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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
Coors Porcelain Company
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(Exact name of registrant as specified in its charter)
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Delaware 84-0178380
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
16000 Table Mountain Parkway
Golden, Colorado 80403
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(Address of principal executive offices) (Zip Code)
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Copies of any communications should be sent to:
Katherine A. Resler
General Counsel and Secretary
Coors Porcelain Company
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 271-7000
and
Linda K. Wackwitz
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
(303) 861-7000
Registrant's telephone number, including area code: (303) 277-4000
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: $.01 par
value Common Stock and associated Preferred Stock Purchase Rights
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Item 1. Business
The information required by this item is contained under "Summary"
and "Business" of the Information Statement (the "Information
Statement") attached hereto as Annex I. Those sections are
incorporated herein by reference.
Item 2. Financial Information
The information required by this item is contained under "Summary,"
"Capitalization," "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" of the Information Statement. Those sections are
incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under "Business--
Properties" of the Information Statement. That section is
incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is contained under "Security
Ownership of 5% Beneficial Owners, Directors and Executive Officers
of Coors Ceramics" of the Information Statement. That section is
incorporated herein by reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under
"Management" of the Information Statement. That section is
incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under "Executive
Compensation" of the Information Statement. That section is
incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions
The information required by this item is contained under "The Spin-
off" and "Relationship Between ACX and Coors Ceramics" of the
Information Statement. Those sections are incorporated herein by
reference.
Item 8. Legal Proceedings
The information required by this item is contained under "Business--
Environmental Matters" and "Business--Legal Proceedings" of the
Information Statement. Those sections are incorporated herein by
reference.
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Item 9. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters
The information required by this item is contained under "The Spin-
off-Results of Spin-off," "The Spin-off -Other Consequences" and
"Dividend Policy" of the Information Statement. Those sections are
incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities
The information required by this item is contained under
"Description of Indebtedness" of the Information Statement. That
section is incorporated herein by reference.
Item 11. Description of Registrant's Securities to Be Registered
The information required by this item is contained under
"Description of Capital Stock" and "Anti-takeover Effects of the
Company's Articles and Bylaws" of the Information Statement. Those
sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under "Liability
and Indemnification of Officers and Directors" of the Information
Statement. That section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained in "Consolidated
Financial Statements" and "Pro Forma Consolidated Financial
Statements" of the Information Statement. Those financial
statements are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
(1) Index to Consolidated Financial Statements on page F-1
of the Information Statement
(2) Financial Statement Schedules
(b) Exhibits
See Index to Exhibits
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[ACX Technologies, INC.Letterhead]
, 1999
Dear ACX Shareholder:
We have made a lot of changes since we were spun off from Adolph Coors
Company in December 1992. At that time, we inherited many developmental and new
technologies. Our commitment to profitable growth required that many tough
decisions be made regarding the future of those technologies. 1999 saw the last
of these developmental businesses being sold or closing their doors, allowing
our full time and attention to be focused on our two core businesses, Graphic
Packaging Corporation and Coors Porcelain Company ("Coors Ceramics" or the
"Company").
In addition, we have made several significant acquisitions of folding
carton packaging businesses - Gravure Packaging of Richmond, Virginia in 1996,
Universal Packaging in 1998 and, most recently, the folding carton business of
Fort James Corporation in August 1999. As a result, Graphic Packaging is now
estimated to be the largest folding carton operation in North America. In the
meantime, in September 1999, we sold our flexible packaging business to focus on
our folding carton operations.
In addition to these actions, ACX Technologies, Inc. has announced a plan
to establish the Company as a fully independent public company doing business
under the name Coors Ceramics. In order to implement this plan and distribute
its Coors Ceramics shares, the Board of Directors of ACX has approved a spin-off
to our shareholders of all the outstanding shares of common stock of Coors
Ceramics to holders of record of ACX's common stock on ________, 1999. In the
spin-off, you will receive one share of Coors Ceramics's common stock for every
four shares of ACX's common stock that you hold at the close of business on
______, 1999. Your current shares of ACX common stock will be unchanged and
will continue to represent your ownership position in ACX Technologies, Inc.
After the spin off, the principal business of ACX will be Graphic Packaging
Corporation.
Your Board of Directors has concluded that the spin-off is in the best
interests of ACX, ACX's shareholders and the Coors Ceramics business because it
believes that:
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of each
more attractive as currency for future acquisitions;
. separating Coors Ceramics from the packaging business of ACX will
increase the borrowing capacity of Coors Ceramics by providing more
efficient access to the debt markets;
. having separate management and ownership structures for Coors Ceramics
will link equity based compensation more closely to the business in which
its employees work; and
. the spin-off will provide Coors Ceramics' management with increased
strategic flexibility and decision-making power to realize significant
growth opportunities.
Shares of Coors Ceramics' common stock are expected to trade on the Nasdaq
National Market under the symbol " ".
The enclosed information statement explains the proposed spin-off in detail
and provides important information regarding Coors Ceramics. We urge you to
read it carefully. Please note that a shareholder vote is not required in
connection with this matter, and holders of ACX's common stock are not required
to take any action to participate in the spin-off. Thus, we are not asking you
for a proxy.
Very truly yours,
William K. Coors
Chairman of the Board
ACX Technologies, Inc.
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[Coors Porcelain Company Letterhead]
Dear Coors Porcelain Company Stockholder
It is our joy to welcome you as an initial stockholder of Coors Porcelain
Company. We will conduct the Coors Porcelain business as a separate company and
our common stock will be publicly traded for the first time on January 4, 2000,
following a "when issued" period in December 1999. You will receive a tax free
stock dividend of one (1) share of Coors Porcelain Company common stock for each
four (4) shares of ACX Technologies, Inc. that you own on the close of business
on [_________], 1999. Shares of our stock will trade on the Nasdaq National
Market under the symbol [________].
Established in 1911, Coors Porcelain Company has grown to become a world
leader in advanced technical ceramics. We have in recent years broadened our
materials base to include fluoropolymers and precision machined metals. Our
goal is to become a leading supplier of components and systems made from high
performance materials by partnering with customers to provide manufacturing and
engineering solutions.
We are energized about the opportunities that our spin-off from ACX
Technologies provides, and are enthusiastic about what the future holds. We
believe that our company has great potential to grow and are excited about you
growing with us as a Coors Porcelain Company stockholder.
Congratulations on becoming one of the "founding" stockholders of Coors
Porcelain Company!
Very truly yours,
Joseph Coors, Jr.
Chairman and Chief Executive Officer
Coors Porcelain Company
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Coors Porcelain Company
Common Stock
(par value $.01 per share)
At this time, Coors Porcelain Company, doing business as "Coors Ceramics
Company," is wholly owned by ACX Technologies, Inc. In this spin-off, ACX will
distribute 100% of the shares of Coors Ceramics common stock to ACX
shareholders. Each of you, as a holder of ACX's common stock, will receive one
share of our common stock for every four shares of the common stock of ACX that
you hold at the close of business on ____________, 1999, the record date for the
spin-off.
We are sending you this information statement to describe the spin-off. We
expect the spin-off to occur on January 1, 2000. ACX will mail you certificates
representing your proportionate number of shares of Coors Ceramics common stock
on this day or as soon after this day as practicable. Immediately after the
spin-off is completed, ACX will not own any shares of Coors Ceramics common
stock, and we will be an independent, public company. We refer to ourselves in
this information statement as "We," "Coors Ceramics" or the "Company."
No shareholder action is necessary to receive your shares of Coors Ceramics
common stock. This means that:
. you do not need to pay anything to ACX or to the Company; and
. you do not need to surrender any shares of ACX's common stock to
receive your shares of Coors Ceramics common stock.
In addition, a shareholder vote is not required for the spin-off to occur. ACX
is not asking you for a proxy, and ACX requests that you do not send a proxy.
There has been no trading market for Coors Ceramics common stock. However,
we expect that a limited market for shares of our common stock will develop on
or shortly before the record date for the spin-off, commonly known as a "when
issued" trading market. We will apply to have our common stock traded in the
Nasdaq National Market under the symbol " ".
As you review this information statement, you should carefully consider the
matters described in "Special Considerations" beginning on page 8.
_________________________
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Information Statement.
_________________________
This Information Statement does not constitute an offer to sell or the
solicitation of an offer to buy any securities. Changes may occur after the date
of this Information Statement and neither Coors Ceramics nor ACX will update the
information contained herein except in the normal course of their respective
public disclosures.
_________________________
Shareholders of ACX with inquiries related to the spin-off should contact
Investor Relations at (303) 271-7005, or ACX's stock transfer agent and
registrar, Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box
64854, St. Paul, Minnesota 55164-0854. Norwest Bank Minnesota, NA is also
acting as distribution agent for the spin-off.
The date of this Information Statement is _______________, 1999.
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Table of Contents
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Page
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Available Information .............................................................................. ii
Summary ............................................................................................ 1
Special Considerations ............................................................................. 8
The Spin-Off ....................................................................................... 11
Relationship Between ACX and Coors Ceramics ........................................................ 15
Capitalization ..................................................................................... 17
Dividend Policy .................................................................................... 17
Pro Forma Consolidated Financial Information ....................................................... 18
Selected Consolidated Financial Data ............................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 23
Business ........................................................................................... 28
Management ......................................................................................... 34
Executive Compensation ............................................................................. 37
Security Ownership of 5% Beneficial Owners, Directors and Executive Officers of Coors Ceramics ..... 42
Description of Indebtedness ........................................................................ 44
Description of Capital Stock ....................................................................... 45
Anti-Takeover Effects of the Certain Provisions .................................................... 46
Liability and Indemnification of Officers and Directors ............................................ 53
Independent Accountants ............................................................................ 55
Index to the Consolidated Financial Statements of Coors Porcelain Company ..........................F-1
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i
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Available Information
The Company has filed a Registration Statement on Form 10 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to its common stock. This Information Statement
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information, reference is
made hereby to the Registration Statement and such exhibits and schedules.
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copies of such
documents filed as exhibits to the Registration Statement. Each such statement
is qualified in its entirety by such reference. Copies of these documents may
be inspected without charge at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of
all or any part thereof may be obtained from the Commission upon payment of the
charges prescribed by the Commission by writing to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
this material also should be available through the Internet by using the SEC
EDGAR Archive, the address of which is http:www.sec.gov.
Following the spin-off, Coors Ceramics will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company also will be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish annual reports containing audited financial statements to its
stockholders in connection with its annual meetings of stockholders. After the
spin-off, such reports, proxy statements and other information will be available
to be inspected and copied at the public reference facilities of the Commission
or obtained by mail or over the Internet from the Commission, as described
above.
No person is authorized by ACX or Coors Ceramics to give any information or
to make any representations other than those contained in this Information
Statement. If given or made, such information or representations must not be
relied upon as having been authorized.
ii
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Summary
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire Information Statement,
including our historical and pro forma consolidated financial statements and the
notes to those financial statements included in this information statement.
Unless otherwise indicated, references in this document to "we," "us," "our,"
the "Company" or "Coors Ceramics" mean Coors Porcelain Company and its
subsidiaries.
Coors Ceramics
Coors Ceramics is a wholly-owned subsidiary of ACX Technologies, Inc. ACX
was spun -off from Adolph Coors Company in December 1992. At that time, ACX
inherited many developmental and new technologies. In 1999, the last of these
technologies was sold or closed its doors, allowing ACX to concentrate on its
two core businesses, Graphic Packaging Corporation and Coors Ceramics. The
Board of Directors of ACX has determined that these two core businesses can be
operated and developed more effectively in the best interests of ACX's
shareholders if Coors Ceramics becomes a separate, independent, publicly traded
Company.
Coors Ceramics has been in business since 1911 and is a world leader in the
manufacture of advanced technical ceramics. In addition, the Company
manufactures a wide variety of products from other engineered materials and is
involved in the precision machining of metals. For some customers, Coors
Ceramics integrates manufactured and purchased components into assemblies and
systems. After the spin-off, Coors Ceramics will be an independent, publicly
traded company that will continue to develop, manufacture and sell advanced
technical ceramic and other engineered materials across a wide range of product
lines for a variety of applications.
Coors Ceramics sells its products primarily to industrial manufacturers for
incorporation into their products and processes, providing components to
virtually all of the commonly recognized industrial markets. Since
approximately 90% of Coors Ceramics' products are manufactured to customer
specifications, its reputation for expert custom product design, product quality
and customer service is one of its most valuable assets.
For the six months ended June 30, 1999 and for its fiscal year ended
December 31, 1998, the revenues of ACX attributable to Coors Ceramics were $172
million and $297 million respectively.
The Company's principal office is located at 16000 Table Mountain Parkway,
Golden, Colorado 80403, and its telephone number is (303) 277-4000.
<PAGE>
The Spin-Off
The following is a brief set of questions and answers about the spin-off.
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Why is ACX spinning off Coors . To increase the borrowing capacity of Coors Ceramics.
Ceramics?
. To allow financial markets to evaluate ACX and Coors Ceramics
separately.
. To give Coors Ceramics' management more flexibility to take
advantage of growth opportunities, including using stock as
currency for acquisitions.
. To more closely link equity-based compensation to Coors
Ceramics' business results.
What do I have to do to participate in Nothing; no shareholder vote or other action is required. You do not
the spin-off? need to surrender any shares of ACX stock to receive shares of Coors
Ceramics common stock in the spin-off.
What will I receive in the spin-off? ACX will distribute one share of Coors Ceramics common stock for
every four shares of ACX common stock owned as of the record date,
_____, 1999. You will continue to own your ACX stock.
How will ACX distribute the If you own ACX stock on the record date, Norwest Bank Minnesota,
Company's common stock to me? NA will mail you a certificate representing your Coors Ceramics
common stock on or about January 1, 2000. Following the spin-off
you may retain shares of Coors Ceramics, sell them, or transfer them
to a brokerage or other account. You will not receive new ACX stock
certificates.
When is the record date? The record date is _______________, 1999.
What if I hold my shares of ACX stock If you hold your shares of ACX stock through your stockbroker, bank
through my stockbroker, bank or other or other nominee, you are probably not a shareholder of record and
nominee? your receipt of Coors Ceramics common stock depends on your
arrangements with the nominee that holds your shares of ACX stock
for you. We anticipate that stockbrokers and banks generally will
credit their customers' accounts with Coors Ceramics common stock
on or about January 1, 2000, but you should check with your
stockbroker, bank or other nominee. Following the spin-off you may
instruct your stockbroker, bank or other nominee to transfer your
shares of Coors Ceramics common stock into your own name. If you
own fractional shares, you will receive cash instead of your fractional
share of Coors Ceramics common stock. Fractional shares to be
cashed out will be aggregated and sold by the distribution agent which
will distribute to you your portion of the cash proceeds promptly after
the spin-off. No interest will be paid on any cash distributed in lieu of
fractional shares.
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What is the Company's dividend Coors Ceramics currently anticipates that no cash dividends will be
policy? paid on its common stock in the foreseeable future in order to
conserve cash for the repayment of debt, future acquisitions and
capital expenditures. We expect that Coors Ceramics' Board will
periodically reevaluate this dividend policy taking into account Coors
Ceramics' operating results, capital needs, debt restrictions and other
factors.
How will the Company's common stock We have applied to have Coors Ceramics common stock traded in the
trade? Nasdaq National Market under the symbol "__" and expect that
regular trading will begin on January 4, 2000. A temporary form of
interim trading called "when-issued trading" may occur for Coors
Ceramics common stock on or before __________, 1999 and continue
through [December 31, 1999]. A when-issued listing can be identified
by the letter "v" next to the Coors Ceramics common stock symbol in
the Nasdaq National Market. If when-issued trading develops, you
may buy Coors Ceramics common stock in advance of the January 1,
2000 spin-off. You may also sell Coors Ceramics common stock in
advance of such date on a when-issued basis. When-issued trading
occurs in order to develop an orderly market and trading price for
Coors Ceramics common stock after the spin-off. See pages 13
and 14.
ACX stock will continue to trade on a regular basis and may also trade
on an ex-dividend basis, reflecting an assumed post-spin-off value for
ACX stock. ACX stock ex-dividend trading, if available, could last
from on or before ___________, 1999 through December 31, 1999. If
this occurs, an additional listing for ACX stock, followed by the "ex"
letters, will appear on the New York Stock Exchange.
Is the spin-off taxable for U.S. tax No; the Internal Revenue Service has ruled that the spin-off will be
purposes? tax-free for U.S. tax purposes, except for taxes on any cash received
instead of a fractional share. To review tax consequences in detail,
see page 8 and 13.
What are the risks involved in owning The separation of Coors Ceramics from ACX presents certain risks.
Coors Ceramics common stock? For example, Coors Ceramics has no prior history of operating as an
independent company. Certain other risks are associated with owning
Coors Ceramics common stock due to the nature of its business and
the markets in which it competes. You are encouraged to carefully
consider these risks, which are described in greater detail on pages 8
to 10.
Will ACX and Coors Ceramics be ACX will not own any Coors Ceramics common stock after the spin-
related in any way after the spin-off? off, and Coors Ceramics will operate as an independent, publicly held
company. None of the directors or officers of the Company will
remain directors or officers of ACX. ACX will enter into agreements
with Coors Ceramics to allocate responsibility for liabilities (including
tax, environmental and other contingent liabilities associated with their
respective businesses or otherwise to be assumed by Coors Ceramics
or ACX), to separate their businesses, and to provide for the sharing
of certain services on a transitional basis. These agreements are
described in greater detail on pages 15 and 16.
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What We Have Already Accomplished to Prepare for the Spin-Off
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Board Appointments ACX has elected five directors to Coors Ceramics' Board. See
page 34.
Senior Management Appointments The Coors Ceramics Board has voted to retain Joseph Coors, Jr. as the
Company's Chairman and Chief Executive Officer, John K. Coors, as
President, and Derek C. Johnson, who was newly elected to the office
of Executive Vice President. They will be joined by newly elected
officers Joseph G. Warren, Jr., Chief Financial Officer, Katherine A.
Resler, General Counsel and Secretary, and Larry D. Murphy,
Executive Vice President. See pages 34 to 36.
New Debt Financing In contemplation of the spin-off, Coors Ceramics has negotiated
$240 million in debt financing. Coors Ceramics will pay $200 million
of the net proceeds to ACX to repay intercompany obligations and as a
special dividend.
U.S. Tax Ruling ACX received a tax ruling from the IRS stating that you will not
recognize any U.S. federal tax as a result of receiving Coors Ceramics
common stock in the spin-off. If you receive cash for a fractional
share, you may have to pay some federal tax if any gain is recognized.
See pages 8 and 13.
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Information Regarding the Spin-off and the Company
Before the spin-off, you should direct inquiries relating to the spin-off to:
Norwest Bank Minnesota, NA ACX Technologies, Inc.
Shareowner Services Investor Relations
Post Office Box 64854 16000 Table Mountain Parkway
St. Paul, Minnesota 55164-0854 Golden, Colorado 80403
(651) 450-4064 (303) 271-7005
(800) 468-9716
After the spin-off, you should direct inquiries relating to an investment in
Company common stock to:
Coors Ceramics Company
Investor Relations
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
After the spin-off, the transfer agent and registrar for the Company's common
stock will be:
Norwest Bank Minnesota, NA
Shareowner Services
Post Office Box 64854
St. Paul, Minnesota 55164-0854
(651) 450-4064
(800) 468-9716
5
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Summary Financial And Operating Data
The following tables present: 1) summary historical operating data for each
of the last five fiscal years ended December 31, 1998 and for the six-month
periods ended June 30, 1999 and 1998, 2) summary balance sheet data as of
December 31 for the last five fiscal years and as of June 30, 1999 and 1998 and
3) pro forma selected financial data for the six months ended June 30, 1999, and
the year ended December 31, 1998, as well as pro forma balance sheet data as of
June 30, 1999. The information as of and for the six-months ended June 30, 1999
and 1998 and as of and for the years ended December 31, 1994 and 1995 is derived
from our unaudited consolidated financial statements.
Before the spin-off, we operated as a wholly owned subsidiary of ACX.
Because the data reflect periods during which we did not operate as an
independent company, the historical data may not reflect the results of
operations or the financial condition that would have resulted if we had
operated as a separate, independent company during the periods shown. We have
presented unaudited pro forma financial information as of and for the six months
ended June 30, 1999 and the year ended December 31, 1998 to give a better
picture of what this information might have looked like if Coors Ceramics had
been operated independently during this period. The data may not necessarily be
indicative of our future results of operations or financial condition.
The data presented in the table below are derived from our historical and
pro forma consolidated financial statements and the notes to those financial
statements included in this Information Statement. You should read these
sections for a further explanation of the data summarized here.
Earnings per share data is presented elsewhere in this Information
Statement. See "Unaudited Pro Forma Consolidated Financial Statements."
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Historical Selected Financial Data: Six Months
(In thousands) Ended June 30, Year Ended December 31,
--------------------- -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
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Consolidated Income Statement
Data:
Net sales................................. $171,990 $160,375 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit.............................. 42,039 40,868 73,708 85,003 76,132 80,166 63,570
Selling, general and administrative
expenses................................. 22,189 19,838 37,758 41,754 35,928 36,613 34,541
Asset impairment charges.................. -- 6,232 11,814 -- -- 438 --
Operating income.......................... 19,850 14,798 24,136 43,249 40,204 43,115 29,029
Interest and other income (expense)-net... (2,303) (2,039) (3,524) (68) (6) 393 (354)
Income tax expense........................ 6,492 4,755 7,682 16,192 14,996 14,545 11,304
Net income................................ 11,055 8,004 12,930 26,989 25,202 28,963 17,371
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June 30, December 31,
-------- -----------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
Consolidated Balance Sheet Data:
Total Assets............................ $321,192 $274,513 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital......................... 65,615 77,898 89,295 71,649 62,480 47,567 42,337
Long-term debt payable to Parent........ 50,000 50,000 50,000 -- -- -- --
Total shareholder's equity.............. 176,450 160,251 165,825 203,155 163,463 130,381 115,886
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Pro Forma Selected Financial Data: Six Months Year Ended
(In thousands) Ended June 30, 1999 December 31, 1998
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Consolidated Income Statement Data:
Net sales $171,990 $296,614
Gross profit 42,039 73,708
Selling, general and administrative expenses 22,189 37,758
Asset impairment charges -- 11,814
Operating income 19,850 24,136
Interest and other income (expense)-net (7,857) (13,997)
Income tax expense (benefit) 4,437 3,776
Net income 7,556 6,363
June 30, 1999
-------------
Consolidated Balance Sheet Data:
Total assets $326,192
Working capital 81,443
Long-term debt 205,000
Total shareholders' equity 42,278
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Special Considerations
We have no operating history as an independent company
We do not have an operating history as an independent company. Our business
has historically relied on ACX for various financial, managerial and
administrative services and has been able to benefit from the earnings, assets
and cash flows of ACX's other businesses. ACX will not be obligated to provide
assistance or services to Coors Ceramics after the spin-off, except as described
in the Distribution Agreement, the Transition Services Agreement and the other
agreements entered into by the companies in connection with the spin-off. See
"Relationship Between ACX and Coors Ceramics."
Following the spin-off, we will incur the costs and expenses associated with
the management of a public company and will incur interest expense significantly
in excess of that incurred historically. While we have been profitable as part
of ACX, there can be no assurance that, as a stand-alone company, our future
profits will be comparable to historical combined results before the spin-off.
The spin-off may result in some temporary disruption to the business operation,
as well as to the organization and personnel structure, of Coors Ceramics.
You have potential federal income tax liabilities
The IRS has issued a Tax Ruling to the effect that, among other things, the
spin-off would be tax free to ACX and ACX shareholders under Section 355 of the
Code except to the extent that cash is received in lieu of fractional shares.
The Tax Ruling, while generally binding upon the IRS, is based upon factual
representations and assumptions and commitments on behalf of Coors Ceramics
with respect to future operations made in the ruling request. If those factual
representations and assumptions were incomplete or untrue in a material respect,
or the facts upon which the Tax Ruling is based are materially different from
the facts at the time of the spin-off, or if Coors Ceramics does not meet
certain commitments made, the IRS could modify or revoke the Tax Ruling
retroactively.
If the spin-off failed to qualify under Section 355 of the Code, corporate tax
would be payable by the consolidated group of which ACX is the common parent
based upon the difference between the aggregate fair market value of the Coors
Ceramics business and the adjusted tax bases of such business to ACX prior to
the spin-off. The corporate level tax would be payable by ACX. We have agreed
to indemnify ACX for this and other tax liabilities if they result from certain
actions taken by Coors Ceramics, or from the spin-off. See "Relationship
between ACX and Coors Ceramics--Tax Sharing Agreement." In addition, under the
Code's consolidated return regulations, each member of ACX's consolidated group
(including Coors Ceramics) is severally liable for these tax liabilities. If
Coors Ceramics is required to indemnify ACX for these liabilities or otherwise
is found liable to the IRS for these liabilities, the resulting obligation could
exceed $50 million.
