 1992 to 1994.
Mr. Johnson currently serves as director of a privately held company.
KEWSONG LEE has served as a Director of Holdings and the Company since their
respective dates of formation. Mr. Lee has served as a Member and Managing
Director of EMW LLC and a general partner of Warburg, Pincus & Co. ("WP")
since January 1, 1997. Mr. Lee served as a Vice President of WPV from January
1995 to December 1996, and as an associate at E.M. Warburg, Pincus & Co., Inc.
("EMW") from 1992 until December 1994. Prior to joining EMW, Mr. Lee was a
consultant at McKinsey & Company, Inc., a management consulting company from
1990 to 1992. His present service as a director includes membership on the
boards of Knoll, Inc., RenaissanceRe Holdings Ltd. and several privately held
companies.
HOWARD H. NEWMAN has served as a Director of Holdings and the Company since
their respective dates of formation. Mr. Newman has served as a Member and
Managing Director of EMW LLC (and its predecessor) and a general partner of WP
since 1987. Prior to joining EMW LLC's predecessor in 1984 he was a Principal
with Morgan Stanley & Co., Incorporated. His present service as a director
includes membership on the boards of ADVO, Inc., Newfield Exploration Company,
Cox Insurance Holdings Plc, Comcast UK Cable Partners Limited, RenaissanceRe
Holdings Ltd. and several privately held companies.
DONALD W. TOREY has served as a Director of Holdings and the Company since
their respective dates of formation. Mr. Torey has served as Executive Vice
President of GEIC and GE Investment Management Incorporated ("GEIM" and,
together with GEIC, "GE Investments") with responsibility for GE Investments'
Private Equity and Real Estate groups since January 1997. From 1993 through
1996, Mr. Torey served as Chief Financial Officer of GE Investments. Prior to
that, Mr. Torey served as Manager of Mergers and Acquisition Finance for
General Electric Company ("GE"). Mr. Torey currently serves as a Trustee for
the General Electric Pension Trust ("GEPT") and as a director of a privately
held company.
PAUL W. VAN ORDEN has served as a Director of Holdings and the Company since
April 1998. Mr. Van Orden has been a Special Student at the Yale Divinity
School since 1997. From 1991 through 1996, he was the Executive-In-Residence,
the Executive Director of the Chazen Institute for International Business and
a Visiting Professor at the Columbia University Graduate School of Business.
Prior to that, Mr. Van Orden was an Executive Vice President at GE. He
currently serves as a director of a privately held company.
51
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Mr. William
A. Lynch and Mr. John O'C. Nugent, pursuant to which Mr. Lynch serves as
Chairman of the Company and Chief Operating Officer and Mr. Nugent serves as
Chief Executive Officer and President of the Company. The initial annual base
salaries under such agreements for each of Mr. Lynch and Mr. Nugent are
$300,000. Increases in the base salary are determined by the Board of
Directors. In addition, Mr. Lynch and Mr. Nugent are each entitled to receive
a bonus during the Company's first full year of up to 100% of their base
salaries if certain performance targets are met. Bonuses for future periods
are to be based on targets to be established by the Board of Directors. Each
agreement has a term of two years, with automatic annual renewals. In the
event either employment agreement is terminated by the Company without "cause"
(as defined in such employment agreement), Mr. Lynch or Mr. Nugent, as the
case may be, are entitled to receive severance payments equal to the base
salary then in effect for the greater of the next 12 months or the remainder
of the employment term. The agreements provide for customary non-competition
and non-solicitation provisions. The Company entered into similar arrangements
with its other executive officers.
As of March 31, 1998, Messrs. Lynch, Nugent, Steinke, Lumpp and Ms. Bernbaum
are the five most highly compensated executives of Holdings and the Company.
Pursuant to each of their employment agreements, Messrs. Lynch, Nugent,
Steinke, Lumpp and Ms. Bernbaum are entitled to an initial annual base salary
of $300,000, $300,000, $210,000, $170,000 and $155,000, respectively. Each
executive is also entitled to receive a bonus during the Company's first full
year of up to 100% of his or her base salary if certain performance targets
are met. In addition, Messrs. Lynch and Nugent each received 58,230 Restricted
Shares (as defined) and Messrs. Steinke and Lumpp and Ms. Bernbaum each
received 4,835 Restricted Shares in January 1998.
1998 STOCK PLAN
The Board of Directors of Holdings adopted the 1998 Stock Incentive Plan
(the "1998 Stock Plan"), which provides for the grant to officers, key
employees, directors and consultants of the Company of restricted stock,
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), and stock
options that are non-qualified for United States Federal income tax purposes.
The total number of shares of common stock of Holdings that may be issued as
restricted stock or for which options may be granted pursuant to the 1998
Stock Plan is 153,650, subject to certain adjustments reflecting changes in
Holdings' capitalization. The 1998 Stock Plan is administered by the Board of
Directors of Holdings (or a committee of such Board of Directors). The Board
of Directors of Holdings will determine, among other things, which officers,
employees, directors and consultants of the Company will receive restricted
stock or options under the 1998 Stock Plan, the time when restricted stock or
options will be issued or granted, the type of option (incentive stock options
or non-qualified stock options, or both) to be granted, the number of shares
subject to each award or grant, the time or times when the shares will vest or
the options will become exercisable, and, subject to certain conditions
discussed below, the option price and duration of the options.
The exercise price of incentive stock options will be determined by the
Board of Directors of Holdings, but may not be less than the fair market value
on the date of grant and the term of any such option may not exceed ten years
from the date of grant. With respect to any participant in the 1998 Stock Plan
who owns stock representing more than 10% of the voting power of the
outstanding capital stock of Holdings, the exercise price of any incentive
stock option may not be less than 110% of the fair market value of such shares
on the date of grant and the term of such option may not exceed five years
from the date of grant.
The exercise price of non-qualified stock options will be determined by the
Board of Directors of Holdings on the date of grant, but may not be less than
the par value of the common stock on the date of grant, and the term of such
option may not exceed ten years from the date of the grant.
52
<PAGE>
Payment of the option price may be made by check or by tender of shares of
common stock of Holdings then owned by the optionee for a period of six months
or by any other means acceptable to Holdings. Shares issued or options granted
pursuant to the 1998 Stock Plan will not be transferable, except by will or
the laws of descent and distribution in the event of death or, in the case of
non-incentive options, at the discretion of the Board of Directors of
Holdings. During an optionee's lifetime, the option will be exercisable only
by the optionee.
The Board of Directors of Holdings has the right at any time and from time
to time to amend or modify the 1998 Stock Plan, without the consent of
Holdings' stockholders or optionees; provided that no such action may
adversely affect options or restricted stock awards previously granted without
the holder's consent, and provided further that no such action, without the
approval of the stockholders of Holdings, may increase the total number of
shares of common stock of Holdings which may be issued pursuant to the plan.
The expiration date of the 1998 Stock Plan after which no options or
restricted stock awards may be granted thereunder is ten years from the
effective date of the 1998 Stock Plan.
Holdings issued an aggregate of 143,805 shares of its common stock to
executive officers of the Company, including the Management Investors (the
"Restricted Shares"). The Restricted Shares will vest in equal installments
over five years (the "Vesting Period"), beginning on the first anniversary of
the date of issuance provided that such grantee is employed by the Company on
such date. Upon the consummation of an initial public offering of common stock
of Holdings registered under the Securities Act meeting certain thresholds
prior to the end of the Vesting Periods, 20% of the Restricted Shares will
vest. Any remaining unvested Restricted Shares would then vest in equal
installments over the time remaining in the Vesting Period. The Board of
Directors of Holdings may also establish certain performance criteria that
could result in accelerated vesting of the Restricted Shares.
In the event an employee leaves the employ of the Company under certain
circumstances, Holdings will have the right to purchase shares then owned by
the employee at various prices, depending on the reason for the termination
and whether the shares or options had vested.
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<PAGE>
SECURITY OWNERSHIP
All of the issued and outstanding shares of common stock of the Company are
beneficially owned by Holdings. There are two classes of capital stock of
Holdings authorized and outstanding: the Common Stock ("Common Stock"), which
has full voting rights, and Series A Non-Voting Preferred Stock ("Series A
Preferred Stock"), which has limited voting rights. The following table sets
forth, as of the consummation of the Initial Offering, certain information
regarding the beneficial ownership of Common Stock and the Series A Preferred
Stock, as determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to (i)
each person known by the Company to be the beneficial owner of more than five
percent of any class of Holdings' voting securities, (ii) each of the
directors and certain executive officers of Holdings and (iii) all directors
and executive officers of Holdings, as a group:
<TABLE>
<CAPTION>
COMMON STOCK SERIES A PREFERRED STOCK
NAME AND ADDRESS OF --------------------------- ---------------------------
BENEFICIAL OWNER (1) NUMBER OF SHARES PERCENTAGE NUMBER OF SHARES PERCENTAGE
-------------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
GE Investment Private
Placement Partners II,
a Limited Partnership
3003 Summer Street
Stamford, CT
06905(/2/)............ 404,075 41.3 400,034 49.0
Warburg, Pincus
Ventures, L.P.
466 Lexington Avenue
New York, NY
10017(/3/)............ 404,075 41.3 400,034 49.0
William A. Lynch(/4/)... 66,480 6.8 8,168 1.0
John O'C. Nugent(/4/)... 63,230 6.5 4,950 *
Craig A. Steinke(/5/)... 5,835 * 990 *
Tamar K. Bernbaum(/5/).. 4,835 * -- --
Richard A. Lumpp(/5/)... 5,835 * 990 *
Andreas T.
Hildebrand(/2/)(/6/)... -- -- -- --
Edward A. Johnson....... -- -- -- --
Kewsong Lee(/3/)........ 404,075 41.3 400,034 49.0
Howard H. Newman(/3/)... 404,075 41.3 400,034 49.0
Donald W.
Torey(/2/)(/6/)........ -- -- -- --
Paul W. Van Orden(/6/).. -- -- -- --
All directors and
executive officers as a
group (17
persons)(/7/).......... 564,730 57.7 416,716 51.0
</TABLE>
- - - - --------
* Less than 1%
(1) Pursuant to the rules of the Commission, shares are deemed to be
"beneficially owned" by a person if such person directly or indirectly has
or shares (i) the power to vote or dispose of such shares, whether or not
such person has any pecuniary interest in such shares, or (ii) the right
to acquire the power to vote or dispose of such shares within 60 days,
including any right to acquire through the exercise of any option, warrant
or right.
(2) Does not include any shares indirectly held by Trustees of GEPT by virtue
of GEPT's limited partnership interest in Warburg. GEPT is also a limited
partner in GEI. GEIM is the general partner of GEI and a wholly owned
subsidiary of GE. As a result, each of GEIM and GE may be deemed to be the
beneficial owner of the shares owned by GEI.
(3) The sole general partner of Warburg is WP, a New York general partnership.
EMW LLC, a New York limited liability company, manages Warburg. The
members of EMW LLC are substantially the same as the partners of WP.
Lionel I. Pincus is the managing partner of WP and the managing member of
EMW LLC. WP, as the sole general partner of Warburg, has a 15% interest in
the profits of Warburg. Messrs. Kewsong Lee and Howard H. Newman,
directors of Holdings, are Managing Directors and members of EMW LLC and
general partners of WP. As such, Messrs. Lee and Newman may be deemed to
have an indirect pecuniary interest (within the meaning of Rule 16a-1
under the Exchange Act) in an indeterminate portion of the shares
beneficially owned by Warburg and WP.
(4) Includes 58,230 shares of restricted stock, subject to certain vesting and
forfeiture requirements, issued to each of Messrs. Lynch and Nugent upon
consummation of the Initial Offering. See "Management--1998 Stock Plan."
(5) Includes 4,835 shares of restricted stock, subject to certain vesting and
for future requirements, issued to each of Messrs. Steinke and Lumpp and
Ms. Bernbaum. See "Management--1998 Stock Plan."
(6) Excludes 404,075 shares of Common Stock and 400,034 shares of Series A
Preferred Stock beneficially owned by GEI and GEIM. As an executive
officer and director of GEIM, Mr. Torey has shared voting and investment
power with respect to the shares held by GEI, and therefore, may be deemed
to be the beneficial owner of such shares. Messrs. Torey, Hildebrand and
Paul W. Van Orden disclaim beneficial ownership of all such shares owned
by GEI and GEIM.
(7) Includes 404,075 shares of Common Stock and 400,034 shares of Series A
Preferred Stock beneficially owned by Warburg. Excludes 404,075 shares of
Common Stock and 400,034 shares of Series A Preferred Stock beneficially
owned by GEI. Includes 1,600 shares of Common Stock and 1,584 shares of
Series A Preferred Stock held by executive officers not identified in the
table and 143,805 shares of restricted stock, subject to certain vesting
and forfeiture requirements, issued to executive officers upon
consummation of the Initial Offering. See "Management--1998 Stock Plan."
54
<PAGE>
THE HOLDINGS STOCKHOLDERS AGREEMENT
The relations among the Equity Sponsors and the Management Investors
(collectively, the "Investors"), and Holdings are governed by a Stockholders
Agreement, dated as of the Acquisition Closing (the "Holdings Stockholders
Agreement"). The following summary of certain provisions of the Holdings
Stockholders Agreement does not purport to be complete and is qualified in its
entirety by reference to all the provisions of the Holdings Stockholders
Agreement.
Board of Directors. Holdings is managed by the Board of Directors which is
comprised of nine members, three of whom are designated by GEI and three of
whom are designated by Warburg. For so long as GEI beneficially owns at least
20% of the Common Stock outstanding on a fully diluted basis, GEI has the
right to designate three directors to the Board of Directors. For so long as
GEI beneficially owns at least 15% of the Common Stock outstanding on a fully
diluted basis, GEI has the right to designate two directors to the Board of
Directors. For so long as GEI beneficially owns at least 10% of the Common
Stock outstanding on a fully diluted basis, GEI has the right to designate one
director to the Board of Directors. For so long as Warburg beneficially owns
at least 20% of the Common Stock outstanding on a fully diluted basis, Warburg
has the right to designate three directors to the Board of Directors. For so
long as Warburg beneficially owns at least 15% of the Common Stock outstanding
on a fully diluted basis, Warburg has the right to designate two directors to
the Board of Directors. For so long as Warburg beneficially owns at least 10%
of the Common Stock outstanding on a fully diluted basis, Warburg has the
right to designate one director to the Board of Directors. Mr. Lynch and Mr.
Nugent will be entitled to serve as directors for so long as they remain
executive officers of the Company. In addition, as long as the Equity Sponsors
in the aggregate beneficially own more than 50% of the Common Stock
outstanding on a fully diluted basis, the Equity Sponsors have the right to
designate a majority of the directors to the Board of Directors. The Board of
Directors will have at least one director who is not an officer or employee of
Holdings, the Company, or the Equity Sponsors, appointed by unanimous approval
of the Board of Directors. The Holdings Stockholders Agreement provides that
the Board of Directors of the Company is identical to that of Holdings.
The consent of a majority of the Board of Directors which includes at least
one of the directors designated by GEI and one of the directors designated by
Warburg is required for the approval of (i) the Company's or Holdings' annual
operating budget; (ii) capital expenditures or investments not approved in the
annual budget in amounts greater than $500,000; (iii) any merger or
consolidation involving the Company or Holdings; (iv) any acquisition by the
Company or Holdings of any assets or stock, other than acquisitions of assets
in the ordinary course of business; (v) any divestiture of assets in excess of
$500,000 by the Company or Holdings, other than sales of inventory in the
ordinary course of business; (vi) any liquidation, dissolution or winding up,
or any consent to a bankruptcy or insolvency or related proceeding involving,
the Company or Holdings; (vii) the issuance or sale of any debt or equity
securities for cash; (viii) any expansion into new lines of business; (ix) any
joint venture or strategic alliance; (x) the repurchase or redemption of any
outstanding shares of capital stock or the declaration or payment of any
dividends on any shares of capital stock of the Company or Holdings; (xi) the
amendment or modification of the certificate of incorporation or bylaws of the
Company or Holdings; (xii) the amendment, modification or termination of any
employment agreement with any executive officer of the Company or Holdings;
(xiii) the grant of any stock options or other equity-based compensation;
(xiv) the hiring or firing of any executive officer; (xv) any related party
transactions; (xvi) any loans or guarantees by the Company or Holdings outside
of the ordinary course of business; (xvii) any agreement having a duration in
excess of one year or cumulative obligations in excess of $1 million; (xviii)
the amendment, modification or termination of any agreement with any union;
(xix) the approval or adoption, amendment, modification or termination of
certain employee benefit plans; and (xx) any agreement to do any of the
foregoing.
55
<PAGE>
Restrictions on Transfer of Stock. Securities held by the Management
Investors, including any shares of Common Stock or Series A Preferred Stock
and any options to acquire shares of Common Stock, may only be sold or
otherwise transferred with the consent of the Board of Directors of Holdings.
Tag-Along Rights. The Holdings Stockholders Agreement provides that in the
event any Investor chooses to sell or otherwise transfer more than 20% of its
shares of Common Stock or Series A Preferred Stock to a proposed transferee,
the selling Investor must offer to each of the other Investors the right to
participate in such sale on a pro rata basis based on ownership of the shares
being sold.
Subscription Rights. With certain exceptions, the Holdings Stockholders
Agreement provides each Investor with subscription rights in connection with
any issuance of equity securities by Holdings for cash whereby each Investor
shall have the right to purchase a pro rata portion of such equity securities.
Certain Covenants. The Holdings Stockholders Agreement requires Holdings to
(i) provide certain financial and other information to the Investors
concerning Holdings and its subsidiaries, (ii) comply with applicable law and
(iii) maintain insurance.
Termination. The tag-along rights and subscription rights described above
will terminate upon the completion of an initial public offering of Common
Stock.
THE REGISTRATION RIGHTS AGREEMENT
Holdings and the Investors have entered into a Registration Rights
Agreement, dated as of the Acquisition Closing (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each of the Equity
Sponsors has two demand registration rights for each of its Preferred Stock
and Common Stock. In addition, the Equity Sponsors have unlimited Form S-3
registration rights and unlimited piggyback rights. The Management Investors
also have piggyback registration rights. All expenses related to these
registrations (other than underwriting discounts and commissions) will be
borne by Holdings. Holdings is required to use its best efforts to effect such
registrations, subject to certain conditions and limitations. Holdings has
agreed to indemnify the Investors for certain liabilities arising out of such
registrations, including liabilities under the Securities Act.
56
<PAGE>
CERTAIN TRANSACTIONS
Holdings and the Investors have entered into Subscription Agreements, dated
as of the Acquisition Closing (collectively, the "Subscription Agreements"),
pursuant to which, among other things, Holdings agreed to issue shares of
Common Stock and Series A Preferred Stock. See "Security Ownership."
In connection with the portion of the equity contribution to Holdings made
by Mr. Lynch and Mr. Nugent, the Company lent an aggregate of $575,000 to Mr.
Lynch and $250,000 to Mr. Nugent in exchange for full recourse notes bearing
interest at a floating rate, set semi-annually, at The Chase Manhattan Bank's
then applicable prime rate, in effect for six month periods, plus 0.5%. Each
note matures on the fifth anniversary of the Acquisition Closing and is
secured by a pledge in favor of the Company of all of the shares of Common
Stock and Series A Preferred Stock owned by such Management Investor.
All future transactions between the Company and its officers, directors,
principal stockholders or their respective affiliates, will be on terms no
less favorable to the Company than can be obtained from unaffiliated third
parties.
57
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITIES
Set forth below is a summary description of the Senior Credit Facilities the
Company entered into in connection with the Acquisition. The summary does not
purport to be complete and is qualified in its entirety by reference to the
definitive documentation for the Senior Credit Facilities.
GENERAL
The Company entered into an agreement with The Chase Manhattan Bank
("Chase," in its capacity as collateral agent, the "Collateral Agent," and, in
its capacity as administrative agent, the "Administrative Agent"), Merrill
Lynch Capital Corporation ("MLCC" and, in its capacity as documentation agent,
the "Documentation Agent") and other lending institutions (collectively, the
"Banks") to borrow an aggregate principal amount of up to $245.0 million,
consisting of (i) the $70.0 million Revolving Credit Facility and (ii) the
$175.0 million Term Loan Facility. The Senior Credit Facilities are guaranteed
by Holdings and all future domestic subsidiaries of the Company (in this
context, the "Guarantors"). The Company has drawn down the Revolving Credit
Facility in the amount of $16.5 million in connection with the Acquisition.
The Senior Credit Facilities and the Initial Offering were conditioned upon
each other. Borrowings under the Senior Credit Facilities constitute Senior
Indebtedness under the Indenture.
Security. Indebtedness of the Company under the Senior Credit Facilities is
secured by (i) 100% of the capital stock of the Company and each of its
subsidiaries (which pledge, in the case of foreign subsidiaries, is limited to
65% of the voting stock of each directly owned foreign subsidiary unless (x)
reasonably requested by the Collateral Agent and (y) to the extent and for so
long as such pledge may be accomplished without causing adverse tax
consequences to the Company) and (ii) a first priority security interest in
substantially all assets and properties of the Company and its future domestic
subsidiaries.
Interest. Indebtedness under the Senior Credit Facilities bears interest at
a floating rate. Indebtedness under the Revolving Credit Facility bears
interest at a rate based, at the Company's option, upon (i) Chase's adjusted
London Interbank Offered Rate ("Adjusted LIBOR") for one, two, three or six
months plus 2.0% or (ii) Chase's Alternate Base Rate plus 1.0%. Indebtedness
under the Term Loan Facility bears interest at a rate based, at the Company's
option, upon (i) Adjusted LIBOR for one, two, three or six months plus 2.25%
or (ii) Chase's Alternate Base Rate plus 1.25%. These rates are subject to
performance pricing step-downs based on the Company's leverage ratio.
Maturity. Loans made pursuant to the Revolving Credit Facility may be
borrowed, repaid and reborrowed from time to time until the seventh
anniversary of the Acquisition Closing, subject to satisfaction of certain
conditions on the date of any such borrowing. No letter of credit shall have
an expiration date that is more than one year after the issuance date thereof
or that is after the fifth business day prior to the termination date of the
Revolving Credit Facility. The loans made under the Term Loan Facility were
available in a single drawing at the Acquisition Closing, are subject to
quarterly amortization of principal and mature on the eighth anniversary of
the Acquisition Closing. The Term Loan Facility will be permanently reduced in
an amount equal to the net cash proceeds of permitted asset sales and
permitted issuances of additional debt or equity by the Company or its
subsidiaries and a portion of the Company's excess cash flows.
Certain Fees. The Company is required to pay to the Banks a commitment fee
equal to 1/2 of 1% per annum on the committed undrawn amount of the Revolving
Credit Facility, subject to performance pricing step-downs based upon the
Company's leverage ratio, and letters of credit fees equal to the margin over
the Adjusted LIBOR rate charged for Adjusted LIBOR loans under the
58
<PAGE>
Revolving Credit Facility on a per annum basis, plus a fronting fee of 1/4 of
1% per annum to be paid to the issuer of the letter of credit.
Conditions to Extensions of Credit. The obligation of the Banks to make
subsequent loans or extend letters of credit under the Revolving Credit
Facility is subject to the satisfaction of certain customary closing
conditions.
Covenants. The Senior Credit Facilities require the Company to meet certain
financial tests, including debt coverage and interest expense coverage
requirements. The Senior Credit Facilities also contain covenants which, among
other things, limit the Company's ability to incur additional indebtedness, to
make capital expenditures, to enter into sale/leaseback transactions, to make
dividends, loans and investments, to modify material agreements, to enter into
transactions with affiliates, to engage in asset sales, acquisitions, mergers
and consolidations, to prepay subordinated indebtedness (including the Notes)
and to incur liens and encumbrances. The covenants contained in the Senior
Credit Facilities also require the Company to pledge assets acquired after the
Acquisition Closing, including stock of after-acquired or formed subsidiaries
(which pledge, in the case of foreign subsidiaries, is limited to 65% of the
voting stock of each directly owned foreign subsidiary unless (x) reasonably
requested by the Collateral Agent and (y) to the extent and for so long as
such pledge may be accomplished without causing adverse tax consequences to
the Company), to deliver guarantees by wholly owned domestic subsidiaries and
to maintain insurance.
Events of Default. Defaults under the Senior Credit Facilities include
failure to pay interest or fees due under the Senior Credit Facilities within
a specified number of days from the date on which such payments are due,
failure to repay principal due under the Senior Credit Facilities when due,
breaches of certain affirmative covenants, conditions or agreements contained
in the documents relating to Senior Credit Facilities that are unremedied for
a specified period and breaches of certain other affirmative covenants or any
negative covenant, the default by the Company or any of its subsidiaries in
respect of certain other indebtedness, including indebtedness under the Notes,
the occurrence of certain events of bankruptcy, the entering of certain
judgments against the Company or any of its subsidiaries, the failure of the
security interests created under the Senior Credit Facilities to remain valid
and perfected, the failure of the documents relating to the Senior Credit
Facilities to be and remain in full force and effect and the change in control
of the Company.
59
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Exchange Notes will be issued, and the Original Notes were issued, under
an Indenture, dated as of January 23, 1998 (the "Indenture"), among the
Company, Holdings, as guarantor, and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"), a copy of which is available upon request to the
Company. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the TIA. The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the TIA for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the TIA. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the section "Certain
Definitions."
The Notes are unsecured senior subordinated obligations of the Company. The
Notes are unconditionally Guaranteed on a senior subordinated and unsecured
basis by Holdings (the "Parent Guarantee") and by each future Domestic
Subsidiary of the Company (each, a "Domestic Subsidiary Guarantee" and,
collectively, the "Domestic Subsidiary Guarantees") (Holdings and such future
Domestic Subsidiaries of the Company are referred to collectively as the
"Guarantors"), and the Company will cause each such future Domestic Subsidiary
of the Company to enter into a supplemental indenture providing for such
Domestic Subsidiary to Guarantee payment of the Notes as required in the
Indenture. See "Certain Covenants--Future Note Guarantors" below.
PRINCIPAL, MATURITY AND INTEREST
The initial Original Notes were issued in an aggregate principal amount of
$115.0 million and will mature on January 15, 2008. Interest on the Notes
accrues at a rate per annum shown on the front cover of this Prospectus from
January 23, 1998, or from the most recent date to which interest has been paid
or provided for, payable semiannually to Holders of record at the close of
business on the January 1 or July 1 (whether or not such day is a business
day) immediately preceding the interest payment date on January 15 and July 15
of each year, commencing July 15, 1998. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months. The Indenture provides for the
issuance thereunder of up to $150.0 million aggregate principal amount of
additional Notes having substantially identical terms and conditions to the
Notes offered hereby (the "Additional Notes"), subject to compliance with the
covenants contained in the Indenture. Any Additional Notes will be part of the
same issue as the Notes offered hereby (and accordingly will participate in
purchase offers and partial redemptions) and will vote on all matters with the
Notes offered hereby. For purposes of this "Description of the Notes,"
reference to the Notes includes Additional Notes.
Principal of, premium, if any, and interest, including Special Interest, on
the Notes is payable, and the Notes may be exchanged or transferred, at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan, The City of New York (which initially shall be the corporate trust
office of the Trustee, at One State Street, New York, New York 10004), except
that, at the option of the Company, payment of interest and Special Interest
may be made by check mailed to the registered holders of the Notes at their
registered addresses; provided that all payments with respect to global Notes
and certificated Notes the Holders of which have given written wire transfer
instructions to the Trustee by no later than five business days prior to the
relevant payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
The Original Notes were issued and the Exchange Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000.
