<PAGE>
PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-57099
PROSPECTUS
CCPC HOLDING COMPANY, INC.
FORMERLY NAMED CORNING CONSUMER PRODUCTS COMPANY
OFFER TO EXCHANGE UP TO $200,000,000 OF ITS
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
CCPC Holding Company, Inc., formerly named Corning Consumer Products Company
(the "Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange an aggregate of up to
$200,000,000 principal amount of 9 5/8% Series B Senior Subordinated Notes due
2008 (the "Exchange Notes") of the Company for an identical face amount of the
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the "Old
Notes", and together with the Exchange Notes, the "Notes") of the Company from
the holders thereof. As of the date of this Prospectus, there is $200,000,000
aggregate principal amount of the Old Notes outstanding. The terms of the
Exchange Notes are identical in all material respects to the Old Notes, except
that the Exchange Notes have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and therefore will not bear legends
restricting their transfer and will not contain provisions providing for an
increase in the interest rate on the Old Notes under the circumstances described
in the Registration Rights Agreement (as defined), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
See "Exchange and Registration Rights Agreement."
Interest on the Exchange Notes will be payable semi-annually on May 1 and
November 1 of each year, commencing on November 1, 1998. The Exchange Notes will
mature on May 1, 2008. Except as described below, the Company may not redeem the
Exchange Notes prior to May 1, 2003. On or after such date, the Company may
redeem the Exchange Notes, in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to May 1, 2001, the Company may
redeem up to 35% of the original aggregate principal amount of the Exchange
Notes with the net proceeds of one or more Equity Offerings (as defined), at a
price equal to 109.625% of the aggregate 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
Exchange Notes remains outstanding immediately after each such redemption. The
Exchange Notes will not be subject to any sinking fund requirement. Upon the
occurrence of a Change of Control (as defined), the Company will have the
option, at any time prior to May 1, 2003, to redeem the Exchange Notes, in whole
but not in part, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined), together with accrued and
unpaid interest, if any, to the date of redemption. Upon the occurrence of a
Change of Control, if the Company does not so redeem the Exchange Notes or if a
Change of Control occurs on or after May 1, 2003, the Company will be required
to make an offer to purchase the Exchange Notes at a price equal to 101% of the
original aggregate principal amount thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See "Risk Factors--Required Actions
in the Event of a Change of Control" and "Description of the Exchange Notes."
The Exchange Notes will be unsecured, will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Company and
will be effectively subordinated to all obligations of the subsidiaries of the
Company. The Exchange Notes will rank PARI PASSU with any future Senior
Subordinated Indebtedness (as defined) of the Company and will rank senior to
all Subordinated Indebtedness (as defined) of the Company. The Indenture (as
defined) permits the Company to incur additional indebtedness, including up to
$278.4 million of Senior Indebtedness under the Credit Facilities (as defined),
subject to certain limitations. See "Description of the Exchange Notes." As of
June 30, 1998, on a pro forma basis after giving effect to the Transactions (as
defined), the aggregate amount of the Company's outstanding Senior Indebtedness
would have been approximately $279.7 million (excluding unused commitments), all
of which would have been secured indebtedness, and the Company would have had no
Senior Subordinated Indebtedness outstanding other than the Notes. As of June
30, 1998, the Company's subsidiaries had total liabilities of $109.4 million
(excluding guarantees in respect of the Credit Facilities). As of June 30, 1998,
the Exchange Notes were not senior to any indebtedness of the Company. See
"Unaudited Pro Forma Financial Information", "Risk Factors--Adverse Consequences
of Holding Company Structure" and "Risk Factors--Adverse Consequences of
Subordination of the Notes."
(CONTINUED ON THE NEXT PAGE)
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SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE EXCHANGE NOTES.
----------------------------------------------------------------------
THE EXCHANGE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
<PAGE>
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 SEPTEMBER 21, 1998
<PAGE>
(CONTINUED FROM COVER PAGE)
The Old Notes were issued and sold on May 5, 1998 in a private placement to
initial purchasers which offered the Old Notes for resale within the United
States to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act and outside the United States in accordance with Regulation S
under the Securities Act. In general, the Old Notes may not be offered or sold
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act. The Exchange Notes
are being offered hereby in order to satisfy certain obligations of the Company
contained in the Registration Rights Agreement. Based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) 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
holder's business, such holder has no arrangement with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any such
other person is engaging in or intends to engage in a distribution of such
Exchange Notes. However, the Company has not sought, and does not intend to
seek, its own no-action letter, and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Notwithstanding the foregoing, 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 any resale of Exchange Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). A
broker-dealer may not participate in the Exchange Offer with respect to Old
Notes acquired other than as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the date of this Prospectus, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." If any holder of Old Notes is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
any person to participate in the distribution of the Exchange Notes to be
acquired in the Exchange Offer, such holder (i) can not rely on the applicable
interpretations of the Commission and (ii) must comply with the registration
requirements of the Securities Act in connection with any resale transaction.
The Old Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. There is no established
trading market for the Exchange Notes. The Company currently does not intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation of the Exchange Notes through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the third business day
following the Expiration Date. Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date. The Company will not
receive any proceeds from the Exchange Offer. The Company will pay all of the
expenses incident to the Exchange Offer. The Exchange Offer will expire 5:00
p.m., New York City Time, on October 20, 1998 (the "Expiration Date"). The
Company does not currently intend to extend the Expiration Date.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes, reference is made to the Registration Statement. While the
Company believes that the material information has been provided regarding the
contracts and documents described herein, the statements contained in this
Prospectus as to the contents of any such contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. The
Company is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the information
requirements of the Exchange Act and, in accordance therewith, will file
periodic reports and other information with the Commission. The Registration
Statement, such reports and other information can be inspected and copied at the
Public Reference Section of the Commission located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at regional public
reference facilities maintained by the Commission located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material,
including copies of all or any portion of the Registration Statement, can be
obtained from the Public Reference Section of the Commission at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). In addition,
pursuant to the Indenture covering Old Notes and the Exchange Notes, the Company
has agreed to file with the Commission and provide to the Holders the annual
reports and the information, documents and other reports otherwise required
pursuant to Section 13 of the Exchange Act. Such requirements may be satisfied
through the filing and provision of such documents and reports which would
otherwise be required pursuant to Section 13 in respect of the Company.
UNTIL DECEMBER 21, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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FORWARD-LOOKING STATEMENTS
THE FACTORS DISCUSSED UNDER "RISK FACTORS," AMONG OTHERS, COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS MADE IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN "BUSINESS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," IN
THE COMPANY'S PRESS RELEASES AND IN ORAL STATEMENTS MADE BY AUTHORIZED OFFICERS
OF THE COMPANY. WHEN USED IN THIS PROSPECTUS, THE WORDS "ESTIMATE," "PROJECT,"
"ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL OF THESE FORWARD-LOOKING STATEMENTS
ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH,
ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE
RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH STATEMENTS OR ESTIMATES WILL BE REALIZED AND
ACTUAL RESULTS WILL DIFFER FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. SEE "RISK FACTORS--FORWARD-LOOKING STATEMENTS."
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CORELLE-Registered Trademark-, REVERE WARE-Registered Trademark-, AND
VISIONS-Registered Trademark- ARE REGISTERED TRADEMARKS OF THE COMPANY. THE
COMPANY LICENSES THE CORNING WARE-Registered Trademark-,
PYROCERAM-Registered Trademark- AND PYREX-Registered Trademark- TRADEMARKS FROM
CORNING.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" ARE REFERENCES TO CCPC
HOLDING COMPANY, INC. (AND, WHERE APPLICABLE, ITS PREDECESSORS, INCLUDING THE
UNINCORPORATED CONSUMER PRODUCTS BUSINESS OF CORNING) AND ITS SUBSIDIARIES. THE
COMPANY'S FISCAL YEAR IS THE CALENDAR YEAR. UNLESS OTHERWISE INDICATED,
INFORMATION PRESENTED ON A PRO FORMA BASIS GIVES EFFECT TO THE TRANSACTIONS.
THE COMPANY
GENERAL
CCPC Holding Company, Inc., a business founded in 1915, is a leading
manufacturer and marketer of oven/bakeware ("bakeware"), dinnerware and rangetop
cookware. The Company believes that its brands, including Corning
Ware-Registered Trademark-, Pyrex-Registered Trademark-,
Corelle-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-, constitute one of the broadest and best
recognized collection of brands in the U.S. housewares industry. The Company has
leading positions in major channels of distribution for such products in the
United States and has also achieved a significant presence in certain
international markets, primarily Canada, Asia, Australia and Latin America. In
1997, on a pro forma basis after giving effect to the Transactions, the Company
recorded net sales, operating income, net income and EBITDA (as defined in
footnote (8) to the Summary Historical and Pro Forma Financial and Other Data)
of $572.9 million, $54.0 million, $4.1 million and $89.7 million, respectively.
For the six months ended June 30, 1998, on a pro forma basis after giving effect
to the Transactions, the Company recorded net sales, operating income, net loss
and EBITDA of $229.5 million, $4.4 million, ($15.6) million and $22.4 million,
respectively. In 1997, approximately 75% of the Company's net sales were
generated domestically and approximately 25% internationally.
The Company's Corning Ware-Registered Trademark- and
Pyrex-Registered Trademark- products represent the two largest glass-ceramic and
glass bakeware brands (measured in dollar sales) in the United States, with
approximately 67% of all glass-ceramic and glass bakeware sales (and
approximately 29% of total bakeware sales) in 1997. The Company believes that
its Corelle-Registered Trademark- brand is the nation's largest selling
dinnerware brand in the mass merchant channel, with approximately 38% of mass
merchant dinnerware sales in 1997, over two times the sales of the next largest
mass merchant dinnerware competitor. The Company's core rangetop cookware brand,
Revere Ware-Registered Trademark-, is one of the nation's leading stainless
steel rangetop cookware brands, accounting for approximately 29% of stainless
steel rangetop cookware sales and 7% of total rangetop cookware sales among mass
merchant and department store customers in 1997.
Prior to the Recapitalization, the Company was a wholly owned subsidiary of
Corning Incorporated ("Corning"). On March 2, 1998, the Company, Corning,
Borden, Inc. ("Borden") and CCPC Acquisition Corp. ("CCPC Acquisition") entered
into the Recapitalization Agreement (as amended, the "Recapitalization
Agreement") pursuant to which on April 1, 1998 (the "Closing Date") CCPC
Acquisition acquired 92% of the outstanding shares of common stock, par value
$0.01 per share (the "Common Stock"), of the Company from Corning for $110.4
million (the "Stock Acquisition") and the Company paid a cash dividend to
Corning of $472.6 million (the "Cash Dividend"). The Stock Acquisition was
financed by an equity investment in CCPC Acquisition by BW Holdings LLC, an
affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR") and the parent company
of Borden and CCPC Acquisition ("BW Holdings"). Under the 1998 Corning Consumer
Products Company Stock Purchase and Option Plan (the "1998 Plan"), CCPC
Acquisition is currently in the process of selling shares of Common Stock, and
the Company is making grants of options to purchase Common Stock, to certain
members of management of the Company, which will represent 13.8% of the fully
diluted Common Stock.
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U.S. HOUSEWARES INDUSTRY
According to management estimates, total retail sales in the U.S. housewares
industry were approximately $19.2 billion in 1997. The categories of the
housewares industry in which the Company's products compete--bakeware,
dinnerware and rangetop cookware--generated an estimated $4.3 billion in total
retail sales in 1997 compared to $4.1 billion in 1996. Retail sales in the U.S.
of bakeware, dinnerware and rangetop cookware have all exhibited a stable growth
pattern over the last ten years with growth in these segments linked to the rate
of household formations and gross domestic product growth. In the United States,
bakeware, dinnerware and rangetop cookware products are sold through three
primary channels, mass merchants (large national or regional discounters, such
as K-Mart), department stores and specialty retailers (full service retailers
providing a broad assortment in their specialty retail category, such as Bed
Bath & Beyond and Home Place), as well as through other channels, including
outlet stores, retail food stores, catalog showrooms and direct mail.
BAKEWARE. Total U.S. retail bakeware sales are estimated to have been $800
million in 1997. During this period, metal products and glass and glass-ceramic
products each represented an estimated 50% of U.S. retail bakeware sales. The
Company's bakeware sales are generated primarily from glass-ceramic and glass
products sold under the Corning Ware-Registered Trademark- and
Pyrex-Registered Trademark- brand names. The mass merchant channel is the
largest single channel for bakeware, accounting for an estimated 37% of domestic
retail bakeware sales in 1997.
DINNERWARE. Total U.S. retail dinnerware sales are estimated to have been
$1.7 billion in 1997. The Company's Corelle-Registered Trademark- glass
dinnerware products are sold as "everyday" products. "Everyday" dinnerware
products, which include glass, stoneware and plastic products, represented an
estimated 56% of domestic retail dinnerware sales in 1997. The mass merchant
channel is the largest channel for everyday dinnerware, accounting for an
estimated 33% of U.S. retail dinnerware sales in 1997.
RANGETOP COOKWARE. Total U.S. retail rangetop cookware sales are estimated
to have been $1.8 billion in 1997. Aluminum, which has been growing in
popularity due to the ease of cleaning and increased durability of non-stick
coatings, is the leading material for rangetop cookware (the other primary
material being stainless steel) and accounted for approximately 70% of U.S.
retail rangetop cookware sales in mass merchant and department store channels in
1997. The Company's rangetop cookware sales are generated primarily from
stainless steel products sold under the Revere Ware-Registered Trademark- brand
name and glass-ceramic products sold under the Visions-Registered Trademark-
brand name. To meet growing consumer demand, the Company introduced three full
lines of Revere Ware-Registered Trademark- non-stick aluminum products in 1998
to complement the Company's sales of individual items of non-stick rangetop
cookware. The mass merchant channel is the largest distribution channel in this
category, accounting for an estimated 45% of retail domestic rangetop cookware
sales in 1997.
COMPETITIVE STRENGTHS
The Company attributes its leadership in bakeware, dinnerware and stainless
steel rangetop cookware to the following competitive strengths:
LEADING BRAND NAMES. The Corning Ware-Registered Trademark-,
Pyrex-Registered Trademark-, Corelle-Registered Trademark-, Revere
Ware-Registered Trademark- and Visions-Registered Trademark- brands have
consistently been among the leaders in brand awareness and household penetration
in the respective product categories in which they compete in the United States.
The Company believes that this brand strength and household penetration results
from consumer experience with the high quality, durability and functionality of
the Company's products.
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BRAND CHARACTERISTICS
<TABLE>
<CAPTION>
TOTAL
BRAND AWARENESS(A) HOUSEHOLD PENETRATION(B)
- --------------------------------------------------- ----------------- ---------------------------
<S> <C> <C>
Corning Ware-Registered Trademark-................. 98% 82%
Pyrex-Registered Trademark-........................ 93% 73%
Corelle-Registered Trademark-...................... 91% 51%
Revere Ware-Registered Trademark-.................. 81% 36%
Visions-Registered Trademark-...................... 87% 33%
</TABLE>
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(a) Based on surveys conducted in 1997 of female heads of households by market
research firms using aided and unaided techniques.
(b) The percentage of the respondents aware of the applicable brand who
currently own a product of the applicable brand.
BROAD DISTRIBUTION IN U.S. CHANNELS. The Company sells its products in the
United States to most major U.S. mass merchant retailers and a broad array of
department stores, specialty retailers and retail food stores, as well as
through its outlet stores and other channels. The strength of the Company's
brand names and its presence in several houseware categories make the Company a
significant supplier to, and enhance the Company's relationship with, its
retailer customers. In 1997, approximately 32% of the Company's U.S. gross sales
(before deductions for trade allowances, customer-paid freight and discounts)
were generated through the mass merchant channel, approximately 34% were
generated by Company-operated outlet stores and approximately 34% were generated
by other domestic channels, including department stores, specialty retailers and
retail food stores. The Company's outlet stores carry an extensive range of the
Company's products and provide the Company with an additional distribution
channel, which allows the Company to profitably sell slower-moving inventory.
The Company believes that its outlet stores, which also sell complementary
kitchen accessories, have developed marketing and pricing strategies that
generate sales which supplement, rather than compete with, its retailer
customers. The broad distribution of the Company's products through the mass
merchant, department store and specialty retailer channels, together with the
sales made through the Company's outlet stores, reduces the Company's dependence
on any one channel of distribution.
EMPHASIS ON NEW PRODUCT DEVELOPMENT. Products introduced in 1996 and 1997
generated approximately 24% of the Company's 1997 gross sales. New products
include: (i) products introduced into new categories or serving new functions to
meet consumer needs not met by the Company's existing products; (ii) product
line extensions, which generally include manufacturing changes to existing
product lines such as glass color or shape changes and (iii) product renewals,
which generally include decorative changes to existing product lines such as
pattern changes. The Company's product development process incorporates
extensive use of qualitative and quantitative research and enhances the
Company's ability to (i) focus resources on projects with high market potential,
(ii) bring new products to market quickly and (iii) extend existing product
categories. For example, Pyrex Portables-Registered Trademark-
(Pyrex-Registered Trademark- branded portable food containers) went from concept
to national distribution in only 11 months and generated over $33 million in
gross sales in 1996, the first full calendar year after its introduction. In
addition, the Company launched three full lines of Revere
Ware-Registered Trademark- aluminum non-stick cookware in 1998 within nine
months of commencing product development. Another new product for 1998 currently
being shipped by the Company to major retailers is Corning
Ware-Registered Trademark- Pop-Ins-TM-, a line of products designed for storing,
serving and reheating meals either at home or away from home that leverages the
Company's traditional strength in cooking/serving containers.
HIGH QUALITY MANUFACTURING PROCESSES. The Company's manufacturing processes
enable the Company to produce products with performance and cost characteristics
that appeal to consumers. The Company believes it is recognized as one of the
highest quality manufacturers of bakeware, dinnerware
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and rangetop cookware products and has instituted a process for pursuing
continuous quality improvement throughout its manufacturing organization. All of
the Company's four domestic manufacturing facilities are ISO 9002 certified.
SIGNIFICANT PRESENCE IN INTERNATIONAL MARKETS. The Company's products are
sold in over 30 foreign countries, primarily in North America, Asia and Latin
America, with established positions in Canada, Korea, Australia, Japan,
Singapore, Taiwan, Hong Kong, Mexico and Brazil. The Company operates a
decorating facility in Malaysia and packaging and distribution facilities in
Canada, Singapore, Australia and Brazil. In Europe, Russia, the Middle East and
Africa, the Company's products are sold through a distribution agreement (which
accounted for less than 2% of net sales in 1997 and first quarter 1998) with
Newell Co. ("Newell") that was entered into when the Company sold its consumer
products business in those territories to Newell in November 1994.
EXPERIENCED MANAGEMENT TEAM. In the spring of 1996, a new management team,
headed by chief executive officer Peter F. Campanella, implemented a
comprehensive program to refocus and redesign the operations and objectives of
the Company. Key members of management with operational responsibility,
including Mr. Campanella, have remained with the Company following the
Recapitalization. In addition, Borden will provide management, consulting and
financial services to the Company pursuant to an agreement entered into between
the Company and Borden in connection with the Recapitalization. See "Certain
Relationships and Related Party Transactions--Between Borden and the Company."
In addition, five individuals who are senior executives of Borden are members of
the nine person Board of Directors of the Company. See "Management."
BUSINESS STRATEGY
In the second quarter of 1996, the Company began implementing a two-phase
program to redesign the operations and objectives of the Company (the "Business
Redesign Program") to, first, streamline the Company's business to focus on
profitable products and customers while reducing the Company's cost structure
and, second, adopt initiatives to increase sales while maintaining and improving
upon the cost efficiencies achieved in the first phase of the Business Redesign
Program. The first phase of the Business Redesign Program, which is largely
complete, focused on eliminating low volume, low profit products and customers,
reducing manufacturing costs and reducing selling, general, administrative and
research and development expenses ("SG&A"). From 1995 to 1997, the first phase
of the Business Redesign Program resulted in improvements in gross margin from
29% to 34% and operating margin from (2)% to 6%. The first phase of the Business
Redesign Program has included the following initiatives:
FOCUS ON PROFITABLE PRODUCTS AND CUSTOMERS. The Company has refocused its
sales efforts on higher margin products and profitable customer accounts while
continuing to actively manage its product assortment and customer base. To
eliminate low volume, low profit products, the Company has instituted a process
of continually evaluating the profitability of its individual products ("stock
keeping units" or "SKUs"). This process includes examining volume, gross and
operating profit and inventory carrying costs. As a result of this process, the
number of SKUs distributed by the Company has been reduced by 55%, from 3,088 at
the end of 1995 to 1,403 at December 31, 1997. In addition, based on analyses of
customer account profitability, the number of customers directly served by the
Company has been reduced by 43%, from approximately 1,048 at the end of 1995, to
approximately 599 at December 31, 1997. The discontinued accounts were generally
low volume customers, many of which were transferred to distributors.
REDUCE MANUFACTURING COSTS. From 1995 to 1997, the Company implemented
systematic productivity improvements which concentrated on reducing labor,
materials and overhead costs primarily through (i) process simplification, (ii)
better process control and discipline, (iii) workforce productivity improvements
and (iv) improved raw material sourcing. As a result of implementing the
foregoing, the
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Company has been able to reduce the number of manufacturing employees by 26%,
from 2,629 at the end of 1995 to 1,955 at December 31, 1997.
REDUCE SG&A COSTS. The Company has reduced its SG&A expenses by $30.9
million from 1995 to 1997. These reductions were realized primarily through the
redesign of sales and administrative functions and the refocus of the Company's
advertising program on print rather than media advertising as part of the
Business Redesign Program. As a result of these initiatives, the number of SG&A
employees was reduced from 1,284 in 1995 to 1,141 in 1997 and SG&A expenses
(excluding those estimated by management to be attributable to Company-operated
outlet stores) declined from 21.9% of 1995 gross sales to 16.5% of 1997 gross
sales.
IMPROVE CUSTOMER SERVICE. To improve customer service, the Company has
reorganized its sales force to better align account representatives with
specific customers' needs and has implemented an integrated supply chain
management process which utilizes enhanced information systems to predict
customers' future inventory requirements and permit the Company to maintain a
more efficient allocation between finished goods and work-in-process inventory.
The Company's supply chain management process also enables the Company to
improve the accuracy and timeliness of filling customer orders and is intended
to allow the Company and its customers to reduce finished goods inventory. Since
the end of 1995, the Company's average on-time delivery rate has improved from
approximately 75% to approximately 95% as of December 31, 1997.
With many of the objectives of the first phase of the Business Redesign
Program achieved, the Company has recently begun the second phase of the
Business Redesign Program by pursuing the following strategies:
FOCUS ON STRATEGIC ACCOUNTS. The Company intends to continue to focus on a
core group of strategic accounts identified during the first phase of the
Business Redesign Program based on their profitability, significant sales
volumes for multiple Company brands, commitment to active merchandising of
national brands and potential for growth. For each strategic account, the
Company has established a team of management, marketing and sales resources
dedicated to developing and executing a strategy to improve customer service and
increase sales to that account. Management believes that the Company's focus on
strategic accounts will improve sales by increasing shelf space at key retailers
while enhancing its brand image and presence.
INTRODUCE NEW PRODUCTS THAT BUILD ON EXISTING BRANDS. The Company's new
product strategy capitalizes on the Company's strong brand names, broad
distribution and technical expertise to introduce and market products that offer
enhanced value to consumers through new design or new functionality. The Company
plans to accelerate the development of products that extend existing categories
or enter into new categories in order to gain incremental retail shelf space and
preserve sales of existing products. The Company's objective is to generate at
least 20% of its gross sales from products introduced in the two prior years
(including product line extensions and renewals). Management believes that the
new products the Company plans to introduce in the second half of 1998 and in
1999 will increase its shelf space at key retailers.
EXPAND IN INTERNATIONAL MARKETS. The Company has made, and will continue to
make, investments in localized marketing programs and distribution and sales
capabilities in international markets. As a result, the Company is an
established supplier of bakeware and dinnerware in a number of international
markets, including Canada, Korea, Australia, Japan, Singapore, Taiwan, Hong
Kong, Mexico and Brazil. The Company believes that demand in these markets has
been driven in large part by: (i) the expansion of the middle class in many
developing countries; (ii) a strong desire for U.S. branded goods by the
emerging middle class; and (iii) the expansion of western style merchandisers in
many of these regions. Despite recent economic disruptions in Asia, the Company
believes international markets, including Asia over the long term, represent
potential growth areas for the Company.
5
<PAGE>
CONTINUE TO IMPLEMENT COST REDUCTION INITIATIVES. The Company intends to
actively pursue opportunities to achieve further cost reductions in its
manufacturing operations through additional productivity improvements and
streamlining of manufacturing processes. The Company also intends to maintain or
lower SG&A as a percentage of net sales while pursuing its strategy of sales
growth through a renewed focus on strategic accounts, international expansion
and product introductions.
SELECTIVELY PURSUE ACQUISITIONS. The Company plans to selectively pursue
acquisitions which complement its business strategies. The Company believes
that, by taking advantage of its strong brand names, global sales capabilities
and retail store network, the Company can expand distribution of acquired
product lines.
THE TRANSACTIONS
On March 2, 1998, Corning, Borden, the Company and CCPC Acquisition entered
into the Recapitalization Agreement, pursuant to which on April 1, 1998 CCPC
Acquisition acquired 92.0% of the outstanding shares of Common Stock of the
Company from Corning for $110.4 million. The Stock Acquisition was financed by
an equity investment in CCPC Acquisition by BW Holdings, an affiliate of KKR and
the parent company of Borden and CCPC Acquisition. BW Holdings financed such
investment from cash on hand. Pursuant to the Recapitalization Agreement, on the
Closing Date prior to the consummation of the Stock Acquisition, the Company
paid the Cash Dividend to Corning of $472.6 million. On July 10, 1998,
post-closing adjustments to the Cash Dividend were agreed upon by the Company
and Corning, and the Company distributed $10.2 million to Corning. See "The
Recapitalization." As a result of the Recapitalization, Corning continues to
hold 8.0% of the outstanding shares of Common Stock.
The Cash Dividend, together with transaction and financing fees and expenses
of $8.0 million paid to Borden for the Recapitalization, approximately $17.0
million to pay other fees and expenses incurred in connection with the
Transactions and approximately $4.0 million of cash for operations, was financed
by the Company through (i) the issuance and sale to CCPC Acquisition of
1,200,000 shares of the Company's Junior Cumulative Pay-In-Kind Preferred Stock
(the "Junior Preferred Stock") for $30.0 million, which was contributed to CCPC
Acquisition by BW Holdings from its cash on hand and (ii) a $471.6 million
interim subordinated loan from Borden and BW Holdings (the "Interim Financing").
A portion of the Interim Financing was refinanced on April 9, 1998 with an
aggregate of approximately $259.6 million of bank borrowings by the Company,
including $200.0 million of senior secured term loans (the "Term Loans") and
$59.6 million of borrowings under a $275.0 million senior secured revolving
credit facility (the "Revolving Credit Facility;" together with the Term Loans,
the "Credit Facilities"). The remainder of the Interim Financing was refinanced
by the Old Notes, available cash and additional borrowings of approximately
$12.0 million under the Revolving Credit Facility. The Stock Acquisition, the
Cash Dividend and the Interim Financing are collectively referred to herein as
the "Recapitalization." The Offering of the Old Notes and borrowings under the
Credit Facilities together with the application of the proceeds therefrom are
collectively referred to herein as the "Refinancing." As part of the
Refinancing, the Company is in the process of contributing substantially all of
its operations, assets and liabilities (other than obligations in respect of the
Notes and the Credit Facilities) to its subsidiaries. The Recapitalization and
the Refinancing are collectively referred to herein as the "Transactions."
Under the 1998 Plan, CCPC Acquisition is currently in the process of selling
shares of Common Stock, and the Company is making grants of options to purchase
Common Stock, to certain members of management of the Company. In the aggregate,
the sales of shares of Common Stock by CCPC Acquisition and the option grants by
the Company will represent approximately 13.8% of the Company's fully diluted
Common Stock.
6
<PAGE>
The actual sources and uses of the funds for the Recapitalization were as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN
SOURCES MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
Interim Financing........................................................ $ 471.6
Preferred Stock.......................................................... 30.0
Corning Retained Common Equity(1)........................................ 9.6
CCPC Acquisition Common Equity........................................... 110.4
-------
Total sources of funds............................................. $ 621.6
-------
-------
<CAPTION>
USES
- -------------------------------------------------------------------------
<S> <C>
Stock Acquisition........................................................ $ 110.4
Cash Dividend(5)......................................................... 482.8
Transactions fees and expenses........................................... 8.0
Corning Retained Equity(1)............................................... 9.6
Increase to cash balance................................................. 10.8
-------
Total uses of funds................................................ $ 621.6
-------
-------
</TABLE>
The sources and uses for the Refinancing were as follow:
<TABLE>
<CAPTION>
(DOLLARS IN
SOURCES MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
Cash balances............................................................ $ 17.0
Revolving Credit Facility(2)............................................. 71.6
Term Loans............................................................... 200.0
Old Notes................................................................ 200.0
-------
Total sources of funds............................................. $ 488.6
-------
-------
</TABLE>
<TABLE>
<CAPTION>
USES
- ----------------------------------------------------------
<S> <C>
Interim Financing(3)...................................... $ 471.6
Estimated Transactions fees and expenses(4)............... 17.0
-------
Total uses of funds................................. $ 488.6
-------
-------
</TABLE>
- --------------------------
(1) As a result of the Recapitalization, Corning continues to own 8.0% of the
Common Stock of the Company.
(2) Total borrowings of up to $275.0 million under the Revolving Credit Facility
are available for working capital and general corporate purposes, including
$25.0 million for letters of credit. After giving effect to the Transactions
on a pro forma basis, $195.3 million would have been available as of June
30, 1998 under the Revolving Credit Facility.
(3) Excludes accrued interest on the Interim Financing. As of May 5, 1998 (the
date of issuance of the Old Notes), accrued interest on the Interim
Financing was $1.8 million.
(4) Includes Initial Purchasers' discount and offering discount on the Old
Notes, fees related to the Credit Facilities and other fees and expenses
incurred in connection with the Transactions.
(5) Includes the $472.6 million Common Stock dividend paid to Corning on April
1, 1998 and the adjustment to the Common Stock dividend of $10.2 million
paid to Corning on July 10, 1998.
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ The Company is offering to exchange pursuant to the
Exchange Offer up to $200,000,000 aggregate principal
amount of its Exchange Notes for a like aggregate
principal amount of its Old Notes. The terms of the
Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity)
to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that
the Exchange Notes will not bear legends restricting
their transfer, and will not contain provisions
providing for an increase in interest rates under the
circumstances described in the Registration Rights
Agreement. See "The Exchange Offer" and "Exchange and
Registration Rights Agreement."
Minimum Condition................. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered
for exchange.
Expiration Date; Withdrawal of
Tender.......................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on October 20, 1998, unless the Exchange
Offer is extended, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended. The Company does not
currently intend to extend the Expiration Date. Tenders
may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal Rights."
Exchange Date..................... The date of acceptance for exchange of the Old Notes
will be the third business day following the Expiration
Date.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the conditions
will be satisfied and that no waivers will be necessary.
See "The Exchange Offer--Certain Conditions to the
Exchange Offer." The Company reserves the right to
terminate or amend the Exchange Offer at any time prior
to the Expiration Date upon the occurrence of any such
condition. If the Company waives or amends any of such
conditions, it will, if required by law, extend the
Exchange Offer for a minimum of five business days from
the date that the Company first gives notice, by public
announcement or otherwise, of such waiver or amendment,
if the Exchange Offer would otherwise expire within such
five business day period.
Procedures for Tendering
Old Notes....................... Each Holder wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsimile,
together with the Old Notes and any other required
documentation to the Exchange Agent at the address
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
set forth therein. See "The Exchange Offer--Procedures
for Tendering Old Notes" and "Plan of Distribution."
Use of Proceeds................... There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Federal Income Tax Consequences... The exchange of Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax
purposes.
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct
such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing
the Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange Notes...... The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer--Acceptance
of Old Notes for Exchange; Delivery of Exchange Notes."
Effect on Holders of Old Notes.... As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the Company will have
fulfilled a covenant contained in the Exchange and
Registration Rights Agreement (the "Registration Rights
Agreement") dated as of May 5, 1998 among the Company
and Chase Securities Inc., Salomon Brothers Inc and
Citicorp Securities, Inc. (the "Initial Purchasers")
and, accordingly, there will be no increase in the
interest rate on the Old Notes under the circumstances
described in the Registration Rights Agreement, and the
holders of the Old Notes will have no further
registration or other rights under the Registration
Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
entitled to all the rights and limitations applicable
thereto under the Indenture dated as of May 5, 1998
between the Company and The Bank of New York relating to
the Old Notes and the Exchange Notes (the "Indenture"),
except for any such rights under the Registration Rights
Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of, and
the acceptance for exchange of all validly tendered Old
Notes pursuant to, the Exchange Offer. All untendered
Old Notes will continue to be subject to the
restrictions on transfer provided for in the Old Notes
and in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading
market for untendered Old Notes could be adversely
affected. See "Exchange and Registration Rights
Agreement."
Consequence of Failure to
Exchange........................ Holders of Old Notes who do not exchange their Old Notes
for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend thereon. In
general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. Other than in connection with the
Exchange Offer, the Company does not currently
anticipate that it will register the Old Notes under the
Securities Act.
Exchange Agent.................... Marine Midland Bank is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer.
See "The Exchange Offer--Exchange Agent."
TERMS OF THE EXCHANGE NOTES
Issuer............................ CCPC Holding Company, Inc.
Trustee........................... Marine Midland Bank is serving as successor trustee (the
"Trustee") to The Bank of New York under the Indenture.
Securities Offered................ $200,000,000 aggregate principal amount of 9 5/8% Series
B Senior Subordinated Notes due 2008.
Maturity Date..................... May 1, 2008.
Interest Payment Dates............ Interest on the Exchange Notes will be payable in cash
semi-annually in arrears on each May 1 and November 1,
commencing November 1, 1998.
Optional Redemption............... On or after May 1, 2003, the Exchange Notes will be
redeemable, in whole or in part, at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to May 1, 2001, the
Company may redeem up to 35% of the original aggregate
principal amount of the Exchange Notes with the net
proceeds of one or more Equity Offerings, at a
redemption price equal to 109.625% of the aggregate
principal
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
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 Exchange Notes remains outstanding
immediately after each such redemption. See "Description
of the Exchange Notes-- Optional Redemption."
Change of Control................. Upon the occurrence of a Change of Control, the Company
will have the option, at any time prior to May 1, 2003,
to redeem the Exchange Notes, in whole but not in part,
at a redemption price equal to 100% of the aggregate
principal amount thereof plus the Applicable Premium,
together with accrued and unpaid interest, if any, to
the date of redemption. Upon the occurrence of a Change
of Control, if the Company does not so redeem the
Exchange Notes or if a Change of Control occurs on or
after May 1, 2003, the Company will be required to make
an offer to purchase the Exchange Notes at a price equal
to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
purchase. In the event of a Change of Control, there can
be no assurance that the Company would have sufficient
assets to satisfy all of its obligations under the
Credit Facilities and the Exchange Notes. See "Risk
Factors-- Required Actions in the Event of a Change of
Control" and "Description of the Exchange
Notes--Repurchase at the Option of Holders--Change of
Control."
Ranking........................... The Exchange Notes will be unsecured, will be
subordinated in right of payment to all existing and
future Senior Indebtedness of the Company and will be
effectively subordinated to all obligations of the
subsidiaries of the Company. The Exchange Notes will
rank PARI PASSU with any future Senior Subordinated
Indebtedness of the Company and will rank senior to all
Subordinated Indebtedness of the Company. As of June 30,
1998, on a pro forma basis after giving effect to the
Transactions, the aggregate amount of the Company's
outstanding Senior Indebtedness would have been
approximately $279.7 million (excluding unused
commitments), all of which would have been secured
indebtedness, the Company would have had no Senior
Subordinated Indebtedness outstanding other than the
Notes, and the Company's subsidiaries would have had
total liabilities of $109.4 million (excluding
guarantees in respect of the Credit Facilities). As of
June 30, 1998, the Exchange Notes would not be senior to
any indebtedness of the Company. The Indenture permits
the Company to incur additional indebtedness, including
up to $270.3 million of additional Senior Indebtedness
under the Credit Facilities, subject to certain
limitations. See "Unaudited Pro Forma Financial
Information" and "Risk Factors--Adverse Consequences of
Holding Company Structure" and "--Subordination."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Certain Covenants................. The Indenture contains covenants that will, subject to
certain exceptions, limit, among other things, the
ability of the Company and/or its Restricted
Subsidiaries to (i) pay dividends or make certain other
restricted payments or investments; (ii) incur
additional indebtedness and issue disqualified stock and
preferred stock; (iii) create liens on assets; (iv)
merge, consolidate, or sell all or substantially all of
their assets; (v) enter into certain transactions with
affiliates; (vi) create restrictions on dividends or
other payments by Restricted Subsidiaries to the
Company; (vii) incur guarantees of indebtedness by
Restricted Subsidiaries; and (viii) incur Indebtedness
senior to the Notes, but junior to Senior Indebtedness.
Absence of a Public Market for the
Exchange Notes.................. The Exchange Notes are new securities and there is
currently no established market for the Exchange Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the the
Exchange Notes. The Company does not intend to apply for
listing of the Exchange Notes on any national securities
exchange or for their quotation on an automated dealer
quotation system.
No Personal Liability of
Directors, Officers, Employees
and Stockholders................ No director, officer, employee, incorporator or
stockholder of the Company shall have any liability for
any obligations of the Company under the Exchange Notes
or the Indenture or any claim based on, in respect of,
or by reason of such obligation, or their creation. Such
waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
</TABLE>
RISK FACTORS
Prospective holders of the Exchange Notes should carefully consider the risk
factors set forth under the caption "Risk Factors", including Consequences of
Failure to Exchange, Substantial Leverage and Debt Service, Restrictive Loan
Covenants, Adverse Consequences of Holding Company Structure, Adverse
Consequences of Subordination of the Notes, Encumbrances on Assets to Secure
Credit Facilities, Required Actions in the Event of a Change of Control, Risks
Related to Realizing Objectives of the Business Redesign Program, Risks
Associated with International Markets, Potential for Increased Competition, No
Prior Operations as an Independent Company, Dependence on New Product
Development, Dependence on Significant Customers, Fluctuations in the Retail
Industry, Fluctuations in Raw Material Costs, Acquisition Related Risks, Labor
Relations, Control by KKR Affiliates, Dependence upon Key Management, Need to
Hire Additional Qualified Personnel, Seasonality, Dependence on Intellectual
Property, Impact of Environmental Regulation, Fraudulent Transfer, Absence of
Public Market and Forward-Looking Statements and the other information included
in this Prospectus prior to making an investment in the Notes. See "Risk
Factors."
------------------------
The principal executive offices of the Company are located at E-Building,
Houghton Park, Corning, New York 14831. The Company's telephone number is (607)
974-8605.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following table sets forth summary historical financial and other data
of the Company. The historical financial and other data for the three years
ended December 31, 1997 have been derived from, and should be read in
conjunction with, the consolidated financial statements of the Company and notes
thereto which have been audited by PricewaterhouseCoopers LLP, independent
accountants, and which are included elsewhere in this Prospectus. The historical
unaudited financial and other data for the six months ended June 30, 1998 and
1997 and as of June 30, 1998 have been derived from, and should be read in
conjunction with, the unaudited consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus. In the opinion of
management, all adjustments, consisting of only normal recurring adjustments,
considered necessary for the fair presentation have been included in the
unaudited consolidated financial statements of the Company. Results for the six
months ended June 30, 1998 are not necessarily indicative of results that can be
expected for the year ended December 31, 1998.
The following table also presents certain summary unaudited pro forma
financial and other data of the Company. The unaudited pro forma financial and
other data for the six months ended June 30, 1998 and for the year ended
December 31, 1997 have been derived from the Pro Forma Financial Information (as
defined) and the notes thereto included elsewhere in this Prospectus. The
unaudited pro forma statement of operations data give effect to the Transactions
as if they had occurred as of January 1, 1997. The unaudited pro forma balance
sheet data gives effect to the Transactions as if they had occurred on June 30,
1998. The summary pro forma financial data exclude the impact of (i) a potential
payment to Corning of up to $15.0 million in 2001 in the event the Company
achieves a cumulative gross margin in excess of $710.9 million for the
three-year period ended December 31, 2000, (ii) grants and anticipated grants of
options to purchase Common Stock to management and (iii) approximately $7.5
million of expenditures to be made over the next three years in
transition-related expenditures as a result of the separation from Corning. See
"The Recapitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Separation from Corning;
Transaction Related Charges." The summary unaudited pro forma financial data are
provided for informational purposes only and do not purport to be indicative of
the results that would have actually been obtained had the Transactions been
completed on the dates indicated or that may be expected to occur in the future.
The summary historical and pro forma financial and other data should be read
in conjunction with the historical consolidated financial statements of the
Company and notes thereto, "Selected Historical Consolidated Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Unaudited Pro Forma Financial Information" and "The
Recapitalization" contained elsewhere in this Prospectus.
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -------------------------------------
-------------------- PRO FORMA
1998 1997 1997(1) 1997 1996
--------- --------- --------------- --------- ---------
PRO FORMA
SIX
MONTHS
ENDED
JUNE 30,
1998(1)
---------------
(UNAUDITED)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales(2)......................................... $ 229.5 $ 229.5 $ 253.9 $ 572.9 $ 572.9 $ 632.4
Cost of sales........................................ 151.1 151.8 165.9 374.3 377.0 435.9
------- --------- --------- ------- --------- ---------
Gross profit......................................... 78.4 77.7 88.0 198.6 195.9 196.5
Selling, general, administrative and research and
development expenses............................... 73.4 73.8 67.3 144.2 137.3 154.2
Other corporate administrative expense(3)............ -- -- 9.2 -- 18.4 20.9
Provision for restructuring costs(4)................. -- -- -- -- -- 2.1
Transactions related expenses(5)..................... -- 28.6 -- -- -- --
Goodwill amortization................................ 1.0 1.0 1.0 1.7 1.7 1.7
Other, net(6)........................................ 0.4 0.3 1.0 0.7 5.9 0.6
Royalty income....................................... (0.8) (0.8) (0.6) (2.0) (2.0) (1.6)
------- --------- --------- ------- --------- ---------
Operating income (loss).............................. 4.4 (25.2) 10.1 54.0 34.6 18.6
Interest expense, net................................ 21.5 12.4 4.1 42.8 8.5 10.7
------- --------- --------- ------- --------- ---------
Income (loss) before taxes on income................. (17.1) (37.6) 6.0 11.2 26.1 7.9
Income tax expense (benefit)......................... (1.4) 1.7 2.4 6.8 12.8 6.2
------- --------- --------- ------- --------- ---------
Income (loss) before minority interest............... (15.7) (39.3) 3.6 4.4 13.3 1.7
Net income (loss).................................... $ (15.6) $ (39.2) $ 3.4 $ 4.1 $ 13.0 $ 1.6
------- --------- --------- ------- --------- ---------
------- --------- --------- ------- --------- ---------
OTHER FINANCIAL DATA:
Gross margin......................................... 34.2 33.9% 34.7% 34.7% 34.2% 31.1%
Operating margin..................................... 1.9% (11.0)% 4.0% 9.4% 6.0% 2.9%
Depreciation and amortization........................ $ 18.0 $ 18.0 $ 18.6 $ 35.7 $ 35.7 $ 35.8
Capital expenditures................................. 8.0 8.0 12.4 28.6 28.6 35.8
Interest expense(7).................................. 21.0 12.2 4.5 41.0 9.0 12.4
EBITDA(8)............................................ 22.4 (7.2) 28.7 89.7 70.3 54.4
Adjusted EBITDA(9)................................... -- 21.4 34.5 -- 86.5 70.7
Adjusted EBITDA margin............................... -- 9.3% 13.6% -- 15.1% 11.2%
<CAPTION>
1995
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(2)......................................... $ 608.7
Cost of sales........................................ 431.2
---------
Gross profit......................................... 177.5
Selling, general, administrative and research and
development expenses............................... 168.2
Other corporate administrative expense(3)............ 20.0
Provision for restructuring costs(4)................. --
Transactions related expenses(5)..................... --
Goodwill amortization................................ 1.7
Other, net(6)........................................ 0.4
Royalty income....................................... (1.6)
---------
Operating income (loss).............................. (11.2)
Interest expense, net................................ 8.8
---------
Income (loss) before taxes on income................. (20.0)
Income tax expense (benefit)......................... (1.6)
---------
Income (loss) before minority interest............... (18.4)
Net income (loss).................................... $ (18.5)
---------
---------
OTHER FINANCIAL DATA:
Gross margin......................................... 29.2%
Operating margin..................................... (1.8)%
Depreciation and amortization........................ $ 32.0
Capital expenditures................................. 40.6
Interest expense(7).................................. 11.0
EBITDA(8)............................................ 20.8
Adjusted EBITDA(9)................................... 34.1
Adjusted EBITDA margin............................... 5.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
PRO
ACTUAL FORMA(1)
--------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA (at end of period):
Net working capital.............................................................. $ 176.0 $ 168.5
Adjusted working capital(10)..................................................... 169.0 169.0
Total assets..................................................................... 515.3 507.9
Total debt....................................................................... 485.5 488.2
Total stockholder's equity (deficit)(11)......................................... (71.0) (81.2)
</TABLE>
- --------------------------
(1) The Transactions will be recorded as a recapitalization for financial
reporting purposes, and, accordingly, the historical basis of the Company's
assets and liabilities will not be impacted by the Transactions, with the
exception of deferred taxes on income which will change to reflect the tax
basis step-up which occurred upon consummation of the Recapitalization.