If the spin-off were not to qualify under Section 355 of the Code, then each
owner of ACX common stock who receives shares of Coors Ceramics common stock in
the spin-off would be treated as if such stockholder received a taxable
distribution in an amount equal to the fair market value of Coors Ceramics
common stock received.
We have increased our leverage and have replaced the financing ACX previously
provided
In connection with the spin-off, we have borrowed funds to settle intercompany
obligations and to pay ACX a dividend to reimburse ACX for certain funds
previously provided for acquisitions. Following the spin-off we will no longer
be under ACX's cash management policies. We believe that our cash flow from
operations, together with availability under the credit facility referred to
below in "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Resources and Liquidity" and "Description of
Certain Indebtedness," will be sufficient to satisfy our future working capital,
capital expenditure and debt service requirements and funding needed for
acquisitions. However, we cannot assure you that this will prove to be the
case.
8
<PAGE>
The Company's increased debt will mean that we will need to generate a minimum
level of cash flow from operations in order to meet required repayments of
interest and principal. In addition, the credit agreements impose certain
restrictions on the conduct of our business following the spin-off.
We have agreed to restrictions and adopted policies that could have possible
anti-takeover effects
We have agreed to certain restrictions on our future actions to assure that
the spin-off will be tax-free, including restrictions with respect to an
acquisition of shares of Coors Ceramics common stock. If we fail to abide by
these restrictions, and as a result the spin-off fails to qualify as a tax-free
reorganization, Coors Ceramics will be obligated to indemnify ACX for any
resulting tax liability. The potential tax liability that could arise from an
acquisition of shares of Coors Ceramics common stock, together with our related
indemnification obligations, could have the effect of delaying, deferring or
preventing a change of control of Coors Ceramics. See "Relationship between ACX
and Coors Ceramics--Tax Sharing Agreement."
Several provisions of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws could deter or delay unsolicited
changes in control of the Company. These include provisions creating a
classified Board of Directors and limiting the stockholders' powers to remove
directors or take action by written consent instead of at a stockholders'
meeting. In addition, the Company's Board of Directors has the authority,
without further action by the stockholders, to fix the rights and preferences of
and issue preferred stock. In addition, Coors Ceramics has adopted a
stockholders rights plan that could make an unsolicited takeover offer
uneconomical without prior Board approval. These provisions and others that
could be adopted in the future could deter unsolicited takeovers or delay or
prevent changes in control or management of the Company, including transactions
in which stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, these provisions could limit the
ability of stockholders to approve transactions that they may deem to be in
their best interests. See "Anti-Takeover Effects of The Company's Articles and
Bylaws" and "Description of Capital Stock."
We have significant competition
Competition in the advanced ceramics industry is vigorous and comes primarily
from overseas. Principal competitive factors in the worldwide market include
price, quality and delivery schedules. Our products also face competition from
metals and other materials based primarily on price and weight. We believe we
will be able to compete successfully in this environment although we cannot
guarantee this.
We also face competition in our precision metal machining business and in the
fluoropolymer material business from a multitude of relatively small domestic
companies. We believe there is an opportunity for us, as a larger company, to
compete successfully in this market but we cannot guarantee our success.
We face risks relating to international sales and currency fluctuations
The Company is subject to risks associated with selling products in foreign
countries, primarily risks of fluctuating currency exchange rates.
International sales, primarily in Western European and Far East markets,
constituted approximately 25% of our sales in 1998. We selectively hedge the
U.S. dollar against foreign currencies used in these markets to mitigate the
effects of adverse currency fluctuations when sales are made in the foreign
currency. The strength of the U.S. dollar relative to the currency of our
customers or competitors also may have an impact on our profit margins or sales
to international customers. We cannot assure you that these risks will not have
a material adverse effect on our business, financial condition or results of
operations.
Our profitability is sensitive to economic conditions affecting end users of our
products
Since we sell our products primarily to industrial manufacturers for
incorporation into their products or processes, our business is sensitive to
changes in economic conditions that affect the industries in which the end users
of our products operate such as semiconductor, automotive, oil and gas and pulp
and paper. Sales fluctuations in an industry that incorporates the Company's
products into its products could directly affect our sales to that market. We
cannot
9
<PAGE>
assure you that these risks will not have a material adverse effect on our
business, financial condition or results of operations.
Our profitability and growth are subject to risks related to a significant
customer
We anticipate that 20% of our revenues in 1999 will come from one customer,
Applied Materials, Inc., a semiconductor equipment manufacturer. Our dependence
on this customer may increase as we further develop our strategic supplier
relationship. Any disruption in this relationship, including a downturn in
Applied Materials' business, would have a material adverse effect on our sales.
We are subject to extensive governmental regulation/environmental matters
We are subject to numerous federal, state and local environmental laws and
regulations of the U.S. and other countries in which we have operations. Our
operations are also governed by laws and regulations relating to worker health
and workplace safety. Based on ACX's experience to date, we believe that
liability for environmental conditions and the future cost of compliance with
existing environmental or occupational health and safety laws and regulations
will not have a material adverse effect on our businesses or financial
condition. However, the impact of any future changes in laws and regulations
cannot be predicted. See "Business--Environmental Matters."
We are parties to litigation
In the ordinary course of business, we are subject to claims, lawsuits and
contingent liabilities including claims by current and former employees.
Although the Company is defending against these cases, we cannot assure you that
the ultimate outcome of any or all of these cases will not have a material
adverse effect on our business, financial condition or results of operations.
See "Business--Legal Proceedings."
Factors that may affect future results
Certain statements in this document constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known or unknown risks, uncertainties
and other factors that may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Specifically, 1) capturing new customers, successfully increasing
sales to existing unaffiliated customers and the success of the Company's future
years' revenue growth is dependent on numerous factors, including the continued
strength of the U.S. and key foreign economies, the relative position of the
U.S. dollar vis-a-vis key European and Asian currencies, the actions of
competitors and customers, the Company's ability to execute its marketing plans
and the ability of the Company to maintain or increase sales to existing
customers and capture new business; 2) the Company's overall financial results
and financial condition is dependent upon its customers' and suppliers' ability
to execute their Year 2000 readiness plans; and 3) Coors Ceramics' ability to
increase revenues and operating income is dependent upon its ability to continue
its track record for new product innovation, general economic conditions such as
the position of the U.S. dollar vis-a-vis other currencies, the availability and
pricing of substitute materials such as metals and plastics, the performance of
key industry segments such as semiconductor, automotive, and electronics and
other factors.
10
<PAGE>
The Spin-Off
Reasons for the Spin-Off
The ACX Board of Directors has determined that the distribution of 100% of the
outstanding common stock of Coors Ceramics to owners of the common stock of ACX
will enable the management of each of Graphic Packaging and Coors Ceramics to
operate and develop these two core businesses more effectively. The ACX Board
of Directors has concluded that the spin-off is in the best interests of ACX,
Coors Ceramics and ACX's shareholders because it believes that:
. separating Coors Ceramics from the packaging business of ACX will
increase the borrowing capacity of Coors Ceramics by providing it with
more efficient access to the debt markets;
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of each
more attractive as currency for future acquisitions;
. the spin-off will provide Coors Ceramics' management with increased
strategic flexibility and decision-making power to realize significant
growth opportunities; and
. having a separate management and ownership structure for Coors Ceramics
will provide equity based compensation that is more closely related to
the business in which its employees work.
Manner of Effecting the Spin-Off
ACX will effect the spin-off by distributing all issued and outstanding shares
of Coors Ceramics common stock to holders of record of ACX common stock as of
the close of business on ________, 1999. The spin-off will be made on the basis
of one share of Coors Ceramics common stock for every four shares of ACX common
stock (the "Distribution Ratio") held as of the close of business on _________,
1999. If you receive fractional shares as a result of the Distribution Ratio,
you will receive cash instead of fractional shares of Coors Ceramics common
stock. Fractional shares to be cashed out will be aggregated and sold by the
distribution agent which will distribute to you your portion of the cash
proceeds promptly after the spin-off. No interest will be paid on any cash
distributed in lieu of fractional shares.
Norwest Bank Minnesota, NA, as distribution agent, will mail certificates
representing the number of shares of Coors Ceramics common stock received by
that stockholder in the spin-off. Following the spin-off, stockholders may
transfer the shares to a brokerage account or may retain, transfer or sell the
shares.
No owner of ACX common stock will be required to pay any cash or other
consideration for shares of Coors Ceramics received in the spin-off or to
surrender or exchange any shares of ACX common stock to receive shares of Coors
Ceramics. The actual total number of shares of Coors Ceramics common stock to
be distributed will depend on the number of shares of ACX common stock
outstanding on _______, 1999. The shares of Coors Ceramics common stock
distributed in the spin-off will be fully paid and nonassessable and will not be
entitled to preemptive rights. See "Description of Capital Stock."
Distribution Agreement
The spin-off will be made pursuant to the Distribution Agreement between ACX
and Coors Ceramics. It establishes the procedures to effect the spin-off and
provides for the distribution of the Coors Ceramics common stock to the
shareholders of ACX, the allocation to Coors Ceramics of certain assets and
liabilities of ACX and the transfer to and assumption by Coors Ceramics of those
assets and liabilities.
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<PAGE>
The Distribution Agreement also contains agreements related to debt and
financing arrangements. The Company has agreed that, concurrently with the
spin-off, it will repay all outstanding intercompany debt owed by Coors Ceramics
to ACX as of the Distribution Date. Coors Ceramics will repay intercompany debt
from the net proceeds of the new credit arrangements and also pay a special
dividend to ACX in the total amount of $200 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation-
Financial Resources and Liquidity."
The Distribution Agreement provides for the continuation of existing insurance
coverage under ACX insurance policies for Coors Ceramics until such coverage
expires by its terms in March 2000 (for property insurance) and May 2000 (for
casualty insurance) and for the allocation between ACX and Coors Ceramics of
costs and liabilities associated with the insurance. Under the Distribution
Agreement, ACX and Coors Ceramics have each agreed to retain, and to make
available to the other, books and records and related assistance for audit,
accounting, claims defense, legal, insurance, tax, disclosure, benefit
administration and other business purposes. Each has also agreed to pay its own
costs related to the spin-off and the Company has agreed to indemnify ACX if the
spin-off is taxable or if ACX incurs certain liabilities. Under the
Distribution Agreement, the companies will agree to enter into one or more joint
defense agreements as necessary to provide for the management of litigation in
which both ACX or its subsidiaries and Coors Ceramics or its subsidiaries are
parties and the allocation of related costs, liabilities and recoveries and an
environmental responsibility agreement allocating responsibility for
environmental liabilities. Also, the Distribution Agreement provides that the
ACX Board of Directors may determine not to proceed with the spin-off at any
time prior to the Distribution Date, although such action is not anticipated.
The Distribution Agreement provides for execution and delivery of the
Agreements described in "Relationship between ACX and Coors Ceramics."
Results of Spin-Off
After the spin-off, Coors Ceramics will be a separate public company. The
number and identity of stockholders of Coors Ceramics immediately after the
spin-off will be the same as the number and identity of shareholders of ACX on
______________, 1999. Immediately after the spin-off, Coors Ceramics expects to
have approximately ______ holders of record of Coors Ceramics common stock and
approximately __________ shares of Coors Ceramics common stock outstanding,
based on the number of record shareholders and issued and outstanding shares of
ACX common stock as of the close of business on _____________, 1999 and the
Distribution Ratio. The actual number of shares of Coors Ceramics common stock
to be distributed will be determined as of ________, 1999 and could be affected
by, among other things, the exercise of ACX stock options, which as of September
30, 1999 could have been exercised for approximately one million shares of ACX
common stock. The spin-off will not affect the number of outstanding shares of
ACX common stock or the rights of ACX stockholders.
Other Consequences
As of September 30, 1999, there were outstanding vested and unvested options
to purchase approximately two million shares of ACX common stock held by persons
who will be employed by Coors Ceramics after the spin-off. Coors Ceramics will
grant substitute options for these outstanding ACX options. The exercise price
for each substituted option granted by the Company will be based on the relative
fair market values of the Coors Ceramics common stock and the ACX common stock
using the closing price of ACX shares on the day prior to the ACX stock being
traded on an ex-dividend basis and the when issued closing price of Coors
Ceramics' stock on the day ACX begins trading on an ex-dividend basis. The
number of shares will be determined by dividing the original exercise price of
the ACX option by the exercise price of the substitute option, as determined
above, and then multiplying the result by the original number of option shares.
Substitute options will have the same vesting status and remaining exercise
period as the correspondent ACX option.
Similarly, the number of shares and the exercise price of the outstanding ACX
options held by option holders who continue to be employed by ACX or one of its
remaining subsidiaries after the spin-off will be adjusted based on the relative
fair market values of the ACX common stock before and after the spin-off.
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<PAGE>
Tax Consequences of the Spin-Off
The following is a summary description of the material U.S. tax consequences
associated with the spin-off and is not intended to address every stockholder's
tax consequences. In particular, this summary description does not cover state,
local, municipal, provincial or non-U.S. tax consequences. Stockholders are
strongly encouraged to consult their own tax advisors concerning the tax
consequences of the spin-off applicable to them. In addition, stockholders
residing outside of the U.S. are encouraged to seek tax advice regarding tax
implications of the spin-off.
ACX has received a ruling (the "Tax Ruling") from the Internal Revenue Service
(the "IRS"). The Tax Ruling was issued based upon the accuracy of factual
representations and assumptions and commitments as to Coors Ceramics' future
operations made by ACX and Coors Ceramics in the ruling request and states,
among other things, that the spin-off will qualify as a tax-free spin-off under
Section 355 of the U.S. Internal Revenue Code of 1986, as amended, for federal
income tax purposes. No gain or loss will be recognized by ACX shareholders as
a result of their receipt of Coors Ceramics common stock in the spin-off, except
for any cash received in lieu of fractional shares. See "Manner of Effecting
the Spin-Off." However, if the factual basis or assumptions upon which the
ruling was granted prove to be incorrect, or if Coors Ceramics does not meet
certain commitments made in the tax ruling request, there could be tax
consequences. See "Special Considerations - You could have federal income tax
liabilities."
In connection with the spin-off, a shareholder's tax basis in ACX common stock
will be apportioned between ACX common stock and Coors Ceramics common stock
received in the spin-off according to the relative fair market values of the
shares at the time of the spin-off. In January 2000, ACX will send a letter to
shareholders that will explain the way to allocate tax basis between ACX common
stock and Coors Ceramics common stock distributed in the spin-off. The holding
period of the Coors Ceramics common stock received in the spin-off will include
the holding period of the ACX common stock with respect to which the Coors
Ceramics common stock will be distributed, provided the ACX common stock is held
as a capital asset on _________, 1999.
Listing and Trading of Coors Ceramics Common Stock
There currently is no public market for Coors Ceramics' common stock. We have
applied to include the Coors Ceramics common stock in the Nasdaq National
Market, and we expect that a when-issued trading market for Coors Ceramics
common stock will develop on or before __________, 1999.
The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the Coors
Ceramics common stock may trade on a when-issued basis cannot be predicted.
Until the Coors Ceramics common stock is fully distributed and an orderly market
develops, the prices at which trading in the stock occurs may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully-distributed issue.
The prices at which the Coors Ceramics common stock will trade following the
spin-off will be determined by the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for Coors Ceramics
common stock, investor perceptions of Coors Ceramics, its business and
prospects, results of operations, and general economic and market conditions.
Prior to the spin-off, ACX common stock will continue to trade on a regular
basis and may also trade on an ex-dividend basis, reflecting an assumed post-
spin-off value for ACX common stock. ACX common stock ex-dividend trading, if
available, could last from ____________, 1999 through _________, 2000. If ACX
common stock ex-dividend trading is not available, the New York Stock Exchange
will require that shares of ACX common stock that are sold or purchased during
the period beginning ___________, 1999 and ending on _______, 2000 be
accompanied by due bills representing the Coors Ceramics common stock
distributable with respect to those shares and that during such period neither
the ACX common stock nor the due bills may be purchased or sold separately.
The Transfer Agent and Registrar for the Coors Ceramics common stock will be
Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box 64854, St.
Paul, Minnesota 55164-0854. As of ___________, 1999, there were
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<PAGE>
approximately ________ record holders of ACX common stock, which approximates
the number of prospective record holders of Coors Ceramics common stock
immediately after the spin-off.
Coors Ceramics common stock distributed in the spin-off generally will be
freely transferable under the Securities Act of 1933, as amended (the
"Securities Act"), except for securities received by persons who may be deemed
to be affiliates of Coors Ceramics pursuant to Rule 405 under the Securities
Act. Persons who may be deemed to be affiliates of Coors Ceramics after the
spin-off generally include individuals or entities that control, are controlled
by, or are under common control with Coors Ceramics, including directors of
Coors Ceramics. Persons who are affiliates of Coors Ceramics will be permitted
to sell their shares of Coors Ceramics common stock received in the spin-off
pursuant to Rule 144 under the Securities Act, but without regard to its holding
period requirements.
Conditions; Termination
It is expected that the spin-off will occur on January 1, 2000, provided that
certain conditions set forth in the Distribution Agreement shall have been
satisfied or waived by the ACX Board of Directors. These include, among other
customary conditions, the following:
. The Tax Ruling shall continue to be in effect.
. All material regulatory approvals necessary to consummate the spin-off
shall have been received and be in full force and effect.
. Financing in the amount of at least $205 million shall have been obtained.
. The Coors Ceramics common stock shall have been accepted for inclusion in
the Nasdaq National Market, subject to official notice of inclusion.
. The Coors Ceramics Board of Directors, as named under "Management--
Directors," shall have been elected, and Coors Ceramics Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws shall be
in effect.
Satisfaction of these conditions will not create any obligation on the part of
ACX, Coors Ceramics or any other person to effect or seek to effect the spin-off
or alter the consequences of any termination of the Distribution Agreement from
those set forth in the Distribution Agreement. See "Arrangements Between ACX
and Coors Ceramics Relating to the Spin-Off--Distribution Agreement."
Reasons for Furnishing this Document
This document is being furnished by ACX solely to provide information to ACX
shareholders who will receive Coors Ceramics common stock in the spin-off. It
is not, and is not to be construed as, an inducement or encouragement to buy or
sell any securities of ACX or Coors Ceramics. We believe that the information
contained in this document is accurate as of the date on the cover. Changes may
occur after that date, and neither ACX nor Coors Ceramics will update the
information except as is required in the normal course of their public
disclosure practices.
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Relationship Between ACX and Coors Ceramics
Prior to the spin-off, Coors Ceramics will continue to be a wholly-owned
subsidiary of ACX. In the past, ACX and Coors Ceramics have engaged in various
transactions with each other as a natural result of their affiliation. These
relationships, which include financial support by ACX of Coors Ceramics, will
cease in their current forms upon spin-off. After the spin-off, ACX will have
no ownership interest in Coors Ceramics and will no longer provide managerial or
financial support to it. ACX and Coors Ceramics have entered or will enter into
contracts that will govern certain relationships between them following the
Distribution, including the Distribution Agreement and the agreements described
below. The Company and ACX believe that these agreements are at fair market
value and are on terms comparable to those that would have been reached in arms-
length negotiations had the parties been unaffiliated at the time of the
negotiations.
The Distribution Agreement and the other agreements described below are
included as exhibits to the Company's Registration Statement on Form 10 of which
this Information Statement is a part. The following are summaries and are
qualified in their entirety by reference to the documents as filed. The
Agreements will be effective on or before the Distribution Date. See "The Spin-
Off -- Distribution Agreement."
Tax Sharing Agreement
ACX, Coors Ceramics and their respective subsidiaries are parties to a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of federal, state and other taxes relating to the
Coors Ceramics business for tax years prior to the spin-off and with respect to
certain tax attributes of Coors Ceramics after the spin-off. In general, ACX is
responsible for filing consolidated federal and combined or consolidated state
tax returns and paying the associated taxes for periods through the Distribution
Date. The Company will reimburse ACX for the portion of such taxes relating to
the Coors Ceramics business. The Company is responsible for filing returns and
paying taxes related to the Coors Ceramics business for periods beginning on or
after the Distribution Date. ACX and the Company have agreed to cooperate with
each other and to share information in preparing such tax returns and in dealing
with other tax matters. ACX and the Company will be responsible for their own
taxes other than those described above.
The Tax Sharing Agreement is designed to preserve the status of the spin-off
as a tax-free distribution. Coors Ceramics has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue Service
or an opinion of tax counsel acceptable to ACX that the transaction will not
adversely affect the tax-free nature of the spin-off. The transactions subject
to these restrictions, which are not expected to materially affect the Company's
operating flexibility, consist of liquidations, mergers or consolidations of
Coors Ceramics, redemptions by Coors Ceramics of certain amounts of its stock,
sales of assets out of the ordinary course of business, discontinuance of
certain businesses and certain issuances of the Company's common stock. In
addition, Coors Ceramics has agreed to indemnify ACX against any tax liability
or other expense it may incur if the spin-off is determined to be taxable as a
result of the Company's breach of any covenant or representation contained in
the Tax Sharing Agreement or the Company's action in effecting such
transactions. By its terms, the Tax Sharing Agreement terminates when the
statutes of limitations under applicable tax laws expire.
Transitional and Other Agreements
In the past, ACX and Coors Ceramics have provided services for each other such
as insurance administration, joint purchasing and telecommunications services.
To facilitate an orderly and mutually beneficial transition to the status of two
separate public companies, certain of these services will continue to be
provided by contract on a transitional basis for up to one year following the
Distribution Date. ACX and Coors Ceramics and subsidiaries of ACX and Coors
Ceramics, as applicable, will enter into one or more Transition Agreements to
provide services deemed necessary or desirable by the parties. The agreements
referred to above, individually or collectively, are not material to the
business of Coors Ceramics.
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ACX and Coors Ceramics have agreed to enter or cause their respective
subsidiaries to enter into a joint defense agreement with respect to any
litigation or matter in which both ACX (or one or more of its subsidiaries) and
Coors Ceramics (or one or more of its subsidiaries) are involved and an
environmental responsibility agreement allocating responsibility for
environmental liabilities. ACX, Coors Ceramics and their respective
subsidiaries have agreed to give notice and to cooperate with respect to any
such environmental matter and have agreed to indemnify one another for their
respective environmental practices under the environmental responsibility
agreement. Any joint defense agreement would provide for management of the
proceeding and allocation of related costs, liabilities and recoveries. The
stated terms of any joint defense agreement that may be entered into would
typically be tied to the duration of the litigation that is the subject matter
of the agreement.
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Capitalization
The following table sets forth the capitalization of Coors Ceramics as of June
30, 1999 (actual) and after giving pro forma effect to the spin-off and related
transactions. On January 4, 2000, Coors Ceramics will receive approximately
$200 million in net proceeds from the incurrence of $205 million in debt. Coors
Ceramics will use the net proceeds to retire the notes and advances payable to
ACX and to pay ACX a special dividend. As of June 30, 1999, Coors Ceramics had
notes and advances payable to ACX of approximately $69 million, principally as a
result of acquisitions and internal allocation of debt. This amount could
increase or decrease before repayment based upon normal interim operating cash
receipts and payments and acquisition funding requirements.
<TABLE>
<CAPTION>
As of
June 30, 1999
Actual Pro forma (1)
--------- -------------
(In Thousands)
(Unaudited)
<S> <C> <C>
Long-term debt (2).................................................. $ -- $205,000
Notes and advances payable to ACX (3) 69,327 --
Shareholder's equity:
Common stock, 200,000 shares authorized, $50 par value per share
(actual), 100,000,000 shares authorized, $.01 par value
(pro forma); 200,000 shares issued and outstanding (actual),
7,112,153 shares issued and outstanding (pro forma) (4)(5)........ 10,000 71
Paid-in capital................................................... 75,060 42,800
Retained earnings.................................................. 91,983 --
Accumulated other comprehensive income............................. (593) (593)
--------- ---------
Total shareholder's equity..................................... 176,450 42,278
--------- ---------
Total Capitalization................................................ $245,777 $247,278
========= =========
</TABLE>
______________________
(1) See the Pro Forma Consolidated Financial Information and notes thereto
included elsewhere herein.
(2) See Note 2(a) to the Pro Forma Consolidated Financial Information.
(3) See Note 2(d) to the Pro Forma Consolidated Financial Information.
(4) See Note 2(f) to the Pro Forma Consolidated Financial Information.
(5) The number of shares outstanding after giving effect to the spin-off was
determined based upon the number of shares of ACX common stock outstanding
at June 30, 1999 and reflects the assumed distribution of one share of Coors
Ceramics common stock for four shares of ACX common stock. The actual number
of shares distributed will depend on the number of shares of ACX common
stock outstanding on __________, 1999.