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<PAGE>
GUARANTEES OF THE NOTES
The Parent Guarantee and the Domestic Subsidiary Guarantees irrevocably and
unconditionally, jointly and severally, guarantee the performance and punctual
payment when due, whether at Stated Maturity, by acceleration or otherwise, of
all Obligations of the Company under the Indenture and the Notes. Each of the
Guarantors irrevocably and unconditionally, jointly and severally, agrees to
pay, in addition to any amount stated above, any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Holders
in enforcing any rights under the Parent Guarantee or the Domestic Subsidiary
Guarantees. Each of the Parent Guarantee and the Domestic Subsidiary
Guarantees is limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the relevant Guarantor without rendering the Parent
Guarantee as it relates to Holdings, or each Domestic Subsidiary Guarantee as
it relates to such Domestic Subsidiary, voidable under applicable law relating
to fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Each of the Parent Guarantee and the Domestic Subsidiary Guarantees is a
continuing Guarantee and shall (a) remain in full force and effect until
payment in full of all of the Company's Obligations under the Indenture and
the Notes or, in the case of a Domestic Subsidiary Guarantee, upon such
Domestic Subsidiary no longer being a Subsidiary, and (b) inure to the benefit
of and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns. Each of the Parent Guarantee and the Domestic
Subsidiary Guarantees is a Guarantee of payment and not of collection.
SUBORDINATION
The payment of principal of, premium, if any, and interest, including
Special Interest, if any, on the Notes is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full in cash of Senior
Indebtedness, which will include borrowings under the Senior Credit
Facilities, whether outstanding on the date of the Indenture or thereafter
Incurred.
Upon any distribution to creditors of the Company in a total or partial
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash of all Obligations due in respect
of such Senior Indebtedness (including interest after the commencement of any
such proceeding at the rate specified in the documentation governing the
applicable Senior Indebtedness whether or not the claim for such interest is
allowed as a claim after such filing) before Holders of Notes will be entitled
to receive any payment or distribution with respect to the Notes, and until
all Obligations with respect to Senior Indebtedness are paid in full in cash,
any payment or distribution to which Holders of Notes would be entitled shall
be made to the holders of Senior Indebtedness (except that Holders of Notes
may receive securities that are subordinated at least to the same extent as
the Notes to Senior Indebtedness and to any securities issued in exchange for
Senior Indebtedness ("Subordinated Reorganization Securities") and Holders of
Notes may recover payments made from the trust described under the caption
"Legal Defeasance and Covenant Defeasance"). If a payment or distribution is
made to Holders of Notes that, due to the subordination provisions of the
Indenture, should not have been made to them, such Holders are required to
hold such payment or distribution in trust for the benefit of the holders of
Senior Indebtedness and pay it over to them.
The Company may not make any payment upon or in respect of the Notes and may
not otherwise purchase, redeem or otherwise retire any Notes (except in
Subordinated Reorganization Securities or from the trust described under the
caption "Legal Defeasance and Covenant Defeasance") or make any deposit
described under the caption "Legal Defeasance and Covenant Defeasance" if (i)
a default
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in the payment of the principal of, premium, if any, or interest on Designated
Senior Indebtedness of the Company (or any other Senior Indebtedness having a
principal amount at the time of determination in excess of $25.0 million)
occurs and is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Indebtedness of the Company which permits
holders of the Designated Senior Indebtedness of the Company as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from the holders or the
representative of the holders of the Designated Senior Indebtedness of the
Company. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and
(b) in the case of a nonpayment default, upon the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of the
Designated Senior Indebtedness of the Company has been accelerated. No new
period of payment blockage may be commenced by a Payment Blockage Notice
unless and until 360 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions described above, such failure would constitute an Event of Default
under the Indenture and would enable Holders of Notes to accelerate the
maturity of the Notes. See "--Events of Default." The Indenture will further
require that the Company promptly notify holders of Designated Senior
Indebtedness of the Company if payment of the Notes is accelerated because of
any Event of Default. Upon any acceleration of the Notes, if any Designated
Senior Indebtedness of the Company is outstanding, the Company may not pay the
Notes until five business days after such holders or the representative of
such holders receives notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture permit payment at
that time.
By reason of such subordination provisions contained in the Indenture, in
the event of an insolvency, bankruptcy, reorganization or liquidation of the
Company, or upon the occurrence of a Change of Control or an Asset Sale
requiring repurchase by the Company of any Notes, there may not be sufficient
assets remaining to satisfy the claims of Holders of Notes after satisfying
the claims of creditors who are holders of Senior Indebtedness. See "Risk
Factors--Subordination of Notes." Assuming the Notes were to be issued and the
related transactions were to be consummated in January 1998, on a pro forma
basis after giving effect to such issuance and transactions, the outstanding
Senior Indebtedness would have been $191.5 million (exclusive of unused
commitments), all of which would have been Secured Indebtedness. The Indenture
will limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness, that the Company can Incur. See
"--Certain Covenants--Limitation on Incurrence of Indebtedness."
SUBORDINATION OF GUARANTEES; RELEASE OF DOMESTIC SUBSIDIARY GUARANTEES
The Parent Guarantee and the Domestic Subsidiary Guarantees will be
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Senior Indebtedness of the applicable
Guarantor.
Upon any distribution to creditors of a Guarantor in a total or partial
liquidation or dissolution of such Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
such Guarantor or its property, an assignment for the benefit of creditors or
any marshaling of such Guarantor's assets and liabilities, the holders of
Senior Indebtedness of such Guarantor will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior Indebtedness
(including interest after the commencement of any such proceeding at the rate
specified in the documentation governing the applicable Senior Indebtedness
whether or not the claim for such interest is allowed as a claim after such
filing) before Holders of Notes will be entitled to receive any payment or
distribution with respect to the Parent Guarantee or any Domestic
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Subsidiary Guarantee, and until all Obligations with respect to Senior
Indebtedness of such Guarantor are paid in full in cash, any payment or
distribution that would have been made under the Parent Guarantee or any
Domestic Subsidiary Guarantee shall be made to the holders of such Senior
Indebtedness (except that Holders of Notes may receive Subordinated
Reorganization Securities of such Guarantor). If a payment or distribution is
made to Holders of Notes that, due to the subordination provisions of the
Indenture, should not have been made to them, such Holders are required to
hold such payment or distribution in trust for the benefit of the holders of
Senior Indebtedness of such Guarantor and pay it over to them.
A Guarantor may not make any payment upon or in respect of the Parent
Guarantee or any Domestic Subsidiary Guarantee, as applicable (except in
Subordinated Reorganization Securities of such Guarantor), if (i) a default in
the payment of the principal of, premium, if any, or interest on Designated
Senior Indebtedness of such Guarantor (or any other Senior Indebtedness having
a principal amount at the time of determination in excess of $25 million)
occurs and is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Indebtedness of such Guarantor which permits
holders of the Designated Senior Indebtedness of such Guarantor as to which
such default relates to accelerate its maturity and the Trustee receives a
Payment Blockage Notice from the holders or the representative of the holders
of the Designated Senior Indebtedness of such Guarantor. Payments under the
Parent Guarantee and the Domestic Subsidiary Guarantees may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in the case of a nonpayment default, upon
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of the Designated Senior Indebtedness of such
Guarantor has been accelerated. No new period of payment blockage may be
commenced by a Payment Blockage Notice unless and until 360 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice.
By reason of such subordination provisions contained in the Indenture, in
the event of an insolvency, bankruptcy, reorganization or liquidation of a
Guarantor, there may not be sufficient assets remaining to satisfy the claims
of Holders of Notes with respect to the Parent Guarantee or any Domestic
Subsidiary Guarantee after satisfying the claims of creditors who are holders
of Senior Indebtedness of such Guarantor.
In the event of a sale or other disposition of all or substantially all of
the assets of any Domestic Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Domestic Subsidiary Guarantor, by way of merger,
consolidation or otherwise, such Domestic Subsidiary Guarantor (in the event
of a sale or other disposition of all of the Capital Stock of such Domestic
Subsidiary Guarantor) will be released and relieved of its Obligations under
its Domestic Subsidiary Guarantee or the Person acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Domestic Subsidiary Guarantor) (other than a Domestic Subsidiary
Guarantor) will not be required to enter into a Domestic Subsidiary Guarantee;
provided, in each case, that such transaction is carried out pursuant to and
in accordance with the covenants described under the captions "Repurchase at
the Option of Holders of Notes--Asset Sales" and "Certain Covenants--Merger,
Consolidation or Sale of Assets."
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after January 15, 2003, and prior to maturity, at the
following redemption prices (expressed as a percentage of principal amount),
plus accrued and unpaid interest, including any Special Interest, thereon to
the redemption date (subject to the right of Holders of record on the relevant
record date
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to receive interest due on the relevant payment date), if redeemed during the
twelve-month period commencing on January 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................... 104.375%
2004........................................................... 102.917%
2005........................................................... 101.458%
2006 and thereafter............................................ 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to January 15,
2002, the Company may (but shall not have the obligation to) redeem up to 35%
of the original aggregate principal amount of the Notes (calculated giving
effect to any issuance of Additional Notes) at a redemption price of 108.75%
of the original principal amount thereof, plus accrued 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)
with the proceeds of one or more Public Equity Offerings made by the Company
or of a capital contribution made by Holdings to the common equity capital of
the Company with the net proceeds of a Public Equity Offering made by
Holdings; provided that at least 65% of the aggregate principal amount of
Notes (as so calculated) remain outstanding immediately after the occurrence
of such redemption; and provided, further, that such redemption shall occur
within 75 days of the date of the closing of such Public Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances and in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed;
provided that no Note of $1,000 in original principal amount or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancelation of the original
Note. On and after the redemption date, interest ceases to accrue on Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS OF NOTES
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, including any Special Interest,
thereon (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date) (the "Change of
Control Payment"), to the date of repurchase (the "Change of Control Payment
Date").
Within 30 days following any Change of Control, the Company will mail a
notice to each Holder of Notes describing the transaction or transactions that
constitute the Change of Control and offering
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to repurchase Notes pursuant to the procedures required by the Indenture and
described in such notice. The Change of Control Payment Date shall be a
business day not less than 30 days nor more than 60 days after such notice is
mailed. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the paying agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The paying agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any
event within 30 days following a Change of Control, the Company will either
repay in full all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit Holders of Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Senior Credit Facilities provide that certain change of control events
with respect to the Company (including a Change of Control) would constitute a
default thereunder. Any future credit agreements or other agreements relating
to Senior Indebtedness to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs
at a time when the Company is prohibited from purchasing Notes, the Company
could seek the consent of its lenders to the purchase of Notes or could
attempt to repay the borrowings that contain such prohibition. If the Company
does not obtain such a consent or repay such borrowings, the Company will
remain prohibited from purchasing Notes. In such case, the Company's failure
to purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Senior Credit
Facilities. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
The meaning of the phrase "all or substantially all" as used in the
definition of "Change of Control" with respect to a sale of assets varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law 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 assets of the Company, and
therefore it may be unclear whether a Change of Control has occurred and
whether the Notes are subject to a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to Incur additional Indebtedness, to grant Liens on its
or their property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of
any such transaction in certain circumstances may require redemption or
repurchase of the Notes, and there
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can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout
of the Company or any of its Subsidiaries by the management of the Company or
other Persons. While such restrictions cover a variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Notes protection in all circumstances
from the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, engage in an Asset Sale (except
an Asset Sale (an "Exempt Asset Sale") the Net Proceeds of which plus the Net
Proceeds of all other Asset Sales concurrently or previously made in the same
fiscal year do not exceed $3.0 million) unless (i) the Company (or the
Subsidiary) receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value (as determined by the Board, whose
determination shall be conclusive if made in good faith and evidenced by a
Board Resolution), and in the case of a lease of assets, a lease providing for
rent and other conditions which are no less favorable to the Company (or the
Subsidiary) in any material respect than the then prevailing market conditions
(as determined by the Board, whose determination shall be conclusive if made
in good faith and evidenced by a Board Resolution) of the assets or Capital
Stock sold or otherwise disposed of, and (ii) at least 80% (100% in the case
of lease payments) of the consideration therefor received by the Company (or
the Subsidiary) is in the form of cash or Cash Equivalents; provided that for
purposes of this clause (ii), "cash" shall include the amount of any
Indebtedness for money borrowed and any Capital Lease Obligation that (x) is
assumed by the transferee of any such assets or other property in such Asset
Sale or (y) with respect to the sale or other disposition of all of the
Capital Stock of any Subsidiary of the Company, remains the liability of such
Subsidiary subsequent to such sale or other disposition, but only to the
extent that such assumption, sale or other disposition, as the case may be, is
effected on a basis under which there is no further recourse to the Company or
any of its Subsidiaries with respect to such liability.
The Company may apply Net Proceeds of an Asset Sale, at its option, within
360 days from the receipt of such Net Proceeds (a) to permanently reduce
Senior Indebtedness other than Indebtedness under the Revolving Credit
Facility, (b) to permanently reduce Indebtedness under the Revolving Credit
Facility (and to correspondingly reduce commitments with respect thereto), (c)
to acquire another business (including through purchase of stock or merger) or
other assets, in each case in, or used or useful in, the same or a similar
line of business as the Company or any of its Subsidiaries was engaged in on
the date of the Indenture or any reasonable extensions or expansions thereof
or (d) to reimburse the Company or its Subsidiaries for expenditures made, and
costs incurred, to repair, rebuild, replace or restore property subject to
loss, damage or taking to the extent that the Net Proceeds consist of
insurance proceeds received on account of such loss, damage or taking. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce Indebtedness under the Revolving Credit Facility (without any
obligation to reduce the commitments thereunder) or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales (other than Exempt Asset Sales) that are not applied
or invested as provided and in the relevant time period described in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer to all Holders of Notes (and, at its
option, holders of other pari passu Indebtedness) (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes (and such other Indebtedness)
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest, including Special Interest, thereon (subject
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to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date) to the date of purchase,
in accordance with the procedures set forth below. If the aggregate principal
amount of Notes (and such other Indebtedness) surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Company shall select the Notes (and
such other Indebtedness) to be purchased on a pro rata basis; provided that
only Notes in denominations of $1,000 or integral multiples thereof shall be
purchased. Holders whose Notes are purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
In the event the Company is required to make an Asset Sale Offer, it shall
promptly, and in any event within 30 days after the Company becomes obligated
to make such Asset Sale Offer, deliver to the Trustee and send, by first-class
mail to each Holder of Notes, a written notice stating that such Holder may
elect to have such Holder's Notes purchased by the Company, either in whole or
in part, subject to proration, in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days or more than 60 days after the date of such notice
(the "Asset Sale Purchase Date") and shall contain information concerning the
Asset Sale Offer (including, to the extent available, appropriate pro forma
financial information) and all instructions and materials necessary to tender
Notes pursuant to the Asset Sale Offer, together with the information
contained in the next following paragraph.
Not later than the date upon which written notice of an Asset Sale Offer is
delivered to the Trustee as provided above, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Asset Sale Offer
(the "Asset Sale Offer Amount"), (ii) the allocation of the Net Proceeds from
the Asset Sale pursuant to which such Asset Sale Offer is being made and (iii)
the compliance of such allocation with the provisions of the second preceding
paragraph. On such date, the Company shall also deposit irrevocably with the
Trustee or with the paying agent in cash an amount equal to the Asset Sale
Offer Amount to be held for payment in accordance with the provisions of this
covenant. On the Asset Sale Purchase Date, the Company shall deliver, or cause
to be delivered, to the Trustee the Notes or portions thereof that have been
tendered properly to, and are to be accepted by, the Company. The paying agent
shall promptly mail or deliver payment to each tendering Holder in the amount
of the applicable purchase price. In the event that the aggregate purchase
price of the Notes delivered to the Trustee is less than the Asset Sale Offer
Amount, the excess shall be delivered to the Company immediately after
completion of the Asset Sale Offer.
A Holder electing to have a Note purchased will be required to surrender the
Note, with an appropriate form duly completed, to the paying agent at the
address specified in the notice at least five business days prior to the Asset
Sale Purchase Date. A Holder will be entitled to withdraw its election if the
paying agent receives, not later than three business days prior to the Asset
Sale Purchase Date, a facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Note that was delivered for
purchase by the Holder and a statement that such Holder is withdrawing its
election to have such Note purchased.
At the time the Company delivers, or causes to be delivered, Notes to the
Trustee that are to be accepted for purchase, the Company will also deliver an
Officers' Certificate stating that such Notes are to be accepted by the
Company pursuant to and in accordance with the terms of this covenant. A Note
shall be deemed to have been accepted for purchase at the time the paying
agent mails or delivers payment therefor to the surrendering Holder.
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
this covenant, the Company will comply with the applicable securities laws and
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regulations and will not be deemed to have breached its obligations under this
covenant by virtue thereof.
Notwithstanding the foregoing, the Indenture provides that the Company will
be permitted to consummate an Asset Swap if (i) at the time of entering into
the related Asset Swap Agreement 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 that the
EBITDA associated with the Productive Assets that are the subject of such
Asset Swap for the period of the most recent four consecutive fiscal quarters
ending at least 45 days prior to the date on which the related Asset Swap
Agreement is executed by the parties thereto exceeds $3.0 million, the Company
provides to the Trustee a written opinion of an Independent Financial Advisor
that such Asset Swap is fair to the Company from a financial point of view and
(iii) the EBITDA associated with the Productive Assets that are the subject of
such Asset Swap for the period of the most recent four consecutive fiscal
quarters ending at least 45 days prior to the date on which the related Asset
Swap Agreement is executed by the parties thereto, when aggregated with the
EBITDA associated with all other Productive Assets that were the subject of
any previously completed Asset Swap for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date on which
each related Asset Purchase Agreement was executed by the parties thereto,
does not exceed $10 million. For purposes of computing the EBITDA associated
with the Productive Assets that are the subject of an Asset Swap, the Company
shall allocate selling, general and administrative expenses to such Productive
Assets such that the ratio of the selling, general and administrative expenses
allocated to such Productive Assets for the relevant period to the total
selling, general and administrative expenses of the Company and its
consolidated Subsidiaries for such period is equal to the ratio of the
revenues attributable to such Productive Assets for such period to the total
revenues of the Company and its consolidated Subsidiaries for such period.
The Indenture also provides that the Company will not permit any
Intellectual Property Subsidiary to sell, lease, convey, dispose of or
otherwise transfer any of its properties or assets in one or a series of
related transactions (other than the granting of licenses to the Company as
permitted under the Indenture) unless, at the time of such sale, lease,
conveyance, disposition or other transfer, such Intellectual Property
Subsidiary is a Wholly Owned Subsidiary of the Company.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Incurrence of Indebtedness
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) other than Permitted Indebtedness; provided, however,
that the Company and its Subsidiaries may Incur Indebtedness (including
Acquired Indebtedness) if: (i) the Consolidated Interest Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is Incurred would have been at least 1.75 to 1.00
with respect to any Incurrence on or before January 15, 2001, or at least 2.00
to 1.00 thereafter, determined on a pro forma basis (including a pro forma
application of the Net Proceeds therefrom), as if the additional Indebtedness
had been Incurred at the beginning of such four-quarter period; and (ii) no
Default or Event of Default (except any as may be cured through the
application of proceeds of such Indebtedness) shall have occurred and be
continuing or would occur as a consequence thereof.
For purposes of determining any particular amount of Indebtedness under this
"--Limitation on Incurrence of Indebtedness" covenant, Guarantees, Liens or
Obligations with respect to letters of
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credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included. For purposes of determining
compliance with such covenant, in the event that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness described in the
definition of Permitted Indebtedness, the Company, in its sole discretion,
shall classify such item of Indebtedness and shall only be required to include
the amount and type of such Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its 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),
except dividends or distributions payable solely in its Capital Stock (other
than Redeemable Stock) and except dividends or distributions payable solely to
the Company or any Wholly Owned Subsidiary of the Company; (ii) purchase
(except as a Permitted Investment), redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any direct or indirect parent of the
Company or any Subsidiary of the Company (including any Intellectual Property
Subsidiary) or any Unrestricted Subsidiary or other Affiliate of the Company
(other than any such Capital Stock owned by the Company or any Wholly Owned
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
a scheduled mandatory sinking fund payment date or Stated Maturity any (a)
Subordinated Indebtedness of the Company or (b) Subordinated Indebtedness of
any Domestic Subsidiary; or (iv) make any Restricted Investment (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to as a
"Restricted Payment"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
Incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the Consolidated Interest Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Limitation on Incurrence of Indebtedness"; and
(c) the aggregate amount of such Restricted Payment and all other Restricted
Payments declared or made by the Company and its Subsidiaries after the date
of the Indenture, is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (treated as one accounting period) from
the beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (ii) 100% of the aggregate Net Cash
Proceeds received by the Company from the issue or sale after the date of the
Indenture of Capital Stock of the Company or of debt securities of the Company
that have been converted into such Capital Stock (other than (x) Capital Stock
(or convertible debt securities) sold to a Subsidiary of the Company or an
Unrestricted Subsidiary of the Company, (y) Redeemable Stock or debt
securities that have been converted into Redeemable Stock and (z) except as
provided for in clause (iv), an employee participation plan or other trust
established by the Company or any of its Subsidiaries), plus (iii) 100% of the
net reduction in Investments in any Unrestricted Subsidiary of the Company
resulting from payments of interest on Indebtedness, dividends, repayments of
principal of loans or advances, or other transfers of assets, in each case to
the Company or any Subsidiary of the Company from such
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Unrestricted Subsidiary (except to the extent that any such payment is
included in the calculation of Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Subsidiaries of the Company;
provided that the amount included in this clause (iii) shall not exceed the
amount of Investments previously made by the Company and its Subsidiaries in
such Unrestricted Subsidiary, plus (iv) 100% of the aggregate Net Cash
Proceeds received by the Company from the issue or sale after the date of the
Indenture of Capital Stock (other than Redeemable Stock) of the Company to any
employee participation plan or similar trust; provided, however, that if such
plan or trust Incurs any Indebtedness to, or Guaranteed by, the Company or any
of its 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
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,
plus (v) the amount by which Indebtedness of the Company or its Subsidiaries
is reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the date of the
Indenture of any Indebtedness of the Company or its Subsidiaries convertible
or exchangeable into Capital Stock of the Company (less the amount of any
cash, or other property other than such Capital Stock, distributed by the
Company or any Subsidiary of the Company upon such conversion or exchange).
The foregoing provisions, however, will not prohibit (i) the payment of any
dividend or distribution by any Subsidiary of the Company that is not a Wholly
Owned Subsidiary of the Company so long as any such dividend or distribution
is paid to all shareholders of such Subsidiary on a pro rata basis; (ii) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of the Indenture; (iii) the making of any Restricted Payment in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company or any Unrestricted Subsidiary of
the Company) of Capital Stock of the Company (other than Redeemable Stock);
provided, that any net cash proceeds that are utilized for any such Restricted
Payment, and any Net Income resulting therefrom, shall be excluded from clause
(c) of the preceding paragraph; (iv) the redemption, repurchase, retirement or
other acquisition of any Capital Stock or Subordinated Indebtedness of the
Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary or any Unrestricted Subsidiary of
the Company) of other Capital Stock of the Company (other than any Redeemable
Stock); provided, that any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clause (c) of the preceding
paragraph; (v) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of any Intellectual Property Subsidiary owned by
any Person other than the Company or any Wholly Owned Subsidiary of the
Company so long as the consideration paid in connection with any such
purchase, redemption, acquisition or retirement is solely in the form of
Qualified Subordinated Indebtedness; (vi) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Subordinated
Indebtedness, including premium, if any, and accrued and unpaid interest, with
the proceeds of Qualified Subordinated Indebtedness; (vii) Investments at any
one time outstanding in an aggregate amount not to exceed $25.0 million in any
Person or Persons the primary business of which is related, ancillary or
complementary to the businesses of the Company and its Subsidiaries on the
date of such Investments (provided that Investments in any such Person or
Persons with respect to which the Company or any of its Wholly Owned
Subsidiaries owns less than 50% of the outstanding voting Capital Stock of any
such Person may not exceed $15.0 million at any one time outstanding); (viii)
any payment by the Company or any of its Subsidiaries directly or through any
direct or indirect parent company (a) in connection with the repurchase of
outstanding shares of Capital Stock of the Company or Holdings following the
death, disability or termination of employment of Management Shareholders and
(b) of amounts required to be paid to participants or former participants in
employee benefit plans upon any termination of employment by such participants
as provided in the
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documents related thereto, in an aggregate amount (for both clauses (a) and
(b)) not to exceed $5.0 million in any fiscal year (provided that any unused
amount may be carried over to any subsequent fiscal year subject to a maximum
amount of $10.0 million in any fiscal year); (ix) Investments in Currency
Agreements; (x) any repurchase of equity interests deemed to occur upon
exercise of stock options if such equity interests represent a portion of the
exercise price of such option; (xi) payments to Holdings pursuant to any tax
sharing agreement under which the Company is allocated its proportionate share
of the actual tax liability of the affiliated group of corporations that file
consolidated federal income tax returns (or that file state or local income
tax returns on a consolidated basis); (xii) loans, advances, dividends or
distributions by the Company or any of its Subsidiaries to Holdings to pay for
corporate, administrative and operating expenses in the ordinary course of
business, including payment of directors' and officers' insurance premiums,
key man life insurance premiums, directors' fees, and fees, expenses and
indemnities incurred in connection with the issuance of the Notes and the
other transactions consummated in connection therewith on the date of the
Indenture (including the registration under applicable laws and regulations of
its debt securities as required by the Exchange and Registration Rights
Agreement); and (xiii) (A) loans, advances, dividends or distributions by the
Company or any of its Subsidiaries to Holdings not to exceed an amount
necessary to permit Holdings to pay (1) its costs (including all professional
fees and expenses) incurred to comply with its reporting obligations under
federal or state laws or under the Indenture, including as described under "--
Reports," or in connection with reporting or other obligations under the
Senior Credit Facilities or any related collateral documents or guarantees,
(2) its expenses incurred in connection with any public offering of equity
securities which has been terminated by the board of directors of Holdings,
the net proceeds of which were specifically intended to be received by or
contributed or loaned to the Company, and (B) loans or advances by the Company
or any of its Subsidiaries to Holdings not to exceed an amount necessary to
permit Holdings to pay its interim expenses incurred in connection with any
public offering of equity securities the net proceeds of which are
specifically intended to be received by or contributed or loaned to the
Company, which, unless such offering shall have been terminated by the board
of directors of Holdings, shall be repaid to the Company promptly out of the
proceeds of such offering. In computing the amount of Restricted Payments for
purposes of clause (c) of the preceding paragraph, Restricted Payments under
clauses (ii) and (viii) shall be included, and Restricted Payments under
clauses (i), (iii), (iv), (v), (vi), (vii), (ix), (x), (xi), (xii) and (xiii)
shall not be included.
The amount of all Restricted Payments (other than cash) shall be the Fair
Market Value (as determined by the Board, whose determination shall be
conclusive if made in good faith and evidenced in a Board Resolution) on the
date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant described under the caption "--
Limitation on Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Subsidiary of the Company to (i)(a) pay
dividends or make any other distributions to the Company or any of its
Subsidiaries on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits or (b) pay any Indebtedness owed
to the Company or any of its Subsidiaries, (ii) make loans or advances to the
Company or any of its Subsidiaries, or (iii) transfer any of its properties or
assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of
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(A) Existing Indebtedness as in effect on the date of the Indenture, (B) the
Senior Credit Facilities as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as a
whole, in any material respect (as determined by the Board, whose
determination shall be conclusive if made in good faith and evidenced by a
Board Resolution) with respect to such dividend and other payment restrictions
than those contained in the Senior Credit Facilities as in effect on the date
of the Indenture, (C) the Indenture and the Notes, (D) applicable law, (E)
Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive,
taken as a whole, in any material respect (as determined by the Board, whose
determination shall be conclusive if made in good faith and evidenced by a
Board Resolution) than those contained in the agreements governing the
Indebtedness being refinanced, (F) Indebtedness of a Person existing at the
time such Person becomes a Subsidiary of the Company (provided that (1) such
Indebtedness is not incurred in connection with, or in contemplation of, such
Person becoming a Subsidiary of the Company, (2) such encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person so acquired and its Subsidiaries and (3)
such Indebtedness is otherwise permitted to be incurred pursuant to the
provisions of the covenant described under "--Limitation on Incurrence of
Indebtedness" above), (G) Secured Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenants described under "--
Limitation on Incurrence of Indebtedness" above and "--Limitation on
Subordinated Liens" below to the extent that such Indebtedness limits the
right of the debtor to dispose of the assets securing such Indebtedness, (H)
customary non-assignment provisions restricting subletting or assignment of
any lease or other agreement entered into by the Company or any of its
Subsidiaries, (I) customary net worth provisions contained in leases and other
agreements entered into by the Company or any of its Subsidiaries in the
ordinary course of business and (J) customary restrictions with respect to a
Subsidiary of the Company pursuant to an agreement that has been entered into
for the sale or other disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary.