(2) Gross sales (before deductions for trade allowances, customer-paid freight
and discounts) were $247.5 million, $273.4 million, $616.7 million, $690.0
million and $668.5 million for the six months ended June 30, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995, respectively.
(3) Other corporate administrative expenses represent an allocation of corporate
charges from Corning to the Company in respect of certain administrative
services provided to the Company by Corning. Corning calculated these
charges as a percentage of the Company's budgeted sales. Commencing on
January 1, 1998 Corning provided these services to the Company on the basis
of a service agreement containing terms similar to that entered into on the
date of the Recapitalization and expenses incurred under such agreement were
reflected as selling, general and administrative and research and
development expenses.
(4) The Company incurred net provisions for restructuring costs of $2.1 million
in 1996 ($4.2 million of gross charges offset by a $2.1 million reversal of
existing reserves) resulting from the implementation of the Business
14
<PAGE>
Redesign Program. The major components of the 1996 charges were (i) costs
related to a reduction in the number of SG&A and manufacturing employees and
(ii) expenses incurred to close under-performing outlet stores.
(5) Reflects expenses incurred in connection with the Transactions.
(6) Other charges include miscellaneous expenses and miscellaneous income.
Included in the 1997 amount are $4.5 million of expenses related to
incremental incentive payments made to employees during the sale of the
Company.
(7) Interest expense represents interest expense exclusive of amortization of
deferred financing fees and the debt discount.
(8) EBITDA represents operating income (loss) plus depreciation and
amortization. EBITDA is presented because management understands that such
information is considered by certain investors to be an additional basis for
evaluating the Company's ability to pay interest and repay debt. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income, as a measure of the Company's operating results and
cash flows or as a measure of the Company's liquidity. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(9) Adjusted EBITDA represents EBITDA less adjustments to eliminate (i) other
corporate administrative expenses for certain services performed by Corning
for the Company; (ii) expenses related to incremental incentive payments
made to employees during the sale of the Company; (iii) expenses incurred in
connection with the Transactions; and (iv) provisions for restructuring
costs; net of (v) adjustments for expenses expected to be incurred by the
Company to replace the services previously performed by Corning described in
clause (i) above.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
EBITDA........................................................ $ (7.2) $ 28.7 $ 70.3 $ 54.4 $ 20.8
Other corporate administrative expenses (See Note 3)......... -- 9.2 18.4 20.9 20.0
Incentive payment expenses (See Note 6)...................... -- -- 4.5 -- --
Transactions related expenses (See Note 5)................... 28.6 -- -- -- --
Provision for restructuring costs (See Note 4)............... -- -- -- 2.1 --
Addition to SG&A............................................. -- (3.4) (6.7) (6.7) (6.7)
--------- --------- --------- --------- ---------
Adjusted EBITDA.............................................. $ 21.4 $ 34.5 $ 86.5 $ 70.7 $ 34.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
For a more complete description of the services performed by Corning after
the Recapitalization and the ability of the Company to achieve such cost
savings, see "Risk Factors--No Prior Operations as an Independent Company"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Overview--Separation from Corning; Transaction Related
Charges."
(10) Adjusted working capital is calculated as (i) current assets excluding cash
and amounts due from Corning, less (ii) current liabilities excluding debt,
amounts due to Corning and payables to be reimbursed by Corning.
(11) Upon consummation of the Recapitalization, CCPC Acquisition acquired 92.0%
of the outstanding shares of Common Stock of the Company for $110.4 million
and Corning retained 8.0% of the outstanding shares of Common Stock of the
Company (an implied value of $9.6 million). Under the 1998 Plan, CCPC
Acquisition is currently in the process of selling shares of Common Stock,
and the Company is making grants of options to purchase Common Stock, to
certain members of management of the Company. CCPC Acquisition also acquired
1,200,000 shares of the Company's Junior Preferred Stock for $30.0 million.
15
<PAGE>
RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE DECIDING
TO TENDER OLD NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE EXCHANGE NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
Old Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Company does not currently intend to register the Old Notes under the
Securities Act. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes will be adversely affected.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company incurred substantial indebtedness in connection with the
Recapitalization. See "The Recapitalization" and "Capitalization." As of June
30, 1998, after giving pro forma effect to the Transactions, the Company would
have had $488.2 million of consolidated indebtedness, a common stockholders'
deficit of $81.2 million and $195.3 million available to be borrowed under the
Revolving Credit Facility. Pro forma net income for the year ended December 31,
1997 would have been $4.1 million, as compared to net income of $13.0 million
for the same period on a historical basis, and pro forma interest expense, (net)
for 1997 would have been $42.8 million as compared to $8.5 million for the same
period on a historical basis. For the six months ended June 30, 1998, pro forma
net loss would have been $15.6 million, as compared to a net loss of $39.3
million for the same period on a historical basis. Pro forma interest expense
(net) would have been $21.5 million for the six months ended June 30, 1998, as
compared to $12.4 million on a historical basis for the same periods. See
"Capitalization" and "Unaudited Pro Forma Financial Information." The Company
and its subsidiaries may incur additional indebtedness (including certain Senior
Indebtedness) in the future, subject to certain limitations contained in the
instruments governing its indebtedness. Accordingly, the Company will have
significant debt service obligations.
The Company's debt service obligations will have important consequences to
holders of Exchange Notes, including the following: (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for operations, future business opportunities and other purposes
and increasing the Company's vulnerability to adverse general economic and
industry conditions; (ii) the Company's ability to obtain additional financing
in the future may be limited; (iii) certain of the Company's borrowings
(including, but not limited to, the amounts borrowed under the Credit
Facilities) will be at variable rates of interest, which will make the Company
vulnerable to increases in interest rates; (iv) all of the indebtedness incurred
in connection with the Credit Facilities will become due prior to the time the
principal payment on the Exchange Notes will become due; (v) the Company will be
substantially more leveraged than certain of its competitors, which might place
the Company at a competitive disadvantage; and (vi) the Company may be hindered
in its ability to adjust rapidly to changing market conditions.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Exchange Notes)
and to make scheduled payments under its operating leases or to fund planned
capital expenditures or finance acquisitions will depend on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. Any future acquisitions, joint
ventures or other similar transactions will likely require additional capital
and there can be no assurance that any such capital will be available to the
Company
16
<PAGE>
on acceptable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In addition, there can be no assurance that the Company's business will continue
to generate sufficient cash flow from operations in the future to service its
debt, make necessary capital expenditures or meet its other cash needs. If
unable to do so, the Company may be required to refinance all or a portion of
its existing debt, including the Exchange Notes, to sell assets or to obtain
additional financing. There can be no assurance that any such refinancing or
that any such sale of assets or additional financing would be possible on terms
reasonably favorable to the Company.
RESTRICTIVE LOAN COVENANTS
The Credit Facilities and the Indenture contain numerous financial and
operating covenants that will limit the discretion of the Company's management
with respect to certain business matters. These covenants will place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, pay dividends and other distributions, prepay
subordinated indebtedness, enter into sale and leaseback transactions, create
liens or other encumbrances, make capital expenditures, make certain investments
or acquisitions, engage in certain transactions with affiliates, sell or
otherwise dispose of assets and merge or consolidate with other entities and
otherwise restrict corporate activities. See "Description of Credit Facilities"
and "Description of the Exchange Notes--Certain Covenants." The Credit
Facilities also require the Company to meet certain financial ratios and tests.
The ability of the Company to comply with these and other provisions of the
Credit Facilities and the Indenture may be affected by changes in economic or
business conditions or other events beyond the Company's control. A failure to
comply with the obligations contained in the Credit Facilities or the Indenture
could result in an event of default under either the Credit Facilities or the
Indenture which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness that may
contain cross-acceleration or cross-default provisions. If, as a result thereof,
a default occurs with respect to Senior Indebtedness, the subordination
provisions in the Indenture would likely restrict payments to the holders of the
Exchange Notes. If the indebtedness under the Credit Facilities were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Exchange Notes.
ADVERSE CONSEQUENCES OF HOLDING COMPANY STRUCTURE
The Company is in the process of contributing substantially all of its
assets to its subsidiaries and thus will operate as a holding company which
conducts substantially all of its operations through its subsidiaries.
Consequently, the Exchange Notes will be effectively subordinated to the
obligations of the Company's subsidiaries, including the guarantee by its
subsidiaries of obligations under the Credit Facilities. The Exchange Notes will
not be guaranteed by any of the Company's subsidiaries. In the event of an
insolvency, liquidation or other reorganization of any of the subsidiaries of
the Company, the creditors of the Company (including the holders of the Exchange
Notes), as well as stockholders of the Company, will have no right to proceed
against the assets of such subsidiaries or to cause the liquidation or
bankruptcy of such subsidiaries under Federal bankruptcy laws. Creditors of such
subsidiaries, including lenders under the Credit Facilities, would be entitled
to payment in full from such assets before the Company would be entitled to
receive any distribution therefrom. Except to the extent that the Company may
itself be a creditor with recognized claims against such subsidiaries, claims of
creditors of such subsidiaries will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including claims under the Exchange Notes. In addition, as a result of the
Company becoming a holding company, the Company's operating cash flow and its
ability to service its indebtedness, including the Exchange Notes, will be
dependent upon the operating cash flow of its subsidiaries and the payment of
funds by such subsidiaries to the Company in the form of loans, dividends or
otherwise. As of June 30, 1998, after giving pro forma effect to the
Transactions, the
17
<PAGE>
subsidiaries of the Company would have had total liabilities of $109.4 million
(excluding guarantees in respect of the Credit Facilities).
ADVERSE CONSEQUENCES OF SUBORDINATION OF THE NOTES
The Company's obligations under the Exchange Notes will be subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. As of June 30, 1998, on a pro forma basis after giving effect to the
Transactions, the aggregate amount of the Company's outstanding Senior
Indebtedness would have been approximately $279.7 million (excluding unused
commitments). Although the Indenture contains limitations on the amount of
additional indebtedness which the Company and its subsidiaries may incur, under
certain circumstances the amount of such indebtedness could be substantial and
such indebtedness could be Senior Indebtedness. By reason of such subordination,
in the event of an insolvency, liquidation, or other reorganization of the
Company, the lenders under the Credit Facilities and other creditors who are
holders of Senior Indebtedness must be paid in full before the Holders may be
paid; accordingly, there may be insufficient assets remaining after payment of
prior claims to pay amounts due on the Exchange Notes. In addition, under
certain circumstances, no payments may be made with respect to the Exchange
Notes if a default exists with respect to Senior Indebtedness. See "Description
of the Exchange Notes."
ENCUMBRANCES ON ASSETS TO SECURE CREDIT FACILITIES
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Exchange Notes will not be secured by any of
the Company's assets. The Company's obligations under the Credit Facilities are
required to be secured by a first priority pledge of and security interest in
(i) the stock of all the existing and subsequently acquired direct domestic
subsidiaries of the Company other than common stock of unrestricted subsidiaries
and certain subsidiaries created or acquired in connection with permitted
acquisitions, (ii) evidences of indebtedness in excess of $5 million received by
the Company in connection with asset sales other than sales in the ordinary
course of business or in connection with permitted sale-leasebacks and (iii) 65%
of the common stock of existing and subsequently acquired material direct
foreign subsidiaries. If the Company becomes insolvent or is liquidated, or if
payment under any of the Credit Facilities is accelerated, the lenders under the
Credit Facilities will be entitled to exercise the remedies available to a
secured lender under applicable law. See "Description of Credit Facilities" and
"Description of the Exchange Notes."
REQUIRED ACTIONS IN THE EVENT OF A CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control, the
Company will (unless the Company elects to redeem the Exchange Notes in the
event of a Change of Control prior to May 1, 2003) make an offer to purchase all
or any part of the Exchange Notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase. The Credit Facilities prohibit the Company from
repurchasing any Exchange Notes, except with the sum of $50.0 million, the
proceeds of certain proceeds of one or more Equity Offerings, a portion of
excess cash flow and other amounts not applied to repay borrowings under the
Term Loan Facility less certain investments in acquisition subsidiaries and
minority investments. The Credit Facilities also provide that certain change of
control events with respect to the Company 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 the Exchange Notes, the Company could seek the
consent of its lenders to purchase the Exchange Notes or could attempt to
refinance the borrowings that contain such a prohibition. If the Company does
not obtain such a consent or refinance such borrowings, the Company would remain
prohibited from purchasing the Exchange Notes. In such case, the Company's
failure to purchase tendered Exchange Notes would constitute a default under the
Indenture, which, in turn, could result in amounts outstanding under the Credit
Facilities being declared due
18
<PAGE>
and payable. Any such declaration could have adverse consequences to the Company
and the Holders. In the event of a Change of Control, there can be no assurance
that the Company would have sufficient assets to satisfy all of its obligations
under the Credit Facilities and the Exchange Notes. If a default occurs with
respect to any Senior Indebtedness, the subordination provisions in the
Indenture would likely restrict payments to the Holders. The provisions relating
to a Change of Control included in the Indenture may increase the difficulty of
a potential acquiror obtaining control of the Company. See "Description of the
Exchange Notes--Repurchase at the Option of Holders--Change of Control."
RISKS RELATED TO REALIZING OBJECTIVES OF THE BUSINESS REDESIGN PROGRAM
The two major objectives of the Company's Business Redesign Program are to,
first, streamline the Company's business to focus on profitable products and
customers while reducing the Company's cost structure and, second, adopt
initiatives to increase sales while maintaining and improving upon the cost
efficiencies achieved in the first phase of the Business Redesign Program. The
Company's ability to achieve these objectives is subject to the effects of a
number of business, industry, economic and other factors, many of which are
beyond the Company's control, such as general economic conditions, potential
revenue instability arising from cost savings initiatives or otherwise, labor
relations, the response of competitors or customers to the Company's Business
Redesign Program, delays in implementation of the second phase of the Business
Redesign Program, ability to retain cost savings previously achieved, retailer
consolidation or strategy changes, competition for retail shelf space and the
relative success of new product introductions. With the implementation of the
Business Redesign Program in 1996, management anticipated that the narrowing of
the Company's customer base and product offerings would lead to short-term sales
decreases. The Company has experienced sales decreases in excess of those
expected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" for a discussion of other factors affecting the
Company's recent and future financial performance.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
A significant portion of the Company's sales is derived from international
markets. During 1997, approximately 25% of the Company's net sales were
generated outside the United States, including 5% in Korea, which was the
Company's largest market outside North America. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--Other
Matters." Approximately 63% of the Company's international net sales in 1997
were made in U.S. dollars, with the balance realized in other currencies.
Currency exchange rate fluctuations are expected for fiscal 1998 to
significantly affect the Company's foreign sales and earnings. The increased
strength of the U.S. dollar has in 1998, and may in future periods, increase the
effective price of the Company's products sold in U.S. dollars with the result
of materially adversely affecting sales. The Company's costs are predominantly
denominated in U.S. dollars. Thus, with respect to sales conducted in foreign
currencies, increased strength of the U.S. dollar decreases the Company's
reported revenues and margins in respect of such sales to the extent the Company
is unable or determines not to increase local currency prices.
Increasing its sales in international markets, particularly Latin America
and Asia, is a component of the Company's business strategy. As a result,
economic conditions in these markets has had, and could in future periods
continue to have, an increasingly significant effect on the Company's operating
results. Certain Asian economies have experienced recent economic disruptions,
including significant currency devaluation. For the six months ended June 30,
1998, the Company recorded gross sales and operating income (loss) (before
allocation of manufacturing variances and corporate overhead) of $9.9 million
and $(0.6) million in Asian markets (excluding Japan), respectively, compared to
$33.4 million and $12.9 million in the first six months of 1997. Additionally,
net sales and operating income (before allocation of manufacturing variances and
corporate overhead) for Asian markets (excluding Japan) for the second half of
1997 were $24.4 million and $5.6 million, respectively. For 1997, gross sales
and operating
19
<PAGE>
income (before allocation of manufacturing variances and corporate overhead)
from Asian markets (excluding Japan) were $58.1 million and $18.5 million,
respectively. Results in Japan were substantially equivalent to the prior year.
The current disruptions in Asia are continuing to materially adversely affect
the Company's results of operations. The continuing disruptions in Asia are
resulting in greater than expected sales reductions and production cut backs in
the Company's U.S. and Malaysian manufacturing and decorating facilities,
exacerbating the impact of a planned inventory reduction program and
contributing to an increase in the cost of goods sold and reductions in gross
margin as a percentage of net sales for the remainder of fiscal 1998. In the
third quarter of fiscal 1998, the Company implemented an accelerated inventory
reduction program to improve cash flows and reduce inventory carrying costs. The
program, which includes temporary interruptions of production, will increase
cost of goods sold and reduce gross margins as a percentage of sales for the
remainder of 1998. Because international sales are among the Company's most
profitable, disruptions in international sales have a disproportionate effect on
the Company profits. A significant portion of the Company's operating income has
historically been derived from international sales. In addition, the Company
expects increased competition in domestic markets from Asian competitors. See
"--Potential for Increased Competition," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
The Company's international sales and operations are also subject to other
risks, including new and different legal and regulatory requirements in local
jurisdictions; export duties or import quotas; domestic and foreign customs and
tariffs or other trade barriers; potential difficulties in staffing and labor
disputes; managing and obtaining support and distribution for local operations;
increased costs of transportation or shipping; credit risk or financial
condition of local customers and distributors; potential difficulties in
protecting intellectual property; risk of nationalization of private
enterprises; potential imposition of restrictions on investments; potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries; foreign exchange
restrictions; and local political and social conditions, including the
possibility of hyperinflationary conditions and political instability in certain
countries. There can be no assurance that the foregoing factors will not have a
material adverse effect on the Company's international operations or sales or
upon its financial condition and results of operations.
The Company's continued growth is dependent in part upon its ability to
expand its operations into international markets where it currently has little
presence. The Company may experience difficulty entering new international
markets due to greater regulatory barriers than in the United States, the
necessity of adapting to new regulatory systems and problems related to entering
new markets with different cultural bases and political systems. As the Company
continues to expand its international operations, these and other risks
associated with international operations are likely to increase. In addition, as
the Company enters new geographic markets, it may encounter significant
competition from the primary participants in such markets, some of which may
have substantially greater resources than the Company.
In November 1994, Corning and the Company sold their European, Russian,
Middle Eastern and African consumer products businesses to Newell, a significant
competitor of the Company, and agreed for a five-year period, subject to certain
distribution agreements with Newell, not to manufacture, sell or distribute
competing products in such territories. Sales of the Company's products in these
territories have not been significant and are not expected to be significant in
the foreseeable future. See "Business--Distribution Channels-International" and
"Business--Distribution Channels-European, Russian, Middle Eastern and African
Consumer Products Business."
POTENTIAL FOR INCREASED COMPETITION
The market for the Company's products is highly competitive. Competition in
the United States is affected not only by the large number of domestic
manufacturers but also by the large volume of foreign imports. In addition,
recently the Company has experienced increased competition in the United States
20
<PAGE>
from low-cost Asian competitors and expects this trend to continue in the
future. The Company's major bakeware, dinnerware and cookware competitors for
domestic sales include Newell, Rubbermaid Incorporated, Ekco Housewares Inc.,
Pfaltzgraff Co., Lenox Inc., The Meyer Corporation, Inc. and T-Fal Corporation.
The market for housewares outside the United States and Europe is relatively
fragmented. The competitive landscape differs by country and region.
Internationally, depending on the country or region, the Company competes with
other U.S. companies operating abroad, locally manufactured private label goods
and international companies competing in the worldwide bakeware, dinnerware and
rangetop cookware categories. Major competitors abroad include Durand Verrerie
Christallerie D'Arquey, Lipper International Inc., Newell, Vitro S.A., NEG
(Nippon Electric Glass) and Schott Glaswerke.
Several of the Company's competitors are larger and may be less leveraged
and have greater financial resources than the Company following the completion
of the Transactions. In addition, there are no substantial regulatory or other
barriers to the entry of new competitors into the industry.
A number of factors affect competition in the sale of bakeware, dinnerware
and rangetop cookware manufactured and/or sold by the Company, including
quality, price competition from competitors and price point parameters
established by the Company's various distribution channels. The Company has,
from time to time, experienced price and market share pressure from certain
competitors in certain product lines, particularly in the bakeware category
where metal products of competitors have created retailer price and margin
pressures, and in the rangetop cookware category where non-stick aluminum
products have increased their share of rangetop cookware sales at the expense of
stainless steel products due to the durability and ease of cleaning of new
non-stick coatings.
Shelf space is a key factor in determining retail sales of bakeware,
dinnerware and rangetop cookware products. A competitor that is able to maintain
or increase the amount of retail space allocated to its product may gain a
competitive advantage for that product, and in recent fiscal quarters the
Company has lost shelf space in its distribution channels to certain of its
competitors. See "--Risks Related to Realizing Objectives of the Business
Redesign Program" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The allocation of retail space is
influenced by many factors, including brand name recognition, quality and price
of the product, level of service by the manufacturer and promotions.
In addition, new product introductions are an important factor in the
categories in which the Company's products compete. Other important competitive
factors are brand identification, style, design, packaging and the level of
service provided to customers. The importance of these competitive factors
varies from customer to customer and from product to product. See "--Development
of New Products" and "Business--Competition." There can be no assurance that the
Company will be able to compete successfully against current and future sources
of competition or that the current and future competitive pressures faced by the
Company will not adversely affect its profitability or financial performance.
See "Business--Competition."
NO PRIOR OPERATIONS AS AN INDEPENDENT COMPANY
Prior to the Recapitalization, the Company was operated as a wholly owned
subsidiary of Corning. While owned by Corning, Corning provided the Company with
credit support, as well as certain technical, operational and administrative
support services, including the Company's financial reporting systems. Corning
has agreed to continue to provide many of these services for a limited time
after the Closing Date, after which time the Company will be required to provide
for such services either internally or through third parties. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Separation from Corning; Transaction Related Charges" and
"Certain Relationships and Related Party Transactions." There can be no
assurance that the Company will be able to obtain replacement sources for such
services, or that if obtained, such services will be obtained
21
<PAGE>
on terms as favorable as those provided by Corning. In addition, there can be no
assurance that due to unanticipated occurrences the Company will be able to
achieve the cost savings in administrative services presented in the historical
and pro forma financial information included herein.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The development and introduction of new products (including product line
extensions and renewals) is a significant factor in expanding product categories
and successful competition within product categories. The Company budgets
expenditures for, and actively pursues, the development of new products. There
can be no assurance, however, that the Company will successfully develop new
products or, if developed, that new products will achieve market acceptance. The
Company's failure to develop new products that gain market acceptance could
adversely affect the Company's competitive position and could materially and
adversely affect the Company's results of operations.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
In 1997, the Company's top two customers represented approximately 18% of
its gross sales and the Company's 25 largest domestic customers represented
approximately 35% of its gross sales. The further implementation of the Business
Redesign Program is likely to increase the percentage of sales to the Company's
top customers. The Company does not have long-term purchase agreements or other
contractual assurances as to future sales to these major customers. Decreased
levels or the deferral of orders by the Company's major customers in the past
have had, and in the future may have, a material adverse effect on the Company's
results of operations. In addition, due to the allocation of retail shelf space
to suppliers' products far in advance of the placement and shipment of orders
for such products, the Company's net sales are reliant to a certain extent on
the ability of its strategic accounts to successfully execute on such plans, and
any deferral of orders does not allow sufficient notice to obtain satisfactory
alternative sales arrangements for such products. See "Business--Distribution
Channels-- Domestic Wholesale."
In addition, continued consolidation within the retail industry may result
in an increasingly concentrated customer base. To the extent that such
consolidation continues to occur, the Company's net sales and profitability may
be increasingly sensitive to a deterioration in the financial condition of or
other adverse developments in its relationships with one or more customers.
FLUCTUATIONS IN THE RETAIL INDUSTRY
The Company's business depends on the strength of the retail economies in
various parts of the world, primarily in North America, and to a lesser extent
in Asia, Latin America and Australia, which are affected by such factors as
consumer demand, the condition of the retail industry and weather conditions.
Due to the recent economic conditions in Asia, the Company's net sales to Asian
markets have declined significantly due to overall declines in demand as well as
severe price competition. The Company's business is also sensitive to consumer
spending patterns, which in turn are subject to prevailing economic conditions.
Weak retail environments, whether due to economic or other conditions, may spur
manufacturers and marketers, including the Company, to increase their
discounting and promotional activities. The Company may also not be able to
fully offset the impact of inflation through price increases due to an
unfavorable retail environment. Future economic recessions could have a material
adverse effect on the Company's financial condition and results of operations.
Recently, the retail industry has been characterized by intense competition
and consolidation, whereby certain customers of the Company have incurred a
significant amount of debt, have entered bankruptcy or have liquidated and left
the retail market. As a result, the Company may be unable to collect some or all
amounts owed by these customers. Additionally, all or part of the operations of
a retailer that seeks bankruptcy or other debtor protection may be discontinued
or sales of the Company's products to such a retailer may be curtailed or
terminated as a result of such bankruptcy or insolvency
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proceedings. In addition, the weakened financial condition of certain retailer
customers has caused the Company to decrease its sales to such retailers in an
effort to reduce the Company's credit risk.
Competition in the retail industry has in the past caused certain of the
Company's customers to engage in certain operational changes, including altering
their product mix (i.e., reducing the portion of shelf space allocated to the
Company's products or the categories in which the Company's products compete)
and significantly reducing inventory levels that have adversely affected the
Company's results of operations. There can be no assurance that the foregoing
factors will not continue to affect the Company.
As is customary in the retail industry, the Company generally does not enter
into written agreements with customers but relies on orders that are cancelable
until shipment. Decreased levels or the deferral of orders by the Company's
customers in the past have had, and in the future may have, a material adverse
effect on the Company's results of operations. See "Business--Distribution
Channels."
Company-operated outlet stores accounted for approximately 34% of the
Company's U.S. gross sales during 1997. If consumer preference and retail sales
volume were to shift away from outlet stores and outlet malls, the Company's
sales and results of operations could be materially adversely affected.
FLUCTUATIONS IN RAW MATERIAL COSTS
The Company purchases its raw materials on the spot market and through
long-term contracts with suppliers. The replacement of certain raw material
suppliers has in the past had, and may in the future have, an adverse effect on
the Company's operations and financial performance, and significant increases in
the cost of any of the principal raw materials used by the Company, namely sand,
soda ash, borax, limestone, lithia-containing spars, alumina, cullet, stainless
steel, copper and corrugated packaging materials, could have a material adverse
effect on its results of operations. The Company's molded plastic products and
certain components of its kitchenware products are manufactured from plastic
resin, which is produced from petroleum-based raw materials. Plastic resin
prices may fluctuate as a result of changes in natural gas and crude oil prices
and the capacity, supply and demand for resin and the petrochemical
intermediates from which it is produced. Costs of steel, aluminum and copper,
which are used in manufacturing the Company's bakeware products, and corrugated
boxes and packaging, which are used in the display and distribution of the
Company's products, are also subject to market fluctuations. To the extent the
Company is unable to pass on increases in the cost of its raw materials to its
customers, such increases may have a material adverse effect on the
profitability of the Company. The Company does not engage in any hedging
activities for commodity trading relating to its supply of raw materials. See
"Business--Raw Materials and Supplies."
ACQUISITION RELATED RISKS
Although the Company has not historically relied on acquisitions to grow its
business, part of the Company's business strategy is to selectively acquire
other businesses that will complement its existing business. Management is
unable to predict whether or when any prospective acquisition candidates will
become available or the likelihood of a material transaction being completed
should any negotiations commence. The Company's ability to finance acquisitions
may be constrained by, among other things, its high degree of leverage following
the Transactions. The Credit Facilities and the Indenture may significantly
limit the Company's ability to make acquisitions and to incur indebtedness in
connection with acquisitions. In addition, acquisitions by the Company will
involve risks, including the successful integration and management of acquired
technology, operations and personnel. The integration of acquired businesses may
also lead to the loss of key employees of the acquired companies and diversion
of management attention from ongoing business concerns. There can be no
assurance that any acquisition will be made, that the Company will be able to
obtain additional financing needed to finance any such acquisition and, if any
acquisitions are so made, that they will be successful.
23
<PAGE>
RISKS ASSOCIATED WITH LABOR RELATIONS
The Company currently is a party to several domestic and international
collective bargaining agreements, including agreements with the American Flint
Glass Workers Union, the Aluminum Brick & Glass Workers International Union, the
International Association of Machinists and Aerospace Workers and the Australia
Workers Union. These agreements will expire at various times in the future
between January 1, 1999 and April 2001. The inability of the Company to renew
such agreements could result in work stoppages and other labor disturbances,
which could disrupt the Company's business and adversely affect the Company's
results of operations. See "Business--Employees."
CONTROL BY KKR AFFILIATES
After the Recapitalization, 92% of the issued and outstanding shares of
Common Stock was held by CCPC Acquisition, a wholly-owned subsidiary of BW
Holdings. Under the 1998 Plan, CCPC Acquisition is currently in the process of
selling shares of Common Stock, and the Company is making grants of options to
purchase Common Stock, to certain members of management of the Company. BW
Holdings is a Delaware limited liability company whose members are certain
members of senior management of Borden, KKR Partners II, L.P. and Whitehall
Associates L.P. KKR Associates, L.P. is the sole general partner of each of KKR
Partners II, L.P. and Whitehall Associates L.P. KKR Associates, L.P. is a
Delaware limited partnership whose general partners are also the members of the
limited liability company which is the general partner of KKR. Accordingly,
affiliates of KKR will control the Company and have the power to elect all of
its directors, appoint new management and approve any action requiring the
approval of Company stockholders, including adopting amendments to the Company's
certificate of incorporation and approving mergers or sales of substantially all
of the Company's assets. There can be no assurance that the interests of KKR and
its affiliates will not conflict with the interests of the holders of the
Exchange Notes. See "Management," "Principal Stockholders" and "Certain
Relationships and Related Party Transactions."
DEPENDENCE UPON KEY MANAGEMENT; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company is currently dependent upon the ability and experience of its
senior operations team and administrative services provided by Corning. The
Company is in the process of developing its organization to replace the services
presently provided by Corning. Competition for qualified personnel is intense,
and the process of hiring such qualified personnel can be lengthy. The loss of
the services of key personnel or the inability to attract and retain additional
qualified personnel could have an adverse effect on the Company's operations.
Pursuant to a transition services agreement entered into in connection with the
Recapitalization, Corning is continuing to provide certain administrative
services which it provided prior to the Recapitalization. There can be no
assurance, however, that after the termination of the transition services
agreement (on or before April 1, 2000) that the Company will be able to replace
Corning's services under such agreement for the fees charged by Corning, that
the functions assumed by the Company or to be outsourced to third parties will
not cost significantly in excess of the Company's estimates or that the
provision of such services during the transition period after the
Recapitalization will be performed without interruption or delay due to
unanticipated circumstances. The Company does not maintain key-man life
insurance policies on any of its executives nor has it entered into employment
agreements with any of its executives. See "Management."
SEASONALITY
Historically, the Company records its highest sales in its third and fourth
quarters as a result of the buying patterns associated with the holiday selling
season. The Company's need for working capital accelerates in the second half of
the year due to additional merchandising and promotional efforts associated with
the holiday selling season and, accordingly, total debt levels tend to peak in
the third and fourth quarters, decreasing in the first quarter of the following
year. The amount of the Company's sales generated during the second half of the
year generally depends upon a number of factors, including
24
<PAGE>
general economic conditions, existing retailer inventory levels and other
factors beyond the Company's control. The Company's results of operations would
be adversely and disproportionately affected if the Company's sales were
substantially lower than those normally expected during the second half of the
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Seasonality."
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company licenses from Corning on an exclusive basis the Corning
Ware-Registered Trademark- trademark, service mark and tradename, the
Pyroceram-Registered Trademark- trademark in the field of housewares and the
Pyrex-Registered Trademark- trademark in the field of durable consumer products
(which includes bakeware) in each case for ten years (each renewable at the
option of the Company on the same terms and conditions for an unlimited number
of successive ten-year terms). The success of the Company's various businesses
depends in part on the Company's ability to use these trademarks, tradenames,
service marks and licenses as well as certain proprietary designs and trademarks
on an exclusive basis in reliance upon the protections afforded by applicable
trademark laws and regulations. In the event of a bankruptcy of Corning or the
Company, the Company's right to use the Corning Ware-Registered Trademark-,
Pyrex-Registered Trademark- and Pyroceram-Registered Trademark- trademarks,
service mark and/or tradename may be limited or terminated during the course of
such bankruptcy proceedings under provisions of bankruptcy law applicable to
contracts such as the license agreement with Corning. The loss of certain of the
Company's rights to such trademarks, tradenames, servicemarks and licenses or
the inability of the Company to effectively protect or enforce such rights could
materially adversely affect the Company. See "Business--Intellectual Property."
On May 12, 1998, the Company received two letters from Rubbermaid
Incorporated alleging that Corning Ware-Registered Trademark- Pop-Ins-TM-
infringe four patents owned by Rubbermaid Incorporated. The letters request that
the Company cease and desist from making, using, offering to sell, and selling
Corning Ware-Registered Trademark- Pop-Ins-TM- and provide to Rubbermaid a full
accounting of sales of such products. The Company is in the process of
investigating the validity of this claim.
IMPACT OF ENVIRONMENTAL REGULATION
The Company's facilities and operations are subject to certain federal,
state, local and foreign laws and regulations relating to environmental
protection and human health and safety, including those governing wastewater
discharges, air emissions, the use, generation, storage, treatment,
transportation and disposal of hazardous and non-hazardous materials and wastes
and the remediation of contamination associated with such disposal. Certain of
such laws and regulations and their interpretation by regulatory agencies and
courts are complex, may change frequently and historically have become
increasingly stringent. In addition, under certain environmental laws, a current
or previous owner or operator of property may be liable for the costs to remove
or remediate certain hazardous substances or petroleum products on, under or in
such property, without regard to whether the owner or operator knew of, or
caused, the presence of the contaminants, and regardless of whether the
practices that resulted in contamination were legal at the time they occurred.
The presence of, or failure to remediate properly, such contamination may
adversely affect the ability to sell or rent such property or to borrow using
such property as collateral. Owners or operators of such properties, as well as
persons who generate, arrange for the disposal or treatment of, or dispose of
hazardous substances, may be liable for the costs of investigation, remediation
or removal of hazardous substances at or from the properties where such
hazardous substances come to be located, whether or not such facility is owned
or operated by such person. Additionally, claims may be asserted by third
parties for various damages and costs resulting from contamination emanating
from a site owned or operated by, or containing hazardous substances originating
from, the Company. Because of the nature of its business, the Company has
incurred, and will continue to incur, capital and operating expenditures and
other costs in complying with and resolving liabilities under such laws and
regulations, including costs incurred to remediate historic contamination at
certain of its facilities. There can be no assurance that compliance with or
liabilities under such
25
<PAGE>
laws and regulations, or the discovery of contamination will not in the future
have a material adverse effect on the Company. See "Business--Environmental
Matters."
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness by the Company, such as the Exchange Notes,
may be subject to review under federal bankruptcy law or relevant state
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company. Under these laws, if, in a bankruptcy
or reorganization case or a lawsuit by or on behalf of unpaid creditors of the
Company, a court were to find that, at the time the Company incurred
indebtedness, including indebtedness under the Exchange Notes, (i) the Company
incurred such indebtedness with the intent of hindering, delaying or defrauding
current or future creditors or (ii) (a) the Company received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b) the Company (1) was insolvent or was rendered insolvent by
reason of any of the transactions, (2) was engaged, or about to engage, in a
business or transaction for which its assets remaining with the Company
constituted unreasonably small capital to carry on its business, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (4) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), then such court could avoid or subordinate the amounts owing under
the Exchange Notes to presently existing and future indebtedness of the Company
and take other actions detrimental to the holders of the Exchange Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether the Company was solvent at the relevant time, or whether,
whatever standard was used, the Exchange Notes would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the initial financing of the Recapitalization,
counsel for the Company and counsel for the lenders will not express any opinion
as to the applicability of federal or state fraudulent transfer and conveyance
laws.
The Company believes that at the time the indebtedness constituting the
Exchange Notes will be incurred initially by the Company, the Company (i) will
be (a) neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to run its businesses effectively and (c) incurring debts
within its ability to pay as the same mature or become due and (ii) will have
sufficient assets to satisfy any probable money judgment against it in any
pending action. In reaching the foregoing conclusions, the Company has relied
upon its analyses of internal cash flow projections and estimated values of
assets and liabilities of the Company. There can be no assurance, however, that
a court passing on such questions would reach the same conclusions.
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in May 1998 to a small number of institutional
investors and are eligible for trading in the PORTAL Market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the
26
<PAGE>
Exchange Notes to sell their Exchange Notes or the price at which such holders
would be able to sell their Exchange Notes. If such markets were to exist, the
Exchange Notes could trade at prices that may be lower than the initial market
values thereof depending on many factors, including prevailing interest rates
and the markets for similar securities. Although there is currently no market
for the Exchange Notes, the Initial Purchasers have advised the Company that
they currently intend to make a market in the Exchange Notes. However, the
Initial Purchasers are not obligated to do so, and any market making with
respect to the Exchange Notes may be discontinued at any time without notice.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. Forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors (many of which are beyond the Company's control)
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Among these statements
are portions of this Prospectus concerning the Company's future operations,
economic performance and financial condition, including the Company's business
strategy and measures to implement such strategy, competitive strengths,
objectives, expansion, growth of the Company's business and operations,
acquisitions and references to future success. The forward-looking statements
regarding such matters are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, is subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: a global economic slowdown in any one,
or all, of the Company's sales categories; loss of sales as the Company
streamlines and focuses on strategic accounts; unpredictable difficulties or
delays in the development of new product programs; increased difficulties in
obtaining a consistent supply of basic raw materials such as sand, soda ash,
steel or copper and energy inputs such as electrical power or natural gas at
stable pricing levels; development by the Company of an adequate administrative
infrastructure; technological shifts away from the Company's technologies and
core competencies; unforeseen interruptions to the Company's business with its
largest customers resulting from, but not limited to, financial instabilities or
inventory excesses; the effects of extreme changes in monetary and fiscal
policies in the United States and abroad, including extreme currency
fluctuations and unforeseen inflationary pressures such as those recently
experienced by certain Asian economies; drastic and unforeseen price pressures
on the Company's products or significant cost increases that cannot be recovered
through price increases or productivity improvements; significant changes in
interest rates or in the availability of financing for the Company or certain of
its customers; loss of any material intellectual property rights; any
difficulties in obtaining or retaining the management or other human resource
competencies that the Company needs to achieve its business objectives; and
other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Prospectus are
qualified by these cautionary statements, and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company and its subsidiaries or their business or operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE>
THE RECAPITALIZATION
The following is a summary of the Recapitalization and the material
provisions of the Recapitalization Agreement dated March 2, 1998 among Corning,
the Company, CCPC Acquisition and Borden. While the Company believes that this
summary includes the material information regarding the Recapitalization
Agreement, this summary does not purport to be complete and is qualified in its
entirety by reference to the Recapitalization Agreement.
RECAPITALIZATION AGREEMENT
The Recapitalization was consummated on April 1, 1998 through (a) the
payment to Corning by the Company of the $472.6 million Cash Dividend and (b)
the purchase by CCPC Acquisition from Corning of 22,080,000 shares of Common
Stock (the "Acquired Shares") owned by Corning for $110.4 million in cash. The
Cash Dividend, together with transaction and financing fees and expenses of $8.0
million paid to Borden for the Recapitalization, approximately $17.0 million to
pay other fees and expenses incurred in connection with the Transactions and
approximately $4.0 million of cash for operations, was financed by the Company
through (i) the issuance and sale to CCPC Acquisition of 1,200,000 shares of the
Junior Preferred Stock for $30.0 million and (ii) the Interim Financing,
consisting of $346.0 million from Borden at 9.5% and $125.6 million from BW
Holdings at 9.5%. The purchase by CCPC Acquisition of the Acquired Shares and
the shares of Junior Preferred Stock was financed through an equity investment
in CCPC Acquisition by BW Holdings from its cash on hand.
On July 10, 1998, post-closing adjustments to the Cash Dividend were agreed
upon by the Company and Corning, and the Company distributed $10.2 million to
Corning. In addition, the Company has agreed to pay Corning the amount, up to
$15.0 million, by which the cumulative gross margin (net sales minus cost of
sales, in each case adjusted to exclude the effect of certain events) of the
Company for the three year period ended December 31, 2000 exceeds $710.9 million
(the "Contingent Payment").
Immediately prior to the Recapitalization, Corning contributed $124.0
million to the capital of the Company, consisting of the forgiveness of
intercompany indebtedness and the assumption of certain liabilities, including
pension and postretirement benefit obligations and liabilities for workers'
compensation and product liability incidents occurring prior to the Closing
Date. In addition, Corning contributed $18.5 million related to incremental
incentive programs for employees of Corning who accepted employment with the
Company. See Note (a) to the Pro Forma Consolidated Condensed Statement of
Operations.
As a result of the Recapitalization, CCPC Acquisition owned 92.0% of the
outstanding shares of Common Stock and Corning holds 8.0% of the outstanding
shares of Common Stock. Under the 1998 Plan, CCPC Acquisition is currently in
the process of selling 820,000 shares of Common Stock at a purchase price of
$5.00 per share, and the Company is making grants of 2,460,000 options to
purchase Common Stock and 420,000 unit appreciation rights at an exercise price
of $5.00 per share, to certain members of management of the Company which in the
aggregate will represent 13.8% of the fully diluted Common Stock.
For a period of five years after the Closing Date, Corning has agreed that,
with certain exceptions, it will not manufacture, sell or distribute any
products similar to consumer products of the Company. Corning also agreed that
it will not use the Corning-Registered Trademark- trademark in the field of
housewares so long as the licenses granted to the Company for the Corning
Ware-Registered Trademark- and Pyroceram-Registered Trademark- trademarks are in
effect.
For a period of five years after the Closing Date, the Company has agreed to
maintain salary and benefits levels for each employee that are substantially
similar in aggregate economic value to those provided to that employee prior to
the Closing Date. In addition, for one year following the Closing Date the
Company has agreed to maintain: (i) a defined benefit pension plan providing
pension benefits for each employee which are substantially similar in aggregate
economic value to those benefits provided
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<PAGE>
by the Corning Pension Plan (as defined) as of the Closing Date, and (ii) any
pension plan of a foreign subsidiary in effect on the Closing Date so that each
current and former employee of that subsidiary will have benefits substantially
similar in aggregate economic value to the benefits provided as of the Closing
Date.
The Recapitalization Agreement contains representations and warranties
customary for transactions of this nature. The representations and warranties of
Corning survive the Recapitalization for certain specified periods and Corning
has agreed to indemnify CCPC Acquisition and its affiliates (including the
Company) for losses arising from breaches of its representations and warranties,
to the extent such losses are above certain thresholds. The amount of such
indemnification is limited to 40% of the sum of (a) the amount payable to
Corning for the Acquired Shares and (b) the Cash Dividend.
Additionally, Corning has agreed to indemnify CCPC Acquisition and its
affiliates (including the Company) for certain pre-Recapitalization tax and
environmental matters. With respect to certain environmental losses arising from
pre-Recapitalization events, conditions, or matters and as to which notice is
provided within specified time periods, Corning has agreed to indemnify the
Company for (i) 80% of such losses up to an aggregate of $20.0 million and (ii)
100% of such losses in excess of $20.0 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Overview--Separation from Corning; Transaction Related Charges"
and "Certain Relationships and Related Party Transactions" for a description of
certain agreements entered into by the Company with Corning and/or CCPC
Acquisition in connection with the Recapitalization.
STOCKHOLDERS' AGREEMENT; REGISTRATION RIGHTS AGREEMENT
The Company, CCPC Acquisition and Corning entered into a Stockholders'
Agreement, dated April 1, 1998 (the "Stockholders' Agreement"). The
Stockholders' Agreement provides for certain restrictions and rights regarding
the transfer of Common Stock, including a right of first refusal in favor of,
first, the Company and, if the Company refuses, then CCPC Acquisition with
respect to Common Stock owned by Corning. After the Closing Date, Corning will
have the right to participate pro rata in certain sales of Common Stock by CCPC
Acquisition (the "Corning Tag Along"), and CCPC Acquisition will have the right
to require Corning to participate pro rata in certain sales of Common Stock by
CCPC Acquisition (the "Corning Drag Along"). In addition, the Stockholders'
Agreement provides Corning with unlimited "piggy back" registration rights and
one demand registration right.