Dividend Policy
Coors Ceramics currently anticipates that no cash dividends, other than the
special dividend to ACX referenced above in "Capitalization," will be paid on
its common stock in the foreseeable future in order to conserve cash for the
repayment of debt, future acquisitions and capital expenditures. The decision
as to whether to declare any future dividend and the amount thereof, if any,
will be in the sole discretion of Coors Ceramics Board of Directors. Any
additional future payment of dividends will depend upon the financial condition,
capital requirements, debt covenants and restrictions, and earnings of Coors
Ceramics, and such other factors that the Coors Ceramics Board of Directors may
deem relevant.
17
<PAGE>
Pro Forma Consolidated Financial Information
(Unaudited)
The following unaudited Pro Forma Consolidated Statements of Income for the
six months ended June 30, 1999 and the year ended December 31, 1998 present the
results of operations and consolidated financial position of the Company
assuming that the transactions contemplated by the spin-off had been completed
as of the beginning of the year ending December 31, 1998. The unaudited Pro
Forma Consolidated Balance sheet as of June 30, 1999 assumes the transactions
contemplated by the proposed spin-off occurred on that date. In the opinion of
management, they include all material adjustments necessary to reflect, on a pro
forma basis, the impact of transactions contemplated by the spin-off on the
Company's historical financial information. The adjustments are described in
the Notes to the Pro Forma Consolidated Financial Information (Unaudited) and
are set forth in the "Pro Forma Adjustments" columns.
The unaudited Pro Forma Consolidated Financial Information of Coors Ceramics
should be read in conjunction with the historical financial statements of Coors
Ceramics beginning on page F-1. We have presented unaudited pro forma financial
information as of and for the six months ended June 30, 1999 and for the year
ended December 31, 1998 to give you a better picture of what our financial
statements might have looked like if Coors Ceramics had been operated
independently during this period. Actual results may have differed from pro
forma results if we were operated independently. You should not rely on the pro
forma financial information as being indicative of the financial position that
would have resulted, the results of operation that would have been attained or
future results after the spin-off.
Coors Porcelain Company
Pro Forma Consolidated Statement of Income
Six Months Ended June 30, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ ----------
<S> <C> <C> <C>
Sales....................................... $171,990 $171,990
Cost of goods sold.......................... 129,951 129,951
-------- --------
Gross profit................................ 42,039 42,039
Selling, general and administrative......... 22,189 22,189
-------- --------
Operating income............................ 19,850 -- 19,850
Other income (expense):
Interest expense
Interest expense on debt.......... (2,000) (5,554) (2a) (7,554)
Other interest expense............ (351) (351)
-------- -------- --------
Total interest expense................. (2,351) (5,554) (7,905)
--------
Interest income........................ 48 48
-------- --------
Income before income taxes.................. 17,547 (5,554) 11,993
Income tax expense.......................... 6,492 (2,055) (2b) 4,437
-------- ------- --------
Net income.................................. $ 11,055 $(3,499) $ 7,556
======== ======= ========
Net income per share of basic common stock $1.55 $ (0.49) $1.06
======== ======= ========
Weighted average shares outstanding-basic (2g) 7,109 7,109 7,109
======== ======= ========
Net income per share of diluted common stock $1.54 $ (0.49) $1.05
======== ======= ========
Weighted average shares outstanding-diluted (2g) 7,184 7,184 7,184
======== ======= ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
18
<PAGE>
Coors Porcelain Company
Pro Forma Consolidated Balance Sheet
June 30, 1999
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro
Pro Forma ---
Historical Adjustments Forma
----------- ------------ ------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ ---- $ 205,000 (2a) $ ----
(200,000) (2d)
(5,000) (2e)
Accounts receivable, less allowance for doubtful
account of $2,491.................................. 52,985 52,985
Inventories........................................ 65,875 65,875
Other assets........................................ 12,028 12,028
-------- ------- --------
Total current assets........................... 130,888 --- 130,888
-------- ------- --------
Properties, net....................................... 139,293 139,293
Goodwill.............................................. 36,682 36,682
Debt issuance costs................................... 5,000 (2e) 5,000
Other assets.......................................... 14,329 14,329
-------- ------- --------
Total assets....................................... $321,192 $5,000 $326,192
======== ======= ========
Liabilities And Shareholder's Equity
Current liabilities:
Accounts payable................................... $ 15,437 $ 15,437
Accrued salaries and vacation...................... 10,526 10,526
Accrued expenses and other liabilities............. 19,983 $3,499 (2c) 23,482
Advances payable to Parent......................... 19,327 (19,327) (2d) ----
-------- ------- --------
Total current liabilities...................... 65,273 (15,828) 49,445
-------- ------- --------
Long-term debt........................................ 50,000 205,000 (2a) 205,000
(50,000) (2d)
Accrued post-retirement benefits...................... 15,327 15,327
Other long-term liabilities 14,142 14,142
-------- ------- --------
Total liabilities................................... 144,742 139,172 283,914
-------- ------- --------
Shareholder's equity:
Common stock, 200,000 authorized, $50 par value per
share (actual), 100,000,000 shares authorized,
$.01par value (pro forma); 200,000 shares issued and
outstanding (actual), 7,112,153 shares issued and
outstanding (pro forma).............................. 10,000 (9,929) (2f) 71
Paid-in capital...................................... 75,060 (42,189) (2d) 42,800
9,929 (2f)
Retained earnings..................................... 91,983 (3,499) (2a,b) --
(88,484) (2d)
Accumulated other comprehensive income................ (593) (593)
--------- -------- ---------
Total shareholder's equity.......................... 176,450 (134,172) 42,278
-------- --------- ---------
Total liabilities and shareholder's equity............ $321,192 $ 5,000 $326,192
======== ============ ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
19
<PAGE>
Coors Porcelain Company
Pro Forma Consolidated Statement of Income
Year Ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------ ----------
<S> <C> <C> <C> <C>
Sales.............................................. $296,614 $296,614
Cost of goods sold................................. 222,906 222,906
-------- -------- --------
Gross profit....................................... 73,708 -- 73,708
Selling, general and administrative................ 37,758 37,758
Asset impairment charge............................ 11,814 11,814
-------- -------- --------
Operating income................................... 24,136 -- 24,136
Other income (expense):
Interest expense:
Interest expense on debt................. (4,000) $(10,473) (3a) (14,473)
Other interest expense................... (125) (125)
-------- -------- --------
Total interest expense........................ (4,125) (10,473) (14,598)
Interest income.................................... 601 601
-------- -------- --------
Income before income taxes......................... 20,612 (10,473) 10,139
Income tax expense................................. 7,682 (3,906) (3b) 3,776
-------- -------- --------
Net income......................................... $ 12,930 ($6,567) $ 6,363
======== ======== ========
Net income per share of basic common stock......... $1.81 $ (0.92) $0.89
======== ======== ========
Weighted average shares outstanding-basic (3c)..... 7,126 7,126 7,126
======== ======== ========
Net income per share of diluted common stock....... $1.78 $ (0.90) $0.88
======== ======== ========
Weighted average shares outstanding-diluted(3c).... 7,258 7,258 7,258
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
20
<PAGE>
Notes to The Pro Forma Consolidated Financial Statements
(Unaudited)
Note 1: The accompanying unaudited Pro Forma Consolidated Financial Information
reflects all adjustments which, in the opinion of management, are necessary to
present fairly the pro forma financial position and pro forma results of
operations for Coors Ceramics Company ("Coors Ceramics" or the "Company")
assuming the Company was a stand-alone entity. This information should be read
in conjunction with Coors Ceramics' historical financial statements and notes
thereto beginning on page F-1 in the latter portion of this document.
Note 2: The pro forma adjustments to the accompanying historical financial
information as of and for the six months ended June 30, 1999 are described
below:
(a) Historical interest expense relates to interest charged on intercompany debt
of $50.0 million at an 8% annual rate. This debt will be paid off at the
time of the spin-off. On a pro forma basis, debt of $205.0 million will be
incurred consisting of an $85.0 million revolver at LIBOR plus 2% (of which
$50.0 million will be borrowed) and Senior Term A debt of $80.0 million at
LIBOR plus 2%, both of which have a five-year maturity. In addition, the
Company will have Senior Term B debt of $75.0 million at LIBOR plus 2.75%
with a seven year maturity. The interest rate used for the June 30, 1999
pro forma statements was 7.37%. A 1/8% increase/decrease in the rate used
would have increased/decreased the recorded interest expense by $0.1
million.
(b) Income tax is adjusted for the pro forma adjustment in Note 2(a) at the
effective rate of 37.0%.
(c) Accrued expenses and other liabilities is adjusted for Note 2(b).
(d) The Company will pay $200.0 million of the debt proceeds discussed at Note
2(a) to ACX for reduction of intercompany debt, advances payable and payment
of a special dividend. Advances payable to Parent consist of funds received
from ACX primarily to fund the acquisitions of Edwards Enterprises and
Precision Technologies, net of cash generated by the Company from
operations.
(e) Debt issuance costs estimated at $5.0 million will be amortized over a five
year period. The actual debt issuance costs could differ from this
estimate.
(f) Adjustment to reflect the issuance of 7,112,153 shares of Common Stock, par
value $0.01 per share as of January 1, 2000. The actual shares outstanding
and the conversion ratio (currently assumed to be one Coors Ceramics share
for every four shares of ACX) could differ from reported amounts.
(g) Basic and diluted weighted average number of shares outstanding are based on
ACX's basic and diluted weighted average number of shares outstanding as of
June 30, 1999 adjusted for the conversion ratio described in Note 2(f). All
ACX common stock equivalents are included for purposes of determining
diluted weighted average number of shares outstanding. The actual number of
shares issued and the conversion ratio used in the spin-off could differ
from these estimates.
Note 3: The pro forma adjustments to the accompanying historical financial
information for the year ended December 31, 1998 are described below:
(a) Historical interest expense relates to interest charged on intercompany debt
of $50.0 million at an 8% annual rate. See discussion of the anticipated
debt structure in Note 2(a). The interest rate used for the December 31,
1998 pro forma statements was 7.06%. A 1/8% increase/decrease in the rate
used would have increased/decreased the recorded interest expense by $0.3
million.
(b) Income tax is adjusted for pro forma adjustment in Note 3(a) at the
effective rate of 37.3%.
21
<PAGE>
(c) Basic and diluted weighted average number of shares outstanding are based on
ACX's basic and diluted weighted average number of shares outstanding as of
December 31, 1998 adjusted for the conversion ratio described in Note 2(f).
All ACX common stock equivalents are included for purposes of determining
diluted weighted average number of shares outstanding. The actual number of
shares issued and the conversion ratio used in the spin-off could differ
from these estimates.
Selected Consolidated Financial Data
The following table summarizes certain selected financial data of Coors
Ceramics. The Income Statement data set forth below for each of the three years
in the three-year period ended December 31, 1998 and the Balance Sheet Data as
of the end of each year in the three-year period ended December 31, 1998 are
derived from audited financial statements of Coors Ceramics. The Income
Statement data set forth below for the years ended December 31, 1995 and 1994
and for each of the six-month periods ended June 30, 1999 and 1998 and the
Balance Sheet Data as of December 31, 1995 and 1994 and June 30, 1999 and 1998
are derived from unaudited consolidated financial statements of Coors Ceramics.
The historical selected financial data may not necessarily be indicative of
Coors Ceramic's past or future performance as an independent company. Such
historical data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and Coors Ceramics'
Consolidated Financial Statements and notes thereto included elsewhere in this
document.
Earnings per share data is presented elsewhere in this Information Statement.
See "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
--------------------- ------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- ------------------------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Selected Financial
Data:
(In thousands)
Consolidated Income Statement Data:
Net sales......................... $171,990 $160,375 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit...................... 42,039 40,868 73,708 85,003 76,132 80,166 63,570
Selling, general and
administrative
expenses......................... 22,189 19,838 37,758 41,754 35,928 36,613 34,541
Asset impairment charges.......... -- 6,232 11,814 -- -- 438 --
Operating income.................. 19,850 14,798 24,136 43,249 40,204 43,115 29,029
Interest and other income......... (2,303) (2,039) (3,524) (68) (6) 393 (354)
(expense)-net
Income tax expense................ 6,492 4,755 7,682 16,192 14,996 14,545 11,304
Net income........................ 11,055 8,004 12,930 26,989 25,202 28,963 17,371
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
-------- ------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Total assets...................... $321,192 $274,513 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital................... 65,615 77,898 89,295 71,649 62,480 47,567 42,337
Long-term debt payable to Parent 50,000 50,000 50,000 -- -- -- --
Total shareholder's equity........ 176,450 160,251 165,825 203,155 163,463 130,381 115,886
</TABLE>
22
<PAGE>
Management's Discussion And Analysis
of Financial Condition And Results of Operations
General Overview.
The following discussion and analysis is based on the separate historical
financial statements of Coors Porcelain Company doing business as Coors Ceramics
Company (the "Company" or "Coors Ceramics"). During the periods presented, the
Company was a wholly owned subsidiary of ACX Technologies, Inc. ("ACX"). The
Board of Directors of ACX has announced a plan to spin-off the Company on or
about January 1, 2000. This plan is subject to certain requirements, most
notably the ruling by the Internal Revenue Service of the transaction as a tax
free distribution. ACX provides general management, legal, treasury, tax,
internal audit, financial reporting and environmental services to the Company.
These ACX costs have been allocated to Coors Ceramics and included in the
discussion herein on a basis that management believes is reasonable. This
allocation may not necessarily equal the costs that would have been or will be
incurred by the Company on a stand-alone basis.
The Company develops, manufactures and sells advanced technical products
across a wide range of product lines for a variety of applications. It has been
in business since 1911 and is the largest U.S. owned, independent manufacturer
of advanced technical ceramics. The Company provides components to virtually
every major industrial market.
On March 1, 1999, the Company acquired all of the outstanding shares of
Edwards Enterprises for approximately $18 million in cash. The acquisition has
been accounted for under the purchase method of accounting and goodwill is
approximately $4.2 million. Edwards Enterprises, located in Newark, California,
manufactures precision-machined parts for the semiconductor industry.
On March 12, 1999, Coors Ceramics acquired the net assets of Precision
Technologies for approximately $22 million in cash and 300,000 warrants to
purchase shares of ACX common stock at an exercise price equal to the fair
market value at the date of closing. The warrants vest only upon the
achievement of certain revenue goals within three years. The acquisition has
been accounted for under the purchase method of accounting and goodwill is
approximately $19.5 million. Precision Technologies, located in Livermore,
California, manufactures precision-machined parts for the semiconductor, medical
and aircraft industries.
Combined Results of Operations.
Comparison of Six Months Ended June 30, 1999 compared to Six Months Ended June
30, 1998
Coors Ceramics' net sales increased $11.6 million or 7.24% to $172.0 million
for the six months ended June 30, 1999 compared to $160.4 million for the same
1998 period. The acquisitions of Edwards Enterprises and Precision Technologies
in March 1999 accounted for an increase in net sales of $24.5 million.
Excluding these acquisitions, net sales decreased $12.9 million as a result of
price competition and weakened demand in the pulp and paper and electronics
markets.
Gross profit for the first six months of 1999 increased $1.2 million or 2.9%
to $42.0 million compared to $40.9 million for the six months ended June 30,
1998. The increase is attributed to the acquisitions of Edwards Enterprises and
Precision Technologies which contributed $5.5 million, partially offset by lower
revenues and competitive pricing pressures in the historic business. Gross
margin of 24.4% for the first two quarters of 1999 declined compared with 1998
gross margin of the same period of 25.5% due to competitive pricing pressures.
Operating income for the first six months of 1999 was $19.9 million, a $5.1
million or 34.1% increase compared to the first six months of 1998 of $14.8
million. In the first quarter of 1998, the Company recorded $6.2 million in
asset impairment charges in conjunction with the cancellation of the C-4
technology agreement with IBM. Changes in the market for C-4 applications
extended the time frame for achieving commercial sales beyond original
expectations. This lack of near term commercial sales opportunities, combined
with increasing overhead costs, prompted the Company to negotiate termination of
the agreement with IBM. In addition, the acquisitions of Edwards Enterprises
and Precision
23
<PAGE>
Technologies in March 1999 contributed $4.1 million to operating income for the
first six months of 1999 while Coors Ceramics' business, excluding these
acquisitions and asset impairment charges, operating income decreased $5.3
million for the first six months of 1999 compared to the same period in 1998 as
a result of price competition.
Net interest expense for the six months ended June 30, 1999 was $2.3 million
compared to $2.0 million to the first six months of 1998. Two million of this
expense consists of payments to ACX on intercompany debt for both of the six
month periods ended June 30, 1999 and 1998.
The consolidated effective tax rate was 37.0% for the six months ended June
30, 1999 and 37.3% for the same period in 1998.
Year Ended December 31, 1998 to Year Ended December 31, 1997
Net sales for 1998 were $296.6 million, a decline of $8.2 million or 2.7%,
over 1997 net sales of $304.8 million. The lower net sales in 1998 reflect
downturns in sales to the semiconductor, pulp and paper, telecommunications, and
petrochemical industries.
Gross profit was $73.7 million in 1998, a decrease of $11.3 million or 13.3%
from $85.0 million in 1997. The decrease is attributed to increased price
competition, particularly in international markets due to the strength of the
U.S. dollar vis-a-vis certain foreign currencies. Gross margins declined from
27.9% in 1997 to 24.8% in 1998 due to a decline in industries previously
mentioned and competitive pricing pressures.
Operating income for 1998 totaled $24.1 million, a decline of $19.1 million or
44.2%, from 1997 operating income of $43.2 million. Excluding the asset
impairment charges discussed below, operating income totaled $36.0 million, a
decline of $7.2 million or 16.7% from 1997. Other than the asset impairment
charges, the lower operating income in 1998 reflects a downturn in sales to
customers in key market segments and the effects of currency influenced price
competition resulting from a strong U.S. dollar.
Operating margins declined in 1998 to 8.1% from 14.2% in 1997. The lower
operating margins in 1998 reflect $11.8 million in asset impairment charges
discussed below, lower sales volumes in higher margin semiconductor and pulp and
paper industry product lines and currency influenced price competition.
During 1998, the Company recorded $11.8 million in asset impairment charges.
A $6.2 million charge was taken in conjunction with the cancellation of the
Company's C-4 technology agreement with IBM. Changes in the market for C-4
applications extended the time frame for achieving commercial sales beyond
original expectations. The lack of near term commercial sales opportunities,
combined with increasing overhead costs, prompted the Company to negotiate
termination of the agreement with IBM. Consequently, the Company wrote off the
long-lived assets associated with this project. The Company recorded an
additional $5.6 million asset impairment charge at the Chattanooga, Tennessee
operation after a review of estimated future cash flows indicated the carrying
amount of the assets may not be recoverable.
The allocation of long term debt from ACX resulted in an increase in interest
expense from $68,000 in 1997 to $3.5 million in 1998.
The consolidated effective tax rate was 37.3% for 1998 compared to 37.5% in
1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
Coors Ceramics' net sales for 1997 increased $28.4 million to $304.8 million
over 1996 net sales of $276.4 million. This 10.3% increase is primarily
attributable to a rebound in the telecommunications, semiconductor and data
processing industries and increased sales volumes to the petrochemical industry.
The August 1997 acquisition of Tetrafluor, a manufacturer of Teflon (R)
fluoropolymer parts, extended the Company's material base and added $5.8 million
in revenue for 1997. International sales as a percentage of total net sales
decreased in 1997 to 27.0% from 30.5% in 1996.
24
<PAGE>
The decrease in international sales in 1997 was due to gains in domestic sales,
lower sales dollars from some international customers due to currency influenced
price competition and weaker demand from certain foreign mining industry
customers.
Gross profit increased $8.9 million or 11.6% to $85.0 million in 1997 compared
to $76.1 million in 1996 on the strength of increased sales and the acquisition
of Tetrafluor which contributed $1.6 million. Gross margins increased slightly
in 1997 to 27.9% from 27.5% in 1996.
Operating margins decreased slightly in 1997 to 14.1% compared to 14.5% in
1996. The strength of the U.S. dollar compared to certain foreign currencies
resulted in increased price competition in some foreign markets.
On the strength of sales increases, the Company's operating income for 1997
rose $3.0 million, or 7.5%, to $43.2 million from 1996 levels.
The consolidated effective tax rate was 37.5% for 1997 compared to 37.3% in
1996.
Liquidity and Capital Resources
Coors Ceramics' liquidity is generated from both internal and external sources
and is used to fund short-term working capital needs, capital expenditures and
acquisitions. Internally generated liquidity is measured by net cash from
operations, as discussed below, and working capital. At June 30, 1999, Coors
Ceramics' working capital was $65.6 million with a current ratio of 2 to 1.
In contemplation of the spin-off, the Company is negotiating a new $240
million credit facility consisting of an $85.0 million revolver and an $80
million Senior Term A facility both maturing in five years and a $75 million
Senior Term B facility maturing in seven years. Borrowings under the credit
facility will bear interest at rates generally based on LIBOR plus a spread that
varies depending upon the Company's performance. The Company will pay $200.0
million of the debt proceeds to ACX for reduction of intercompany obligations
and payment of a special dividend.
In 1997 and 1996, the Company contributed its excess cash to ACX. In 1998,
cash was retained by the Company and was not contributed to ACX. Capital
expenditures for the three year period ended December 31, 1998 totaled $84.3
million and were used primarily for the addition of production capacity, as well
as for computerized manufacturing equipment and enhancements to existing
computer systems. The Company expects capital expenditures of $12.0 in 1999 and
$25.0 million in 2000. On March 1, 1999, the Company acquired all of the
outstanding shares of Edwards Enterprises for approximately $18.0 million in
cash. On March 12, 1999, Coors Ceramics acquired the net assets of Precision
Technologies for approximately $22.0 million in cash and 300,000 non-vested
warrants to purchase shares of ACX common stock at an exercise price equal to
the fair market value at the date of closing. The warrants vest only on the
attainment of certain revenue thresholds. Acquisitions during 1998 utilized
$0.9 million in cash for the acquisition of Pulsation Equipment. Cash utilized
for acquisitions in 1997 and 1996 were $15.8 million and $6.6 million for the
acquisitions of Tetrafluor, Inc. and H.B. Company, respectively.
The impact of inflation on the Company's financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define a specific year. If not corrected, a computer
program that uses date-sensitive software may recognize a date "00" as the year
1900 rather than the year 2000. This could result in system failures or
erroneous results to various activities and operations.
Management has implemented a company wide program to prepare the Company's
financial, manufacturing and other critical systems and applications for the
year 2000. The program includes the establishment of a task force that has the
25
<PAGE>
support and participation of upper management and includes individuals from the
Company and ACX with expertise in information technologies, risk management and
legal. The Board of Directors of ACX monitors the progress of the program on a
quarterly basis. The task force's objective is to ensure an uninterrupted
transition to the year 2000 by assessing, testing, and modifying all information
technology (IT) and non-IT systems, and third parties such as suppliers and
customers.
The Year 2000 task force has taken an inventory of all IT and non-IT systems.
This inventory categorizes potential systems date failures into three
categories: "major" (critical to production and could be business threatening
with no short-term alternatives available); "limited" (disrupting to the
business operations with short-term solutions available); and "minor"
(inconsequential to the business operations). The task force has prioritized
the program to focus first on "major" systems. It is the Company's goal to have
all major and limited systems Year 2000 compliant by December 31, 1999.
IT Systems - The Company is primarily using internal resources to remediate IT
systems. The majority of the IT systems have been recently purchased from third
party vendors. These systems were already Year 2000 compliant or had Year 2000
compliance upgrades. As of December 31, 1998, approximately 75% of the
Company's IT systems were Year 2000 compliant. As of June 30, 1999,
approximately 95% of the Company's IT systems were compliant.
Non-IT Systems - The Company has approximately 18 manufacturing locations with
varying degrees of non-IT systems (such as automated kiln systems, statistical
process control systems, quality control systems, and machining equipment). The
vast majority of these facilities are located in North America. To ensure Year
2000 compliance for non-IT systems, the Year 2000 task force has contacted the
suppliers of these non-IT systems and obtained statements that the systems are
Year 2000 compliant and is in the process of testing Year 2000 compliance. The
majority of these non-IT systems use time intervals instead of dates and are
Year 2000 compliant. Thus, the Company believes that potential disruptions of
such systems due to the Year 2000 issue should be minimal. As of December 31,
1998 and June 30, 1999, approximately 80% and 100%, respectively, of the
Company's "major" and "limited" non-IT systems are Year 2000 compliant. The
"minor" non-IT systems are in various stages of compliance.
Third Parties - The Year 2000 task force has been in contact with key
suppliers and customers to minimize potential business disruptions related to
the Year 2000 issue between the Company and these third parties. The task force
has focused on suppliers and customers that are classified as "major" and
"limited." While the Company cannot guarantee compliance by third party
suppliers, the Company has developed contingency plans to ensure the
availability of inventory supplies in the event a supplier is not Year 2000
compliant.