Limitation on Subordinated Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or suffer to exist any
Lien (other than Permitted Liens) on any of its property or assets, whether
owned on the date of the Indenture or thereafter acquired, securing any
Indebtedness other than Senior Indebtedness, in the case of the Company, or
senior indebtedness of a Subsidiary of the Company, in the case of a
Subsidiary, unless the Notes or, in the case of a Subsidiary of the Company,
its Guarantee of the Notes, are secured equally and ratably with such other
Indebtedness; provided that if such Indebtedness is by its terms expressly
subordinate to the Notes in the case of the Company or to the Guarantee in the
case of a Subsidiary of the Company, the Lien securing such Indebtedness shall
be subordinate or junior to the Lien securing the Notes or the Guarantee, as
the case may be, with the same relative priority as such Indebtedness shall
have with respect to the Notes or the Guarantee, as the case may be.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, enter into any Sale and Leaseback Transaction.
Notwithstanding the foregoing, the Company or any Subsidiary of the Company
may enter into a Sale and Leaseback Transaction if: (i) after giving pro forma
effect to any such Sale and Leaseback Transaction, the Company shall be in
compliance with the covenants described under the captions "--Limitation on
Incurrence of Indebtedness" and "--Limitation on Subordinated Liens" above;
(ii) the gross cash proceeds of such Sale and Leaseback Transaction are at
least equal to the Fair Market Value of such property (as determined by
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the Board, whose determination shall be conclusive if made in good faith and
evidenced by a Board Resolution); and (iii) the Company shall apply the net
cash proceeds of the sale as provided under "Repurchase at the Option of
Holders--Asset Sales" above, to the extent required therein.
Limitation on Sale or Issuance of Capital Stock of Subsidiaries
The Indenture provides that the Company will not sell any shares of Capital
Stock of any of its Subsidiaries to any Person (other than to the Company or a
Wholly Owned Subsidiary of the Company), and will not permit any of its
Subsidiaries, directly or indirectly, to issue or sell any shares of its
Capital Stock to any Person (other than to the Company or a Wholly Owned
Subsidiary of the Company), unless, immediately after giving effect to such
sale or issuance, such Subsidiary would no longer be a Subsidiary of the
Company; provided, however, that this covenant shall not prohibit (i) the
Company or any of its Subsidiaries from selling or disposing of all of the
Capital Stock of any of its Subsidiaries, (ii) the creation of any Subsidiary
of the Company that, at the time of the initial issuance of any shares of
Capital Stock of such Subsidiary, is not a Wholly Owned Subsidiary of the
Company or (iii) the designation of a Subsidiary as an Unrestricted Subsidiary
in compliance with the Indenture. The proceeds of any sale of such Capital
Stock permitted under this provision will be treated as Net Proceeds of an
Asset Sale and must be applied in accordance with the terms of the covenant
described under "Repurchase at the Option of Holders--Asset Sales."
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not, in a single transaction or
series of related transactions, consolidate with or merge with or into
(whether or not the Company is the surviving corporation), or directly and/or
indirectly through its Subsidiaries sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets
(determined on a consolidated basis for the Company and its Subsidiaries taken
as a whole) in one or more related transactions, to another Person, or allow
any Person to merge into the Company (other than the consolidation or merger
of a Wholly Owned Subsidiary with or into the Company) (provided that the
creation of a Lien by a Person on or in any of its assets shall not in and of
itself constitute the sale, assignment, transfer, lease, conveyance or other
disposition of the asset or assets subject to the Lien) unless (i) either (a)
the Company is the surviving corporation or (b) the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia and expressly assumes all the obligations of the Company under the
Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (ii) immediately after giving effect
to such transaction no Default or Event of Default exists; and (iii) the
Company or, if other than the Company, the entity or Person formed by or
surviving any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to Incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the Consolidated Interest Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Limitation on Incurrence of Indebtedness."
Notwithstanding the foregoing, the Indenture will provide that the Company may
transfer patents, trademarks, copyrights and other intellectual property to
one or more Intellectual Property Subsidiaries.
In the event of any transaction (other than a lease) described in, and
complying with, the immediately preceding paragraph in which the Company is
not the surviving Person and the surviving Person assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture, such surviving Person shall succeed to, and be substituted for, and
may
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exercise every right and power of, the Company, and the Company will be
discharged from its obligations under the Indenture and the Notes; provided
that solely for the purpose of calculating amounts described in clause (c)
under "--Limitation on Restricted Payments", any such surviving Person shall
only be deemed to have succeeded to, and be substituted for, the Company with
respect to the period subsequent to the effective time of such transaction,
and the Company (before giving effect to such transaction) shall be deemed to
be the "Company" for such purposes for all prior periods.
For purposes of the first paragraph of this covenant, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one
or more Subsidiaries of the Company, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, after the date of the Indenture,
in any one or a series of related transactions, sell, lease, transfer or
otherwise dispose of any of its properties, assets or services to, or make any
payment to, or purchase any property, assets or services from, or enter into
or make any agreement, loan, advance or Guarantee with, or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), other than
Exempt Affiliate Transactions, unless (i) such Affiliate Transaction is on
terms that are no less favorable to the Company or the relevant Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person, as evidenced by an
Officers' Certificate delivered by the Company to the Trustee, and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
entered into after the date of the Indenture involving aggregate consideration
in excess of $5.0 million, a resolution of a committee of Independent
Directors of the Company set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above and has been
approved by such committee or, in the event there are no Independent
Directors, an opinion as to the fairness to the Company or such Subsidiary of
such Affiliate Transaction from a financial point of view issued by an
Independent Financial Advisor and (b) with respect to an Affiliate Transaction
entered into after the date of the Indenture involving aggregate consideration
in excess of $25.0 million, or in connection with the sale or other transfer
in one or a series of related transactions of any patents, trademarks,
copyrights or other intellectual property to any Intellectual Property
Subsidiary and the related sale or other transfer in one or a series of
related transactions of any interest in such Intellectual Property Subsidiary
(other than any such sale or transfer to the Company or any Wholly Owned
Subsidiary of the Company), an opinion as to the fairness to the Company or
such Subsidiary of such Affiliate Transaction from a financial point of view
issued by an Independent Financial Advisor. Notwithstanding the foregoing, the
Indenture will provide that the Company may not enter into any license
agreement or other agreement or arrangement relating to licensing fees,
royalty payments or similar fees or payments with any Intellectual Property
Subsidiary that provides for the payment of any fees or the making of any
payments by the Company to the Intellectual Property Subsidiary in any year in
excess of 10% of the gross revenues for such year attributable to the sales of
products using the patents, trademarks, copyrights or other intellectual
property that is the subject of such agreement or arrangement.
Limitation on Layering Debt
The Indenture provides that the Company will not Incur any Indebtedness that
is subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Notes.
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Restrictions on Holdings
The Indenture contains covenants limiting the activities of Holdings to
acting as a holding company for the Company and activities reasonably
incidental thereto.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Trustee and to the Holders of Notes within 15 days
after it is or would have been required to file them with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, at any time after the
Company files a registration statement with respect to the Exchange Offer or a
shelf registration statement relating to the offer and sale of the Transfer
Restricted Notes by the Holders thereof from time to time, the Company will
(i) file a copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a filing) and
(ii) if the Commission will not accept such filing, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to securities analysts and prospective investors. In
addition, the Company has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Trustee, to the Holders of Notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Future Note Guarantors
The Company will cause each of its future Domestic Subsidiaries to enter
into a supplemental indenture providing for such Domestic Subsidiary to
Guarantee payment of the Notes on a senior subordinated and unsecured basis.
Each Domestic Subsidiary Guarantee will be subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full in cash of all
Senior Indebtedness of such Guarantor. In addition, the Domestic Subsidiary
Guarantee provided by each Domestic Subsidiary will be limited to an amount
not to exceed the maximum amount that can be Guaranteed by the relevant
Subsidiary without rendering such Guarantee, as it relates to such Subsidiary,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest,
including Special Interest, on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due,
upon redemption or otherwise of the principal of or premium, if any, on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (iii) failure by the Company or Holdings to comply with the
provisions described under the captions "Repurchase at Option of Holders of
Notes--Change of Control" and "Repurchase at Option of Holders of Notes--Asset
Sales"; (iv) failure by the Company to comply for 30 days after written notice
by the Trustee or Holders of at least 25% of the aggregate principal amount of
the Notes outstanding with any of its other agreements, covenants or
warranties in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness
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for money borrowed by the Company or any of its Subsidiaries (or the payment
of which is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee exists on the date of the Indenture, or is created
after the date of the Indenture, which default (a) is caused by a failure to
pay principal of or interest on such Indebtedness when due after giving effect
to applicable grace periods (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, totals $10.0
million or more; (vi) failure by the Company or any of its Significant
Subsidiaries to pay final judgments or orders (not fully covered by insurance)
totaling in excess of $10.0 million, which judgments or orders either (a) are
the subject of any enforcement proceeding commenced by any creditor or (b)
remain unstayed for 45 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then outstanding Notes
may declare by written notice to the Company all the Notes to be due and
payable immediately in an amount equal to the principal amount of the Notes,
together with accrued interest to the date the Notes become due and payable.
Notwithstanding the foregoing, in the case of an Event of Default specified in
clause (vii) above with respect to the Company, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Indenture provides that, if a Default occurs and is
continuing, generally the Trustee must, within 90 days after the occurrence of
such Default, give to the Holders of Notes notice of such Default. The Trustee
may withhold from Holders of Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal, premium or interest or Special Interest on the Notes) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may, on behalf of the Holders of all of
the Notes, waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or Holdings, as such, shall have any liability for any obligations of the
Company or Holdings under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes (and the
obligations of the Guarantors under the Domestic Subsidiary Guarantees)
("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes
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to receive payments in respect of the principal of, premium, if any, and
interest, including Special Interest, on such Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect
to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants described under "Certain Covenants" ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, noncallable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest, including
Special Interest, on the outstanding Notes on the Stated Maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 95th day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under, any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, although neither a
Legal Defeasance nor a Covenant Defeasance shall occur while the Senior Credit
Facilities are outstanding unless such defeasance is permitted thereunder or
the holders of the Indebtedness represented by the Senior Credit Facilities
(or a representative thereof) consent to such Legal Defeasance or Covenant
Defeasance; (vi) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and (vii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder of Notes may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes, fees
and expenses required by law or permitted by the Indenture. The Company is not
required to transfer or exchange any Note selected for redemption. Also, the
Company is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of such Note
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment, supplement or
waiver may not (with respect to any Notes held by a nonconsenting Holder): (i)
reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other
than that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or interest on
the Notes, (vii) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"), (viii) amend or modify any
Guarantees on the Notes or (ix) make any change in the foregoing amendment,
supplement and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the rights under the Indenture of any such Holder, to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the TIA or to make certain changes to the Indenture to provide
for the issuance of Additional Notes.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for
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or as an inducement to any consent, waiver or amendment of any terms or
provisions of the Notes, unless such consideration is offered to be paid or
agreed to be paid to all Holders of Notes which so consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires an conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i) any
Indebtedness of any other Person existing at the time such other Person is
merged with or into, or becomes a Subsidiary of, such specified Person,
including, without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director
or executive officer of (a) such specified Person or (b) any Person described
in the preceding clause (i). For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of any class, or any series
of any class, of equity securities of a Person, whether or not voting, shall
be deemed to be control.
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance,
disposition or other transfer, that does not constitute a Restricted Payment
or an Investment, by such Person of any of its property or assets (including
without limitation, by way of a Sale and Leaseback Transaction and including
the issuance, sale or other transfer of any Capital Stock in any Subsidiary
(including any Intellectual Property Subsidiary) of such Person or the sale or
other transfer of Capital Stock in any Unrestricted Subsidiary of such Person
(including the receipt of proceeds of insurance paid on account of the loss of
or damage to any asset and awards of compensation for any asset taken by
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condemnation, eminent domain or similar proceeding, and including the receipt
of proceeds of business interruption insurance), in each case in one or a
series of related transactions; provided that, notwithstanding the foregoing,
the term "Asset Sale" shall not include: (a) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted pursuant to the covenant entitled "Merger, Consolidation
or Sale of Assets," (b) the sale or lease of inventory and obsolete equipment
or personal property no longer useful in the business of such Person, in each
case in the ordinary course of business, (c) a transfer of assets by any
Person to the Company, an Intellectual Property Subsidiary or a Wholly Owned
Subsidiary of the Company, (d) an issuance of Capital Stock by any Person to
the Company or to a Wholly Owned Subsidiary of the Company, (e) the sale or
other disposition of cash or Cash Equivalents, (f) the issuance by the Company
of shares of its Capital Stock, (g) the licensing of intellectual property in
the ordinary course of business or (h) Asset Swaps permitted pursuant to the
covenant entitled "Repurchase at Option of Holders--Asset Sales."
"Asset Swap" means the substantially concurrent purchase and sale, or
exchange, of Productive Assets between the Company and another Person or group
of affiliated Persons (which Person or group of affiliated Persons is not
affiliated with the Company) pursuant to an Asset Swap Agreement.
"Asset Swap Agreement" means a definitive agreement, subject only to
customary closing conditions that the Company in good faith believes will be
satisfied, providing for an Asset Swap; provided, however, that any amendment
to, or waiver of, any closing condition that individually or in the aggregate
is material to such Asset Swap shall be deemed to be a new Asset Swap
Agreement.
"Attributable Debt" 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).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or
foreign law for the relief of debtors.
"Board" means the board of directors of the Company.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"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 or exchangeable
into such equity.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any commercial bank of
recognized standing having capital and surplus in excess of $500.0 million or
(ii) any bank whose short-term commercial paper rating from Standard and
Poor's Rating Group is at least A-1 or the equivalent thereof or from Moody's
Investors Service, Inc. is at least P-1 or the equivalent thereof (any such
bank being an "Approved Lender"), in each case with maturities of not more
than twelve months from the date of acquisition, (c) commercial paper issued
by any Approved
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Lender (or by the parent company thereof), (d) repurchase obligations of any
lender under the Senior Credit Facilities (as in effect on the date of the
Indenture) or any Approved Lender and (e) any shares of money market mutual or
similar funds having assets in excess of $500.0 million or which invest
exclusively in the assets satisfying the requirements of clauses (a) through
(d) of this definition.
"Change of Control" means such time as:
(i) prior to the initial Public Equity Offering by the Company or
Holdings of its common stock, (a) Holdings ceases to be, directly or
indirectly, the beneficial owner of 100% of the voting power of the Voting
Stock of the Company (unless the Company has merged with or into Holdings
in compliance with the covenant set forth under the caption "Merger,
Consolidation or Sale of Assets" or (b) the Initial Shareholders cease to
be, directly or indirectly, the beneficial owners, in the aggregate, of
more than 50% of the voting power of the Voting Stock of the Company and of
Holdings, in each case on a fully-diluted basis, after giving effect to the
conversion and exercise of all outstanding warrants, options any other
securities of the Company or Holdings, as the case may be, convertible into
or exercisable for Voting Stock of the Company or Holdings, as the case may
be (whether or not such securities are then currently convertible or
exercisable); or
(ii) after the initial Public Equity Offering by the Company or Holdings
of its common stock, (a) any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) (other than one or more of the
Initial Shareholders) becomes, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), by way of
merger, consolidation or otherwise, of 35% or more of the voting power of
the Voting Stock of the Company or Holdings on a fully-diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of the Company or Holdings, as the case may
be, convertible into or exercisable for Voting Stock of the Company or
Holdings, as the case may be, (whether or not such securities are then
currently convertible or exercisable) and (b) such person or group is or
becomes, directly or indirectly, the beneficial owner of a greater
percentage of the voting power of the Voting Stock of the Company or
Holdings, as the case may be, calculated on such fully diluted basis, than
the percentage beneficially owned by the Initial Shareholders; or
(iii) the Company or Holdings merges with or into another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person merges with or
into the Company or Holdings, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company or Holdings, as the
case may be, is converted into or exchanged for cash, securities or other
property, other than any such transaction where (x) the outstanding Voting
Stock of the Company or Holdings, as the case may be, is converted into or
exchanged for (1) Voting Stock (other than Redeemable Stock) of the
surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (y) immediately after such transaction no
"person" or "group" (within the meaning of Sections 13(d) and 14(d) of the
Exchange Act) (other than one or more of the Initial Shareholders) is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of (1) 35% or more of the voting power of the Voting Stock of
the surviving or transferee corporation on a fully diluted basis, after
giving effect to the conversion and exercise of all outstanding warrants,
options and other securities of such surviving or transferee corporation
convertible into or exercisable for Voting Stock of such surviving or
transferee
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corporation (whether or not such securities are then currently convertible
or exercisable) and (2) a greater percentage of the voting power of the
Voting Stock of such surviving or transferee corporation calculated on such
fully diluted basis, than the percentage beneficially owned by the Initial
Shareholders; or
(iv) during any period of two consecutive calendar years, individuals who
at the beginning of such period constituted the Board or the board of
directors of Holdings, together with any new members of such Board or board
of directors (a) whose election by such Board or board of directors or
whose nomination for election by the stockholders of the Company or
Holdings, as the case may be, was approved by a vote of a majority of the
members of such Board or board of directors then still in office who either
were directors at the beginning of such period or whose election or
nomination for election was previously so approved or (b) elected by the
Initial Shareholders, cease for any reason to constitute a majority of the
directors of the Company or Holdings, as the case may be, then in office.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) the sum of (a) Consolidated Interest
Expense for such four fiscal quarters plus (b) all cash preferred dividends
(tax effected) for such period; provided, however, that:
(a) if the Company or any Subsidiary of the Company (x) has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Interest Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness and the application of the proceeds thereof as if such
Indebtedness had been Incurred and the proceeds thereof applied on the
first day of such period or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period
that is no longer outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio involves a discharge of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect to such discharge of such Indebtedness, including application
of the proceeds of such new Indebtedness, as if such defeasance, repayment,
repurchase or discharge had occurred on the first day of such period
(except that, in making such computation, the amount of Indebtedness under
the Revolving Credit Facility or other revolving credit facility shall be
computed based upon the average daily balance of such Indebtedness during
such four-quarter period);
(b) if since the beginning of such period the Company or any of its
Subsidiaries shall have disposed of any company or any business or any
group of assets constituting an operating unit (a "Disposal"), the EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of such
Disposal for such period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period, and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any of its Subsidiaries repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Subsidiaries in connection with such Disposal for such period (or, if the
Capital Stock of any Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such
Subsidiary to the extent the Company and its continuing Subsidiaries are no
longer liable for such Indebtedness after such sale);
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(c) if since the beginning of such period the Company or any Subsidiary
of the Company (by merger or otherwise) shall have acquired any company or
any business or any group of assets constituting an operating unit (an
"Acquisition"), EBITDA 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 Acquisition occurred on the
first day of such period; and
(d) if since the beginning of such period any Person (that subsequently
became a Subsidiary of the Company or was merged with or into the Company
or any Subsidiary of the Company since the beginning of such period) shall
have made any Disposal or Acquisition that would have required an
adjustment pursuant to clause (b) or (c) above if made by the Company or a
Subsidiary of the Company during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Disposal or Acquisition occurred on the first day
of such period.
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 Hedging Obligations
applicable to such Indebtedness if such Hedging Obligations have a remaining
term as at the date of determination in excess of 12 months). If any
Indebtedness bears, at the option of the Company or a Subsidiary of the
Company, a fixed or floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be computed by
applying, at the option of the Company, either a fixed or floating rate. If
any Indebtedness that is being given pro forma effect was Incurred under the
Revolving Credit Facility or any other revolving credit facility, the interest
expense on such Indebtedness shall be computed based upon the average daily
balance of such Indebtedness during the applicable period.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries as determined in
accordance with GAAP, plus, to the extent not included in such interest, (i)
the interest component of Capital Lease Obligations and Attributable Debt,
whether paid or accrued, (ii) amortization of debt discount, (iii) non-cash
interest expense, (iv) accrued interest, (v) interest actually paid by the
Company or any such Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (vi) net costs associated with Hedging
Obligations, (vii) the interest portion of any deferred obligation, (viii)
Preferred Stock dividends in respect of all Preferred Stock (including
Redeemable Stock) of Subsidiaries of the Company and Redeemable Stock of the
Company held by Persons other than the Company or a Wholly Owned Subsidiary of
the Company and (ix) 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; provided,
however, that there shall be excluded therefrom (y) any such interest expense
in respect of Qualified Subordinated Indebtedness and (z) any such interest
expense of any Unrestricted Subsidiary of the Company to the extent the
related Indebtedness is not Guaranteed or paid by the Company or any
Subsidiary of the Company.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income
(but not loss) of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
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governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income (if positive) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income of, or any dividends or
other distributions from, any Unrestricted Subsidiary of the Company, to the
extent otherwise included, shall be excluded, until distributed in cash to the
Company or one of its Subsidiaries and provided further that, for the purposes
of clause (i), Net Income of any such entity shall be calculated in the same
manner that Net Income of the Company is calculated. Notwithstanding the
foregoing, for the purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded
from Consolidated Net Income any payments of interest on Indebtedness,
dividends, repayments of principal of loans or advances, or other transfers of
assets, from Unrestricted Subsidiaries to the Company or any of its
Subsidiaries to the extent such payments, dividends, repayments, advances or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (c)(iii) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP, as of the end of the most recent fiscal quarter of
the Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, 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 Redeemable Stock of the Company.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its consolidated Subsidiaries for such period, on a consolidated basis, as
determined in accordance with GAAP (excluding any non-cash charge that
requires or represents an accrual or reserve for cash charges for any future
period, other than accruals for future retiree medical obligations made
pursuant to SFAS No. 87, No. 112 and No. 116, as amended or modified).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means, with respect to any Person, (i) so
long as the Senior Credit Facilities are outstanding, Indebtedness of such
Person under the Senior Credit Facilities and (ii) thereafter, any other
Senior Indebtedness of such Person permitted under the Indenture the principal
amount of which is $25.0 million or more and that has been designated by such
Person as "Designated Senior Indebtedness."
"Domestic Subsidiary" means any direct or indirect Subsidiary of the Company
that is organized and existing under the laws of the United States, any state
thereof or the District of Columbia, but shall not include any Intellectual
Property Subsidiary unless such Intellectual Property Subsidiary is a Wholly
Owned Subsidiary of the Company.
"Domestic Subsidiary Guarantee" means any unconditional Guarantee, on a
senior subordinated and unsecured basis, of the Notes provided by any Domestic
Subsidiary of the Company.
"EBITDA" for any period means the sum of Consolidated Net Income, income tax
expense, Consolidated Interest Expense and Consolidated Non-Cash Charges
deducted in computing
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Consolidated Net Income, without duplication, in each case for such period, of
such Person and its consolidated Subsidiaries on a consolidated basis, all
determined in accordance with GAAP.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated as of the date of the Indenture, between
the Company and the Initial Purchasers.
"Exchange Notes" means, collectively, debt securities of the Company that
are identical in all material respects to the Notes, except for the transfer
restrictions relating to the Notes, issued in a like aggregate principal
amount of the Notes pursuant to the Exchange and Registration Rights
Agreement.
"Exchange Offer" means a registered exchange offer for the Notes undertaken
by the Company pursuant to the Exchange and Registration Rights Agreement.
"Exempt Affiliate Transactions" means (a) transactions between or among the
Company and/or its Wholly Owned Subsidiaries, (b) loans or advances to
employees and officers of the Company or any Subsidiary of the Company in the
ordinary course of business to provide for the payment of reasonable expenses
incurred by such persons in the performance of their responsibilities to the
Company or such Subsidiary or in connection with any relocation, (c) fees,
compensation or employee benefit arrangements paid to and indemnity provided
on behalf of directors, officers or employees of the Company or any Subsidiary
of the Company in the ordinary course of business, (d) any employment
agreement (including customary benefits thereunder) that is in effect on the
date of the Indenture in the ordinary course of business and any such
agreement entered into by the Company or a Subsidiary of the Company after the
date of the Indenture in the ordinary course of business of the Company or
such Subsidiary, (e) any Restricted Payment that is not prohibited by the
covenant set forth under the caption "--Certain Covenants--Limitation on
Restricted Payments" above and (f) transactions pursuant to agreements in
effect on the date of original issuance of the Notes, including amendments
thereto entered into after such date; provided that the terms of any such
amendment are not, in the aggregate, less favorable to the Company than the
terms of such agreement prior to such amendment and; provided further that
such agreements are set forth in a schedule to the Indenture.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facilities) in
existence on the date of the Indenture, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms'-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person,
including any such 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 or other obligation of such other
Person (whether arising
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by agreement 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 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 shall have a correlative
meaning.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means the Person in whose name a Note is registered or the
registrar's books.
"Holdings" means Eagle Family Foods Holdings, Inc., a Delaware corporation.
"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 Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness. The terms "Incurred," "Incurrence"
and "Incurring" shall each have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal (accreted value in the case of Indebtedness Incurred
with original issue discount) of and premium (if any) in respect of
indebtedness of such Person for borrowed money;
(ii) the principal (accreted value in the case of Indebtedness Incurred
with original issue discount) of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(iii) all Capital Lease Obligations and Attributable Debt of such Person;
(iv) all obligations of such person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables);
(v) all reimbursement obligations of such Person in respect of letters of
credit, bankers' acceptances or other similar instruments or credit
transactions, other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iv) of this definition) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit;
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock of such
Person or any Redeemable Stock of such Person's Subsidiaries (but
excluding, in each case, any accrued dividends);
(vii) the amount of Preferred Stock of such Person's Subsidiaries (but
excluding any unaccrued dividends);
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(viii) 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;
provided, however, that if such Indebtedness is not assumed by such Person,
the amount of such Indebtedness shall be the lesser of (a) the Fair Market
Value (as determined by the board of directors of such Person, whose
determination shall be conclusive if made in good faith and evidenced by a
resolution of such board of directors) of such asset at such date of
determination and (b) the amount of such Indebtedness of such other Person;
(ix) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(x) to the extent not otherwise included in this definition, net
obligations in respect of Hedging Obligations.
For purposes of this definition, the maximum fixed redemption, repayment or
repurchase price of any Redeemable Stock that does not have a fixed
redemption, repayment or repurchase price shall be calculated in accordance
with the terms of such Redeemable Stock as if such Redeemable Stock were
redeemed, repaid or repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture; provided, however, that
if such Redeemable Stock is not then permitted to be redeemed, repaid or
repurchased, the redemption, repayment or repurchase price shall be the book
value of such Redeemable Stock as reflected in the most recent financial
statements of such Person. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Independent Director" means a director of the Company other than a director
who is a party, or who is a director, officer, employee or Affiliate (or is
related by blood or marriage to any such person) of the other party, to the
transaction in question, and who is, in fact, independent in respect of such
transaction.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking or consulting firm that is, in the
reasonable judgment of the Board, qualified to perform the task for which such
firm has been engaged and disinterested and independent with respect to the
Company.