CCPC Acquisition has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of Common Stock held by it pursuant to a registration rights agreement
entered into on the Closing Date (the "CCPC Acquisition Registration Rights
Agreement") in connection with the Recapitalization. Such registration rights
will generally be available to CCPC Acquisition until registration under the
Securities Act is no longer required to enable it to resell the Common Stock
owned by it without restriction. The CCPC Acquisition Registration Rights
Agreement provides, among other things, that the Company will pay all
registration expenses in connection with the first six demand registrations
requested by CCPC Acquisition and in connection with any registration commenced
by the Company as a primary offering in which CCPC Acquisition participates
through "piggyback" registration rights granted under the CCPC Acquisition
Registration Rights Agreement.
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USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer. The net proceeds from the issuance of the Old Notes were
approximately $193.4 million, after deducting fees and expenses related to such
issuance. Such net proceeds were applied to refinance remaining obligations to
Borden and BW Holdings outstanding under the Interim Financing. The proceeds of
the Interim Financing, which was scheduled to mature on December 31, 1998, were
applied by the Company to pay the Cash Dividend. The interest rate applicable to
the Interim Financing was 9.5% per annum. For a further discussion of the
sources and uses of funds relating to the Transactions, see "Summary--The
Transactions" and "The Recapitalization."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 on a historical basis and on a pro forma basis after giving effect to
the Transactions as if they had been consummated on such date. This table should
be read in conjunction with "Use of Proceeds," "Unaudited Pro Forma Financial
Information," "Selected Historical Consolidated Financial and Other Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------
HISTORICAL PRO FORMA
---------- ------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Long-term debt (including current portion):
Revolving Credit Facility(a).......................... 77.0 $ 79.7
Term Loans............................................ 200.0 200.0
Old Notes............................................. 200.0 200.0
Industrial revenue bonds.............................. $ 8.5 8.5
---------- ------------
Total long-term debt.............................. 485.5 488.2
Stockholders' equity (deficit)(b)..................... (71.0) (81.2)
---------- ------------
Total capitalization.............................. $ 414.5 $ 407.0
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(a) Total borrowings of up to $275.0 million under the Revolving Credit Facility
are available for working capital and general corporate purposes, including
$25.0 million for letters of credit. After giving effect to the Transactions
on a pro forma basis, $195.3 million would have been available as of June
30, 1998 under the Revolving Credit Facility. On April 9, 1998, the Company
borrowed $59.6 million under the Revolving Credit Facility in connection
with the Refinancing and the Company borrowed an additional $12.0 million
through the date of the closing of the Offering.
(b) Upon consummation of the Recapitalization, CCPC Acquisition acquired 92.0%
of the outstanding shares of Common Stock of the Company for $110.4 million
and Corning retained 8.0% of the outstanding shares of Common Stock of the
Company (an implied value of $9.6 million). CCPC Acquisition also acquired
1,200,000 shares of the Company's Junior Preferred Stock for $30.0 million,
which is reflected in the pro forma stockholders' equity (deficit).
Dividends on the Junior Preferred Stock may be paid, at the option of the
Company, in cash or in additional shares of Junior Preferred Stock. Under
the 1998 Plan, CCPC Acquisition is currently in the process of selling
shares of Common Stock, and the Company is making grants of options to
purchase Common Stock, to certain members of management of the Company which
in the aggregate will represent 13.8% of the fully diluted Common Stock.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
information of the Company (the "Pro Forma Financial Information") has been
prepared to give effect to the Transactions. The pro forma adjustments presented
are based upon available information and certain assumptions that the Company
believes are reasonable under the circumstances. The pro forma financial data
exclude the impact of (i) a potential payment to Corning of up to $15.0 million
in 2001 in the event the Company achieves a cumulative gross margin in excess of
$710.9 million for the three-year period ended December 31, 2000, (ii) grants
and anticipated grants of options to purchase Common Stock to management and
(iii) approximately $7.5 million of expenditures to be made over the next three
years in transition-related expenditures as a result of the separation from
Corning.
The unaudited pro forma consolidated condensed balance sheet of the Company
as of June 30, 1998 (the "Pro Forma Consolidated Balance Sheet") gives effect to
the Transactions as if they had been consummated on June 30, 1998. The unaudited
pro forma consolidated condensed statements of operations of the Company for the
six months ended June 30, 1998 and for the year ended December 31, 1997 (the
"Pro Forma Consolidated Statements of Operations") give effect to the
Transactions as if they had been consummated on January 1, 1997.
The Pro Forma Financial Information should be read in conjunction with the
historical consolidated financial statements of the Company and notes thereto,
"Selected Historical Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "The
Recapitalization" and the other financial information included elsewhere in this
Offering Memorandum. This Pro Forma Financial Information and related notes are
provided for informational purposes only and do not purport to be indicative of
the results that would have actually been obtained had the Transactions been
completed on the dates indicated or that may be expected to occur in the future.
31
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 9,915 $ (7,421)(a) $ 2,494
Accounts receivable, net of allowances................ 51,521 -- 51,521
Inventories, net...................................... 163,088 -- 163,088
Prepaid expenses and other current assets............. 6,795 -- 6,795
Deferred taxes on income.............................. 8,024 -- 8,024
---------- ----------- ---------
Total current assets................................ 239,343 (7,421) 231,922
---------- ----------- ---------
Property and equipment, net........................... 144,990 -- 144,990
Deferred taxes on income.............................. 39,447 -- 39,447
Goodwill, net of accumulated amortization............. 59,570 -- 59,570
Other assets.......................................... 31,986 -- 31,986
---------- ----------- ---------
Total assets........................................ $ 515,336 $ (7,421) $ 507,915
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt payable within one year.......................... $ 216 -- $ 216
Accounts payable and accrued expenses................. 63,166 -- 63,166
---------- ----------- ---------
Total current liabilities........................... 63,382 -- 63,382
---------- ----------- ---------
Long-term debt........................................ 485,285 $ 2,738(a) 488,023
Accrued postretirement liability...................... 29,761 -- 29,761
Other liabilities..................................... 7,926 -- 7,926
---------- ----------- ---------
Total liabilities................................... 586,354 2,738 589,092
---------- ----------- ---------
Stockholder's equity (deficit)........................ (71,018) (10,159)(a) (81,177)
---------- ----------- ---------
Total liabilities and stockholder's equity........ $ 515,336 $ (7,421) $ 507,915
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See Notes to Pro Forma Consolidated Condensed Balance Sheet
32
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
The pro forma consolidated condensed balance sheet reflects the pro forma
adjustments to the Company's historical consolidated balance sheet as of June
30, 1998. The pro forma adjustments reflect the adjustment to the Cash Dividend.
Since the Transactions were consummated prior to June 30, 1998, the accounting
associated with the Transactions, other than the adjustment to the Cash
Dividend, are already reflected in the June 30, 1998 historical balance sheet.
(a) Adjustment to the Cash Dividend reflects the following:
<TABLE>
<S> <C>
Cash balance at April 1, 1998 retained by Corning................ $ (7,421)
Contractual net worth adjustment................................. (2,738)
---------
Adjustment to the Recapitalization............................... (10,159)
</TABLE>
33
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA
-------------- ------------------ --------------
<S> <C> <C> <C>
Net sales.................................................... $ 229,469 -- $ 229,469
Cost of sales................................................ 151,780 $ (664)(b) 151,116
-------------- -------- --------------
Gross margin................................................. 77,689 664 78,353
Selling, general, administrative and research and development
expenses................................................... 73,759 (398)(c) 73,361
Transactions related expenses................................ 28,611 (28,611)(e) --
Other, net................................................... 546 546
-------------- -------- --------------
Operating income (loss)...................................... (25,227) 29,673 4,446
Interest expense, net........................................ 12,429 9,107(f) 21,536
-------------- -------- --------------
Income (loss) before taxes on income......................... (37,656) 20,566 (17,090)
Income tax expense (benefit)................................. 1,718 (3,138)(g) (1,420)
-------------- -------- --------------
Income (loss) before minority interest....................... (39,374) 23,704 (15,670)
Minority interest in earnings of a subsidiary................ 115 -- 115
-------------- -------- --------------
Net income (loss)............................................ $ (39,259) $ 23,704 $ (15,555)
-------------- -------- --------------
-------------- -------- --------------
OTHER DATA:
EBITDA (h)................................................... $ (7,238) $ 22,435
EBITDA margin................................................ (3.2)% 9.8%
Interest expense (i)......................................... $ 12,206 $ 21,014
Depreciation and amortization................................ 17,989 17,989
Capital expenditures......................................... 8,049 8,049
Ratio of earnings to fixed charges(j)........................ -- --
Ratio of earnings to combined fixed charges and preferred
stock dividends(j)......................................... -- --
SHARE INFORMATION(k)
Basic and diluted loss per common share...................... $ (1.67) $ (0.72)
Weighted average number of common shares outstanding during
the period................................................. 24,000,000 24,000,000
</TABLE>
See Notes to Pro Forma Consolidated Condensed Statements of Operations
34
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA
-------------- ------------------ --------------
<S> <C> <C> <C>
Net sales.................................................... $ 572,860 -- $ 572,860
Cost of sales................................................ 376,960 $ (2,657)(b) 374,303
-------------- -------- --------------
Gross margin................................................. 195,900 2,657 198,557
Selling, general, administrative and research and development
expenses................................................... 137,315 6,899(c) 144,214
Other corporate administrative expenses...................... 18,408 (18,408)(d) --
Other, net................................................... 5,629 (5,231)(e) 398
-------------- -------- --------------
Operating income............................................. 34,548 19,397 53,945
Interest expense, net........................................ 8,481 34,311(f) 42,792
-------------- -------- --------------
Income (loss) before taxes on income......................... 26,067 (14,914) 11,153
Income tax expense (benefit)................................. 12,734 (5,965)(g) 6,769
-------------- -------- --------------
Income (loss) before minority interest....................... 13,333 (8,949) 4,384
Minority interest in earnings of a subsidiary................ (295) -- (295)
-------------- -------- --------------
Net income (loss)............................................ $ 13,038 $ (8,949) $ 4,089
-------------- -------- --------------
-------------- -------- --------------
OTHER DATA:
EBITDA (h)................................................... $ 70,254 $ 89,651
EBITDA margin................................................ 12.3% 15.7%
Interest expense (i)......................................... $ 8,974 $ 41,023
Depreciation and amortization................................ 35,706 35,706
Capital expenditures......................................... 28,600 28,600
Ratio of earnings to fixed charges(j)........................ 2.4x 1.2x
Ratio of earnings to combined fixed charges and preferred
stock dividends(j)......................................... NA 1.0x
SHARE INFORMATION(k)
Basic and diluted earnings per common share.................. $ 0.54 $ 0.17
Weighted average number of common shares outstanding during
the period................................................. 24,000,000 24,000,000
</TABLE>
See Notes to Pro Forma Consolidated Condensed Statements of Operations
35
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(a) In connection with the Recapitalization, certain current employees of the
Company and certain union employees of Corning who accepted employment with
the Company received and will receive cash and non-cash benefits of $16,735
($15,681 in cash and $1,054 in non-cash) following the Closing Date in
addition to the $1,733 paid in the first quarter of 1998. The Company will
make these cash payments over the next two years and Corning will contribute
$17,414 in cash to the Company over the same period. Since the preponderance
of the payments represents consideration that is for future services
rendered to the Company, the related compensation expense is being recorded
primarily subsequent to the Closing Date and to a lesser extent was recorded
on or prior to the Closing Date. This charge has not been reflected in the
Pro Forma Consolidated Condensed Statements of Operations due to its
unusual, nonrecurring nature.
(b) Reflects the estimated decrease in cost of sales and selling, general,
administrative and research and development expenses, respectively, as a
result of Corning's retention of certain pension and postretirement
obligations which arose prior to the Recapitalization as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31, 1997
--------------- -------------------
<S> <C> <C>
(UNAUDITED)
Cost of sales............................................ $ 664 $ 2,657
Selling, general, administrative and research and
development expenses................................... 336 1,346
</TABLE>
(c) Reflects a net (decrease) increase in selling, general, administrative and
research and development expenses as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998 DECEMBER 31, 1997
--------------- -------------------
<S> <C> <C>
(UNAUDITED)
Benefit expense reduction (see Note (b))................. $ (336) $ (1,346)
Estimated cost of replacing Corning administrative
services (see Note (d))................................ -- 6,745
Management fee to be paid to Borden (see Note (d))....... (62)(1) 1,500
------ -------
$ (398) $ 6,899
------ -------
------ -------
</TABLE>
- ------------------------
(1) Reflects the difference between the management fee charged by Corning
($437) for the three months ended March 31, 1998 and the quarterly
management fee to be charged by Borden ($375).
(d) Prior to the Recapitalization, Corning provided the Company with certain
administrative services which were not readily allocated to individual
transactions or events, such as legal, treasury and tax functions. For these
services the Company paid Corning the charges recorded as "Other corporate
administrative expenses," which charges were based on a percentage of the
Company's budgeted sales. "Other corporate administrative expenses" were
$18,408 in 1997. Commencing on January 1, 1998, Corning provided these
services to the Company on the basis of a service agreement containing terms
similar to that entered into on the date of the Recapitalization and
expenses
36
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
incurred under such agreement were reflected as selling, general and
administrative and research and development expenses. Under the transition
services agreement with Corning entered into on the date of the
Recapitalization, Corning will continue for a two-year period to provide a
portion of these services at negotiated rates. In addition, the Company is
developing its administrative infrastructure and certain of these functions
will be assumed by the Company or performed by third parties. The Company
anticipates that the performance of these administrative services (which are
accounted for as selling, general, administrative and research and
development expenses following the Recapitalization) as well as additional
expenses associated with external auditing and periodic filings with the
Commission will cost the Company (including amounts to be paid to Corning)
approximately $6,745 per year, or $1,686 per quarter, after the
Recapitalization.
In addition, prior to the Recapitalization, Corning performed, and under the
transition services agreement continues to perform, certain process-oriented
administrative support services, such as benefits administration, accounts
payable and accounts receivable functions. Corning has agreed pursuant to
the transition services agreement to continue to provide such services for
up to two years following the Recapitalization at rates calculated on the
same basis as before the Recapitalization. The Company expensed $19,201 for
these services in 1997. These services will continue to be reflected as
expenses on the same terms as prior to the Recapitalization and therefore no
pro forma adjustment in respect of the expenses is reflected in the Pro
Forma Financial Information.
There can be no assurance, that after the termination of the transition
services agreement the Company will be able to replace Corning's services
under the transition services agreement for the fees charged by Corning.
Under the administrative services agreement the Company and Corning will
continue to provide to one another certain services internationally at
negotiated rates for up to two years. In addition, the Company will pay
$1,500 per year, or $375 per quarter, to Borden for management services
following the Recapitalization.
(e) For the year ended December 31, 1997, reflects a reduction for non-recurring
expenses of $4,476 related to incremental incentive payments made to
employees during the sale of the Company, $731 for sales commissions paid to
certain Corning subsidiaries that will no longer be incurred following the
Recapitalization and miscellaneous expenses. For the six months ended June
30, 1998, represents $28,611 of expenses incurred in connection with the
sale of the Company.
(f) Pro forma interest expense covers the period prior to the Transactions;
January 1, 1997 through March 31, 1998. Interest expense associated with the
Transactions is included in the historical financial statements beginning
April 1, 1998. Pro forma interest expense reflects the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1998(1) DECEMBER 31, 1997
-------------- -------------------
<S> <C> <C>
(UNAUDITED)
Revolving Credit Facility ($71,600 at 7.40%)............. $ 1,325 $ 5,298
Term Loan ($200,000 at 7.65%)............................ 3,825 15,300
Senior Subordinated Notes ($200,000 at 9.625%)........... 4,812 19,250
Amortization of deferred financing, debt discount and
unused credit line fees................................ 633 2,532
-------------- --------
10,595 42,380
Less: Non-recurring historical interest expense, net..... 1,488 8,069
-------------- --------
$ 9,107 $ 34,311
-------------- --------
-------------- --------
</TABLE>
37
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
A 0.125% increase or decrease in the weighted average interest rate would
change interest expense by $296 for the six months ended June 30, 1998 and
$590 for the year ended December 31, 1997. Each $5,000 increase or decrease
in borrowings under the Revolving Credit Facility would change pro forma
interest expense by $176 for the six months ended June 30, 1998 and $351 for
the year ended December 31, 1997.
(g) Reflects the pro forma adjustments assuming a 40% effective income tax rate.
An income tax benefit was not provided on the expenses incurred with the
sale of the Company.
(h) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because management understands that such information is
considered by certain investors to be an additional basis for evaluating the
Company's ability to pay interest and repay debt. EBITDA should not be
considered an alternative to measures of operating performance as determined
in accordance with generally accepted accounting principles, including net
income, as a measure of the Company's operating results and cash flows or as
a measure of the Company's liquidity. Because EBITDA is not calculated
identically by all companies, the presentation herein may not be comparable
to other similarly titled measures of other companies.
(i) Interest expense represents interest expense exclusive of amortization of
deferred financing fees and the debt discount.
(j) For purposes of these computations, earnings consist of income (loss)
before taxes on income plus fixed charges (exclusive of capitalized
interest). Fixed charges consist of interest expense, whether capitalized or
expensed, including deferred financing costs and one-third of rental
expenses (the portion deemed representative of the interest factor). For
purposes of the computation of the ratio of earnings to combined fixed
charges and preferred stock dividends, the preferred stock dividend
requirements were increased by an amount representing the pre-tax earnings
which are required to cover such dividend requirements. For the six months
ended June 30, 1998, the deficiency of earnings to fixed charges was $38.0
on a historical basis and $17.4 on a pro forma basis. For the same period,
the deficiency of earnings to combined fixed charges and preferred stock
dividends was $39.5 on a historical basis and $20.4 on a pro forma basis.
(k) Basic and diluted earnings (loss) per common share is calculated by dividing
net income less preferred dividends by the weighted average number of common
shares outstanding during the period. Preferred dividends are $900 per
quarter or $3,600 per year.
38
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data of the Company. The historical consolidated financial and other
data for the three years ended December 31, 1997 and as of December 31, 1997 and
1996 have been derived from, and should be read in conjunction with, the
consolidated financial statements of the Company and notes thereto which have
been audited by PricewaterhouseCoopers LLP, independent accountants, and which
are included elsewhere in this Prospectus. The historical consolidated financial
and other data for the year ended December 31, 1994 and as of December 31, 1995
and 1994 have been derived from the consolidated financial statements of the
Company which have been audited by PricewaterhouseCoopers LLP, but which are not
contained herein. The historical consolidated financial and other data for the
six months ended June 30, 1998 and 1997 have been derived from, and should be
read in conjunction with the unaudited consolidated financial statements of the
Company and the notes thereto which are included elsewhere in this Prospectus.
Results for the six months ended June 30, 1998 are not necessarily indicative of
results that can be expected for the year ended December 31, 1998. The
historical consolidated financial and other data for the year ended December 31,
1993 and as of December 31, 1993 have been derived from unaudited consolidated
financial statements of the Company, which are not contained herein. In the
opinion of management, all adjustments, consisting of only normal recurring
adjustments, considered necessary for a fair presentation have been included in
the unaudited consolidated financial statements of the Company. See "Unaudited
Pro Forma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus.
39
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994(1) 1993(1)(2)(3)
------------- ----------- --------- --------- --------- ----------- ---------------
(UNAUDITED) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(4)....................... $ 229.5 $ 253.9 $ 572.9 $ 632.4 $ 608.7 $ 608.2 $ 563.8
Cost of sales...................... 151.8 165.9 377.0 435.9 431.2 406.7 407.3
------------- ----------- --------- --------- --------- ----------- -------
Gross profit....................... 77.7 88.0 195.9 196.5 177.5 201.5 156.5
Selling, general, administrative
and research and development
expenses......................... 73.8 67.3 137.3 154.2 168.2 147.8 141.1
Other corporate administrative
expense(5)....................... -- 9.2 18.4 20.9 20.0 21.5 29.2
Provision for restructuring
costs(6)......................... -- -- -- 2.1 -- 10.5 25.1
Transactions related expenses(7)... 28.6 -- -- -- -- -- --
Goodwill amortization.............. 1.0 1.0 1.7 1.7 1.7 1.5 --
Other, net(8)...................... 0.3 1.0 5.9 0.6 0.4 0.3 10.8
Royalty income..................... (0.8) (0.6) (2.0) (1.6) (1.6) (0.9) (1.0)
------------- ----------- --------- --------- --------- ----------- -------
Operating income (loss)............ (25.2) 10.1 34.6 18.6 (11.2) 20.8 (48.7)
Interest expense, net.............. 12.4 4.1 8.5 10.7 8.8 10.0 9.9
------------- ----------- --------- --------- --------- ----------- -------
Income (loss) before taxes on
income........................... (37.6) 6.0 26.1 7.9 (20.0) 10.8 (58.6)
Income tax expense (benefit)....... 1.7 2.4 12.8 6.2 (1.6) 4.3 (21.6)
------------- ----------- --------- --------- --------- ----------- -------
Income (loss) before minority
interest......................... (39.3) 3.6 13.3 1.7 (18.4) 6.5 (37.0)
Net income (loss).................. $ (39.2) $ 3.4 $ 13.0 $ 1.6 $ (18.5) $ 6.5 $ (37.0)
------------- ----------- --------- --------- --------- ----------- -------
------------- ----------- --------- --------- --------- ----------- -------
OTHER FINANCIAL DATA:
Gross margin....................... 33.9% 34.7% 34.2% 31.1% 29.2% 33.1% 27.8%
Operating margin................... (11.0)% 4.0% 6.0% 2.9% (1.8% 3.4% (8.6)%
Depreciation and amortization...... $ 18.0 $ 18.6 $ 35.7 $ 35.8 $ 32.0 $ 29.1 $ 30.0
Capital expenditures............... 8.0 12.4 28.6 35.8 40.6 31.3 23.0
Interest expense................... 12.2 4.5 9.0 12.4 11.0 11.9 11.3
EBITDA(9).......................... (7.2) 28.7 70.3 54.4 20.8 49.9 (18.7)
Adjusted EBITDA(10)................ 21.4 34.5 86.5 70.7 34.1 75.2 28.9
Adjusted EBITDA margin............. 9.3% 13.6% 15.1% 11.2% 5.6% 12.4% 5.1%
Ratio of earnings to fixed
charges(11)...................... -- 1.6x 2.4x 1.3x -- 1.5x --
Ratio of earnings to combined fixed
charges and preferred stock...... -- N/A N/A N/A N/A N/A N/A
BALANCE SHEET DATA (at end of
period):
Net working capital................ $ 176.0 $ 42.9 $ 59.9 $ 32.1 $ 23.2 $ 60.7 $ 32.6
Adjusted working capital(12)....... 169.0 173.1 156.1 163.3 173.6 173.1 122.6
Total assets....................... 515.3 498.7 483.6 516.4 533.6 523.5 398.6
Total debt(13)..................... 485.5 120.6 97.4 110.6 134.1 88.4 79.9
Total stockholder's equity......... (71.0) 220.8 230.1 217.7 215.2 233.8 145.6
CASH FLOW DATA:
Cash flows from operating
activities....................... $ (20.1) $ (3.6) $ 37.8 $ 57.0 $ 1.0 $ (2.7) N/A
Cash flows from investing
activities....................... (7.9) (12.5) (26.2) (35.6) (42.9) (28.9) N/A
Cash flows from financing
activities....................... 34.0 10.4 (14.3) (23.5) 42.7 25.1 N/A
</TABLE>
- ------------------------------
(1) Results exclude the results of the European, Russian, Middle Eastern and
African business that was sold in November 1994. As a result of this
transaction, the Company currently participates to a limited extent in the
European, Russian, Middle Eastern and African markets through exclusive
distributor and supply agreements with certain subsidiaries of Newell. See
"Business--Distribution Channels--European, Russian, Middle Eastern and
African Consumer Products Business." Sales and net income of the business
excluded were $46.4 million and $3.1 million in 1994 and $51.1 million and
$5.4 million in 1993.
(2) On January 3, 1993, Corning approved a restructuring plan to exit businesses
and operations in Brazil which were controlled by the Company. In addition
to consumer products, this operation produced and sold products in
non-consumer categories with aggregate sales of $10.8 million and operating
income of $3.2 million. The operating results of this business are
consolidated in 1993.
40
<PAGE>
(3) Cash flows from operating, investing and financing activities not available.
(4) Gross sales (before deductions for trade allowances, customer-paid freight
and discounts) were $247.5 million, $273.4 million, $616.7 million, $690.0
million and $668.5 million for the six months ended June 30, 1998 and 1997,
and the years ended December 31, 1997, 1996 and 1995, respectively.
(5) Other corporate administrative expenses represent an allocation of corporate
charges from Corning to the Company in respect of certain administrative
services provided to the Company by Corning. Corning calculated these
charges as a percentage of the Company's budgeted sales.
(6) The Company incurred net provisions for restructuring costs of $2.1 million
($4.2 million of gross charges offset by a $2.1 million reversal of existing
reserves), $10.5 million and $25.1 million in 1996, 1994 and 1993,
respectively. The 1996 restructuring charges resulted from the
implementation of the Business Redesign Program. The major components of the
1996 charges were (i) costs related to a reduction in the number of SG&A and
manufacturing employees and (ii) expenses incurred to close under-performing
outlet stores. In 1994, the Company recorded a charge for a Company-wide
program to reduce overhead and manufacturing costs. The charge was comprised
of severance and voluntary retirement to reduce the number of employees. The
1993 restructuring charges were associated with a Company-wide restructuring
program to reduce costs and are comprised of certain asset reductions and
reserve provisions recorded in connection with such program.
(7) Reflects expenses incurred in connection with the Transactions.
(8) Other charges include miscellaneous expenses and miscellaneous income.
Included in the 1997 amount are $4.5 million of expenses related to
incremental incentive payments made to employees during the sale of the
Company.
(9) EBITDA represents operating income (loss) plus depreciation and
amortization. EBITDA is presented because management understands that such
information is considered by certain investors to be an additional basis for
evaluating the Company's ability to pay interest and repay debt. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income, as a measure of the Company's operating results and
cash flows or as a measure of the Company's liquidity. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(10) Adjusted EBITDA represents EBITDA less adjustments to eliminate (i) other
corporate administrative expenses for certain services performed by Corning
for the Company; (ii) expenses related to incremental incentive payments
made to employees during the sale of the Company; (iii) expenses incurred in
connection with the Transactions; and (iv) provisions for restructuring
costs, net of (v) adjustments for expenses expected to be incurred by the
Company to replace the services previously performed by Corning described in
clause (i) above.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA........................................ $ (7.2) $ 28.7 $ 70.3 $ 54.4 $ 20.8 $ 49.9 $ (18.7)
Other corporate administrative expenses (See
Note 5)..................................... -- 9.2 18.4 20.9 20.0 21.5 29.2
Incentive payment expenses (See Note 8)....... -- -- 4.5 -- -- -- --
Provision for restructuring costs (See Note
6).......................................... -- -- -- 2.1 -- 10.5 25.1
Addition to SG&A.............................. -- (3.4) (6.7) (6.7) (6.7) (6.7) (6.7)
Transactions related expenses (See Note 7).... 28.6 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA............................... $ 21.4 $ 34.5 $ 86.5 $ 70.7 $ 34.1 $ 75.2 $ 28.9
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
For a more complete description of the services performed by Corning after
the Recapitalization and the ability of the Company to achieve such cost
savings, see "Risk Factors--No Prior Operations as an Independent Company"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview--Separation from Corning; Transaction Related
Charges."
(11) For the purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before taxes on income, minority interest on
earnings of a subsidiary, plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest (whether capitalized or
expensed), including deferred financing costs and one-third of rental
expenses (the portion deemed representative of the interest factor). For the
years ended 1995 and 1993, the deficiency of earnings to fixed charges was
$21.7 million and $59.6 million, respectively. For the six months ended June
30, 1998, the deficiency of earnings to fixed charges was $38.0 million and
the deficiency of earnings to combined fixed charges and preferred stock was
$39.5 million.
(12) Adjusted working capital is calculated as (i) current assets excluding cash
and amounts due from Corning, less (ii) current liabilities excluding debt,
amounts due to Corning and payables to be reimbursed by Corning.
(13) As of June 30, 1998, on a historical basis, total debt included $200.0
million and $77.0 million of senior borrowings, $200.0 million of senior
subordinated notes and $8.5 million of industrial revenue bonds.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations covers periods prior to the consummation of the
Transactions. Accordingly, the discussion and analysis of historical periods
does not reflect the significant impact that the Transactions will have on the
Company, including significantly increased leverage and liquidity requirements.
See "Risk Factors," "Selected Consolidated Historical Financial and Other Data,"
"Unaudited Pro Forma Financial Information" and "--Liquidity and Capital
Resources" as well as the consolidated financial statements of the Company and
the notes thereto contained elsewhere in this Prospectus.
OVERVIEW
BUSINESS REDESIGN PROGRAM. In response to a period of low profitability in
the early 1990s, the Company, led by a new management team, began implementing
its Business Redesign Program in the second quarter of 1996 to, first,
streamline the Company's business to focus on profitable products and customers
while reducing the Company's cost structure and, second, adopt initiatives to
increase sales while maintaining and improving upon the cost efficiencies
achieved in the first phase of the Business Redesign Program. The first phase of
the Business Redesign Program, which is largely complete, focused on eliminating
low volume, low profit products and customers, reducing manufacturing costs and
reducing SG&A. From 1995 to 1997, the first phase of the Business Redesign
Program has achieved improvements in gross margins from 29% to 34% and operating
margin from (2)% to 6%. The first phase of the Business Redesign Program has
included the following initiatives:
- FOCUS ON PROFITABLE PRODUCTS AND CUSTOMERS. The Company has refocused its
sales efforts on higher margin products and profitable customer accounts
while continuing to actively manage its product assortment and customer
base. To eliminate low volume, low profit products, the Company has
instituted a process of continually evaluating the profitability of its
SKUs. This process includes examining volume, gross and operating profit
and inventory carrying costs. As a result of this process, the number of
SKUs distributed by the Company has been reduced by 55%, from 3,088 at the
end of 1995 to 1,403 at December 31, 1997. In addition, based on analyses
of customer account profitability, the number of customers directly served
by the Company has been reduced by 43%, from approximately 1,048 at the
end of 1995, to approximately 599 at December 31, 1997. The discontinued
accounts were generally low volume customers, many of which were
transferred to distributors.
- REDUCE MANUFACTURING COSTS. From 1995 to the second quarter of fiscal
1998, the Company implemented systematic productivity improvements which
concentrated on reducing labor, materials and overhead costs primarily
through (i) process simplification, (ii) better process control and
discipline, (iii) workforce productivity improvements and (iv) improved
raw material sourcing. As a result of implementing the foregoing, the
Company has been able to reduce the number of manufacturing employees by
26%, from 2,629 at the end of 1995 to 1,955 at December 31, 1997.
- REDUCE SG&A COSTS. The Company has reduced its SG&A expenses by $30.9
million from 1995 to 1997. These reductions were realized primarily
through the redesign of sales and administrative functions and the refocus
of the Company's advertising program on print rather than media
advertising as part of the Business Redesign Program. As a result of these
initiatives, the number of SG&A employees was reduced from 1,284 in 1995
to 1,141 in 1997 and SG&A expenses (excluding those estimated by
management to be attributable to Company-operated outlet stores) declined
from 21.9% of 1995 gross sales to 16.5% of 1997 gross sales.
- IMPROVE CUSTOMER SERVICE. To improve customer service, the Company has
reorganized its sales force to better align account representatives with
specific customers' needs and has
42
<PAGE>
implemented an integrated supply chain management process which utilizes
enhanced information systems to predict customers' future inventory
requirements and permit the Company to maintain a more efficient
allocation between finished goods and work-in-process inventory. The
Company's supply chain management process also enables the Company to
improve the accuracy and timeliness of filling customer orders and is
intended to allow the Company and its customers to reduce finished goods
inventory. Since the end of 1995, the Company's average on-time delivery
rate has improved from approximately 75% to approximately 95% as of
December 31, 1997.
The Company made capital expenditures of $6.1 million and $2.3 million in
1996 and 1997 on programs related to the Business Redesign Program. In addition,
in 1996 the Company recorded a $4.2 million provision for restructuring costs
related to the Business Redesign Program (offset in part by a $2.1 million
reversal of an existing provision). The Company is continuing its efforts to
further reduce manufacturing, assembly and distribution costs. Additional cost
reductions may be derived from consolidation and reduction of manufacturing
assets or other process modifications and may result in future charges against
income related to asset write-offs and associated restructuring costs, including
an anticipated $4.1 million restructuring charge to be recorded in the third
quarter of fiscal 1998 primarily to restructure certain Far Eastern operations.
In the third quarter of fiscal 1998, the Company implemented an accelerated
inventory reduction program to improve cash flows and reduce inventory carrying
costs. The program, which includes temporary interruptions of production, will
increase costs of goods sold and reduce gross margins as a percentage of sales
for the remainder of 1998.
RESULTS - SECOND HALF OF 1997. For the second half of 1997, the Company
recorded net sales, operating income and EBITDA of $319.0 million, $24.4 million
and $41.6 million, respectively, compared to $366.7 million, $31.0 million and
$49.7 million for the second half of 1996. The decline in net sales in the
second half of 1997 was partly attributable to planned reductions associated
with the Company's strategic decision to focus on profitable customers and
products as part of the Business Redesign Program. However, in addition, the
Company's financial performance was adversely affected by (i) loss of shelf
space and lower retailer participation in promotional programs, (ii) unexpected
inventory reductions by certain key customers, (iii) significantly lower sales
in parts of Asia resulting from the recent economic disruptions in that region
and (iv) the liquidation or bankruptcy of certain of the Company's key
customers. The Company believes that the loss of shelf space in 1997 was
primarily due to a lack of new products (other than product line extensions and
renewals) being introduced to retailer customers in the fall of 1996, which is
the period when key customers were finalizing computer simulations of shelf
space allocations for product displays used by retailers to schedule inventory
purchases ("Plan-o-Grams") for the 1997 selling season. In addition, retailer
strategy changes and disruptions caused by a reorganization of the sales force
contributed to the decline in shelf space. In response to these developments,
the Company accelerated the development of new products, improved its supply
chain management and focused on strategic accounts to improve results in 1998.
SEPARATION FROM CORNING; TRANSACTION RELATED CHARGES. Prior to the
Recapitalization, the Company operated as a wholly owned subsidiary of Corning.
During this period, Corning provided the Company with certain administrative
services which were not readily allocated to individual transactions or events,
such as legal, treasury and tax functions. For these services the Company paid
Corning the charges recorded as "Other corporate administrative expenses," which
charges were based on a percentage of the Company's budgeted sales. "Other
corporate administrative expenses" were $18.4 million, $20.9 million and $20.0
million in 1997, 1996 and 1995, respectively. Under the transition services
agreement with Corning entered into on the date of the Recapitalization, Corning
will continue for a two-year period to provide a portion of these services at
negotiated rates. In addition, the Company is developing its administrative
infrastructure and certain of these functions will be assumed by the Company or
performed by third parties. The Company anticipates that the performance of
these administrative services (which are accounted as SG&A following the
Recapitalization) as well as additional expenses associated
43
<PAGE>
with external auditing and periodic filings with the Commission will cost the
Company (including amounts to be paid to Corning) approximately $6.7 million per
year after the Recapitalization.
In addition, prior to the Recapitalization, Corning performed, and under the
transition services agreement continues to perform, certain process-oriented
administrative support services, such as benefits administration, accounts
payable and accounts receivable functions. Corning has agreed pursuant to the
transition services agreement to continue to provide such services for up to two
years at rates calculated on the same basis as before the Recapitalization. The
Company expensed $19.2 million for these services in 1997. These services will
continue to be reflected as expenses on the same terms as prior to the
Recapitalization.
The Company believes that prior to the termination of the transition
services agreement it will replace the services provided by Corning with
arrangements with third parties or services provided internally at costs
consistent with the fees charged by Corning. However, there can be no assurance
that after the termination of the transition services agreement the Company will
be able to replace Corning's services under the transition services agreement
for the fees charged by Corning, or that the functions assumed by the Company
after the Recapitalization or to be outsourced to third parties will not cost
significantly in excess of the Company's estimates or that the provision of such
services during the transition period after the Recapitalization will be
performed without interruption or delay due to unanticipated occurrences. In
addition, under the administrative services agreement the Company and Corning
will continue to provide to one another certain services internationally at
negotiated rates for up to two years.
Pursuant to the Recapitalization Agreement, the Company agreed to change its
corporate name to remove the word "Corning" within three years of the Closing
Date (although the Company has retained the right to use the word "CorningWare"
in its corporate name) and to move its headquarters from the Corning campus
within 18 months of the Closing Date. Subsequent to the Recapitalization, the
Company estimates that it will incur $7.5 million in transition related
expenditures as well as capital expenditures, as a result of its separation from
Corning over the next three fiscal years, but primarily over the next four
fiscal quarters. These costs will include information technology consulting and
implementation in connection with the establishment of independent financial
systems, new signage, relocation of its headquarters and other separation
related expenditures.
In connection with the Recapitalization the Company recorded a charge of
$18.5 million for certain cash and non-cash benefits ($17.4 million of which
will be paid or reimbursed by Corning). See Note (a) to the Pro Forma
Consolidated Condensed Statement of Operations. These cash and non-cash
compensation expenses are associated with arrangements entered into by Corning.
The Company also incurred transaction-related fees and expenses of
approximately $25.0 million, approximately $10.0 million of which were charged
to income in the second quarter of 1998. The remainder was capitalized and
amortized over the terms of the related debt instruments.
TAXES; BASIS OF PRESENTATION. The Company has been included in the
consolidated federal income tax returns filed by Corning. The Company and its
subsidiaries have had a tax sharing arrangement with Corning pursuant to which
the Company was required to compute its provision for income taxes on a separate
return basis and pay to, or receive from, Corning the separate U.S. federal
income tax return liability or benefit so computed, if any. In connection with
the Recapitalization, CCPC Acquisition and Corning will make a joint election
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, which
will result in the Company recording an increase in the tax basis of its fixed
assets and intangibles. As a result, for tax purposes, the Company will be able
to depreciate assets with a higher tax basis after the Recapitalization,
resulting in a significant deferred tax asset. See "Unaudited Pro Forma
Financial Information."
The Recapitalization of the Company will have no impact on the historical
basis of assets and liabilities as reflected in the consolidated financial
statements of the Company, with the exception of
44
<PAGE>
deferred taxes on income which will change to reflect the tax basis step-up
which occurred upon the consummation of the Recapitalization.
OTHER MATTERS. As outlined in the table below, a significant portion of the
Company's net sales is derived from international markets. The Company's
international sales have historically had higher margins than domestic sales and
historically a significant portion of the Company's operating income has been
derived from international sales. Despite recent economic disruptions in Asia,
the Company believes international markets, including Asia over the long term,
represent potential growth areas for the Company. For the six months ended June
30, 1998, the Company recorded net sales and operating income (loss) (before
allocation of manufacturing variances and corporate overhead) of $9.6 million
and $(0.6) million in Asian markets (excluding Japan), respectively, compared to
$33.3 million and $12.9 million for the six months ended June 30, 1997.
Additionally, net sales and operating income (before allocation of manufacturing
variances and corporate overhead) for Asian markets (excluding Japan) for the
second half of 1997 were $24.4 million and $5.6 million, respectively. For 1997,
net sales and operating income (before allocation of manufacturing variances and
corporate overhead) from Asian markets (excluding Japan) were $57.7 million and
$18.5 million, respectively. Results in Japan were substantially equivalent with
those in the prior year. Although the Company believes that such markets offer
long term growth potential, the continuing disruptions in Asia are resulting in
greater than expected sales reductions and production cut backs in the Company's
U.S. and Malaysian manufacturing and decorating facilities, exacerbating the
impact of the accelerated inventory reduction program and contributing to an
increase in cost of goods sold and a reduction in gross margin as a percentage
of sales for the remainder of 1998. See "Risk Factors--Risks Associated With
International Markets."
<TABLE>
<CAPTION>
INTERNATIONAL NET SALES
-----------------------------------------------------
FOR THE SIX MONTHS
FOR THE YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN MILLIONS)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia:
Korea................................ $ 3.5 $ 19.2 $ 30.3 $ 25.3 $ 17.3
All Other............................ 6.1 14.1 27.4 28.7 26.1
Japan.................................. 3.7 4.4 8.9 8.6 8.8
Canada................................. 12.7 13.0 33.4 33.1 33.1
Latin America:
Brazil............................... 0.7 1.0 1.8 1.5 1.5
Mexico............................... 3.3 1.7 4.8 3.4 1.0
All Other............................ 6.9 6.2 11.1 9.8 10.6
South Pacific.......................... 4.9 6.2 13.0 14.6 13.5
Europe(1).............................. 2.1 6.0 10.2 7.0 11.0
--------- --------- --------- --------- ---------
Total International.................... $ 43.9 $ 71.8 $ 140.9 $ 132.0 $ 122.9
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- --------------------------
(1) Comprised of revenues from Europe, Russia, Middle East and Africa from the
distribution agreement with Newell. See "Business--Distribution
Channels--European, Russian, Middle Eastern and African Consumer Products
Business."
Currency exchange fluctuations significantly affect the Company's foreign
sales and earnings. The increased strength of the U.S. dollar has in 1998, and
may in future periods, increase the effective price of the Company's products
sold in U.S. dollars with the result of materially adversely affecting sales.
The Company's costs are predominantly denominated in U.S. dollars. Thus, with
respect to sales conducted in foreign currencies, increased strength of the U.S.
dollar decreases the Company's reported revenues
45
<PAGE>
and margins in respect of such sales to the extent the Company is unable or
determines not to increase local currency prices.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net sales for the six months ended June 30, 1998
and 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES FOR
THE SIX MONTHS ENDED
JUNE 30,
--------------------
(UNAUDITED)
1998 1997
--------- ---------
<S> <C> <C>
Net sales.................................................................................... 100.0% 100.0%
Cost of sales................................................................................ 66.1 65.3
Gross profit................................................................................. 33.9 34.7
Selling, general, administrative and research and development expenses....................... 32.2 26.5
Other corporate administrative expenses...................................................... -- 3.6
Transactions related expenses................................................................ 12.5 --
Goodwill amortization........................................................................ 0.4 0.4
Other, net................................................................................... 0.1 0.4
Royalty income............................................................................... (0.3) (0.2)
--------- ---------
Operating income (loss)...................................................................... (11.0) 4.0
Interest expense, net........................................................................ 5.4 1.6
--------- ---------
Income (loss) before taxes on income......................................................... (16.4) 2.4
Income tax expense........................................................................... 0.7 1.0
--------- ---------
Income (loss) before minority interest....................................................... (17.1) 1.4
Net income (loss)............................................................................ (17.1)% 1.4%
--------- ---------
--------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 ("FIRST HALF 1998") COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1997 ("FIRST HALF 1997")
NET SALES. Net sales decreased by $24.4 million, or 9.6% to $229.5 million
in the first half of 1998 from $253.9 in the first half of 1997. The decline in
sales was principally due to a significant decline in Asian sales as a result of
continued weakness in the Korean and Indonesian markets. For the first half
1998, the Company recorded net sales of $9.6 million in Asian markets (excluding
Japan) compared to $33.3 million in the first half 1997. Results in Japan were
substantially equivalent to the prior year. Although the Company believes that
Asian markets offer long-term growth potential, the current disruptions in Asia
are expected to continue to materially adversely affect net sales. This
anticipated decline in net sales, together with the effects of the previously
mentioned inventory reduction program, may result in greater than anticipated
reductions in operating income at least through the end of 1998. The decline in
net Asian sales for the first half 1998 was partially offset by (i) improved
sales by the Company operated outlet stores and (ii) increased shipments to mass
merchants reflecting improved allocations of shelf space for the 1998 selling
season. The Company believes that the increased shipments in the first half 1998
to mass merchants reflects the implementation by certain key accounts of
Plan-o-Grams finalized in the fall of 1997, on which planned shelf space
allocation for the four quarters beginning April 1998 is based. The Company
introduced Corning Ware Pop-ins and three full lines of Revere Ware aluminum
non-stick lines to the retail trade during the fall of 1997 to coincide with the
development of such Plan-o-Grams. While the Company believes that it has
regained a significant portion of the shelf space lost in 1997, due to the
inherent uncertainty regarding sales of consumer products there can be
46
<PAGE>
no assurance that the improvement in shelf space indicated by the Plan-o-Grams
will result in additional sales.
COST OF SALES. Cost of sales decreased by $14.1 million, or 8.5%, to $151.8
million in first half 1998 from $165.9 in first half 1997. The decrease in cost
of sales was due to the decrease in first half 1998 sales volume. Cost of sales
as a percentage of net sales increased to 66.1% in 1998 from 65.3% in 1997 as a
result of the significant decline in higher margin Asian sales, as discussed
above, offsetting the effects of cost savings initiatives.