Contingency Plan - The Company is in the process of finalizing a contingency
plan in the event there are Year 2000 failures related to the Company's IT and
non-IT systems and/or key third parties. The Company's manufacturing facilities
are not interdependent in terms of non-IT systems, and its facilities utilize a
diverse range of non-IT systems (i.e. kilns, and other manufacturing equipment).
Thus, the contingency plan includes for non-IT systems the transfer of
production between facilities and manufacturing equipment. Currently, the
Company believes that there is enough manufacturing capacity to accommodate the
contingency plan.
The Company's major IT systems are heavily dependent on two vendors. These
vendors have completed extensive Year 2000 testing on their products and
indicate they are Year 2000 compliant. In addition, the Company has also
performed Year 2000 testing and has found no compliance issues. The Company
will continue to monitor its systems for Year 2000 compliance and will test such
systems, as considered necessary.
The Company is not dependent on any one supplier for raw materials and other
items and services necessary for the manufacturing of its products. The Company
has established back-up suppliers and will maintain adequate inventory levels at
December 31, 1999 to minimize the potential business disruption in the event of
a Year 2000 failure by a supplier.
Costs - Through December 31, 1998, the Company has spent approximately $40,000
out of an estimated total of less than $500,000 related to the Year
26
<PAGE>
2000 issue. As of June 30, 1999 the Company has spent $101,000 related to the
Year 2000 issue. The Company has not separately tracked internal costs such as
payroll related costs for its information technologies group and other employees
working on the Year 2000 project. The Company expenses all costs related to the
Year 2000 issue as incurred. These costs are being funded through operating cash
flows.
The Company's current estimate of the time and costs related to the
remediation of the Year 2000 issue are based on the facts and circumstances
existing at this time. New developments could affect the Company's estimates to
remediate the Year 2000 issue. These developments include, but are not limited
to: (i) the availability and cost of personnel trained in this area; (ii) the
ability to identify and remediate all IT and non-IT systems; (iii) unanticipated
failures in IT and non-IT systems; and (iv) the planning and Year 2000
compliance success that key customers and suppliers attain.
27
<PAGE>
Business
General
Established in 1911, Coors Ceramics develops, manufactures and sells
engineered solutions for a multitude of industrial and commercial applications
that incorporate advanced materials such as technical ceramics, engineered
plastics or precision machined metals into components, assemblies and systems.
Industry Overview
Advanced technical ceramics, also known as engineered ceramics, are materials
that exhibit superior mechanical properties, corrosion/oxidation resistance and
thermal, electrical, optical and magnetic properties. In addition, recent
acquisitions of companies offering plastics and metals fabrication, and assembly
capabilities, has expanded Coors Ceramics ability to meet increasing market
demand, particularly in the semiconductor industry, for a broader spectrum of
material solutions.
Markets and Products
Coors Ceramics provides components to virtually every major industrial market.
The most important of these markets include:
. Semiconductor
. Electronics
. Advanced Products
. Pulp and Paper
. Wear and Mining
Semiconductor covers the manufacture, assembly and integration of ceramic and
metal components for use in semiconductor processing equipment. Currently, the
semiconductor industry is one of the fastest growing market segments for our
products. Opportunities exist in this industry to aggressively pursue new
applications for ceramics to replace certain metal and other conventional
materials used in a variety of applications. In addition, we can offer machined
metal components and cleanroom assembly services for applications where ceramic
is not the material of choice.
Electronics is a diverse market group with applications in aerospace,
automotive, computer, defense, power generation and distribution, and
telecommunications. Materials used in this application include high purity
ceramics often combined with metal components and precious metals plating.
Advanced Products, the most diversified group of products, includes components
for aerospace, automotive, chemical and material processing, computer, consumer,
defense, electrical, fluid handling, mechanical, medical, paper, and petroleum
markets. This category can include ceramics, plastics and metals. Materials
and processes utilized offer specialized solutions for severe use applications.
Pulp and Paper primarily involves the manufacture of wear and corrosion
resistant components for the paper pulp processing industry. Materials include
ceramics often in a composite form with plastics and/or metals.
Wear and Mining includes products used in chemical and material processing,
mining, paper, and other mechanical applications. Materials utilized include a
wide selection of wear resistant ceramics. Contract, on-site installation
service is also available.
In order to successfully compete in our chosen markets, we must offer flexible
production processes that are capable of producing custom designs. Over 90% of
our products are custom made to specific customer requirements. Another
28
<PAGE>
competitive advantage we have is the ability to evaluate new materials,
applications, and opportunities for value-added products. We place great value
in building and maintaining close relationships with our customers.
Some uses of our components include:
. Fixtures for processing of silicon wafers in semiconductor chip fabrication;
. Slitting knives and other processing and sizing devices used in high-speed
paper making machines;
. Seals and other pump components installed in automobiles, home appliances,
chemical processing, and blood analysis equipment;
. Valves used in fluid handling;
. Precipitators used in pollution control equipment;
. Power tubes used in electrical power generation installations;
. Linings for pipe used in the processing of coal and other abrasive materials;
. Substrates (or bases) for various electronic circuits, pressure sensors, and
semiconductor chips that are critical components in computers, communications
systems, automotive controls and military electronics;
. Passive electronic components, such as capacitors and insulators, used in
electrical devices; and
. Advanced electronic ceramic packages, which are casings that surround a
semiconductor chip, that insulate and connect the chip to printed circuitry.
Cellular telephones, pagers, and radar detection devices require these
packages due to their need for high reliability.
We engineer and custom design our products to comply with specific customer
requirements. Successful product design requires consultation with customers in
their choice of the correct base material and selection by Coors Ceramics of the
appropriate manufacturing processes. Since we sell our products primarily to
industrial manufacturers for incorporation into their products or processes, the
business is sensitive to changes in economic conditions that affect the end
users of such products.
Materials and Services
Ceramic products are nearly as hard as diamond, can withstand extreme
temperatures, and have excellent electrical properties. These properties make
ceramic an ideal material for a variety of industrial applications. Although
sometimes more expensive than competing materials, such as plastics and metals,
ceramic products provide higher value by contributing to longer product life and
enabling customers to enhance their technologies.
While advanced technical ceramics constitutes the majority of our base
business, we believe there is a large potential for business using other
materials such as metals and plastics. Two of our facilities are directly
involved in the precision machining of metals such as stainless steel and
aluminum for applications in the semiconductor equipment and aerospace markets.
Both of these manufacturing sites, acquired in 1999, are capable of performing
customer specified cleanroom assembly and packaging, which integrates the use of
ceramics and metals. This business comprises 14.3% of our revenue year-to-date
in 1999.
We are also involved in the manufacture of fluoropolymer sealing system
plastics used in the aerospace and industrial hydraulic equipment, fluid
handling systems and transportation industries. This business segment
represents 3.6% of our revenue year-to-date in 1999.
Strategy
We seek to grow our business by devoting resources to new product and material
development, internally and through acquisitions, particularly in industry
segments that show the most growth potential. In pursuit of this strategy, we
purchased Precision Technologies and Edwards Enterprises earlier this year.
These acquisitions have strengthened our ability to service customers,
particularly in the semiconductor industry, by broadening our materials
offerings, including machined aluminum, and by positioning us to provide
assembly services.
29
<PAGE>
Our reputation for expert custom product design, product quality, and customer
service is one of our most valuable assets for achieving our strategy. We
emphasize alliances with key customers in diverse industries to develop value
added, engineered products. We continuously evaluate new materials and product
offerings, often with customers, in order to anticipate and satisfy customers'
future needs and to offer a greater range of products with improved performance
characteristics.
Manufacturing and Raw Materials
Ceramic manufacturing involves several steps. From raw material preparation
to completion of the finished product, a typical component will be formed, fired
and if necessary, machined, then inspected, packaged and shipped. The extent to
which a part is processed is dependent on the specifications placed on the
finished product by the customer. Limitations of the material and manufacturing
process determine whether the part will be processed through secondary finishing
steps to meet the final specification.
The raw materials Coors Ceramics uses in its operations are readily available
from diverse sources. Long term, volume agreements with suppliers assures the
Company of consistent and ongoing supply of raw materials.
Coors Ceramics owns or leases approximately 2.28 million square feet of
manufacturing space in the United States and abroad. Overall, Coors Ceramics
currently operates at approximately 75% of its available capacity. Capacity
utilization is not currently a major constraint at Coors Ceramics' 18
manufacturing locations. These facilities specialize, to a certain degree, in a
particular market and are located strategically to optimize customer service
while minimizing manufacturing and transportation costs. Coors Ceramics
continues to invest in computerized, high precision manufacturing equipment and
believes it is well positioned for growth opportunities in both domestic and
foreign markets.
Sales and Distribution
Coors Ceramics sells products primarily to manufacturers, including original
equipment manufacturers, for incorporation into industrial applications and
consumer products. Coors Ceramics generates sales through direct sales
employees located throughout the United States and Europe and manufacturers'
representatives. Coors Ceramics' sales personnel, many with engineering
expertise, receive substantial technical assistance and engineering support due
to the highly technical nature of its products.
International sales, primarily in Western Europe and Far East markets,
constituted approximately 25%, 27%, and 31% of ceramic product sales in 1998,
1997, and 1996, respectively. Coors Ceramics selectively hedges the U.S. dollar
against foreign currencies used in these markets in order to mitigate the
effects of adverse currency fluctuations when sales are made in the foreign
currency. The strength of the dollar relative to the currency of its customers
or competitors may have an impact on Coors Ceramics' profit margins or sales to
international customers.
No single product line or class accounted for more than 10% of the Company's
consolidated net revenue although sales to various industry groups such as the
petrochemical, automotive, power generation and mining, and semiconductor
industries comprised 16%, 13%, 12%, and 10%, respectively, of Coors Ceramics'
1998 consolidated net revenue.
Coors Ceramics' 25 largest customers accounted for approximately 34% of its
net sales for 1998, with no single customer representing more than 10% of Coors
Ceramics' annual sales. A new focus on the semiconductor industry initiated in
1999 may result in an increased dependence on certain semiconductor equipment
manufacturers with potential 1999 sales of 25%. Commitment to consistent high
quality and customer service has earned Coors Ceramics sole supplier status with
several major U.S. manufacturers and a leading position with several other major
customers.
As of June 30, 1999, Coors Ceramics had backlog orders of approximately $97.7
million, as compared to $95.0 million as of June 30, 1998. Coors Ceramics will
ship most of the June 30, 1999 backlog before the end of September 1999.
Customers may place annual orders, with shipments scheduled over a twelve-month
period. Backlog
30
<PAGE>
orders may be higher for certain industrial product segments due to longer time
periods between order and delivery dates under purchase orders. Sales are not
seasonal but can be sensitive to overall economic conditions that affect the
users of advanced ceramic products. Backlog is not necessarily indicative of
past or future operating results.
Competition
Competition in the advanced ceramics industry is vigorous and comes primarily
from Kyocera Corporation (Japan), Morgan Crucible Co. (United Kingdom), NGK
Insulators, Ltd. (Japan), CeramTec AG (Germany) and Saint Gobain (France).
Principal competitive factors in the worldwide market include price (including
the impact of currency fluctuations), quality, and delivery schedules. A major
competitor in most of the markets it serves, Coors Ceramics holds a prominent
position in many product lines. It has maintained long standing relationships
with major corporations based on consistent high product quality and customer
service, which management believes is Coors Ceramics' advantage in domestic and
certain foreign markets.
We also face competition in our precision metal machining business and in the
fluoropolymer materials business from a multitude of relatively small domestic
companies. We believe there is an opportunity for us, as a larger company, to
compete successfully in these markets but we cannot guarantee our success.
Ceramic materials offer advantages over conventional materials for
applications in which certain properties such as high electrical resistance,
hardness, high-temperature strength, wear and abrasion resistance, and precise
machinability are important. Ceramic products, however, face competition from
metals and other materials. For example, plastics are substituting ceramic in
certain computer and telecommunications applications because of their lower cost
and lighter weight. Coors Ceramics believes that the overall value of ceramic
products continues to be attractive to customers. In accordance with the
strategy outlined above, Coors Ceramics continues to explore and evaluate the
development of, or acquisition of companies with, competing or complementary
materials.
Research and Development
The Company's ability to commercialize its technologies and compete
effectively in its various markets depends significantly on its continued and
timely development of innovative technology, materials, products and processes
using advanced and cost-efficient manufacturing processes. Coors Ceramics
believes its research and development expenditures will be adequate to meet its
strategic objectives.
Patents, Proprietary Rights and Licenses
Coors Ceramics holds a number of patents and pending patent applications in
the U.S. and in foreign countries. Its policy generally is to pursue patent
protection that it considers necessary or advisable for the patentable
inventions and technological improvements of its business. Coors Ceramics also
relies significantly on trade secrets, technical expertise and know-how,
continuing technological innovations and other means, such as confidentiality
agreements with employees, consultants and customers, to protect and enhance the
Company's competitive position in its markets.
Coors Ceramics considers the name "Coors" and the goodwill associated with it
to be material to its customer recognition. As part of the spin-off of ACX from
Adolph Coors Company, Coors Ceramics received certain licensing rights to use
the Coors name.
Coors Ceramics believes that it and its subsidiaries own or have the right to
use the proprietary technology and other intellectual property necessary to
their operations. Except as noted above, the Company does not believe that its
success is materially dependent on the existence or duration of any individual
patent, trademark or license or related group of patents, trademarks or
licenses.
31
<PAGE>
Environmental Matters
The Company's operations are subject to all federal, state and local
environmental, health and safety laws and regulations and, in a few instances,
foreign laws, that regulate health and safety matters and the discharge of
materials into air, land and water, and govern the handling and disposal of
solid and hazardous wastes. Coors Ceramics believes it is in substantial
compliance with applicable environmental and health and safety laws and
regulations and does not believe that costs of compliance with these laws and
regulations will have a material effect upon its capital expenditures, earnings
or competitive position.
Coors Ceramics has received a demand for payment arising out of contamination
of a semiconductor manufacturing facility formerly owned by a subsidiary of
Coors Ceramics, Coors Components, Inc. Colorado State environmental authorities
are seeking clean up of soil and ground water contamination from a subsequent
owner. Although Coors Ceramics does not believe it is responsible for the
contamination or the cleanup, the parties agreed to a remediation plan. Coors
Ceramics will manage the remediation and is responsible to pay from 10% to 15%
of the remediation costs in excess of $500,000. There is no firm estimate of
potential clean up costs, although management does not believe it will be
material.
Coors Ceramics has received a Unilateral Administrative Order issued by the
EPA relating to the Rocky Flats Industrial Park (RFIP) Site, and is
participating with the RFIP group to perform an Engineering Evaluation/Cost
Analysis on the property including investigation and sampling. However, the
remediation costs to date are below $500,000 and management does not expect
costs to exceed this amount.
The Company and some of its subsidiaries have been notified that they may be
or have been named as potentially responsible parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 or
similar state laws with respect to the remediation of certain sites where
hazardous substances have been released into the environment. The Company
cannot predict with certainty the total costs of remediation, its share of the
total costs, the extent to which contributions will be available from other
parties, the amount of time necessary to complete the remediation, or the
availability of insurance. However, based on investigations to date, Coors
Ceramics believes that any liability with respect to these sites would not be
material to the financial condition or results of operations of Coors Ceramics,
without consideration for insurance recoveries. There can be no certainty,
however, that Coors Ceramics will not be named as a PRP at additional sites or
be subject to other environmental matters in the future or that the costs
associated with those additional sites or matters would not be material.
In addition, Coors Ceramics has received demands or requests for information
relating to alleged contamination of various properties currently or formerly
owned by the Company or to which the Company allegedly shipped waste. In
management's opinion, none of these claims will result in liability that would
materially affect the Company's financial position or results of operations.
Employees
As of June 30, 1999, Coors Ceramics had approximately 3,200 full-time
employees. None of the employees is subject to a collective bargaining
agreement. Management considers its employee relations to be good.
Properties
Coors Ceramics believes that its facilities are well maintained and suitable
for its operations. The table below lists the Company's plants and most other
physical properties and their locations and character.
32
<PAGE>
<TABLE>
<CAPTION>
Facility Location Character
- ----------------------- ---------------------------- ----------------------
<S> <C> <C>
Manufacturing Benton, Arkansas(1) Ceramic Products
Manufacturing Grand Junction, Colorado Ceramic Products
Manufacturing Chattanooga, Tennessee Ceramic Products
Manufacturing Hillsboro, Oregon Ceramic Products
Manufacturing Lawrence, Pennsylvania(2) Ceramic Products
Manufacturing Norman, Oklahoma Ceramic Products
Manufacturing Oklahoma City, Ceramic Products
Oklahoma(3)
Manufacturing Glenrothes, Scotland Ceramic Products
Manufacturing Oak Ridge, Tennessee(4) Ceramic Products
Manufacturing Austin, Texas(5) Ceramic Products,
Assembly Operations
Manufacturing and Odessa, Texas Ceramic Products
Distribution Office
Manufacturing El Segundo, California(2) Fluoropolymer Products
Manufacturing and Golden, Colorado(6) Ceramic Products
Company Offices
Manufacturing Newark, California Metal Machining and
Assembly Operations
Manufacturing Livermore, California(5) Metal Machining and
Assembly Operations
</TABLE>
_______________
(1) Three facilities.
(2) Leased facility.
(3) Two facilities, one of which is leased.
(4) Three facilities, one of which is leased.
(5) Three facilities, all of which are leased.
(6) Four facilities, one of which is leased.
The operating facilities of Coors Ceramics are not constrained by capacity
issues.
Legal Proceedings
In the ordinary course of business, Coors Ceramics and its
subsidiaries are subject to various pending claims, lawsuits and contingent
liabilities. In each of these cases, the Company is vigorously defending
itself. Coors Ceramics does not believe that disposition of these matters will
have a material adverse effect on the Company's consolidated financial position
or results of operations. Six current or former employees have sued the Company
claiming gender discrimination and sexual harassment and the Company is
currently engaged in the discovery phase of litigation. The plaintiffs are
seeking class certification which the Company is resisting based on the
distinctions among their respective claims. The Company does not have
sufficient information to determine the ultimate outcome or any potential
liability related to these claims. Specific information regarding environmental
legal proceedings is discussed under the caption "Environmental Matters."
33
<PAGE>
Management
Directors
The Company's Amended and Restated By-laws require seven directors. Five
initial directors have been elected by ACX, the sole stockholder of Coors
Ceramics. The Coors Ceramics Board intends to appoint the remaining two
directors as soon as possible. Directors of Coors Ceramics will relinquish any
positions held with ACX on the Distribution Date.
The Company's Amended and Restated Articles of Incorporation provide for the
division of the Board of Directors into three classes. The full slate of
directors will stand for election at the first annual meeting of stockholders,
to be held in 2001, and prior to that election will be nominated to serve for
terms of one, two and three years (Classes I, II and III), respectively.
Stockholders will elect one class, consisting of approximately one third of the
Directors, for three-year terms at each succeeding annual meeting. The
Company's Articles set the number of Directors at no more than 11 and may be
fixed by or in the manner provided in the Bylaws. On the Distribution Date, the
directors will be the persons named below.
Joseph Coors and William K. Coors will serve as Directors Emeritus. As
Directors Emeritus Messrs. Coors will provide advice and consulting services to
the Board.
<TABLE>
<CAPTION>
Name Age Principal Occupation of
---- --- Employment for the Past Five Years
--------------------------------------------------------------------------
<S> <C> <C>
John K. Coors 43 President of Coors Ceramics since October 1998; Chief Executive Officer
of Golden Genesis Company (a former publicly traded subsidiary of ACX),
from January 1997 to October 1998; President of Golden Photon Company
from July 1992 to October 1998; Vice President and Plant Manager of Coors
Brewing Company's Memphis, Tennessee brewery from January to July
1992; also a director of Golden Genesis Company from 1997 to August
1999. He has been a director of ACX since 1996.
Joseph Coors, Jr. 57 President and director of ACX since its formation in August 1992;
Chairman of Coors Ceramics since 1989, Chief Executive Officer of Coors Ceramics
since March 1997, and President of Coors Ceramics from 1997 to October
1998 and from 1985 to 1993; Director of Golden Genesis Company from
May 1998 until August 1999; Chairman of Golden Aluminum (a former
subsidiary of ACX) from 1993 to 1997; Executive Vice President of Adolph
Coors Company from 1991 to 1992; he also serves as a director of Hecla
Mining Company (NYSE: HL), and is Chairman of the Air Force Memorial
Foundation.
[Additional directors]
</TABLE>
Committees of the Coors Ceramics Board
The Coors Ceramics Board will have four standing committees: Audit,
Compensation, Executive and Corporate Governance. The membership of each
committee will be determined following the spin-off.
34
<PAGE>
Audit Committee (all members will be nonemployee directors):
. Reviews the scope and results of the audit of the Company by the Company's
independent accountants.
. Recommends the appointment of the Company's independent accountants.
. Reviews the adequacy of the Company's systems of internal control and
accounting policies and procedures, including compliance with the Company's
ethics policy.
. Directs and supervises investigations into matters within the scope of its
duties.
Compensation Committee (all members will be nonemployee directors):
. Reviews and recommends to the Board compensation of management personnel.
. Reviews and approves executive incentive and benefit plans.
. Reviews and recommends to the Board general employee benefits.
Executive Committee (all members will be employee directors):
. Exercises all of the authority of the Board when the Board is not in session
except as provided in the Company's Articles, Bylaws and applicable law.
Corporate Governance Committee (all members will be nonemployee directors):
. Considers and recommends nominees for election as directors.
. Reviews and evaluates the performance of the Board.
Compensation of Directors
Employee directors will not receive additional compensation for serving as
directors of Coors Ceramics. Each non-employee director of Coors Ceramics will
receive a meeting fee of $7,000 per meeting that the director attends, 50
percent of which will be paid in shares of the Company's common stock. The
balance of the retainer will be paid in cash unless the non-employee director
elects to take all or a portion of it in the Company's common stock.
In addition, the Company intends to adopt a non-employee director equity plan
under which each non-employee director will receive a grant of 1,000 non-
qualified stock options at the beginning of his or her annual term that ends on
the date of the annual shareholders' meeting following receipt of the shares.
The options, with an exercise price equal to 100% of market value on the date of
grant, will vest in equal increments over a three-year period and will expire,
if unexercised, ten years from the date of grant.
No additional amounts will be paid to directors for committee meetings.
Directors will be reimbursed for expenses incurred while attending Board or
committee meetings and in connection with any other Company business. In
addition, Coors Ceramics will purchase accidental death and dismemberment
insurance for the non-employee directors.
Family Relationships
John K. Coors and Joseph Coors, Jr. are brothers and are sons of Joseph Coors
and nephews of William K. Coors.
Executive Officers
On the Distribution Date, the executive officers of Coors Ceramics will be as
follows:
Joseph Coors, Jr., age 57, has been Chairman of Coors Ceramics since 1989 and
its Chief Executive Officer since March 1997. He was President of Coors
Ceramics from 1985 to 1993 and then again from 1997 to October 1998. Mr. Coors
has been President of ACX and a Director since its formation in 1992, and was a
Director of Golden Genesis Company from May 1998 until August 1999, a Chairman
of Golden Aluminum Company from 1993 to 1997, and an Executive Vice President of
Adolph Coors Company from 1991 to 1992. He also is a director of Hecla Mining
35
<PAGE>
Company (NYSE:HL) and Chairman of the Air Force Memorial Foundation. Mr. Coors
holds a bachelor's degree in applied mathematics from the University of North
Carolina.
John K. Coors, age 43, has been President of Coors Ceramics since October
1998. He also has been a Director of ACX since 1996 and of Golden Genesis
Company from January 1997 to August 1999. Mr. Coors was Chief Executive Officer
of Golden Genesis Company from January 1997 to October 1998, President of Golden
Photon Company from July 1992 to October 1998 and Vice President and Plant
Manager of Coors Brewing Company's Memphis, Tennessee brewery from January to
July 1992. Mr. Coors holds a bachelor's degree in chemical engineering from
Colorado School of Mines and a masters degree in biochemistry from Texas and
Austin and a doctorate degree in engineering from Technical University of
Munich.
Derek C. Johnson, age 39, has been Executive Vice President of Sales and
Marketing and Operations of Coors Ceramics since August 1999. Mr. Johnson was
Vice President of Sales and Marketing from October 1998 to August 1999, Vice
President of Golden Operations from 1997 to 1998 and Manager of Manufacturing
for Golden Operations from 1992 to 1997, for Coors Ceramics. Mr. Johnson
received a bachelor's degree in electrical engineering from the KirkCaldy
Technical College of Scotland and a master's degree in business administration
from the University of Denver.