"Initial Purchasers" means, collectively, Chase Securities Inc. and Merrill
Lynch & Co.
"Initial Shareholders" means the Sponsors and Management Shareholders.
"Intellectual Property Subsidiary" means any Subsidiary of the Company (i)
substantially all the assets of which are comprised of patents, trademarks,
copyrights and other intellectual property, (ii) that is engaged solely in the
business of owning such assets (prior to any sale, lease, conveyance,
disposition of or other transfer of any of such assets to any Person in
accordance with the terms of the Indenture) and licensing such assets to the
Company pursuant to a license agreement or other agreement or arrangement
relating to licensing fees, royalty payments or similar fees or payments that
does not require the payment of any fees or the making of any payments by the
Company to such Intellectual Property Subsidiary in any year in excess of 10%
of the gross revenues for such year attributable to the sales of products
using the patents, trademarks, copyrights or other intellectual property that
is the subject of such agreement or arrangement and other activities
incidental thereto, (iii) contains in its charter, partnership agreement,
operating agreement or other constituent or governing document (A) a provision
granting the Company or any Wholly Owned Subsidiary of the Company control
over the management (including the sale, lease, conveyance disposition of or
other transfer of any of the properties or assets) of such Subsidiary, (B) a
prohibition against the making of
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any distribution by such Subsidiary to any Person other than the Company or
any Wholly Owned Subsidiary of the Company with respect to any year (other
than in connection with the sale, lease, conveyance, disposition of or other
transfer of any assets of such Subsidiary to any Person in accordance with the
terms of the Indenture) in an amount in excess of 10% of the difference (if
positive) between the revenue of such Subsidiary for such year and the
operating expenses of such Subsidiary for such year and (C) a provision
requiring that all proceeds derived from the issuance, sale or other transfer
of any shares of Capital Stock by such Subsidiary be distributed to the
Company promptly upon receipt thereof and (iv) that does not Incur
Indebtedness and that does not incur any other obligation other than as
permitted under clause (ii) above.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including an Affiliate) in the form of a direct or
indirect loan (including a Guarantee of Indebtedness or other Obligation),
advance or other extension of credit or capital contribution (by means of any
transfer of cash or other property) (excluding an advance to any officer or
employee of the type specified in clause (b) of the definition of Exempt
Affiliate Transactions and accounts receivable and other extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices), purchase or other acquisition for consideration or ownership of
Indebtedness, Capital Stock or other security issued or owned by any other
Person and any other item that is or would be classified as an investment on a
balance sheet prepared in accordance with GAAP; provided that an acquisition
of assets, Capital Stock or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Shareholder" means an officer, director or employee of the
Company or any Subsidiary of the Company who is the beneficial owner of any
Capital Stock of the Company or of Holdings.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, any dispositions pursuant
to a Sale and Leaseback Transaction) or (b) the disposition of any securities
by such Person or any of its Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries, (ii) any extraordinary
gain or loss, together with any related provision for taxes on such
extraordinary gain or loss, (iii) any gains (but not losses) from currency
exchange transactions not in the ordinary course of business consistent with
past practice and (iv) with respect to the Company, (a) cash restructuring
charges or writeoffs recorded within the one-year period following the date of
the Indenture in an aggregate amount not to exceed $5.0 million and (b) other
such non-cash restructuring charges or writeoffs recorded within such one-year
period (excluding any non-cash charge that requires or represents an accrual
or reserve for cash charges for any future period).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
noncash consideration received in any Asset Sale but only as and when
received) net of (i) the amount of cash applied to repay or defease
Indebtedness secured by
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the asset involved in such Asset Sale, (ii) the direct costs and expenses
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), (iii) any relocation
expenses incurred as a result thereof, (iv) taxes (including income taxes and
taxes payable upon payment or other distribution of funds from a Foreign
Subsidiary to the Company or another Subsidiary of the Company) paid or
payable as a result thereof, (v) any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP, (vi) a
reasonable reserve for the after-tax cost of any indemnification payments
(fixed or contingent) attributable to the seller's indemnities to purchaser in
respect of such Asset Sale undertaken by the Company or any of its
Subsidiaries in connection with such Asset Sale and (vii) if such Person is a
Subsidiary of the Company, any dividends or distributions payable to holders
of minority interests in such Subsidiary from the proceeds of such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; 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 of the Company) would permit (upon notice,
lapse of time or both) any holder of any other Indebtedness of the Company or
any of its Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Obligations" means any principal, interest, special interest, penalties,
premiums, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"pari passu," as applied to the ranking of any Indebtedness of a Person in
relation to other Indebtedness of such Person, means that each such
Indebtedness either (i) is not subordinate in right of payment to any
Indebtedness or (ii) is subordinate in right of payment to the same
Indebtedness as is the other, and is so subordinate to the same extent, and is
not subordinate in right of payment to each other or to any Indebtedness as to
which the other is not so subordinate.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company under the Senior Credit Facilities (and
of any future Domestic Subsidiaries under the Domestic Subsidiary
Guarantees), or any refinancing thereof, in an aggregate principal amount
at any time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) not to exceed $265.0 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the outstanding amount or the commitments with respect to such
Indebtedness pursuant to the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";
(ii) the Existing Indebtedness of the Company;
(iii) the Indebtedness of the Company under the Notes and of any future
Domestic Subsidiaries under the Domestic Subsidiary Guarantees;
(iv) Indebtedness (including Acquired Indebtedness) of the Company or any
of its Subsidiaries represented by Capital Lease Obligations, mortgage
financings or Purchase Money
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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 the business of the Company or such Subsidiary or any
Refinancing Indebtedness thereof (provided that the requirements of clause
(ii) of the definition of Refinancing Indebtedness need not be met for the
purposes of this clause (iv)), in an aggregate principal amount not to
exceed $20.0 million at any time outstanding;
(v) Refinancing Indebtedness of the Company or any of its Subsidiaries;
(vi) Indebtedness of the Company owing to and held by any of its Wholly
Owned Subsidiaries or Indebtedness of a Subsidiary of the Company owing to
and held by the Company and any of its Wholly Owned Subsidiaries; provided,
however, that (i) any subsequent issuance or transfer of Capital Stock that
results in any such Indebtedness being held by a Person other than a Wholly
Owned Subsidiary of the Company and (ii) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly
Owned Subsidiary of the Company shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) (a) Hedging Obligations that are Incurred by the Company or any of
its Subsidiaries for the purpose of fixing or hedging interest rate risk
with respect to any floating rate Indebtedness that is permitted by the
Indenture to be Incurred, (b) Indebtedness for letters of credit relating
to workers' compensation claims and self-insurance or similar requirements
in the ordinary course of business, (c) Indebtedness in respect of
performance, surety or appeal bonds in the ordinary course of business and
(d) Indebtedness in respect of any Currency Agreement;
(viii) Indebtedness of the Company to the extent the proceeds thereof are
immediately used after the Incurrence thereof to purchase Notes tendered in
an offer to purchase made as a result of a Change of Control;
(ix) 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 Subsidiary of the Company pursuant to
such agreements), in any case Incurred in connection with the disposition
of any business, assets or Subsidiary of the Company (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Subsidiary of the Company in
connection with such disposition;
(x) Qualified Subordinated Indebtedness of the Company or a Domestic
Subsidiary;
(xi) Indebtedness of Foreign Subsidiaries in an amount not at any time
exceeding $10.0 million; and
(xii) Indebtedness of the Company and its Subsidiaries (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any time outstanding not to exceed $20.0
million.
"Permitted Investments" means (a) any Investments in the Company; (b) any
Investments in Cash Equivalents; (c) Investments made as a result of the
receipt of noncash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales"; (d) Investments outstanding
as of the date of the Indenture; (e) Investments in property or assets to be
used in (or in Subsidiaries and any entity that, as a result of such
Investment, is a Subsidiary engaged in) the same or a similar line of business
as the Company or any of its Subsidiaries was engaged in on the date of the
Indenture or
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any reasonable extensions or expansions thereof and Investments in the form of
any purchase or other acquisition for consideration or ownership of additional
Capital Stock of any of the Subsidiaries of the Company permitted under the
Indenture; (f) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses in
accordance with GAAP; (g) loans or advances to employees made in the ordinary
course of business that do not in the aggregate exceed $10.0 million at any
time outstanding; (h) accounts receivables and other extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices; (i) Investments in any broker or customer; provided that the
aggregate amount of such Investments in all brokers and customers shall not at
any time exceed $5.0 million; (j) Investments in dealers or customers received
as distributions on debt claims under a plan or plans of reorganization in any
bankruptcy proceeding filed by or against any dealer or customer under Chapter
11 of Title 11 of the U.S. Code; provided that the Company liquidates such
Investments as soon as practicable; and (k) Investments in Indebtedness
incurred by the Company or any Subsidiary of the Company in compliance with
the covenant described under "--Certain Covenants--Limitation on Incurrence of
Indebtedness." The term "Permitted Investments" shall not include the
purchase, redemption or other acquisition or retirement for value of any
shares of Capital Stock of any Intellectual Property Subsidiary that are not
owned by the Company.
"Permitted Liens" means Liens securing Indebtedness of a Person existing at
the time that such Person is merged into or consolidated with the Company or a
Subsidiary of the Company or its assets are acquired by such Person; provided
that such Liens were not created in contemplation of such merger or
consolidation or purchase and do not extend to any assets of the Company or
any Subsidiary of the Company, other than the surviving person and its
Subsidiaries or such assets.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that 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.
"Private Exchange Notes" means, collectively, debt securities of the Company
that are identical in all material respects to the Exchange Notes, except for
the transfer restrictions relating to such Private Exchange Notes, issued by
the Company (under the same indenture as the Exchange Notes) simultaneously
with the delivery of the Exchange Notes in the Exchange Offer, to any Holder
that holds any Notes acquired by it that have, or that are reasonably likely
to be determined to have, the status of an unsold allotment in an initial
distribution, or to any Holder that is not entitled to participate in the
Exchange Offer, upon the request of any such Holder, in exchange for a like
aggregate principal amount of Notes held by such Holder.
"Productive Assets" means assets of a kind used or usable by the Company and
its Subsidiaries in the Company's business or any Related Business.
"Public Equity Offering" means an underwritten primary public offering of
the common stock of the Company or of the common stock of Holdings pursuant to
an effective registration statement filed with the Commission in accordance
with the Securities Act (whether alone or in conjunction with a secondary
public offering).
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person Incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries in an amount
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that is not more than 100% of the cost of such property, and Incurred in
contemplation of, or within 180 days after, the date of such acquisition
(excluding accounts payable to trade creditors Incurred in the ordinary course
of business).
"Qualified Subordinated Indebtedness" means Subordinated Indebtedness owing
to an Initial Shareholder or any Affiliate of any Initial Shareholder (or, in
the case of Qualified Subordinated Indebtedness issued by the Company to
purchase, redeem or otherwise acquire or retire for value any shares of
Capital Stock of any Intellectual Property Subsidiary, to any other Person)
that (i) does not require or permit any payment for any reason upon or in
respect thereof, whether principal, interest or otherwise, prior to the Stated
Maturity thereof, except in additional Qualified Subordinated Indebtedness,
(ii) does not permit any acceleration thereof at any time prior to the date
that is 365 days after the payment in full in cash of the Notes, (iii) has a
Stated Maturity that is not earlier than the fifth anniversary of the Stated
Maturity of the Notes, (iv) does not contain any affirmative, negative,
financial or operating covenants and (v) is expressly subordinated in right of
payment to all other Indebtedness of the Company on substantially the same
terms that it is subordinated in right of payment to the Notes.
"Redeemable Stock" means with respect to any Person, Capital Stock of such
Person that, 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 (unless any redemption or repurchase of such Capital Stock thereupon is
required by any such terms, but only to the extent that a payment in respect
thereof would be permitted under the covenant set forth under the caption "--
Certain Covenants--Limitation on Restricted Payments"), matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date which is one year after the date on which the Notes mature.
"Refinancing Indebtedness" means any Indebtedness of the Company or any of
its Subsidiaries issued in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund other Indebtedness of
the Company or any of its Subsidiaries; provided that: (i) the principal
amount of such Refinancing Indebtedness does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses and penalties and premiums
incurred in connection therewith); (ii) such Refinancing Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) such Refinancing Indebtedness
ranks in right of payment to the Notes at least to the same extent as the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is Incurred either by the Company or by
the Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Registration Default" means (i) the failure of the Company to file with the
Commission the applicable registration statement as required by the Exchange
and Registration Rights Agreement, (ii) the failure of the registration
statement prepared in connection with the Exchange Offer or any shelf
registration statement relating to the offer and sale of the Transfer
Restricted Notes by the Holders thereof from time to time to be declared
effective as required by the Exchange and Registration Rights Agreement, (iii)
the failure to consummate the Exchange Offer as required by the Exchange and
Registration Rights Agreement or (iv) the failure of any shelf registration
statement relating to the offer and sale of the Transfer Restricted Notes by
the Holders thereof from time to time to remain effective as provided in the
Exchange and Registration Rights Agreement.
"Related Business" means any business which is the same as or related,
ancillary or complimentary to the business of the Company on the date of the
Indenture, as reasonably determined by the Board.
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"Resolution" means a copy of a resolution certified by the secretary or an
assistant secretary of the Company to have been duly adopted by the Board and
to be in full force and effect on the date on which such certification
delivered to the Trustee.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Facility" means that certain senior secured revolving
credit facility provided to the Company by The Chase Manhattan Bank, Merrill
Lynch Capital Corporation and certain other lenders on the date of the
Indenture in an amount equal to $70.0 million and/or any successor facility or
facilities.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the
leasing to the Company or a Subsidiary of the Company of any property, whether
owned by the Company or any Subsidiary of the Company as of the date of the
Indenture or later acquired, which has been or is to be sold or transferred by
the Company or such Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
property.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Facilities" means the Revolving Credit Facility and the Term
Credit Facility, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced, restated or
refinanced from time to time.
"Senior Indebtedness" means with respect to Indebtedness of the Company, (i)
Indebtedness Incurred under the Senior Credit Facilities and (ii) any other
Indebtedness permitted to be Incurred under the terms of the Indenture, unless
the instrument under which such Indebtedness is Incurred expressly provides
that it is on parity with or subordinated in right of payment to any
Indebtedness for money borrowed. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (w) any liability for
federal, state, local or other taxes, (x) any Indebtedness of the Company to
any of its Subsidiaries, Unrestricted Subsidiaries or other Affiliates, (y)
any Trade Payables or (z) any Indebtedness that is Incurred in violation of
the Indenture. Senior Indebtedness shall include (a) the principal of,
premium, if any, and interest (including interest accruing after the filing of
a petition initiating any proceeding pursuant to any Bankruptcy Law) in
accordance with and at the rate (including any rate applicable upon any
default, to the extent lawful) specified in any document evidencing the Senior
Indebtedness (whether or not the claim for such interest is allowed as a claim
after such filing in any proceeding under such Bankruptcy Law) and (b) all
other obligations with respect to any Senior Indebtedness (including all
reimbursement obligations in respect of letters of credit issued under the
Senior Credit Facilities and all obligations for fees, expenses, indemnities
and other amounts payable thereunder or in connection therewith). "Senior
Indebtedness" of any Guarantor has a correlative meaning.
"Significant Subsidiary" means, at any date of determination, any Subsidiary
or Unrestricted Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted
for more than 5% of the consolidated revenues of the Company and its
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 5% of the consolidated assets of the Company and its Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
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"Special Interest" means an amount equal to $0.192 per week per $1,000
principal amount of Notes constituting Transfer Restricted Notes held by each
Holder until all Registration Defaults have been cured.
"Sponsors" means, collectively, GE Investment Private Placement Partners II,
a Limited Partnership, and Warburg, Pincus Ventures, L.P. and any successor
funds.
"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 (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of an
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Indebtedness" means Indebtedness of the Company or any
Domestic Subsidiary if the instrument creating or evidencing such Indebtedness
or pursuant to which such Indebtedness is outstanding provides that such
Indebtedness is subordinated in right of payment to the Notes or any Domestic
Subsidiary Guarantees of any such Domestic Subsidiary, as the case may be, and
may be subordinated to Senior Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof). Notwithstanding the foregoing, an Unrestricted Subsidiary and all of
its Subsidiaries shall not be a Subsidiary of the Company for any purposes of
the Indenture.
"Term Credit Facility" means that certain senior secured term loan provided
to the Company by The Chase Manhattan Bank, Merrill Lynch Capital Corporation
and certain other lenders on the date of the Indenture, in an aggregate
principal amount of $175.0 million.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any Indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business of such
Person in connection with the acquisition of goods or services.
"Transfer Restricted Notes" means (i) each Note until the date on which such
Note has been exchanged for a freely transferable Exchange Note in the
Exchange Offer, (ii) each Note or Private Exchange Note until the date on
which it has been effectively registered under the Securities Act and disposed
of in accordance with a shelf registration statement on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Notes by the Holders thereof from time to time in accordance with
the methods of distribution set forth in such registration statement or (iii)
each Note or Private Exchange Note until the date on which it is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
"Unrestricted Subsidiary" means (i) any Person that (a) at the time of
determination shall be designated an Unrestricted Subsidiary by the Board in
the manner provided below and (b) would, but
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for such designation, be a Subsidiary of the Company and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless at the time of designation
such Subsidiary or any Subsidiary of such Subsidiary owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any other 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 assets of $1,000 or less or (b) if such Subsidiary has
assets greater than $1,000, then such designation would be permitted under "--
Certain Covenants--Limitation on Restricted Payments" as a "Restricted
Payment" after giving effect to the designation. The Board may designate any
Unrestricted Subsidiary to be a Subsidiary; provided, however, that
immediately after giving pro forma effect to such designation (1) the Company
could Incur $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio test in "--Certain Covenants--Limitation on
Indebtedness" and (2) no Default or Event of Default shall have occurred and
be continuing. Any such designation by the Board 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 complies with the foregoing provisions.
"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.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of the Indenture.
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BOOK-ENTRY; DELIVERY AND FORM
The Original Notes were offered and sold in connection with the initial
offering thereof solely to "qualified institutional buyers," as defined in
Rule 144A ("Rule 144A") under the Securities Act ("QIBs"), pursuant to Rule
144A and in offshore transactions to persons other than "U.S. persons," as
defined in Regulation S ("Regulation S") under the Securities Act ("Non-U.S.
Persons"), in reliance on Regulation S. Following the initial offering of the
Original Notes, the Original Notes may be sold to QIBs pursuant to Rule 144A,
Non-U.S. Persons in reliance on Regulation S and pursuant to other exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act, as described under "Transfer Restrictions", including sales to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3)
and (7) under the Securities Act ("Institutional Accredited Investors"), that
are not QIBs.
THE GLOBAL NOTES
Rule 144A Global Note. Notes offered and sold to QIBs pursuant to Rule 144A
were issued in the form of one or more registered notes in global form,
without interest coupons (collectively, the "Rule 144A Global Note"). The Rule
144A Global Note was deposited on the date of the closing of the sale of the
Original Notes to the Initial Purchasers (the "Closing Date"), which will be
the same day as the Issue Date, with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC,
or will remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee. Interests in the Rule 144A
Global Note will be available for purchase only by QIBs.
Regulation S Global Notes. Original Notes offered and sold in offshore
transactions to Non-U.S. Persons in reliance on Regulation S will initially be
issued in the form of one or more registered notes in temporary global form,
without interest coupons (collectively, "the Regulation S Temporary Global
Note"). Beneficial interests in the Regulation S Temporary Global Note will be
exchanged for beneficial interests in a corresponding note in permanent global
form (the "Regulation S Permanent Global Note" and, together with the
Regulation S Temporary Global Note, the "Regulation S Global Notes") within a
reasonable period after the expiration of the Restricted Period (as defined
below) upon certification that the beneficial interests in the Regulation S
Temporary Global Notes are owned by either Non-U.S. Persons or U.S. persons
who purchased such interests pursuant to an exemption from, or in transaction
not subject to, the registration requirements of the Securities Act. Each
Regulation S Global Note will be deposited upon issuance with, or on behalf
of, a custodian for DTC in the manner described in the preceding paragraph for
credit to the respective accounts of the purchasers (or to such other accounts
as they may direct) at Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System ("Euroclear"), or Cedel Bank,
societe anonyme ("Cedel"). Prior to the 40th day after the later of the
commencement of the offering of the Notes and the Closing Date (such period
through and including such 40th day, the "Restricted Period"), interests in
the Regulation S Temporary Global Note may only be held through Euroclear or
Cedel (as indirect participants in DTC) unless exchanged for interests in the
Rule 144A Global Note or the Institutional Accredited Investor Global Note (as
defined below) in accordance with the transfer and certification requirements
described herein.
Investors may hold their interests in the applicable Regulation S Global
Note directly through Euroclear or Cedel, if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold such interests through organizations other than
Euroclear or Cedel that are participants in the DTC system. Euroclear and
Cedel will hold such interests in the applicable Regulation S Global Note on
behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories. Such
depositories, in turn, will
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hold such interests in the Regulation S Global Note in customers' securities
accounts in the depositories' names on the books of DTC.
Institutional Accredited Investor Global Note. In connection with the sale
of Original Notes to an Institutional Accredited Investor, beneficial
interests in any of the Global Notes (as defined below) may be exchanged for
interests in a separate note in registered form, without interest coupons (the
"Institutional Accredited Investor Global Note"), which will be deposited on
the Closing Date with, or on behalf of, a custodian for DTC in the manner
described in the preceding paragraphs.
Except as set forth below, the Rule 144A Global Note, the Regulation S
Global Notes and the Institutional Accredited Investor Global Note
(collectively, the "Global Notes") may be transferred, in whole and not in
part, solely to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Original Notes in physical, certificated form ("Certificated Notes") except in
the limited circumstances described below.
The Original Notes are subject to certain restrictions on transfer and will
bear a restrictive legend as set forth under "Transfer Restrictions."
All interests in the Global Notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems.
EXCHANGES AMONG THE GLOBAL NOTES
Prior to the expiration of the Restricted Period, transfers by an owner of a
beneficial interest in the Regulation S Temporary Global Note to a transferee
who takes delivery of such interest through the Rule 144A Global Note or the
Institutional Accredited Investor Global Note will be made only in accordance
with applicable procedures and upon receipt by the Trustee of a written
certification from the transferor of the beneficial interest in the form
provided in the Indenture to the effect that such transfer is being made to
(i) a person whom the transferor reasonably believes is a QIB within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or
(ii) an Institutional Accredited Investor purchasing for its own account, or
for the account of such an Institutional Accredited Investor, in a minimum
principal amount of the Original Notes of $250,000. In addition, in the case
of a transfer pursuant to clause (ii) above, the transferor may be required to
deliver to the Company and the Trustee (as defined in the Indenture) a letter
from the transferee substantially in the form of Annex A hereto, which shall
provide, among other things, that the transferee is an Institutional
Accredited Investor that is acquiring such Notes not for distribution in
violation of the Securities Act.
Transfers by an owner of a beneficial interest in the Rule 144A Global Note
or the Institutional Accredited Investor Global Note to a transferee who takes
delivery of such interest through the Regulation S Global Note, whether before
or after the expiration of the Restricted Period, will be made only upon
receipt by the Trustee of a certification from the transferor to the effect
that such transfer is being made in accordance with Regulation S or (if
available) Rule 144 and that, if such transfer is being made prior to the
expiration of the Restricted Period, the interest transferred will be held
immediately thereafter through Euroclear or Cedel.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.
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CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. None
the Company or any of the Initial Purchasers takes any responsibility for
these operations or procedures, and investors are urged to contact the
relevant system or its participants directly to discuss these matters.
DTC 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 "banking
organization" within the meaning of the New York Banking Law, (iii) a member
of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC 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. DTC's Participants include securities
brokers and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC'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. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Company expects that, pursuant to procedures established by DTC, (i)
upon deposit of each Global Note, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of the Original Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC
(with respect to the interests of Participants) and the records of
Participants and the Indirect Participants (with respect to the interests of
persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Original Notes
represented by a Global Note to such persons may be limited. In addition,
because DTC can act only on behalf of its Participants, who in turn act on
behalf of persons who hold interests through Participants, the ability of a
person having an interest in Original Notes represented by a Global Note to
pledge or transfer such interest to persons or entities that do not
participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Original Notes represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Notes, and will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any direction, instruction or approval to the
Trustee thereunder. Accordingly, each holder owning a beneficial interest in a
Global Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a
holder of Notes under the Indenture or such Global Note. The Company
understands that under existing industry practice, in the event that the
Company requests any action of holders of Original Notes, or a holder that is
an owner of a beneficial interest in a Global Note desires to take any action
that DTC, as the
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holder of such Global Note, is entitled to take, DTC would authorize the
Participants to take such action and the Participants would authorize holders
owning through such Participants to take such action or would otherwise act
upon the instruction of such holders. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of Original Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Original Notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date
will be payable by the Trustee to or at the direction of DTC or its nominee in
its capacity as the registered holder of the Global Note representing such
Notes under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Original Notes, including
the Global Notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Note will be governed by standing instructions and customary industry practice
and will be the responsibility of the Participants or the Indirect
Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one
hand, and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in Euroclear
or Cedel as a result of sales of interest in a Global Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or Cedel or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
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CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depository is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Original Notes in definitive form under the Indenture or (iii) upon the
occurrence of certain other events as provided in the Indenture, then, upon
surrender by DTC of the Global Notes, Certificated Notes will be issued to
each person that DTC identifies as the beneficial owner of the Original Notes
represented by the Global Notes. Upon any such issuance, the Trustee is
required to register such Certificated Notes 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 DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the related Original Notes and each such person may conclusively rely on,
and shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Original Notes to be issued).
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ORIGINAL NOTES REGISTRATION RIGHTS
The Company, Holdings and the Initial Purchasers entered into the Exchange
and Registration Rights Agreement in connection with the issuance of the
Notes. Pursuant to the Exchange and Registration Rights Agreement, the Company
and Holdings agreed to (i) file with the Commission on or prior to 90 days
after the Issue Date a registration statement on Form S-1 or Form S-4, if the
use of such form is then available (the "Exchange Offer Registration
Statement"), relating to the registered Exchange Offer for the Notes under the
Securities Act and (ii) use their reasonable best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities (as
defined below) who are not prohibited by any law or policy of the Commission
from participating in the Exchange Offer the opportunity to exchange their
Transfer Restricted Securities for Exchange Notes, which will be an issue of a
second series of notes that are identical in all material respects to the
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) that will be registered under the Securities Act. The
Company will keep the Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date on which notice of the
Exchange Offer is mailed to the holders of the Original Notes.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated by the Exchange and Registration Rights
Agreement, (ii) any Original Notes validly tendered pursuant to the Exchange
Offer are not exchanged for Exchange Notes within 180 days after the Issue
Date, (iii) any Initial Purchaser so requests with respect to Original Notes
not eligible to be exchanged for Exchange Notes in the Exchange Offer, (iv)
any applicable law or interpretations do not permit any holder of Original
Notes to participate in the Exchange Offer, (v) any holder of Original Notes
that participates in the Exchange Offer does not receive freely transferable
Exchange Notes in exchange for tendered Original Notes or (vi) the Company so
elects, then the Company will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating
to the provision of information in connection with the Shelf Registration
Statement. For purposes of the foregoing, "Transfer Restricted Securities"
means each Original Note until (i) the date on which such Original Note has
been exchanged for a freely transferable Exchange Note in the Exchange Offer,
(ii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) the date on which such Original Note is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant
to Rule 144(k) under the Securities Act.