GROSS PROFIT. Primarily as a result of the factors discussed above, gross
profit decreased to $77.7 million in the first half of 1998 from $88.0 million
in the first half 1997, while gross profit as a percentage of net sales
decreased to 33.9% in the first half 1998 from 34.7% in first half 1997.
SELLING, GENERAL, ADMINISTRATIVE AND RESEARCH AND DEVELOPMENT EXPENSES.
Selling, general, administrative and research and development expenses increased
by $6.5 million, or 9.7%, in the first half 1998 compared to the first half
1997. Beginning in the first half 1998 the Company was no longer allocated
corporate administrative charges for certain administrative services performed
by Corning. Charges relating to these services previously allocated by Corning
were charged on a direct method based on a new Transition Services Agreement
negotiated between Corning and the Company. These direct charges were reflected
in selling, general, administrative and research and development expenses in the
first half 1998. Selling, general, administrative and research and development
expense as a percentage of net sales in 1998 increased to 32.2% in the first
half 1998 from 30.1% in the first half 1997 (including other corporate
administrative expenses for purposes of such comparison). The increase is due
principally to increased expenses related to outlet stores, supporting increased
sales, and increased costs related to the 1998 new product introductions.
OTHER CORPORATE ADMINISTRATIVE EXPENSE. Other corporate administrative
expense represents an allocation of corporate charges from Corning to the
Company based on an agreement between the companies. Corning calculated these
charges as a percentage of budgeted sales. Other corporate administrative
expenses were zero in the first half 1998 compared to $9.2 million in the first
half 1997. Beginning on January 1, 1998, the Company was no longer allocated
corporate administrative charges from Corning. Charges relating to these
services previously performed by Corning were classified as selling, general,
administrative and research and development expense in the first half 1998 and
were calculated on the basis of agreed upon prices in a transition services
agreement.
TRANSACTION RELATED EXPENSES. Transaction related expenditures primarily
consist of cash and non-cash compensation and other cash expenses associated
with the Transactions. In the first half 1998 the Company recorded a charge of
$18.5 million for certain cash and non-cash benefits ($17.4 million of which
were cash payments reimbursed by Corning). These cash and non-cash compensation
expenses are associated with arrangements entered into by Corning with certain
current employees and union employees of Corning who accepted employment with
the Company. The remaining transaction related expenses consist of costs
incurred in the first half of the year for fees and services related to the
Transactions.
OTHER NET AND ROYALTY INCOME. Other, net and royalty income represents
other miscellaneous operating expenses and royalty income, and did not fluctuate
materially when comparing first half 1998 to first half 1997.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income decreased by $35.3 million to a loss of $25.2 million in the
first half 1998 from an income of $10.1 million in the first half 1997. As a
percentage of net sales the operating income decreased to (11.0%) from 4.0% in
1997.
NET INTEREST EXPENSE. Net interest expense increased by $8.3 million, or
204.1%, to $12.4 million in the first half 1998 from $4.1 million in the first
half 1997. The increase was due to debt incurred in the recapitalization
transaction completed in April 1998.
47
<PAGE>
INCOME TAX EXPENSE. The Company incurred income tax expense of $1.7 million
on a pre-tax loss of $(37.7) million in the first half 1998 as a result of
charges relating to a tax sharing agreement with Corning and certain
non-deductible Transactions related expenses.
NET INCOME (LOSS). Primarily as a result of the above factors, net income
for the first half 1998 decreased $42.6 million to a loss of $(39.2) million in
the first half 1998 from income of $3.4 million in the first half 1997.
The following table summarizes the Company's historical results of
operations as a percentage of net sales for 1997, 1996 and 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES FOR
THE YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Net sales........................................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................................... 65.8 68.9 70.8
--------- --------- ---------
Gross profit........................................................................ 34.2 31.1 29.2
Selling, general, administrative and research and
development expenses.............................................................. 24.0 24.4 27.6
Other corporate administrative expense.............................................. 3.2 3.3 3.3
Provision for restructuring costs................................................... -- 0.3 --
Goodwill amortization............................................................... 0.3 0.3 0.3
Other, net.......................................................................... 1.0 0.1 0.1
Royalty income...................................................................... (0.3) (0.2) (0.3)
--------- --------- ---------
Operating income (loss)............................................................. 6.0 2.9 (1.8)
Interest expense, net............................................................... 1.5 1.6 1.5
--------- --------- ---------
Income (loss) before taxes on income................................................ 4.5 1.3 (3.3)
Income tax expense (benefit)........................................................ 2.2 1.0 (0.3)
--------- --------- ---------
Income (loss) before minority interest.............................................. 2.3 0.3 (3.0)
--------- --------- ---------
Net income (loss)................................................................... 2.3% 0.3% (3.0)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales decreased by $59.5 million, or 9.4%, to $572.9 million
in 1997 from $632.4 million in 1996. This decline was primarily due to decreased
volume through the mass merchant, department store and catalog showroom channels
caused by the elimination of SKUs and customer accounts in accordance with the
Business Redesign Program, as well as unplanned inventory reductions and shelf
space losses due to competitive factors, strategy changes at certain key
customers (such as lower retailer participation in promotional programs) and the
liquidation or bankruptcy of certain customers. Decreased sales through the mass
merchant, department store and catalog showroom channels were partially offset
by increased sales through the international and Company operated outlet store
channels. The Company's average prices for products in 1997 remained comparable
with average prices in 1996, although the Company reduced prices on Pyrex
Portables-Registered Trademark- to compete with an entry in this category by a
competitor.
COST OF SALES. Cost of sales decreased by $58.9 million, or 13.5%, to
$377.0 million in 1997 from $435.9 million in 1996. The decrease in cost of
sales was due to the decrease in sales volume as well as cost savings resulting
from the Business Redesign Program. Cost of sales as a percentage of net sales
declined to 65.8% in 1997 from 68.9% in 1996 as a result of the continued impact
of the Company's Business Redesign Program and associated manufacturing cost
reductions resulting from systematic productivity improvements concentrated on
reducing labor, materials and overhead costs through
48
<PAGE>
(i) process simplification, (ii) better process control and discipline, (iii)
workforce productivity improvements and (iv) improved raw material sourcing. For
example, due in part to modifications to the Pyrex
Portables-Registered Trademark- line to reduce manufacturing costs, the Company
was generally able to maintain margins on Pyrex Portables-Registered Trademark-
despite the price decrease discussed above.
GROSS PROFIT. Primarily as a result of the factors discussed above, gross
profit decreased slightly to $195.9 million in 1997 from $196.5 million in 1996,
while the gross profit as a percentage of net sales increased to 34.2% in 1997
from 31.1% in 1996.
SELLING, GENERAL, ADMINISTRATIVE AND RESEARCH AND DEVELOPMENT
EXPENSES. Selling, general, administrative and research and development
expenses decreased by $16.9 million, or 11.0%, to $137.3 million in 1997 from
$154.2 million in 1996, and as a percentage of net sales declined to 24.0% in
1997 from 24.4% in 1996. The reduction in these expenses was primarily achieved
through the redesign of sales and administrative functions and the elimination
or outsourcing of non-critical administrative functions in accordance with the
Business Redesign Program's objectives of cost reduction and improved customer
service. The decline was also attributable to decreased outlet store expenses
due to a reduced number of outlet stores. These decreases were partially offset
by increased expenses associated with incremental investment in international
operations to support international sales growth.
OTHER CORPORATE ADMINISTRATIVE EXPENSE. Other corporate administrative
expense represents an allocation of corporate charges from Corning to the
Company. Corning calculated these charges as a percentage of the Company's
budgeted sales. Corporate administrative expense decreased by $2.5 million, or
12.0%, to $18.4 million in 1997 from $20.9 million in 1996. The decrease was
primarily due to lower budgeted sales which resulted in lower charges from
Corning.
OTHER, NET. Other, net represents miscellaneous expenses, including $4.5
million related to incremental incentive payments made to employees during the
sale of the Company.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income increased by $16.0 million to $34.6 million in 1997 from $18.6
million in 1996 while operating income as a percentage of net sales increased to
6.0% in 1997 from 2.9% in 1996.
NET INTEREST EXPENSE. Net interest expense decreased by $2.2 million, or
20.6%, to $8.5 million in 1997 from $10.7 million in 1996. The decrease was
principally due to a reduction in the Company's average outstanding indebtedness
in 1997 as compared to 1996, which was attributable to improved operating
performance and asset management that generated positive cash flow in 1997.
INCOME TAX EXPENSE. The Company's effective income tax rate was 49.0% for
1997 and was significantly lower than the effective tax rate of 78.5% in 1996.
The Company's tax provision has been calculated on a separate company basis and
does not reflect the potential benefits that the Company could realize if the
provision was determined on a consolidated basis with Corning. The 1996
effective rate was significantly higher than the combined state and federal rate
primarily as a result of significant foreign dividends in relation to profit
before tax combined with the inability of the Company to use foreign tax
credits.
Primarily as a result of the above factors, net income for 1997 increased
$11.4 million to $13.0 million in 1997 from $1.6 million in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by $23.7 million, or 3.9%, to $632.4 million
in 1996 from $608.7 million in 1995. The increase was principally attributable
to the introduction of Pyrex Portables-Registered Trademark-, which experienced
its first full year of sales in 1996 (compared to one month of sales in 1995),
and growth in the Corelle-Registered Trademark- line of dinnerware as the
Company expanded the range of Corelle-Registered Trademark- patterns with the
addition of
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<PAGE>
more advanced decorating equipment. Sales growth in the bakeware and dinnerware
categories was partially offset by declines in sales of
Visions-Registered Trademark- rangetop cookware (due to the Company's decision
to significantly reduce the number of SKUs offered in this line) and the
Company's decision to discontinue selling to certain department store accounts
that were determined not to be profitable. The Company's average prices for
products in 1996 remained comparable with average prices in 1995.
COST OF SALES. Cost of sales increased $4.7 million, or 1.1%, to $435.9
million in 1996 from $431.2 million in 1995. The increase in cost of sales was
due to increased volumes partially offset by cost savings resulting from the
Business Redesign Program as well as the absence of increased expenses relating
to a new supplier of sand incurred in 1995. Costs of sales as a percentage of
net sales decreased to 68.9% in 1996 from 70.8% in 1995, in part due to the
absorption of fixed costs over a higher volume of sales as well as cost
reductions and productivity improvements associated with the Business Redesign
Program as well as the absence of increased expenses relating to a new supplier
of sand incurred in 1995. The effect of these cost reductions and productivity
improvements was partially offset by higher expenses associated with higher than
average repairs of the Company's glass melting tanks due to a confluence of tank
repair cycles and expenses associated with major capital projects, including the
installation of rotary screening equipment to decorate
Corelle-Registered Trademark- dinnerware and the reconfiguration of certain
manufacturing processes to reduce costs.
GROSS PROFIT. Primarily as a result of the factors discussed above, gross
profit increased $19.0 million, or 10.7%, to $196.5 million in 1996 from $177.5
million in 1995, while the gross profit percentage increased to 31.1% in 1996
from 29.2% in 1995.
SELLING, GENERAL, ADMINISTRATIVE AND RESEARCH AND DEVELOPMENT
EXPENSE. Selling, general, administrative and research and development expenses
decreased by $14.0 million, or 8.3%, to $154.2 million in 1996 from $168.2
million in 1995, and as a percentage of net sales declined to 24.4% in 1996 from
27.6% in 1995. The decline in these expenses was primarily attributable to
decreased administrative expense resulting from personnel reduction as part of
the Business Redesign Program. These reductions were partially offset by higher
outlet store operating expenses, which grew in 1996 due to an increase in the
number of outlet stores operated, and higher expenses relating to international
operations, which increased as a result of sales and marketing investments made
in Southeast Asia, Japan, China and Latin America.
OTHER CORPORATE ADMINISTRATIVE EXPENSE. As a result of the Company's
increased budgeted sales for 1996, other corporate administrative expense
increased by $0.9 million, or 4.5%, to $20.9 million in 1996 from $20.0 million
in 1995.
RESTRUCTURING EXPENSES. The Company incurred net restructuring expenses of
$2.1 million in 1996 ($4.2 million of gross charges offset by a $2.1 million
reversal of existing reserves). The restructuring charges resulted from the
implementation of the Business Redesign Program. The major components of the
charges were (i) costs related to a reduction in the number of SG&A and
manufacturing employees and (ii) expenses incurred to close underperforming
stores. See note 14 to the consolidated financial statements of the Company
included elsewhere herein.
OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income increased by $29.8 million to $18.6 million in 1996 from an
operating loss of $11.2 million in 1995, while operating income as a percentage
of net sales was 2.9% in 1996 compared to (1.8)% in 1995. Excluding the net
restructuring expenses in 1996, operating income increased by $31.9 million to
$20.7 million in 1996 from an operating loss of $11.2 million in 1995.
NET INTEREST EXPENSE. Net interest expense increased by $1.9 million, or
21.6%, to $10.7 million in 1996 from $8.8 million in 1995. The increase was
principally due to an increase in the Company's
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<PAGE>
average outstanding indebtedness as operating performance and working capital
requirements resulted in net cash outflows in 1995.
INCOME TAX EXPENSE. The Company's effective income tax rate was 78.5% for
1996 and was significantly higher than the combined state and federal rate
primarily as a result of significant foreign dividends in relation to profit
before tax. The Company recorded an income tax benefit for 1995 as a result of
operating losses.
NET INCOME. Primarily as a result of the above factors, net income for 1996
increased $20.1 million to $1.6 million from a net loss of $18.5 million in
1995.
LIQUIDITY AND CAPITAL RESOURCES
On March 2, 1998, Corning, Borden, the Company and CCPC Acquisition entered
into the Recapitalization Agreement, pursuant to which on April 1, 1998 CCPC
Acquisition acquired 92.0% of the outstanding shares of Common Stock of the
Company from Corning for $110.4 million. The Stock Acquisition was financed by
an equity investment in CCPC Acquisition by BW Holdings, an affiliate of KKR and
the parent company of Borden and CCPC Acquisition. BW Holdings financed such
investment from cash on hand. Pursuant to the Recapitalization Agreement, on the
Closing Date prior to the consummation of the Stock Acquisition, the Company
paid the Cash Dividend to Corning of $472.6 million. On July 10, 1998,
post-closing adjustments to the Cash Dividend were agreed upon by the Company
and Corning, and the Company distributed $10.2 million to Corning. See "The
Recapitalization." As a result of the Recapitalization, Corning continues to
hold 8.0% of the outstanding shares on Common Stock.
The Company currently believes that cash flow from operating activities,
together with borrowings available under the Revolving Credit Facility, will be
sufficient to fund the Company's currently anticipated working capital, capital
expenditures, interest payments and scheduled principal payments. Any future
acquisitions, joint ventures or other similar transactions will likely require
additional capital and there can be no assurance that any such capital will be
available to the Company on acceptable terms or at all. In addition, the Company
will require liquidity to fund payments due under noncancellable lease
agreements ($17.4 million and $13.1 million due throughout 1998 and 1999,
respectively). The Company may also require cash for a possible post-closing
adjustment to the Cash Dividend based on the Company's net worth and outstanding
indebtedness on the Closing Date and a potential payment of up to $15.0 million
to Corning in 2001 in the event the Company achieves a cumulative gross margin
in excess of $710.9 million for the three-year period ended December 31, 2000.
See "The Recapitalization."
The Company incurred substantial indebtedness in connection with the
Recapitalization. As of June 30, 1998, after giving pro forma effect to the
Transactions, the Company would have had $488.2 million of consolidated
indebtedness and a common stockholders' deficit of $81.2 million. Following the
Transactions, the Company's liquidity requirements will be significantly
increased, primarily due to increased interest expense obligations. Had the
Transactions been consummated on January 1, 1997, interest expense, (net)
incurred in 1997 and the six months ended June 30, 1998 associated with
indebtedness under the Notes, the Credit Facilities and the Company's industrial
development bonds would have been $42.8 million and $21.5 million, respectively,
compared with the $8.5 million and $12.4 million, respectively of interest
expense (net) actually incurred. See "Unaudited Pro Forma Financial
Information." The Credit Facilities and the Indenture will permit the Company to
incur or guarantee certain additional indebtedness, subject to certain
limitations. See "Description of Credit Facilities" and "Description of the
Exchange Notes."
On April 9, 1998, the Company entered into the Credit Facilities under which
the Company borrowed $200.0 million under the Term Loans and $59.6 million under
the Revolving Credit Facility. The Company borrowed an additional $12.0 million
under the Revolving Credit Facility through the date of
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<PAGE>
the closing of the Offering. The Revolving Credit Facility provides for $275.0
million of commitments, $79.7 million of which would have been drawn on a pro
forma basis if the Transactions occurred on June 30, 1998. The remaining
commitments under the Revolving Credit Facility are available to fund the
working capital, capital expenditures, general corporate and other cash needs of
the Company.
Borrowings under the Credit Facilities bear interest at a rate per annum
equal (at the Company's option) to a margin over either a base rate or LIBOR.
The Term Loans mature on the date that is 8 1/2 years after the closing of the
Credit Facilities and provides for nominal annual amortization. All outstanding
revolving credit borrowings under the Revolving Credit Facility will become due
on the date that is seven years after the closing of the Credit Facilities. The
Company expects that its working capital needs and other cash requirements will
require it to obtain replacement revolving credit facilities at that time. No
assurance can be given that any such replacement can be successfully
accomplished. See "Description of Credit Facilities."
The Exchange Notes will mature in 2008. The Company's obligations under the
Exchange Notes are subordinate and junior in right of payment to all existing
and future Senior Indebtedness of the Company, including all indebtedness under
the Credit Facilities. The obligations of the Company under the Notes and the
Indenture have not been guaranteed by subsidiaries of the Company. The Credit
Facilities and the Indenture contain numerous financial and operating covenants
that will limit the discretion of the Company's management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends and other distributions, prepay subordinated indebtedness, enter
into sale and leaseback transactions, create liens or other encumbrances, make
capital expenditures, make certain investments or acquisitions, engage in
certain transactions with affiliates, sell or otherwise dispose of assets and
merge or consolidate with other entities and otherwise restrict corporate
activities. The Credit Facilities also require the Company to meet certain
financial ratios and tests. The Credit Facilities and the Indenture contain
customary events of default. See "Description of Credit Facilities" and
"Description of the Exchange Notes."
Capital expenditures were $8.1 million for the first half 1998 compared to
$12.4 million for the first half 1997. The decrease in capital expenditures is
due to timing of expenditures in 1998 compared to 1997. The company currently
anticipates investing approximately $26.0 million in capital equipment projects
in 1998. Capital expenditures relating to the implementation of information
systems, which amounted to $2.0 million in the first half 1998, will account for
a significant proportion of the unspent anticipated expenditures for 1998.
Capital expenditures were $28.6 million, $35.8 million and $40.6 million in
1997, 1996 and 1995, respectively. Higher capital expenditures in 1996 and 1995
were the result of glass melting tank repairs and the cost reduction initiatives
in manufacturing facilities. The most significant capital expenditures in 1997
were for glass melting tank repairs and the installation of new rotary screening
machinery. The Company currently anticipates investing approximately $26.0
million in capital equipment projects in 1998, which includes approximately
$14.0 million directed toward maintenance expenditures, which the Company
believes is a normal level of maintenance capital expenditures.
In the first half 1998 the Company's operating activities used $20.1 million
in cash compared $3.6 million in the first half 1997. A reduction in net income
of $42.6 million to a loss of $39.2 million in the first half 1998 from a profit
of $3.4 million in 1997 was the main contributor to the increased cash usage.
Investing activities used $8.0 million in the first half 1998 compared to $12.5
million in 1997 principally due to lower capital expenditures. Net cash provided
by financing operations amounted to $34.0 million in the first half 1998
compared to $10.4 million in the first half 1997. The change was due to the
Transactions, as previously discussed.
In 1997 the Company's operating activities provided $37.8 million in cash
compared to $57.0 million in 1996. Despite an increase in net income, operating
cash flows decreased as a result of $30.7 million in net outflows to Corning to
settle certain intercompany trade liabilities. Investing activities used $26.2
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<PAGE>
million in cash in 1997 compared to a use of $35.6 million in 1996. This
decrease was primarily the result of higher 1996 capital expenditures resulting
from the continuation of cost reduction initiatives in manufacturing facilities
and a decrease in capitalizable maintenance.
Cash provided from operating activities equaled $57.0 million in 1996
compared to $1.0 million in 1995. This increase was attributable to an increase
in net income in 1996 compared to a net loss in 1995, improved working capital
levels and a lower level of intercompany trade payments. Investing activities
used cash of $35.6 million in 1996 compared to $42.9 million in 1995. This
difference was the result of higher capital expenditures in 1995 associated with
the implementation of cost reduction initiatives in manufacturing facilities.
The Company's ability to fund its working capital needs, planned capital
expenditures, scheduled debt payments, lease payments and other cash payments to
continue its Business Redesign Program and to comply with all of the financial
covenants under its debt agreements, depends on its future operating performance
and cash flow, which in turn are subject to prevailing economic conditions and
to financial, business and other factors, some of which are beyond the Company's
control. See "Risk Factors."
SEASONALITY
Historically, the Company records its highest sales in its third and fourth
quarters as a result of the buying patterns associated with the holiday selling
season (as reflected in the table below). The Company's need for working capital
accelerates in the second half of the year due to additional merchandising and
promotional efforts associated with the holiday selling season and, accordingly,
total debt levels tend to peak in the third and fourth quarters, decreasing in
the first quarter of the following year. The amount of the Company's sales
generated during the second half of the year generally depends on a number of
factors, including general economic conditions, existing retailer inventory
levels and other factors beyond the Company's control. The Company's results of
operations would be adversely and disproportionately affected if the Company's
sales were substantially lower than those normally expected during the second
half of the year.
<TABLE>
<CAPTION>
1997 NET SALES 1996 NET SALES
------------------------ ------------------------
<S> <C> <C> <C> <C>
AMOUNT % OF YEAR AMOUNT % OF YEAR
--------- ------------- --------- -------------
First quarter.................................... $ 128.3 22% $ 133.1 21%
Second quarter................................... 125.6 22 132.5 21
Third quarter.................................... 145.3 26 165.2 26
Fourth quarter................................... 173.7 30 201.6 32
--------- --- --------- ---
$ 572.9 100% $ 632.4 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
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, as well as hardware
that is designed with similar constraints. Any of the Company's computer
programs and hardware that have date-sensitive functions may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions in operations including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
Corrective action to address the year 2000 issue began in the second quarter
of 1996, with the establishment of a program office to manage year 2000
activities. In addition to managing year 2000 issues relating to information
systems, the year 2000 program office is also responsible for addressing year
2000 issues relating to plant process control systems and non-data related
computer control systems. The Company is utilizing both internal and external
resources to identify, correct and test the Company's hardware and software for
year 2000 compliance. In April 1997, the Company completed a
53
<PAGE>
comprehensive inventory of its computer systems. The inventory resulted in an
impact assessment that was completed in October 1997. The findings of the
assessment, together with the need to establish system independence from
Corning, led the Company to embark on a comprehensive systems replacement
project. The Company believes that its year 2000 project is on schedule for an
April 1, 1999 implementation with all "mission critical" systems fully tested by
June 30, 1999. Testing on certain aspects of the new systems has commenced.
The Company is in the process of implementing a comprehensive enterprise
resource management system. This system will replace roughly 90% of the
Company's business transaction systems. The remaining 10%, comprised of benefits
administration and payroll, will be outsourced to a year 2000 compliant service
bureau. Implementation of these new systems is expected to be completed by April
1, 1999. In addition, the Company is resolving year 2000 issues related to plant
process control systems, non-data related computer control systems and supplier
and customer year 2000 compliance. While management cannot reasonably estimate
the cost of implementation of all systems necessary to comply with year 2000
dating and its separation from Corning, significant investments in information
systems will total in excess of $16.5 million by the year 2000. Any remaining
costs are not expected to have a material impact on the financial position or
results of operations of the Company in any year.
The Company intends its year 2000 date conversion project to be completed on
a timely basis so as to not significantly impact business operations. If the
necessary modifications and conversions are not completed as planned, the year
2000 issue may have a material impact on the Company. Also, although the
Company's systems do not rely significantly on systems of other companies, the
Company cannot provide assurance that failure of third parties to address the
year 2000 issue will not have an adverse impact on the Company. An assessment of
critical suppliers and all customers is being conducted to ascertain their year
2000 readiness. While the Company has a limited ability to test and control its
customers' or suppliers' year 2000 readiness, the Company is planning tests with
its major customers (such as Wal-Mart and KMart) and vendors. Based on the
results of these assessments, the Company will develop contingency plans to
reduce the impact of non-compliant customer and supplier transactions, although
there can be no assurance that multiple business disruptions caused by
technology failures can be adequately planned for. Second and third sources of
supply are being evaluated for critical services and materials to minimize the
risk of business interruptions.
FOREIGN CURRENCY RISK
Currency exchange rate fluctuations may significantly affect the Company's
foreign sales and earnings. Increased strength of the U.S. dollar will increase
the effective price of the Company's products sold in U.S. dollars and therefore
may materially adversely affect sales. The Company's costs are predominantly
denominated in U.S. dollars. Thus, with respect to the sales conducted in
foreign currencies, increased strength of the U.S. dollar could decrease the
Company's reported revenues and margins in respect of such sales to the extent
the Company is unable or determines not to increase local currency prices.
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<PAGE>
BUSINESS
GENERAL
The Company is a leading manufacturer and marketer of bakeware, dinnerware
and rangetop cookware. The Company believes that its brands, including Corning
Ware-Registered Trademark-, Pyrex-Registered Trademark-,
Corelle-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-, constitute one of the broadest and best
recognized collection of brands in the U.S. housewares industry. The Company has
leading positions in the major channels of distribution for such products in the
United States and has also achieved a significant presence in certain
international markets, primarily Canada, Asia, Australia and Latin America. In
1997, on a pro forma basis after giving effect to the Transactions, the Company
recorded net sales, operating income, net income and EBITDA (as defined in
footnote (8) to the Summary Historical and Pro Forma Financial and Other Data)
of $572.9 million, $54.0 million, $4.1 million and $89.7 million, respectively.
For the six months ended June 30, 1998, on a pro forma basis after giving effect
to the Transactions, the Company recorded net sales, operating income, net loss
and EBITDA of $229.5 million, $4.4 million, ($15.6 million) and $22.4 million,
respectively. In 1997, approximately 75% of the Company's net sales were
generated domestically and approximately 25% internationally.
The Company's Corning Ware-Registered Trademark- and
Pyrex-Registered Trademark- products represent the two largest glass-ceramic and
glass bakeware brands (measured in dollar sales) in the United States, with
approximately 67% of all glass-ceramic and glass bakeware sales (and
approximately 29% of total bakeware sales) in 1997. The Company believes that
its Corelle-Registered Trademark- brand is the nation's largest selling
dinnerware brand in the mass merchant channel, with approximately 38% of mass
merchant dinnerware sales in 1997, over two times the sales of the next largest
mass merchant dinnerware competitor. The Company's core rangetop cookware brand,
Revere Ware-Registered Trademark-, is one of the nation's leading stainless
steel rangetop cookware brands, accounting for approximately 29% of stainless
steel rangetop cookware sales and 7% of total rangetop cookware sales among mass
merchant and department store customers in 1997. See "Summary."
HISTORY
The Company's business began as an unincorporated division of Corning in
1915 with the invention of the heat-resistant glass that has become known as
Pyrex-Registered Trademark- brand glassware. In 1958, Corning introduced Corning
Ware-Registered Trademark- bakeware, a versatile glass-ceramic cookware product
evolved from materials originally developed for a U.S. ballistic missile
program. Corelle-Registered Trademark- dinnerware, a proprietary three-layer,
two-glass product with high mechanical strength properties and designed for
everyday use, was launched in 1970. Visions-Registered Trademark- cookware, a
lower cost, clear glass-ceramic cookware line, was introduced in 1982. In 1988,
Corning supplemented its cookware product lines with the acquisition of the
Revere business, which manufactures and distributes stainless steel cookware and
rangetop products (including, more recently, non-stick aluminum products) under
the Revere Ware-Registered Trademark- brand.
The Company was formed in 1991 when Corning, in an effort to expand the
international sales of its consumer products, entered into a joint venture with
Vitro S.A., the leading glass manufacturer in Mexico. In connection with that
joint venture (which was unwound in 1993 when it did not achieve its strategic
and financial objectives), Corning contributed or licensed to the Company
substantially all of its assets used in the Corning's consumer products
business. In November 1994, Corning and the Company sold their European,
Russian, Middle Eastern and African consumer products business to Newell. See
"Business--Distribution Channels--European, Russian, Middle Eastern and African
Consumer Products Business."
Pursuant to the Recapitalization Agreement, the Company will change its
corporate name to remove the word "Corning" within three years of the Closing
Date (although the Company has retained the right to use the word "CorningWare"
in its corporate name). The Company is currently in the process of determining
its new corporate name.
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PRODUCTS
The Company's products are sold primarily in the bakeware, dinnerware and
rangetop cookware categories under five core brand names. The following table
sets forth the sales of the Company's products in their primary segments from
1993 through 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(in millions)
Bakeware....................................... $ 206.5 $ 235.3 $ 212.9 $ 202.9 $ 175.6
Dinnerware..................................... 186.6 187.2 169.9 167.4 149.0
Rangetop Cookware.............................. 109.7 140.6 151.6 175.2 157.4
Other(1)....................................... 70.1 69.3 74.3 62.7 71.0
--------- --------- --------- --------- ---------
Total(2)....................................... $ 572.9 $ 632.4 $ 608.7 $ 608.2 $ 553.0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) "Other" sales include selected table top and kitchen accessories
manufactured by third parties which are coordinated with the
Corelle-Registered Trademark- line of dinnerware and the Revere
Ware-Registered Trademark- line of stainless steel cookware.
(2) Excludes $10.8 million of revenues in 1993 related to nonconsumer business
in Brazil.
BAKEWARE
CORNING WARE-REGISTERED TRADEMARK-. Corning Ware-Registered Trademark-
bakeware was introduced in 1958 as a cookware that "does it all," going from
freezer to oven to stovetop to refrigerator to table. This versatility results
from the Corning Ware-Registered Trademark- manufacturing process, which creates
a glass-ceramic material with high resistance to thermal shock. This
glass-ceramic material was originally fabricated for missile nose cones due to
its ability to withstand thermal extremes.
Corning Ware-Registered Trademark- products include round, oval and square
cooking/serving vessels with glass and plastic covers and comprise three product
lines: Corning Ware-Registered Trademark- French White-TM-, Corning
Ware-Registered Trademark- Classics-TM- and Corning Ware-Registered Trademark-
Casual Elegance.-TM- Introduced in 1981, Corning Ware-Registered Trademark-
French White-TM- is a line of white fluted cooking/serving vessels. This product
line currently represents the majority of Corning Ware-Registered Trademark-
sales and is available in capacities ranging from 15 ounces to 4.5 quarts.
Corning Ware-Registered Trademark- Classics-TM-, available in white or in
decorated patterns, is comprised of a broad line of cooking/serving products
with capacities ranging from 15 ounces to five quarts. Corning
Ware-Registered Trademark- Classics-TM- products coordinate with
Corelle-Registered Trademark- dinnerware. Corning Ware-Registered Trademark-
Casual Elegance-TM-, introduced in 1995, is an upscale embossed product line
with capacities ranging from 12.5 ounces to 2.5 quarts. Another new product for
1998 currently being shipped by the Company to major retailers is Corning
Ware-Registered Trademark- Pop-Ins-TM-, a line of products designed for storing,
serving and reheating meals either at home or away from home that leverages the
Company's traditional strength in cooking/serving containers. Corning
Ware-Registered Trademark- products represented approximately 50.5% of the
Company's 1997 bakeware sales.
PYREX-REGISTERED TRADEMARK-. Pyrex-Registered Trademark- products are made
of borosilicate and tempered soda lime glass and are available in a number of
colors, shapes and sizes. The Company's Pyrex-Registered Trademark- products
comprise four product lines: Pyrex-Registered Trademark- Originals-TM-,
Sculptured Pyrex-TM-, Storage Plus-Registered Trademark- and Pyrex
Portables-Registered Trademark-. Pyrex-Registered Trademark- Originals-TM-
currently generates the largest portion of Pyrex-Registered Trademark- sales and
is available in several colors. Introduced in 1991, Sculptured Pyrex-TM-, which
is also available in several colors, has plastic covers and sells at higher
price points than Pyrex-Registered Trademark- Originals-TM-. Storage
Plus-Registered Trademark-, a line of versatile food storage containers
introduced in 1987, competes in the storage and vessel bakeware categories.
Pyrex Portables-Registered Trademark-, introduced in the fall of 1995, is a food
transportation system combining a glass bakeware vessel in an insulated carrying
case with hot/cold packs. Pyrex-Registered Trademark- products represented
approximately 49.5% of the Company's 1997 bakeware sales.
Corning Ware-Registered Trademark- and Pyrex-Registered Trademark- products
are primarily distributed through mass merchants, department stores, specialty
retailers and the Company's outlet stores.
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<PAGE>
DINNERWARE
CORELLE-REGISTERED TRADEMARK-. Corelle-Registered Trademark-, the Company's
dinnerware product line developed in 1971, is produced using a proprietary
manufacturing process. This manufacturing process combines three layers of glass
and allows the Company to manufacture a dinnerware that is durable and
break/chip resistant, as well as light, thin and stackable.
The Company markets a wide range of Corelle-Registered Trademark- dinnerware
products, including plates, bowls, cups and saucers.
Corelle-Registered Trademark- dinnerware is available in more than 20 patterns,
with six to eight patterns being introduced each year to keep up with new trends
in the market. Corelle-Registered Trademark- dinnerware is available in open
stock and in sets in both the Corelle-Registered Trademark- Livingware-TM- and
the higher-end Corelle Impressions-Registered Trademark- product lines. Although
sold in various channels, the primary channels of distribution for
Corelle-Registered Trademark- dinnerware are through mass merchants and the
Company's outlet stores.
RANGETOP COOKWARE
REVERE WARE-REGISTERED TRADEMARK-. The Company's Revere
Ware-Registered Trademark- brand products include stainless steel cookware that
is manufactured by the Company and aluminum non-stick cookware that is made by
other manufacturers. Non-stick skillets have experienced strong growth and
consumer acceptance since their introduction. In 1997 Revere's 12-inch polished
aluminum non-stick skillet was the best selling open stock rangetop item among
mass merchant consumers. In addition, the Company recently introduced three full
lines of non-stick aluminum cookware to leverage its success in non-stick
aluminum skillets.
The Company's Revere Ware-Registered Trademark- stainless steel cookware
products are comprised of the traditional Revere Ware-Registered Trademark-
product line and the Revere Ware-Registered Trademark- Solutions-TM- and Revere
Ware-Registered Trademark- Proline-TM- product lines. The traditional Revere
Ware-Registered Trademark- line is sold to both mass merchants and department
stores and represents the majority of Revere Ware-Registered Trademark- sales.
Revere Ware-Registered Trademark- Solutions-TM-, a department store only
offering, is a cookware line that leverages classic Revere
Ware-Registered Trademark- features with contemporary styling. Certain Revere
Ware-Registered Trademark- Solutions-TM- products feature patented double
pourspouts and steam holes, steam venting nozzles and textured handles. Both the
traditional Revere Ware-Registered Trademark- and Revere
Ware-Registered Trademark- Solutions-TM- lines are available in copper clad and
aluminum disk bottom options, and in sets and open stock with capacities ranging
from 1 to 12 quarts. Revere Ware-Registered Trademark- Proline-TM- products are
professional style, stainless steel products which compete at higher price
points and are sold through department and specialty stores.
VISIONS-REGISTERED TRADEMARK-. Introduced in the United States in 1982,
Visions-Registered Trademark- products are made with a translucent glass-ceramic
material that allows customers to see what they are cooking. Products sold under
the Visions-Registered Trademark- brand include a line of rangetop cookware
manufactured in two color schemes, as well as a line of casserole products.
Visions-Registered Trademark- products are positioned as a high quality,
"starter" rangetop cookware set and, in addition, share the refrigerator/freezer
to oven versatility of Corning Ware-Registered Trademark- bakeware.
Visions-Registered Trademark- products have experienced particularly strong
sales in international markets where water-based cooking and simmering are
prevalent. The Company manages Visions-Registered Trademark- as a specialty line
focused on promotional programs and markets Visions-Registered Trademark-
products in areas where water-based cooking and simmering are relevant to a
market's or community's culture.
OTHER
The Company's "Other" sales include selected table top and kitchen
accessories manufactured by third parties which are coordinated with the
Corelle-Registered Trademark- line of dinnerware and the Revere
Ware-Registered Trademark- line of stainless steel cookware. These products,
which include ceramics, flatware, linens, storage ware, teapots and products for
the food service industry, are sold primarily in the Company's outlet stores and
a small portion is redistributed to other retailers.
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NEW PRODUCT DEVELOPMENT
New products are defined by the Company as products introduced in the last
two years. New products can be classified into three groups: (i) products
introduced into new categories or serving new functions to meet consumer needs
not met by the Company's existing products, (ii) product line extensions and
(iii) product renewals. Product line extensions generally include manufacturing
changes to existing product lines, such as glass color or shape changes, whereas
product renewals generally include decorative changes to existing product lines,
such as pattern changes. Sales generated by products introduced into new
categories or serving new functions are largely incremental. Product line
extensions and product renewals often result in sales of the new product
replacing sales of an existing product.
The Company emphasizes developing products that can extend existing
categories or enter new categories. Products introduced in 1996 and 1997
(including product line extensions and product renewals) generated approximately
24% of the Company's 1997 gross sales.
New products are developed using a disciplined development process adopted
by the Company. This process is designed to reduce the risk associated with new
product development projects through the early assessment of a product's market
viability, and to compress product development cycle time through the use of the
Company's proprietary design and modeling software. This new product development
process leverages the Company's extensive qualitative and quantitative research
knowledge and has reduced development time, focused resources on projects with
high market potential and decreased large expenditures on product concepts with
low market viability. Under this approach, cycle time for
Corelle-Registered Trademark- decoration introductions has been cut in half from
12 months to six months and mold development time has been reduced from 18 to 12
months. The Company launched its line of Pyrex Portables-Registered Trademark-
within 11 months of developing the concept and began shipments of its full lines
of Revere Ware-Registered Trademark- aluminum non-stick cookware within nine
months of commencing product development.
The Company has introduced three full lines of Revere
Ware-Registered Trademark- aluminum non-stick cookware in 1998. In order to
minimize the capital commitment required for the launch of these new lines, the
Company arranged for the manufacture of this product to be outsourced to a third
party manufacturer. In addition, the Company has begun the shipment of Corning
Ware-Registered Trademark- Pop-Ins-TM-, a line of products designed for storing,
serving and reheating meals either at home or away from home that leverages the
Company's traditional strength in cooking/serving containers. In the last six
months of 1998, the Company plans to introduce a combination of various products
serving new functions to meet consumer needs not met by the Company's existing
products, product line extensions and product renewals.
In addition to developing products with new functionality, the Company has
from time to time generated revenues from new categories by licensing the
Company's brand names to manufacturers of tabletop and kitchen accessories. Due
to the strength of the Company's brands, the Company expects to seek additional
licensing opportunities in future periods. In 1997, licensing revenue was
immaterial to the Company.
DISTRIBUTION CHANNELS
The Company's products are sold in the United States and in over 30 foreign
countries. In the United States (which accounted for approximately 75% of the
Company's net sales in 1997), the Company sells both on a wholesale basis to
retailers, distributors and other accounts that resell the Company's products
and on a retail basis through Company-operated outlet stores. During 1997,
approximately 32% of the Company's U.S. gross sales (before deductions for trade
allowances, customer-paid freight and discounts) were generated through the mass
merchant channel, approximately 34% were generated by Company-operated outlet
stores and approximately 34% were generated by other domestic channels,
including department stores, specialty retailers and retail food stores.
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DOMESTIC WHOLESALE
In the United States, the Company sells to approximately 517 customers made
up primarily of mass merchants, department stores, specialty retailers, as well
as through other channels, including retail food stores, catalog showrooms and
direct mail.
During the last two years, the Company has significantly narrowed the number
of U.S. customers it services directly (from approximately 937 accounts in 1995
to approximately 517 as of December 31, 1997) enabling the Company to focus on
high profit accounts while shifting many lower profit accounts to distributors
of the Company. In 1997, the Company's 25 largest domestic customers represented
approximately 35% of the Company's gross sales. In 1997, Wal-Mart Stores, Inc.
accounted for approximately 12% of the Company's gross sales.
DOMESTIC RETAIL
The Company operates a network of outlet stores in 48 states, located
primarily in outlet malls. The Company's outlet stores carry an extensive range
of the Company's products and provide the Company with an additional
distribution channel which allows the Company to profitably sell slower-moving
inventory. The Company believes that its outlet stores, which also sell
complementary kitchen accessories, have developed marketing and pricing
strategies that generate sales which supplement, rather than compete with, its
retail customers. The Company-operated outlet stores also promote and strengthen
the Company's brands, enabling the Company to provide customers a broader
assortment of products beyond products that are commonly stocked by third party
retailers.
In 1998, the Company expects to close approximately five of its outlet
stores and open 10 to 15 new outlet stores. The Company continually reviews the
operating performance of its individual stores and whether any store is a
candidate for investment, remodeling or closing.
INTERNATIONAL
The Company's 30-person international sales force, together with localized
distribution and marketing capabilities, have allowed the Company to become an
established marketer of bakeware and dinnerware in Canada, Korea, Australia,
Japan, Singapore, Taiwan, Hong Kong, Mexico and Brazil. The Company believes
that developing localized distribution capabilities is critical to continued
growth in international markets and, as a result, has made investments in
localized distribution facilities in Brazil and Asia. For example, in an effort
to more effectively target local customers in Asia, the Company together with
Iwaki Glass Company Ltd., formed Iwaki Corning (Malaysia) Sdn. Bhd. ("ICM") in
1988. ICM, 80% owned by the Company, operates a decorating facility in Malaysia
that decorates the Corelle-Registered Trademark- and Corning
Ware-Registered Trademark- product lines to meet regional tastes and that also
houses a regional distribution facility. The Company also operates packaging and
distribution facilities in Canada, Brazil, Singapore and Australia to provide
higher levels of service to wholesale accounts in those regions. The Company
anticipates making additional future investments in overseas markets as it
develops its infrastructure to oversee and manage future international sales.
EUROPEAN, RUSSIAN, MIDDLE EASTERN AND AFRICAN CONSUMER PRODUCTS BUSINESS
In November 1994, Corning and the Company sold to Newell all of the
outstanding stock of Corning Consumer Limited ("CC Limited"), Corning Consumer
GmbH ("CC GmbH") and Corning Consumer S.A ("CCSA"), subsidiaries of Corning and
the Company through which the Company's consumer products business was conducted
in Europe, Russia, the Middle East, and Africa (collectively, the "Territory").
Corning and the Company granted to Newell, CC Limited, CC GmbH and CCSA the
exclusive right to use certain trademarks within the Territory. In addition,
Corning and the Company agreed for a five-year period (which expires in November
1999), subject to certain distribution agreements with Newell, not to
manufacture, sell or distribute competing products in the Territory. Currently,
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Newell serves as the exclusive sales representative and distributor for certain
of the Company's products in the Territory, which represented approximately 2%
of the Company's net sales in 1997.
CUSTOMER SERVICE: SALES AND MARKETING SUPPORT
Management believes that service is a key part of the Company's product
offering. The close relationships and frequent contact with its large customers
provide the Company with sales opportunities and application ideas. The Company,
through its sales team, provides its customers with sales and marketing support.
In addition, the Company has a dedicated consumer information center in
Waynesboro, Virginia staffed by approximately 60 consumer service
representatives who may be contacted through a toll-free number. The consumer
facility responds to consumer inquiries on topics such as warranty claims,
rebate programs and store referrals.
SALES
The Company's domestic customers are served by a combination of Company
salespeople and independent, commissioned representatives. The Company's top 100
accounts are serviced by the Company's direct sales force teams, each consisting
of four or five salespeople which are organized (i) by account, for the
Company's most significant customers and (ii) by region, for the balance of the
top 100 accounts. The teams are directly accountable for revenues, allowances,
promotional spending and account profitability. The Company's sales teams
dedicate their primary focus to the top 25 customers. Members of the sales teams
regularly call on the Company's customers to develop an in-depth understanding
of each customer's competitive environment and opportunities. In October 1996,
the Company reorganized its sales force to better align the strengths of account
representatives with specific customer account needs. Smaller wholesale accounts
are serviced by approximately 40 independent, commissioned sales
representatives. The Company's 30-person international sales force, with
personnel located in ten countries, work with local retailers and distributors
to optimize product assortment, consumer promotions and advertising for local
preferences.