Larry D. Murphy, age 57, has been Executive Vice President of Strategic
Initiatives of Coors Ceramics since October 1999. Prior to joining the Company,
he served as Financial Services Group Banking Director with Andersen Consulting
from 1990 to 1999. From 1987 to 1990, Mr. Murphy was Chief Information Officer
for Union Bank and he served as Chief Executive Officer and President of
Security Pacific Information Services, Inc. from 1980 to 1987. Mr. Murphy
received a bachelor's degree in mathematics from Auburn University and a
master's degree in business administration from National University.
Katherine A. Resler, age 40, has been General Counsel and Secretary of Coors
Ceramics since September 1999. Ms. Resler has been Director of Executive
Compensation since 1995 and Assistant Secretary since 1992 for ACX. Ms. Resler
received a bachelor's degree in science and a master's degree in business
administration from Colorado State University, and a J.D. from the University of
Denver.
Joseph G. Warren, Jr., age 54, has been Chief Financial Officer and Treasurer
of Coors Ceramics since August 1999. Mr. Warren was Vice President of Finance,
Chief Financial Officer, Secretary and Treasurer of White Electronics & Designs,
Inc. from 1995 to 1999. From 1994 to 1995 he served as Vice President and Chief
Financial Officer of Axxess Technologies, Inc. and from 1993 to 1994 served as
Secretary, Treasurer and Vice President of Golden Technologies Company, Inc., a
wholly-owned subsidiary of ACX. From 1992 to 1993, Mr. Warren was President of
Coors Ceramicon Designs, Ltd., a subsidiary of the Company, and from 1985 to
1992 was Vice President of Coors Ceramics Company. Mr. Warren received a
bachelor's degree in accounting from Arizona State University.
Other officers will be:
Janet D. Comerford, age 41, has been Vice President of Human Resources and
Environmental Health and Safety of Coors Ceramics since August 1998. Ms.
Comerford was Regional Human Resources Manager of Coors Ceramics in 1997, served
as Manager of Administration from 1994 to 1997 and was a Production Manager from
1991 to 1994. Ms. Comerford received a bachelor's degree in business
administration from the University of Arizona.
Dean A. Rulis, age 52, has been Vice President of Acquisitions and Technology
of Coors Ceramics since 1998. He was President and General Manager of Wilbanks
International, Inc. (a wholly owned subsidiary of Coors Ceramics) from 1997 to
1998; President of Golden Technologies Company, Inc. from 1992 to 1997. He holds
a bachelor's degree in mechanical engineering from Purdue University.
36
<PAGE>
Executive Compensation
Compensation Philosophy
The Company's compensation philosophy is intended to create value for the
Company's stockholders through long-term growth in sales and earnings. The
total compensation package will consist of salary, benefits, an annual incentive
opportunity and equity grants and will be designed to attract, motivate and
retain the quality of executives needed to successfully lead and manage Coors
Ceramics. This package will intentionally tie a significant portion of the
executives' total compensation to Coors Ceramics' performance and shareholder
value.
Coors Ceramics Cash Compensation Arrangements
The following table sets forth the initial annual base salaries to be paid for
fiscal year 2000 to the named executive officers. The compensation amounts do
not include incentive cash bonuses that may be payable under management
incentive plans.
<TABLE>
<CAPTION>
Estimated Cash
Name Position Compensation
---- -------- --------------
<S> <C> <C>
Joseph Coors, Jr. Chairman and Chief Executive Officer $510,000
John K. Coors President $300,000
Derek C. Johnson Executive Vice President $225,000
Larry D. Murphy Executive Vice President $402,000
Joseph G. Warren, Jr Chief Financial Officer and Treasurer $240,000
</TABLE>
Summary of Executive Compensation
The following information relates to the compensation paid by ACX to Joseph
Coors, Jr., who was as of December 31, 1998, and who will be as of the
Distribution Date, the Chief Executive Officer of Coors Ceramics. Other
individuals who will be executive officers of Coors Ceramics as of the
Distribution Date, were not among the Coors Ceramics executive officers for the
year ended December 31, 1998 or earned less than $100,000 during 1998 and as a
result are not included in the table. All cash compensation reported in the
table was paid by ACX and all stock compensation was in the form of ACX common
stock or options to purchase shares of ACX common stock.
37
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation/
Annual Compensation Awards
----------------------------------------------- ----------------
Securities All other
Name and Principal Other Annual Underlying Compensation
Position Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#) ($)
- ----------------- ------- -------- --------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. 1998 $485,000 $305,550 ------ 62,000 $12,705 /(1)/
Chairman and Chief 1997 $460,000 $479,780 $3,236 /(2)/ 15,000 $ 8,659
Executive Officer
1996 $460,000 $437,460 ------ ------- $ 8,408
</TABLE>
- -----------------------------
(1) Other Compensation includes the value of term life insurance benefitting the
executive and the employer's contribution to the 401(k) plan, respectively,
as follows: Joseph Coors, Jr.--$8,705 and $4,000.
(2) The amount shown is reimbursement during the year for taxes.
Option/SAR Grants in Last Fiscal Year
The following table provides information on grants of options to purchase
shares of ACX common stock made during 1998. All options are granted at the
ACX common stock's market value on the grant date, and each grant has an
expiration date as specified in the table. All options vest in the event of a
change in control. The option price may be paid in cash, by surrendering shares
owned for more than 6 months, or through irrevocable instructions to a broker to
deduct the option price from the proceeds of the sale.
<TABLE>
<CAPTION>
Individual Grants
Number of
Securities % of Total
Underlying Options/SARS
Options/SARs Granted to Grant Date
Granted Employees Exercise or Base Present
Name (#) in Fiscal Yr. Price ($/Sh) Expiration Date Value ($) /(1)/
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph Coors, Jr. 62,000(2) 13.0% $24.344 2/10/08 $795,460
</TABLE>
____________________
(1) Values indicated are an estimate based on the Black-Scholes option pricing
model using the following assumptions:
(a) 28.1 percent stock price volatility based on the average stock price
volatility of the companies included in the S&P Manufacturing
(Diversified/Industrials) Index; (b) 5.63 percent risk-free rate of return;
(c) zero dividend yield; (d) anticipated exercising at the end of the option
term; and (e) no adjustment for non-transferability or risk of forfeiture.
The actual value realized will be determined by the excess of the stock
price over the exercise price on the date the option is exercised. There is
no certainty the actual value realized will be at or near the value
estimated by the Black-Scholes option pricing model.
(2) Options granted annually vest ratably over 3 years with each vested
increment being exercisable until the tenth anniversary of the grant date.
38
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options/SARs
Shares Acquired Value at 12/31/98 (#) at 12/31/98 ($)(1)
On Exercise Realized ---------------------------- -------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ---------------- -------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. 5,900 $87,269 607,266 90,900 $273,418 $0
</TABLE>
(1) Value of unexercised options equals market value of the shares ($12.8125)
underlying in-the-money options at December 31,1998, less the exercise
price, times the number of in-the-money options outstanding.
Retirement Plan
The Board of Directors of ACX Technologies, Inc. approved the spinoff of the
assets and liabilities of the ACX Technologies, Inc. Retirement Plan
attributable to current and former employees of Coors Ceramics and its
subsidiaries into a separate Coors Ceramics Company Retirement Plan ("Retirement
Plan"), effective August 31, 1999. The Retirement Plan's assets will be held in
trust. The provisions of the Retirement Plan will be substantially the same as
the provisions applicable to the Coors Ceramics portion of the ACX retirement
plan. The Retirement Plan will be administered by an administrative committee
appointed by the Board of Directors of the Company. Until the spinoff of the
Retirement Plan is completed, employees of Coors Ceramics and its subsidiaries
will continue to participate in the ACX retirement plan.
The retirement benefit is generally based on length of service and average
monthly compensation. Compensation taken into account is the total base
compensation, including commissions, overtime pay and amounts deferred by the
employee under Company plans pursuant to (S)(S) 125 and 401(k) of the Internal
Revenue Code of 1986, as amended, but excluding profit sharing pay and cash
bonuses. Average monthly compensation is determined by using the average of the
highest 36 consecutive months out of the last ten years, including years with
ACX and its subsidiaries and Adolph Coors Company and its subsidiaries.
The normal annual retirement benefit equals 1.25% of average annual
compensation times years of service (maximum of 25 years), plus .5% of average
annual compensation in excess of covered compensation times years of service
(maximum of 25 years), plus .5% of average annual compensation times years of
service in excess of 25 years, plus, beginning in 1996, the sum of 1.5% of bonus
pay for each plan year (not to exceed the lesser of 25% of base pay or $25,000).
Covered compensation is generally based on an average of the Social Security
taxable wage bases in effect during the 35 years ending with the calendar year
in which the employee's social security retirement age occurs. Years of service
includes years of service with ACX and its subsidiaries (and Adolph Coors
Company and its subsidiaries with respect to certain employees).
Unreduced normal retirement benefits are payable under the Retirement Plan at
(i) age 65, regardless of years of service or (ii) any time after age 60
provided age plus years of vesting service total at least 90. The benefit
accrued under the pension formula set forth above is in the form of a straight
life annuity. An employee with at least ten years of vesting service who
retires prior to normal retirement date is eligible for a retirement benefit, at
reduced rates, provided the employee is at least age 55.
The following table sets forth annual retirement benefits for representative
years of service and average annual compensation as of December 31, 1998. The
amounts shown in the table were calculated without taking into account an amount
for covered compensation; accordingly, the benefits shown would be subject to a
reduction to reflect the payment of Social Security benefits. Furthermore, the
amounts shown in the table were calculated without adding any amounts related to
the portion of the formula which adds, beginning in 1996, the sum of 1.5% of
bonus pay for each plan year (not to exceed the lesser of 25% of base pay or
$25,000). This portion of the formula is not based on average annual
compensation.
39
<PAGE>
The maximum permissible benefit under ERISA from the qualified Retirement
Plan for 1998 was $130,000. In addition, the maximum compensation for 1998 that
may be used in determining benefits from the qualified Retirement Plan is
$160,000. The Company will have an excess benefit plan and a non-qualified
supplemental retirement plan that provides the benefits that are not payable
from the Retirement Plan because of these two limitations. The amounts shown in
this table include the benefits payable under the excess benefit plan and the
non-qualified supplemental retirement plan.
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
- ----------------------------------------------------------------------
$125,000 $ 32,813 $ 43,750 $ 54,688 $ 57,813 $ 56,328
$150,000 39,375 52,500 65,625 69,375 67,594
$175,000 45,938 61,250 76,563 80,938 78,859
$200,000 52,500 70,000 87,500 92,500 90,125
$225,000 59,063 78,750 98,438 104,063 101,391
$250,000 65,625 87,500 109,375 115,625 112,656
$275,000 72,188 96,250 120,313 127,188 123,922
$300,000 78,750 105,000 131,250 138,750 135,188
$325,000 85,313 113,750 142,188 150,313 146,453
$350,000 91,875 122,500 153,125 161,875 157,719
$375,000 98,438 131,250 164,063 173,438 168,984
$400,000 105,000 140,000 175,000 185,000 180,250
$425,000 111,563 148,750 185,938 196,563 191,516
$450,000 118,125 157,500 196,875 208,125 202,781
$475,000 124,688 166,250 207,813 219,688 214,047
$500,000 131,250 175,000 218,750 231,250 225,313
$525,000 137,813 183,750 229,688 242,813 236,578
$550,000 144,375 192,500 240,625 254,375 247,844
$575,000 150,938 201,250 251,563 265,938 259,109
- ----------------------------------------------------------------------
</TABLE>
(1) As of fiscal year-end 1998, average annual compensation covered by the
Retirement Plan, which is equal to the highest average salary amount over a
consecutive 36 month period in the last 10 years, and credited years of
service with ACX, including previous compensation and years of service with
the Company and its subsidiaries, for the named executives are as follows:
Joseph Coors, Jr.- $466,808 and 22 years; John K. Coors - $174,152 and 20
years; and Derek C. Johnson - $125,600 and 14 years. Larry D. Murphy and
Joseph G. Warren, Jr. have been with the Company less than the above 36-
month period.
Employment Contracts, Termination of Employment, Salary Continuation and
Change-in-Control Arrangements
Coors Ceramics has employment contracts with all of the named executives for
a three year period. Under the contracts, the executives receive an annual
salary as indicated in the Compensation Table, receive a $25,000 signing bonus
and are eligible to participate in equity incentive and annual bonus plans. In
addition, Larry D. Murphy received 85,000 nonqualified stock options and Joseph
G. Warren, Jr. received 50,000 nonqualified stock options subject to vesting
conditions based on time and stock performance. Upon termination, the executive
receives: nothing if terminated for cause; the greater of the remaining term or
one year's salary if termination is not for cause but two years salary if
termination is due to a Change of Control (as defined in the equity plan); and a
gross up amount if certain excise tax payments are triggered.
Compensation received by the named executives upon retirement includes
normal retirement benefits and, for the Chief Executive Officer and the
President, a number of shares of stock to be granted under salary continuation
agreements. The shares will be payable in full upon retirement at age 60 or
after. Additionally, the shares will be 50 percent vested at age 50 with 10
years of service and the remaining 50 percent will vest in 5 percent increments
between ages 51 and 60.
In addition, in the case of a change in control of Coors Ceramics, the
Company's compensation plans will be affected as follows: (1) under the Equity
Incentive Plan, all outstanding options will become exercisable in full and all
stock units
40
<PAGE>
will become payable in full; (2) under the annual incentive plan,
the plan will terminate and prorated bonuses will be calculated and paid, if
earned; (3) under the deferred compensation plan, distributions of deferred
amounts will be made in a lump sum within 90 days after the change in control;
and (4) under the salary continuation agreements, stock units vest 100% without
regard to the executive's age or service. The definition of change in control
for these purposes is as follows: (i) if beneficial ownership of 50% or more of
either the outstanding shares of the Company's common stock or the combined
voting power of the Company's voting stock is acquired by persons or entities
not related to the Company without consent of the current Board, (ii) upon the
election of individuals constituting a majority of the Board who were either not
members prior to their election or not recommended to the shareholders by the
Board, (iii) upon a merger, consolidation or sale of all or substantially all of
the Company's assets, where upon (a) at least 50% of the outstanding shares of
the Company's common stock and of the combined voting power of voting securities
are not held in the same proportion, and by the same persons as the beneficial
owners prior to such event, (b) at least 35% of the Company's common stock is
held by a person that did not hold such amount prior to the event and (c) a
majority of the current Board did not survive the event, or (iv) approval by the
stockholders of the Company of a complete liquidation or dissolution of the
Company.
41
<PAGE>
Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers
of Coors Ceramics
None of the present executive officers or directors of Coors Ceramics
currently owns any shares of Coors Ceramics common stock, all of which are owned
currently by ACX. However, the executive officers and directors of Coors
Ceramics will receive, by virtue of their ownership of ACX common stock, shares
of Coors Ceramics common stock in the spin-off. In addition, as discussed under
"Management," certain existing options to purchase shares of ACX common stock
under ACX executive plans will be converted into comparable options to purchase
shares of Coors Ceramics common stock.
The following table lists beneficial ownership of ACX common stock as of
September 30, 1999 by owners of more than five percent of the ACX common stock,
each of the directors, each of the named executive officers and all directors
and executive officers of Coors Ceramics as a group. Except as otherwise
indicated, the beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Amount and Nature of Percent
Name Address for 5% Owners Beneficial Ownership of Class
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adolph Coors, Jr. Trust Adolph Coors Company 2,800,000 9.8%
(William K. Coors, Jeffrey H. Golden, Colorado 80401
Coors, J. Brad Coors, Joseph
Coors, and Peter H. Coors, co-
trustees with shared voting and
investment power)
Grover C. Coors Trust Adolph Coors Company 2,727,016 9.6%
(William K. Coors, Jeffrey H. Golden, Colorado 80401
Coors, John K. Coors, Joseph
Coors, and Joseph Coors, Jr., co-
trustees with shared voting and
investment power)
May Kistler Coors Trust Adolph Coors Company 1,726,652 6.1%
(William K. Coors, Jeffrey H. Golden, Colorado 80401
Coors, Joseph Coors, Joseph
Coors, Jr. and Peter H. Coors,
co-trustees with shared voting
and investment power)
Tweedy, Browne Company LLC 52 Vanderbilt Avenue 1,481,685 5.2%
and Affiliates New York, New York 10017
Herman F. Coors Trust Adolph Coors Company 1,435,000 5.0%
(William K. Coors, Jeffrey H. Golden, Colorado 80401
Coors, Joseph Coors, Joseph
Coors, Jr. and Peter H. Coors,
co-trustees with shared voting
and investment power)
John K. Coors (1)(2) 39,558 *
Joseph Coors, Jr. (1)(3) 732,740 2.5%
Derek C. Johnson (1) 14,532 *
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Amount and Nature of Percent
Name Address for 5% Owners Beneficial Ownership of Class
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Larry D. Murphy 0 --
Joseph G. Warren, Jr. 0 --
Directors and Executive Officers
as a Group (6 persons) 790,830 2.8%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of ACX common stock issuable pursuant to options which are
currently exercisable or will be exercisable within 60 days.
(2) Does not include 2,727,016 shares held by John K. Coors as trustee as to
which he disclaims beneficial ownership. As to the 2,727,016 shares, John K.
Coors shares voting and investment power with Jeffrey H. Coors, William K.
Coors, Joseph Coors and Joseph Coors, Jr. The 2,727,016 shares also does not
include 18,156 shares of ACX common stock restricted and unissued until
retirement.
(3) Does not include 3,326,060 shares held by Joseph Coors, Jr. as trustee as to
which he disclaims beneficial ownership. As to the 3,326,060 shares, Joseph
Coors, Jr. shares voting and investment power with Jeffrey H. Coors, Joseph
Coors, William K. Coors and Peter H. Coors. Also does not include 1,798
shares of ACX common stock restricted and unissued until the earlier of
retirement or death, disability or termination of employment; or 64,032
shares of common stock restricted and unissued until retirement.
43
<PAGE>
Description of Indebtedness
In connection with the spinoff, Coors Ceramics expects to enter into a
Credit Agreement (the "Bank of America Loan"), provided by Bank of America and a
syndicate of other lenders. The Bank of America Loan will provide for a $240
million credit facility consisting of an $85.0 million revolving credit facility
maturing in five years, an $80 million term facility maturing in five years and
a $75 million term facility maturing in seven years. Borrowings under the
credit facility will bear interest at rates generally based on LIBOR plus a
spread that will vary depending upon Coors Ceramics' performance. The Bank of
America Loan will be collateralized by substantially all of Coors Ceramics'
assets, including real estate and all of the outstanding capital stock of Coors
Ceramics' subsidiaries, whether now owned or later acquired. The agreement for
the Bank of America Loan is expected to contain covenants restricting liens,
capital expenditures, investments, borrowing, payment of dividends, mergers, and
acquisitions and sale of assets. In addition, the agreement for the Bank of
America Loan, as amended, is expected to contain financial covenants restricting
maximum annual capital expenditures, recapturing excess cash flow and requiring
maintenance of the following ratios:
. maximum total debt to EBITDA (as defined in the agreement for the Bank
of America Loan);
. minimum EBITDA to interest; and
. minimum tangible net worth.
Coors Ceramics will pay $200.0 million of the debt proceeds to ACX for reduction
of intercompany obligations and payment of a special dividend.
44
<PAGE>
Description of Capital Stock
Authorized Shares
Under Coors Ceramics' Certificate of Incorporation, the authorized capital
stock of Coors Ceramics consists of 100,000,000 shares of common stock, par
value $.01 per share, and 20,000,000 shares of preferred stock, $.01 par value
per share. ACX currently owns all outstanding shares of common stock. No
shares of preferred stock have been issued. Immediately after the spin-off,
based on the number of shares of common stock of ACX outstanding at ________,
1999 and the distribution ratio of one share of Coors Ceramics common stock for
every four shares of ACX common stock, _______ shares of the Coors Ceramics
common stock and no shares of the preferred stock will be issued and
outstanding. ACX will not own shares of Coors Ceramics common stock after the
spin-off.
Common Stock
Holders of Coors Ceramics common stock are entitled to one vote for each
share on all matters voted on by stockholders. Holders of Coors Ceramics common
stock do not have cumulative voting rights in the election of directors. The
first annual meeting of stockholders is expected to be held during 2001.
There is no established public trading market for Coors Ceramics common
stock, although a "when issued" market is expected to develop prior to the spin-
off date. We have applied for inclusion of Coors Ceramics common stock in the
Nasdaq National Market upon official notice of inclusion and we expect to
receive approval of such inclusion prior to the spin-off.
All shares of Coors Ceramics common stock to be distributed will be fully
paid and nonassessable. Holders of Coors Ceramics common stock do not have any
subscription, redemption or conversion privileges.
Under the Delaware General Corporation Law, we may pay dividends out of
"surplus" (as determined in accordance with the Delaware General Corporation
Law) or, if there is no surplus, out of net profits for the fiscal year in which
the dividends are declared and/or the preceding fiscal year (subject to certain
restrictions). Subject to the preferences or other rights of any Coors Ceramics
preferred stock that may be issued from time to time, holders of Coors Ceramics
common stock are entitled to participate ratably in dividends on the common
stock as declared by the Board of Directors. Our dividend policy will be
established by our Board of Directors from time to time. Subject to legal and
contractual restrictions, its decisions regarding dividends will be based on all
considerations that in its business judgment are relevant at the time, including
past and projected earnings, cash flows, economic, business and securities
market conditions and anticipated developments concerning our business and
operations. We do not currently intend to pay dividends on the common stock.
Holders of Coors Ceramics common stock are entitled to share ratably in all
assets available for distribution to stockholders in the event of liquidation or
dissolution of Coors Ceramics, subject to distribution of the preferential
amount, if any, to be distributed to holders of preferred stock.
Preferred Stock
The Certificate of Incorporation authorizes the Board, without any vote or
action by the holders of common stock, to issue preferred stock from time to
time in one or more series. The Board is authorized to determine the number of
shares and to fix the powers, designations, preferences and relative,
participating, optional or other special rights of any series of preferred
stock. Issuances of preferred stock would be subject to the applicable rules of
the Nasdaq National Market or other organizations on which Coors Ceramics stock
is then quoted or listed. Depending upon the terms of preferred stock
established by the Board of Directors, any or all series of preferred stock
could have preference over the common stock with respect to dividends and other
distributions and upon liquidation of Coors Ceramics. If any shares of
preferred stock are issued with voting powers, or if additional shares of common
stock are issued, the voting power of the outstanding common stock would be
diluted.
45
<PAGE>
Coors Ceramics believes that the availability of preferred stock will
provide increased flexibility to facilitate possible future financings and
acquisitions and to meet other corporate needs that might arise.
Transfer Agent and Registrar
Norwest Bank Minnesota, NA will be the transfer agent and registrar for the
Coors Ceramics common stock immediately following the spin-off.
Anti-takeover Effects of Certain Provisions
Coors Ceramics' Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws, the Delaware General Corporation Law and the Stockholder
Rights Plan contain provisions that may discourage or delay the acquisition of
control of Coors Ceramics by means of a tender offer, open market purchases, a
proxy contest or otherwise.
Purposes of Provisions
The relevant provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws are intended to discourage
certain types of transactions that may involve an actual or threatened change of
control of Coors Ceramics and to encourage any person who might seek to acquire
control of Coors Ceramics to negotiate with the Board of Directors. Management
of ACX and Coors Ceramics believe that generally the interests of the
stockholders would be served best if any change in control results from
negotiations with the Coors Ceramics Board of the proposed terms, such as the
price to be paid, the form of consideration and the anticipated tax effects of
the transaction. However, to the extent that these provisions do discourage
takeover attempts, they could make it more difficult to accomplish transactions
that are opposed by the incumbent Board and could deprive stockholders of
opportunities to realize takeover premiums for their shares or other advantages
that large accumulations of stock would provide.
The description below is a summary only. We encourage you to read the
Amended and Restated Articles of Incorporation, the Amended and Restated Bylaws
and the Stockholder Rights Plan filed as exhibits to Coors Ceramics'
Registration Statement on Form 10 of which this Information Statement is a part.
Delaware Section 203
Section 203 of the Delaware General Corporation Law provides that, subject
to certain exceptions, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period following
the time that such stockholder becomes an interested stockholder unless:
. prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or
. on or subsequent to such time, the business combination is approved by
the board of directors of the corporation and by the affirmative vote
of at least 66-2/3% of the outstanding voting stock which is not owned
by the interested stockholder.
Section 203 generally defines an "interested stockholder" to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately
prior to the relevant date; and
46
<PAGE>
. the affiliates and associates of any such person.
Section 203 generally defines a "business combination" to include:
. mergers and sales or other dispositions of 10% or more of the assets
of the corporation with or to an interested stockholder;
. certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries;
. certain transactions which would result in increasing the
proportionate share of the stock of the corporation or its
subsidiaries owned by the interested stockholder; and
. receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges, or other financial benefits.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted bylaws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
nor the Bylaws exclude Coors Ceramics from the restrictions imposed under
Section 203. It is anticipated that the provisions of Section 203 may encourage
companies interested in acquiring Coors Ceramics to negotiate in advance with
the Board of Directors since the stockholder approval requirement would be
avoided if the Board approves, prior to the time the acquirer becomes an
interested stockholder, either the business combination or the transaction that
results in the acquirer becoming an interested stockholder.