The Company and Holdings will use their reasonable best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement (each, a "Registration Statement") declared effective
by the Commission as promptly as practicable after the filing thereof. Unless
the Exchange Offer would not be permitted by a policy of the Commission, the
Company will commence the Exchange Offer and will use its reasonable best
efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to 180 days after the Issue Date. If applicable, the Company
will use its reasonable best efforts to keep the Shelf Registration Statement
effective for a period of two years after the Issue Date.
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 90 days after the Issue Date; (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 150 days after the Issue Date; (iii)
the Exchange Offer is not consummated on or prior to 180 days after the Issue
Date or (iv) the Shelf Registration Statement is filed and declared effective
within 180 days after the Issue Date but shall
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thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by
an additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Company will be obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of
the Original Notes constituting Transfer Restricted Securities held by such
holder until the applicable Registration Statement is filed, the Exchange
Offer Registration Statement is declared effective and the Exchange Offer is
consummated or the Shelf Registration Statement is declared effective or again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to holders in the same manner as interest payments on the Original Notes
on semi-annual payment dates that correspond to interest payment dates for the
Original Notes. Following the cure of all Registration Defaults, the accrual
of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company and Holdings (i) shall make available for a period of 180 days after
the consummation of the Exchange Offer a prospectus meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any
resale of any such Exchange Notes and (ii) shall pay all expenses incident to
the Exchange Offer (including the expense of one counsel to the holders of the
Original Notes) and will indemnify certain holders of the Original Notes
(including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Original Notes who wishes to exchange such Original Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business; (ii)
it has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Company or of Holdings,
or if it is an affiliate, that 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 Original 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.
Holders of the Original Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their
Original Notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells Original Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement that are
applicable to such a holder (including certain indemnification obligations).
For so long as the Original Notes are outstanding, the Company and Holdings
will continue to provide to holders of the Notes and to prospective purchasers
of the Notes the information required by Rule 144A(d)(4) under the Securities
Act.
102
<PAGE>
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration
Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
103
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Willkie Farr & Gallagher
of the material U.S. Federal income tax considerations generally applicable to
holders of the Notes. This summary is based upon current provisions of the
Code, regulations of the Treasury Department, administrative rulings and
pronouncements of the Internal Revenue Service ("IRS") and judicial decisions
currently in effect, all of which are subject to change, possibly with
retroactive effect. The discussion does not deal with all aspects of U.S.
Federal income taxation that may be relevant to particular investors in light
of their personal investment circumstances, including persons holding Notes as
part of a conversion transaction or as part of a hedge or hedging transaction,
or as a position in a straddle for tax purposes, nor does it discuss U.S.
Federal income tax considerations applicable to certain types of investors
subject to special treatment under the U.S. Federal income tax laws, including
insurance companies, tax-exempt organizations and financial institutions or
broker-dealers. In addition, the discussion does not consider the effect of
any foreign, state, local, gift, estate or other tax laws that may be
applicable to a particular investor. Except as specifically provided below
with respect to Non-U.S. Holders (as defined below), the discussion is limited
to holders of Notes that are U.S. persons. For purposes of the discussion, a
"U.S. person" means (i) a citizen or resident (as defined in Section
7701(b)(1) of the Code) of the United States, (ii) a corporation or other
entity taxable as a corporation created or organized under the laws of the
United States or any State thereof (including the District of Columbia), (iii)
an estate or trust described in Section 7701(a)(30) of the Code, or (iv) a
person whose worldwide income or gain is otherwise subject to U.S. Federal
income taxation on a net income basis, and a "Non-U.S. Holder" means any
beneficial owner of a Note that is not a U.S. person. EACH POTENTIAL INVESTOR
SHOULD CONSULT ITS TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
TAXATION OF THE NOTES
Interest on the Notes. A holder of a Note will be required to report
interest earned on the Note as ordinary interest income for U.S. Federal
income tax purposes in accordance with such holder's method of tax accounting.
Disposition of the Notes. A holder's tax basis for a Note generally will be
such holder's purchase price for the Note. Upon the sale, exchange,
redemption, retirement or other disposition of a Note, a holder generally will
recognize capital gain or loss equal to the difference (if any) between the
amount realized (other than amounts attributable to accrued but unpaid stated
interest which will be taxable as ordinary income) and such holder's tax basis
in the Note. Such gain or loss shall be treated as long-term capital gain or
loss if the Note was held for more than one year. In the case of individuals,
such gain or loss will be subject to a maximum rate of 28% if the Note has
been held for more than one year but less than eighteen months and will be
subject to a maximum tax rate of 20% if the Note has been held for more than
eighteen months.
Exchange Offer. The exchange of a Note for an Exchange Note pursuant to the
Exchange Offer will not constitute a taxable exchange.
NON-U.S. HOLDERS
Subject to the discussion of backup withholding below, a Non-U.S. Holder
generally will not be subject to U.S. Federal income or withholding tax on
payments of interest on a Note, provided that (i) the holder is not (A) a
direct or indirect owner of 10% or more of the total voting power of all
voting stock of the Company or (B) a controlled foreign corporation related to
the Company through stock
104
<PAGE>
ownership, (ii) such interest payments are not effectively connected with the
conduct by the Non-U.S. Holder of a trade or business within the United States
and (iii) the Company or its paying agent receives certain information from
the holder (or a financial institution that holds the Notes in the ordinary
course of its trade or business) certifying that such holder is a Non-U.S.
Holder. See "--Information Reporting and Backup Withholding" for recent
changes to the requirements described in (iii) above. Subject to the
discussion of backup withholding below, a Non-U.S. Holder generally will not
be subject to U.S. Federal income or withholding tax on gains from the sale or
other disposition of a Note, provided that (i) such gains are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business
within the United States and (ii) such Non-U.S. Holder is not an individual
who is present in the United States for 183 days or more in the taxable year
of disposition and meets certain other requirements.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Treasury Department issued final regulations
relating to withholding, information reporting and backup withholding that
unify current certification procedures and forms and clarify reliance
standards (the "Final Regulations"). The Final Regulations generally will be
effective with respect to payments made after December 31, 1998. Except as
provided below, this section describes rules applicable to payments made on or
before December 31, 1998.
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest paid on the Note and proceeds from the sale,
exchange, redemption or retirement of the Note, unless such holder (i) is a
corporation or comes within with certain other exempt categories and, when
required, demonstrates that fact or (ii) provides a correct taxpayer
identification number (social security number or employer identification
number), certifies as to its exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. Certain
penalties may be imposed by the IRS on a holder that is required to supply
information but does not do so in the proper manner.
A Non-U.S. Holder generally will be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption
from backup withholding and information reporting.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's U.S. Federal income tax
(which might entitle such holder to a refund), provided that such holder
furnishes the required information to the IRS.
The Final Regulations impose certain certification and documentation
requirements on Non-U.S. Holders claiming an exemption from withholding,
information reporting and backup withholding on interest paid on the Notes and
proceeds of a sale of the Notes.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE EFFECT, IF ANY, OF THE FINAL REGULATIONS ON THEIR PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES.
105
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market-making
activities or other trading activities. The Company and Holdings have agreed
that, for a period of 180 days after the Expiration Date, the Company will
make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale. In addition, until ,
1998, all dealers effecting transactions in the Exchange Notes may be required
to deliver a prospectus.
Neither the Company nor Holdings will receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange 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 Exchange 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 and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange 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 Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period not to exceed 180 days after the Expiration Date, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company and Holdings have agreed
to pay all expenses incident to the Exchange Offer (including the expenses of
one counsel for the holders of the Notes) other than commissions or
concessions of any broker-dealers and will indemnify holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
106
<PAGE>
LEGAL MATTERS
The legality of the Exchange Notes will be passed upon for the Company by
Willkie Farr & Gallagher, New York, New York.
EXPERTS
The combined financial statements of Borden Brands North America of BFC
included in this Prospectus as of December 31, 1996 and 1997 and the related
combined statements of operations, owner's investment and cash flows for the
twenty-three day period ended January 23, 1998 and for each of the three years
in the period ended December 31, 1997, have been audited by Deloitte & Touche
llp, independent auditors given on the authority of said firm as experts in
auditing and accounting, as stated in their report appearing herein. The
balance sheet of Eagle Family Foods, Inc. and the consolidated balance sheet
of Eagle Family Foods Holdings, Inc. as of January 23, 1998 included in this
Exchange Offer has been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants of Eagle Family Foods, Inc. and Eagle
Family Foods Holdings, Inc., given on the authority of that firm as experts in
accounting and auditing.
107
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eagle Family Foods, Inc.
Eagle Family Foods Holdings, Inc.
Report of Independent Accountants....................................... F-2
Eagle Family Foods, Inc. Balance Sheet, as of January 23, 1998.......... F-3
Eagle Family Foods Holdings, Inc. Consolidated Balance Sheet, as of
January 23, 1998....................................................... F-4
Notes to Balance Sheets................................................. F-5
Borden Brands North America
Independent Auditors' Report............................................ F-14
Combined Statements of Operations of the Predecessor Company, for the
twenty-three day period ended January 23, 1998 and for the years ended
December 31, 1997, 1996 and 1995....................................... F-15
Combined Balance Sheets of the Predecessor Company, as of December 31,
1997 and 1996 ......................................................... F-16
Combined Statements of Cash Flows of the Predecessor Company, for the
twenty-three day period ended January 23, 1998 and for the years ended
December 31, 1997, 1996 and 1995....................................... F-17
Combined Statements of Owner's Investment of the Predecessor Company,
for the twenty-three day period ended January 23, 1998 and for the
years ended December 31, 1997, 1996 and 1995........................... F-18
Notes to Combined Financial Statements of the Predecessor Company....... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Eagle
Family Foods Holdings, Inc.
We have audited the accompanying balance sheet of Eagle Family Foods, Inc.
and the consolidated balance sheet of Eagle Family Foods Holdings, Inc. as of
January 23, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these balance sheets. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of these balance sheets provides a
reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Eagle Family Foods, Inc. and
Eagle Family Foods Holdings, Inc., respectively, as of January 23, 1998, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 15, 1998
F-2
<PAGE>
EAGLE FAMILY FOODS, INC.
BALANCE SHEET
JANUARY 23, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash................................................................ $ 3,798
Inventories......................................................... 20,100
Other current assets................................................ 51
--------
Total Current Assets.............................................. 23,949
PROPERTY AND EQUIPMENT................................................ 23,950
NOTES RECEIVABLE FROM RELATED PARTIES (NOTE 11)....................... 825
INTANGIBLES........................................................... 312,758
DEFERRED INCOME TAXES................................................. 9,202
OTHER NON-CURRENT ASSETS.............................................. 9,363
--------
TOTAL ASSETS.......................................................... $380,047
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Short-term debt..................................................... $ 1,000
Other current liabilities........................................... 5,744
--------
Total Current Liabilities......................................... 6,744
LONG-TERM DEBT........................................................ 305,500
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDER'S EQUITY
Common stock, $.01 per value, 250,000 shares authorized,
10,000 shares issued and outstanding............................... 1
Additional paid-in capital.......................................... 82,500
Accumulated deficit (Note 5)........................................ (14,698)
--------
Total Stockholder's Equity........................................ 67,803
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................ $380,047
========
</TABLE>
The accompanying Notes are an integral part of the Balance Sheet.
F-3
<PAGE>
EAGLE FAMILY FOODS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
JANUARY 23, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................. $ 3,798
Inventories........................................................... 20,100
Other current assets.................................................. 50
--------
Total Current Assets................................................ 23,948
PROPERTY AND EQUIPMENT.................................................. 23,950
INTANGIBLES............................................................. 312,758
DEFERRED INCOME TAXES................................................... 9,202
OTHER NON-CURRENT ASSETS................................................ 9,363
--------
TOTAL ASSETS............................................................ $379,221
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term debt....................................................... $ 1,000
Other current liabilities............................................. 5,744
--------
Total Current Liabilities........................................... 6,744
LONG-TERM DEBT.......................................................... 305,500
COMMITMENTS AND CONTINGENCIES (NOTE 12)
REDEEMABLE PREFERRED STOCK
Series A preferred stock, $100 stated value,
1,000,000 shares authorized,
816,750 shares issued and outstanding................................ 81,675
Subscription receivable (Note 11)..................................... (817)
--------
80,858
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock $0.01 par value, 1,200,000 shares authorized,
971,839 shares issued and outstanding (Note 9) ...................... 10
Additional paid-in capital............................................ 962
Unearned compensation (Note 13)....................................... (147)
Accumulated deficit (Note 5).......................................... (14,698)
Subscription receivable (Note 11)..................................... (8)
--------
Total Stockholders' Equity (Deficit)................................ (13,881)
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).................... $379,221
========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Balance Sheet.
F-4
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS
1. BASIS OF PRESENTATION:
The accompanying balance sheets present the financial position of Eagle
Family Foods, Inc. ("EFFI" or the "Company") and the consolidated financial
position of Eagle Family Foods Holdings, Inc. ("Holdings") and its wholly
owned subsidiary, EFFI. All significant intercompany balances and transactions
have been eliminated in consolidation. Each of the Company's and Holdings'
fiscal year end is June 30.
EFFI was incorporated on November 14, 1997 and Holdings was incorporated on
December 22, 1997. On December 30, 1997, EFFI issued 10,000 shares of common
stock, par value $.01 per share, for $1,000 to Holdings. Holdings and EFFI did
not incur any income or expenses until commencement of operations on January
23, 1998. On January 23, 1998, Holdings received $82.5 million from GE
Investment Private Placement Partners II ("GEI"), Warburg, Pincus Ventures,
L.P. ("Warburg") and certain members of management in exchange for 825,000
shares of common stock and 816,750 shares of Series A preferred stock. On
January 23, 1998, EFFI acquired certain assets of Borden Foods Corporation
("BFC") and certain of their affiliates for $376.5 million subject to certain
post closing adjustments. Financing for the acquisition and related fees
consisted of (i) $82.5 million equity contribution from Holdings, (ii) $115.0
million of 8 3/4% senior subordinated notes and (iii) senior secured credit
facilities in the aggregate principal amount of $245.0 million, consisting of
$175.0 million term loan facility and a $70.0 million revolving credit
facility, under which $16.5 million was drawn at the time of the acquisition
closing. (See Note 6.)
The acquisition has been reflected in the balance sheets using the purchase
method of accounting. The purchase price has been allocated to the assets of
EFFI on the basis of their fair values. The fair values of assets have been
determined based on independent appraisals and management's estimates.
EFFI manufactures and markets a portfolio of leading dry-grocery food
products with widely recognized and established brands, primarily in the
United States with limited sales and manufacturing in Canada. The Company's
portfolio of products includes "Eagle Brand" sweetened condensed milk
"ReaLemon" reconstituted lemon and lime juice, "Nonesuch" mincemeat, "Cremora"
non-dairy creamer, "Kava" acid-neutralized coffee and "Borden" egg nog.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories are stated at fair value with cost of goods sold principally
being determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at fair value. Depreciation and
amortization of property and equipment will be calculated for financial
reporting purposes on a straight-line method using estimated service lives
ranging principally from 10-20 years for buildings and improvements and 3-10
years for other property and equipment. When assets are sold, retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the accounts and any related gain or loss is recorded in the
statement of operations. Normal maintenance and repairs are expensed as
incurred, while major renewals and betterments which extend service lives are
capitalized.
F-5
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
Intangibles
Intangibles are stated at fair value and amortized on a straight-line basis
over periods ranging from one to forty years. Goodwill represents the excess
of purchase price over fair value of identifiable assets and liabilities
acquired.
Impairment
Long-lived assets including goodwill are reviewed for impairment whenever
events or changes indicate that full recoverability is questionable. Factors
used in the valuation include, but are not limited to, management's plans for
future operations, recent operating results and projected cash flows.
Other Non-current Assets
Other non-current assets consist primarily of deferred financing costs
amounting to approximately $8,530,000. Such costs are amortized over the term
of the related debt using the interest method.
Other Current Liabilities
Other current liabilities at January 23, 1998 consisted primarily of
acquisition related expenses.
Income Taxes
Income taxes are accounted for in accordance with Statements of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Under this method, deferred tax
assets and liabilities are measured using enacted tax rates in effect in the
years in which those temporary differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results may differ from those estimates.
Foreign Currency Translation
All assets and liabilities of Canadian operations are translated into U.S.
dollars using the rate as of January 23, 1998.
Fair Value of Financial Instruments
The carrying values of cash, notes receivable and accrued expenses as stated
on the balance sheet approximates their fair market value because of their
short maturity. The fair value of the Company's long-term debt equals the
carrying value because the debt was issued on the date of the balance sheet.
Environmental Matters
The Company, like others in similar businesses, is subject to extensive
Federal, state and local environmental laws and regulations. Although the
Company's environmental policies and practices
F-6
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEET--CONTINUED
are designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent regulations could require the Company
to incur additional unforeseen environmental expenditures. Environmental
remediation costs are accrued when environmental assessments and/or remedial
efforts are probable and the cost or a reasonable range can be estimated.
Environmental expenditures which improve the condition of the property are
capitalized and amortized over their estimated useful life. Management is not
aware of any environmental liabilities that will have a material adverse
effect on the Company's financial position, results of operations or
liquidity.
3. INVENTORIES:
Inventories are stated at fair value determined at the time of the
acquisition. Inventories at January 23, 1998 consisted of the following (in
thousands):
<TABLE>
<S> <C>
Finished goods.................................................. $18,000
Raw material.................................................... 2,100
-------
$20,100
=======
</TABLE>
The fair value of inventories exceeds the predecessor's manufacturing cost
by approximately $5.0 million.
4. PROPERTY AND EQUIPMENT:
Property and equipment is recorded at fair value and consisted of the
following as of January 23, 1998 (in thousands):
<TABLE>
<S> <C>
Land........................................................... $ 470
Buildings and improvements..................................... 6,161
Machinery and equipment........................................ 17,319
-------
$23,950
=======
</TABLE>
5. INTANGIBLE ASSETS:
Intangible assets are amortized on a straight-line basis over their
estimated useful lives. Intangible assets as of January 23, 1998 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED USEFUL
COST LIVES
-------- ----------------
<S> <C> <C>
Tradenames......................................... $141,000 40 years
Goodwill........................................... 133,458 40 years
Covenant not to compete............................ 21,000 5 years
Master customer services agreement................. 17,300 1 year
--------
$312,758
========
</TABLE>
Pursuant to the acquisition, the Company and BFC entered into a master
customer services agreement ("Services Agreement") whereby BFC and its
affiliates provide various trade marketing, distribution, transactions
processing, information systems and accounting services for a period of up to
18 months after the acquisition closing based on predetermined below market
rates. The fair value of the Services Agreement was determined by an
independent appraisal and was based primarily on the value provided through
the below market terms and the value provided because the arrangement
F-7
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
allows the Company to continue to do business as it builds an infrastructure
which will allow it to operate on a stand alone basis. The Services Agreement
is amortized on a straight-line basis over one year from the acquisition
closing based on management's estimate of the timeframe for establishing its
own infrastructure.
The Company allocated $23.9 million of purchase price to acquired in-process
research and development reflecting the fair market value of certain products
currently in development. These products have not reached technological
feasibility and have no alternative future use. Concurrent with the
acquisition on January 23, 1998, the Company recorded a non-recurring charge
of $23.9 million to write-off the aforementioned acquired in-process research
and development. At January 23, 1998, the charge has been reflected in
accumulated deficit, net of related taxes, as the Company views the purchase
price allocation and subsequent write-off as a contemporaneous transaction.
6. DEBT OBLIGATIONS:
Debt obligations as of January 23, 1998 consisted of the following (in
thousands):
<TABLE>
<S> <C>
7 7/8% term loan facility due December 31, 2005.............. $175,000
8 3/4% senior subordinated notes due January 15, 2009........ 115,000
7 5/8% revolving credit facility due December 31, 2004....... 16,500
--------
Total debt obligations................................... 306,500
Less:
Current portion of term loan facility........................ (1,000)
--------
Short-term debt obligations.................................. (1,000)
--------
Long-term debt obligations................................... $305,500
========
</TABLE>
Senior Credit Facilities
EFFI received senior bank financing from a group of lenders in an aggregate
principal amount of up to $245.0 million (the "Senior Credit Facilities"). The
Senior Credit Facilities consist of (i) a $70.0 million seven-year revolving
credit facility (the "Revolving Credit Facility") and (ii) a $175.0 million
eight-year term loan (the "Term Loan Facility"). The Senior Credit Facilities
are guaranteed by Holdings and all future domestic subsidiaries of the
Company. As of January 23, 1998, the Company has drawn from the Revolving
Credit Facility in the amount of $16.5 million and the proceeds of the Term
Loan were fully drawn to fund a portion of the acquisition.
Indebtedness under the Revolving Credit Facility bears interest at the
Company's option at LIBOR plus a 2% premium or at a base rate plus a 1%
premium. Interest payment terms are determined at the time each draw is made
under the Revolving Credit Facility. Indebtedness under the Term Loan Facility
bears interest at the Company's option at LIBOR plus a 2.25% premium or at a
base rate plus a 1.25% premium. These rates are subject to performance pricing
step-downs based on the Company's leverage ratio. The Revolving Credit
Facility matures on December 31, 2004.
The Term Loan requires principal payments in quarterly installments
commencing in the quarter ending March 31, 1998 with a $250,000 principal
payment. Scheduled principal payments will equal $1 million in fiscal 1998,
1999, 2000, 2001, and 2002, $10 million in fiscal 2003, $40 million in fiscal
2004, with the balance of the Term Loan of $120 million due in fiscal 2005.
Interest is payable currently.
F-8
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
The Senior Credit Facilities contain certain financial covenants which
require the Company to meet certain financial tests including debt coverage
and interest expense coverage requirements. In addition, The Senior Credit
Facilities contain covenants including limitations on additional indebtedness,
liens, asset sales, capital expenditures, sale and leaseback transactions,
dividends, loans and investments, modification of material agreements,
transactions with affiliates, acquisitions, mergers and consolidations and
prepayment of subordinated indebtedness. The Senior Credit Facilities
agreement provides that neither EFFI or Holdings will, nor will they permit
any subsidiary of EFFI to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, as defined, except primarily (i)
Holdings may declare and pay dividends with respect to its capital stock
payable solely in additional shares of its capital stock (other than
redeemable preferred stock) and (ii) subsidiaries of EFFI may declare and pay
dividends ratably with respect to their capital stock. The Senior Credit
Facilities agreement also requires the Company to pledge assets acquired after
the acquisition closing, including stock of after-acquired or formed
subsidiaries, to deliver guarantees by wholly owned domestic subsidiaries and
to maintain insurance. The Senior Credit Facilities contain customary events
of default, including certain changes of control of the Company.
The obligations of EFFI under the Senior Credit Facilities are
collateralized by (i) 100% of the capital stock of the Company and each of its
subsidiaries and (ii) a first priority collateral interest in substantially
all assets and properties of the Company and its future domestic subsidiaries.
Senior Subordinated Notes
EFFI issued $115 million of senior subordinated notes (the "Notes") and
received cash proceeds of $111.55 million net of underwriting discount. The
Notes are due January 15, 2008 and bear interest of 8 3/4% per annum payable
on January 15 and July 15, commencing July 15, 1998.
The Notes are unconditionally guaranteed by Holdings (the "Parent
Guarantee") and by each future Domestic Subsidiary of the Company (each, a
"Domestic Subsidiary Guarantee" and, collectively, the "Domestic Subsidiary
Guarantees") and the Company will cause each such future Domestic Subsidiary
of the Company to enter into a supplemental indenture providing for such
Domestic Subsidiary to guarantee payment of the Notes as required in the
indenture. The Parent Guarantee and the Domestic Subsidiary Guarantees are
joint and several as well as full and unconditional. The Notes are unsecured
and subordinated in right of payment to all existing and future senior
indebtedness of the Company. The Notes include certain covenants including
limitations on indebtedness, dividends and other payment restrictions
affecting subsidiaries, subordinated liens, sale and leaseback transactions,
sale or issuance of capital stock of subsidiaries, merger, consolidation or
sale of assets, transactions with affiliates and layering debt. The indenture
provides that the Company will not, and will not permit any of its
subsidiaries, directly or indirectly, to declare or pay any dividend or make
any distribution on or in respect of its capital stock except dividends or
distributions payable solely in its capital stock (other than redeemable
stock) and except dividends or distributions payable solely to the Company or
any wholly-owned subsidiary of the Company.
7. INCOME TAXES
The temporary difference which gave rise to a deferred tax asset at January
23, 1998 resulted from purchased in-process research and development written
off concurrent with the acquisition and totaled approximately $9.2 million.
F-9
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
8. REDEEMABLE PREFERRED STOCK
On January 23, 1998, 816,750 shares of Series A Non-Voting Preferred Stock
("Preferred Stock") were issued by Holdings at a stated value of $100 per
share (the "Stated Value"). The Preferred Stock provides for preferential
cumulative dividends at the rate of 10% per share per annum of the Stated
Value. Dividends are payable as declared by the Holdings Board of Directors
and shall be paid before any dividends shall be set apart for or paid upon the
Common Stock. In the event of liquidation, dissolution or winding up, the
holders of shares of Preferred Stock are entitled to be paid out of the assets
of Holdings available for distribution to its stockholders before any payment
is made to the holders of stock junior to the Preferred Stock. Holders of
Preferred Stock are not entitled to vote on any matters presented to the
stockholders of Holdings. However, the affirmative vote or written consent of
the holders of at least two-thirds of the then outstanding shares of Preferred
Stock is required to amend, alter or repeal the preferences, special rights or
other powers of the Preferred Stock. The Preferred Stock is subject to
mandatory redemption at a price per share equal to the Stated Value plus all
dividends accrued and unpaid thereon upon (1) the closing of a public offering
pursuant to an effective registration statement under the Securities Act of
1933, (2) the sale of all or substantially all of the assets of Holdings or
the merger or consolidation of Holdings with or into any other corporation or
other entity in which the holders of Holdings' outstanding shares before the
merger or consolidation do not retain a majority of the voting power of the
surviving corporation or other entity or (3) the acquisition by any person of
shares of Common Stock representing a majority of the issued and outstanding
shares of Common Stock then outstanding.
9. STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENTS
The Holdings Stockholders Agreement
The relations among the Equity Sponsors and the Management Investors
(collectively, the "Investors"), and Holdings are governed by a Stockholders
Agreement, dated as of the Acquisition Closing (the "Holdings Stockholders
Agreement").
Board of Directors. Holdings is managed by the Board of Directors which is
comprised of nine members, three of whom are designated by GEI and three of
whom are designated by Warburg. For so long as GEI beneficially owns at least
20% of the Common Stock outstanding on a fully diluted basis, GEI has the
right to designate three directors to the Board of Directors. For so long as
GEI beneficially owns at least 15% of the Common Stock outstanding on a fully
diluted basis, GEI has the right to designate two directors to the Board of
Directors. For so long as GEI beneficially owns at least 10% of the Common
Stock outstanding on a fully diluted basis, GEI has the right to designate one
director to the Board of Directors. For so long as Warburg beneficially owns
at least 20% of the Common Stock outstanding on a fully diluted basis, Warburg
has the right to designate three directors to the Board of Directors. For so
long as Warburg beneficially owns at least 15% of the Common Stock outstanding
on a fully diluted basis, Warburg has the right to designate two directors to
the Board of Directors. For so long as Warburg beneficially owns at least 10%
of the Common Stock outstanding on a fully diluted basis, Warburg has the
right to designate one director to the Board of Directors. Two named members
of executive management will be entitled to serve as directors for so long as
they remain executive officers of the Company. In addition, as long as the
Equity Sponsors in the aggregate beneficially own more than 50% of the Common
Stock outstanding on a fully diluted basis, the Equity Sponsors have the right
to designate a majority of the directors to the Board of Directors. The Board
of Directors will have at least one director who is not an officer or employee
of Holdings, the Company, or the Equity Sponsors, appointed by unanimous
approval of
F-10
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
the Board of Directors. The Holdings Stockholders Agreement provides that the
Board of Directors of the Company is identical to that of Holdings. The
consent of a majority of the Board of Directors which includes at least one of
the directors designated by GEI and one of the directors designated by Warburg
is required for the approval of certain enumerated actions by the Company and
Holdings.