MARKETING SUPPORT
The Company provides its customers with extensive marketing support. The
Company conducts extensive research on housewares industry trends, including
consumer color and design preferences. The Company uses this data to optimize
its product mix and selection. The Company also develops distinct packaging and
product assortments for certain customer segments so that they may differentiate
themselves from other retailers selling Company products.
The Company collaborates with its largest customers to develop and implement
effective merchandising strategies, providing, for example, plan-o-grams and
computerized shelf planning. Furthermore, for such strategic accounts, the
Company designs and sets up in-store promotional displays for products,
including new product introductions. Due to the Company's knowledge of consumer
trends and marketing expertise in the dinnerware category, the Company has been
appointed the category manager for dinnerware by a leading mass merchant. As
category manager, the Company, using the knowledge and expertise it has
assembled in its business, along with retail point of sale information, develops
and presents analyses and proposals regarding merchandising, pricing and
marketing strategies for that customer.
The Company's marketing support includes a broad program of advertising, as
well as the promotions described above. The Company funds national television
and print advertising campaigns, linked to major spring and fall buying periods,
provides cooperative advertising allowances to its customers and arranges
campaigns that advertise Company products in conjunction with complementary
products. The Company's recent joint Corning Ware-Registered Trademark-/Campbell
Soup campaign is an example of promotions conducted with complementary products.
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MANUFACTURING AND DISTRIBUTION FACILITIES
The Company utilizes five primary manufacturing facilities (four in the
United States and one outside of the United States) and seven principal
packaging and distribution centers (two in the United States and five outside of
the United States).
The table below summarizes certain data for each of the Company's principal
properties, including its manufacturing and distribution facilities.
<TABLE>
<CAPTION>
LOCATION PRIMARY USE FACILITY
- ------------------------------------- ------------------------------ --------------------------
<S> <C> <C> <C>
SQ. FEET OWN/LEASE
----------- -------------
DOMESTIC:
Charleroi, Pennsylvania.............. Manufacturing 603,332 Own
Clinton, Illinois.................... Manufacturing/Distribution 660,000 Own
Corning, New York.................... Manufacturing 375,000 Own
Corning, New York(1)................. Headquarters 50,000 Lease
Greencastle, Pennsylvania............ Distribution 1,210,000 Own
Martinsburg, West Virginia........... Manufacturing 416,000 Own
Waynesboro, Virginia................. Consumer Service Center 89,800 Own
INTERNATIONAL:
Johor, Malaysia(2)................... Manufacturing/Distribution 64,000 Own/Lease
Ontario, Canada...................... Distribution 94,349 Lease
Singapore............................ Distribution 63,700 Lease
Sao Paulo, Brazil.................... Distribution 2,000 Lease
Sydney, Australia.................... Distribution 66,000 Lease
</TABLE>
- ------------------------------
(1) The Company will lease its corporate headquarters from Corning until October
1, 1999.
(2) The building housing the Malaysia facility is owned by ICM, a subsidiary
that is 80% owned by the Company. The land on which the facility is located
is leased pursuant to a 60-year lease expiring in 2048.
In addition, the Company and Corning have entered into a supply contract
pursuant to which Corning will supply manufacturing capacity for
Pyrex-Registered Trademark- bakeware products at Corning's Greenville, Ohio
facility to the Company for three years.
INFORMATION TECHNOLOGY
The Company leverages information technology to reduce complexity, speed
processes and provide valued services and information to its customers. The
Company employs a supply chain management system that integrates demand
forecasting, inventory planning and distribution requirement planning. This
system directly links the material resource planning, master production
scheduling and capacity resource planning systems. Computer-aided coordination
of these systems allows the Company to optimize its inventory mix to reduce the
risk of products being out-of-stock and, when integrated with the Company's
order fulfillment system described below, results in enhanced customer service
levels while reducing inventory levels. In addition, the Company's information
systems are used to track future inventory requirements to permit the Company to
maintain a more efficient allocation between finished goods and work-in-process
inventory.
Increasingly, the Company's customers desire to purchase products on a "just
in time" basis, leading to more frequent, smaller orders and reduced lead times.
The Company operates advanced electronic data interchange ("EDI") and order
fulfillment systems, which allow the Company to improve the accuracy and
timeliness of order fulfillment despite an increased number of orders and
reduced lead times. The Company receives approximately 87% of all customer order
items via EDI. The Company's EDI system allows customers to monitor the status
of their orders from purchase order to shipment and
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to receive advance shipment notices that aid customer ability to manage their
inventories. These processes have improved the Company's customer service levels
and have enhanced the ability of the Company and its customers to reduce their
inventories.
Another aspect of the Company's use of information systems to enhance
customer service is the Company's vendor managed inventory ("VMI") system. With
its VMI system, the Company electronically monitors inventory levels of
participating customers and places orders for the customer (or in the case of
customers participating in the Company's co-managed inventory system, formulates
and proposes orders for the customer's approval). This monitoring, made possible
by the VMI system, also allows the Company to anticipate the needs of its
customers and enhances the Company's ability to manage production scheduling.
The EDI and VMI systems allow less costly order placement and increase the
accuracy and timeliness of order processing while enabling the customer and the
Company to decrease inventory levels without losing sales due to products being
out of stock. In addition, the Company has developed extensive information
databases to conduct detailed analysis of orders, sales, customer service levels
and inventory and to identify trends in these items.
The Company has a centralized distribution system in Greencastle,
Pennsylvania that enables the Company to fill, in a single consolidated
shipment, customer orders comprised of different glass product lines (e.g.,
Corning Ware-Registered Trademark- and Pyrex-Registered Trademark-) and products
sourced from third parties. Consolidated shipments significantly aid and
simplify customers' management of inventories and contribute to decreased
shipping costs. Because few houseware manufacturers possess a similar
centralized distribution system, the Company believes that the system represents
a competitive advantage over many other manufacturers of bakeware or dinnerware.
See "--Information Technology."
Pursuant to the transition services agreement entered into on the Closing
Date, Corning will continue to provide the Company with certain data processing
services, including those supporting the Company's financial systems. Prior to
the termination of the transition services agreement in April 2000, the Company
intends to establish independent data processing capability for its financial
reporting system and certain other functions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--Separation
from Corning; Transaction Related Charges."
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, as well as hardware
that is designed with similar constraints. Any of the Company's computer
programs and hardware that have date-sensitive functions may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions in operations including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
Corrective action to address the year 2000 issue began in the second quarter
of 1996, with the establishment of a program office to manage year 2000
activities. In addition to managing year 2000 issues relating to information
systems, the year 2000 program office is also responsible for addressing year
2000 issues relating to plant process control systems and non-data related
computer control systems. The Company is utilizing both internal and external
resources to identify, correct and test the Company's hardware and software for
year 2000 compliance. In April 1997, the Company completed a comprehensive
inventory of its computer systems. The inventory resulted in an impact
assessment that was completed in October 1997. The findings of the assessment,
together with the need to establish system independence from Corning, led the
Company to embark on a comprehensive systems replacement project. The Company
believes that its year 2000 project is on schedule for an April 1, 1999
implementation with all "mission critical" systems fully tested by June 30,
1999. Testing on certain aspects of the new systems has commenced.
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The Company is in the process of implementing a comprehensive enterprise
resource management system. This system will replace roughly 90% of the
Company's business transaction systems. The remaining 10%, comprised of benefits
administration and payroll, will be outsourced to a year 2000 compliant service
bureau. Implementation of these new systems is expected to be completed by April
1, 1999. In addition, the Company is resolving year 2000 issues related to plant
process control systems, non-data related computer control systems and supplier
and customer year 2000 compliance. While management cannot reasonably estimate
the cost of implementation of all systems necessary to comply with year 2000
dating and its separation from Corning, significant investments in information
systems will total in excess of $16.5 million by the year 2000. Any remaining
costs are not expected to have a material impact on the financial position or
results of operations of the Company in any year.
The Company intends its year 2000 date conversion project to be completed on
a timely basis so as to not significantly impact business operations. If the
necessary modifications and conversions are not completed as planned, the year
2000 issue may have a material impact on the Company. Also, although the
Company's systems do not rely significantly on systems of other companies, the
Company cannot provide assurance that failure of third parties to address the
year 2000 issue will not have an adverse impact on the Company. An assessment of
critical suppliers and all customers is being conducted to ascertain their year
2000 readiness. While the Company has a limited ability to test and control its
customers' or suppliers' year 2000 readiness, the Company is planning tests with
its major customers (such as Wal-Mart and K Mart) and vendors. Based on the
results of these assessments, the Company will develop contingency plans to
reduce the impact of noncompliant customer and supplier transactions although
there can be no assurance that multiple business disruptions caused by
technology failures can be adequately planned for. Second and third sources of
supply are being evaluated for critical services and materials to minimize the
risk of business interruptions.
RAW MATERIALS AND SUPPLIES
The Company purchases its raw materials on the spot market and through
long-term contracts with suppliers, including for the supply agreement between
the Company and Corning pursuant to which Corning will supply the Company with
manufacturing capacity for certain of the Company's Pyrex-Registered Trademark-
bakeware products for three years. See "Certain Relationships and Related Party
Transactions-- Between Corning and the Company--Supply Agreement." Sand, soda
ash, borax, limestone, lithia-containing spars, alumina, cullet, stainless
steel, copper and corrugated packaging materials are the principal raw materials
used by the Company. All of these materials are available from various suppliers
and the Company is not limited to any single supplier for any of these
materials. Management believes that adequate quantities of these materials are
and will continue to be available from various suppliers. However, the
replacement of certain raw material suppliers has in the past, and may in the
future, have an adverse effect on the Company's operations and financial
performance and significant increases in the cost of any of the principal raw
materials used by the Company could have a material adverse effect on its
results of operations. The Company's molded plastic products and certain
components of its kitchenware products are manufactured from plastic resin,
which is produced from petroleum-based raw materials. Plastic resin prices may
fluctuate as a result of changes in natural gas and crude oil prices and the
capacity, supply and demand for resin and the petrochemical intermediates from
which it is produced. The Company sources certain products, such as non-stick
aluminum rangetop products, from third party suppliers. The Company believes
that alternative sources of supply at competitive prices are available from
other manufacturers of substantially identical products.
The melting units operated by the Company require either electric or natural
gas energy input. Back-up procedures and systems to replace the primary source
of these energy inputs are in place in each of the Company's relevant
facilities. Ongoing programs exist within each of the Company's glass melting
facilities to reduce energy consumption. Furthermore, rates for electric and
natural gas have been fixed contractually in each of the Company's plants to
avoid the negative impact of market fluctuations in
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prices. The Company does not engage in any hedging activities for commodity
trading relating to its supply of raw materials.
INTELLECTUAL PROPERTY
The Company owns numerous United States and foreign trademarks and trade
names and has applications for the registration of trademarks and trade names
pending in the United States and abroad. The Company's most significant owned
trademarks and/or tradenames include Corelle-Registered Trademark-,
Revere-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-. The other two most significant trademarks used by
the Company are Corning Ware-Registered Trademark- and
Pyrex-Registered Trademark-. Upon the consummation of the Recapitalization on
April 1, 1998, Corning granted to the Company fully paid, royalty-free licenses
to use the Corning Ware-Registered Trademark- trademark, servicemark and
tradename and the Pyroceram-Registered Trademark- trademark in the field of
housewares and to use the Pyrex-Registered Trademark- trademark in the field of
durable consumer products. These licenses are exclusive, worldwide licenses,
subject to the prior exclusive licenses granted to Newell and certain of its
subsidiaries in the Territory (see "--Distribution Channels--European, Russian,
Middle Eastern and African Consumer Products Business") and provide for
renewable ten-year terms, which the Company may renew indefinitely. The Company
has also granted to Newell and certain of its subsidiaries an exclusive license
of the Vision-Registered Trademark- and Visions-Registered Trademark- trademarks
in the Territory until November 1999. In addition, in connection with the
Recapitalization, the Company entered into an agreement with Corning under which
the Company is licensed to continue to use "Corning" in connection with the
Company's business for three years (or up to five years in the case of certain
molds used in the manufacturing process).
The Company also owns and has the exclusive right to use numerous United
States and foreign patents, and has patent applications pending in the United
States and abroad. In addition to its patent portfolio, the Company possesses a
wide array of unpatented proprietary technology and know-how. The Company also
licenses certain intellectual property rights to or from third parties.
Concurrently with the Recapitalization, Corning granted to the Company a
fully paid, royalty-free license of patents and know-how (including evolutionary
improvements) owned by Corning that pertain to or have been used in the
Company's business. Furthermore, the Company and Corning entered into a
five-year technology support agreement (renewable at the option of the Company
for an additional five years), pursuant to which Corning will provide to the
Company (at the Company's option) engineering, manufacturing technology, and
research and development services, among others, at Corning's standard internal
rates.
The Company believes that its patents, trademarks, trade names, service
marks and other proprietary rights are important to the development and conduct
of its business and the marketing of its products. As such, the Company
vigorously protects its intellectual property rights. In some cases, litigation
or other proceedings may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company or its licensors, to
protect trade secrets, know-how or other intellectual property rights owned by
the Company, or to determine the scope and validity of the proprietary rights of
the Company or of third parties. There can be no assurance that the Company will
prevail in any such litigation.
On May 12, 1998, the Company received a claim from Rubbermaid Incorporated
alleging that Corning Ware-Registered Trademark- Pop-Ins-TM- infringe four
patents owned by Rubbermaid Incorporated. The claim requests that the Company
cease and desist from making, using, offering to sell, and selling Corning
Ware-Registered Trademark- Pop-Ins-TM- and provide to Rubbermaid a full
accounting of sales of such products. The Company is in the process of
investigating the validity of this claim.
COMPETITION
The market for the Company's products is highly competitive. Competition in
the United States is affected not only by the large number of domestic
manufacturers but also by the large volume of foreign
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imports. In addition, recently the Company has experienced increased competition
in the United States from low-cost Asian competitors and expects this trend to
continue in the future. The Company's major bakeware, dinnerware and cookware
competitors for domestic sales include Newell, Rubbermaid Inc., Ekco Housewares
Inc., Pfaltzgraff Co., Lenox Inc., The Meyer Corporation, Inc. and T-Fal
Corporation.
The market for housewares outside the United States and Europe is relatively
fragmented. The competitive landscape differs by country and region.
Internationally, depending on the country or region, the Company competes with
other U.S. companies operating abroad, locally manufactured private label goods
and international companies competing in the worldwide bakeware, dinnerware and
rangetop cookware categories. Major competitors abroad include Durand Verrerie
Christallerie D'Arquey, Lipper International Inc., Newell, Vitro S.A., NEG
(Nippon Electric Glass) and Schott Glaswerke.
Several of the Company's competitors are larger, may be less leveraged and
have greater financial resources than the Company following the completion of
the Transactions. In addition, there are no substantial regulatory or other
barriers to the entry of new competitors into the industry.
A number of factors affect competition in the sale of bakeware, dinnerware
and rangetop cookware manufactured and/or sold by the Company, including
quality, price competition from competitors and price point parameters
established by the Company's various distribution channels. The Company has,
from time to time, experienced price and market share pressure from certain
competitors in certain product lines, particularly in the bakeware category
where metal products of competitors have created retailer price and margin
pressures, and in the rangetop cookware category where non-stick aluminum
products have increased their share of rangetop cookware sales at the expense of
stainless steel products due to the durability and ease of cleaning of new
non-stick coatings.
Shelf space is a key factor in determining retail sales of bakeware,
dinnerware and rangetop cookware products. A competitor that is able to maintain
or increase the amount of retail space allocated to its product may gain a
competitive advantage for that product, and in recent fiscal quarters the
Company has lost shelf space in its distribution channels to certain of its
competitors. See "Risk Factors--Risks Related to Realizing Objectives of the
Business Redesign Program" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The allocation of retail space
is influenced by many factors, including brand name recognition, quality and
price of the product, level of service by the manufacturer and promotions.
In addition, new product introductions are an important factor in the
categories in which the Company's products compete. Other important competitive
factors are brand identification, style, design, packaging and the level of
service provided to customers. The importance of these competitive factors
varies from customer to customer and from product to product. See "Risk
Factors--Development of New Products." There can be no assurance that the
Company will be able to compete successfully against current and future sources
of competition or that the current and future competitive pressures faced by the
Company will not adversely affect its profitability or financial performance.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to certain federal,
state, local and foreign laws and regulations relating to environmental
protection and human health and safety, including those governing wastewater
discharges, air emissions, and the use, generation, storage, treatment,
transportation and disposal of hazardous and non-hazardous materials and wastes
and the remediation of contamination associated with such disposal. Because of
the nature of its business, the Company has incurred, and will continue to
incur, capital and operating expenditures and other costs in complying with and
resolving liabilities under such laws and regulations. The Company believes it
is in substantial compliance with applicable environmental laws and regulations,
and does not believe it has material liabilities under such laws and
regulations. However, there can be no assurance that compliance with, or
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liabilities under, such laws and regulations, or the discovery of contamination,
will not have a material adverse effect on the Company in the future.
Certain of the Company's facilities have lengthy manufacturing histories
and, over such time, have used or generated and disposed of substances which are
or may be considered hazardous. In addition, certain of these facilities are
located on properties that had been used for various industrial purposes prior
to the Company's occupancy. The Company has been involved in the remediation of
historic contamination at certain of these facilities and is currently
undertaking additional subsurface investigations in order to assess certain
potential soil and groundwater contamination at other facilities. Pursuant to
the terms and conditions of the Recapitalization Agreement, Corning has agreed
to indemnify the Company for certain costs and expenses that may be incurred in
the future by the Company arising from pre-Recapitalization environmental
events, conditions or matters and as to which notice is provided within
specified time periods. Corning has agreed to indemnify the Company for (i) 80%
of such costs and expenses up to an aggregate of $20.0 million and (ii) 100% of
such costs and expenses in excess of $20.0 million. The Company believes that,
based on currently available information and the terms and conditions of
Corning's indemnification obligations under the Recapitalization Agreement, any
liability of the Company that is reasonably likely to arise out of any of these
environmental conditions and activities would not result in a material adverse
effect on the Company. However, management cannot predict with certainty whether
future events, such as changes in existing laws and regulations, the discovery
of contamination or other environmental conditions not currently known to the
Company, the occurrence of new contamination or other environmental conditions
or developments that could impair the Company's ability to obtain
indemnification from Corning, may result in the Company having to bear
environmental costs not currently planned for by the Company. Accordingly, it is
possible that such additional environmental liabilities could result in a
material adverse effect on the Company. See "Risk Factors--Environmental
Regulation."
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local laws affecting
its business, including various environmental, health, fire and safety
standards. See "--Environmental Matters." The Company is also subject to the
Fair Labor Standards Act and various state laws governing such matters as
minimum wage requirements, overtime and other working conditions and citizenship
requirements. The Company believes that its operations are in material
compliance with applicable laws and regulations.
66
<PAGE>
EMPLOYEES
As of March 31, 1998, the Company had approximately 3,150 full-time
employees, approximately 1,950 of whom were covered by collective bargaining
agreements. The Company's collective bargaining agreements are as follows:
<TABLE>
<CAPTION>
PLANT UNION EXPIRATION OF CONTRACT
- ------------------------------------ ----------------------------------------- ----------------------
<S> <C> <C>
Charleroi, Pennsylvania Aluminum Brick & Glass January 1, 1999
Workers International
Union, Local 53G
Clinton, Illinois International Association of April 1, 2001
Machinists and Aerospace
Workers, District Lodge 123
Corning, New York American Flint Glass Workers January 1, 1999
Union, Local 100
Greencastle, Pennsylvania American Flint Glass Workers July 31, 1999
Union, Local 1024
United Plant Guards Workers of August 31, 1999
America, Local 12
Johor, Malaysia Kesatuan Pekeria-Pekeria June 30, 2000
Ontario, Canada Brewery, General and May 1, 1999
Professional Workers
Sydney, Australia Australian Workers Union, May 31, 1999
Glass and Containers Industry Branch
</TABLE>
The Company believes that its relationship with its employees is
satisfactory. The Company has not experienced any union activities resulting in
work slowdowns or work stoppages during the past five years.
Upon the consummation of the Recapitalization on April 1, 1998, hourly
employees of the Pressware facility in Corning, New York were offered employment
by the Company. Approximately 260, or 70% of such employees accepted employment
with the Company. Pressware personnel not accepting such offer of employment
will continue as employees of Corning and Corning will continue to make
available their services to the Company. The Company will reimburse Corning for
the corporate expenses related to such employees.
LEGAL PROCEEDINGS
The Company has been engaged in, and will continue to be engaged in, the
defense of product liability claims related to its products, particularly its
bakeware and cookware product lines. The Company maintains product liability
coverage, subject to certain deductibles and maximum coverage levels that the
Company believes is adequate and in accordance with industry standards.
In addition to product liability claims, the Company is involved from time
to time in various lawsuits or threatened litigation in the ordinary course of
business, none of which the Company believes could have a material adverse
effect on the Company if decided adversely.
On May 12, 1998, the Company received a claim from Rubbermaid Incorporated
alleging that Corning Ware-Registered Trademark- Pop-Ins-TM- infringe four
patents owned by Rubbermaid Incorporated. The claim requests that the Company
cease and desist from making, using, offering to sell, and selling Corning
Ware-Registered Trademark- Pop-Ins-TM- and provide to Rubbermaid a full
accounting of sales of such products. The Company is in the process of
investigating the validity of this claim.
67
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
and directors of the Company following the Recapitalization.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------------------
<S> <C> <C>
C. Robert Kidder.................... 53 Director and Chairman of the Board
Peter F. Campanella................. 52 Director, President and Chief Executive Officer
Edward A. Gilhuly................... 38 Director
Clifton S. Robbins.................. 40 Director
Scott M. Stuart..................... 38 Director
William H. Carter................... 44 Director
Nancy A. Reardon.................... 45 Director
William F. Stoll, Jr................ 49 Director
Anthony P. Deasey................... 49 Senior Vice President--Finance and Chief
Financial Officer
George F. Knight.................... 41 Vice President, Treasurer and Controller
Clark S. Kinlin..................... 37 Senior Vice President--Sales and Marketing
Twilver Gordon...................... 58 Vice President--Manufacturing and Engineering
Thomas C. O'Brien................... 54 Vice President, Secretary and General Counsel
</TABLE>
C. ROBERT KIDDER was elected a Director and Chairman of the Board of the
Company on April 1, 1998. He was elected a Director, Chairman of the Board and
Chief Executive Officer of Borden, Inc. on January 10, 1995, and continues in
those positions. Prior to that he was Chairman of the Board of Duracell
International, Inc. and Duracell, Inc. from August 1991 through October 1995;
Chairman of the Board and Chief Executive Officer of both companies from April
1992 through September 30, 1995; Chairman of the Board, President and Chief
Executive Officer of both companies from August 1991 until April 1992; and
President and Chief Executive Officer of both companies from June 1988 until
August 1991. He is also a director of Electronic Data Systems Corporation, AEP
Industries Inc. and Morgan Stanley, Dean Witter & Co.
PETER F. CAMPANELLA was elected a Director of the Company on April 1, 1998,
and has been its President and Chief Executive Officer since April 1996. From
1994 to 1996, he was Senior Vice President and General Manager of Corning's
Science Products Division, and from 1990 to 1994, he was Vice President and
General Manager of that division. He joined Corning in 1971 and has held various
sales, marketing and general management positions.
EDWARD A. (NED) GILHULY has been a director of the Company since April 1,
1998. He has been a member of KKR & Co., LLC, the limited liability company
which serves as the general partner of KKR, since 1996, was a General Partner of
KKR and has been a General Partner of KKR Associates, L.P. since January 1995.
For 1993 and 1994, he was an executive of KKR. He is a Director of
Owens-Illinois, Inc., Union Texas Petroleum and Layne Christensen Company.
CLIFTON S. ROBBINS has been a director of the Company since April 1, 1998.
He has been a member of KKR & Co., LLC, the limited liability company which
serves as the general partner of KKR, since 1996, was a General Partner of KKR
and has been a General Partner of KKR Associates, L.P. since January 1995. For
1993 and 1994, he was an executive of KKR. He has been a Director of Borden,
Inc. since December 1994, and is also a Director of Act III Cinemas, Inc., AEP
Industries Inc., Border, Inc., IDEX
68
<PAGE>
Corporation, Glenisla Group, Ltd., KinderCare Learning Centers, Inc., Newsquest
Media Group, PLC and Regal Cinemas, Inc.
SCOTT M. STUART has been a director of the Company since April 1, 1998. He
has been a member of KKR & Co., LLC, the limited liability company which serves
as the general partner of KKR, since 1996, was a General Partner of KKR, and has
been a General Partner of KKR Associates, L.P. since January 1995. For 1993 and
1994, he was an executive of KKR. He has been a Director of Borden, Inc. since
December 1994, and is also a Director of AEP Industries Inc., KSL Recreation
Corporation, Newsquest Capital, PLC and World Color Press, Inc.
WILLIAM H. CARTER has been a director of the Company since April 1, 1998. He
was elected Executive Vice President and Chief Financial Officer of Borden, Inc.
effective April 3, 1995. Prior to that, since 1987, he was a partner in Price
Waterhouse LLP. He is a Director of BCP Management, Inc. and AEP Industries,
Inc.
NANCY A. REARDON has been a director of the Company since April 1, 1998. She
was elected Senior Vice President, Human Resources and Corporate Affairs, of
Borden, Inc. effective March 3, 1997. Previously she was Senior Vice
President-Human Resources and Communications for Duracell International, Inc.
from 1991 through February 1997.
WILLIAM F. STOLL, JR. has been a director of the Company since April 1,
1998. He was elected Senior Vice President and General Counsel of Borden, Inc.
effective July 1, 1996. Prior to joining Borden at that time, he was a Vice
President of Westinghouse Electric Corporation since 1993, and served as its
Deputy General Counsel from 1988 to 1996. He is a Director of BCP Management,
Inc.
ANTHONY P. DEASEY was elected Senior Vice President--Finance and Chief
Financial Officer on June 8, 1998. Prior to joining the Company he was Senior
Vice President--Finance and Chief Financial Officer of Rollerblade, Inc. from
April 1996 to May 1998. Prior to that he was Vice President, Chief Financial
Officer of Church and Dwight Co. Inc., the manufacturer and marketer of Arm &
Hammer-Registered Trademark- brand consumer and industrial products, from 1988
to November 1995. From November 1995 to March 1996, Mr. Deasey was engaged in
pursuing personal interests.
GEORGE F. KNIGHT is Vice President, Treasurer and Controller of the Company,
while continuing as Vice President, Mergers and Acquisitions Finance, of Borden,
Inc. He was named to his Borden position effective January 1, 1998, after
joining Borden, as Director of that function in April 1997. Prior to that he was
with Duracell International, Inc., as Controller for the Asia-Pacific region
from 1994 and as Assistant Corporate Controller from 1992 to 1994.
CLARK S. KINLIN was elected Senior Vice President-Sales and Marketing of the
Company on April 1, 1998. Prior to that he was Vice President-Sales and
Marketing of the Company since September 1997, and from 1995 to 1997, he was
Vice President of Marketing. From 1993 to 1995, he was Director of Retail
Development of the Company, and from 1990 to 1993, he was Manager of Sales and
Marketing of Corning's Telecommunications Products Division. He joined Corning
in 1981.
TWILVER GORDON was elected Vice President-Manufacturing and Engineering of
the Company on April 1, 1998. Prior to that he was Director-Manufacturing and
Engineering since June 1996. From 1995 to 1996, he was Manufacturing Manager of
the Company; from 1993 to 1995, he was plant manager at the Company's Corning,
New York, Pressware facility; and from 1988 to 1993, he was Director-Customer
Services and Distribution at the Company's Greencastle, Pennsylvania, facility.
He joined Corning in 1968.
THOMAS C. O'BRIEN was elected Vice President, Secretary and General Counsel
of the Company on April 1, 1998. Prior to that he had been Assistant General
Counsel of Corning since February 1993, and Secretary and Legal Counsel of the
Company since January 1992. He joined Corning in 1977.
69
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid or accrued by the Company with respect to each of its chief executive
officer and its four other most highly compensated executive officers (the
"named executive officers") for services rendered in all capacities during
fiscal 1997. All references in the following tables to stock and stock options
relate to awards of, and options to purchase, the common stock (with attached
preferred share purchase rights) of Corning.
SUMMARY COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS
------------------------------------------------ ------------------------------
<CAPTION>
OTHER RESTRICTED
ANNUAL STOCK SECURITIES INCENTIVE
NAME AND COMPEN- AWARDS UNDERLYING PLAN
PRINCIPAL POSITION SALARY(1) BONUS SATION(2) ($) (3) OPTIONS PAYOUTS(4)
- ---------------------------------------- ----------- --------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter F. Campanella..................... $ 273,333 $ 358,162 $ 21,140 $ 664,313 8,000 --
President and Chief Executive Officer
George M. Collins(5).................... 210,000 179,109 4,660 359,836 4,000 --
Vice President--Worldwide Sales
Clark S. Kinlin......................... 158,133 115,769 2,160 166,078 4,000 --
Vice President--Marketing
Twilver Gordon.......................... 146,733 114,122 -- -- 2,000 --
Director--Manufacturing And
Engineering
Kim L. Frock(6)......................... 137,333 84,231 720 55,369 4,000 --
Vice President and Chief Financial
Officer
<CAPTION>
<S> <C>
PAYOUTS
-----------
ALL OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION(4)
- ---------------------------------------- -----------
<S> <C>
Peter F. Campanella..................... $ 35,667
President and Chief Executive Officer
George M. Collins(5).................... 20,431
Vice President--Worldwide Sales
Clark S. Kinlin......................... 8,236
Vice President--Marketing
Twilver Gordon.......................... 12,396
Director--Manufacturing And
Engineering
Kim L. Frock(6)......................... 6,745
Vice President and Chief Financial
Officer
</TABLE>
- ------------------------
(1) Reflects salary paid or deferred.
(2) Includes dividends on CPP Shares (as defined below) paid prior to attainment
of the relevant performance vesting goals and tax gross-up payments.
(3) At the end of 1997, Messrs. Campanella, Collins, Kinlin and Gordon and Ms.
Frock held an aggregate of 55,124; 18,479; 26,958; 0; and 5,396 shares,
respectively, of restricted Corning common stock granted under Corning's
Career Share Plan (such shares, "Career Shares") and under Corning's
Corporate Performance Plans (such shares, "CPP Shares"), collectively having
an aggregate value on December 31, 1997 of $2,034,423; $681,992; $994,920;
$0; and $199,146, respectively.
Career Shares held by Messrs. Campanella, Collins and Kinlin are fully
vested as of the Closing Date, but are subject to transfer restrictions,
which in the case of Mr. Campanella will be eliminated annually on a pro
rata basis until age 60, and in the case of Mr. Kinlin will be eliminated
annually on a pro rata basis for a period of five years commencing December
15, 1999. Career Shares held by Ms. Frock are subject to restriction on
transfer until she retires at or after age 60 and are subject to forfeiture
prior to age 60, in whole, if she voluntarily terminates employment with
Corning and, in part, if her employment is terminated by Corning. CPP Shares
held by Messrs. Campanella, Collins and Kinlin are fully vested as of the
Closing Date, but are subject to transfer restrictions until February 1,
2000. CPP Shares held by Ms. Frock are not fully vested as of the Closing
Date and are subject to both forfeiture and transfer restrictions until
February 1, 2000.
Dividends are paid to each named executive officer on all shares of
restricted Corning common stock held by them.
(4) Represents amounts contributed by Corning as matching contributions to
Corning's tax-qualified Investment Plan and amounts paid in cash to the
named executive officers for benefits which would have been available to
them pursuant to the terms of the Corning Investment Plan but for certain
limitations on compensation which may be taken into account under tax-
qualified plans as imposed pursuant to the Internal Revenue Code of 1986, as
amended (the "Code").
(5) Mr. Collins' employment with the Company recently terminated and he has
retired from Corning.
(6) Ms. Frock's employment with the Company recently terminated and she has
become an employee of Corning.
70
<PAGE>
The following table sets forth certain information regarding options granted
in 1997 to the named executive officers pursuant to Corning stock option plans.
OPTION/SAR GRANTS IN LAST COMPLETED FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(2) OPTION TERM(3)
------------------------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION GAIN AT GAIN AT
NAME GRANTED IN FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------------------------ ------------- ------------------- ----------- ----------- --------- ---------
Peter F. Campanella............................. 8,000 0.9% $ 35.32 2/4/07 $ 177,700 $ 450,328
George M. Collins............................... 4,000 0.5% 35.32 2/4/07 88,850 225,164
Clark S. Kinlin................................. 4,000 0.5% 35.32 2/4/07 88,850 225,164
Twilver Gordon.................................. 2,000 0.2% 47.00 4/23/07 59,116 149,812
Kim L. Frock.................................... 4,000 0.5% 35.32 2/4/07 88,850 225,164
</TABLE>
- ------------------------
(1) No SARs were granted in 1997 to any of the named executive officers.
(2) The stock option agreements with Messrs. Campanella, Collins, Kinlin and Ms.
Frock provide that one-half of the options will become exercisable on
February 1, 1999 and the remainder will become exercisable on February 1,
2000. The stock option agreement for Mr. Gordon provides that one-half of
the options will become exercisable on April 24, 1998 and the remainder will
become exercisable on April 24, 1999.
(3) The dollar amounts set forth under these columns are the result of
calculations at the 5% and 10% rates established by the Commission and
therefore are not intended to forecast future appreciation of the value of
Corning's common stock.
The following table sets forth the number of shares of Corning common stock
covered by both exercisable and unexercisable stock options as of December 31,
1997 held by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(2) AT FISCAL YEAR END(3)
------------------------------ ----------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ------------- --------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Peter F. Campanella.................. 26,951 $ 729,111 33,540 91,843 $ 306,166 $ 935,742
George M. Collins.................... 5,345 179,289 3,593 36,340 37,354 356,144
Clark S. Kinlin...................... 0 0 15,551 14,780 161,096 122,945
Twilver Gordon....................... 0 0 6,587 2,898 59,046 7,333
Kim L. Frock......................... 2,995 126,090 6,349 5,198 53,189 15,673
</TABLE>
- ------------------------
(1) There are no SARs outstanding.
(2) Adjusted for spin-offs at December 31, 1996.
(3) Value at December 31, 1997.
71
<PAGE>
PENSION PLAN
Prior to the Closing Date, each of the named executive officers participated
in and accrued benefits under Corning's Salaried Pension Plan (the "Corning
Pension Plan"), a defined benefit plan. Benefits paid under this plan are based
upon career earnings (regular salary and cash bonuses paid under Corning's
variable compensation plans substantially as set forth in the Summary
Compensation Table) and years of credited service. The benefit formula is
reviewed and adjusted periodically for inflationary and other factors. Effective
upon commencement of employment, salaried employees may contribute to the
Corning Pension Plan two percent of their annual earnings up to the social
security wage base. Such employees will receive for each year of credited
service after December 31, 1990 an additional amount of pension benefit
reflecting the value of the increased voluntary contribution. Benefits under the
Corning Pension Plan are not subject to social security or other offsets.
Corning maintains a non-qualified Supplemental Pension Plan (the
"Supplemental Plan"), pursuant to which it will pay to certain executives,
including each of the named executive officers, amounts approximately equal to
the difference between the benefits provided for under the Corning Pension Plan
and benefits which would have been provided thereunder but for limitations on
benefits which may be provided under tax-qualified plans, as set forth in the
Code.
Effective upon the Closing Date, the Company will establish a pension plan
("CCP Pension Plan") providing pension benefits which are substantially similar
in aggregate economic value to those provided by the Corning Pension Plan. It is
anticipated that executives who participated in the Supplemental Plan will
participate, as of the Closing Date, in the Borden Inc. Executive Supplemental
Pension Plan.
Maximum annual benefits calculated under the straight life annuity option
form of pension payable to participants at age 60 are illustrated in the table
set forth below. The table below does not reflect any limitations on benefits
imposed by the Code. Assets of the Corning Pension Plan and Supplemental Plan
will not be transferred to the Company from Corning in connection with the
Recapitalization and the Company will have no obligations under these plans
following the Recapitalization.
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35 40
- --------------- --------- --------- --------- --------- ---------- ----------
$ 100,000 $ 26,202 $ 35,559 $ 44,419 $ 52,784 $ 61,149 $ 69,514
200,000 56,202 75,559 94,419 112,784 131,149 149,514
300,000 86,202 115,559 144,419 172,784 201,149 229,514
400,000 116,202 155,559 194,419 232,784 271,149 309,514
500,000 146,202 195,559 244,419 292,784 341,149 389,514
600,000 176,202 235,559 294,419 352,784 411,149 469,514
700,000 206,202 275,559 344,419 412,784 481,149 549,514
800,000 236,202 315,559 394,419 472,784 551,149 629,514
900,000 266,202 355,559 444,419 532,784 621,149 709,514
1,000,000 296,202 395,559 494,419 592,784 691,149 789,514
1,100,000 326,202 435,559 544,419 652,784 761,149 869,514
1,200,000 356,202 475,559 594,419 712,784 831,149 949,514
1,300,000 386,202 515,559 644,419 772,784 901,149 1,029,514
1,400,000 416,202 555,559 694,419 832,784 971,149 1,109,514
1,500,000 446,202 595,559 744,419 892,784 1,041,149 1,189,514
</TABLE>
It is estimated that Messrs. Campanella, Collins, Kinlin, Gordon and Ms.
Frock, who currently have 25, 24, 15, 28 and 9 years of credited service,
respectively, would receive each year (if they worked to age 60) $360,639,
$98,030, $175,128, $74,868 and $148,072, respectively, under the Corning
Salaried Pension Plan, the Supplemental Plan and the CCP Pension Plan (if
applicable) in the aggregate. Messrs. Campanella's, Collins', Kinlin's and
Gordon's employment with Corning recently terminated and each became employees
of the Company.
72
<PAGE>
EMPLOYEE AGREEMENTS
The Company has in place a severance practice pursuant to which it will
provide to all salaried employees upon certain terminations of employment,
compensation in amounts ranging between eight weeks of base salary (for
employees with at least one year of service) and 52 weeks of base salary (for
employees with at least 20 years of service).
COMPENSATION OF MEMBERS OF BOARD
Members of the Board will receive no cash compensation for their service on
the Board or its committees. Members of the Board will receive reimbursement for
traveling costs and other out-of-pocket expenses incurred in attending Board and
committee meetings.
RETENTION PROGRAM
The Company has adopted a retention program (the "Retention Program") for 84
key employees (73 of its domestic employees and 11 of its international
employees). The Retention Program provides that its participants will receive
retention payments (ranging from three to six months of base salary) if they
remain employed with the Company for six months following the Closing Date. The
Recapitalization Agreement provides that Corning shall reimburse the Company for
its payments made under the Retention Program following the Closing Date.
TRANSITION ARRANGEMENTS
Corning has entered into transition agreements with eight officers of the
Company providing certain cash and stock incentives and assurances regarding the
treatment of outstanding Corning equity grants to such officers.
1998 STOCK PURCHASE AND OPTION PLAN
The Company has adopted the 1998 Plan. The 1998 Plan provides for the sale
by CCPC Acquisition of 820,000 shares of outstanding Common Stock and the
issuance by the Company of options to purchase 2,880,000 authorized but unissued
shares of Common Stock, subject to adjustment by the Company to reflect certain
events such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of the Company. CCPC Acquisition is currently in the process of
selling 820,000 shares of Common Stock to members of management at a purchase
price of $5.00 per share. The 1998 Plan is intended to assist the Company in
attracting and retaining employees of outstanding ability and to promote the
identification of their interests with those of the Company. Unless sooner
terminated by the Company's Board of Directors, the 1998 Plan will expire ten
years after adoption. Such termination will not affect the validity of any grant
under the 1998 Plan ("1998 Plan Grant") outstanding on the date of the
termination. Under the 1998 Plan, CCPC Acquisition is currently in the process
of selling shares of Common Stock owned by CCPC Acquisition, and the Company is
making grants of options to purchase authorized but yet unissued shares of
Common Stock, to certain members of management of the Company. In the aggregate,
the sales of shares of Common Stock by CCPC Acquisition and the option grants by
the Company will represent approximately 13.8% of the Company's fully diluted
Common Stock. If all of such granted options are exercised, the Company will
receive proceeds of $14.4 million, which will be used for general corporate
purposes.
The Compensation Committee of the Board of Directors will administer the
1998 Plan, including, without limitation, the determination of the employees to
whom 1998 Plan Grants will be made, the number of shares of Common Stock subject
to each 1998 Plan Grant, and the various terms of 1998 Plan Grants. The
Compensation Committee of the Board of Directors may from time to time amend the
terms of any 1998 Plan Grant, but, except for adjustments made upon a change in
the Common Stock by reason of a stock split, spin-off, stock dividend, stock
combination or reclassification, recapitalization,
73
<PAGE>
reorganization, consolidation, change of control, or similar event, such action
shall not adversely affect the rights of any participant under the 1998 Plan
without such participant's consent. The Board of Directors retain the right to
amend, suspend or terminate the 1998 Plan.
MANAGEMENT STOCKHOLDERS' AGREEMENTS
In connection with the 1998 Plan, the Company and each such employee will
enter into a management stockholders' agreement and a stock option agreement.
The management stockholders' agreement and related sale participation agreement
will (i) place restrictions on each such employee's ability to transfer shares
of Common Stock, including a right of first refusal in favor of the Company,
(ii) provide each such employee the right to participate pro rata in certain
sales of Common Stock by CCPC Acquisition or its affiliates and (iii) provide
CCPC Acquisition and its affiliates the right to require each such employee to
participate pro rata in certain sales of Common Stock by CCPC Acquisition or its
affiliates. The management stockholders' agreements will also grant piggyback
registration rights to each such employee pursuant to the CCPC Acquisition
Registration Rights Agreement. In addition, the management stockholders'
agreement will give the Company the right to purchase shares and options held by
each such employee upon termination of employment for any reason and will permit
each such employee to sell stock and options to the Company, and the Company
will be required to purchase such stock, in the event of death, disability or
retirement after turning 65 years of age.
74
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of April 1, 1998 by (i) each person
who is known by the Company to beneficially own more than 5% of the Company's
Common Stock, (ii) each of the Company's directors who own Common Stock, (iii)
each of the named executive officers who own Common Stock and (iv) all directors
and executive officers as a group. Unless otherwise indicated, the address of
each person named in the table below is Corning Consumer Products Company,
E-Building, Houghton Park, Corning, New York 14831.
<TABLE>
<CAPTION>
BENEFICIAL PERCENTAGE OF
OWNERSHIP OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OUTSTANDING
- ---------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
KKR Associates, L.P.(2) .................................................... 21,477,000 89.5%
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, New York 10019
Edward A. Gilhuly......................................................... -- --
Clifton S. Robbins........................................................ -- --
Scott M. Stuart........................................................... -- --
Corning Incorporated ....................................................... 1,920,000 8.0%
One Riverfront Plaza
Corning, NY 14831
Peter F. Campanella(3)...................................................... 180,000 *
Twilver Gordon(3)........................................................... 45,000 *
Clark S. Kinlin(3).......................................................... 80,000 *
Thomas C. O'Brien(3)........................................................ 25,000 *
All executive officers and directors as a group (13 persons, excluding
Messrs. Gilhuly, Robbins and Stuart)(4)..................................... 330,000 1.4%
</TABLE>
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* Less than 1%.
(1) The amounts and percentages of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of securities as
to which such person has an economic interest. The percentage of class
outstanding is based on 24,000,000 shares of Common Stock outstanding on the
Closing Date. It is expected that after completion of the Transactions, CCPC
Acquisition will secondarily sell shares of Common Stock, and the Company
will issue options to purchase Common Stock, to management of the Company,
which in the aggregate will represent approximately 13.8% of the fully
diluted common equity of the Company.
(2) Shares of Common Stock shown as owned by KKR Associates, L.P. ("KKR
Associates") are owned of record by CCPC Acquisition. KKR Associates is the
sole general partner of Whitehall Associates, L.P., which is the managing
member of BW Holdings, LLC. BW Holdings, LLC owns 100% of the outstanding
capital stock of CCPC Acquisition. Messrs. Gilhuly, Robbins and Stuart (who
are directors of the Company) and Messrs. Henry R. Kravis, George E.
Roberts, James H. Greene, Jr., Paul E. Raether, Michael W. Michelson,
Michael T. Tokarz, Perry Golkin and Robert I. MacDonnel, as general partners
of KKR Associates, may be deemed to share beneficial ownership of any shares
beneficially owned by KKR Associates, but disclaim any such beneficial
ownership. The address of KKR Associates is 9 West 57th Street, New York,
New York 10019.
(3) The Company has granted Messrs. Campanella, Gordon, Kinlin and O'Brien
options to purchase 540,000, 135,000, 240,000 and 75,000 shares of Common
Stock, respectively, of which 20% will vest each year beginning one year
after the date of grant.