Classification of the Board
The total number of directors will be divided into three classes, with each
class containing one-third of the total, as near as may be. The terms of
directors will expire as follows:
. the terms of the first class will expire at the second annual meeting
of stockholders held after the spin-off,
. the terms of directors in the second class will expire at the third
annual meeting of stockholders held after the spin-off, and
. the terms of directors in the third class will expire at the fourth
annual meeting of stockholders held after the spin-off.
Upon the expiration of the initial staggered terms, directors shall be elected
for terms of three years to succeed those whose terms expire. Of the initial
directors, the first class will consist of two persons, the second class will
consist of two persons and the third class will consist of one person. The
structure of the classified board is intended to promote continuity and
stability of Coors Ceramics' management and policies because a majority of the
directors serving at any given time will have prior experience as directors of
Coors Ceramics.
The classification of directors could make it more difficult for
stockholders to quickly change the composition of the Board. At least two
annual meetings of stockholders, instead of one, generally would be required to
effect a change in the majority of the Board.
Number of Directors; Removal; Vacancies
The Certificate of Incorporation provides that the number of directors will
not be fewer than three or more than 11. The initial Board of Directors will
consist of seven persons. The exact number of directors is set in accordance
with
47
<PAGE>
the Bylaws by resolution from time to time of two-thirds of the directors then
in office. Interim vacancies on the Board, or vacancies created by an increase
in the number of directors, may be filled by a majority of the directors then in
office. A director appointed to fill a vacancy will hold office for the
remainder of the term of the class of director in which the vacancy occurred or
the new directorship was created.
Directors may be removed for cause only by a class vote of the holders of
two-thirds of the stockholders entitled to vote thereon. This provision, in
conjunction with the provisions of the Amended and Restated Articles authorizing
the Board to fill vacant directorships, would prevent stockholders holding less
than two-thirds of the voting stock from removing incumbent directors and
filling the resulting vacancies with their own nominees.
Stockholder Action
The Amended and Restated Articles of Incorporation requires all stockholder
action to be taken at an annual or special meeting of stockholders and prohibits
stockholder action by written consent, unless the action is by unanimous
consent. The Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws also provide that special meetings of stockholders may be called
by the Board of Directors, the Chairperson or the President.
The provisions prohibiting stockholder action by consent resolution except
by unanimous consent and, not permitting any stockholder or group thereof to
call a special meeting may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting of the stockholders unless a
special meeting is called by the Board of Directors, the Chairperson or the
President.
Stockholder Proposals
Coors Ceramics' Amended and Restated Bylaws establish an advance notice
procedure for nominations (other than by or at the direction of the Board) of
candidates for election as directors at, and for proposals to be brought before,
an annual meeting of stockholders. Subject to any other applicable
requirements, only such nominations may be considered and such business may be
conducted at an annual meeting as have been brought before the meeting by or at
the direction of the Board or by a stockholder who has given to the Secretary of
Coors Ceramics timely written notice, in proper form, of the same.
To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by the Secretary of the Company not less than
90 days nor more than 120 days prior to the anniversary of the preceding year's
annual meeting. For the purposes of Coors Ceramics' first annual meeting held
after 2000, the anniversary date shall be deemed to be May __, 2001.
Each notice must set forth:
. the identity (including name and address) of the stockholder or
stockholders who intend to make the nomination or proposal,
. the class and number of shares of common stock and preferred stock
owned directly or indirectly, by such stockholder,
. a representation that the stockholder is a holder of record of Coors
Ceramic stock entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to propose the business or
nomination,
. a representation whether the stockholder or the beneficial owner, if
any, intends or is part of a group which intends:
. to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of Coors Ceramics' capital stock required to
approve the proposal or elect the nominee, or
48
<PAGE>
. otherwise to solicit proxies from stockholders is support of the
proposal or nomination,
. in the case of a stockholder proposal,
- a brief description of the business desired to be brought before
the meeting,
- the text of the proposal (including the text of any resolutions
proposed for consideration and in the event that the business
includes a proposal to amend the Bylaws, the language of the
proposed amendment),
- the reasons for conducting such business at the meeting and
- any material interest of such stockholder in the proposed
business, if any, and
. in the case of a nomination for election of a director,
- all information regarding the nominee proposed by the stockholder
that would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission, and
- the consent of the nominee to be named in a proxy statement as a
candidate for election and to serve as a director if elected.
Coors Ceramics may require any proposed nominee to furnish such other
information as it may reasonably require to determine the eligibility of such
proposed nominee to serve as a director.
The chairperson of the meeting at which the directors are to be elected or
at which the stockholder action is to be taken shall have the power and duty:
- to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance
with these procedures, and
- if any proposed nomination or business was not made or proposed
in compliance with these procedures, to declare that the
nomination shall be disregarded or that the proposed business
shall not be transacted.
These provisions are intended to facilitate planning for the conduct of
Coors Ceramics' annual meeting of stockholders and to provide time for proposals
to be evaluated fully. They may have the effect of precluding a nomination or
the conduct of business at a particular meeting if the proper procedures are not
followed and may deter a potential acquirer from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of Coors Ceramics, even if the conduct of such solicitation or such
attempt might be beneficial to the stockholders.
Acquisition Proposals
In determining whether an acquisition proposal is in the long-term best
interests of Coors Ceramics and its stockholders, the Amended and Restated
Articles of Incorporation provide that the Board may consider the effect of both
an acquisition proposal and a potential acquisition on creditors, customers and
employees of Coors Ceramics and on the community in general, the risks of non-
consummation of an acquisition proposal, the identity, prior background and
other business experiences of the person or entity making an acquisition
proposal, and the business plans of both Coors Ceramics and the person or entity
making an acquisition proposal and their respective effects on stockholder
interests.
Stockholder Vote for Amendment of Certificate and Bylaws
Under Delaware law, amendments to a company's certificate of incorporation
require a resolution of the board of directors and the approval of the holders
of majority of the outstanding shares entitled to vote and, in certain cases, of
a majority of the outstanding shares of each class entitled to vote, voting
separately as a class. Delaware law also permits a company's certificate of
incorporation to require a greater vote than the vote otherwise required for any
corporate action. The Amended and Restated Articles of Incorporation require the
concurrence of the holders of at least two-thirds of the
49
<PAGE>
voting stock of the company, voting together as a single class, to amend or
repeal, or adopt any provision inconsistent with, the anti-takeover provisions
of the Amended and Restated Articles of Incorporation discussed above. The
Amended and Restated Articles of Incorporation also provide that the Amended and
Restated Bylaws may be amended or repealed by an affirmative vote of two-thirds
of the directors then in office or by an affirmative vote of two-thirds of the
stockholders entitled to vote thereon. These supermajority vote requirements are
intended to prevent a stockholder with a majority of Coors Ceramics' common
stock from avoiding the requirements of these provisions by simply amending
them.
Other Provisions of Certificate
Coors Ceramics' Amended and Restated Articles of Incorporation authorize
the Board of Directors to take such action as it may determine to be reasonably
necessary or desirable to encourage any person or entity to enter into
negotiations with the Board and management of Coors Ceramics respecting any
transaction that may result in a change of control and to contest or oppose any
such transaction that the Board determines to be unfair, abusive or otherwise
undesirable to Coors Ceramics or its stockholders, business, customers,
employees or other constituencies. This provision specifically permits the
Board to adopt plans or to issue securities (including common stock or preferred
stock, rights or debt securities), which, among other things, may be
exchangeable or convertible into cash or other securities on such terms as the
Board determines, may provide for differential and unequal treatment of
different holders or classes of holders and may contain restrictions that
preclude or limit the entitlement, exercise or transfer of such securities by a
person who, after their creation, acquires a certain percentage of Coors
Ceramics' voting stock. This provision is intended, in part, to give the Board
greater bargaining power to negotiate on behalf of stockholders in the event of
a takeover proposal. It may, however, discourage or make more difficult a
hostile takeover or acquisition of control and could deprive stockholders of
possible opportunities to realize premiums for their shares and reduce the risk
to management that it might be displaced by a takeover.
Preferred Stock and Additional Common Stock
The Board's authority to issue of shares of common stock and preferred
stock and to fix by resolution the terms and conditions of each series of
preferred stock may either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
might impede a business combination if the terms of those shares include series
voting rights that would enable the holder to block business combinations or the
issuance of new shares might facilitate a business combination if those shares
have general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied. The Board of Directors will make any determination
regarding issuance of additional shares based on its judgment as to the best
interest of its stockholders, customers, employees or other constituencies.
Stockholder Rights Plan
Prior to the spin-off, the Ceramics board will adopt a Stockholder Rights
Plan and cause to be issued, with each share of common stock to be distributed
in the spin-off, one preferred share purchase right (a "Right"). Each Right
will entitle the registered holder to purchase from Coors Ceramics one one-
thousandth of a share of Series A Junior Participating Preferred Stock of Coors
Ceramics (the "Junior Preferred") at an exercise price of $[___], subject to
adjustment. The description and terms of the Rights will be set forth in a
Stockholder Plan Rights Agreement between Ceramics and [___________________], as
Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all certificates representing
shares of common stock then outstanding. The Rights will separate from the
common stock and a distribution of Rights Certificates will occur upon the
earlier to occur of:
. days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of common stock (the "Stock Acquisition
Date"), or
50
<PAGE>
. business days following the commencement of a tender offer or exchange
offer the consummation of which would result in the beneficial
ownership by a person of 15% or more of the outstanding shares of
common stock.
The earlier of such dates is referred to as the "Distribution Date."
Until the Distribution Date:
- the Rights will be evidenced by the common stock certificates, no
separate certificates evidencing the Rights will be distributed
and the Rights will be transferred only with the common stock
certificates, and
- the surrender for transfer of any certificates for common stock
outstanding will also constitute the transfer of the Rights
associated with the common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January [___], 2010, unless earlier redeemed or
exchanged by Coors Ceramics as described below. The Rights will not be
exercisable by a holder in any jurisdiction where the requisite qualification to
the issuance to such holder, or the exercise by such holder, of the Rights has
not been obtained or is not obtainable.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the common stock as of the close of business on the
Distribution Date and, thereafter, the separate Rights Certificates alone will
evidence the Rights. Except as otherwise determined by the Ceramics board, only
shares of common stock issued prior to the Distribution Date will be issued with
Rights.
If a person or group becomes an Acquiring Person (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair to and otherwise in the best interests of Coors Ceramics
and its stockholders), each holder of a Right will, after the end of a
redemption period referred to below, have the right to receive, upon exercise,
common stock (or, in certain circumstances, cash, property or other securities
of Coors Ceramics) having a value equal to two times the exercise price of the
Right. Notwithstanding any of the foregoing, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by any Acquiring Person will be null and void. However, Rights are not
exercisable following the occurrence of the events set forth above until such
time as the Rights are no longer redeemable by Coors Ceramics as set forth
below.
For example, at a Purchase Price of [$_______] per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase
[$_______] worth of common stock (or other consideration, as noted above) for
[$______]. Assuming that the common stock had a per share value of [$_______]
at such time, the holder of each valid Right would be entitled to purchase 4
shares of common stock for [$______].
If, at any time following the Stock Acquisition Date,
. Coors Ceramics is acquired in a merger or other business combination
transaction in which Coors Ceramics is not the surviving corporation
(other than a merger which follows an offer for all outstanding shares
of common stock that the independent directors determine to be fair to
and otherwise in the best interests of Coors Ceramics and its
stockholders), or
. 50% or more of Coors Ceramics' assets or earning power is sold or
transferred,
each holder of a Right (except Rights that previously have been voided as set
forth above) shall, after the expiration of the redemption period referred to
below, have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the Purchase Price of the Right (e.g.,
common stock of the acquiring company having a value of [$______] for the
[$______] Purchase Price).
51
<PAGE>
At any time after a person or group becomes an Acquiring Person, Coors
Ceramics Board may exchange the Rights (other than Rights owned by such
Acquiring Person that have become void), in whole or in part, at an exchange
ratio of one share of common stock per Right (subject to adjustment).
The Purchase Price payable, and the number of one one-thousandths of a
share of Junior Preferred or other securities or property issuable, upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution:
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of the Junior Preferred,
. upon the grant to holders of the Junior Preferred of certain rights or
warrants to subscribe for Junior Preferred or convertible securities
at less than the current market price of the Junior Preferred, or
. upon the distribution to holders of the Junior Preferred of evidences
of indebtedness or assets (other than regular quarterly cash dividends
and dividends payable in Junior Preferred) or of subscription rights
or warrants (other than those referred to above).
The Stockholder Rights Plan provides that the number of outstanding Rights
shall adjust in the event of a stock dividend on Coors Ceramics' common stock
payable in shares of common stock and in the event of any subdivisions,
consolidations or combinations of common stock occurring, in any such case,
prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractions
of Junior Preferred that are integral multiples of one one-thousandth of a share
of Junior Preferred, which may, at Coors Ceramics' election be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred on the last trading date prior
to the date of exercise.
Coors Ceramics does not have authority to redeem shares of the Junior
Preferred. Each share of Junior Preferred will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater
of:
. $0.01 per share; and
. 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all
non cash dividends or other distributions other than a dividend
payable in shares of common stock.
Upon any liquidation (voluntary or otherwise), dissolution or winding up of
Coors Ceramics, no distribution shall be made to the holders of shares of Coors
Ceramics' capital stock ranking junior to the Junior Preferred unless, prior
thereto, the holders of shares of Junior Preferred shall have received $[_____]
per share (the "Junior Preferred Liquidation Preference"), plus any unpaid
dividends and distributions payable thereon, whether or not declared, to the
date of such payment.
Following the payment of the Junior Preferred Liquidation Preference, no
additional distributions shall be made to the holders of Junior Preferred
unless, prior thereto, the common stockholders shall have received an amount per
share equal to the quotient obtained by dividing the Junior Preferred
Liquidation Preference by 1,000.
Each share of Junior Preferred shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the common stockholders of the
Corporation. In the event of any merger, consolidation or other transaction in
which outstanding shares of Ceramics common stock are converted or exchanged,
each share of Junior Preferred will be entitled to receive 1,000 times the
amount received per share of common stock. These rights, and the rights
described in the preceding two paragraphs, are protected by customary
antidilution provisions.
52
<PAGE>
In general, the Board may cause Coors Ceramics to redeem the Rights in
whole, but not in part, at any time during the period commencing on January
[___], 2000, and ending on the tenth day following the Stock Acquisition Date,
as such period may be extended or shortened by the Board (the "Redemption
Period") at a price of $.001 per Right (payable in cash, common stock or other
consideration deemed appropriate by the board). After the redemption period has
expired, Coors Ceramics' right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding shares
of common stock in a transaction or series of transactions not involving Coors
Ceramics and there are no other Acquiring Persons. Immediately upon the action
of the Board ordering redemption of the Rights, the Rights will terminate and
the only right of the holders of Rights will be to receive the $.001 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Coors Ceramics, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be subject to federal taxation to stockholders or to Coors Ceramics,
stockholders may, depending upon the circumstances, recognize taxable income in
the event that the Rights become exercisable for common stock (or other
consideration) of Coors Ceramics or for common stock of the acquiring company as
set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Ceramics Board prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Ceramics Board in order
to cure any ambiguity, defect or inconsistency or to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided however, no amendment to adjust the time period
governing redemption may be made at such time as the Rights are not redeemable.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to Coors Ceramics' Registration Statement on
Form 10. A copy of the Rights Agreement is available free of charge from Coors
Ceramics. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference. The Rights are being registered under the Exchange Act,
together with common stock, pursuant to such Registration Statement. In the
event that the Rights become exercisable, Coors Ceramics will register the
shares of Junior Preferred for which the Rights may be exercised, in accordance
with applicable law.
Liability and Indemnification of Officers and Directors
Elimination of Liability in Certain Circumstances
The Amended and Restated Articles of Incorporation eliminate the personal
liability of directors to Coors Ceramics or its stockholders for monetary
damages for breach of fiduciary duty, except in the instances described below.
The Amended and Restated Articles of Incorporation also provide that if Delaware
law is amended to further eliminate or limit the liability of directors, then
the liability of a director will be so eliminated or limited to the fullest
extent permitted by the amended law, without further stockholder action.
Directors remain liable for:
. breaches of their duty of loyalty to Coors Ceramics and its
stockholders,
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of laws,
. transaction from which a director derives improper personal benefit,
and
. for unlawful distributions, under a provisions of the Delaware General
Corporation Law that makes directors personally liable and which
expressly sets forth a negligence standard with respect to such
liability.
53
<PAGE>
The provisions that eliminate liability as described above will apply to
officers of Coors Ceramics if they are directors of Coors Ceramics and are
acting in their capacity as directors and will not apply to officers of who are
not directors.
Coors Ceramics believes the diligence exercised by directors stems
primarily from a desire to act in the best interest of Coors Ceramics and not
from a fear of monetary damages awards. Consequently, Coors Ceramics believes
that the level of scrutiny and care exercised by Coors Ceramics' directors and
officers will not be lessened by the limitations on liability provided by the
Certificate of Incorporation.
Indemnification and Insurance
The Delaware General Corporation Law contains provisions permitting and, in
some situations, requiring Delaware corporations to provide indemnification to
their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation in those capacities. The
Certificate of Incorporation and Bylaws contain provisions that require Coors
Ceramics to indemnify its directors and officers to the fullest extent permitted
by law. Indemnification includes advancement of reasonable expenses in certain
circumstances.
The Delaware General Corporation Law permits indemnification of a director
of a Delaware corporation, in the case of a third party action, if the director
. conducted himself or herself in good faith,
. reasonably believed that
- in the case of conduct in his or her official capacity, his or
her conduct was in the corporation's best interest, or
- in all other cases, his or her conduct was at least not opposed
to the corporation's best interest, and
. in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
The Delaware General Corporation Law further provides for mandatory
indemnification of directors and officers who are wholly successful on the
merits or otherwise in litigation. The Delaware statute limits the
indemnification that a corporation may provide to its directors in a derivative
action in which the director is held liable to the corporation, or in any
proceeding in which the director is held liable on the basis of his or her
improper receipt of a personal benefit.
In addition, the Delaware General Corporation Law and Coors Ceramics'
Bylaws authorize Coors Ceramics to purchase insurance for its directors and
officers insuring them against certain risks as to which Coors Ceramics may be
unable lawfully to indemnify them. Coors Ceramics intends to maintain insurance
coverage for its officers and directors as well as insurance coverage to
reimburse Coors Ceramics for potential costs of its corporate indemnification of
officers and directors. Coors Ceramics may enter into agreements with its
directors providing contractually for indemnification consistent with the
Certificate and Bylaws.
The Amended and Restated Bylaws also provide with respect to officers and
directors covered by insurance and indemnity:
. that the rights conferred on the covered officers and directors thereby
are not exclusive of any other rights which the officer or director may
have or thereafter acquire under any statute, provision of the
Certificate, the Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise,
. that Coors Ceramics' obligation, if any, to indemnify or to advance
expenses to any covered officer or director who was or is serving at
its request as a director, officer, employee or agent of another
company,
54
<PAGE>
partnership, joint venture, trust, enterprise or nonprofit entity will
be reduced by any amount that the covered officer or director may
collect as indemnification or advancement of expenses from such other
company, partnership, joint venture, trust, enterprise or nonprofit
entity, and
. that any repeal or modification of the relevant provisions of the Bylaws
will not adversely affect any right or protection thereunder of any
covered officer or director in respect of any act or omission occurring
prior to the time of such repeal or modification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, Coors Ceramics has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Independent Accountants
The Board of Directors of the Company will select before the end of 1999 an
independent accounting firm to audit the Company's financial statements for the
year ending December 31, 1999. PricewaterhouseCoopers LLP has served as
independent accountants of ACX throughout the periods covered by the financial
statements included in this Information Statement.
55
<PAGE>
Consolidated Financial Statements
Coors Porcelain Company
(A Wholly-owned Subsidiary of Acx Technologies, Inc.)
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................................................ F-2
Consolidated Statement of Income and Comprehensive
Income for each of the three years ended December 31, 1998............................................... F-3
Consolidated Balance Sheet at December 31, 1998 and December 31, 1997.................................... F-4
Consolidated Statement of Cash Flows for each of the three years ended December 31, 1998................. F-5
Consolidated Statement of Shareholder's Equity for each of the three years ended December 31, 1998....... F-6
Notes to Consolidated Financial Statements..............................................................F-7-18
Financial Statement schedules for the fiscal years ended December 31, 1998, 1997 and 1996
Schedule II - Valuation and Qualifying Accounts..................................................... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Coors Ceramics Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Coors
Ceramics Company and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule 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
Denver, Colorado
September 24, 1999
F-2
<PAGE>
Coors Porcelain Company
Consolidated Statement of Income and Comprehensive Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
-----------------------------------------------------------------------
1999 1998 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(unaudited)
Sales $171,990 $160,375 $296,614 $304,824 $276,352
Cost of goods sold 129,951 119,507 222,906 219,821 200,220
-----------------------------------------------------------------------
Gross profit 42,039 40,868 73,708 85,003 76,132
Selling, general and administrative 22,189 19,838 37,758 41,754 35,928
Asset impairment charge --- 6,232 11,814 --- ---
-----------------------------------------------------------------------
Operating income 19,850 14,798 24,136 43,249 40,204
Other income (expense):
Interest expense (2,351) (2,068) (4,125) (110) (182)
Interest income 48 29 601 82 95
Miscellaneous--net --- --- --- (40) 81
-----------------------------------------------------------------------
Total other expense (2,303) (2,039) (3,524) (68) (6)
-----------------------------------------------------------------------
Income before income taxes 17,547 12,759 20,612 43,181 40,198
Income tax expense 6,492 4,755 7,682 16,192 14,996
-----------------------------------------------------------------------
Net income $ 11,055 $ 8,004 $ 12,930 $ 26,989 $ 25,202
=======================================================================
Other comprehensive income:
Minimum pension liability adjustment,
net of tax of $167 --- --- (281) ---
Foreign currency translation adjustments (430) (263) (56) 27 601
-----------------------------------------------------------------------
Comprehensive income $10,625 $ 7,741 $12,593 $27,016 $25,803
=======================================================================
Net income per basic share of common stock
(unaudited) $ 1.56 $ 1.12 $ 1.81 $ 3.84 $ 3.61
-----------------------------------------------------------------------
Weighted average shares outstanding-basic
(unaudited) 7,109 7,122 7,126 7,030 6,975
-----------------------------------------------------------------------
Net income per diluted share of common
stock (unaudited) $ 1.54 $ 1.10 $ 1.78 $ 3.74 $ 3.54
-----------------------------------------------------------------------
Weighted average shares
outstanding-diluted (unaudited) 7,184 7,295 7,258 7,221 7,126
------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
Coors Porcelain Company
Consolidated Balance Sheet
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1997
------------------------------------------------------------
ASSETS (unaudited)
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents $ --- $ 17,203 $ 988
Accounts receivable, less allowance for doubtful
accounts of $2,491 in 1999 (unaudited), $1,839
in 1998 and $1,993 in 1997 52,985 39,044 44,430
Inventories 65,875 56,223 54,583
Other assets 12,028 10,241 10,566
----------------------------------------------------------
Total current assets 130,888 122,711 110,567
----------------------------------------------------------
Properties, net 139,293 131,324 132,538
Goodwill, less accumulated amortization of $4,013 in
1999 (unaudited), $3,656 in 1998 and $2,750 in 1997 36,682 11,839 11,951
Other assets 14,329 12,485 7,631
----------------------------------------------------------
Total assets $321,192 $278,359 $262,687
==========================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 15,437 $ 10,837 $ 16,298
Accrued salaries and vacation 10,526 11,794 11,884
Taxes other than income 2,327 2,874 2,626
Accrued expenses and other liabilities 17,656 7,911 8,110
Advances payable to Parent 19,327 --- ---
----------------------------------------------------------
Total current liabilities 65,273 33,416 38,918
----------------------------------------------------------
Long-term debt payable to Parent 50,000 50,000 ---
Accrued postretirement benefits 15,327 15,327 14,994
Other long-term liabilities 14,142 13,791 5,620
----------------------------------------------------------
Total liabilities 144,742 112,534 59,532
----------------------------------------------------------
Commitments and contingencies (note 11)
Shareholder's Equity:
Common stock, 200,000 shares authorized, $50 par
value per share, 200,000 shares issued and outstanding 10,000 10,000 10,000
Paid-in capital 75,060 75,060 124,983
Retained earnings 91,983 80,928 67,998
Accumulated other comprehensive income (loss) (593) (163) 174
----------------------------------------------------------
Total shareholder's equity 176,450 165,825 203,155
----------------------------------------------------------
Total liabilities and shareholder's equity $321,192 $278,359 $262,687
----------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
Coors Porcelain Company
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, Year ended December 31,
-----------------------------------------------------------------
1999 1998 1998 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income $ 11,055 $ 8,004 $ 12,930 $ 26,989 $ 25,202
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,090 9,881 19,977 18,664 16,159
Asset impairment charges --- 6,232 11,814 --- ---
Change in deferred income taxes (394) (510) (3,372) (972) 805
(Gain) loss on sale of properties (92) 11 (810) 303 975
Change in current assets and current
liabilities,
net of effects from acquisitions:
Accounts receivable (8,289) (440) 5,386 (5,842) 873
Inventories (865) (1,205) (1,640) (3,657) (5,022)
Other assets 299 (411) 540 (1,044) 1,266
Accounts payable 2,319 (1,083) (5,460) 3,899 (4,863)
Accrued expenses and other liabilities 7,068 4,660 (163) 1,853 (5,324)
Change in deferred compensation 181 274 1,237 (1,204) 1,197
Change in other (581) (41) 2,076 19 (1,860)
-----------------------------------------------------------------
Net cash provided by operating activities 22,791 25,372 42,515 39,008 29,408
-----------------------------------------------------------------
Cash flows from investing activities:
Additions to properties (3,971) (16,315) (26,890) (28,812) (28,667)
Acquisitions, net of cash acquired (55,008) (915) (915) (15,781) (6,636)
Proceeds from sale of properties 50 14 1,863 89 315
Other (392) (339) (343) (284) (1,165)
-----------------------------------------------------------------
Net cash used in investing activities (59,321) (17,555) (26,285) (44,788) (36,153)
-----------------------------------------------------------------
Cash flows from financing activities, net of debt
assumed in acquisitions:
Net capital contributions from (to) Parent 19,327 49 (15) 5,829 7,097
-----------------------------------------------------------------
Net cash provided by (used in) financing activities 19,327 49 (15) 5,829 7,097
-----------------------------------------------------------------
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents (17,203) 7,866 16,215 49 352
Balance at beginning of period 17,203 988 988 939 587
-----------------------------------------------------------------
Balance at end of period $ --- $ 8,854 $ 17,203 $ 988 $ 939
=================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
Coors Porcelain Company
Consolidated Statement of Shareholder's Equity
(In thousands)
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings Other Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $10,000 $104,812 $16,023 $(454) $130,381
Net capital contribution from Parent --- 7,495 --- --- 7,495
Dividends paid to Parent --- --- (216) --- (216)
Net income --- --- 25,202 --- 25,202
Cumulative translation adjustment --- --- --- 601 601
-------------------------------------------------------------------------------
Balance at December 31, 1996 $10,000 $112,307 $41,009 $ 147 $163,463
Net capital contribution from Parent --- 12,676 --- --- 12,676
Net income --- --- 26,989 --- 26,989
Cumulative translation adjustment --- --- --- 27 27
-------------------------------------------------------------------------------
Balance at December 31, 1997 $10,000 $124,983 $67,998 $ 174 $203,155
Net capital distribution to Parent --- (49,923) --- --- (49,923)
Net income --- --- 12,930 --- 12,930
Minimum pension liability adjustment (281) (281)
Cumulative translation adjustment --- --- --- (56) (56)
-------------------------------------------------------------------------------
Balance at December 31, 1998 $10,000 $ 75,060 $80,928 $(163) $165,825
Net income (unaudited) --- --- 11,055 --- 11,055
Cumulative translation adjustment
(unaudited) --- --- --- (430) (430)
-------------------------------------------------------------------------------
Balance at June 30, 1999, (unaudited) $10,000 $ 75,060 $91,983 $(593) $176,450
===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General Information
The accompanying financial statements and notes are based on the separate
historical financial statements of Coors Porcelain Company, doing business as
Coors Ceramics Company (the "Company" or "Coors Ceramics"). During the periods
presented, the Company was a wholly owned subsidiary of ACX Technologies, Inc.