Restrictions on Transfer of Stock. Securities held by the Management
Investors, including any shares of Common Stock or Series A Preferred Stock
and any options to acquire shares of Common Stock, may only be sold or
otherwise transferred with the consent of the Board of Directors of Holdings.
Tag-Along Rights. The Holdings Stockholders Agreement provides that in the
event any Investor chooses to sell or otherwise transfer more than 20% of its
shares of Common Stock or Series A Preferred Stock to a proposed transferee,
the selling Investor must offer to each of the other Investors the right to
participate in such sale on a pro rata basis based on ownership of the shares
being sold.
Subscription Rights. With certain exceptions, the Holdings Stockholders
Agreement provides each Investor with subscription rights in connection with
any issuance of equity securities by Holdings for cash whereby each Investor
shall have the right to purchase a pro rata portion of such equity securities.
Termination. The tag-along rights and subscription rights described above
will terminate upon the completion of an initial public offering of Common
Stock.
The Registration Rights Agreement
Holdings and the Investors have entered into a Registration Rights
Agreement, dated as of the Acquisition Closing (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each of the Equity
Sponsors has two demand registration rights for each of its Preferred Stock
and Common Stock and unlimited Form S-3 registration rights and unlimited
piggyback rights. The Management Investors also have piggyback registration
rights. All expenses related to these registrations (other than underwriting
discounts and commissions) will be borne by Holdings.
F-11
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
10. EAGLE FAMILY FOODS HOLDINGS, INC.
A balance sheet at January 23, 1998 for Holdings, with the investment in
EFFI shown on the equity basis, follows:
<TABLE>
<S> <C>
Assets
Investment in subsidiary..................................... $ 67,803
========
Total Assets............................................... $ 67,803
========
Liabilities
Payable to EFFI.............................................. $ 1
Redeemable Preferred Stock
Series A preferred stock, $100 stated value
1,000,000 shares authorized, 816,750 issued and outstanding.. 81,675
Shareholders' Equity
Common stock, $.01 par value; 1,200,000 shares authorized,
971,839 shares issued and outstanding....................... 10
Additional paid in capital................................... 962
Unearned compensation...................................... (147)
Accumulated deficit........................................ (14,698)
--------
Total Stockholders' Equity (Deficit)..................... (13,873)
--------
Total Liabilities and Stockholders' Equity (Deficit)....... $ 67,803
========
</TABLE>
11. STOCK SUBSCRIPTION AGREEMENT
On January 23, 1998, GEI, Warburg, and several officers of Holdings
subscribed to purchase a combined 816,750 shares of preferred stock at $100
per share and 825,000 shares of common stock at $1 per share. Full payment for
the stock was received from all but two of the officers, who subscribed to
purchase an aggregate of 13,117.5 shares of preferred stock and 13,250 shares
of common stock. Notes aggregating $825,000 were received from the two
officers as partial consideration for the subscription. These notes are
collateralized by the shares issued. They have a stated interest rate of prime
(as defined) plus .5%, with a maturity date of January 23, 2003. The notes
have been assigned between common and preferred stock in accordance with the
management subscription agreements. Accordingly, notes related to common stock
have been presented in the consolidated balance sheet as a reduction of
Stockholders' Equity while notes related to the preferred stock have been
presented as a reduction of redeemable preferred stock.
12. COMMITMENTS AND CONTINGENCIES
Commitments--The Company has entered into long-term contracts for the
purchase of certain raw materials. Minimum purchase commitments, at current
prices, are approximately $20.0 million as of January 23, 1998.
Employment Agreements--The Company has entered into two-year employment
agreements with certain key executives. Such agreements provide for annual
salaries and bonuses and include non-compete and non-solicitation provisions.
F-12
<PAGE>
EAGLE FAMILY FOODS, INC.
EAGLE FAMILY FOODS HOLDINGS, INC.
NOTES TO THE BALANCE SHEETS--CONTINUED
13. STOCK OPTIONS AND RESTRICTED STOCK
On January 14, 1998, Holdings' Board of Directors adopted the 1998 Stock
Incentive Plan (the "Plan"). The Plan provides for the grant to officers, key
employees, directors and consultants of the Company of incentive stock
options, non-qualified stock options, and restricted stock. A total of 153,650
shares of common stock may be awarded under the Plan, subject to certain
adjustments reflecting changes in Holdings' capitalization.
Grants of options and the periods during which such options can be exercised
are at the discretion of a committee of the Board of Directors. As of January
23, 1998, the committee has not granted any stock options.
Under the Plan, grants of restricted stock and the periods during which such
grants become unrestricted and vest are at the discretion of the committee.
On January 16, 1998, the committee granted and issued 146,839 shares of
restricted stock to Holdings' officers and other key employees. The restricted
stock vests in installments of 20% per year on each of the first five
anniversaries of the issue date, provided that the recipient is employed by
Holdings as of each such date. The fair market value of the shares at the date
of grant totaled $146,839. Unearned compensation was charged for the fair
value of the restricted shares granted and issued in accordance with the Plan.
The unearned compensation is shown as a reduction of stockholders' equity
(deficit) in the accompanying Consolidated Balance Sheet. Unearned
compensation will be amortized ratably over the restricted period.
Holders of the restricted stock are not entitled to receive dividends until
such shares vest or to vote their respective shares during the restricted
period. Additionally, the sale, transfer, pledge, exchange or disposal of
restricted shares during the restricted period is not permitted except as
otherwise allowed by the stockholders agreement.
14. SUBSEQUENT EVENTS (UNAUDITED)
On April 16, 1998, the Company and Holdings filed a Registration Statement
on Form S-4 to offer to exchange (the "Exchange Offer") up to $115,000,000 of
its 8 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes")
for up to $115,000,000 of its outstanding 8 3/4% Senior Subordinated Notes due
2008 (the "Original Notes").
Upon consummation of the Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all respects to the term of the Original
Notes. The Exchange Notes will be unconditionally guaranteed on a senior
subordinated and unsecured basis by Holdings and all future Domestic
Subsidiaries.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
Borden Foods Corporation
We have audited the accompanying combined balance sheets of Borden Brands
North America ("BBNA"), which comprises certain operating businesses of Borden
Foods Corporation and affiliates, as of December 31, 1997 and 1996, and the
related combined statements of operations, owner's investment and cash flows
for the twenty-three day period ended January 23, 1998 and for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of Borden Food'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, such financial statements present fairly, in all material
respects, the combined financial position of BBNA at December 31, 1997 and
1996, and the combined results of their operations and their combined cash
flows for the twenty-three day period ended January 23, 1998 and for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
May 22, 1998
Columbus, Ohio
F-14
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
COMBINED STATEMENTS OF OPERATIONS
FOR THE TWENTY-THREE DAY PERIOD ENDED JANUARY 23, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
TWENTY-THREE
DAY PERIOD
ENDED YEAR ENDED DECEMBER 31,
JANUARY 23, --------------------------
1998 1997 1996 1995
------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales............................... $7,693 $229,370 $230,384 $225,263
Cost of goods sold...................... 5,154 107,674 110,357 102,712
------ -------- -------- --------
Gross margin............................ 2,539 121,696 120,027 122,551
Distribution expense.................... 303 13,464 14,640 15,691
Marketing expense....................... 2,095 55,074 62,705 63,804
General & administrative expense........ 1,010 13,184 13,483 13,289
------ -------- -------- --------
Operating income (loss)................. (869) 39,974 29,199 29,767
Other income............................ -- 79 38 --
------ -------- -------- --------
Income (loss) before income taxes....... (869) 40,053 29,237 29,767
Income tax expense (benefit)............ (287) 16,236 12,034 12,235
------ -------- -------- --------
Net income (loss)....................... $ (582) $ 23,817 $ 17,203 $ 17,532
====== ======== ======== ========
</TABLE>
See Notes to Combined Financial Statements
F-15
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................ $ 6 $ 33
Accounts receivable (less allowance for doubtful
accounts of $268 and $238, respectively)........... 12,862 15,953
Inventories:
Finished and in-process goods .................... 13,292 11,277
Raw materials and supplies........................ 2,528 1,962
Other current assets................................ 879 903
-------- --------
Total Current Assets.............................. 29,567 30,128
PROPERTY AND EQUIPMENT
Land................................................ 325 374
Buildings........................................... 3,669 3,712
Machinery and equipment............................. 20,462 18,403
-------- --------
24,456 22,489
Less accumulated depreciation....................... (8,386) (5,840)
-------- --------
Net Property and Equipment........................ 16,070 16,649
INTANGIBLES, NET...................................... 108,122 111,047
OTHER NON-CURRENT ASSETS.............................. 27 33
-------- --------
TOTAL ASSETS.......................................... $153,786 $157,857
======== ========
LIABILITIES AND OWNER'S INVESTMENT
CURRENT LIABILITIES
Accounts payable.................................... $ 7,774 $ 8,230
Other current liabilities........................... 25,347 25,045
-------- --------
Total current liabilities......................... 33,121 33,275
Other non-current liabilities......................... 2,527 2,492
Commitments and Contingencies (Notes 3 and 9)......... -- --
OWNER'S INVESTMENT.................................... 118,138 122,090
-------- --------
TOTAL LIABILITIES AND OWNER'S INVESTMENT.............. $153,786 $157,857
======== ========
</TABLE>
See Notes to Combined Financial Statements
F-16
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-THREE DAY PERIOD ENDED JANUARY 23, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<S> <C> <C> <C> <C>
TWENTY-THREE
DAY PERIOD
ENDED YEAR ENDED DECEMBER 31,
JANUARY 23, -------------------------
<CAPTION>
1998 1997 1996 1995
------------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES
Net income (loss)................... $ (582) $23,817 $17,203 $17,532
Adjustments to reconcile net income
to net cash from operating
activities
Depreciation and amortization..... 512 6,174 5,937 6,010
Loss on sale of fixed assets...... 312
Net change in assets and liabilities
Accounts receivable............... 6,630 3,091 (286) 2,145
Inventories....................... 610 (2,581) 78 (1,615)
Accounts payable.................. (3,282) (456) (2,231) 1,396
Other assets...................... 183 30 755 1,225
Other liabilities................. (2,350) 509 3,022 (3,586)
------------ ------- ------- -------
Cash flows from operating
activities......................... 1,721 30,896 24,478 23,107
CASH FLOWS USED IN INVESTING
ACTIVITIES
Capital expenditures................ (87) (3,154) (3,726) (2,079)
CASH FLOWS USED IN FINANCING
ACTIVITIES
Net decrease in intercompany
investment......................... (1,616) (27,769) (20,723) (21,028)
------------ ------- ------- -------
(Decrease) increase in cash........... 18 (27) 29 --
Cash at beginning of period........... 6 33 4 4
------------ ------- ------- -------
Cash at end of period................. $ 24 $ 6 $ 33 $ 4
============ ======= ======= =======
</TABLE>
See Notes to Combined Financial Statements
F-17
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
COMBINED STATEMENTS OF OWNER'S INVESTMENT
FOR THE TWENTY-THREE DAY PERIOD ENDED JANUARY 23, 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED INTERCOMPANY
EARNINGS INVESTMENT TOTAL
-------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1, 1995....................... $ -- $129,106 $129,106
Net income..................................... 17,532 17,532
Cash collected on behalf of BBNA............... (227,985) (227,985)
Cash disbursed on behalf of BBNA............... 207,571 207,571
Translation adjustments and other.............. (614) (614)
------- -------- --------
Balance, December 31, 1995..................... 17,532 108,078 125,610
Net income..................................... 17,203 17,203
Cash collected on behalf of BBNA............... (233,610) (233,610)
Cash disbursed on behalf of BBNA............... 212,464 212,464
Translation adjustments and other.............. 423 423
------- -------- --------
Balance, December 31, 1996..................... 34,735 87,355 122,090
Net income..................................... 23,817 23,817
Cash collected on behalf of BBNA............... (232,052) (232,052)
Cash disbursed on behalf of BBNA............... 204,585 204,585
Translation adjustments and other.............. (302) (302)
------- -------- --------
Balance, December 31, 1997..................... 58,552 59,586 118,138
Net loss....................................... (582) (582)
Cash collected on behalf of BBNA............... (14,164) (14,164)
Cash disbursed on behalf of BBNA............... 12,550 12,550
Translation adjustments and other.............. (2) (2)
------- -------- --------
Balance, January 23, 1998...................... $57,970 $ 57,970 $115,940
======= ======== ========
</TABLE>
See Notes to Combined Financial Statements
F-18
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations and Basis of Presentation--The accompanying combined
financial statements present the financial position, results of operations,
cash flows and owner's investment of Borden Brands North America of Borden
Foods Corporation ("BBNA" or the "Company"). These financial statements have
been prepared on a purchase accounting basis which reflects an allocation of a
portion of the acquisition cost relating to the 1994 acquisition by an
affiliate of Kohlberg Kravis Roberts ("KKR") of Borden, Inc. ("Borden") to
BBNA. The purchase price has been allocated to tangible and intangible assets
and liabilities of BBNA based on independent appraisals and management
estimates.
BBNA is engaged in the business of developing, manufacturing, marketing,
distributing and selling certain food products primarily in the United States
with limited sales and manufacturing activity in Canada. The BBNA products
include "Eagle Brand" sweetened condensed milk, "ReaLemon" reconstituted lemon
and lime juice, "Nonesuch" mincemeat, "Cremora" non-dairy creamer, "Kava"
acid-neutralized coffee and "Borden" egg nog.
In 1996, an affiliate of KKR, Borden Foods Holdings, LLC ("Foods Holdings")
formed Borden Foods Corporation ("BFC") for the purposes of acquiring and
operating certain of Borden's food businesses, including BBNA. In addition,
Foods Holdings together with BFC, invested in Borden Foods Investment LP for
the purposes of acquiring and holding certain trademarks associated with BBNA
and the other Borden food businesses. The acquisition from Borden was a
taxable transaction effective October 1, 1996. There was no change in the book
basis of BBNA's assets and liabilities at the time of the sale because the
sale was between related parties and Borden's principal stockholder continues
to control the food businesses.
In March 1997, BFC announced its intention to sell certain businesses from
its current portfolio which were considered not to be aligned with their
ongoing strategy. Among these businesses were the BBNA business, FunCheese and
the Puerto Rican distribution business. Subsequent to December 31, 1997, BBNA
was purchased by Eagle Family Foods, Inc., a newly formed entity sponsored by
GE Investment Private Placement Partners II, a Limited Partnership, and
Warburg, Pincus Ventures, L.P.
BBNA operates as a business unit of BFC which is an affiliate of Borden.
Under this structure, BFC incurs various administrative costs in connection
with the operation of the BBNA business, such as accounting, legal, tax,
credit and information services departments and executive management. In
addition, BBNA utilizes shared sales and administrative resources with other
BFC business units. These costs were allocated to BBNA through intercompany
expense charges and the intercompany liability is accumulated in the owner's
investment account.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates in BBNA financial statements
are the allowance for doubtful accounts, reserve for inventory obsolescence,
accruals for trade promotions and deductions, general and group insurance and
Borden and BFC corporate allocations. Actual results could differ from those
estimates.
Summary of Significant Accounting Policies--Significant accounting policies
followed by BBNA, as summarized below, are in conformity with generally
accepted accounting principles.
F-19
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
Principles of Combination--The combined financial statements include the
accounts of BBNA after elimination of material inter and intracompany accounts
and transactions.
Revenue Recognition--Revenues are recognized when products are shipped.
Liabilities are established for estimated returns, allowances and consumer and
certain trade promotions and discounts when revenues are recognized.
Research and Development--Research and development costs are charged to
general and administrative expense when incurred. Research and development
costs amounted to $104, $1,781, $2,809 and $1,593 for the twenty-three day
period ended January 23, 1998 and the years ended December 31, 1997, 1996 and
1995, respectively.
Advertising and Promotion Expense--Production costs of future media
advertising are deferred until the advertising first occurs. All other
advertising costs are expensed when incurred. Promotional expenses are
generally expensed ratably over the year in relation to revenues or other
performance measures. Advertising and promotional expenses were $1,389,
$28,245, $37,071 and $44,065 for the twenty-three day period ended January 23,
1998 and the years ended December 31, 1997, 1996 and 1995, respectively.
Cash--BBNA considers all highly liquid investments purchased with a term to
maturity of three months or less when purchased to be cash equivalents.
Inventories--Inventories are stated at the lower of cost or market with cost
principally being determined using the first-in, first-out method.
Property and Equipment--Property and equipment are stated at cost, less a
reserve for accumulated depreciation. Depreciation is recorded on the
straight-line basis over useful lives of 30 years for buildings and 3 to 10
years for equipment.
Major renewals and betterments are capitalized. Maintenance, repairs and
minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, related cost and accumulated depreciation are removed
from the accounts and any related gain or loss in recorded in the statement of
operations.
Intangibles--Trademarks are amortized on a straight-line basis over the
shorter of forty years or their useful lives; goodwill represents the excess
of purchase price over fair value of identifiable assets of businesses
acquired and is amortized on a straight-line basis over forty years. The
accumulated amortization of intangibles was $8,775 and $5,850 at December 31,
1997 and 1996, respectively.
Impairment--The carrying value of property, equipment and intangibles is
evaluated periodically for recoverability when considered in relation to the
expected future undiscounted cash flows of the business over the estimated
remaining useful life of the asset.
Slotting Allowances--The costs of obtaining shelf space (slotting) are
accrued when committed and amortized over the period of benefit, which is
generally twelve months.
Income Taxes--The results of the domestic and Canadian operations of BBNA
are included in BFC's or Borden Canada Limited's consolidated tax returns. BFC
uses the liability method of accounting for deferred income taxes.
Deferred income taxes are recorded to recognize the future effects of
temporary differences which arise between financial statement assets and
liabilities and their basis for income tax reporting
F-20
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
purposes. For purposes of these stand-alone financial statements, income taxes
are determined as though BBNA filed separate U.S. federal, Canadian and state
corporate income tax returns. Because all income tax liabilities (current and
deferred) are paid to BBNA's owner such amounts are included as a component of
owner's investment in the accompanying financial statements.
Foreign Currency Translation--All assets and liabilities of Canadian
operations are translated into U.S. dollars using the rate at the end of the
fiscal period. Income and expense items are translated at average exchange
rates prevailing during the fiscal period. The resulting translation
adjustments are considered insignificant and are recorded in owner's
investment.
Concentrations of Credit Risk--Financial instruments which potentially
subject BBNA to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The majority of BBNA cash activity
is managed by BFC. BFC and BBNA places its temporary cash investments ($6 at
December 31, 1997 and $33 at December 31, 1996), with high quality
institutions and, by policy, limits the amount of credit exposure to any one
institution. Concentrations of credit risk with respect to accounts receivable
are limited, due to the large number of customers comprising BBNA's customer
base and their dispersion across many different geographies primarily within
North America. BBNA generally does not require collateral or other security to
support customer receivables.
Pension and Retirement Savings Plans--Most of BBNA's employees are covered
under the Borden Employee Retirement Income Plan pension plan. BFC's
cumulative liability associated with the plan is recorded on BFC's balance
sheets. A portion of BFC's total liability has been allocated to BBNA based on
allocations provided by Borden's actuary, which were based on actual employee
census data. BBNA's share of the allocated cost to fund and administer these
plans is recorded in the statements of operations in the year the cost is
incurred.
Substantially all domestic employees of BBNA participate in Borden's
retirement savings plans. BBNA's cost of providing the retirement savings plan
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.
Non-pension Postemployment and Postretirement Benefits--BFC provides certain
health and life insurance benefits for eligible retirees and their dependents.
The cost of postretirement benefits is accrued during the employees' working
careers. BBNA's cumulative liability associated with these plans is recorded
on BBNA's balance sheet based on allocations provided by Borden's actuary.
BBNA's share of the allocated cost to fund and administer these plans is
recorded in the statements of operations in the year the cost is incurred.
Borden provides certain other postemployment benefits to qualified former or
inactive employees. BBNA's cumulative liability associated with these plans is
recorded on BBNA's balance sheets based on allocations provided by Borden's
actuary. BBNA's share of the cost to fund and administer these plans is
recorded in the statements of operations in the year the cost is incurred.
Fair Value of Financial Instruments--The carrying values of cash, accounts
receivable and payable, other receivables, and accrued and other current
liabilities as stated on the balance sheets approximate their fair market
value.
F-21
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
Group and General Insurance Reserve--BFC is generally self-insured for
losses and liabilities relating to workers' compensation, health and welfare
claims, physical damage to property, business interruption and comprehensive
general, product and vehicle liability. BFC or Borden maintains insurance
policies for certain items exceeding deductible limits. Losses are accrued for
the estimated aggregate liability for claims using certain actuarial
assumptions followed in the insurance industry and BFC's experience. An
allocation of the liability associated with BBNA has been included in these
financial statements.
Stock Options--The Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, Accounting for Stock-Based Compensation, which was adopted for
disclosure only by BFC, effective January 1, 1996. As permitted by SFAS No.
123, BFC continues to apply its current accounting policy of the intrinsic
value method under Accounting Principles Board Opinion No. 25.
2. RELATED PARTIES AND INTERCOMPANY ALLOCATIONS
BBNA is engaged in various transactions with BFC, Borden and its affiliates
in the ordinary course of business. Certain general and administrative costs,
such as group and general insurance, retirement benefits, and corporate
administrative departments, were allocated to BBNA. A description of the
allocation methods of these costs follows.
For all periods, pension and postemployment and postretirement group
insurance benefits were charged to BBNA based on allocations provided by
Borden's actuary, which were based on actual employee census data. General and
group insurance expenses, which include liability and property damage
insurance, were allocated based on actual claims costs and a pro-rata share of
Borden's catastrophic insurance coverage premiums in 1997 and 1998. For 1996
and 1995, general insurance was allocated based upon actual claims and
percentage of net trade sales, respectively, and group insurance was allocated
based upon a fixed rate per employee. For all periods, corporate information
services and corporate staff department services were allocated based on usage
of resources such as personnel and data processing equipment. For purposes of
these financial statements, certain other administrative expenses incurred by
Borden in 1995 have been allocated to BBNA generally based on a pro-rata share
of Borden's total sales. Subsequent to January 1, 1996, a subsidiary of Borden
provides certain administrative services to BBNA at negotiated fees. These
services include: processing of payroll, active and retiree group insurance
claims administration, administration of workers compensation claims, and
securing insurance coverage for catastrophic claims. BBNA reimburses the
Borden subsidiary for payments made on BBNA's behalf and for services
provided.
Management believes the allocations of these costs for all periods presented
are reasonable based upon the circumstances, however, the allocated amounts
are not necessarily indicative of costs that would have been incurred if BBNA
operated on a stand alone basis since the BBNA business has historically been
operated as a division of BFC and/or Borden. Amounts due to Borden resulting
from these allocations, as well as sales and purchases of products and
materials to or from other operations, are reflected in owner's investment.
BBNA is generally self-insured for general insurance claims and
postemployment benefits other than pensions. The liabilities for these
obligations are included in BBNA's financial statements.
BBNA utilizes the BFC shared sales force for its retail grocery and private
label sales activity. Costs are allocated to BBNA based on the proportion of
the BBNA sales dollars to the total domestic BFC sales.
F-22
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
Customer accounts receivable balances, allowance for doubtful accounts and
accruals for customer allowances and credits are managed by customer in total
for BBNA and certain other BFC food businesses. An allocation of accounts
receivable and the allowance for doubtful accounts has been made to BBNA based
on a proportion of the BBNA sales dollars to the total sales of the group. An
allocation of the accrual for customer allowances and credits has been
allocated to BBNA based on a proportion of actual customer deductions taken by
BBNA customers to the total deductions taken by customers of all businesses in
the group.
Employee pension benefits are provided under the Borden Employee Retirement
Income Plan to which BBNA contributes. The employees may also participate in
the Borden retirement savings plan. Borden also provides certain health and
life insurance benefits for eligible employees. BBNA has recognized expenses
associated with these benefits, certain of which are determined and allocated
by Borden's actuary. BBNA has assumed an actuarially determined portion of
BFC's U.S. net pension liability.
The following table summarizes the allocation of costs to BBNA in 1995 and
the charges for these costs in 1996, 1997 and 1998:
<TABLE>
<CAPTION>
TWENTY-THREE
DAY PERIOD
ENDED YEAR ENDED DECEMBER 31,
JANUARY 23, -----------------------
1998 1997 1996 1995
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Pension and other employee benefits....... $ 44 $ 524 $ 368 $ 432
Group and general insurance............... 193 2,314 1,416 2,071
Corporate information services ........... 265 3,201 3,336 3,043
Shared sales force........................ 196 5,011 6,005 6,318
Executive compensation, corporate staff,
research department services and division
overhead................................. 619 8,385 9,526 9,002
</TABLE>
Of the total amounts in 1998, 1997, 1996 and 1995, $220, $2,761, $2,948 and
$4,223 respectively, was included in cost of goods sold and $412, $7,890,
$8,644 and $9,468 respectively, was included in marketing expense, while the
majority of the remaining amount was included in general and administrative
expense.
The benefit related liabilities allocated by Borden to BBNA include the
following (see Note 4 for income tax amounts) as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net domestic pension liability........................ $ 372 $ 180
Postretirement benefit obligation..................... 1,726 1,794
Postemployment benefit obligation..................... 265 343
Non-qualified plan obligation......................... 164 175
Group and general insurance........................... 1,106 910
</TABLE>
Prior to January 1, 1996, Borden managed disbursements and the net cash
position of BBNA. Subsequent to January 1, 1996, BFC manages disbursements and
the net cash position. Accordingly, both cash generated and required by BBNA's
operations are recorded in owner's investment for such periods. An allocation
of interest was not practical because Borden and BFC had not historically
F-23
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
identified a capital structure comprised of separate elements of debt and
equity applicable to BBNA as a separate entity.
BBNA had sales to affiliates of KKR of $204, $6,678, $7,374 and $6,643 for
the twenty-three day period ended January 23, 1998 and the years ended
December 31, 1997, 1996 and 1995, respectively.
3. LEASES
BBNA currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements. Rental expense amounted to
$10, $110, $44 and $34 for the twenty-three day period ended January 23, 1998
and the years ended December 31, 1997, 1996 and 1995, respectively. Future
minimum annual rentals under operating leases at December 31, 1997 are as
follows for calendar years:
<TABLE>
<CAPTION>
MINIMUM RENTALS ON
OPERATING LEASES
------------------
<S> <C>
1998........................... $ 68
1999........................... 44
2000........................... 27
2001........................... 24
2002........................... 6
----
Total.......................... $169
====
</TABLE>
4. INCOME TAXES
Income tax expense for domestic and foreign operations that file a
consolidated tax return with other entities was calculated utilizing statutory
rates multiplied by pretax income as adjusted for known book to tax
differences. As discussed in Note 1, BBNA tax accounts have been prepared as
though BBNA filed separate income tax returns and may not necessarily
represent the tax position as prepared on a consolidated basis with BFC or
Borden.