(4) The Company currently is in the process of implementing the 1998 Plan which
will provide for ownership of up to 13.8% of the outstanding Common Stock by
members of management, including the shares acquired by Messrs. Campanella,
Gordon, Kinlin and O'Brien.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
BETWEEN CORNING AND THE COMPANY
Historically, Corning has provided the Company with certain administrative,
technical and other services, as well as providing office space and
manufacturing capacity in facilities owned or leased by Corning. Additionally,
Corning has made available to the Company certain manufacturing technology and
other intellectual property, including the Pyrex-Registered Trademark- and
Corning Ware-Registered Trademark- trademarks. In connection with the
Recapitalization, Corning and the Company entered into several agreements
relating to the provision by Corning of goods and services to the Company, the
sharing of certain facilities with the Company and the royalty-free license to
use certain trademarks, tradenames, service marks, patents and know-how of
Corning, in each case, on terms substantially as described below.
HEADQUARTERS LEASE AND TRANSITION SERVICES AGREEMENT. Corning has entered
into agreements with the Company pursuant to which Corning will continue to make
available to the Company certain office space and related facilities currently
used as the Company's headquarters until October 1, 1999 and certain
administrative services which the Company currently obtains from or through
Corning until April 1, 2000. Corning has agreed to provide this office space and
these services on substantially the same terms as offered by Corning during the
12-month period immediately prior to the Recapitalization and reflected in the
Company's historical financial statements. The Company has the right to
terminate the headquarters' lease on 30 days' notice and the right to terminate
the receipt of specific administrative services on 90 days' notice. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Separation from Corning; Transaction Related Charges."
SUPPLY AGREEMENT. Certain of the Company's Pyrex-Registered Trademark-
bakeware products are manufactured at a facility owned by Corning in Greenville,
Ohio. The Company and Corning entered into a supply agreement pursuant to which
Corning will supply the Company with manufacturing capacity for these products
for three years. Orders under the supply agreement will be billed at Corning's
actual cost (consisting of standard costs plus variances allocable to production
of the Company's products) determined in the same manner as during the 12-month
period immediately prior to the Recapitalization and reflected in the Company's
historical financial statements.
TECHNOLOGY SUPPORT AGREEMENT. The Company obtains certain manufacturing
technology, engineering and research and development services from Corning. The
Company and Corning entered into a technology support agreement pursuant to
which Corning will continue to make these manufacturing and technology services
available to the Company. In addition, the technology support agreement will
provide for Corning and the Company to conduct an annual technology review, for
each other's benefit, relating to patents and technical know-how in the field of
the Company's products. The manufacturing technology and engineering services to
be provided by Corning will be made available to the Company on the same basis
as has been made available to the Company during the 12-month period immediately
prior to the Recapitalization. The technology support agreement will have a term
of five years and will be renewable for an additional five-year term at the
option of the Company.
ADMINISTRATIVE SERVICES AGREEMENT. In order to enable the Company to
continue its sales operations in Australia, Brazil, Mexico, China, Hong Kong,
India, Japan, Korea, Singapore and Taiwan, Corning or its affiliates will
provide certain administrative and distribution services and sublease space to
the Company. The administrative services agreement governing these arrangements
has a term of two years expiring on April 1, 2000 and is on terms designed to
replicate substantially the economic terms of the arrangements in effect during
the 12 months immediately prior to the Recapitalization.
SHARED FACILITY AGREEMENT. The Company's Corning, New York manufacturing
facility is adjacent to, and shares certain assets and infrastructure (e.g.,
waste disposal and utility service facilities) with, Corning's Fallbrook Plant.
The Company and Corning have entered into a shared facility agreement pursuant
to which the parties have provided for the continued use and sharing of these
assets and infrastructure facilities and the allocation of the costs associated
with these items (which costs are
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generally allocated according to the parties' relative use of such shared asset)
until April 1, 2008, or until such earlier time as the Company or Corning shall
have terminated its obligation to accept or provide such assets and
infrastructure facilities in accordance with the agreement.
LICENSE AGREEMENTS. Corning and the Company entered into certain license
agreements pursuant to which Corning granted to the Company exclusive licenses
to use the Corning Ware-Registered Trademark- trademark, service mark and trade
name and Pyroceram-Registered Trademark- trademark in the field of housewares
and the Pyrex-Registered Trademark- trademark in the field of durable consumer
products (which the Company currently does not sell) for ten years (each
renewable at the option of the Company on the same terms and conditions for an
unlimited number of successive ten-year terms). In addition, Corning entered
into agreements with the Company providing for the Company's continued use of
the Corning name for up to three years (and up to five years for molds and
molded products with the Corning name embedded thereon). Corning granted to the
Company a fully paid, royalty free license of patents and know-how (including
evolutionary improvements) owned by Corning that pertain to or have been used in
the Company's business. See "Business--Intellectual Property."
CORNING GLASS CENTER AND SUPPLY ARRANGEMENTS. Pursuant to the
Recapitalization Agreement, the Company will maintain its commercial
arrangements with the Corning Glass Center (the Corning employee store) for a
period of ten years following the Closing Date on a pricing basis of the
Company's standard costs plus 15% and will continue to sell products to
Corning's manufacturing facilities for a period of five years in substantially
the same quantities and terms as during the twelve month period prior to March
2, 1998.
BETWEEN BORDEN AND THE COMPANY
In connection with the Recapitalization, the Company and Borden entered into
an agreement pursuant to which Borden will provide management, consulting and
financial services to the Company. Services will be provided in such areas as
the preparation and evaluation of strategic, operating, financial and capital
plans and the development and implementation of compensation and other incentive
programs. In consideration for such services, Borden will be entitled to an
annual fee of $1.5 million, plus reimbursement for certain expenses and
indemnification against certain liabilities. This agreement is terminable by
either party upon 30 days written notice. In connection with the
Recapitalization and in consideration of services provided by Borden in
arranging, structuring and negotiating the terms of the Recapitalization and the
related financing transactions, the Company paid Borden transaction and
financing fees and expenses of $8.0 million. The transaction and financing fees
and expenses are included in the fees and expenses incurred in connection with
the Recapitalization described under "Summary" and were funded through the
stated sources of funds disclosed thereunder. In addition, Borden and its
affiliates provided all of the interim debt financing for the Recapitalization,
a portion of which was refinanced by borrowings under the Credit Facilities and
the remainder was refinanced with the proceeds of the Old Notes.
TAX SHARING AGREEMENT
The Company and certain of its subsidiaries have entered into a tax sharing
arrangement with CCPC Acquisition pursuant to which the Company and such
subsidiaries will be required to compute their provision for income taxes on a
separate return basis and pay to, or receive from, CCPC Acquisition the separate
U.S. federal and applicable state and local income tax return liability or
credit so computed, if any.
STOCKHOLDERS' AGREEMENT; REGISTRATION RIGHTS AGREEMENT
The Company, CCPC Acquisition and Corning entered into the Stockholders'
Agreement which provides for certain restrictions and rights regarding the
transfer of Common Stock, including a right of first refusal in favor of, first,
the Company and, if the Company refuses, then CCPC Acquisition with
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respect to the Common Stock owned by Corning. After the Closing Date, Corning
will have the right to participate pro rata in certain sales of Common Stock
through the Corning Tag Along, and CCPC Acquisition will have the right to
require Corning to participate pro rata in certain sales of Common Stock by CCPC
Acquisition through the Corning Drag Along. In addition, the Stockholders'
Agreement provides Corning with unlimited "piggy back" registration rights and
one demand registration right.
CCPC Acquisition has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of Common Stock held by it pursuant to the CCPC Acquisition Registration
Rights Agreement. Such registration rights will generally be available to CCPC
Acquisition until registration under the Securities Act is no longer required to
enable it to resell the Common Stock owned by it without restriction. The CCPC
Acquisition Registration Rights Agreement provides, among other things, that the
Company will pay all registration expenses in connection with the first six
demand registrations requested by CCPC Acquisition and in connection with any
registration commenced by the Company as a primary offering in which CCPC
Acquisition participates through "piggyback" registration rights granted under
the CCPC Acquisition Registration Rights Agreement.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Certificate of Incorporation of the Company authorizes 45,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"), of which 2,000,000 shares have been designated as
the Junior Preferred Stock. As of April 1, 1998, the outstanding capital stock
of the Company consisted of 24,000,000 shares of Common Stock and 1,200,000
shares of the Junior Preferred Stock. The following summaries of certain
provisions of the Common Stock and the Preferred Stock do not purport to be
complete and are subject to, and qualified in their entirety by, the provisions
of the Certificate of Incorporation and Bylaws of the Company.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company, and do not have cumulative
voting rights. The holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available for that purpose, subject to
preferences that may be applicable to any outstanding Preferred Stock and any
other provisions of the Company's Certificate of Incorporation. Holders of
Common Stock have no preemptive or other rights to subscribe for additional
shares. No shares of Common Stock are subject to redemption or a sinking fund.
In the event of any liquidation, dissolution or winding up of the Company, after
payment of the debts and other liabilities of the Company, and subject to the
rights of holders of shares of Preferred Stock, holders of Common Stock are
entitled to share pro rata in any distribution to the stockholders. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders.
Holders of Junior Preferred Stock are entitled to receive cumulative
dividends at the rate of $0.75 per share per calendar quarter. Such dividends
may be paid, at the option of the Company, in cash or in additional shares of
Junior Preferred Stock, or in a combination thereof. The Company may at any time
at its option redeem the Junior Preferred Stock at a redemption price per share
equal to $25.00, plus an amount equal to all unpaid accumulated dividends
thereon (the "Redemption Price"). Upon a Change of Control, the holders of the
Junior Preferred Stock have the right to require the Company to purchase the
Junior Preferred Stock at the Redemption Price, subject to the restrictions
contained in the Credit Facilities and subject to the prior payment of the
Change of Control Payment relating to the Exchange Notes and any other amounts
due pursuant to indebtedness of the Company as a result of the Change of
Control. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Junior Preferred Stock shall be entitled to an amount
equal to $25.00 per share, plus an amount equal to all accumulated dividends
thereon. Holders of Junior Preferred Stock are not entitled to voting or
conversion rights.
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DESCRIPTION OF CREDIT FACILITIES
The Credit Facilities are provided by a syndicate of banks and other
financial institutions (the "Lenders") led by The Chase Manhattan Bank, as
administrative agent (the "Administrative Agent"), Salomon Brothers Holding
Company Inc, as syndication agent, and Bankers Trust Company, as documentation
agent. The Credit Facilities provide for the Term Loans of $200.0 million and
the Revolving Credit Facility of up to $275.0 million. The Revolving Credit
Facility includes borrowing capacity of up to $25.0 million for letters of
credit, and up to $25.0 million for short-term swing line loans. The final
maturity of the Term Loans is the date that is 8 1/2 years after closing of the
Credit Facilities on April 9, 1998 (the "Closing") and provides for nominal
annual amortization. The final maturity of loans under the Revolving Credit
Facility is the date that is 7 years after the Closing. Certain capitalized
terms used in this section have the meanings set forth in the Credit Facilities.
The interest rate for the Term Loans fluctuates based on leverage and
initially is Adjusted LIBOR plus 2.00%. The interest rate under the Revolving
Credit Facility fluctuates based on leverage and initially is ABR plus 1.75%.
The Company may elect interest periods of 1, 2, 3 or 6 months (or 9 or 12
months, to the extent available from all the Lenders) for Adjusted LIBOR
borrowings. Calculation of interest is on the basis of actual days elapsed in a
year of 360 days (or 365 or 366 days, as the case may be, in the case of ABR
loans based on the Prime Rate) and interest in arrears is payable at the end of
each interest period and, in any event, at least every 3 months or 90 days, as
the case may be. ABR is the Alternate Base Rate, which is the highest of Chase's
Prime Rate, the Federal Funds Effective Rate plus 0.5% and the Base CD Rate plus
1.0%. Adjusted LIBOR and the Base CD Rate will at all times include statutory
reserves to the extent actually incurred (and, in the case of the Base CD Rate,
FDIC assessment rates).
The Company will pay a commitment fee at a rate which will fluctuate based
on leverage and initially is 0.375% per annum on the undrawn portion of the
commitments in respect of the Credit Facilities, payable quarterly in arrears
after the Closing. The commitment fees will at all times be calculated based on
the actual number of days elapsed over a 365-day year.
The Company will pay a letter of credit fee equal to a rate per annum equal
to the margin for Adjusted LIBOR loans under the Revolving Credit Facility, less
0.125%, on the aggregate face amount of outstanding letters of credit under the
Revolving Credit Facility, payable in arrears at the end of each quarter and
upon the termination of the Revolving Credit Facility, in each case for the
actual number of days elapsed over a 365-day year. In addition, the Company will
pay to the fronting bank, for its own account, (a) a fronting fee of 0.125% per
annum on the aggregate face amount of outstanding letters of credit, payable in
arrears at the end of each quarter and upon the termination of the Revolving
Credit Facility, in each case for the actual number of days elapsed over a
365-day year, and (b) customary issuance, amendment and administration fees.
The Credit Facilities contain provisions under which commitment fees and
interest rates will be adjusted in increments based on the ratio (the "Leverage
Ratio") of consolidated total debt to consolidated adjusted EBITDA in effect
from time to time. Subject to certain exceptions, the margin for Adjusted LIBOR
loans for the Term Loans and the Revolving Credit Facility, and the commitment
fee rate thereunder, will be, in the case of a Leverage Ratio (i) greater than
or equal to 6.0:1.0, 2.50%, 2.25% and 0.425%, respectively, (ii) greater than or
equal to 5.5:1.0 but less than 6.0:1.0, 2.25%, 2.00% and 0.375%, respectively,
(iii) greater than or equal to 5.0:1.0 but less than 5.5:1.0, 2.00%, 1.75% and
0.375%, respectively, (iv) greater than or equal to 4.5:1.0 but less than
5.0:1.0, 1.75%, 1.50% and 0.350%, respectively, (v) greater than or equal to
4.0:1.0 but less than 4.5:1.0, 1.50%, 1.25% and 0.30%, respectively, (vi)
greater than or equal to 3.25:1.0 but less than 4.0:1.0, 1.50%, 1.00% and 0.25%,
respectively and (vii) less than 3.25:1.0, 1.50%, 0.75% and 0.225%,
respectively, with the margin for ABR loans being 1.0% less than the
corresponding margin for Adjusted LIBOR loans (but not less than 0%).
The Term Loans are subject to mandatory prepayment with (a) the net cash
proceeds of certain non-ordinary-course asset sales or other dispositions of
property by the Company and its subsidiaries,
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except to the extent that such proceeds are reinvested in the business of the
Company and its subsidiaries within a specified time period and subject to
certain other exceptions, (b) a portion of excess cash flow (as defined in the
Credit Facilities) and (c) the net proceeds of certain issuances of debt
obligations of the Company and its subsidiaries. Voluntary prepayments and
Revolving Credit Facility commitment reductions are permitted in whole or in
part at the option of the Company, in minimum principal amounts, without premium
or penalty, subject to reimbursement of certain of the Lenders' costs under
certain conditions.
The Company's obligations under the Credit Facilities are required to be
secured by a perfected first priority pledge of and security interest in (i) all
the common stock of existing and subsequently acquired direct domestic
subsidiaries of the Company (which at Closing consisted of Revere Ware
Corporation; the Company intends to transfer substantially all of its assets to
a new subsidiary after the Closing, the stock of which will also be pledged as
described above) other than common stock of unrestricted subsidiaries and
certain subsidiaries created or acquired in connection with permitted
acquisitions, (ii) evidences of indebtedness in excess of $5.0 million received
by the Company in connection with asset sales other than sales in the ordinary
course of business or in connection with permitted sale-leasebacks and (iii) 65%
of the common stock of existing and subsequently acquired material direct
foreign subsidiaries. In addition, indebtedness under the Credit Facilities is
required to be guaranteed by each existing and subsequently acquired domestic
subsidiary of the Company (which at Closing consisted of Revere Ware
Corporation), subject to certain exceptions. See "Description of the Exchange
Notes-- Subordination" and "Risk Factors--Subordination" and "--Encumbrances on
Assets to Secure Credit Facilities."
The Credit Facilities contain customary covenants and restrictions on the
Company's ability to, among other things, incur debt, grant liens, sell assets,
pay dividends, make investments, prepay or redeem the Exchange Notes, enter into
leases or make capital expenditures. In addition, the Credit Facilities provide
that the Company (i) must meet or exceed a ratio of consolidated adjusted EBITDA
to consolidated adjusted interest expense of 1.50 to 1.00 for the period June 30
to December 31, 1998 and gradually increasing through the maturity of the Term
Loans to 2.50 to 1.00 and (ii) must not exceed a ratio of consolidated total
debt to consolidated adjusted EBITDA of 6.50 to 1.00 at December 31, 1998 and
gradually decreasing through the maturity of the Term Loans to 4.00 to 1.00.
Events of default under the Credit Facilities include (i) nonpayment of
principal with no period of grace and nonpayment of interest, fees or other
amounts due under the Credit Facilities within 5 days after the same become due;
(ii) material breach of any representation or warranty; (iii) failure to observe
any other term, covenant or agreement contained in the Credit Facilities beyond
an applicable period of grace; (iv) the failure by the Company or its
subsidiaries (1) to make payments in respect of any indebtedness when due which
continues after the applicable period of grace or (2) to perform or observe any
condition or covenant or any other event occurring or condition existing
relating to indebtedness of the Company or its subsidiaries and the effect of
such failure, event or condition is to cause or to permit the holders of such
indebtedness to cause such indebtedness to be due prior to its stated maturity,
and, in the case of both clause (1) and (2), the aggregate amount of such
indebtedness, together with the aggregate amount of all other indebtedness in
default, equals or exceeds $20.0 million; (v) certain events of bankruptcy or
insolvency with respect to the Company or material subsidiaries; (vi) the
occurrence of certain events under the Employee Retirement Income Security Act
of 1974, as amended; (vii) any material provision of the pledge agreement
ceasing to create a valid security interest or the guaranty of the Company's
obligations ceasing to be effective; (viii) judgments against the Company or its
subsidiaries of $20.0 million or greater that remain unsatisfied, unvacated or
unstayed pending appeal for a period of 60 days after entry; or (ix) a change of
control.
A "change of control" under the Credit Facilities will occur if (a) KKR, its
affiliates and management of the Company cease to own in the aggregate, directly
or indirectly, beneficially and of record, at least 35% of the outstanding
voting stock of the Company (other than as the result of one or more widely
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distributed offerings of voting stock of the Company); (b) any person, entity or
"group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act) have
acquired direct or indirect beneficial ownership of a percentage of the
outstanding voting stock of the Company that exceeds the percentage of such
voting stock then beneficially owned, in the aggregate, by KKR, its affiliates
and management of the Company, unless, in the case of (a) or (b) above, KKR, its
affiliates and management of the Company have, at such time, the right or the
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company; or (c) at any time
"continuing directors" shall not constitute a majority of the Board of Directors
of the Company. Continuing directors of the Company under the Credit Facilities
is defined in the Credit Facilities to include members of the Board of Directors
at Closing, individuals who have been members of the Board of Directors for the
preceding 12 months, individuals nominated by KKR and individuals nominated by a
majority of the then continuing directors.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $200.0 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
As of the date of this Prospectus, $200.0 million aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September 21, 1998, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "--Certain Conditions to the Exchange Offer" below. The Company
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on May 5, 1998 in a transaction exempt from the
registration requirements of the Securities Act. Accordingly, the Old Notes may
not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, which requires the Company to
file with the Commission a registration statement relating to the Exchange Offer
not later than 100 days after the date of issuance of the Old Notes, and to use
its best efforts to cause the registration statement relating to the Exchange
Offer to become effective under the Securities Act not later than 200 days after
the date of issuance of the Old Notes and the Exchange Offer to be consummated
not later than 230 days after the date on which the Old Notes were issued. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Company is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Company is making the Exchange Offer in reliance on the position of the
Staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such
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Exchange Notes are acquired in the ordinary course of such Holder's business and
that such Holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Notes. See "--Resale of Exchange Notes." Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old 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 will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for sale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is a broker-dealer or is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a no-action letter, there can be no assurance that the Staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Company or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. A broker-dealer
may not participate in the Exchange Offer with respect to Old Notes acquired
other than as a result of market-making activities or other trading activities.
See "Plan of Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from May 5, 1998.
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Tendering holders of the Old Notes shall 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 Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on October
20, 1998, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date") . The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn. The Company does not anticipate
extending the Expiration Date.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "--Certain Conditions to the Exchange Offer" which have not been waived by
the Company and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will exchange the Exchange Notes for the Old Notes
on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes 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 Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY.
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If tendered Old 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 Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for the
Old Notes, the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method 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 Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed
Delivery") which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered
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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 Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, or if it is an affiliate it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
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 Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old 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 Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens,
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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 Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered Old
Notes or transfer ownership of such Old Notes on the account books maintained by
a book-entry transfer facility. The Transferor further agrees that acceptance of
any tendered Old Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of certain
of its obligations under the Registration Rights Agreement. 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.
The Transferor certifies that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that it is 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. Each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of Exchange Notes. Each Transferor which is a
broker-dealer receiving Exchange Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. 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 Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company will, for a period of 90 days after the Expiration Date,
make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
facsimile transmission (receipt confirmed by telephone) or letter must be
received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Notes to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (vi) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry
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transfer facility pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account with such book-entry
transfer facility specified by the holder) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or have a material
adverse effect on the contemplated benefits of the Exchange Offer to the
Company; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Old Notes or the Exchange
Notes or that may materially impair the contemplated benefits of the
Exchange Offer to the Company; or
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(c) any law, rule or regulation or applicable interpretations of the
Staff of the Commission is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation of the
Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law statute, rule or
regulation) which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or have
a material adverse effect on the contemplated benefits of the Exchange Offer
to the Company; or
(f) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(g) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) any limitation by any govermental agency or authority
which may adversely affect the ability of the Company to complete the
transactions contemplated by the Exchange Offer, (iii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iv) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (v) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting,
the extension of credit by banks or other leading institutions in the United
States, or (vi) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offer, a material acceleration or worsening
thereof.
The Company expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If the Company waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that the Company first gives notice, by
public announcement or otherwise, of such waiver or amendment, if the Exchange
Offer would otherwise expire within such five business-day period. Any
determination by the Company concerning the events described above will be final
and binding upon all parties.
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In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
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 the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL:
Marine Midland Bank Marine Midland Bank
140 Broadway, Level A 140 Broadway, Level A
New York, New York 10005-1180 New York, New York 10005-1180
Attention: Paulette Shaw Attention: Paulette Shaw
BY FACSIMILE:
(212) 658-2292
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 658-5931
</TABLE>
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $500,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
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
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information or representations should not be relied upon as having been
authorized by the Company. 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 Company 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 Old 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 Company may, at its 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 Old Notes in such jurisdiction. In any jurisdiction in which 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 Company by one or more registered brokers or dealers which are licensed
under the laws of such jurisdication.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes 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 that by
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their terms terminate or cease to have further effectiveness as a result of the
making of this Exchange Offer. All untendered Old Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such Holder's business and that such
Holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any Holder who is an "affiliate" of the
Company or who has an arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, or any broker-dealer who purchased Old Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
(i) could not rely on the applicable interpretations of the staff and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act. A broker-dealer who holds Old Notes that were acquired for its
own account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under the Indenture. The terms of the Exchange Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture describes the
material terms of the Indenture but is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions." The Indenture
is an exhibit to the Registration Statement of which this Prospectus is a part.
On May 5, 1998, the Company issued $200.0 million aggregate principal amount
of Old Notes under the Indenture. The terms of the Exchange Notes are identical
in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Old
Notes. Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the Exchange Notes, will be treated as a single
class of securities under the Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Exchange
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old Notes and
Exchange Notes then outstanding.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. As of June 30, 1998, on a pro forma basis giving effect to
Transactions, the aggregate amount of the Company's outstanding Senior
Indebtedness would have been approximately $279.7 million, all of which would
have been secured Indebtedness and the Company would have had no Senior
Subordinated Indebtedness outstanding other than the Notes. The Indenture will
permit the incurrence of additional Senior Indebtedness in the future. See "Risk
Factors--Substantial Leverage and Debt Service."
The Company is in the process of contributing substantially all of its
assets to its Subsidiaries and will operate as a holding company conducting
substantially all of its operations through its Subsidiaries. Consequently, the
Notes will be effectively subordinated to the obligations of the Company's
Subsidiaries, including the guarantee by its Subsidiaries of obligations under
the Senior Credit Facilities. The Notes are not guaranteed by any of the
Company's Subsidiaries. In the event of an insolvency, liquidation or other
reorganization of any of the Subsidiaries of the Company, the creditors of the
Company (including the holders of the Notes), as well as stockholders of the
Company, will have no right to proceed against the assets of such Subsidiaries
or to cause the liquidation or bankruptcy of such Subsidiaries under Federal
bankruptcy laws. Creditors of such Subsidiaries, including lenders under the
Senior Credit Facilities, would be entitled to payment in full from such assets
before the Company would be entitled to receive any distribution therefrom.
Except to the extent that the Company may itself be a creditor with recognized
claims against such Subsidiaries, claims of creditors of such Subsidiaries will
have priority with respect to the assets and earnings of such Subsidiaries over
the claims of creditors of the Company, including claims under the Notes. In
addition, as a result of the Company becoming a holding company, the Company's
operating cash flow and its ability to service its indebtedness, including the
Notes, will be dependent upon the operating cash flow of its Subsidiaries and
the payment of funds by such Subsidiaries to the Company in the form of loans,
dividends or otherwise. As of June 30, 1998, after giving pro forma effect to
the Transactions, the Subsidiaries of the Company would have had total
liabilities of $109.4 million (excluding guarantees in respect of the Senior
Credit Facilities).
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As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash or cash equivalents of all Senior Indebtedness, whether outstanding on the
date of the Indenture or thereafter incurred. Upon any distribution to creditors
of the Company in a 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 marshalling of the Company's assets and liabilities, the
holders of Senior Indebtedness will be entitled to receive payment in full in
cash or cash equivalents of such Senior Indebtedness and all outstanding Letter
of Credit Obligations will be fully cash collateralized before the Holders will
be entitled to receive any payment with respect to the Subordinated Note
Obligations, and until all Senior Indebtedness is paid in full in cash
equivalents, any distribution to which the Holders would be entitled shall be
made to the holders of Senior Indebtedness (except that Holders may receive (i)
shares of stock and any debt securities that are subordinated at least to the
same extent as the Notes to (a) Senior Indebtedness and (b) any securities
issued in exchange for Senior Indebtedness and (ii) payments made from the
trusts described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a
default in the payment of the principal of, premium, if any, or interest on, or
of unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "PAYMENT DEFAULT") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity without further notice (except such notice as
may be required to effect such acceleration) or the expiration of any applicable
grace periods (a "NON-PAYMENT DEFAULT") and the Trustee receives a notice of
such default (a "PAYMENT BLOCKAGE NOTICE") from a representative of holders of
such Designated Senior Indebtedness. Payments on the Notes, including any missed
payments, may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived or shall have ceased to exist
or such Designated Senior Indebtedness shall have been discharged or paid in
full in cash or cash equivalents and all outstanding Letter of Credit
Obligations shall have been fully cash collateralized and (b) in case of a
nonpayment default, the earlier of (x) the date on which such nonpayment default
is cured or waived, (y) 179 days after the date on which the applicable Payment
Blockage Notice is received (each such period, the "PAYMENT BLOCKAGE PERIOD") or
(z) the date such Payment Blockage Period shall be terminated by written notice
to the Trustee from the requisite holders of such Designated Senior Indebtedness
necessary to terminate such period or from their representative. No new Payment
Blockage Period may be commenced unless and until 365 days have elapsed since
the effectiveness of the immediately preceding Payment Blockage Notice. However,
if any Payment Blockage Notice within such 365-day period is given by or on
behalf of any holders of Designated Senior Indebtedness (other than the agent
under the Senior Credit Facilities), the agent under the Senior Credit
Facilities may give another Payment Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 365
consecutive day period. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days.
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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
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders to accelerate the maturity
thereof.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, Holders may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. In addition,
the Notes will be structurally subordinated to the liabilities of Subsidiaries
of the Company. At June 30, 1998, on a pro forma basis after giving effect to
the Transactions, the aggregate amount of the Company's outstanding Senior
Indebtedness would have been approximately $279.7 million, all of which would
have been secured Indebtedness, the Company would have had no Senior
Subordinated Indebtedness outstanding other than the Old Notes and the Company's
subsidiaries would have had total liabilities of $109.4 million, excluding
guarantees in respect of the Senior Credit Facilities. The Indenture permits the
Company to incur additional indebtedness, including up to $270.3 million of
additional Senior Indebtedness under the Senior Credit Facilities, subject to
certain limitations. Although the Indenture contains limitations on the amount
of additional Indebtedness that the Company and its Subsidiaries may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants-- Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
"DESIGNATED SENIOR INDEBTEDNESS" means (i) Senior Indebtedness under the
Senior Credit Facilities and (ii) any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $25.0 million or more and that
has been designated by the Company as Designated Senior Indebtedness.
"SENIOR INDEBTEDNESS" means (i) the Obligations under the Senior Credit
Facilities and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes, including, with respect to
clauses (i) and (ii), interest accruing subsequent to the filing of, or which
would have accrued but for the filing of, a petition for bankruptcy, in
accordance with and at the rate (including any rate applicable upon any default
or event of default, to the extent lawful) specified in the documents evidencing
or governing such Senior Indebtedness, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (1) any
liability for federal, state, local or other taxes owed or owing by the Company,
(2) any obligation of the Company to any of its Subsidiaries, (3) any accounts
payable or trade liabilities arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities) other
than obligations in respect of letters of credit under the Senior Credit
Facilities, (4) any Indebtedness that is incurred in violation of the Indenture,
(5) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (6) any Indebtedness, guarantee or obligation of the Company which is
subordinate or junior to any other Indebtedness, guarantee or obligation of the
Company, (7) Indebtedness evidenced by the Notes and (8) Capital Stock of the
Company.
"SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, together with and including any amounts received upon the exercise
of rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes.
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The Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company will have no
Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on May 1, 2008. Interest on the Notes will accrue at
the rate of 9 5/8% per annum and will be payable semi-annually in arrears on May
1 and November 1, commencing on November 1, 1998, to Holders of record on the
immediately preceding April 15 and October 15. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the Issuance Date. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal of, premium, if any,
and interest on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their respective addresses set forth in the register of Holders;
PROVIDED that all payments of principal, premium, if any, and interest with
respect to Notes represented by one or more permanent global Notes registered in
the name of or held by The Depository Trust Company or its nominee will be made
by wire transfer of immediately available funds to the accounts specified by the
Holder or Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the Company's
option prior to May 1, 2003. From and after May 1, 2003, the Notes will be
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the applicable 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), if redeemed during
the twelve-month period beginning on May 1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------------------------- ------------------
<S> <C>
2003...................................................................... 104.813%
2004...................................................................... 103.208%
2005...................................................................... 101.604%
2006 and thereafter....................................................... 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to May 1, 2001,
the Company may, at its option, redeem up to 35% of the aggregate principal
amount of Notes originally issued under the Indenture on the Issuance Date at a
redemption price equal to 109.625% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, 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 net
proceeds of one or more Equity Offerings; PROVIDED that at least 65% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date remains outstanding immediately after the occurrence of each such
redemption; PROVIDED FURTHER that each such redemption occurs within 90 days of
the date of closing of each such Equity Offering. The Trustee shall select the
Notes to be purchased in the manner described under "Repurchase at the Option of
Holders--Selection and Notice."
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At any time on or prior to May 1, 2003, the Notes may also be redeemed as a
whole at the option of the Company upon the occurrence of a Change of Control,
upon not less than 30 nor more than 60 days prior notice (but in no event more
than 90 days after the occurrence of such Change of Control or transfer event)
mailed by first-class mail to each Holder's registered address, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
as of, and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at May 1, 2003 (such redemption price being described under "--Optional
Redemption") plus (2) all required interest payments due on such Note through
May 1, 2003, computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (B) the principal amount of such Note.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the
period from the Redemption Date to May 1, 2003; PROVIDED, HOWEVER, that if the
period from the Redemption Date to May 1, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the Redemption Date to May 1, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that, upon the occurrence of a
Change of Control, unless the Company has elected to redeem the Notes in
connection with such Change of Control, the Company will make an offer to
purchase all of the Notes pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER") at a price in cash (the "CHANGE OF CONTROL PAYMENT") equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date). The Indenture provides that within 30 days following any Change
of Control, the Company will mail a notice to each Holder, with a copy to the
Trustee, with the following information: (1) a Change of Control Offer is being
made pursuant to the covenant entitled "Change of Control," and that all Notes
properly tendered pursuant to such Change of Control Offer will be accepted for
payment; (2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed, except
as may be otherwise required by applicable law (the "CHANGE OF CONTROL PAYMENT
DATE"); (3) any Note not properly tendered will remain outstanding and continue
to accrue interest; (4) unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the paying agent specified in the notice at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) Holders will be entitled to withdraw their tendered
Notes and their election to require the Company to purchase such Notes, provided
that
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the paying agent receives, not later than the close of business on the last day
of the Offer Period (as defined in the Indenture), a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes tendered for purchase, and a statement that such Holder is
withdrawing his tendered Notes and his election to have such Notes purchased;
and (7) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
The Indenture provides 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 all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under any outstanding Senior Indebtedness in each
case necessary to permit the repurchase of the Notes required by this covenant.
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 or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (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 aggregate 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 for cancellation the Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof have been tendered to and purchased by the Company. The
Indenture will provide that the paying agent will promptly mail to each Holder
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, PROVIDED, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. 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.
The Senior Credit Facilities will, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Notes as a result of a Change of
Control and/or provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance 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 the Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders.
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
ASSET SALES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company, or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the consideration therefor
received by the Company, or
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such Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents; PROVIDED that the amount of (a) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes), that are assumed
by the transferee of any such assets, (b) any securities received by the Company
or such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days following the closing of such Asset Sale and (c) any
Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed the
greater of (x) $50.0 million or (y) 15% of Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for purposes of this provision and for no other purpose.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary, at its option, may (i) apply the Net Proceeds from such Asset Sale
to permanently reduce (x) Obligations under the Senior Credit Facilities (and to
correspondingly reduce commitments with respect thereto), (y) other Senior
Indebtedness or Senior Subordinated Indebtedness (and to correspondingly reduce
commitments with respect thereto) (PROVIDED that if the Company shall so reduce
Obligations under Senior Subordinated Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not then be prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase at 100% of the principal amount thereof, plus the amount of accrued but
unpaid interest, if any, on the amount of Notes that would otherwise be prepaid)
or (z) Indebtedness of a Wholly Owned Restricted Subsidiary (other than
Indebtedness owed to the Company or another Restricted Subsidiary), (ii) apply
the Net Proceeds from such Asset Sale to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets in each case, used or useful in a Similar Business and/or (iii)
apply the Net Proceeds from such Asset Sale to an investment in properties or
assets that replace the properties and assets that are the subject of such Asset
Sale. The Indenture will provide that any Net Proceeds from the Asset Sale that
are not invested or applied as provided and within the time period set forth in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Company shall make an offer to all Holders (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes, that is an integral multiple of
$1,000, 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, if any, to the date fixed for the closing of such offer, in
accordance with the procedures set forth in the Indenture. The Company will
commence an Asset Sale Offer with respect to Excess Proceeds within ten Business
Days after the date that Excess Proceeds exceeds $15.0 million by mailing the
notice required pursuant to the terms of the Indenture, with a copy to the
Trustee. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased in the
manner described under the caption "Selection and Notice" below. Upon completion
of any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at
zero.
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 or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the
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provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Senior Credit Facilities will, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Notes pursuant to this Asset Sales
covenant. In the event the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance 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 the Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders.
SELECTION AND NOTICE. If less than all of the Notes are to be redeemed at
any time or if more Notes are tendered pursuant to an Asset Sale Offer than the
Company is required to purchase, selection of such Notes for redemption or
purchase, as the case may be, will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
such Notes are listed, or, if such Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee shall deem fair and appropriate
(and in such manner as complies with applicable legal requirements); provided
that no Notes of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Notes to be purchased or redeemed at such
Holder's registered address. If any Note is to be purchased or redeemed in part
only, any notice of purchase or redemption that relates to such Note shall state
the portion of the principal amount thereof that has been or is to be purchased
or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date unless the Company defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or in
options, warrants or other rights to purchase such Equity Interests or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
securities issued by a Subsidiary other than a Wholly Owned Subsidiary, the
Company or a Restricted Subsidiary receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in such class
or series of securities); (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of the Company or any direct or indirect
parent of the Company; (iii) make any principal payment on, or redeem,
repurchase, defease or otherwise acquire or retire for value in each case, prior
to any scheduled repayment, or maturity, any Subordinated Indebtedness (other
than (x) Indebtedness permitted under clauses (g) and (h) of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (y) the purchase, repurchase or other acquisition of
Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund
obligation, principal installment or
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final maturity, in each case due within one year of the date of purchase,
repurchase or acquisition); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction on a pro forma
basis, the Company could incur $1.00 of additional Indebtedness under the
provisions of the first paragraph of "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issuance Date (including Restricted Payments
permitted by clauses (i), (ii) (with respect to the payment of dividends on
Refunding Capital Stock pursuant to clause (b) thereof), (iv) (only to the
extent that amounts paid pursuant to such clause are greater than amounts
that could have been paid pursuant to such clause if $5.0 million and $10.0
million were substituted in such clause for $10.0 million and $20.0 million,
respectively), (vi), (ix) and (x) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
fiscal quarter that first begins after the Issuance Date 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, in the
case such Consolidated Net Income for such period is a deficit, minus 100%
of such deficit), PLUS (ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of Directors, of
marketable securities and Qualified Proceeds received by the Company since
immediately after the closing of the Transactions from the issue or sale of
Equity Interests of the Company (including Retired Capital Stock (as defined
below), but excluding cash proceeds, marketable securities and Qualified
Proceeds received from the sale of (A) Equity Interests to members of
management, directors or consultants of the Company and its Subsidiaries
after the Issuance Date to the extent such amounts have been applied to
Restricted Payments made in accordance with clause (iv) of the next
succeeding paragraph and (B) Designated Preferred Stock) or debt securities
of the Company that have been converted into such Equity Interests of the
Company (other than Refunding Capital Stock (as defined below) or Equity
Interests or convertible debt securities of the Company sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), PLUS (iii)
100% of the aggregate amount of cash, marketable securities and Qualified
Proceeds contributed to the capital of the Company following the Issuance
Date (other than by a Restricted Subsidiary of the Company), PLUS (iv) 100%
of the aggregate amount received in cash, the fair market value of
marketable securities and Qualified Proceeds (other than Restricted
Investments) received by means of (A) the sale or other disposition (other
than to the Company or a Restricted Subsidiary) of Restricted Investments
made by the Company and its Restricted Subsidiaries and repurchases and
redemptions of such Restricted Investments from the Company and its
Restricted Subsidiaries and repayments of loans or advances which constitute
Restricted Investments by the Company and its Restricted Subsidiaries or (B)
the sale (other than to the Company or a Restricted Subsidiary) of the stock
of an Unrestricted Subsidiary or a distribution from an Unrestricted
Subsidiary (other than in each case to the extent the Investment in such
Unrestricted Subsidiary was made by the Company or a Restricted Subsidiary
pursuant to clauses (vii) or (xi) below or to the extent such Investment
constituted a Permitted Investment) or a dividend from an Unrestricted
Subsidiary plus (v) in the case of the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of the
Investment in such Unrestricted Subsidiary, as determined by the Board of
Directors in good faith or if such fair market value may exceed $25
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million, in writing by an independent investment banking firm of nationally
recognized standing, at the time of the redesignation of such Unrestricted
Subsidiary as a Restricted Subsidiary (other than an Unrestricted Subsidiary
to the extent the Investment in such Unrestricted Subsidiary was made by the
Company or a Restricted Subsidiary pursuant to clauses (vii) or (xi) below
or to the extent such Investment constituted a Permitted Investment).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests ("RETIRED 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 Restricted Subsidiary) of, Equity Interests
of the Company (other than any Disqualified Stock) ("REFUNDING CAPITAL
STOCK") and (b) the declaration and payment of dividends on the Refunding
Capital Stock in an aggregate amount per year no greater than the aggregate
amount of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of the
Company which is incurred in compliance with "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" so long as (A) the
principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Indebtedness being so redeemed, repurchased,
acquired or retired for value (PLUS the amount of any premium required to be
paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to Senior Indebtedness and the Notes at least
to the same extent as such Subordinated Indebtedness so purchased,
exchanged, redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(iv) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of the
Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement; PROVIDED, HOWEVER, that the aggregate Restricted Payments
made under this clause (iv) does not exceed in any calendar year $10.0
million (with unused amounts in any calendar year being carried over to
succeeding calendar years subject to a maximum (without giving effect to the
following proviso) of $20.0 million in any calendar year); PROVIDED FURTHER
that such amount in any calendar year may be increased by an amount not to
exceed (A) the cash proceeds from the sale of Equity Interests of the
Company to members of management, directors or consultants of the Company
and its Subsidiaries that occurs after the Issuance Date (to the extent the
cash proceeds from the sale of such Equity Interest have not otherwise been
applied to the payment of Restricted Payments by virtue of the preceding
paragraph (c)) plus (B) the cash proceeds of key man life insurance policies
received by the Company and its Restricted Subsidiaries after the Issuance
Date less (C) the amount of any Restricted Payments previously made pursuant
to clauses (A) and (B) of this subparagraph (iv); and PROVIDED FURTHER that
cancellation of Indebtedness owing to the Company from members of management
of the Company or any of its Restricted Subsidiaries in connection
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with a repurchase of Equity Interests of the Company will not be deemed to
constitute a Restricted Payment for purposes of this covenant or any other
provision of the Indenture;
(v) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company issued in accordance with the
covenant entitled "--Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock" to the extent such dividends are included in the
definition of Fixed Charges;
(vi) (A) the declaration and payment of dividends to holders of any
class or series of Designated Preferred Stock (other than Disqualified
Stock) issued after the Issuance Date or (B) the declaration and payment of
dividends on Refunding Capital Stock in excess of the dividends declarable
and payable thereon pursuant to clause (ii); PROVIDED, HOWEVER, in either
case, that for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock or the declaration of such
dividends on Refunding Capital Stock, after giving effect to such issuance
or declaration on a pro forma basis, the Company and its Restricted
Subsidiaries would have had a Fixed Charge Coverage Ratio of at least 1.75
to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vii) that are at that time outstanding (without giving effect
to the sale of an Unrestricted Subsidiary to the extent the proceeds of such
sale do not consist of cash, marketable securities and/or Qualified Proceeds
or distributions made pursuant to clause (xiv) below), not to exceed $25.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(ix) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8;
(x) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of the Company in
existence on the Issuance Date and which are not held by KKR or any of their
Affiliates on the Issuance Date (including any Equity Interests issued in
respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but
excluding any management equity plan or stock option plan or similar
agreement), PROVIDED that notwithstanding the foregoing proviso, the Company
and its Restricted Subsidiaries shall be permitted to make Restricted
Payments under this clause (x) only if after giving effect thereto, the
Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first sentence of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock";
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(xi) Investments that are made with Excluded Contributions;
(xii) other Restricted Payments in an aggregate amount not to exceed
$20.0 million;
(xiii) distributions or payments of Receivables Fees;
(xiv) the distribution, as a dividend or otherwise, of shares of Capital
Stock of, or Indebtedness owed to the Company or a Restricted Subsidiary of
the Company by, Unrestricted Subsidiaries (with the exception of Investments
in Unrestricted Subsidiaries acquired pursuant to clause (j) of the
definition of Permitted Investments);
(xv) cash dividends and other payments to CCPC Acquisition in amounts
equal to (A) the amounts required for CCPC Acquisition to pay any Federal,
state or local income taxes to the extent that such income taxes are
attributable to the income of the Company and its Subsidiaries and (B) the
amounts required for CCPC Acquisition to pay franchise taxes, administrative
and similar expenses related to its existence and to its ownership of the
Company; and
(xvi) cash dividends and other payments required to be made under the
Recapitalization Agreement provided however, that at the time of, and after
giving effect to, any Restricted Payment permitted under clauses (ii)(b),
(iii) through (v) and (vi) through (x) and clauses (xii) and (xiv), no
Default or Event or Default shall have occurred and be continuing or would
occur as a consequence thereof. To the extent the issuance of Equity
Interests and the receipt of capital contributions are applied to permit the
issuance of Indebtedness pursuant to clause (m) of "--Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock," the issuance
of such Equity Interests and the receipt of such capital contributions shall
not be applied to permit payments under this covenant or Permitted
Investments (other than clauses (a) and (c) thereof).
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary
to become a Restricted Subsidiary except pursuant to the second to last sentence
of the definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid) in
the Subsidiary so designated will be deemed to be Restricted Payments in an
amount determined as set forth in the last sentence of the definition of
"Investments." Such designation will be permitted only if a Restricted Payment
in such amount would be permitted at such time (whether pursuant to the first
paragraph of this covenant or under clauses (vii), (xi) and (xii)) and if such
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR" and
collectively, an "INCURRENCE") any Indebtedness (including Acquired
Indebtedness) and that the Company will not issue any shares of Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's and its Restricted Subsidiaries'
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 or such Disqualified Stock is issued would have been at
least 1.75 to 1.00, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, and the application of proceeds therefrom had occurred at the beginning of
such four-quarter period.