("ACX" or "Parent"). The Board of Directors of ACX has announced a plan to
spin-off Coors Ceramics to existing ACX shareholders on or about January 1,
2000. This plan is contingent on certain requirements, most notably the pending
ruling by the Internal Revenue Service of the transaction as a tax free
distribution.
Established in 1911, Coors Ceramics develops, manufactures and sells engineered
solutions for a multitude of industrial and commercial applications that
incorporate advanced materials such as technical ceramics, engineered plastics
or precision machined metals into components, assemblies and systems. Coors
Ceramics provides components to virtually every major industrial market.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements include the assets,
liabilities, results of operations, cash flows and changes in shareholder's
equity of Coors Ceramics and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated. The Company was a
wholly-owned subsidiary of ACX for the periods presented. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles, using management's best estimates and judgments when
appropriate.
The consolidated financial statements include allocations of certain charges
from ACX for general management, legal, treasury, tax, internal audit, financial
reporting, environmental affairs and other miscellaneous services. Management
believes the charges are a reasonable estimate of the costs that would have been
incurred by the Company on a stand-alone basis.
The financial information included herein may not necessarily reflect the
consolidated financial position, results of operations, cash flows and changes
in shareholder's equity of the Company in the future or what they would have
been had Coors Ceramics been a separate, stand-alone company during the periods
presented.
Parent Allocations: Selling, general and administrative expense for 1998, 1997
and 1996 includes allocation of $4.7 million, $5.0 million and $4.0 million,
respectively of certain ACX corporate expenses for general management, legal,
treasury, tax, internal audit, financial reporting and environmental services.
Management believes the basis for allocating the foregoing allocations was
reasonable but may not necessarily equal the costs that would have been or will
be incurred by the Company on a stand-alone basis. In determining the
allocation of ACX corporate costs, the Company performed a review of 1) the
services performed by ACX, 2) headcount, facilities and sales comparisons and 3)
management oversight provided to the Company, as well as considering other
factors.
Long-term debt consists of intercompany debt transferred from ACX in 1998 at an
annual interest rate of 8%. The Company had no intercompany debt prior to 1998.
Interest expense for the six months ended June 30, 1999 and the year ended
December 31, 1998 includes $2.0 million (unaudited) and $4.0 million paid to ACX
on intercompany debt, respectively. Interest income (expense) includes ($0.4)
million (unaudited) and $0.5 million (paid) earned from the participation in
ACX's cash management system during the six months ended June 30, 1999 and the
year ended December 31, 1998, respectively. No interest income was earned from
participation in ACX's cash management during 1997 or 1996. If intercompany debt
had been transferred from ACX in 1997 and 1996, the debt costs would have been
approximately $4.0 million on debt of $50.0 million at an annual rate of 8%.
Use of estimates: The preparation of financial statements in accordance 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 as well as revenues and expenses reported for the periods presented.
Actual results can differ from these estimates.
F-7
<PAGE>
Interim financial information: The financial information as of June 30, 1999 and
for the six months ended June 30, 1999 and 1998 is unaudited but includes all
adjustments that management considers necessary for a fair presentation of its
financial position, results of operations, cash flows and changes in
shareholder's equity. Results for the six months ended June 30, 1999 are not
necessarily indicative of results to be expected for the full fiscal year 1999
or for any future period.
Revenue recognition: Revenues are recognized when finished products are shipped
to customers or services have been rendered.
Inventories: Inventories are stated at the lower-of-cost or market. Cost is
determined by the first-in, first-out (FIFO) method. The classification of
inventories, in thousands, was as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31,
(unaudited) 1998 1997
-------------------- ---------------- ---------------
<S> <C> <C> <C>
Finished $26,208 $21,890 $19,106
In process 26,040 22,049 23,299
Raw materials 13,627 12,284 12,178
-------------------- ---------------- ---------------
Total inventories $65,875 $56,223 $54,583
==================== ================ ===============
</TABLE>
Properties: Land, buildings and equipment are stated at cost. For financial
reporting purposes, depreciation is recorded principally on a straight-line
method over the estimated useful lives of the asset as follows:
<TABLE>
<S> <C>
Buildings and improvements 10 to 30 years
Machinery and equipment 3 to 30 years
Leasehold improvements The shorter of the useful life, lease term or 20 years
Goodwill The shorter of the useful life or 20 years
</TABLE>
The cost of properties and related accumulated depreciation, in thousands,
consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31,
(unaudited) 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 7,347 $ 6,401 $ 6,401
Buildings 74,159 65,739 64,052
Machinery and equipment 223,492 197,513 185,373
Construction in progress 9,156 12,178 11,729
-----------------------------------------------------------
314,154 281,831 267,555
Less: accumulated depreciation (174,861) (150,507) (135,017)
-----------------------------------------------------------
Net properties $ 139,293 $ 131,324 $ 132,538
===========================================================
</TABLE>
Accelerated depreciation methods are generally used for income tax purposes.
Expenditures for new facilities and improvements that substantially extend the
capacity or useful life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred.
In early 1998, the Company changed the estimated depreciable lives for certain
long-lived assets based on the actual lives exhibited for similar assets. The
effect of this change positively impacted earnings before interest and taxes by
approximately $2.0 million in 1998.
Impairment of Long-Lived Assets and Identifiable Intangibles: The Company
periodically reviews long-lived assets, identifiable intangibles and goodwill
for impairment whenever events or changes in business conditions indicate the
carrying amount of the assets may not be fully recoverable. Measurement of the
impairment loss is based on fair value of the asset, which is generally
determined by the discounting of future estimated cash flows. See Note 4.
Cash and Cash Equivalents: The Company defines cash equivalents as highly liquid
investments with original maturities of 90 days or less. The carrying value of
the Company's cash equivalents approximates their fair market value.
Miscellaneous-net: Certain royalty and building rental revenues are included
in "Miscellaneous-net" in the Consolidated Statement of Income.
F-8
<PAGE>
Earnings per share: On January 1, 2000, the Company will issue approximately
7,112,153 shares of common stock assuming a conversion ratio of one Coors
Ceramics share for every four outstanding shares of ACX common stock. Management
is currently evaluating the actual conversion ratio to be used and any
adjustment of this ratio will impact the unaudited earnings per share
presentation.
Unaudited basic and diluted net earnings per common share have been computed by
dividing the net earnings for each period presented by the number of common
shares of ACX outstanding during the periods presented as adjusted for the
conversion ratio described above. All ACX common stock equivalents were
considered for purposes of determining dilutive shares outstanding.
Environmental Expenditures: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable and the
costs can be reasonably estimated.
Hedging Transactions: The Company from time to time engages in hedging
activities against fluctuations in foreign currency prices. These activities
are immaterial to the Company and are expected to remain so in the future.
Subsequent Event: The Company anticipates issuing debt and paying $200 million
of the proceeds to ACX for settlement of intercompany obligations and payment of
a special dividend. The Company plans to issue debt of $205 million consisting
of $50 million of a short-term revolver, Senior Term A debt of $80 million and
Senior Term B debt of $75 million. The revolver will have an unused commitment
of $35 million and will initially bear interest at LIBOR plus 2% with a maturity
of five years. The Senior Term A debt will initially bear interest at LIBOR plus
2% and mature in five years. The Senior Term B debt will initially bear interest
at LIBOR plus 2.75% and mature in seven years. The interest spread for the three
debt instruments will vary in future periods based upon performance pricing
criteria.
Adoption of New Accounting Standards: Statement of Financial Accounting
Standards (SFAS) No. 133 " Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments and for hedging activities was issued in June 1998. This statement
requires the recognition of all derivatives as either assets or liabilities at
fair value in the statement of financial position. This statement is effective
for the year ending December 31, 2000 and is not expected to have a material
effect on the Company's financial statements.
Note 3. Operating Leases
The Company has leases for a variety of equipment and facilities that expire in
various years. Future minimum lease payments, in thousands, required as of
December 31, 1998, under non-cancelable operating leases with terms exceeding
one year, are as follows:
<TABLE>
<C> <S> <C>
1999 $1,435
2000 1,068
2001 579
2002 443
2003 and thereafter 337
----------------------
Total $3,862
======================
</TABLE>
Operating lease rentals for warehouse, production, office facilities and
equipment amounted to $0.7 million for the six months ended June 30, 1999
(unaudited) and $0.9 million, $1.2 million and $2.3 million for the years ended
December 1998, 1997 and 1996, respectively.
Note 4. Asset Impairment Charges
During 1998, the Company recorded $11.8 million in asset impairment charges. A
$6.2 million charge was taken in March of 1998 in conjunction with the
cancellation of the C-4 technology agreement with IBM. Changes in the market
for C-4 applications extended the time frame for achieving commercial sales
beyond original expectations. This lack of near term commercial sales
opportunities, combined with increasing overhead costs, prompted the Company to
negotiate termination of the agreement with IBM. Consequently, the Company
wrote off the long-lived assets associated with this project. The Company
recorded an additional $5.6 million asset impairment charge in September of 1998
at the Chattanooga, Tennessee
F-9
<PAGE>
operation after a review of estimated future cash flows indicated the carrying
amount of the assets involved may not be recoverable.
Note 5. Income Taxes
The Company and its U.S. subsidiaries file consolidated Federal and Colorado
state income tax returns with ACX. In addition, the Company files state income
tax returns in various other states. The Federal income tax sharing agreement
with ACX that is currently being negotiated substantially approximates a Federal
income tax provision and liability as if the Company was filing on a separate
income tax return basis. Liabilities for Federal and Colorado state income
taxes are payable to ACX. The Company directly pays to all other states in
which it files a state tax return. The Company's foreign subsidiaries file
separate returns with the applicable taxing authority.
The components of income before income taxes, in thousands, for the years ended
December 31 were:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Domestic $20,319 $42,933 $39,201
Foreign 293 248 997
-------------------------------------------------------
Total income before taxes $20,612 $43,181 $40,198
=======================================================
The provision for income taxes, in thousands, for the years ended December 31,
included the following:
1998 1997 1996
-------------------------------------------------------
Current provision:
Federal $ 9,209 $14,889 $12,086
State 1,764 2,122 1,762
Foreign 81 153 343
-------------------------------------------------------
Total current tax expense 11,054 17,164 14,191
-------------------------------------------------------
Deferred provision:
Federal (3,014) (898) 785
State (358) (74) 20
-------------------------------------------------------
Total deferred tax expense (benefit) (3,372) (972) 805
-------------------------------------------------------
Total income tax expense $ 7,682 $16,192 $14,996
=======================================================
</TABLE>
F-10
<PAGE>
Temporary differences which give rise to a significant portion of deferred tax
assets and liabilities, in thousands, at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
Deferred tax asset arising from:
<S> <C> <C> <C>
Depreciation and other property related $ 2,517 $ 2,885
Pension and employee benefits 12,181 10,159
Inventory 2,205 1,672
All other 3,223 1,890
Valuation allowance (3,386) (3,657)
--------------------------------
Gross deferred tax assets 16,740 12,949
--------------------------------
Deferred tax liabilities arising from:
Depreciation and other property related 7,325 6,462
Interest --- 411
Pension and employee benefits --- 159
All other 157 31
--------------------------------
Gross deferred tax 7,482 7,063
liabilities
--------------------------------
Net deferred tax asset $ 9,258 $ 5,886
================================
The principal differences between the effective income tax rate and the U.S.
statutory federal income tax rate at December 31, were as follows:
1998 1997 1996
---------------------------------------------------------
Expected tax rate 35.0% 35.0% 35.0%
State income taxes (net of federal benefit) 4.9% 3.5% 3.5%
Research tax credits (2.2)% (1.3)% (0.7)%
Non-taxable income and expenses (1.0)% (0.1)% 0.0%
Foreign tax expense 0.1% 0.0% (0.8)%
Other - net 0.5% 0.4% 0.3%
---------------------------------------------------------
Effective tax rate 37.3% 37.5% 37.3%
=========================================================
</TABLE>
The Internal Revenue Service (IRS) has completed its examination of ACX's
Federal income tax returns through 1995. The IRS will begin reviewing the
Federal income tax returns for 1996 through 1998 during 1999. In the opinion of
management, adequate accruals have been provided for all income tax matters and
related interest.
The Company has not provided for U.S. or additional foreign taxes on $5.4
million of undistributed earnings of its foreign subsidiaries. These
undistributed earnings are considered to be reinvested indefinitely. If such
earnings were repatriated, foreign tax credits should become available under
current law to reduce or eliminate the resulting U.S. income tax liability.
ACX, Coors Ceramics and their respective subsidiaries are negotiating a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of Federal, state and other taxes relating to the
Coors Ceramics business for tax years prior to the spin-off and with respect to
certain tax attributes of Coors Ceramics after the spin-off. In general, ACX
will be responsible for filing consolidated Federal and combined or consolidated
state tax returns and paying the associated taxes for periods through the date
of the spin-off (the "Distribution Date"). The Company will reimburse ACX for
the portion of such taxes relating to the Coors Ceramics business. The Company
is responsible for filing returns and paying taxes related to the Coors Ceramics
business for periods beginning on or after the Distribution Date. ACX and the
Company will agree to cooperate with each other and to share information in
preparing such tax returns and in dealing with other tax matters. ACX and the
Company will be responsible for their own taxes other than those described
above.
The Tax Sharing Agreement is designed to preserve the status of the spin-off as
a tax-free distribution. Coors Ceramics has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue Service
or an opinion of tax counsel acceptable to ACX that the transaction will not
adversely affect the tax-free nature of the spin-off. The transactions subject
to these restrictions,
F-11
<PAGE>
which are not expected to materially affect the Company's operating flexibility,
consist of liquidations, mergers or consolidations of Coors Ceramics,
redemptions by Coors Ceramics of certain amounts of its stock, sales of assets
out of the ordinary course of business, discontinuance of certain businesses and
certain issuances of the Company's common stock. In addition, Coors Ceramics
will agree to indemnify ACX against any tax liability or other expense it may
incur if the spin-off is determined to be taxable as a result of the Company's
breach of any covenant or representation contained in the Tax Sharing Agreement
or the Company's action in effecting such transactions. By its terms, the Tax
Sharing Agreement will terminate when the statutes of limitations under
applicable tax laws expire.
Note 6. Stock Compensation
ACX has an equity incentive plan that provides for the granting of nonqualified
stock options and incentive stock options to certain key employees of its
subsidiaries that eligible Coors Ceramics employees participate in. The equity
incentive plan also provides for the granting of restricted stock, bonus shares,
stock units and offers to officers of ACX and its subsidiaries to purchase
stock. Generally, options outstanding under ACX's equity incentive plan are
subject to the following terms: (1) the exercise price of a stock option is
generally equal to the fair market value of ACX's common stock on the date of
grant; (2) ratable vesting over either a three-or four-year service period; and
(3) maximum term of ten years from the date of grant.
Coors Ceramics will grant substituted options for outstanding vested and
unvested ACX options. The exercise price for each substituted option granted by
the Company will be based on the relative fair market value of ACX and Coors
Ceramics' common stock pre and post spin.
Pro forma information: The Company applies the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for stock options granted to Coors Ceramics
employees. Accordingly, no compensation expense has been recognized for the
issuance of employee stock options as the exercise price of the options equaled
or exceeded the fair market value of the ACX stock at the time of grant.
Pro forma net earnings and earnings per share information, as required by SFAS
No. 123 "Accounting for Stock-Based Compensation" has been determined as if ACX
had accounted for employee stock options grants to Coors Ceramics employees
under SFAS No. 123's fair value method. The fair value of these options was
estimated at the grant date using a Black-Scholes option pricing model with the
following weighted-average assumptions: (1) dividend yield of 0%; (2) expected
volatility of 28.1% in 1998, 23.2% in 1997, and 22.6% in 1996; (3) risk-free
interest rate ranging from 4.8% to 5.0% in 1998, 5.4% to 5.5% in 1997 and 6.1%
to 6.4% in 1996; and (4) expected life of 3 to 7.36 years in 1998, 3 to 6.23
years in 1997 and 3 to 6.37 years in 1996. The weighted average per share fair
value of options granted during 1998, 1997, and 1996 was $22.16, $21.26 and
$15.17, respectively.
The pro forma effect of recognizing compensation expense in accordance with SFAS
No. 123 would have been to reduce Coors Ceramics' reported net earnings by $0.7
million in 1998, $0.3 million in 1997 and $0.6 million in 1996. Had
compensation expense been recorded by Coors Ceramics in accordance with SFAS No.
123, the effect would be to reduce unaudited pro forma diluted net earnings per
share to $1.68 in 1998, $3.68 in 1997 and $3.44 in 1996.
Note 7. Retirement and Other Postretirement Benefit Plans
Pension Plan: The Company participates with ACX in a defined benefit retirement
plan for substantially all of the Company's employees. The Parent manages the
plan including plan assets which consist primarily of equity and interest-
bearing investments. Benefits are based on years of service and average base
compensation levels over a period of years. The Parent's funding policy is to
contribute annually not less than the ERISA minimum funding standards nor more
than the maximum amount that can be deducted for Federal income tax purposes.
Retiree Medical Plan: In addition to receiving pension benefits, Coors Ceramics
employees may participate in ACX's medical plan which provides health care and
life insurance benefits to eligible retirees and their dependents. Eligible
employees may receive these benefits after reaching age 55 with 10 years of
service. Prior to reaching age 65, eligible retirees may receive certain health
care benefits identical to those available to active employees. The amount the
retiree pays is based on age and service at the time of retirement. These plans
are not funded.
401(k) Plan: Eligible employees of the Company may participate in ACX's 401(k)
plan in which employees can contribute up to 18% of annual eligible compensation
subject to certain regulatory and plan limitations. The Company matches
F-12
<PAGE>
contributions by employees at 1% of the employee's contribution. The Company's
expense related to the 401(k) match was $0.7 million each for 1998 and 1997 and
$0.6 million in 1996.
After the spin-off, Coors Ceramics will establish separate defined benefit
retirement, retiree medical and 401(k) plans for its current and former
employees. An allocable share of the defined benefit plan assets will be
transferred from ACX to Coors Ceramics. This allocation will be based on the
requirements of the applicable regulatory body at the date of the spin-off.
Included in the December 31, 1998 and 1997 balance sheets of the Company are
estimates of assets and pension obligations to be transferred to Coors Ceramics.
Actual amounts to be transferred will be measured at the spin date and will
likely be different from these estimates.
The following tables set forth the estimated change in benefit obligation,
change in plan assets, funded status, net periodic benefit cost and other
information applicable to the Coors Ceramics defined benefit and retiree medical
plans. This information is based on the estimated allocations of the respective
plan assets and liabilities as described above. The actual results could differ
from these estimates. All information, except interest rates, is in thousands.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------------------------------
1998 1997 1998 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $90,267 $82,605 $ 12,357 $ 11,570
Service Cost 2,290 1,968 338 248
Interest Cost 6,439 4,470 892 763
Actuarial loss (gain) 1,890 3,986 (3) 258
Benefits Paid (3,071) (2,762) (422) (482)
---------------------------------------------------------------
Benefit obligation at end of year 97,815 90,267 13,162 12,357
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Change in plan assets
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year 79,404 68,601 --- ---
Actual return on plan assets 630 13,212 --- ---
Acquisitions --- --- --- ---
Company contributions --- 353 --- ---
Benefits paid (2,805) (2,762) --- ---
---------------------------------------------------------------
Fair value of plan assets at end of year 77,229 79,404 --- ---
---------------------------------------------------------------
Funded status (20,586) (10,863) (13,162) (12,357)
Unrecognized actuarial loss (gain) 11,794 2,046 (1,929) (2,407)
Unrecognized prior service cost 4,070 3,810 (793) (991)
---------------------------------------------------------------
Accrued benefit cost ($4,722) ($5,007) ($15,884) ($15,755)
Amounts recognized in the Consolidated Balance Sheet
consist of:
Accrued benefit liability ($9,738) ($5,007) ($15,884) ($15,755)
Intangible asset 4,568 --- --- ---
Accumulated other comprehensive income 448 --- --- ---
---------------------------------------------------------------
Net amount recognized ($4,722) ($5,007) ($15,884) ($15,755)
===============================================================
Weighted average assumptions at year end:
Discount rate 6.80% 7.25% 6.80% 7.25%
Expected return on plan assets 9.75% 9.75%
Rate of compensation increase 4.30% 4.75%
</TABLE>
It is the Parent's policy to amortize unrecognized gains and losses in excess of
10% of the larger of plan assets and the projected benefit obligation (PBO) over
the expected service of active employees (12-15 years). However, in cases where
F-13
<PAGE>
the accrued benefit liability exceeds the actual unfunded liability by more than
20% of the PBO, the amortization is reduced to 5 years.