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------- ---
TWENTY-THREE
DAY PERIOD
ENDED
JANUARY 23,
1998 1997 1996 1995
------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ (79) $13,891 $11,671 $ 9,682
State and local.................... (28) 2,551 2,068 1,838
Foreign............................ 27 523 416 641
----- ------- ------- -------
(80) 16,965 14,155 12,161
Deferred:
Federal............................ (185) (656) (1,902) 66
State and local.................... (22) (73) (219) 8
----- ------- ------- -------
(207) (729) (2,121) 74
----- ------- ------- -------
$(287) $16,236 $12,034 $12,235
===== ======= ======= =======
</TABLE>
F-24
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
The following table reconciles the maximum statutory U.S. Federal income tax
rate multiplied by BBNA's income (loss) before taxes to the recorded income
tax expense (benefit):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
TWENTY-THREE DAY
PERIOD ENDED
JANUARY 23, 1998 1997 1996 1995
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Federal income tax (benefit) at
35%.................................. $(304) $14,019 $10,233 $10,418
State income tax, net of Federal
benefit.............................. (32) 1,610 1,190 1,188
Foreign rate differentials............ 2 41 45 63
Goodwill amortization and other
nondeductible expenses............... 47 566 566 566
----- ------- ------- -------
Provision (credit) for income taxes... $(287) $16,236 $12,034 $12,235
===== ======= ======= =======
</TABLE>
Domestic and foreign components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
TWENTY-THREE DAY
PERIOD ENDED
JANUARY 23, 1998 1997 1996 1995
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
Domestic............................... $(938) $38,676 $28,142 $28,079
Foreign................................ 69 1,377 1,095 1,688
----- ------- ------- -------
$(869) $40,053 $29,237 $29,767
===== ======= ======= =======
</TABLE>
Deferred income tax assets and liabilities for domestic and Canadian
operations have been included in owner's investment. As stated in Note 1, the
accompanying financial statements reflect the assets of BBNA on a purchase
accounting basis. The tax basis of BBNA's net assets was not affected by the
KKR acquisition. Deferred tax assets and liabilities up to September 30, 1996
reflect the differences between the purchase accounting book basis and the
historical tax basis of BBNA's net assets. As a result of the 1996 purchase of
Borden's food operations by BFC, the tax basis of BBNA's net assets was
increased to reflect an allocated portion of the purchase price less the
assets transferred plus liabilities assumed. The book basis of BBNA's net
assets did not change as a result of the October 1, 1996 transaction, as the
sale was between related parties and Borden's principal stockholder continued
to control BFC. Deferred tax assets and liabilities were adjusted as of
October 1, 1996 to reflect the change in the tax basis.
Deferred income tax assets and liabilities included in owner's investment at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets:
Trademarks and other intangibles.............................. $17,600 $16,662
Customer allowances and credits............................... 5,250 5,630
Coupon accrual................................................ 1,222 1,208
Non-pension postemployment.................................... 674 700
General insurance............................................. 322 351
Incentive compensation........................................ 700 450
Property and equipment........................................ 377 468
------- -------
Gross deferred tax assets................................... 26,145 25,469
Liabilities:
Prepaid slotting allowance.................................... 278 331
------- -------
Net assets...................................................... $25,867 $25,138
======= =======
</TABLE>
F-25
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
5. PENSION AND RETIREMENT SAVINGS PLANS
Most employees of BBNA participate in the Borden Employee Retirement Income
Plan. For most salaried employees, benefits under the plan generally are based
on compensation and credited service. For most hourly employees, benefits
under the plan are based on specified amounts per year of credited service. A
portion of Borden's expense for the domestic retirement plan was allocated to
BBNA (see Note 2).
A net pension asset or liability, which approximates the portion of the
total pension assets or liabilities of Borden which relates to the employees
of BBNA, has been reflected in BBNA's stand-alone balance sheets (see Note 2).
For the domestic plan in which the employees of BBNA as well as employees of
other Borden affiliated businesses participate, the gross pension obligation
was allocated to BBNA upon the actuarially determined obligation relating to
BBNA's employees.
The rates used to determine pension expense for the plan shared with other
Borden affiliates were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Discount rate........................... 7.5% 6.8% 8.8%
Rate of increase in future compensation
levels................................. 4.5% 4.3% 5.3%
Expected long-term rate of return on
plan assets............................ 8.5% 7.8% 9.8%
</TABLE>
Borden's funding of its pension plans equals or exceeds the minimum funding
requirements imposed by federal laws and regulations. Plan assets consist
primarily of equity securities and corporate obligations. The funded status of
Borden's domestic pension plan on a purchase accounting basis was as follows
(in millions):
<TABLE>
<CAPTION>
ACCUMULATED
BENEFITS EXCEED
PLAN ASSETS
----------------
1997 1996
------- -------
<S> <C> <C>
Plan assets at fair value.................................... $ 385.2 $ 393.6
Actuarial present value of:
Vested benefit obligation.................................. (333.9) (383.1)
Accumulated benefit obligation............................. (342.5) (400.4)
Projected benefit obligation............................... (345.0) (400.4)
------- -------
Plan assets greater (less) than projected benefit obligation. 40.2 (6.8)
Unrecognized prior service cost.............................. 2.6 2.9
Unrecognized loss (benefit).................................. (35.7) 2.2
Minimum liability adjustment................................. (5.1)
------- -------
Net pension asset (liability)................................ $ 7.1 $ (6.8)
======= =======
</TABLE>
The weighted average discount rates and rates of increase in future
compensation levels used in determining the projected benefit obligation for
the Borden domestic pension plan were 7.3% and 4.4% respectively, as of
December 31, 1997 and 7.5% and 4.5% respectively as of December 31, 1996.
F-26
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
Eligible salaried and hourly non-bargaining employees may contribute up to
5% of their pay to Borden sponsored retirement savings plans (7% for certain
longer service salaried employees), which was matched 50% by Borden in 1998,
1997, 1996 and 1995.
6. NON-PENSION POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
BBNA participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their
dependents.
Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for
Medicare are provided with supplemental benefits. The postretirement medical
benefits are contributory for retirements after 1983; the postretirement life
insurance benefit is noncontributory.
Prior to January 1, 1996, amounts attributable to postretirement benefits
were commingled in one Borden sponsored plan. Allocation of liabilities for
such benefits was made to BFC based upon the actuarially determined obligation
relating to the Foods domestic employees. Effective January 1, 1996, the
components of postretirement benefit expense and unfunded postretirement
obligation were accounted for separately for BFC. The information provided as
of December 1, 1997 and 1996, represents the status of BFC's segregated plan
(in millions):
<TABLE>
<CAPTION>
BFC BFC
1997 1996
----- ------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit
obligation:
Retirees..................................................... $(7.9) $(10.4)
Fully eligible active plan participants...................... (0.2)
Other active plan participants............................... (0.1) (0.7)
----- ------
(8.0) (11.3)
Unrecognized prior service cost................................
Unrecognized net (benefit) loss................................ (0.7) 0.1
----- ------
Accrued postretirement liability............................... $(8.7) $(11.2)
===== ======
</TABLE>
A liability which approximates the portion of Borden's total postemployment
and postretirement obligation which relates to the domestic employees of BBNA
has been reflected in BBNA's balance sheets (see Note 2). Such allocation was
based upon the actuarially-determined obligation for these benefits relating
to BBNA's domestic employees.
A portion of Borden's expense for postemployment and postretirement benefits
was allocated annually to BBNA (see Note 2). The discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1997 and 1996 was 7.3% and 7.5%, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1997 was 8.8% for 1998,
gradually declining to 5.3% by the year 2004. The comparable assumptions for
the prior year were 9.5% and 5.5%, respectively.
Borden also provides certain postemployment benefits, primarily medical and
life insurance benefits for long-term disabled employees, to qualified former
or inactive employees. The costs of
F-27
<PAGE>
BORDEN BRANDS NORTH AMERICA
(PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS)
benefits provided to former or inactive employees after employment, but before
retirement, are accrued when it is probable that a benefit will be provided.
The amounts of such charges are not considered significant.
Management does not believe that these allocations are materially different
from amounts that would be calculated historically for BBNA on a stand-alone
basis.
7. UNITS AND UNIT APPRECIATION RIGHTS
During 1996, a Unit Incentive Plan was formed which provides for the
granting of options, unit appreciation rights, ("UARs") units and other unit-
based grants to key employees of BFC.
During 1996 Foods Holdings sold units to certain management employees of
BFC's business units, including BBNA, and granted UARs to unit holders under
this plan. The UARs entitle the holder to receive an amount in cash equal to
the excess of the market price (as defined in the UAR agreement) of the units
over the exercise price of the UAR. The UARs vest ratably over five years and
expire upon certain events, including termination of the unitholder's
employment, but in no case to exceed ten years. There was no compensation
expense recorded by BFC or BBNA in 1996 or 1997 in relation to the issuance of
the UARs because the exercise price exceeds the underlying value of the UARs.
There were 1,019,000 and 1,080,000 UAR's outstanding at December 31, 1997 and
1996, respectively, the majority of which were held by non-BBNA employees.
8. SUPPLEMENTAL INFORMATION
Intangibles and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Intangibles:
Trademarks.......................................... $ 48,365 $ 49,671
Goodwill............................................ 59,757 61,376
-------- --------
$108,122 $111,047
======== ========
Other current liabilities:
Customer allowances, credits and other.............. $ 17,982 $ 19,501
Coupon accrual...................................... 3,132 3,097
Employee benefits and compensation.................. 2,068 1,225
Broker commissions.................................. 991 307
Other............................................... 1,174 915
-------- --------
$ 25,347 $ 25,045
======== ========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Commitments--BBNA has entered into long-term contracts for the purchase of
certain raw materials. Minimum purchase commitments, at current prices, are
approximately $11.9 million at December 31, 1997.
F-28
<PAGE>
EAGLE FAMILY FOODS, INC.
All tendered Original Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent
for the Exchange Offer is
IBJ SCHRODER BANK & TRUST COMPANY
By Facsimile:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
By Registered or Certified Mail:
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
Attention: Reorganization Operations Department
By Hand:
One State Street
New York, NY 10004
Attention: Securities Processing Window, Subcellar One, (SC-1)
By Overnight Courier:
One State Street
New York, NY 10004
Attention: Securities Processing Window, Subcellar One, (SC-1)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation of enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or
agent in defending such action, provided that the director or officer
undertakes to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the corporation. A corporation may
indemnify such person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Section 9 of the Company's
Restated Certificate of Incorporation (the "Company's Restated Certificate"),
Article 8 of Holdings' Restated Certificate of Incorporation (the "Holdings'
Restated Certificate" and, together with the Company's Restated Certificate,
the "Restated Certificates"), Holdings' By-Laws and the Company's By-Laws
(together with Holdings' By-Laws, the "By-Laws") provide that the Registrants
shall indemnify to the fullest extent permitted under and in accordance with
the laws of the State of Delaware any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that he is or was a director, officer, employee or agent
of the Registrants, or is or was serving at the request of the Registrants as
director, officer, trustee, employee or agent of or in any other capacity with
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrants, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The indemnification
provided by the Restated Certificates and the By-Laws shall not be deemed
exclusive of any other rights to which any of those seeking indemnification or
advancement of expenses may be entitled under any other contract or agreement
between each of the Registrants and any officer, director, employee or agent
of the Registrants. Expenses incurred in defending a civil or criminal action,
suit or proceeding shall (in the case of any action, suit or proceeding
against a
II-1
<PAGE>
director of the Registrants) or may (in the case of any action, suit or
proceeding against an officer, trustee, employee or agent) be paid by the
Registrants in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors of each of the Registrants
upon receipt of an undertaking by or on behalf of the indemnified person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Registrants. Subparagraph (d) of Section 9 of the
Company's Restated Certificate and subparagraph (d) of Article 8 of Holdings'
Restated Certificate provide that neither the amendment or repeal of, nor the
adoption of any provision inconsistent with, the above-referenced provisions
of the Restated Certificates shall eliminate or reduce the effect of such
provisions in respect of any matter occurring before such amendment, repeal or
adoption of an inconsistent provision or in respect of any cause of action,
suit or claim relating to any such matter which would have given rise to a
right of indemnification or right to receive expenses pursuant to such
provisions if any such provision had not been so amended or repealed or if a
provision inconsistent therewith had not been so adopted. Subparagraph (c) of
Section 9 of the Company's Restated Certificate and subparagraph (e) of
Article 8 of Holdings' Restated Certificate provide that a director of the
Registrants shall not be personally liable to the Registrants or their
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Registrants or their stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or any amendment thereto or successor
provision thereto, or (iv) for any transaction from which the director derived
an improper personal benefit. If the DGCL is amended to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Registrants shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 --Asset Purchase Agreement, dated as of November 24, 1997, as amended
as of December 9, 1997 and January 15, 1998, by and among Borden
Foods Corporation, BFC Investments, L.P., and the Company.*
3.1 --Restated Certificate of Incorporation of Holdings, dated January 15,
1998.*
3.2 --Bylaws of Holdings.*
3.3 --Restated Certificate of Incorporation of the Company, dated November
19, 1997.*
3.4 --Bylaws of the Company.*
4.1 --Purchase Agreement, dated January 16, 1998, by and among Holdings,
the Company, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated.*
4.2 --Indenture, dated January 23, 1998, among Holdings, the Company and
IBJ Schroder Bank & Trust Company (including Specimen Certificates of
8 3/4% Series Senior Subordinated Notes due 2008 and 8 3/4% Series B
Senior Subordinated Notes due 2008).*
4.3 --Registration Rights Agreement, dated January 23, 1998, by and among
Holdings, the Company, Chase Securities Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.*
4.4 --Credit Agreement, dated January 23, 1998, by and among the Company,
Holdings, The Chase Manhattan Bank, Merrill Lynch Capital
Corporation, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner
& Smith Incorporated.*
4.5 --Stockholders Agreement, dated as of January 23, 1998, by and among
Holdings and certain stockholders of Holdings named therein.*
4.6 --Exchange and Registration Rights Agreement, dated of January 23,
1998, by and among Holdings and certain stockholders of Holdings
named therein.*
</TABLE>
- - - - --------
* Previously filed.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.7 --Subscription Rights Agreement, dated as of January 23, 1998, by and
among Holdings, GE Investment Private Placement Partners II, a
Limited Partnership, and Warburg, Pincus Ventures, L.P.*
5.1 --Opinion of Willkie Farr & Gallagher.
8.1 --Opinion of Willkie Farr & Gallagher.
10.1 --Master Customer Services Agreement, dated as of January 23, 1998, by
and between the Company and Borden Foods Corporation.*
10.2 --License Agreement dated January 23, 1998 by and among BDH Two, Inc.,
Borden, Inc. and the Company.*
10.3 -- Assignment of Trademark License Agreement dated January 23, 1998,
by and between BFC and the Company of BFC's License Agreement, dated
as of September 4, 1997, by and between BFC and Southern Foods Group,
L.P.
10.4 --License Agreement, dated January 23, 1998, by and between BFC and
the Company.*
10.5 --The 1998 Stock Incentive Plan of Holdings.*
10.6 --Employment Agreement, dated January 23, 1998, by and between John
O'C. Nugent and the Company.*
10.7 --Employment Agreement, dated January 23, 1998, by and between William
A. Lynch and the Company.*
10.8 --Employment Agreement, dated January 23, 1998, by and between Craig
A. Steinke and the Company.*
10.9 --Employment Agreement, dated January 23, 1998, by and between Tamar
K. Bernbaum and the Company.*
10.10 --Employment Agreement, dated January 23, 1998, by and between Richard
A. Lumpp and the Company.*
10.11 --Pledge Agreement, dated January 23, 1998, by and between William A.
Lynch and the Company.*
10.12 --Pledge Agreement, dated January 23, 1998, by and between John O'C.
Nugent and the Company.*
10.13 --Secured Recourse Promissory Note, dated January 23, 1998, from
William A. Lynch to the Company.*
10.14 --Secured Recourse Promissory Note, dated January 23, 1998, from John
O'C. Nugent to the Company.*
23.1 --Consent of Coopers & Lybrand LLP.
23.2 --Consent of Deloitte & Touche LLP.
23.3 --Consent of Willkie Farr & Gallagher (contained in the Opinions of
Willkie Farr & Gallagher filed as Exhibits 5.1 and 8.1).
23.4 --Consent of Information Resources, Inc.
23.5 --Consent of Opinion Research Corporation International.
24.0 --Power of Attorney.*
</TABLE>
- - - - --------
* Previously filed.
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
25.0 --Statement on Form T-1 of Eligibility of Trustee.*
27.1 --Financial Data Schedule of Eagle Family Foods Holdings, Inc.
27.2 --Financial Data Schedule of Eagle Family Foods, Inc.
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Letter to Clients.*
99.4 --Form of Letter to Nominees.*
</TABLE>
- - - - --------
* Previously filed.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS.
Each of the undersigned registrants 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 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the 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 registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
registrants have 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 registrants of expenses incurred or paid by a director, officer
or controlling person of the registrants 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
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to 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.
Each of the undersigned registrants hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by each of the registrants pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus 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.
II-4
<PAGE>
Each of the undersigned registrants 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;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
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 Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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.
Each of the undersigned registrants hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
Each of the undersigned registrants undertakes that every prospectus (i)
that is filed pursuant to paragraph immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, 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.
Each of the undersigned registrants 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 the registration statement through
the date of responding to the request.
Each of the undersigned registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved herein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH OF THE
REGISTRANTS HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK,
STATE OF NEW YORK, ON THE 1ST DAY OF JUNE 1998.
Eagle Family Foods Holdings, Inc.
/s/ John O'C. Nugent
By: _________________________________
JOHN O'C. NUGENT, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Eagle Family Foods, Inc.
/s/ John O'C. Nugent
By: _________________________________
JOHN O'C. NUGENT, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
II-6
<PAGE>
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS, IN
THEIR CAPACITIES AT BOTH EAGLE FAMILY HOLDINGS, INC. AND EAGLE FAMILY FOODS,
INC. AND ON THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ John O'C. Nugent President, Chief
- - - - ------------------------------------- Executive Officer June 1, 1998
JOHN O'C. NUGENT and Director
(principal
executive officer)
Chairman of the
* Board, Chief June 1, 1998
- - - - ------------------------------------- Operating Officer
WILLIAM A. LYNCH and Director
/s/ Craig A. Steinke Chief Financial
- - - - ------------------------------------- Officer (principal June 1, 1998
CRAIG A. STEINKE financial and
accounting officer)
Director
* June 1, 1998
- - - - -------------------------------------
ANDREAS T. HILDEBRAND
Director
* June 1, 1998
- - - - -------------------------------------
EDWARD A. JOHNSON
Director
* June 1, 1998
- - - - -------------------------------------
KEWSONG LEE
Director
* June 1, 1998
- - - - -------------------------------------
HOWARD H. NEWMAN
II-7
<PAGE>
Director
* June 1, 1998
- - - - -------------------------------------
DONALD W. TOREY
Director
* June 1, 1998
- - - - -------------------------------------
PAUL W. VAN ORDEN
*By:/s/ Jonathan F. Rich
-------------------------------------
ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
2.1 --Asset Purchase Agreement, dated as of November 24, 1997, as
amended as of December 9, 1997 and January 15, 1998, by and
among Borden Foods Corporation, BFC Investments, L.P., and the
Company.*
3.1 --Restated Certificate of Incorporation of Holdings, dated
January 15, 1998.*
3.2 --Bylaws of Holdings.*
3.3 --Restated Certificate of Incorporation of the Company, dated
November 19, 1997.*
3.4 --Bylaws of the Company.*
4.1 --Purchase Agreement, dated January 16, 1998, by and among
Holdings, the Company, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.*
4.2 --Indenture, dated January 23, 1998, among Holdings, the
Company and IBJ Schroder Bank & Trust Company (including
Specimen Certificates of 8 3/4% Series Senior Subordinated
Notes due 2008 and 8 3/4% Series B Senior Subordinated Notes
due 2008).*
4.3 --Registration Rights Agreement, dated January 23, 1998, by and
among Holdings, the Company, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.*
4.4 --Credit Agreement, dated January 23, 1998, by and among the
Company, Holdings, The Chase Manhattan Bank, Merrill Lynch
Capital Corporation, Chase Securities Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.*
4.5 --Stockholders Agreement, dated as of January 23, 1998, by and
among Holdings and certain stockholders of Holdings named
therein.*
4.6 --Exchange and Registration Rights Agreement, dated of January
23, 1998, by and among Holdings and certain stockholders of
Holdings named therein.*
4.7 --Subscription Rights Agreement, dated as of January 23, 1998,
by and among Holdings, GE Investment Private Placement
Partners II, a Limited Partnership, and Warburg, Pincus
Ventures, L.P.*
5.1 --Opinion of Willkie Farr & Gallagher.
8.1 --Opinion of Willkie Farr & Gallagher.
10.1 --Master Customer Services Agreement, dated as of January 23,
1998, by and between the Company and Borden Foods
Corporation.*
10.2 --License Agreement dated January 23, 1998 by and among BDH
Two, Inc., Borden, Inc. and the Company.*
10.3 -- Assignment of Trademark License Agreement dated January 23,
1998, by and between BFC and the Company of BFC's License
Agreement, dated as of September 4, 1997, by and between BFC
and Southern Foods Group, L.P.
10.4 --License Agreement, dated January 23, 1998, by and between BFC
and the Company.*
10.5 --The 1998 Stock Incentive Plan of Holdings.*
10.6 --Employment Agreement, dated January 23, 1998, by and between
John O'C. Nugent and the Company.*
</TABLE>
- - - - --------
* Previously filed.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
10.7 --Employment Agreement, dated January 23, 1998, by and between
William A. Lynch and the Company.*
10.8 --Employment Agreement, dated January 23, 1998, by and between
Craig A. Steinke and the Company.*
10.9 --Employment Agreement, dated January 23, 1998, by and between
Tamar K. Bernbaum and the Company.*
10.10 --Employment Agreement, dated January 23, 1998, by and between
Richard A. Lumpp and the Company.*
10.11 --Pledge Agreement, dated January 23, 1998, by and between
William A. Lynch and the Company.*
10.12 --Pledge Agreement, dated January 23, 1998, by and between John
O'C. Nugent and the Company.*
10.13 --Secured Recourse Promissory Note, dated January 23, 1998,
from William A. Lynch to the Company.*
10.14 --Secured Recourse Promissory Note, dated January 23, 1998,
from John O'C. Nugent to the Company.*
23.1 --Consent of Coopers & Lybrand LLP.
23.2 --Consent of Deloitte & Touche LLP.
23.3 --Consent of Willkie Farr & Gallagher (contained in the
Opinions of Willkie Farr & Gallagher filed as Exhibits 5.1 and
8.1).
23.4 --Consent of Information Resources, Inc.
23.5 --Consent of Opinion Research Corporation International.
24.0 --Power of Attorney.*
25.0 --Statement on Form T-1 of Eligibility of Trustee.*
27.1 --Financial Data Schedule of Eagle Family Foods Holdings, Inc.
27.2 --Financial Data Schedule of Eagle Family Foods, Inc.
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Letter to Clients.*
99.4 --Form of Letter to Nominees.*
</TABLE>
- - - - --------
* Previously filed.
<PAGE>
June 1, 1998
Eagle Family Foods Holdings, Inc.
Eagle Family Foods, Inc.
220 White Plains Road
Tarrytown, New York 10591
Re: Registration Statement on Form S-4
(File No. 333-50305)
-----------------------------------
Ladies and Gentlemen:
We are counsel to Eagle Family Foods, Inc., a Delaware corporation (the
"Company"), and Eagle Family Foods Holdings, Inc., a Delaware corporation
("Holdings" and together with the Company, the "Registrants"), and have acted as
such in connection with various legal matters relating to the filing of a
Registration Statement on Form S-4 (File No. 333-50305) (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
covering $115,000,000 in aggregate principal amount of 8-3/4% Series B Senior
Subordinated Notes due 2008 (the "Exchange Notes") offered in exchange for
$115,000,000 in aggregate principal amount of outstanding 8-3/4% Senior
Subordinated Notes due 2008 originally issued and sold in reliance upon an
exemption from registration under the Securities Act (the "Original Notes").
The Original Notes were issued under, and the Exchange Notes are to be issued
under, the Indenture, dated as of January 23, 1998 (the "Indenture"), among the
Company, Holdings, as guarantor, and IBJ Schroder Bank & Trust Company, as
trustee. The exchange will be made pursuant to an exchange offer (the "Exchange
Offer") contemplated by the Registration Statement. Capitalized terms used but
not otherwise defined herein shall have the meanings assigned to them in the
Registration Statement.
In so acting, we have examined copies of such records of the Registrants and
such other certificates and documents as we have deemed relevant and necessary
for the opinions hereinafter set forth. In such examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity to authentic originals of all documents
submitted to us as certified or reproduced copies. We have also assumed the
legal capacity of all persons executing such documents and the truth and
correctness of any representations or warranties therein contained. As to
various questions of fact material to such opinions, we have relied upon
<PAGE>
Eagle Family Foods Holdings, Inc.
Eagle Family Foods, Inc.
June 1, 1998
Page 2
certificates of officers of the Registrants and of public officials.
Based upon the foregoing, we are of the opinion that:
1. The Registrants are duly formed and validly existing under the laws of the
State of Delaware.
2. The execution and delivery of the Indenture has been duly authorized by the
Registrants, and the Indenture constitutes a legal, valid and binding
obligation of the Registrants, enforceable against the Registrants in
accordance with the terms thereof, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance and
other similar laws affecting the enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law).
3. The Exchange Notes have been duly authorized and, when duly executed by the
proper officers of the Company, duly authenticated by the Trustee and issued
by the Company in accordance with the terms of the Indenture and the
Exchange Offer, will constitute legal, valid and binding obligations of the
Company, will be entitled to the benefits of the Indenture and will be
enforceable against the Company in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance and other similar laws affecting the
enforcement of creditors' rights generally and except as enforcement thereof
is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
This opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of the type typically applicable to transactions contemplated by the
Exchange Offer, and we do not express any opinion with respect to the laws of
any other country, state or jurisdiction.
This opinion letter is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the date
hereof.
<PAGE>
Eagle Family Foods Holdings, Inc.
Eagle Family Foods, Inc.
June 1, 1998
Page 3
We consent to being named in the Registration Statement and related Prospectus
as counsel who are passing upon the legality of the Exchange Notes for the
Company and Holdings and to the reference to our name under the caption "Legal
Matters" in such Prospectus. We also consent to your filing copies of this
opinion as Exhibit 5.1 to the Registration Statement or any amendment thereto.
Very truly yours,
/s/ Willkie, Farr & Gallagher
<PAGE>
EXHIBIT 8.1
June 1, 1998
Eagle Family Foods Holdings, Inc.
Eagle Family Foods, Inc.
220 White Plains Road
Tarrytown, New York 10591
Re: Registration Statement on Form S-4
(File No. 333-50305)
------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Eagle Family Foods, Inc., a Delaware corporation,
and Eagle Family Foods Holdings, Inc., a Delaware corporation, in connection
with the filing of a Registration Statement on Form S-4 (File No. 333-50305)
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), covering $115,000,000 in aggregate principal amount
of 8-3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes")
offered in exchange for $115,000,000 in aggregate principal amount of
outstanding 8-3/4% Senior Subordinated Notes due 2008 originally issued and
sold in reliance upon an exemption from registration under the Securities Act
(the "Original Notes"). In that connection, we have prepared the section
entitled "Certain U.S. Federal Income Tax Consequences" contained in the
Registration Statement.
Our opinion is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), regulations under the Code, judicial authority and
current administrative rulings and practice, all as of the date of this
letter, and all of which may change at any time.
Based on the foregoing, it is our opinion that the above-referenced section
of the Registration Statement describes the material U.S. federal income tax
considerations generally applicable to holders of the Notes.
<PAGE>
Eagle Family Foods Holdings, Inc.
June 1, 1998
Page 2
We hereby consent to the use of this opinion as Exhibit 8.1 to the
Registration Statement and related Prospectus filed with the Securities and
Exchange Commission and to the reference to us under the caption "Certain
U.S. Federal Income Tax Consequences" and "Legal Matters" therein.