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The foregoing limitations will not apply to:
(a) the existence of Indebtedness under Credit Facilities on the
Issuance Date together with the incurrence by the Company of Indebtedness
under Credit Facilities and the issuance and creation of letters of credit
and bankers' acceptances thereunder (with letters of credit and bankers'
acceptances being deemed to have a principal amount equal to the face amount
thereof) up to an aggregate principal amount of $550.0 million outstanding
at any one time;
(b) the incurrence by the Company of Indebtedness represented by the
Notes issued on the Issuance Date;
(c) Existing Indebtedness (other than Indebtedness described in clauses
(a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries, to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (d), does not exceed 20% of Total Assets;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED
that any such Indebtedness is subordinated in right of payment to the Notes;
PROVIDED FURTHER that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any such Indebtedness (except to the Company or another Restricted
Subsidiary) shall be deemed, in each case to be an incurrence of such
Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; PROVIDED
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further that any subsequent transfer of any such Indebtedness (except to the
Company or another Restricted Subsidiary) shall be deemed, in each case to
be an incurrence of such Indebtedness;
(i) shares of preferred stock of a Restricted Subsidiary issued to the
Company or another Restricted Subsidiary; PROVIDED that any subsequent
issuance or transfer of any Capital Stock or any other event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any other subsequent transfer of any such shares of preferred stock (except
to the Company or another Restricted Subsidiary) shall be deemed in each
case to be an issuance of such shares of preferred stock;
(j) Hedging Obligations that are incurred in the ordinary course of
business (but in any event excluding Hedging Obligations entered into for
speculative purposes);
(k) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(l) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(m) Indebtedness and Disqualified Stock of the Company or any of its
Restricted Subsidiaries not otherwise permitted hereunder in an aggregate
principal amount or liquidation preference, which when aggregated with the
principal amount and liquidation preference of all other Indebtedness and
Disqualified Stock then outstanding and incurred pursuant to this clause
(m), does not at any one time outstanding exceed the sum of (x) $150.0
million and (y) 100% of the net cash proceeds received by the Company since
immediately after the Transactions from the issue or sale of Equity
Interests of the Company or net cash proceeds contributed to the capital of
the Company (in each case other than Disqualified Stock) as determined in
accordance with clauses (c)(ii) and (c)(iii) of the first paragraph of
"--Limitation on Restricted Payments" to the extent such net cash proceeds
have not been applied pursuant to such clauses to make Restricted Payments
or to make other payments or exchanges pursuant to the second paragraph of
"--Limitation on Restricted Payments" or to make Permitted Investments
(other than clauses (a) and (c) thereof) (it being understood that any
Indebtedness incurred under this clause (m) shall cease to be deemed
incurred or outstanding for purposes of this clause (m) but shall be deemed
to be incurred for purposes of the first paragraph of this covenant from and
after the first date on which the Company could have incurred such
Indebtedness under the first paragraph of this covenant without reliance
upon this clause (m));
(n) (i) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture and (ii) any guarantee by a Restricted
Subsidiary of Indebtedness of the Company, PROVIDED that such guarantee is
incurred in accordance with the covenant described below under "--Limitation
on Guarantees of Indebtedness by Restricted Subsidiaries;"
(o) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c) above, this clause (o) and clause (p) below
or any Indebtedness issued to so refund, refinance or restructure such
Indebtedness including additional Indebtedness incurred to pay premiums and
fees in connection therewith (the "REFINANCING INDEBTEDNESS") prior to its
respective maturity; PROVIDED, HOWEVER, that such Refinancing Indebtedness
(i) has a Weighted Average Life to Maturity at the time such Refinancing
Indebtedness is incurred which is not less than the remaining Weighted
Average Life to Maturity of Indebtedness being refunded or refinanced, (ii)
to the extent such Refinancing Indebtedness refinances Indebtedness
subordinated or PARI PASSU to the Notes, such Refinancing Indebtedness is
subordinated or PARI PASSU to the Notes at least to the same extent as the
Indebtedness being refinanced or
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refunded and (iii) shall not include (x) Indebtedness of a Subsidiary that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or
a Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii) of this clause
(o) will not apply to any refunding or refinancing of any Senior
Indebtedness; and
(p) Indebtedness or Disqualified Stock of Persons that are acquired by
the Company or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of the Indenture;
PROVIDED that such Indebtedness or Disqualified Stock is not incurred in
contemplation of such acquisition or merger; and PROVIDED FURTHER that after
giving effect to such acquisition or merger, either (i) the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of this
covenant or (ii) the Fixed Charge Coverage Ratio is greater than immediately
prior to such acquisition or merger.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
permitted Indebtedness described in clauses (a) through (p) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof except as otherwise set forth in clause (m). Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; PROVIDED that (x) the U.S. dollar-equivalent
principal amount of any such Indebtedness outstanding or committed on the
Issuance Date shall be calculated based on the relevant currency exchange rate
in effect on March 31, 1998, and (y) if such Indebtedness is incurred to
refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness incurred
to refinance other Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.
LIENS. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Senior Subordinated Indebtedness or Subordinated Indebtedness on any asset or
property of the Company or such Restricted Subsidiary, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless the
Notes are equally and ratably secured (or senior to, in the event the Lien
relates to Subordinated Indebtedness) with the obligations so secured or until
such time as such obligations are no longer secured by a Lien.
The Indenture provides that no Guarantor will directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Senior Subordinated Indebtedness or Subordinated Indebtedness of such Guarantor
on any asset or property of such Guarantor or any income or profits therefrom,
or assign or convey any right to receive income therefrom, unless the Guarantee
of such Guarantor is equally and ratably secured (or senior to, in the event the
Lien relates to Subordinated
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Indebtedness) with the obligations so secured or until such time as such
obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to any Person
unless (i) the Company is the surviving corporation 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
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (the Company or such Person, as the case may be, being herein called the
"SUCCESSOR COMPANY"); (ii) the Successor Company (if other than the Company)
expressly assumes all the obligations of the Company under the Indenture and the
Notes pursuant to a supplemental indenture or other documents or instruments in
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, (A) the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the Successor
Company and its Restricted Subsidiaries would be greater than such Ratio for the
Company and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, if any, unless it is the other party to the transactions
described above, in which case clause (ii) shall apply, shall have by
supplemental indenture confirmed that its Guarantee shall apply to such Person's
obligations under the Indenture and the Notes; and (vi) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. The Successor Company will succeed
to, and be substituted for, the Company under the Indenture and the Notes.
Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(such Guarantor or such Person, as the case may be, being herein called the
"SUCCESSOR GUARANTOR"); (ii) the Successor Guarantor (if other than such
Guarantor) expressly assumes all the obligations of such Guarantor under the
Indenture and such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Guarantor will succeed to, and be substituted for, such
Guarantor under the Indenture and such Guarantor's Guarantee.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of
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any of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of the
Company (each of the foregoing, an "AFFILIATE TRANSACTION") involving aggregate
payments or consideration in excess of $5.0 million, unless (a) such Affiliate
Transaction is on terms that are not materially less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (b) the Company delivers to the Trustee with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, a resolution adopted by the
majority of the Board of Directors approving such Affiliate Transaction and set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting, monitoring and advisory fees and
related expenses to KKR and its Affiliates; (iv) the payment of reasonable and
customary fees paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Restricted Subsidiary;
(v) payments by the Company or any of its Restricted Subsidiaries to KKR and its
Affiliates made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of the Company in
good faith; (vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (a) of the preceding paragraph; (vii) payments or
loans to employees or consultants which are approved by a majority of the Board
of Directors of the Company in good faith; (viii) any agreement as in effect as
of the Issuance Date (including, without limitation, each of the agreements
entered into in connection with the Transactions) or any amendment thereto (so
long as any such amendment is not disadvantageous to the Holders in any material
respect) or any transaction contemplated thereby; (ix) the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the Issuance Date and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Issuance Date shall only be permitted by this clause (ix)
to the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders in any material respect; (x) the
Transactions and the payment of all fees and expenses related to the
Transactions (including the payment of any adjustment to the Cash Dividend or
the Contingent Payment); (xi) transactions with customers, clients, suppliers,
or purchasers or sellers of goods or services, in each case in the ordinary
course of business and otherwise in compliance with the terms of the Indenture
which are fair to the Company or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of the Company or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; (xii) sales of accounts
receivable, or participations therein, in connection with any Receivables
Facility; and (xiii) the issuance of Equity Interests (other than Disqualified
Stock) of the Company to any Permitted Holder and their Related Parties.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or
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otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including, without limitation, pursuant to Existing
Indebtedness or the Senior Credit Facilities and their related
documentation;
(2) the Indenture and the Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of
the Person, so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and "--Liens" that limit
the right of the debtor to dispose of the assets securing such
Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(9) other Indebtedness or Disqualified Stock of Restricted
Subsidiaries permitted to be incurred subsequent to the Issuance Date
pursuant to the provisions of the covenant described under "--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock";
(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases,
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supplements, refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (1) through (11) above,
PROVIDED that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are, in
the good faith judgment of the Company's Board of Directors, no more
restrictive with respect to such dividend and other payment restrictions
than those contained in the dividend or other payment restrictions prior
to such amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing; or
(13) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the Board of Directors of the
Company, are necessary or advisable to effect such Receivables Facility.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company unless
(i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of payment of
the Notes by such Restricted Subsidiary except that with respect to a guarantee
of Indebtedness of the Company (A) if the Notes are subordinated in right of
payment to such Indebtedness, the Guarantee under the supplemental indenture
shall be subordinated to such Restricted Subsidiary's guarantee with respect to
such Indebtedness substantially to the same extent as the Notes are subordinated
to such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
(y) that guarantees the payment of Obligations of the Company or any Restricted
Subsidiary under the Senior Credit Facilities or any other Senior Indebtedness
and any refunding, refinancing or replacement thereof, in whole or in part,
PROVIDED that such refunding, refinancing or replacement thereof constitutes
Senior Indebtedness and PROVIDED FURTHER that any such Senior Indebtedness and
any refunding, refinancing or replacement thereof is not incurred pursuant to a
registered offering of securities under the Securities Act or a private
placement of securities (including under Rule 144A) pursuant to an exemption
from the registration requirements of the Securities Act, which private
placement provides for registration rights under the Securities Act.
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
guarantee which resulted in the creation of such Guarantee, except a discharge
or release by or as a result of payment under such guarantee.
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LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that the Company will not, and will not permit any Guarantor to,
directly or indirectly, incur any Indebtedness (including Acquired Indebtedness)
that is subordinate in right of payment to any Indebtedness of the Company or
any Indebtedness of any Guarantor, as the case may be, unless such Indebtedness
is either (a) PARI PASSU in right of payment with the Notes or such Guarantor's
Guarantee, as the case may be or (b) subordinate in right of payment to the
Notes, or such Guarantor's Guarantee, as the case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "COMMISSION"), the Indenture will
require the Company to file with the Commission (and make available to the
Trustee and Holders (without exhibits), without cost to each Holder, within 15
days after it files them with the Commission), (a) within 90 days after the end
of each fiscal year, annual reports on Form 10-K (or any successor or comparable
form) containing the information required to be contained therein (or required
in such successor or comparable form); (b) within 45 days after the end of each
of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or
any successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Company would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective purchasers
of Notes, in addition to providing such information to the Trustee and the
Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act. Notwithstanding the foregoing, such
requirements shall be deemed satisfied prior to the Exchange Offer or the
effectiveness of the Shelf Registration Statement by the filing with the
Commission of the Exchange Offer Registration Statement and/or Shelf
Registration Statement, and any amendments thereto, with such financial
information that satisfies Regulation S-X of the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the Notes
whether or not such payment shall be prohibited by the subordination
provisions relating to the Notes;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Notes whether or not such payment shall be prohibited
by the subordination provisions relating to the Notes;
(iii) failure by the Company or any Guarantor for 30 days after receipt
of written notice given by the Trustee or the holders of at least 30% in
principal amount of the Notes then outstanding to comply with any of its
other agreements in the Indenture or the Notes;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the
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holder or holders of such Indebtedness causing such Indebtedness to become
due prior to its stated maturity and (B) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated final
maturity (after giving effect to any applicable grace periods), or the
maturity of which has been so accelerated, aggregate $20.0 million or more
at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $20.0 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more than
60 days after such judgment becomes final, and in the event such judgment is
covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) the Guarantee of any Significant Subsidiary shall for any reason
cease to be in full force and effect or be declared null and void or any
responsible officer of the Company or any Guarantor that is a Significant
Subsidiary denies that it has any further liability under its Guarantee or
gives notice to such effect (other than by reason of the termination of the
Indenture or the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding Notes to be due and payable immediately; PROVIDED,
HOWEVER, that, so long as any Indebtedness permitted to be incurred under the
Indenture as part of the Senior Credit Facilities shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Credit Facilities or (ii) five business days
after the giving of written notice to the Company and the administrative agent
under the Senior Credit Facilities of such acceleration. Upon the effectiveness
of such declaration, such principal and interest will be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising under clause (vi) of the first paragraph of this section, all
outstanding Notes will become due and payable without further action or notice.
Holders 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 the Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal, premium, if any, or
interest) if it determines that withholding notice is in their interest. In
addition, the Trustee shall have no obligation to accelerate the Notes if in the
best judgment of the Trustee acceleration is not in the best interest of the
Holders of such Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Notes issued thereunder by notice to the Trustee
may on behalf of the Holders of all of such 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, premium, if any, or
the principal of any such Note held by a non-consenting Holder. In the event of
any Event of Default specified in clause (iv) above, such Event of Default and
all consequences thereof (including without limitation any acceleration or
resulting payment default) shall be annulled, waived and rescinded,
automatically and without any action by the Trustee or the Holders, if within 20
days after such Event of Default arose (x) the Indebtedness or guarantee that is
the basis for such Event of Default has been discharged, or (y) the holders
thereof have rescinded or waived the acceleration, notice or action (as the case
may be) giving rise to such Event of Default, or (z) if the default that is the
basis for such Event of Default has been cured.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon
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becoming aware of any Default or Event of Default or any default under any
document, instrument or agreement representing Indebtedness of the Company or
any Guarantor, 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 any Guarantor, shall have any liability for any obligations of the Company or
the Guarantors under the Notes, the Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder 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 a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors, if any, under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Notes. 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 have each Guarantor's obligation discharged with respect
to its Guarantee ("LEGAL DEFEASANCE") and cure all then existing Events of
Default except for (i) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due solely out of the trust created pursuant to the
Indenture, (ii) the Company's obligations with respect to Notes concerning
issuing temporary Notes, registration of such 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 and each Guarantor released with respect to certain
covenants that are described in the Indenture ("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 non-payment on other
indebtedness, 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 with
respect to the Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars, non-callable
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
due on the outstanding Notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such principal, premium,
if any, or interest on the outstanding Notes;
(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, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of such Legal
Defeasance and will be subject to
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U.S. 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, subject to customary
assumptions and exclusions, the Holders will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such 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 or, with respect to certain
bankruptcy or insolvency Events of Default, on the 91st day after such date
of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Senior Credit
Facilities or any other material agreement or instrument (other than the
Indenture) to which, the Company or any Guarantor is a party or by which the
Company or any Guarantor is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust) have been delivered to the Trustee for cancellation; or (b)
(i) all such Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with such Trustee
as trust funds in trust solely for the benefit of the Holders, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient without consideration of any reinvestment of
interest to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation for principal, premium, if
any, and accrued interest to the date of maturity or redemption; (ii) no Default
or Event of Default with respect to the Indenture or the Notes shall have
occurred and be continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which the Company or
any Guarantor is a party or by which the Company or any Guarantor is bound;
(iii) the Company or any Guarantor has paid or caused to be paid all sums
payable by it under such Indenture; and (iv) the Company has delivered
irrevocable instructions to the Trustee under such
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Indenture to apply the deposited money toward the payment of such Notes at
maturity or the redemption date, as the case may be. In addition, the Company
must deliver an Officers' Certificate and an opinion of counsel to the Trustee
stating that all conditions precedent to satisfaction and discharge have been
satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
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 and fees 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 will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, any
Guarantee and the Notes issued thereunder 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, without limitation, consents obtained in
connection with a purchase of, or 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 purchase of or tender offer or exchange offer for Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
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 such Note or alter or waive 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 such Notes and a waiver of the payment default that resulted from such
acceleration), or in respect of a covenant or provision contained in the
Indenture or any Guarantee which cannot be amended or modified without the
consent of all Holders, (v) make any Note payable in money other than that
stated in such Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
make any change in the foregoing amendment and waiver provisions, (viii) impair
the right of any Holder to receive payment of principal of, or interest on such
Holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes or (ix)
make any change in the subordination provisions of the Indenture that would
adversely affect the Holders.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder, the Company, any Guarantor (with respect to a Guarantee
or the Indenture to which it is a party) and the Trustee may amend or supplement
the Indenture, any Guarantee or the Notes (i) to cure any ambiguity, omission,
defect or inconsistency, (ii) to provide for uncertificated Notes in addition to
or in place of certificated Notes, (iii) to comply with the covenant relating to
mergers, consolidations and sales of assets, (iv) to provide for the assumption
of the Company's or any Guarantor's obligations to Holders, (v) to make any
change that would provide any additional rights or benefits to the Holders or
that does not adversely affect the legal rights under the Indenture of any such
Holder, (vi) to add covenants for the
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benefit of the Holders or to surrender any right or power conferred upon the
Company, (vii) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act,
(viii) to evidence and provide for the acceptance and appointment under the
Indenture of a successor Trustee pursuant to the requirements thereof, or (ix)
to add a Guarantor under the Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
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 any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Notes issued thereunder 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 will
provide 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 person 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 such Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Guarantees, if any, will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
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. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted 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
Restricted 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 any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. 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
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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.
"ASSET SALE" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
"DISPOSITION") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities or
obsolete or worn out equipment in the ordinary course of business or
inventory or goods held for sale in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All Assets"
or any disposition that constitutes a Change of Control pursuant to the
Indenture;
(c) the making of any Restricted Payment or Permitted Investment that is
permitted to be made, and is made, under the covenant described above under
"--Limitation on Restricted Payments";
(d) any disposition of assets with an aggregate fair market value of
less than $1.0 million;
(e) any disposition of property or assets or issuance of securities by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) the lease, assignment or sub-lease of any real or personal property
in the ordinary course of business;
(h) any financing transaction with respect to property built or acquired
by the Company or any Restricted Subsidiary after the Issuance Date,
including, without limitation, sale-leasebacks and asset securitizations;
(i) foreclosures on assets;
(j) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary (with the exception of Investments
in Unrestricted Subsidiaries acquired pursuant to clause (j) of the
definition of Permitted Investments); and
(k) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CAPITALIZED 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 and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
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"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500.0 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole, to any Person other than a Permitted
Holder and their Related Parties; or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of 50% or more of the total
Voting Stock of the Company.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum,
without duplication, of: (a) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, non-cash interest payments, the interest component of
Capitalized Lease Obligations, and net payments (if any) pursuant to Hedging
Obligations, excluding amortization of deferred financing fees) and (b)
consolidated capitalized interest of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued; PROVIDED, HOWEVER, that Receivables
Fees shall be deemed not to constitute Consolidated Interest Expense.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax income
(loss) from discontinued operations and any net after-tax gains or losses on
disposal of discontinued operations shall be excluded, (iv) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary
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course of business (as determined in good faith by the Board of Directors of the
Company) shall be excluded, (v) the Net Income for such period of any Person
that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted
for by the equity method of accounting, shall be excluded; PROVIDED that
Consolidated Net Income of the Company shall be increased by the amount of
dividends or distributions or other payments actually paid in cash (or to the
extent converted into cash) to the referent Person or a Restricted Subsidiary
(subject to the limits in clause (vii) below) thereof in respect of such period,
(vi) the Net Income of any Person acquired in a pooling of interests transaction
shall not be included for any period prior to the date of such acquisition and
(vii) the Net Income for such period of any Restricted Subsidiary shall be
excluded if the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of its Net Income is not at the date of determination
wholly permitted without any prior governmental approval (which has not been
obtained) or, directly or indirectly, by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule, or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, unless such restriction with respect to the payment of dividends
or in similar distributions has been legally waived; PROVIDED that Consolidated
Net Income of the Company shall be increased by the amount of dividends or other
distributions or other payments actually paid in cash (or to the extent
converted into cash) to the referent Person or a Restricted Subsidiary thereof
in respect of such period. Notwithstanding the foregoing, for the purpose of the
covenant described under "Certain Covenants--Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any sale or other
disposition of Restricted Investments made by the Company and its Restricted
Subsidiaries, repurchases and redemptions of Restricted Investments, repayments
of loans and advances which constitute Restricted Investments, sales of the
stock of an Unrestricted Subsidiary or distributions or dividends from an
Unrestricted Subsidiary, in each case only to the extent such amounts increase
the amount of Restricted Payments permitted under such covenant pursuant to
clause (c)(iv) thereof.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facilities) or
commercial paper facilities with banks or other institutional lenders or
indentures providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against
receivables), letters of credit or other long-term indebtedness, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"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 NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a subsequent sale of such Designated Noncash
Consideration.
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"DESIGNATED PREFERRED STOCK" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "--Limitation on Restricted Payments" covenant.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable (other than as a
result of a change of control or asset sale), pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof
(other than as a result of a change of control or asset sale), in whole or in
part, in each case prior to the date 91 days after the earlier of the maturity
date of the Notes or the date the Notes are no longer outstanding; PROVIDED,
HOWEVER, that if such Capital Stock is issued to any plan for the benefit of
employees of the Company or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Company or its Subsidiaries
in order to satisfy applicable statutory or regulatory obligations.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (a) provision for taxes based on
income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period and any Receivables Fees paid by such Person or any of its
Restricted Subsidiaries during such period, in each case to the extent the same
was deducted in calculating such Consolidated Net Income, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income, plus (d) any expenses or charges related to any Equity
Offering, Permitted Investment, acquisition, recapitalization or Indebtedness
permitted to be incurred by the Indenture (whether or not successful) (including
such fees, expenses or charges related to the Transactions) and deducted in such
period in computing Consolidated Net Income, plus (e) the amount of any
restructuring charge deducted in such period in computing Consolidated Net
Income (including any one-time costs incurred in connection with acquisitions
after the Issuance Date), plus (f) without duplication, any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of a cash reserve for any future period) plus
(g) the amount of any minority interest expense deducted in calculating
Consolidated Net Income, less, without duplication (h) non-cash items increasing
Consolidated Net Income of such Person for such period (excluding any items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period).
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8 and (ii) any such public or private sale that constitutes an Excluded
Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXCLUDED CONTRIBUTION" means net cash proceeds, marketable securities or
Qualified Proceeds, in each case, received by the Company from (a) contributions
to its common equity capital and (b) the sale (other than to a Subsidiary or to
any Company or Subsidiary management equity plan or stock option plan or any
other management or employee benefit plan or agreement) of Capital Stock (other
than Disqualified Stock and Designated Preferred Stock) of the Company, in each
case designated as
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Excluded Contributions pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of the Company
on the date such capital contributions are made or the date such Equity
Interests are sold, as the case may be, which are excluded from the calculation
set forth in paragraph (c) under "--Limitation on Restricted Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Old Notes as described
in this Prospectus.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
or issues or redeems Disqualified Stock or preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of Disqualified Stock or preferred stock, as if the same had occurred
at the beginning of the applicable four-quarter period. For purposes of making
the computation referred to above, Investments, acquisitions, dispositions,
mergers, consolidations and discontinued operations (as determined in accordance
with GAAP) that have been made by the Company or any of its Restricted
Subsidiaries during the four-quarter reference period or subsequent to such
reference period and on or prior to or simultaneously with the Calculation Date
shall be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, merger, consolidation or
discontinued operation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, merger, consolidation or discontinued operation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Company may designate.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of Disqualified Stock of such Person.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of
Columbia, or any territory thereof.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEE" means any guarantee of the obligations of the Company under the
Indenture and the Notes by any Person in accordance with the provisions of the
Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning.
No Guarantees will be issued in connection with the initial offering and sale of
the Notes.
"GUARANTOR" means any Person that incurs a Guarantee; PROVIDED that upon the
release and discharge of such Person from its Guarantee in accordance with the
Indenture, such Person shall cease to be a Guarantor. No Guarantees will be
issued in connection with the initial offering and sale of the Notes.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices.
"HOLDER" means a holder of the Notes.
"INDEBTEDNESS" means, with respect to any Person, (a) any indebtedness
(including principal and premium) of such Person, whether or not contingent (i)
in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or
similar instruments or letters of credit or bankers' acceptances (or, without
double counting, reimbursement agreements in respect thereof), (iii)
representing the balance deferred and unpaid of the purchase price of any
property (including Capitalized Lease Obligations), except any such balance that
constitutes a trade payable or similar obligation to a trade creditor, in each
case accrued in the ordinary course of business or (iv) representing any Hedging
Obligations, if and to the extent of any of the foregoing Indebtedness (other
than letters of credit and Hedging Obligations) that would appear as a liability
upon a balance sheet (excluding the footnotes thereto) of such Person prepared
in accordance with GAAP, (b) to the extent not otherwise included, any
obligation by such
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Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person); PROVIDED, HOWEVER, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Indebtedness, and
obligations under or in respect of Receivables Facilities shall not be deemed to
constitute Indebtedness of a Person.
In addition, "Indebtedness" of any Person shall include Indebtedness
described in the foregoing paragraph that would not appear as a liability on the
balance sheet of such Person if (i) such Indebtedness is the obligation of a
partnership or a joint venture that is not a Restricted Subsidiary (a "Joint
Venture"), (2) such Person or a Restricted Subsidiary is a general partner of
the Joint Venture (a "General Partner") and (3) there is recourse, by contract
or operation of law, with respect to the payment of such Indebtedness to
property or assets of such Person or a Restricted Subsidiary; and such
Indebtedness shall be included in an amount not to exceed (x) the greater of (A)
the net assets of the General Partner and (B) the amount of such obligations to
the extent that there is recourse by, contract or operation of law, to the
property or assets of such Person or a Restricted Subsidiary (other than the
General Partner) or (y) if less than the amount determined pursuant to clause
(x) immediately above, the actual amount of such Indebtedness that is recourse
to such Person, if the Indebtedness is evidenced by a writing and is for a
determinable amount and the related interest expense shall be included in
Consolidated Interest Expense to the extent paid by the Company or its
Restricted Subsidiaries.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the good faith judgment of the
Company, qualified to perform the task for which it has been engaged.
"INVESTMENT GRADE SECURITIES" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
trade credit, advances to customers, commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet (excluding the footnotes) of the Company
in the same manner as the other investments included in this definition to the
extent such transactions involve the transfer of cash or other property. For
purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Certain Covenants--Limitation on Restricted Payments," (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or
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from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined in good faith by the Company.
"ISSUANCE DATE" means the closing date for the sale and original issuance of
the Old Notes under the Indenture.
"LETTER OF CREDIT OBLIGATIONS" means all Obligations in respect of
Indebtedness of the Company with respect to letters of credit issued pursuant to
the Senior Credit Facilities which Indebtedness shall be deemed to consist of
(a) the aggregate maximum amount available to be drawn under all such letters of
credit (the determination of such aggregate maximum amount to assume compliance
with all conditions for drawing) and (b) the aggregate amount that has been paid
by, and not reimbursed to, the issuers under such letters of credit.
"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); PROVIDED that in
no event shall an operating lease be deemed to constitute a Lien.
"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale and the sale or disposition of such Designated
Noncash Consideration (including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions), any relocation
expenses incurred as a result thereof, taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the repayment of
principal, premium (if any) and interest on Indebtedness required (other than
required by clause (i) of the second paragraph of "--Repurchase at the Option of
Holders--Asset Sales") to be paid as a result of such transaction and any
deduction of appropriate amounts to be provided by the Company as a reserve in
accordance with GAAP against any liabilities associated with the asset disposed
of in such transaction and retained by the Company after such sale or other
disposition thereof, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities, and guarantees of payment of such principal, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities, payable under the documentation governing any Indebtedness.
"OFFICER" means the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"PERMITTED HOLDERS" means KKR and any of its Affiliates.
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"PERMITTED INVESTMENTS" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is engaged in a Similar Business if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
or (ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; (d) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to the provisions of "-- Repurchase at the Option of
Holders--Asset Sales" or any other disposition of assets not constituting an
Asset Sale; (e) any Investment existing on the Issuance Date; (f) advances to
employees not in excess of $10.0 million outstanding at any one time, in the
aggregate; (g) any Investment acquired by the Company or any of its Restricted
Subsidiaries (i) in exchange for any other Investment or accounts receivable
held by the Company or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or accounts receivable or (ii) as a result of a
foreclosure by the Company or any of its Restricted Subsidiaries with respect to
any secured Investment or other transfer of title with respect to any secured
Investment in default; (h) Hedging Obligations permitted under clause (j) of the
"Limitation of Incurrence of Indebtedness and Issuance of Disqualified Stock"
covenant; (i) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar expenses, in
each case incurred in the ordinary course of business; (j) any Investment in a
Similar Business having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (j) that are at that time
outstanding (without giving effect to the sale of an Unrestricted Subsidiary to
the extent the proceeds of such sale do not consist of cash, marketable
securities and/or Qualified Proceeds), not to exceed the greater of (x) $100.0
million or (y) 15% of Total Assets at the time of such Investment (with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (k) Investments the payment for
which consists of Equity Interests of the Company (exclusive of Disqualified
Stock); PROVIDED, HOWEVER, that such Equity Interests will not increase the
amount available for Restricted Payments under clause (c) of the "Limitation on
Restricted Payments" covenant; (l) additional Investments having an aggregate
fair market value, taken together with all other Investments made pursuant to
this clause (l) that are at that time outstanding (without giving effect to the
sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do
not consist of cash, marketable securities and/or Qualified Proceeds or
distributions made pursuant to clause (xiv) of the second paragraph of
"--Limitation on Restricted Payments"), not to exceed the greater of (x) $30.0
million or (y) 5% of Total Assets at the time of such Investment (with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (m) Investments in a Similar
Business having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (m) that are at that time outstanding
(without giving effect to the sale of an Unrestricted Subsidiary to the extent
the proceeds of such sale do not consist of cash, marketable securities and/or
Qualified Proceeds or distributions made pursuant to clause (xiv) of the second
paragraph of "--Limitation on Restricted Payments"), not to exceed $100.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); PROVIDED that at the time of such Investment the
Company would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence
of the covenant described under "--Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock;" (n) Investments relating to any special purpose
Wholly-Owned Subsidiary of the Company organized in connection with a
Receivables Facility that, in the good faith determination of the Board of
Directors of the Company, are necessary or advisable to effect such Receivables
Facility; (o) guarantees (including Guarantees) of Indebtedness permitted under
the covenant "--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock;" (p) any transaction to the extent it constitutes an
investment that is permitted and made in accordance with the provisions of the
second paragraph of the covenant described under
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"Certain Covenants--Transactions with Affiliates" (except transactions described
in clauses (ii), (vi), (vii) and (xi) of such paragraph); and (q) Investments
consisting of the licensing or contribution of intellectual property pursuant to
joint marketing arrangements with other Persons.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" means any Equity Interest with preferential rights of
payment of dividends or upon liquidation, dissolution, or winding up.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or Capital
Stock of any Person engaged in, a Similar Business; PROVIDED that the fair
market value of any such assets or Capital Stock shall be determined by the
Board of Directors in good faith, except that in the event the value of any such
assets or Capital Stock may exceed $25.0 million or more, the fair value shall
be determined in writing by an independent investment banking firm of nationally
recognized standing.
"RECEIVABLES FACILITY" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RELATED PARTIES" means any Person controlled by a Permitted Holder,
including any partnership or limited liability company of which a Permitted
Holder or its Affiliates is the general partner or managing member, as the case
may be.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
"Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"SENIOR CREDIT FACILITIES" means that certain Credit Agreement dated as of
April 9, 1998 among the Company, The Chase Manhattan Bank, as administrative
agent, Salomon Brothers Inc, as syndication agent, Bankers Trust Company, as
documentation agent and the several lenders from time to time parties thereto,
including any collateral documents, instruments and agreements executed in
connection therewith, and any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any indentures or
credit facilities or commercial paper facilities with banks or other
institutional lenders that replace, refund or refinance any part of the loans,
notes, other credit facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility or indenture that increases the
amount borrowable thereunder or alters the maturity thereof, PROVIDED, HOWEVER,
that in connection with any facilities which refund, replace or refinance such
Credit Agreement there shall not be more than one facility at any one time that
is identified as the Senior Credit Facilities and, if at any time there is more
than one facility which would constitute the Senior Credit Facilities, the
Company will designate to the Trustee which one of such facilities will be the
Senior Credit Facilities for purposes of the Indenture.
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"SENIOR SUBORDINATED INDEBTEDNESS" means (a) with respect to the Company,
Indebtedness which ranks PARI PASSU in right of payment to the Notes and (b)
with respect to any Guarantor, Indebtedness which ranks PARI PASSU in right of
payment to the Guarantee of such Guarantor.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SIMILAR BUSINESS" means the housewares and appliance businesses and any
activities or businesses incidental, directly related or similar thereto, or any
line of business engaged in by the Company or its Subsidiaries on the Issuance
Date or any business activity that is a reasonable extension, development or
expansion thereof or ancillary thereto.
"SUBORDINATED INDEBTEDNESS" means (a) with respect to the Company, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Guarantor, any Indebtedness of
such Guarantor which is by its terms subordinated in right of payment to the
Guarantee of such Guarantor.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership, joint venture,
limited liability company or similar 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 of determination owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof and (ii) any partnership, joint venture, limited
liability company or similar entity of which (x) more than 50% of the capital
accounts, distribution rights, total equity and voting interests or general or
limited partnership interests, as applicable, are owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof whether in the form of membership, general,
special or limited partnership or otherwise and (y) such Person or any Wholly
Owned Restricted Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests or
Indebtedness of, or owns or holds any Lien on, any property of, the Company or
any Subsidiary of the Company (other than any Subsidiary of the Subsidiary to be
so designated), PROVIDED that (a) any Unrestricted Subsidiary must be an entity
of which shares of the capital stock or other equity interests (including
partnership interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary voting power for
the election of directors or other governing body are owned, directly or
indirectly, by the Company, (b) such designation complies with the covenants
described under "--Certain Covenants--Limitation on Restricted Payments" and (c)
each of (I) the Subsidiary to be so designated and (II) its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that, immediately after giving effect to such designation
no Default or Event of Default shall have occurred and be continuing and either
(i) the Company could incur at least $1.00 of additional Indebtedness pursuant
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to the Fixed Charge Coverage Ratio test described under "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (ii) the Fixed Charge Coverage Ratio for the Company and
its Restricted Subsidiaries would be greater than such ratio for the Company and
its Restricted Subsidiaries immediately prior to such designation, in each case
on a pro forma basis taking into account such designation. Any such designation
by the Board of Directors shall be notified by the Company to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person,
100% 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 and one or
more Wholly Owned Subsidiaries of such Person.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers entered into the Exchange and
Registration Rights Agreement concurrently with the issuance of the Old Notes.
Pursuant to the Exchange and Registration Rights Agreement, the Company agreed
to (i) file with the Commission on or prior to 100 days after the date of
issuance of the Old Notes (the "Issue Date" or the "Issuance Date") a
registration statement on an appropriate form under the Securities Act (the
"Exchange Offer Registration Statement"), with respect to the "Exchange Offer"
for the Old Notes under the Securities Act and (ii) use its reasonable best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 200 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 who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Restricted
Securities for an issue of a Exchange 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) and that would be registered under the
Securities Act. The Company will keep the Exchange Offer open for not less than
20 business 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 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 hereby, (ii) any Old Notes validly tendered pursuant to
the Exchange Offer are not exchanged for Exchange Notes within 230 days after
the Issue Date, (iii) any Initial Purchaser so requests with respect to Old
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 Old Notes
to participate in the Exchange Offer or (v) any holder of Old Notes that
participates in the Exchange Offer does not receive freely transferable Exchange
Notes in exchange for tendered Old Notes, 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 Old Note until (i) the date on which such Old
Note has been exchanged for a freely transferable Exchange Note in the Exchange
Offer, (ii) the date on which such Old Notes 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 Old Note is distributed
to the public pursuant to Rule 144 under the Securities Act or is salable
pursuant to Rule 144(k) under the Securities Act.
The Company will use its 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 230 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 until
two years after the Issue Date or such shorter period when all Old Notes covered
by the Shelf Registration Statement have been sold in the manner set forth and
as contemplated in the Shelf Registration Statement or when the Notes became
eligible for resale pursuant to Rule 144 under the Securities Act without volume
restrictions, if any.
If (i) the applicable Registration Statement is not fixed with the
Commission on or prior to 100 days after the Issue Date (or, in the case of a
Shelf Registration Statement required to be filed in response to a change in law
or applicable interpretations of the Staff of the Commission, if later, within
45 days after publication of the change in law or interpretations, but in no
event before 100 calendar days after the Issuance Date); (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 200 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or applicable interpretations of
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the Staff of the Commission, if later, within 90 days after publication of the
change in law or interpretations, but in no event before 200 days after the
Issuance Date); (iii) the Exchange Offer is not consummated on or prior to 230
days after the Issue Date (other than in the event the Company files a Shelf
Registration Statement) or (iv) the Shelf Registration Statement is filed and
declared effective within 200 days after the Issue Date but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 90 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, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to one-quarter of one percent per
annum (which rate will be increased by an additional one-quarter of one percent
per annum for each subsequent 90-day period that any liquidated damages continue
to accrue; provided that the rate at which liquidated damages accrue may in no
event exceed one percent per annum) in respect of the Old 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 Old Notes on semi-annual payment dates which
correspond to interest payment dates for the Old Notes. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease.
Notwithstanding the foregoing, the Company may issue a notice that the Shelf
Registration Statement is unusable pending the announcement of a material
corporate transaction and may issue any notice suspending use of the Shelf
Registration Statement required under applicable securities laws to be issued
and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective exceeds
30 days in the aggregate, then the Company will be obligated to pay liquidated
damages to each holder of Transfer Restricted Securities in an amount equal to
one-quarter of one percent per annum (which rate will be increased by an
additional one-quarter of one percent per annum for each subsequent 90-day
period that liquidated damages continue to accrue; provided that the rate at
which liquidated damages accrue may in no event exceed one percent per annum) in
respect of the Old Notes constituting Transfer Restricted Securities. Upon the
Company declaring that the Shelf Registration Statement is usable after the
period of time described in the preceding sentence the accrual of liquidated
damages shall cease.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 90 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 expenses incident to the Exchange Offer and
will indemnify certain holders of the 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 Old Notes who wishes to exchange such Old 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 if it is an affiliate, that will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
132
<PAGE>
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 Old Notes that were acquired as a
result of market-making activities or other trading activities (an "Exchanging
Dealer"), it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Holders of the Old 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 Old 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 Old
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 which
are applicable to such a holder (including certain indemnification obligations).
For so long as the Old Notes are outstanding, the Company will continue to
provide to holders of the Old Notes and to prospective purchasers of the Old
Notes the information required by Rule 144A(d)(4) under the Securities Act.
While the Company believes that the foregoing description of the Exchange
and Registration Rights Agreement contains the material information relating to
such agreement, such description 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. The Company will provide a copy of
the Exchange and Registration Rights Agreement to prospective purchasers of Old
Notes identified to the Company by any Initial Purchaser upon request.
133
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. The Exchange Notes initially will be represented by a single,
permanent global Exchange Note, in definitive, fully registered form without
interest coupons (the "Global Exchange Note") and will be deposited with the
Trustee as custodian for The Depository Trust Company, New York, New York
("DTC") and registered in the name of a nominee of DTC.
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. Neither
the Company nor 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 upon
deposit of each Global Exchange Note, ownership of the Exchange 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 Exchange Notes represented
by a Global Exchange 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 Exchange Notes represented by a Global Exchange 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 Exchange
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the Exchange Notes represented by the Global Exchange Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Exchange Note will not be entitled to have Exchange Notes
represented by such Global Exchange 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,
134
<PAGE>
instruction or approval to the Trustee thereunder. Accordingly, each holder
owning a beneficial interest in a Global Exchange 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 Exchange Notes under the
Indenture or such Exchange Global Note. The Company understands that under
existing industry practice, in the event that the Company requests any action of
holders of Exchange Notes, or a holder that is an owner of a beneficial interest
in a Global Exchange Note desires to take any action that DTC, as the holder of
such Global Exchange 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 Exchange Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Exchange Notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any Exchange Notes represented by a Global
Exchange 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 Exchange Note
representing such Exchange Notes under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names the
Exchange Notes, including the Global Exchange 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 Exchange 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 Exchange 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
Exchange 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 depositary; 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
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Exchange 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 depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Exchange 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 Security 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.
135
<PAGE>
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Exchange 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.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary 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
Exchange 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 Exchange Notes, Certificated Notes will be issued
to each person that DTC identifies as the beneficial owner of the Exchange Notes
represented by the Global Exchange 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 Exchange 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 Exchange Notes to be issued).
136
<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 Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. A broker-dealer may not participate in the Exchange
Offer with respect to Old Notes acquired other than as a result of market-making
activities or other trading activities. To the extent any such broker-dealer
participates in the Exchange Offer and so notifies the Company, or causes the
Company to be so notified in writing, the Company has agreed for a period of 90
days after the date of this Prospectus, it will make this Prospectus, as amended
or supplemented, available to such broker-dealer for use in connection with any
such resale, and 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. In addition, until December 21,
1998 (90 days after the date of this Prospectus), all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Company will not 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 prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers or 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.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from
the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not misleading
or which may impose upon the Company disclosure obligations that may have a
material adverse effect on the Company (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
the Prospectus until the Company has notified such broker-dealer that delivery
of the Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.
137
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
offered hereby will be passed upon for the Company by Simpson Thacher &
Bartlett, New York, New York. A member of Simpson Thacher & Bartlett
beneficially owns shares of Common Stock which represent less than 0.1% of the
Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
included in this Prospectus, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On April 1, 1998, the Board of Directors of the Company approved the
dismissal of its independent accountants, PricewaterhouseCoopers LLP, and
approved the appointment of Deloitte & Touche LLP. There were no disagreements
with PricewaterhouseCoopers LLP on any matter of accounting principles,
financial statement disclosure or auditing scope or procedure.
138
<PAGE>
CCPC HOLDING COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF CORNING CONSUMER PRODUCTS COMPANY
Consolidated Financial Statements:
Consolidated Balance Sheets-June 30, 1998 (unaudited)
and December 31, 1997.................................................................................. F-2
Consolidated Statements of Operations-Six Months Ended
June 30, 1998 (unaudited) and 1997 (unaudited)......................................................... F-3
Consolidated Statements of Cash Flows-Six Months Ended
June 30, 1998 (unaudited) and 1997 (unaudited)......................................................... F-4
Report of Independent Accountants........................................................................ F-5
Consolidated Financial Statements:
Consolidated Balance Sheets-December 31, 1997 and 1996................................................. F-6
Consolidated Statements of Operations-Years Ended
December 31, 1997, 1996 and 1995....................................................................... F-7
Consolidated Statements of Cash Flows-Years Ended
December 31, 1997, 1996 and 1995....................................................................... F-8
Notes to Consolidated Financial Statements............................................................. F-9
</TABLE>
F-1
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- --------------
<S> <C> <C>
1998 1997
----------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................................... $ 9,915 $ 4,345
Accounts receivable, net of allowances of $6,184 and $7,304 at June 30, 1998 and
December 31, 1997............................................................... 51,521 68,340
Inventories, net.................................................................. 163,088 136,138
Prepaid expenses and other current assets......................................... 6,795 8,695
Deferred taxes on income.......................................................... 8,024 8,633
----------- --------------
TOTAL CURRENT ASSETS............................................................ 239,343 226,151
Property and equipment, net......................................................... 144,990 153,332
Deferred taxes on income............................................................ 39,447 29,273
Goodwill, net of accumulated amortization of $7,516 and $6,663 at June 30, 1998 and
December 31, 1997................................................................. 59,570 60,424
Other assets........................................................................ 31,986 14,464
----------- --------------
TOTAL ASSETS.................................................................... $ 515,336 $ 483,644
----------- --------------
----------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses............................................. $ 63,382 $ 79,153
Due to Corning Incorporated....................................................... -- 87,142
----------- --------------
TOTAL CURRENT LIABILITIES....................................................... 63,382 166,295
Long-term debt...................................................................... 485,285 8,285
Accrued postretirement liability.................................................... 29,761 59,641
Other liabilities................................................................... 6,994 18,243
Minority interest in subsidiary company............................................. 932 1,046
----------- --------------
TOTAL LIABILITIES............................................................... 586,354 253,510
COMMITMENTS (NOTE 19)
STOCKHOLDER'S EQUITY
Preferred Stock--5,000,000 shares authorized;
1,200,000 shares issued........................................................... $ 30,900 --
Common stock--$0.01 par value; shares authorized-45,000,000;
shares issued-24,000,000.......................................................... 240 240
Contributed capital................................................................. 454,949 273,830
Accumulated deficit................................................................. (554,898) (42,138)
Cumulative translation adjustment................................................... (2,209) (1,798)
----------- --------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT)............................................ (71,018) 230,134
----------- --------------
----------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $ 515,336 $ 483,644
----------- --------------
----------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1998 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES
Net sales...................................................................... $ 229,469 $ 253,903
DEDUCTIONS
Cost of sales.................................................................. 151,780 165,910
Selling, general, administrative and research and development expenses......... 72,947 67,334
Other corporate administrative expenses........................................ -- 9,204
Management fees................................................................ 812 --
Goodwill amortization.......................................................... 1016 1016
Transactions related expenses.................................................. 28,611 --
Other, net..................................................................... 375 884
Royalty income................................................................. (845) (559)
-------------- --------------
Operating (loss) income........................................................ (25,227) 10,114
Interest expense............................................................... 12,429 4,087
-------------- --------------
(Loss) income before taxes on income........................................... (37,656) 6,027
Income tax expense............................................................. 1,718 2,426
-------------- --------------
(Loss) income before minority interest......................................... (39,374) 3,601
Minority interest in earnings (losses) of subsidiary........................... 115 (151)
-------------- --------------
Net (loss) income.......................................................... $ (39,259) $ 3,450
-------------- --------------
-------------- --------------
Preferred Stock dividends........................................................ 900 --
Net (loss) income applicable to Common Stock..................................... (40,159) 3,450
SHARE INFORMATION
Basic and diluted (loss) earnings per common share............................... $ (1.67) $ 0.14
Weighted average number of common shares outstanding during the period........... 24,000,000 24,000,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS USED IN OPERATING ACTIVITIES
Net (loss) income................................................................... $ (39,259) $ 3,450
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................................... 17,989 18,556
Minority interest in (earnings) losses of subsidiary................................ (115) 151
Loss of disposition of plant and equipment.......................................... 122 822
Deferred tax assets................................................................. 3,906 1,811
Provision for postretirement benefits, net of cash paid............................. 2,118 2,045
Changes in operating assets and liabilities:
Accounts receivable................................................................. 23,324 35,699
Inventories......................................................................... (26,950) (29,946)
Prepaid expenses and other current assets........................................... (1,599) (2,694)
Accounts payable and accrued expenses............................................... (6,052) (35,552)
Other liabilities................................................................... 6,421 2,100
------------ ------------
Net cash used in operating activities........................................... (20,095) (3,558)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to plant and equipment, and other assets.................................. (8,049) (12,418)
Other, net.......................................................................... 102 (109)
------------ ------------
Net cash used in investing activities........................................... (7,947) (12,527)
------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Increase in long-term debt.......................................................... 477,000 --
Dividend to Corning Incorporated.................................................... (472,600) --
(Decrease) increase in net amounts due to
Corning Incorporated.............................................................. (87,142) 11,602
Shareholder capital contribution.................................................... 103,324 --
Issuance of preferred stock......................................................... 30,000 --
Issuance of common stock............................................................ 240 --
Repayment of long-term debt......................................................... (1,806) (1,200)
Deferred financing fees............................................................. (14,993) --
------------ ------------
Net cash provided by financing activities............................................. 34,023 10,402
Effect of exchange rates on cash...................................................... (411) (377)
Net increase (decrease) in cash....................................................... 5,570 (6,060)
Cash and cash equivalents at beginning of year........................................ 4,345 8,091
------------ ------------
Cash and cash equivalents at end of period............................................ $ 9,915 $ 2,031
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
CCPC Holding Company, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of CCPC Holding Company, Inc. (the
"Company"), formerly named Corning Consumer Products Company, at December 31,
1997 and 1996 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1998 except for the first paragraph
of Note 2, as to which the date is March 16, 1998
F-5
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
ASSETS
Current assets
Cash and cash equivalents............................................................. $ 4,345 $ 8,091
Accounts receivable, net of allowances of $7,304 and $7,848 at December 31, 1997 and
December 31, 1996, respectively..................................................... 68,340 80,424
Inventories, net...................................................................... 136,138 134,295
Prepaid expenses and other current assets............................................. 8,695 10,854
Deferred taxes on income.............................................................. 8,633 9,021
----------- -----------
TOTAL CURRENT ASSETS................................................................ 226,151 242,685
Property and equipment, net............................................................. 153,332 160,912
Deferred taxes on income................................................................ 29,273 34,447
Goodwill, net of accumulated amortization of $6,663 and $4,957 at December 31, 1997 and
December 31, 1996, respectively....................................................... 60,424 62,130
Other assets............................................................................ 14,464 16,271
----------- -----------
TOTAL ASSETS........................................................................ $ 483,644 $ 516,445
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses................................................. $ 79,153 $ 113,895
Due to Corning Incorporated........................................................... 87,142 96,650
----------- -----------
TOTAL CURRENT LIABILITIES........................................................... 166,295 210,545
Long-term debt.......................................................................... 8,285 13,474
Accrued postretirement liability........................................................ 59,641 56,367
Other liabilities....................................................................... 18,243 17,618
Minority interest in subsidiary company................................................. 1,046 751
----------- -----------
TOTAL LIABILITIES................................................................... 253,510 298,755
COMMITMENTS (NOTE 19)
STOCKHOLDER'S EQUITY
Common stock--$0.01 par value; shares authorized-45,000,000;
shares issued-24,000,000.............................................................. 240 240
Contributed capital..................................................................... 273,830 273,420
Accumulated deficit..................................................................... (42,138) (55,176)
Cumulative translation adjustment....................................................... (1,798) (794)
----------- -----------
TOTAL STOCKHOLDER'S EQUITY.......................................................... 230,134 217,690
----------- -----------
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.......................................... $ 483,644 $ 516,445
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES
Net sales..................................................... $ 572,860 $ 632,406 $ 608,720
DEDUCTIONS
Cost of sales................................................. 376,960 435,867 431,185
Selling, general, administrative and research and development
expenses.................................................... 137,315 154,159 168,174
Other corporate administrative expense........................ 18,408 20,904 19,994
Provision for restructuring costs............................. -- 2,146 --
Goodwill amortization......................................... 1,706 1,706 1,704
Other, net.................................................... 5,896 569 519
Royalty income................................................ (1,973) (1,572) (1,617)
-------------- -------------- --------------
Operating income (loss)....................................... 34,548 18,627 (11,239)
Interest expense, net......................................... 8,481 10,721 8,755
-------------- -------------- --------------
Income (loss) before taxes on income.......................... 26,067 7,906 (19,994)
Income tax expense (benefit).................................. 12,734 6,181 (1,638)
-------------- -------------- --------------
Income (loss) before minority interest........................ 13,333 1,725 (18,356)
Minority interest in earnings of subsidiary................... (295) (105) (133)
-------------- -------------- --------------
Net income (loss)......................................... $ 13,038 $ 1,620 $ (18,489)
-------------- -------------- --------------
-------------- -------------- --------------
SHARE INFORMATION
Basic and diluted earnings (loss) per common share............ $ 0.54 $ 0.07 $ (0.77)
Weighted average number of common shares outstanding during
the period.................................................. 24,000,000 24,000,000 24,000,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
CCPC HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ 13,038 $ 1,620 $ (18,489)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.............................................. 35,706 35,771 31,994
Minority interest in earnings of subsidiary................................ 295 105 133
Loss on disposition of plant and equipment................................. 1,596 1,570 2,180
Deferred tax assets........................................................ 5,562 (1,511) (6,995)
Provision for restructuring costs.......................................... -- 2,146 --
Provision for postretirement benefits, net of cash paid.................... 3,274 3,459 3,844
Changes in operating assets and liabilities:
Accounts receivable........................................................ 12,084 16,100 5,683
Inventories................................................................ (1,843) (5,839) 2,881
Prepaid expenses and other current assets.................................. 2,159 3,938 3,912
Accounts payable and accrued expenses...................................... (4,072) (8,938) (16,133)
Payable due to Corning..................................................... (30,670) 1,012 (7,342)
Other liabilities.......................................................... 624 7,531 (666)
--------- ---------- ----------
Net cash provided by operating activities.............................. 37,753 56,964 1,002
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to plant and equipment, and other assets......................... (28,600) (35,827) (40,632)
Acquisition of business.................................................... -- -- (1,600)
Other, net................................................................. 2,392 198 (640)
--------- ---------- ----------
Net cash used in investing activities.................................. (26,208) (35,629) (42,872)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt................................................ (5,189) (511) (3,906)
Increase (decrease) in net amounts due to Corning Incorporated............. (9,508) (23,001) 46,600
Capital contribution by shareholder........................................ 410 -- --
--------- ---------- ----------
Net cash provided by (used in) financing activities.................... (14,287) (23,512) 42,694
--------- ---------- ----------
Effect of accounting calendar change on cash................................. -- (205) --
Effect of exchange rates on cash............................................. (1,004) (386) 84
--------- ---------- ----------
Net change in cash........................................................... (3,746) (2,768) 908
Cash and cash equivalents at beginning of year............................... 8,091 10,859 9,951
--------- ---------- ----------
Cash and cash equivalents at end of period................................... $ 4,345 $ 8,091 $ 10,859
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
1. BASIS OF PRESENTATION
Subsequent to April 1, 1998, Corning Consumer Products Company changed its
name to CCPC Holding Company, Inc. ("CCPC"). The consolidated balance sheet at
June 30, 1998 and the consolidated statements of operations and cash flows for
the six months ended June 30, 1998 reflect the Recapitalization (see Note 2).
The consolidated balance sheets at December 31, 1997 and 1996 and the
consolidated statements of operations and cash flows for the six months ended
June 30, 1997 and each of the three years in the period ended December 31,
1997, reflect CCPC as a wholly-owned subsidiary of Corning Incorporated
("Corning") prior to the Recapitalization.
The accompanying unaudited interim consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary for a fair presentation of the results for
the interim periods. Results for the interim periods are not necessarily
indicative of results for the full year.
2. RECAPITALIZATION
On March 16, 1998, the CCPC board of directors approved a 24,000-for-1 common
stock split. This increased the common shares outstanding from 1,000 to
24,000,000. In addition, the board of directors also approved an increase in
the number of authorized shares from 1,000 to 45,000,000 and an increase in
the par value from $0.00 to $0.01 per share. Share amounts have been restated
for all periods presented.
UNAUDITED
On March 2, 1998, Corning, CCPC, Borden, Inc. and CCPC Acquisition Corp.
entered into a Recapitalization Agreement, pursuant to which on April 1, 1998,
CCPC Acquisition Corp. acquired 92% of the outstanding shares of common stock
of CCPC from Corning for $110.4 million. Pursuant to the Recapitalization
Agreement, CCPC borrowed $471.6 million and paid a cash dividend to Corning on
April 1, 1998 of $472.6 million. CCPC paid an additional $10.2 million to
Corning in July 1998 relating to certain provisions of the Recapitalization
Agreement. Corning retained 8% of the outstanding shares of common stock of
CCPC (the "Recapitalization").
Immediately prior to the Recapitalization, Corning contributed $114.0 million
to the capital accounts of CCPC consisting of certain indebtedness, certain
post-retirement medical and life insurance liabilities, certain pension
liability obligations, workers' compensation and product liability
obligations.
On April 1, 1998, CCPC Acquisition Corp. purchased 22,080,000 outstanding
common shares from Corning for $110.4 million. Corning retained the remaining
1,920,000 outstanding common shares. CCPC sold 1,200,000 shares of junior
preferred stock to CCPC Acquisition Corp. for $30.0 million on April 1, 1998.
3. NATURE OF OPERATIONS
CCPC's business includes the manufacture and sale of oven bakeware,
dinnerware, and rangetop cookware. The Company's brands include Corning
Ware-Registered Trademark-, Pyrex-Registered Trademark-, Corelle-Registered
Trademark-, Revere Ware-Registered Trademark-, and Visions-Registered
Trademark-. CCPC sells its products in both wholesale and retail markets
principally in the United States,
F-9
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
3. NATURE OF OPERATIONS (CONTINUED)
and has significant presence in certain international markets, primarily
Canada, Asia, Australia, and Latin America. CCPC has four domestic
manufacturing facilities and operates a decorating facility in Malaysia and
packaging and distribution facilities in Canada, Singapore, Australia, and
Brazil.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements were prepared in accordance with
generally accepted accounting principles, the most significant of which
include:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all entities
currently controlled by CCPC. All significant intercompany accounts and
transactions are eliminated. Prior to January 1, 1996, CCPC operated on a
fiscal year ending on the Sunday nearest December 31. Certain subsidiaries of
CCPC were consolidated at dates up to one month earlier than the consolidated
financial statements. Effective January 1, 1996, CCPC prospectively adopted a
calendar year accounting calendar and began consolidating results of all
subsidiaries currently.
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.
Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement accounts are translated at average
exchange rates for the year. Translation gains and losses are accumulated in a
separate component of stockholder's equity. Foreign currency transaction gains
and losses are included in current earnings.
CASH EQUIVALENTS
Cash equivalents consist of government securities with original maturities of
three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Approximately 84% and
84% of CCPC's inventories at December 31, 1997 and 1996, respectively, are
valued using the LIFO (last-in, first-out) method of determining cost. The
FIFO (first-in, first-out) method is used to value the remaining inventories
which consist of supply inventories and inventories at certain subsidiaries.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated using
straight-line and accelerated methods based on the estimated useful lives of
the assets as follows: buildings, 8-30 years; equipment, 3-25 years; and
leasehold improvements, over the lease periods. Precious metals
F-10
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are recorded at cost and consist of platinum, rhodium and palladium. They are
used in CCPC's manufacturing processes and are expensed to operations based on
utilization.
GOODWILL AND OTHER ASSETS
The amortization period assigned to the goodwill is 40 years. Trademarks and
other assets are amortized using the straight-line method over the estimated
economic useful life of the assets which range from 3 to 32.5 years.
IMPAIRMENT ACCOUNTING
CCPC reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur
that indicate that the carrying value of the asset may not be recoverable. The
assessment of possible impairment is based on CCPC's ability to recover the
asset from the expected future pre-tax cash flows (undiscounted and without
interest charges) of the related operations. If the expected undiscounted
pre-tax cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between estimated fair value
and carrying value. The assessment of impairment requires management to make
estimates of expected future cash flows related to long-lived assets. It is at
least reasonably possible that future events or circumstances could cause
these estimates to change.
STOCK-BASED COMPENSATION
Certain employees of CCPC participate in the stock compensation plans of
Corning. CCPC accounts for compensation cost under these plans using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees." Compensation
expense is recorded for awards of shares over the period earned. During 1996,
the Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS
123") which defines a fair value-based method of accounting for stock-based
compensation.
ADVERTISING AND PROMOTION COSTS
Expenditures for advertising and promotions are charged to operations as
incurred.
INCOME TAXES
CCPC uses the asset and liability approach to account for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amounts
of assets and liabilities and their respective tax bases using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period when the change is enacted. A valuation
allowance for deferred tax assets is provided when it is more likely than not
the deferred tax asset will not be realized.
EARNINGS PER SHARE
Basic and diluted earnings (loss) per common share is calculated by dividing
net income attributable to common stock by the weighted average number of
common shares outstanding during each
F-11
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period. The weighted average number of common shares outstanding for the
periods presented was 24,000,000. Preferred dividends amounted to $0.9 million
for the six months ended June 30, 1998.
5. SIGNIFICANT CUSTOMERS
Approximately 21% of CCPC's net sales during the year ended December 31, 1997
were to two customers, each of which individually accounted for 15% and 6% of
net sales. In comparison, approximately 20% of net sales for the years ended
December 31, 1996 and 1995 were to these two customers, individually
accounting for 13% and 7% of net sales, respectively. The aggregate accounts
receivable balance at December 31, 1997 and 1996 related to these customers
was approximately $22.0 million at each year end.
6. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods.................................. $ 72,493 $ 62,434 $ 57,906
Work in process................................. 69,214 56,684 52,208
Raw materials................................... 9,094 5,030 9,363
Supplies and packing materials.................. 13,435 14,100 14,452
----------- --------- ---------
Total inventories............................... 164,236 138,248 133,929
(Decrease) increase to LIFO valuation........... (1,148) (2,110) 366
----------- --------- ---------
$ 163,088 $ 136,138 $ 134,295
----------- --------- ---------
----------- --------- ---------
</TABLE>
7. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land........................................................ $ 2,453 $ 2,453
Buildings................................................... 57,941 54,810
Equipment................................................... 230,428 206,177
Leasehold improvements...................................... 11,547 13,141
Precious metals............................................. 11,990 14,810
--------- ---------
314,359 291,391
Accumulated depreciation and related accumulated
amortization.............................................. (161,027) (130,479)
--------- ---------
--------- ---------
$ 153,332 $ 160,912
--------- ---------
--------- ---------
</TABLE>
Depreciation and related amortization expense for the years ended December 31,
1997, 1996 and 1995 was $30.4 million, $30.5 million and $27.9 million,
respectively.
F-12
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
8. OTHER ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Trademarks......................................... $ 8,519 $ 8,682 $ 9,009
Computer software.................................. 8,218 5,708 7,262
Deferred financing fees and other.................. 15,249 74 --
----------- --------- ---------
$ 31,986 $ 14,464 $ 16,271
----------- --------- ---------
----------- --------- ---------
</TABLE>
Amortization expense related to these assets for the years ended December 31,
1997, 1996 and 1995 was $3.6 million, $3.6 million and $2.4 million,
respectively.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
--------- -----------
Trade accounts payable...................................................... $ 16,691 $ 16,459
Payable due to Corning...................................................... 11,431 42,101
Wages and employee benefits................................................. 22,652 17,293
Accrued advertising and promotion........................................... 11,078 15,039
Taxes on income............................................................. 3,189 3,874
Current portion of long-term debt........................................... 2,022 458
Other accrued expenses...................................................... 12,090 18,671
--------- -----------
$ 79,153 $ 113,895
--------- -----------
--------- -----------
</TABLE>
Payable due to Corning relates to amounts paid by Corning on CCPC's behalf.
10. COMPREHENSIVE INCOME
As of January 1, 1998, CCPC implemented SFAS No. 130 "Reporting Comprehensive
Income". This pronouncement, which is solely a financial statement
presentation standard, requires CCPC to disclose non-owner changes included in
equity but not included in net earnings. Comprehensive income was computed as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED
-------------------------- DECEMBER 31,
1998 1997 --------------------------------
(UNAUDITED) (UNAUDITED) 1997 1996 1995
------------ ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net (loss) income............................. $ (39,529) $ 3,450 $ 13,038 $ 1,620 $ (18,489)
Foreign currency translation adjustments...... (412) (377) (1,004) 218 (84)
------------ ------------ --------- --------- ----------
Comprehensive income.......................... $ (39,671) $ 3,073 $ 12,034 $ 1,838 $ (18,573)
------------ ------------ --------- --------- ----------
------------ ------------ --------- --------- ----------
</TABLE>
F-13
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
11. RELATED PARTY TRANSACTIONS
The following transactions with Corning are included in the consolidated
statements of operations for the six months ended June 30, 1998 and 1997 and
the years ended December 31, 1997,1996 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------------- ---------------------------------
1998 1997 1997 1996 1995
------------ ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Commission (income)/expense, net.............. $ (2) $ 490 $ 731 $ 622 $ 262
Interest income from Corning.................. 48 442 323 1,313 1,668
Interest expense to Corning................... 1,622 4,529 7,833 11,778 10,252
Interest expense to Borden Inc. and
an affiliate of Borden, Inc................. 2,368 -- -- -- --
Centralized services.......................... 5,444 9,600 19,201 19,454 17,831
Other corporate administrative expense........ -- 9,204 18,408 20,904 19,994
Management fees to Corning.................... 437 -- -- -- --
Management fees to Borden Inc................. 375 -- -- -- --
</TABLE>
Sales are made by CCPC to certain Corning subsidiaries which subsequently
resell the products to third parties. CCPC pays these subsidiaries a sales
commission for sales made on CCPC's behalf. Corning utilizes the CCPC Canada
operations as a sales office and pays commissions on Corning sales generated.
Amounts due to and from Corning as a result of the above and other
transactions bear interest at a rate of 30-day LIBOR plus 3/8%. See Note 14.
Interest expense due to Borden, Inc. and affiliates of Borden, Inc. relates to
interim financing of $471,600 at 9.5% which was borrowed and repaid during the
second quarter of 1998.
Certain administrative and operating functions are centralized within Corning.
These services include finance support, information services, risk management,
purchasing and transportation, administration of benefit plans and engineering
services. These functions are charged to CCPC using methods deemed appropriate
for the nature of the expenses involved and consistent with charges to other
Corning subsidiaries. The methods utilize various allocation bases such as the
number of employees and related payroll costs, and direct effort expended.
These costs are included in cost of sales and selling, general and
administrative expenses. The centralized functions provided by Corning to CCPC
as well as corporate center costs are charged out under a transition service
agreement at a rate agreed upon by the management of CCPC and consistent with
other Corning businesses. Management believes that the methodology used to
allocate the costs is reasonable, but may not necessarily be indicative of the
costs that would have been incurred had these functions been performed by
CCPC.
Other corporate administrative expense related to certain corporate center
costs such as administrative, tax, treasury, and technical support provided by
Corning to CCPC charged out under a service agreement at an overall rate
agreed upon by the management of CCPC. In 1998 these services are
F-14
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
charged out under a new transition service agreement and are included in
selling, general and administrative expenses. In addition, CCPC paid Corning
$437 of management fees in the first quarter of 1998 relating to certain
corporate governance services.
CCPC pays Borden, Inc. a management fee of $375 per quarter relating to
certain corporate governance services.
Trade payables and debt obligations due to Corning are disclosed in Notes 7
and 12, respectively. CCPC employees participate in Corning employee
retirement and stock compensation plans.
CCPC participates in Corning's centralized treasury and cash management
processes. However, cash collected and disbursed for operations flow through
CCPC's own bank accounts. CCPC cash operations are administered by Corning.
The cash balance reported in the balance sheet is comprised primarily of cash
maintained by foreign subsidiaries of CCPC.
12. EMPLOYEE RETIREMENT PLANS
PENSION BENEFITS
The majority of CCPC's U.S. workforce participates in Corning's employee
benefit plans, including Corning's North American defined-benefit pension plan
(the "Plan"). At the formation of CCPC, CCPC assumed the liability for
pensions to be earned after January 4, 1993, by its then current workforce and
began to make contributions to the Plan. The pension liability earned prior to
the formation of CCPC by both current and retired employees was retained by
Corning. Under the plan agreement, assets of the entire plan are available to
fund the CCPC liability.
CCPC also has defined-benefit pension plans for its employees at certain
wholly-owned subsidiaries.
CCPC's funding policy is to contribute annually an amount determined jointly
by management and its consulting actuaries, which provides for the current
cost and amortization of prior service cost over a 30-year period.
F-15
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
12. EMPLOYEE RETIREMENT PLANS (CONTINUED)
The funded status of CCPC's pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Vested benefits........................................................ $ 45,304 $ 41,516
Non-vested benefits.................................................... 8,812 7,860
--------- ---------
Accumulated benefit obligation......................................... $ 54,116 $ 49,376
--------- ---------
--------- ---------
Present value of projected benefit obligation.......................... $ 56,494 $ 51,213
Current fair market value of plan assets............................... (35,711) (29,820)
Unrecognized prior service costs....................................... (9,343) (10,407)
Unrecognized net losses from changes in actuarial assumptions.......... (4,927) (4,927)
Other unrecognized net experience gains................................ 11,626 11,927
--------- ---------
Recorded pension liability............................................. $ 18,139 $ 17,986
--------- ---------
--------- ---------
</TABLE>
Plan assets are comprised principally of publicly traded debt and equity
securities. Corning common stock represented 3.1% and 7.7% of plan assets at
December 31, 1997 and 1996, respectively.
The unrecognized prior service cost, net gains and losses from changes in
actuarial assumptions and net experience gains are deferred and amortized to
pension expense over the remaining service life of plan participants, if they
exceed certain limits.
The components of pension expense for CCPC's defined-benefit pension plans for
the years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Present value of benefits earned during the year............... $ 3,411 $ 4,780 $ 3,282
Interest cost on projected benefit obligation.................. 3,604 3,150 2,454
Actual return on plan assets................................... (2,464) (1,843) (3,424)
Net amortization and deferral.................................. 773 619 478
--------- --------- ---------
Net pension expense............................................ $ 5,324 $ 6,706 $ 2,790
--------- --------- ---------
--------- --------- ---------
</TABLE>
Measurement of pension expense is based on assumptions used to value the
pension liability at the beginning of the year.
Total consolidated pension expense, including defined contribution pension
plans for the years ended December 31, 1997, 1996 and 1995, was $8.1 million,
$9.8 million, and $5.5 million, respectively.
For CCPC's defined benefit plans, the assumed discount rate and rate of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 7.5% and 4.5%,
respectively, for each of the years ended December 31, 1997 and 1996. The
expected long-term rate of return on plan assets was 9%.
F-16
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
12. EMPLOYEE RETIREMENT PLANS (CONTINUED)
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
At the formation of CCPC, CCPC assumed the liability for all postretirement
benefit costs related to its then current workforce. The postretirement
liability related to retirees at January 1, 1993 was retained by Corning
Incorporated.
The consolidated postretirement benefit obligation attributable to CCPC's
workforce is determined by application of the terms of health care and life
insurance plans, together with relevant actuarial assumptions and health care
cost trend rates. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1997 and 1996. The health care
cost trend rate for CCPC's principal plan is assumed to be 9% in 1997 for
covered individuals under age 65 decreasing gradually to 5% in 2010 and
thereafter. For covered individuals over age 65, the rate is assumed to be 8%
in 1997 decreasing gradually to 5% in 2010 and thereafter. The effect of a 1%
annual increase in the assumed health care cost trend rates would increase the
accumulated postretirement benefit as of December 31, 1997, by approximately
$4.2 million and the annual net periodic postretirement benefit expense by
approximately $0.4 million.
CCPC's accrued postretirement liability at December 31, 1997 and 1996 was
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Accumulated postretirement benefit obligation:
Retirees................................................................... $ 26,883 $ 19,257
Fully eligible active plan participants.................................... 8,552 10,037
Other active plan participants............................................. 22,359 23,842
--------- ---------
57,794 53,136
Unrecognized gain from plan amendments....................................... 193 1,705
Other unrecognized net experience gains...................................... 1,654 1,526
--------- ---------
Accrued postretirement liability............................................. $ 59,641 $ 56,367
--------- ---------
--------- ---------
</TABLE>
CCPC has not funded these obligations.
The components of net periodic postretirement benefit were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Present value of benefits earned during the year...................... $ 2,041 $ 2,092 $ 1,973
Interest cost on the accumulated postretirement benefit obligation.... 3,464 3,343 3,163
Net amortization...................................................... (215) (214) (409)
--------- --------- ---------
Net periodic postretirement benefit expense........................... $ 5,290 $ 5,221 $ 4,727
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
13. STOCK COMPENSATION PLANS
Certain employees of CCPC participate in the stock compensation plans of
Corning. Under Corning's stock option plan, non qualified and incentive stock
options to purchase unissued Corning shares at the market price on the date
of grant generally become exercisable in installments from one to two years
from the grant date, except for a grant in December 1995 which becomes
exercisable in installments from four to five years from that grant date. The
maximum term of non qualified and incentive stock options issued by Corning
is generally 10 years from the grant date.
At December 31, 1997, CCPC employees held options to acquire 351,000 shares
of Corning common stock at exercise prices ranging from $14.95 per share to
$54.81 per share. These outstanding options had a weighted-average exercise
price of $28.50 per share and weighted-average remaining contractual life of
7.1 years at December 31, 1997. Of these outstanding options, at December 31,
1997, 173,000 represented vested options with a weighted-average exercise
price of $27.00 per share.
The number and exercise price of all Corning options outstanding were
adjusted for the distributions of certain Corning subsidiaries at December
31, 1996. This adjustment increased the number of Corning options outstanding
and held by CCPC employees by approximately 69,000 and decreased the exercise
price of the options by approximately 18%.
Certain employees of CCPC were granted 38,000, 38,000 and 153,000 Corning
options in the years ended December 31, 1997, 1996 and 1995, respectively.
The weighted-average exercise price of option grants in the years ended
December 31, 1997, 1996 and 1995 were $42.08, $34.44 and $31.40,
respectively. CCPC employees exercised 80,400, 17,100 and 3,300 Corning
options in the years ended December 31, 1997, 1996 and 1995, respectively.
The weighted-average exercise prices of these exercises in the years ended
December 31, 1997, 1996 and 1995 were $24.25, $23.00 and $12.35,
respectively.
Under Corning's incentive stock plans, stock grants are made to certain
employees of CCPC, either determined by specific performance goals or issued
directly, in most instances subject to the possibility of forfeiture and
without cash consideration. In the years ended December 31, 1997, 1996 and
1995 grants of 26,500, 23,625 and 69,150 shares, respectively, were made
under these plans. The weighted-average grant date fair value of grants was
$35.32, $33.20, and $29.30 per share in 1997, 1996 and 1995, respectively. At
December 31, 1997 the unamortized cost of prior stock grants amounted to
approximately $1.7 million.
The costs related to the above plans have been allocated to CCPC by Corning
within the other corporate administrative expense described in Note 8.
In addition to the stock option plan and incentive stock plans, Corning has
an employee stock purchase plan ("ESPP"), in which certain employees of CCPC
participate. Under the ESPP, certain employees of CCPC can elect to have up
to 10% of their annual wages withheld to purchase Corning common stock. The
purchase price of the stock is 85% of the lower of the beginning-of-quarter
or end-of-quarter market price.
If CCPC had accounted for compensation cost under the provisions of FAS 123,
the pro forma net income (loss) would have been $12.5 million, $1.4 million
and ($18.6 million.) in 1997, 1996 and
F-18
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
13. STOCK COMPENSATION PLANS (CONTINUED)
1995, respectively. The pro forma effect of accounting for such costs using
the fair value method of FAS 123 may not be representative of the effect in
future years.
Under FAS 123, the weighted-average fair values of options granted in the
years ended December 31, 1997, 1996 and 1995 were $13.60, $10.77 and $9.17
per share, respectively. For purposes of determining fair value at the grant
date, the Black-Scholes option pricing model was used with the following
weighted-average assumptions for grants in the years ended December 31, 1997,
1996 and 1995, respectively: risk free interest rate of 6.6%, 6.6% and 5.7%;
dividend yield of 1.6%, 2.3% and 2.3%; expected volatility of 24.5%, 25% and
25%; and expected life of 6, 7 and 7 years.
On April 1, 1998 CCPC adopted the 1998 Corning Consumer Products Stock
Purchase and Option Plan (the "Plan"). Under the Plan, CCPC is granting
certain members of its management options to purchase common stock in the
Company. Fixed stock options were granted to purchase additional shares at a
$5.00 exercise price. The options were issued at fair value, vest over five
years and expire ten years from the date of grant. There are 1,809,000
options currently outstanding and 651,000 available for future grants.
CCPC adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plan. Had compensation cost for CCPC's stock
option plan been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, CCPC's net loss would have
been $39,319 or $1.68 per basic and diluted share for the six months ended
June 30, 1998.
<TABLE>
<CAPTION>
1998
--------------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- -------------------
<S> <C> <C>
Options outstanding, beginning of year.......................................... --
Options granted............................................................... 1,809,000 $ 5.00
Options exercised............................................................. --
Options forfeited............................................................. --
-----------
Options outstanding, end of year................................................ 1,809,000 $ 5.00
</TABLE>
- ------------------------
The following table summarizes information about fixed-price stock options at
June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------------
FAIR VALUE NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE AT GRANT OUTSTANDING REMAINING LIFE EXERCISE PRICE
- -------------- ----------- ------------ ------------------ -------------------
<S> <C> <C> <C> <C>
$5.00 $ 2.20 1,809,000 9.75 years $ 5.00
</TABLE>
- ------------------------
There were no options exercisable at June 30, 1998.
F-19
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
14. BORROWINGS
The Company incurred substantial indebtedness as a result of the
Recapitalization. On April 1, 1998 the Company entered into an interim
financing agreement with Borden, Inc. and an affiliate of Borden, Inc.
providing $471,600 in financing at 9.5% maturing December 31, 1998. The
interim financing was repaid in May 1998 with senior credit facilities and the
issuance of senior subordinated notes in a private placement from a syndicate
of banks and other financial institutions.
The senior credit facilities provide term loans of $200,000 and a revolving
credit facility of up to $275,000 of which $77,000 was outstanding at June 30,
1998. The term loans mature in 2006 and the interest rate fluctuates based on
leverage and is 7.66% at June 30, 1998. The revolving credit facility matures
in 2005 and bears an interest rate that fluctuates based on leverage and is
7.41% at June 30, 1998.
The 9 5/8% senior subordinated notes carry a principal amount of $200,000 and
mature in 2008. At June 30, 1998 and December 31, 1997, CCPC had outstanding
certain industrial development bonds bearing interest at an average rate of
3.4% per annum and 4.0% per annum, respectively. The bonds mature on various
dates through 2005 and at December 31, 1997 and December 31, 1996 had an
aggregate outstanding balance of $10.3 million and $13.9 million,
respectively.
Long-term debt maturing in each of the years subsequent to December 31, 1997
is as follows:
<TABLE>
<S> <C>
1998 calendar year................................................ $ 2,022
1999 calendar year................................................ 2,029
2000 calendar year................................................ 545
2001 calendar year................................................ 563
2002 calendar year................................................ 579
2003-2005......................................................... 4,569
---------
$ 10,307
Less: current maturities.......................................... (2,022)
---------
$ 8,285
---------
---------
</TABLE>
In March 1997, CCPC consolidated certain outstanding notes and debentures,
which had previously been allocated to CCPC by Corning. The notes and
debentures were combined into CCPC's revolving credit agreement which was
increased to provide for borrowings of up to $200 million at a rate of 30-day
LIBOR plus 3/8% due on demand. At December 31, 1997 the aggregate amount of
intercompany debt outstanding was $87.1 million, respectively.
The fair market value of CCPC's borrowings is not significantly different from
its carrying value.
15. INCOME TAXES
CCPC is included in the consolidated federal income tax return filed by
Corning. CCPC and its subsidiaries have a tax sharing arrangement with Corning
pursuant to which they are required to compute their provision for income
taxes on a separate return (i.e., subconsolidation) basis and pay to, or
receive from, Corning the separate U.S. federal income tax return liability or
benefit so computed, if any.
F-20
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
15. INCOME TAXES (CONTINUED)
The Company's tax accounts have been prepared on a separate company basis and
do not necessarily reflect the Company's actual tax position as determined on
a consolidated basis with Corning.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE TAXES:
U.S. companies..................................... $ 14,827 $ (4,627) $ (30,794)
Non-U.S. companies................................. 11,240 12,533 10,800
--------- --------- ---------
Income (loss) before taxes......................... $ 26,067 $ 7,906 $ (19,994)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision at the effective rate differs from the income tax
provision at the U.S. federal statutory tax rate in effect during the years
ended December 31, 1997, 1996 and 1995 for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
EFFECTIVE TAX RATE RECONCILIATION:
Taxes at U.S. statutory tax rate................................ $ 9,123 $ 2,767 $ (7,034)
State taxes, net of federal benefit............................. 3,998 (172) (655)
Higher taxes on subsidiary earnings............................. 2,775 2,954 4,582
Other........................................................... (3,162) 632 1,469
--------- ---------- ---------
Income tax expense (benefit).................................... $ 12,734 $ 6,181 $ (1,638)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CURRENT AND DEFERRED TAX EXPENSE (BENEFIT):.........
Current:
U.S............................................. $ 3,859 $ 222 $ 1,499
State and municipal............................. 2,996 2,909 (838)
Foreign......................................... 4,122 4,159 3,625
Deferred:
U.S............................................. 42 1,595 (4,827)
State and municipal............................. 1,574 (3,061) (983)
Foreign......................................... 141 357 (114)
--------- --------- ---------
Net tax expense (benefit)......................... $ 12,734 $ 6,181 $ (1,638)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-21
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
15. INCOME TAXES (CONTINUED)
The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax assets and liabilities at December
31, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Postretirement, pension and other employee benefits $ 34,957 $ 34,048
Loss and tax credit carryforwards 22,871 21,549
Inventory reserves 1,881 1,460
Other 4,824 9,539
--------- ---------
Gross deferred tax assets 64,533 66,596
Deferred tax assets valuation allowance (13,432) (8,267)
--------- ---------
Deferred tax assets (51,101) 58,329
--------- ---------
Fixed assets (13,195) (14,564)
Other -- (297)
--------- ---------
Deferred tax liabilities (13,195) (14,861)
--------- ---------
Net deferred tax assets $ 37,906 $ 43,468
--------- ---------
--------- ---------
</TABLE>
The net change in the total valuation allowance for years ended December 31,
1997, and 1996 was an increase of $5.2 million and $3.8 million, respectively.
Management believes that the net deferred tax assets are recoverable given the
current estimates of future taxable income.
CCPC currently provides income taxes on the earnings of foreign subsidiaries
and associated companies to the extent they are currently taxable or expected
to be remitted. Taxes have not been provided on $9.3 million of accumulated
foreign unremitted earnings which are expected to remain invested
indefinitely. It is not practicable to estimate the amount of additional tax
that might be payable on these foreign earnings if they were to be remitted.
CCPC paid $6.7 million and $4.9 million of income taxes to Corning in 1997 and
1996, respectively.
F-22
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
16. SUPPLEMENTAL INCOME STATEMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1997 1996 1995
--------- -------------- ---------
<S> <C> <C> <C>
Interest income............................................. $ (493) $ (1,656) $ (2,159)
Interest expense incurred................................... 9,914 13,609 12,478
Interest capitalized........................................ (940) (1,232) (1,564)
--------- -------------- ---------
Interest expense, net....................................... $ 8,481 $ 10,721 $ 8,755
--------- -------------- ---------
--------- -------------- ---------
Interest paid............................................... $ 570 $ 609 $ 662
--------- -------------- ---------
--------- -------------- ---------
Advertising and promotion expense........................... $ 11,794 $ 13,489 $ 20,058
--------- -------------- ---------
--------- -------------- ---------
Research and development expenses........................... $ 380 $ 2,082 $ 3,490
--------- -------------- ---------
--------- -------------- ---------
</TABLE>
17. RESTRUCTURING PROVISION
In 1996, CCPC recorded a charge of $4.2 million ($2.6 million after tax) for a
company-wide restructuring program to reduce overhead costs. Charges included
severance and other termination benefits related to approximately 60
employees. Also in 1996, CCPC released reserves of $2.1 million related to
prior restructuring programs for which charges of $10.5 million ($6.0 million
after tax) and $25.0 million ($15.0 million after tax) were incurred in 1994
and 1993, respectively.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance, at beginning of year..................................... $ 4,623 $ 6,692 $ 15,359
--------- --------- ---------
--------- --------- ---------
Charges to operations:
Employee termination costs...................................... $ -- $ 3,797 $ --
Write-off fixed assets.......................................... -- 291 --
Cost of exiting leased facilities............................... -- 158 --
Other -- -- --
Reversal of excess reserve...................................... -- (2,100) --
--------- --------- ---------
TOTAL CHARGES TO OPERATIONS................................... $ -- $ 2,146 $ --
--------- --------- ---------
--------- --------- ---------
Costs incurred:
Employee termination costs...................................... $ 3,585 1,186 $ 3,680
Write-off fixed assets.......................................... 421 938 100
Cost of exiting leased facilities............................... 617 1,214 4,433
Other........................................................... -- 877 454
--------- --------- ---------
TOTAL COSTS INCURRED.......................................... $ 4,623 $ 4,215 $ 8,667
--------- --------- ---------
Balance at end of year............................................ $ -- $ 4,623 $ 6,692
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
18. STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 1998 1997 1996 1995
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Preferred Stock:
Balance at beginning of year...................... -- -- -- --
Issuance of preferred stock....................... 30,000 -- -- --
Preferred stock dividends......................... 900 -- -- --
-------------- ----------- ----------- -----------
Balance at end of period.......................... 30,900 -- -- --
Common Stock...................................... $ 240 $ 240 $ 240 $ 240
Contributed Capital:
Balance at beginning of year...................... 273,830 273,420 271,964 271,964
Capital contribution.............................. 181,119 410 1,456 --
-------------- ----------- ----------- -----------
Balance at end of year............................ 454,949 273,830 273,420 271,964
-------------- ----------- ----------- -----------
Accumulated Deficit:
Balance at beginning of year...................... (42,138) (55,176) (55,987) (37,498)
Net income (loss)................................. (39,259) 13,038 1,620 (18,489)
Preferred stock dividends......................... (900) -- -- --
Dividend to Corning Incorporated.................. (472,600) -- -- --
Change in accounting calendar..................... -- -- (809) --
-------------- ----------- ----------- -----------
Balance at end of year............................ (554,897) (42,138) (55,176) (55,987)
-------------- ----------- ----------- -----------
Cumulative Translation Adjustment:
Balance at beginning of year...................... (1,798) (794) (1,012) (928)
Translation adjustment............................ (412) (1,004) 218 (84)
-------------- ----------- ----------- -----------
Balance at end of year............................ (2,210) (1,798) (794) (1,012)
-------------- ----------- ----------- -----------
Stockholder's equity.............................. $ (71,018) $ 230,134 $ 217,690 $ 215,205
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
</TABLE>
Effective January 1, 1996, certain consolidated subsidiaries that previously
reported on fiscal years ending November 30 adopted a calendar year end. The
December 1995 net loss of these subsidiaries totaled $0.8 million and was
recorded in accumulated deficit in 1996.
F-24
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(ALL AMOUNTS AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 ARE
UNAUDITED)
19. COMMITMENTS
CCPC is a party to certain noncancellable lease agreements which expire at
various dates through 2011. Minimum rental commitments outstanding at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 17,411
1999.............................................................. 13,116
2000.............................................................. 9,652
2001.............................................................. 5,932
2002.............................................................. 2,679
2003 and thereafter............................................... 3,493
---------
Net minimum lease commitments..................................... $ 52,283
---------
---------
</TABLE>
Rental expense was $24 million, $24 million and $18 million for the fiscal
years ended December 31, 1997, 1996 and 1995.
20. INTERNATIONAL ACTIVITIES
Information by geographic area is presented on a source basis, with exports
shown in their area of origin. Royalty income is included with other
unallocated amounts to allow a reconciliation to amounts reported in the
Consolidated Statements of Operations. Transfers between areas are accounted
for at prices approximating prices to unaffiliated customers.
<TABLE>
<CAPTION>
LATIN-AMERICA, ELIMINATIONS
UNITED ASIA-PACIFIC & UNALLOCATED
STATES AND CANADA AMOUNTS CONSOLIDATED
----------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------
Revenues........................................ $ 477,717 $ 95,143 $ 572,860
Transfers between areas......................... 95,073 210 $ (95,283)
----------- -------------- -------------- -------------
Total revenues.................................. 572,790 95,353 (95,283) 572,860
Income before tax............................... 14,827 11,240 26,067
Identifiable assets at year-end................. 439,595 44,049 483,644
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------
Revenues........................................ $ 538,500 $ 92,265 $ 1,641 $ 632,406
Transfers between areas......................... 117,932 199 (118,131)
----------- -------------- -------------- -------------
Total revenues.................................. 656,432 92,464 (116,490) 632,406
Income (loss) before tax........................ (4,627) 12,533 7,906
Identifiable assets at year-end................. 473,849 42,596 516,445
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------
Revenues........................................ $ 524,099 $ 82,362 $ 2,259 $ 608,720
Transfers between areas......................... 133,128 219 (133,347)
----------- -------------- -------------- -------------
Total revenues.................................. 657,227 82,581 (131,088) 608,720
Income (loss) before tax........................ (30,794) 10,800 (19,994)
Identifiable assets at year-end................. 482,884 48,699 531,583
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary............................... 1
Summary Historical and Pro Forma
Financial and Other Data............ 13
Risk Factors.......................... 16
The Recapitalization.................. 28
Use of Proceeds....................... 30
Capitalization........................ 30
Unaudited Pro Forma Financial
Information......................... 31
Selected Historical Consolidated
Financial and Other Data............ 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 55
Management............................ 68
Principal Stockholders................ 75
Certain Relationships and Related
Party Transactions.................. 76
Description of Capital Stock.......... 79
Description of Credit Facilities...... 80
The Exchange Offer.................... 83
Description of the Exchange Notes..... 94
Exchange and Registration Rights
Agreement........................... 131
Book-Entry; Delivery and Form......... 134
Plan of Distribution.................. 137
Legal Matters......................... 138
Experts............................... 138
Change in Accountants................. 138
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
PROSPECTUS
$200,000,000
CCPC HOLDING
COMPANY, INC.
OFFER TO EXCHANGE $200,000,000 OF ITS 9 5/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR $200,000,000
OF ITS OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
SEPTEMBER 21, 1998