Very truly yours,
/s/ Willkie, Farr & Gallagher
<PAGE>
EXHIBIT 10.3
ASSIGNMENT OF TRADEMARK LICENSE AGREEMENT
-----------------------------------------
THIS ASSIGNMENT is effective this 23rd day of January, 1998
("Effective Date"), from BORDEN FOODS CORPORATION, a Delaware corporation
("Assignor") to EAGLE FAMILY FOODS, INC., a Delaware corporation ("Assignee").
WHEREAS, Assignor is a party to the Trademark License Agreement dated
as of September 4, 1997 between Assignor and Southern Foods Group, L.P. (the
"License");
WHEREAS, pursuant to Section 5.6(c) of the Asset Purchase Agreement
dated as of November 24, 1997 among Assignor, Assignee and BFC Investments,
L.P., an affiliate of Assignor ("Purchase Agreement"), Assignor has agreed to
assign to Assignee all of its right, title and interest in and to the License;
WHEREAS, Assignee wishes to acquire all of Assignor's right, title and
interest in and to the License;
NOW, THEREFORE, for good and valuable consideration (including that
recited in the Purchase Agreement), the receipt and sufficiency of which are
hereby acknowledged, Assignor hereby assigns, transfers and conveys to Assignee,
its successors and assigns forever, Assignor's entire right, title and interest
in and to the License. Assignee shall assume Assignor's status as a party
thereto, and in accordance with all of the provisions set forth therein.
Assignee shall succeed to all of Assignor's rights, obligations and liabilities
under the License as entirely as the same would have been held and enjoyed by
Assignor had this Assignment not been made.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
duly executed and delivered as of January 23, 1998.
BORDEN FOODS CORPORATION
By: /s/ Nancy G. Brown
--------------------------
Name: Nancy G. Brown
Title: Vice President
EAGLE FAMILY FOODS, INC.
By: /s/ Jonathan F. Rich
----------------------------
Name: Jonathan F. Rich
Title: Vice President
<PAGE>
TRADEMARK LICENSE AGREEMENT
---------------------------
AGREEMENT made this 4th day of September, 1997, by and between
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership ("Licensor"), and
--------
BORDEN FOODS CORPORATION, a Delaware corporation ("Licensee").
--------
W I T N E S S E T H :
WHEREAS, Licensor owns the MEADOW GOLD trademarks used in connection
with sweetened condensed milk, and has obtained United States federal trademark
registrations therefor; and
WHEREAS, Licensee desires that Licensee and its permitted assignees
and sublicensees be allowed to process, sell and distribute sweetened condensed
milk under the MEADOW GOLD trademark and certain related designs of Licensor and
seeks to have Licensor grant it the right to do so, all on the terms and
conditions hereinafter set out.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 The following terms shall have the meanings set forth
-----------
below:
"Initial Term" shall have the meaning set forth in Article IX, Section
------------
9.1.
"Licensed Trademarks" shall mean (i) the trademarks listed and
-------------------
described in Appendix A, attached hereto, including the United States federal
trademark registrations and applications therefor and all common law rights in
such
<PAGE>
trademarks and any trade dress or label designs associated with such trademarks,
and (ii) any such other marks and trade dress or label designs as the parties
may agree in writing to add to Appendix A during the Term.
"Products" shall mean sweetened condensed milk and any other product
--------
that the parties agree in the future shall bear a Licensed Trademark.
"Renewal Period" shall have the meaning set forth in Article IX,
--------------
Section 9.1.
"Term" shall mean the Initial Term and any Renewal Period.
----
"Territory" shall mean the United States.
---------
"United States" shall mean only the 50 states comprising the United
-------------
States of America, and the District of Columbia, excluding without limitation
any U.S. possessions and territories.
ARTICLE II
GRANT OF LICENSE
----------------
Section 2.1. (a) Subject to the terms and conditions herein,
-----------
Licensor hereby grants to Licensee during the Initial Term of this Agreement and
any Renewal Periods an exclusive license to use the Licensed Trademarks on or in
connection with the Products in the Territory.
(b) This license is being entered into in connection with the Stock
Purchase and Merger Agreement dated as of May 22, 1997, among Mid-America
Dairymen, Inc., Borden, Inc., BDH Two, Inc. and Borden/Meadow Gold Dairies
Holdings, Inc. (the
-2-
<PAGE>
"Acquisition Agreement"), and the consummation by Borden, Inc. and BDH Two,
---------------------
Inc., each of which is an affiliate of Licensee, will be treated as
consideration for the license granted under Section 2.1(a). No other
consideration shall be payable as consideration for the license granted
hereunder.
Section 2.2. Subject to the terms and conditions herein, Licensee may
-----------
use the Licensed Trademarks on Product containers, labels, packaging and
shipping cases and on delivery vehicles and in any other way suitable to promote
or advertise the Licensed Trademarks and the Products.
Section 2.3. Other than as expressly stated herein, Licensee shall
-----------
have no other right to use or interest in the Licensed Trademarks.
Specifically, Licensee may not use any of the Licensed Trademarks in its trade
name or as its business name or in connection with any products, goods or
services of any kind or nature whatsoever, whether or not the same as or similar
to the Products, other than the Products. Notwithstanding the foregoing,
Licensee shall have the right to use any pre-existing materials bearing the
Licensed Trademarks for a transitional phase-out period of 120 days, after which
all use of such materials must cease. Nothing contained in this Article or any
other provision of this Agreement shall restrict Licensor from the sale of other
products different from the Products bearing the Licensed Trademarks anywhere in
the world.
-3-
<PAGE>
ARTICLE III
OWNERSHIP OF TRADEMARKS
-----------------------
Section 3.1. Licensee acknowledges that Licensor is the sole owner of
-----------
the Licensed Trademarks. Licensee shall not directly or indirectly question,
attack, contest, or in any other manner impugn the validity or Licensor's
ownership of the Licensed Trademarks, nor shall Licensee willingly become an
adverse party to Licensor in litigation contesting the validity of Licensor's
ownership and other rights in and to the Licensed Trademarks.
Section 3.2. Licensee shall be deemed a "related company" under the
-----------
U.S. Lanham Act, such that any use of the Licensed Trademarks by Licensee, and
any goodwill generated thereby, shall inure to the sole benefit of Licensor.
ARTICLE IV
FORM OF USE
-----------
Section 4.1. Licensee hereby acknowledges and agrees that its use of
-----------
the Licensed Trademarks shall be subject at all times during the Term to the
reasonable control of Licensor in order for Licensor to maintain the consistent
standard of quality associated with the Licensed Trademarks. Licensee will
preserve the good appearance of the Licensed Trademarks wherever and whenever
they are used and shall not use any Licensed Trademark in a manner which is
likely to derogate from the integrity, distinctiveness, goodwill, value or
strength of such Licensed Trademark.
-4-
<PAGE>
Section 4.2. From time to time, Licensor may determine that a
-----------
previously published use of the Licensed Trademarks by Licensee may threaten the
value of the Licensed Trademarks, or is otherwise inconsistent with Licensor's
quality standards. Upon written notice from Licensor, Licensee shall implement
Licensor's directions regarding the proper use of the Licensed Trademarks as
promptly as practicable using its best efforts and, in any event, within thirty
(30) days.
Section 4.3. Except as required by law, Licensee agrees not to use
-----------
the Licensed Trademarks in connection or combination with any other third-party
trademarks, names or logotypes, without Licensor's prior written approval, such
approval not to be withheld unreasonably. Licensee shall at no time adopt or
use any variation of the Licensed Trademarks or any word or marks confusingly
similar thereto without Licensor's prior written approval.
Section 4.4. Licensee shall not take any action to cause an
-----------
abandonment or forfeiture of any of Licensor's rights in the Licensed Trademarks
and shall not take any action to cancel any registration in the Territory of any
Licensed Trademark in the name of Licensor or to interfere with any renewal of
any such registration. Licensee shall reasonably cooperate with and shall not
oppose any application by or on behalf of Licensor to register or renew any
registration of any Licensed Trademark in the Territory.
-5-
<PAGE>
ARTICLE V
QUALITY CONTROL
---------------
Section 5.1. Licensee agrees that all Products bearing a Licensed
-----------
Trademark pursuant to the Agreement shall be of a high standard and of such
quality as to protect and enhance the Licensed Trademarks and the goodwill and
value pertaining thereto and shall meet Licensee's quality standards. Licensee
and its Manufacturing Agents (as defined in Section 5.5 below) shall
manufacture, sell, distribute and promote the Products in accordance with all
applicable federal, state and local laws.
Section 5.2. In order to assure that Licensee meets Licensor's
-----------
quality standards and specifications, once each quarter of the Term and/or for
good cause shown, Licensee shall submit comprehensive affidavits that meet with
Licensor's reasonable approval from all of Licensee's quality control department
managers responsible for the quality standards of the Products produced by that
part of Licensee's or its Manufacturing Agents' business for which they are
responsible, attesting under oath that Licensor's quality standards and Product
specifications have been fully complied with during the prior quarter, also
submitting representative Product samples, if any, and listing the number of
customer complaints relating to Product quality during that quarter and a
summary of the actions taken by Licensee in response to such complaints.
Section 5.3. Licensor also reserves the right periodically to conduct
-----------
quality control inspections, upon reasonable notice and during normal business
hours, at Licensee's
-6-
<PAGE>
plants to determine if the Licensee's standards for the Products and the
processing thereof are being complied with.
Section 5.4. In the event that Licensor or its agents shall determine
-----------
that any Products sold or distributed by Licensee and/or its Manufacturing
Agents bearing or using Licensed Trademarks do not conform to Licensee's
standards, and/or otherwise violate the provisions of this Article V, Licensee
agrees, at its expense, to take such action as Licensor directs in writing,
including, but not limited to, withdrawal and/or recall of such Products from
the market and to refrain and cause its Manufacturing Agents to refrain from
further sale and/or distribution of such Products under the Licensed Trademarks
unless and until Licensee and/or its Manufacturing Agents have demonstrated to
the reasonable satisfaction of Licensor that said Products conform to said
standards and/or the provisions of the Article V, as the case may be.
Section 5.5. If Licensee enters into co-packing agreements with
-----------
suppliers or any other arrangement with respect to the processing or packaging
of final Products by any person who is not a subsidiary of Licensee, who will
process or package final Products for the Licensee, for sale in the Territory
("Manufacturing Agents"), Licensee must submit such co-packing agreements in
- - - - ----------------------
draft form to Licensor or an individual designated by Licensor ("Licensor's
----------
License Coordinator") for prior approval to ensure they include trademark
- - - - -------------------
protection and quality control provisions that safeguard the rights of both the
Licensor and Licensee under this Agreement. Licensor agrees that such prior
-7-
<PAGE>
approval shall not be withheld or delayed unreasonably, and that Licensor shall
respond promptly to any request for approval. If Licensor fails to respond to
such request within thirty (30) days, Licensor's approval shall be deemed given.
Section 5.6. On a semi-annual basis, Licensee shall review with
-----------
Licensor's License Coordinator and obtain prior approval for, all advertising,
promotional and point-of-purchase materials published or distributed by Licensee
in connection with Products bearing Licensed Trademarks. Licensor agrees that
such prior approval shall not be withheld or delayed unreasonably, and that
Licensor shall respond promptly to any request for approval. If Licensor fails
to respond to such request within thirty (30) days, Licensor's approval shall be
deemed given.
Section 5.7. If Licensee desires to adopt new cartons or packaging
-----------
bearing the Licensed Trademarks, which package designs or trade dress are
different from those presently used by Licensor, Licensee shall submit to
Licensor's License Coordinator at least one (1) representative sample of each
such new carton and packaging material and may not use any such materials in
connection with the Licensed Trademarks without Licensor's prior written
approval. Licensor agrees that such prior approval shall not be withheld or
delayed unreasonably, and that Licensor shall respond promptly to any request
for approval. If Licensor fails to respond to such request within thirty (30)
days, Licensor's approval shall be deemed given.
-8-
<PAGE>
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 6.1. Subject to the limitations of Section 6.2, Licensor
-----------
represents that it is the owner of or has the exclusive right to license the
Licensed Trademarks and is not aware of any other party with ownership rights in
the Territory in any of the Licensed Trademarks.
Section 6.2. Licensor represents that during the Term, it will not
-----------
license any other party to use the Licensed Trademarks on the Products in the
Territory and will not itself sell Products identified by the Licensed
Trademarks in the Territory. Nothing herein shall restrict Licensor's right or
ability to sell (or license others to sell) goods or services other than the
Products identified by the Licensed Trademarks or similar marks anywhere in the
world.
Section 6.3 Licensor shall take all steps necessary to insure the
-----------
continued registration of, including, but not limited to, filing all timely
renewals of registrations for the Licensed Trademarks.
Section 6.4. Licensee shall cooperate with Licensor in the protection
-----------
of the Licensed Trademarks and in connection therewith shall:
(a) promptly inform Licensor of any third-party use of any Licensed
Trademarks or any infringement or encroachment upon or any misuse whatsoever of
any Licensed Trademarks which comes to Licensee's attention; and
-9-
<PAGE>
(b) promptly inform Licensor of any claim against Licensee that the
use of any Licensed Trademark infringes the rights of others or of the
institution of any proceeding against Licensee predicated upon any such claimed
infringement.
Section 6.5. Without limiting the effect of Section 3.1 hereof,
-----------
Licensor and Licensee shall both have the right to take action in respect of any
Products bearing the Licensed Trademarks for any alleged infringements of, or
other impairments to, such Products. The party taking any such action shall
bear all expenses, have complete control over, and recover all proceeds,
settlements and damages with respect to the action. Notwithstanding the
foregoing sentence, the other party retains the right to join such action and
share evenly all expenses, control, proceeds, settlements and damages with
respect thereto, if such other party joins such action within a reasonable time
period following its commencement.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 7.1. Licensor will hold Licensee harmless from and against
-----------
all suits, claims or actions by third parties against Licensee alleging
trademark infringement arising from Licensee's authorized use of any of the
Licensed Trademarks; provided that Licensee gives Licensor prompt written notice
--------
of such suit, claim or action and cooperates fully with Licensor in defending
the same.
Section 7.2. Licensee hereby indemnifies and undertakes to defend and
-----------
hold Licensor harmless from and against
-10-
<PAGE>
any and all claims, suits, losses, damages, fines, penalties, and/or expenses,
including, but not limited to, attorneys' fees, arising out of or based upon:
(a) Licensee's or its Manufacturing Agents' processing, distribution
or sale of Products bearing a Licensed Trademark; or
(b) any breach by Licensee or its Manufacturing Agents of their
obligations hereunder; or
(c) any proceeding brought by any person, governmental agency or
consumer group in connection with the Products processed, sold or distributed by
Licensee or its Manufacturing Agents bearing or using a Licensed Trademark; or
(d) any violations of any applicable law or regulation or civil
claims relating to the manufacture, processing, sale, distribution, promotion or
advertising of Products bearing or using a Licensed Trademark unless
attributable to Licensor's breach of its obligations under this Agreement.
Licensor may participate in the defense of any such litigation.
Section 7.3. Licensee shall be solely responsible for the acts and
-----------
omissions of those with whom it or its Manufacturing Agents contract for any
aspect of the processing, distribution or sale of Products bearing or using a
Licensed Trademark.
Section 7.4. In order to assure its ability to discharge its
-----------
obligations to Licensor, Licensee agrees that it will maintain throughout the
Term at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
-11-
<PAGE>
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to Licensor, in a minimum amount of Five Million Dollars
($5,000,000) combined single limit for each single occurrence, for bodily injury
and property damage, which shall designate Licensor as an additional insured
therein. The policy shall provide for thirty (30) days prior written notice to
Licensor from the insurer in the event of any material modification,
cancellation or termination. Licensee shall deliver certificates of such
insurance coverage to Licensor prior to the sale and/or distribution of any
Products bearing a Licensed Trademark.
ARTICLE VIII
RELATIONSHIP
------------
Section 8.1. The relationship between Licensor and the Licensee is
-----------
that of licensor and licensee; the Licensee, its contractors, agents and
employees shall under no circumstances be deemed agents, franchisees,
representatives, employees or partners of Licensor.
ARTICLE IX
TERM AND TERMINATION
--------------------
Section 9.1. Subject to the provisions of Sections 9.2 and 9.3
-----------
hereof, the term of this Agreement shall be a period of five (5) years from the
date hereof (the "Initial Term") and for continuous subsequent five (5) year
------------
terms (the "Renewal Period(s)").
-----------------
Section 9.2. Licensee may cancel this Agreement upon no less than one
-----------
(1) year's written notice delivered to Licensor
-12-
<PAGE>
prior to the end of the Initial Term or the then-effective Renewal Period,
provided that, if Licensee does not give the required notice of termination, the
- - - - --------
Agreement shall be automatically renewed for a subsequent Renewal Period.
Section 9.3. Licensor shall have the right to cancel and terminate
-----------
this Agreement immediately by written notice to Licensee upon the occurrence of
any one (1) or more of the following events:
(a) Licensee fails to deliver to Licensor or to maintain in full
force and effect the insurance referred to in Section 7.4; or
(b) Except as provided in 9.3(c), Licensee or its Manufacturing
Agents fail to commence and diligently pursue the cure of any breach by them of
a material provision of this Agreement within ten (10) days of receipt of
Licensor's written notice of such breach or to effect such cure within twenty
(20) days of receipt of such written notice; or
(c) The failure or refusal of Licensee or its Manufacturing Agents:
(i) to, within ten (10) days of receipt of Licensor's
reasonable written instructions issued regarding the quality standards of
the Licensed Trademarks and Products, respond to such instructions and
commence a diligent attempt at cure, or to effect such cure within twenty
(20) days of receipt of such instructions; or
(ii) to perform, or comply with, any provision contained in
Article V which failure results in the
-13-
<PAGE>
production for sale of Products that are unsafe or unfit for human
consumption; or
(d) The insolvency of Licensee; an assignment by Licensee for the
benefit of creditors; the failure of Licensee to obtain the dismissal of any
involuntary bankruptcy or reorganization petition filed against it within sixty
(60) days from the date of such filing; the failure of Licensee to vacate the
appointment of a receiver for all or any part of its business within sixty (60)
days from the date of such appointment; or the dissolution of Licensee; or
(e) An involuntary recall of Products bearing the Licensed Trademarks
for reasons directly or indirectly related to the safety of such Products and
attributable to the negligence or intentional wrongdoing of Licensee or its
Manufacturing Agents; provided that Licensor determines in its reasonable
--------
judgment that such event has had or is reasonably likely to have a material
adverse effect on the integrity, goodwill, value or strength of any of the
Licensed Trademarks; provided, further, that Licensor may terminate this license
-------- -------
under this Section 9.3(e) without regard to the immediately preceding proviso
upon or after the third occurrence within any 12-month period of an event
referred to in this Section 9.3(e).
Section 9.4. In the event that this Agreement is terminated or
-----------
expires, Licensee shall, and shall cause its Manufacturing Agents to,
immediately cease all use of the Licensed Trademarks, provided that Licensee may
--------
dispose of inventory on hand of Products in the ordinary course of business,
-14-
<PAGE>
which shall be no longer than 120 days, if Licensee complies with its
obligations under this Agreement. Upon the request of Licensor, Licensee will
immediately remove or obliterate any Licensed Trademark from all signs,
billboards, vehicles and from each and every other place and medium in which
they appear and destroy or surrender to Licensor all other materials of whatever
nature which bear or refer in any way to the Licensed Trademarks.
Section 9.5. Licensee hereby acknowledges and agrees that in the
-----------
event it breaches or otherwise defaults under Articles IV, V or X of this
Agreement, Licensor shall suffer immediate and irreparable harm for which there
is not an adequate remedy at law. Licensee agrees that Licensor shall be
entitled to equitable relief by way of injunction, in addition to any other
remedy available at law or in equity.
ARTICLE X
ASSIGNMENTS AND SUBLICENSES
---------------------------
Section 10.1. This Agreement shall not be assigned by Licensee, in
------------
whole or in part, without the prior written consent of Licensor, provided that
--------
Licensee may assign this Agreement or any part hereof without Licensor's consent
to any person or group of affiliated persons that acquire all or a significant
portion of the sweetened condensed milk business of Licensee and its affiliates
on the date hereof. From and after any permitted assignment pursuant to this
Section 10.1, the assignee shall be deemed to be a Licensee for all purposes
hereof.
Section 10.2. The license granted under Article II, Section 2.1(a) of
------------
this Agreement shall not be sublicensed by
-15-
<PAGE>
Licensee, in whole or in part, without the prior written consent of Licensor,
which consent shall not be unreasonably withheld. In no event shall any
sublicense under this section relieve Licensee of any of its obligations under
this Agreement.
ARTICLE XI
NOTICE
------
All notices pursuant to this Agreement shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Licensor: Pat Ford
Southern Foods Group, L.P.
3114 South Haskell
Dallas, TX 75223
With copies thereof to: Anthony R. Ward, President and
Chief Executive Officer
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
and
Ronald P. Moran, Esq.
General Counsel
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
If to Licensee: Nancy Brown, Esq.
General Counsel
Borden Foods Corporation
180 East Broad Street
Columbus, Ohio 43215
With a copy thereof to: William F. Stoll, General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
-16-
<PAGE>
Any notice delivered personally shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
shall be deemed to have been given on the date it is received. Either party by
notice in writing delivered or mailed to the other may change the name or
address or both to which future notices to such party shall be delivered.
ARTICLE XII
MISCELLANEOUS
-------------
Section 12.1. This Agreement and each of the appendices and exhibits
------------
thereto constitute the entire understanding of the parties with respect to the
subject matter hereof, and supersede and merge all prior agreements and
discussions between the parties relating hereto. No changes in the terms of
this Agreement shall be valid, except when and if reduced to writing and signed
by both Licensee and Licensor.
Section 12.2. All rights and remedies which Licensor or Licensee may
------------
have hereunder or by operation of law are cumulative, and the pursuit of one
right or remedy shall not be deemed an election to waive or renounce any other
right or remedy. Licensor or Licensee's failure to enforce any provision hereof
on any occasion shall not be deemed to waive any other breach of any provision
hereof. Any waiver of any provision of this Agreement must be in writing and
executed by the waiving party. No waiver of any breach or default under this
Agreement shall waive any other breach or default.
Section 12.3. The parties agree that each provision of this Agreement
------------
shall be construed as separable and divisible from
-17-
<PAGE>
every other provision. Enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. If any term
or provision of this Agreement (or the application thereof to any party or set
of circumstances) shall be held invalid or unenforceable in any jurisdiction and
to any extent, it shall be ineffective only to the extent of such invalidity or
unenforceability and shall not invalidate or render unenforceable any other
terms or provisions of this Agreement (or such applicability thereof).
Section 12.4. Licensee and Licensor agree to execute such further
------------
documentation and perform such further actions as may be reasonably requested by
the other party hereto to evidence and effectuate further the purposes and
intents set forth in this Agreement.
Section 12.5. All representations, warranties and indemnities
------------
contained in this Agreement shall survive any independent investigation made by
the benefiting party and the suspension, expiration or termination of this
Agreement.
Section 12.6. This Agreement, irrespective of place of execution or
------------
performance, shall be construed and enforced in accordance with the laws of the
State of Delaware applicable to contracts executed and wholly performed therein.
Any and all actions or proceedings concerning this Agreement shall, if brought
by any party hereto, be instituted and resolved in the courts of the State of
Delaware or any federal court sitting in the State of Delaware. Each party
hereby consents to jurisdiction and service of process in such locale.
-18-
<PAGE>
Section 12.7. Article and section headings and captions are for
------------
convenience only and shall not be used in the construction or interpretation of
this Agreement or any terms herein.
Section 12.8. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which taken
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORDEN FOODS CORPORATION
By: /s/ Borden Foods Corporation
SOUTHERN FOODS GROUP, L.P.
by SFG Management Limited Liability
Company, its General Partner
By: /s/ Southern Foods Group, L.P.
-19-
<PAGE>
Appendix A - Licensed Trademarks
--------------------------------
UNITED STATES TRADEMARK U.S. REG. NO.
- - - - ----------------------- -------------
MEADOW GOLD (stylized letters) 582,470
Shield Design 644,259
Milkwagon Design 1,412,503
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Form S-4 (File
Nos. 333-50305 and 50305-01) of our report dated April 15, 1998, on our audit
of the balance sheet of Eagle Family Foods, Inc. and the consolidated balance
sheet of Eagle Family Foods Holdings, Inc. as of January 23, 1998. We also
consent to the reference to our Firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Columbus, Ohio
June 1, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Amendment No. 1 to Registration Statement No. 333-
50305 of Eagle Family Foods Holdings, Inc. and Eagle Family Foods, Inc. of our
report regarding Borden Brands North America ("BBNA") dated May 22, 1998,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Columbus, Ohio
June 1, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INFORMATION RESOURCES, INC.
Information Resources, Inc. ("IRI") hereby consents to the inclusion of the
market information attached hereto as Exhibit A only in the form set forth on
Exhibit A (the "Data") in the preliminary and final Offering Memorandum, as the
same may be amended or supplemented (the "Offering Memorandum"), and in the
Registration Statement on Form S-4, as the same may be amended or supplemented
(the "Registration Statement"), of Eagle Family Foods, Inc. (the "Company"),
relating to the offering of 115 million aggregate principal amount of Senior
Subordinated Notes due 2008.
Company acknowledges that IRI compiles this Data based on data received by
it from grocery stores. As a result, IRI cannot guarantee the accuracy or
completeness of such Data. IRI MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
DATA OR RESULTS TO BE OBTAINED BY COMPANY OR OTHERS FROM THE USE OF THE DATA.
The Company hereby agrees to indemnify IRI for any third party claims that
may arise out of the use of the Data in the Offering Memorandum or the
Registration Statement. IN NO EVENT SHALL IRI BE LIABLE TO COMPANY FOR ANY
DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL, ARISING OUT OF OR
IN CONNECTION WITH THE FURNISHING BY IRI OF THE DATA TO COMPANY AS SET FORTH
HEREIN.
INFORMATION RESOURCES, INC.
By: /s/ Monica M. Weed
______________________________________
Monica M. Weed
Title: Senior Vice President
______________________________________
EAGLE FAMILY FOODS, INC.
By: /s/ John O'C. Nugent
______________________________________
John O'C. Nugent
Title: CEO/President
______________________________________
Dated: December 23, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF OPINION RESEARCH CORPORATION INTERNATIONAL
Opinion Research Corporation International ("Opinion Research") hereby consents
to the inclusion in the Registration Statement on Form S-4 (File No. 333-50305),
as may be amended or supplemented, of Eagle Family Foods Holdings, Inc. and
Eagle Family Foods, Inc. (the "Registration Statement") of the female adult
brand awareness data for ReaLemon, Eagle Brand and Cremora from studies
conducted by Opinion Research and the reference to Opinion Research in the
Registration Statement.
OPINION RESEARCH CORPORATION INTERNATIONAL
/s/ Judi Lescher
_________________________________
Name: Judi Lescher
Title: Senior Vice President
May 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EAGLE FAMILY
FOODS HOLDINGS, INC. CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001054040
<NAME> EAGLE FAMILY FOODS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-23-1998
<PERIOD-END> JAN-23-1998
<CASH> 3,798
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,100
<CURRENT-ASSETS> 23,948
<PP&E> 23,950
<DEPRECIATION> 0
<TOTAL-ASSETS> 379,221
<CURRENT-LIABILITIES> 6,744
<BONDS> 305,500
80,858
0
<COMMON> 10
<OTHER-SE> (13,891)
<TOTAL-LIABILITY-AND-EQUITY> 379,221
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EAGLE FAMILY
FOODS, INC. BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001059761
<NAME> EAGLE FAMILY FOODS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-23-1998
<PERIOD-END> JAN-23-1998
<CASH> 3,798
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0
0
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</TABLE>