For measurement purposes, a 7.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. The rate was assumed to
decrease by 0.5% per annum to 4.25% and remain at that level thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 2,290 $ 1,968 $ 1,815 $ 338 $ 248 $ 495
Interest cost 6,439 4,470 3,605 892 763 807
Expected return on plan assets (843) (8,595) (6,132) --- --- ---
Amortization of prior service costs 651 306 150 (198) (104) (199)
Recognized actuarial loss (gain) (6,082) 4,879 3,436 (481) (90) (38)
---------------------------------------------------------------------
Net periodic benefit cost $ 2,455 $ 3,028 $ 2,874 $ 551 $ 817 $1,065
=====================================================================
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
----------------------------
<S> <C> <C>
Effect on total of services and interest cost components 297 276
Effect on postretirement benefit obligation 903 849
</TABLE>
Note 8: Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Six months ended
June 30, 1999 (unaudited) 1998 1997 1996
--------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Total interest costs $2,351 $ 4,125 $ 224 $ 217
Interest capitalized --- --- 114 35
Interest expensed 2,351 4,125 110 182
Interest paid (primarily to Parent) 2,000 4,000 24 145
Income taxes paid (primarily to Parent) $ 899 $11,882 $16,950 $18,390
</TABLE>
Non-Cash Investing Activities: See description of non-cash investing
activities with ACX in Note 10.
Interest costs for the six months ended June 30, 1999 and the year ended
December 31, 1998 includes $2.0 million (unaudited) and $4.0 million paid to ACX
on intercompany debt, respectively.
F-14
<PAGE>
Note 9. Acquisitions
In March 1999, the Company acquired the net assets of Precision Technologies for
approximately $22.0 million in cash and 300,000 warrants to receive shares of
the Parent's common stock at an exercise price equal to the fair market value at
the date of close. These warrants vest only upon the achievement of certain
revenue goals within three years. The acquisition has been accounted for under
the purchase method of accounting and goodwill of approximately $19.5 million is
being amortized over 20 years. Precision Technologies, located in Livermore,
California, manufactures precision-machined parts for the semiconductor,
medical, and aircraft industries.
In March 1999, the Company acquired all of the outstanding shares of Edwards
Enterprises for approximately $18.0 million. The acquisition has been accounted
for under the purchase method of accounting and goodwill of approximately $4.2
million is being amortized over 20 years. Edwards Enterprises, located in
Newark, California, manufactures precision-machined parts for the semiconductor
industry.
In May of 1998, the Company acquired the assets of Pulsation Equipment for $0.9
million. The acquisition was accounted for under the purchase method of
accounting and goodwill of $0.8 million is being amortized over 15 years on a
straight line basis.
On August 1, 1997, the Company acquired the assets of Tetrafluor, Inc., based in
El Segundo, California for $15.8 million. Tetrafluor manufactures Teflon
fluoropolymer sealing systems and components for use in aerospace, industrial
and transportation industries. The acquisition was accounted for under the
purchase method of accounting, and Tetrafluor's results of operations are
included in the Company's consolidated financial statements from the date of
acquisition. The purchase price was allocated to the net assets acquired based
upon their estimated fair value. Goodwill for Tetrafluor was $10.7 million and
is being amortized over 15 years on a straight-line basis.
During 1996, the Company purchased the operating assets of H.B. Company, Inc., a
manufacturer of oilfield pump components based in Oklahoma City, Oklahoma. The
acquisition was accounted for under the purchase method of accounting, and the
Company's results of operations for 1996 include the results of the acquisition
since March 19, 1996. The purchase price was $6.6 million and was allocated to
the net assets acquired based upon their estimated fair market value. Goodwill
of $1.4 million is being amortized over 15 years on a straight-line basis.
Note 10. Related Party Transactions
Beginning on December 28, 1992, Adolph Coors Company (ACCo) had no ownership
interest in the Company. However, certain Coors family trusts have significant
interests in both ACX and ACCo. Transactions with ACCo were immaterial for
1998, 1997 and 1996.
Since the formation of ACX, the Company has engaged in several related party
transactions with ACX and its subsidiaries. These include, but are not limited
to, participation in ACX's cash management system (see Note 2), benefiting from
administrative services provided by ACX (see Note 2), intercompany debt
allocations (see Note 2), payments of dividends, miscellaneous asset and
liability transfers between the entities as well as miscellaneous capital
contributions of other forms between the entities.
Dividends paid to ACX totaled $0, $38,000 and ($216,000) in 1998, 1997 and
1996, respectively. Net capital contributions from ACX, in thousands, for the
year ended December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Assets transferred from ACX $ 13 $ 6,846 $ 630
Bonuses paid in common stock of ACX 79 177 747
Transfer of liability to ACX --- (176) (979)
Transfer of long-term debt from ACX (50,000) --- ---
Capital contribution to ACX (15) --- ---
Capital contribution from ACX --- 5,829 7,097
------------------------------------------------
Total net capital contributions $(49,923) $12,676 $7,495
================================================
</TABLE>
F-15
<PAGE>
Note 11. Commitments and Contingencies
The Company is self-insured for certain insurable risks consisting primarily of
employee health insurance programs and workers compensation. Certain stop-loss
and excess insurance policies are also maintained to reduce overall risk. In
addition, the Company maintains insurance policies to protect against loss
related to property, business interruption and general liability risks.
The Company is named as a defendant in various actions and proceedings arising
in the normal course of business, including claims by current or former
employees relating to employment or termination. Although the eventual outcome
of the various lawsuits cannot be predicted, it is management's opinion that
these suits will not result in liabilities to such extent that they would
materially affect the Company's financial position or results of operations.
The Company has received a demand for payment arising out of contamination of a
semiconductor manufacturing facility formerly owned by a subsidiary of the
Company, Coors Components, Inc. ("CCI"). Colorado State environmental
authorities are seeking clean up of soil and ground water contamination from a
subsequent owner. The contamination is believed to have occurred prior to the
Company's ownership of CCI and there are possible off site sources of
contamination. CCI was sold in November, 1987. Although the Company does not
believe it is responsible for the contamination or the cleanup, the parties
agreed to a remediation plan. The Company will manage the remediation and is
responsible to pay from 10% to 15 % of the remediation costs in excess of
$500,000. However, the remediation costs to date are below $500,000 and
management does not expect costs to exceed this amount.
The Company has received a Unilateral Administration Order issued by the EPA
relating to the Rocky Flats Industrial Park Site, (RFIP) and is participating
with the RFIP Group to perform an Engineering Evaluation/Cost Analysis on the
property. There is no estimate of potential clean up costs, but management does
not believe it will be material.
Some of the Company's subsidiaries have been notified that they may be
potentially responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") or similar state
laws with respect to the remediation of certain sites where hazardous substances
have been released into the environment. The Company cannot predict with
certainty the total costs of remediation, its share of the total costs, the
extent to which contributions will be available from other parties, the amount
of time necessary to complete the remediation or the availability of insurance.
However, based on investigations to date, the company believes that any
liability with respect to these sites would not be material to the financial
condition and results of operations of the Company, without consideration for
insurance recoveries. There can be no certainty, however, that the Company will
not be named as a PRP at additional sites or be subject to other environmental
matters in the future or that the costs associated with those additional sites
or matters would not be material.
The Company is a guarantor on industrial development bonds of CCI, a former
subsidiary that was sold in November 1987. The buyer of CCI assumed the
liability at the time of purchase. The terms require annual principal and
interest payments and a balloon payment of $2.2 million in May 2000. In the
event of default by the buyer, the Company would assume the liability. The
buyer has made all payments to date in a timely manner and management does not
believe the Company is at risk for payment of the bonds as of December 31, 1998.
The outstanding balance as of December 31, 1998, 1997 and 1996 was $2.4 million,
$3.0 million and $3.1 million, respectively.
F-16
<PAGE>
Note 12. Segment Information
The Company is organized along functional responsibilities rather than operating
segments and in management's opinion consists of and is managed as a single
segment. While the Company offers a wide range of products, they are
manufactured at common facilities and marketed by a common sales force. No
single customer accounts for more than 10% of total revenues. Information
related to the Company's operations by geographic area is presented below:
Revenue from unaffiliated customers, in thousands:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
United States $224,295 $224,272 $193,061
Europe 39,338 41,815 39,109
Asia 19,975 23,497 23,512
Canada 8,446 8,886 7,614
Other Foreign 6,696 8,161 14,128
Less: discounts and allowances (2,136) (1,807) (1,072)
-----------------------------------------------
Total $296,614 $304,824 $276,352
===============================================
</TABLE>
Long-lived assets, in thousands:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
United States $151,630 $155,712 $126,687
Europe 3,486 3,101 2,978
Canada 6 84 72
---------------------------------------------
Total $155,122 $158,897 $129,737
=============================================
</TABLE>
Long-lived assets consist primarily of net property, plant and equipment,
goodwill and cash surrender values on certain insurance policies.
F-17
<PAGE>
Note 13. Quarterly Financial Information (unaudited)
The following summarizes selected quarterly financial information, in thousands,
for each of the two years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
First Second Third Fourth Year
----------- ------------- ------------- -------------- --------------
1998
- ----
<S> <C> <C> <C> <C> <C>
Net sales $80,945 $79,422 $70,023 $66,224 $296,614
Cost of goods sold 60,241 59,258 53,792 49,615 222,906
-------------------------------------------------------------------------------
Gross profit 20,704 20,164 16,231 16,609 73,708
Selling, general & administrative 10,076 9,762 8,691 9,229 37,758
Asset impairment charges 6,232 --- 5,582 --- 11,814
-------------------------------------------------------------------------------
Operating income 4,396 10,402 1,958 7,380 24,136
Other income (expense):
Interest expense, net (1,055) (984) (853) (632) (3,524)
-------------------------------------------------------------------------------
Income before income taxes 3,341 9,418 1,105 6,748 20,612
Income tax expense 1,247 3,503 420 2,512 7,682
-------------------------------------------------------------------------------
Net income $ 2,094 $ 5,915 $ 685 $ 4,236 $ 12,930
===============================================================================
Net income per basic share $ 0.29 $ 0.83 $ 0.10 $ 0.59 $ 1.81
===============================================================================
Weighted average shares outstanding-basic 7,106 7,138 7,145 7,115 7,126
===============================================================================
Net income per diluted share $ 0.29 $ 0.81 $ 0.09 $ 0.59 $ 1.78
===============================================================================
Weighted average shares outstanding-diluted 7,284 7,306 7,255 7,186 7,258
===============================================================================
1997
- ----
Net sales $71,416 $75,011 $79,329 $79,068 $304,824
Cost of goods sold 50,444 52,871 58,126 58,380 219,821
-------------------------------------------------------------------------------
Gross profit 20,972 22,140 21,203 20,688 85,003
Selling, general & administrative 10,774 10,601 9,999 10,380 41,754
-------------------------------------------------------------------------------
Operating income 10,198 11,539 11,204 10,308 43,249
Other income (expense):
Interest income (expense) (4) (1) (12) (11) (28)
Miscellaneous-net 20 12 (36) (36) (40)
-------------------------------------------------------------------------------
Income before income taxes 10,214 11,550 11,156 10,261 43,181
Income tax expense 3,829 4,334 4,184 3,845 16,192
-------------------------------------------------------------------------------
Net income $ 6,385 $ 7,216 $ 6,972 $ 6,416 $ 26,989
===============================================================================
Net income per basic share $ 0.91 $ 1.03 $ 0.99 $ 0.91 $ 3.84
===============================================================================
Weighted average shares outstanding-basic 6,991 7,002 7,045 7,079 7,030
===============================================================================
Net income per diluted share $ 0.89 $ 1.01 $ 0.96 $ 0.88 $ 3.74
===============================================================================
Weighted average shares outstanding-diluted 7,150 7,176 7,262 7,294 7,221
===============================================================================
</TABLE>
F-18
<PAGE>
SCHEDULE II
Allowance for doubtful receivables
(deducted from accounts receivable)
<TABLE>
<CAPTION>
Balance at Additions
beginning of charged to costs Balance at end
year and expenses Other Deductions of year
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 $1,608 301 19 (646) $1,282
1997 $1,282 1,079 60 (428) $1,993
1998 $1,993 547 (5) (696) $1,839
</TABLE>
F-19
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document Description
- ------- -----------------------------------------------------------------------
<C> <S>
2 Form of Distribution Agreement*
3.1 Form of Certificate of Incorporation of Registrant
3.2 Form of Bylaws of Registrant
4 Indenture dated ________, 1999 between _____________, as Trustee,
and Coors Porcelain Company*
10.1 Description of Officers' Life Insurance Program*
10.2 Coors Porcelain Company Equity Incentive Plan* for ___________
10.3 Coors Porcelain Company Equity Compensation Plan for Non-Employee
Directors*
10.4 Credit Agreement dated __________, 1999 between _____________, as
Agent, and Coors Porcelain Company*
10.5 Form of Tax Sharing Agreement*
10.6 Form of Environmental Responsibility Agreement*
10.7 Form of Transitional Services Agreement*
10.8 Form of Joint Defense Agreement*
10.9 Salary Continuation Agreement for John K. Coors*
10.10 Salary Continuation Agreement for Joseph Coors, Jr.*
21 List of Subsidiaries*
27 Financial Data Schedule
</TABLE>
*To be filed by amendment
I-5
<PAGE>
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Coors Porcelain Company
October 7, 1999 By: /s/ Joseph Coors, Jr.
Name: Joseph Coors, Jr.
Title: Chairman and Chief Executive Officer
I-6
<PAGE>
EXHIBIT 3.1
FORM OF
CERTIFICATE OF INCORPORATION
OF
[COORS PORCELAIN COMPANY]
Article 1. NAME
The name of the corporation is [Coors Porcelain Company] (the
"Corporation").
Article 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 in the
County of New Castle. The registered agent of the Corporation at such address
shall be The Corporation Trust Company.
Article 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law"). The
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
Article 4. CAPITAL STOCK
4.1 Authorized Shares. The total number of shares of all classes
of stock that the Corporation shall have the authority to issue is 120,000,000,
of which 100,000,000 shall be Common Stock, all of one class, having a par value
of $.01 per share ("Common Stock"), and 20,000,000 of such shares shall be
Preferred Stock, having a par value of $.01 per share ("Preferred Stock").
4.2 Common Stock
4.2.1 Relative Rights. The Common Stock shall be subject to
all of the rights, privileges, preferences and priorities of the Preferred Stock
as set forth in the certificate of designations filed to establish the
respective series of Preferred Stock. Each share of Common Stock shall have the
same relative rights as and be identical in all respects to all the other shares
of Common Stock. The Board of Directors is authorized, subject to the
limitations prescribed by the Delaware General Corporation Law and the
provisions of this Certificate of Incorporation, to
i
<PAGE>
provide, by resolution or resolutions from time to time for the issuance of
shares of Common Stock.
4.2.2 Dividends. Whenever there shall have been paid, or
declared and set aside for payment, to the holders of shares of any class of
stock having preference over the Common Stock as to the payment of dividends,
the full amount of dividends and of sinking fund or retirement payments, if any,
to which such holders are respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock and on any class or series
of stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends thereon, but only when and as
declared by the Board of Directors of the Corporation.
4.2.3 Dissolution, Liquidation, Winding Up. In the event of
any dissolution, liquidation, or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Common Stock, and holders of any
class or series of stock entitled to participate therewith, in whole or in part,
as to the distribution of assets in such event, shall become entitled to
participate in the distribution of any assets of the Corporation remaining after
the Corporation shall have paid, or provided for payment of, all debts and
liabilities of the Corporation and after the Corporation shall have paid, or set
aside for payment, to the holders of any class of stock having preference over
the Common Stock in the event of dissolution, liquidation or winding up the full
preferential amounts (if any) to which they are entitled.
4.2.4 Voting Rights. Each holder of shares of Common Stock
shall be entitled to attend all special and annual meetings of the stockholders
of the Corporation and, share for share and without regard to class, together
with the holders of all other classes of stock entitled to attend such meetings
and to vote (except any class or series of stock having special voting rights),
to cast one vote for each outstanding share of Common Stock so held upon any
matter or thing (including, without limitation, the election of one or more
directors) properly considered and acted upon by the stockholders.
4.3 Preferred Stock. The Board of Directors is authorized, subject
to limitations prescribed by the Delaware General Corporation Law and the
provisions of this Certificate of Incorporation, to provide, by resolution or
resolutions from time to time and by filing a certificate of designations
pursuant to the Delaware General Corporation Law, for the issuance of the shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and to fix the qualifications,
limitations or restrictions thereof.
4.4 Preemptive Rights. Ownership of shares of any class of the
capital stock of the Corporation shall not entitle the holders thereof to any
preemptive right to subscribe for or purchase or to have offered to them for
subscription or purchase any additional shares of capital stock of any class of
the Corporation or any securities convertible into any class of capital stock
ii
<PAGE>
of the corporation, whether now or hereafter authorized, however acquired,
issued or sold by the corporation, it being the purpose and intent hereof that
the Board of Directors shall have the full right, power and authority to offer
for subscription or sell or to make any disposal of any or all unissued shares
of the capital stock of the Corporation or any securities convertible into stock
or any or all shares of stock or convertible securities issued and thereafter
acquired by the Corporation, for such consideration, in money or property, as
the Board of Directors in its sole discretion shall determine.
Article 5. INCORPORATOR
The name and mailing address of the incorporator (the
"Incorporator") is _________________________. The powers of the Incorporator
shall terminate upon the filing of this Certificate of Incorporation.
Article 6. BOARD OF DIRECTORS
6.1 Initial Board; Staggered Board; Number; Election. The initial
directors shall serve until the first annual meeting of stockholders which will
be held in 2001. At the annual meeting of the stockholders held in 2001, the
total number of directors shall be divided into three classes, with each class
containing one-third of the total, as near as may be. The terms of directors
elected to serve in Class I shall expire at the annual meeting of stockholders
held in 2002, the terms of directors elected to serve in Class II shall expire
at the annual meeting of stockholders held in 2003, and the terms of directors
elected to serve in Class III shall expire at the annual meeting of stockholders
held in 2004. Upon the expiration of the initial staggered terms, directors of
each class shall be elected for terms of three years to succeed those whose
terms expire. The number of directors constituting the whole board shall not be
fewer than three or more than 11. The number of directors may be altered from
time to time as provided in the bylaws. The initial Board of Directors shall
consist of seven persons, each of whom shall serve until each such director's
respective successor is duly elected and qualified in accordance with this
Certificate of Incorporation or the Bylaws, or until such director's earlier
resignation or removal. Unless and except to the extent that the bylaws of the
Corporation shall otherwise require, the election of directors of the
Corporation need not be by written ballot. Except as otherwise provided in this
Certificate of Incorporation, each director of the Corporation shall be entitled
to one vote per director on all matters voted or acted upon by the Board of
Directors.
6.2 Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by the
affirmative vote of a majority of the directors then in office, although fewer
than a quorum, or by a sole remaining director. A director shall hold office
for the remainder of the term of the class of director to which the vacancy
occurred or the new directorship was created. Whenever the holders of any class
or classes of stock or series thereof are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, vacancies and
newly created directorships of such class or classes or series may be filled by
the affirmative vote of a majority of the directors elected by
iii
<PAGE>
such class or classes or series thereof then in office, or by a sole remaining
director so elected. Each director so chosen shall hold office until the next
election of directors of the class to which such director was appointed, and
until such director's successor is elected and qualified, or until the
director's earlier death, resignation or removal. In the event that one or more
directors resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office until the next election of directors for such class or series,
and until such director's successor is elected and qualified, or until the
director's earlier death, resignation or removal.
6.3 Removal of Directors. A director may be removed only for cause
and only by an affirmative vote of two-thirds of the stockholders entitled to
vote thereon.
6.4 Management of Business and Affairs of the Corporation. The
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors.
6.5 Limitation of Liability. No director of the Corporation shall be
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision shall not eliminate
or limit the liability of a director (a) for any breach of the director's duty
of loyalty to the Corporation or its stockholders; (b) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law; (c) under Section 174 of the Delaware General Corporation Law; or (d) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article 6.5 shall be prospective only and
shall not adversely affect any right or protection of, or any limitation of the
liability of, a director of the Corporation existing at, or arising out of facts
or incidents occurring prior to, the effective date of such repeal or
modification.
Article 7. STOCKHOLDER ACTION
7.1 Action Without a Meeting by Unanimous Written Consent. Any
action required or permitted to be taken at a stockholders' meeting may be taken
without a meeting only by the unanimous written consent of all stockholders
entitled to vote on such matter. The action must be evidenced by one or more
written consents describing the action taken, signed by all of the stockholders
entitled to vote on such action, and delivered to the Corporation in the manner
prescribed by the Delaware General Corporation Law for inclusion in the minute
book.
7.2 Special Meetings. Unless the Delaware General Corporation Law
shall provide otherwise, no stockholder nor any group thereof shall have the
right to call a special meeting of the stockholders.
Article 8. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
iv
<PAGE>
The Corporation by this provision hereby elects to be governed by
Section 203 of the Delaware General Corporation
Article 9. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
Article 10. ACQUISITION PROPOSALS
In determining whether the acquisition proposal is in the long-term
best interests of the Corporation and its stockholders, the Board of Directors
may consider the effect of both an acquisition proposal and a potential
acquisition on creditors, customers and employees of the Corporation and on the
community in general, the risks of non-consummation of an acquisition proposal,
the identity, prior background and other business experiences of the person or
entity making an acquisition proposal, and the business plans of both the
Corporation and the person or entity making an acquisition proposal and their
respective effects on stockholder interests. The Board of Directors is
authorized to take such action as it may determine to be reasonably necessary or
desirable to encourage any person or entity to enter into negotiations with the
Board and management of the Corporation respecting any transaction that may
result in a change of control and to contest or oppose any such transaction that
the Board determines to be unfair, abusive or otherwise undesirable to the
Corporation or its stockholders, business, customers, employees or other
constituencies.
Article 11. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized and
v
<PAGE>
empowered to adopt, amend and repeal the bylaws of the Corporation by an
affirmative vote of two-thirds of the directors then in office. The bylaws of
the Corporation may also be adopted, amended or repealed by an affirmative vote
of two-thirds of the stockholders entitled to vote thereon.
Article 12. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to
time, to amend, alter, change, or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences, and privileges
of any nature conferred upon stockholders, directors, or any other persons by
and pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article 12.
With respect to action to be taken by the stockholders to amend Sections 4.3 and
4.4, and Articles 6, 7, 8, 10, 11 and 12 of this Certificate of Incorporation,
the affirmative vote of two-thirds of all votes entitled to be cast by such
stockholders shall be required.
* * * * * * *
vi
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
Delaware General Corporation Law, hereby certifies that the facts hereinabove
stated are truly set forth, and accordingly executes this Certificate of
Incorporation this ___day of __, 1999.
___________________________________________
Incorporator
vii
<PAGE>
EXHIBIT 3.2
FORM OF
BYLAWS
OF
[COORS PORCELAIN COMPANY]
1. OFFICES
1.1. Registered Office
The initial registered office of the Corporation shall be Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware, and the initial
registered agent in charge thereof shall be The Corporation Trust Company.
1.2. Other Offices
The Corporation may also have offices at such other places, both
within and outside the State of Delaware, as the Board of Directors may from
time to time determine or as may be necessary or useful in connection with the
business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. Place of Meetings
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board of Directors, the Chairperson or the
President.
2.2. Annual Meetings
The Corporation shall hold annual meetings of stockholders, commencing
with the year 2001, on such date and at such time as shall be designated from
time to time by the Board of Directors, the Chairperson or the President, at
which stockholders shall elect a Board of Directors and transact such other
business as may properly be brought before the meeting. A stockholder may
propose to transact business at a meeting provided that such stockholder
submitted in writing to the Secretary of the Corporation no later than 90 days
nor more than 120 days prior to the anniversary of the preceding year's annual
meeting of stockholders, information regarding the stockholder and the action to
be taken, together with the identity (including name and address) of such
stockholder and the class and number of shares of the Corporation's common stock
and preferred stock owned, directly or indirectly, by such stockholder or
stockholders. For the purposes of the Corporation's first annual meeting after
2000, the anniversary date shall be deemed to be May 15, 2000. Such proposal
shall set forth the following information: (1) a brief description of the
business desired to be brought before the meeting; (2) the reasons for
conducting such business at the meeting; (3) a representation that the
stockholder is a holder of record of Corporation stock entitled to vote at the
meeting and intends
<PAGE>
to appear in person or by proxy at the meeting to propose the business; (4) a
representation whether the stockholder or the beneficial owner, if any, intends
or is part of a group that intends (a) to deliver a proxy statement and/or form
of proxy to holders of at least the percentage of Corporation capital stock
required to approve the proposal, or (b) otherwise to solicit proxies from
stockholders is support of the proposal; (5) the text of the proposal (including
the text of any resolutions proposed for consideration and in the event that the
business includes a proposal to amend the Bylaws, the language of the proposed
amendment); and (6) any material interest of such stockholder in the proposed
business.
2.3. Special Meetings
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Board of Directors,
the Chairperson or the President.
2.4. Notice of Meetings
Notice of any meeting of stockholders, stating the place, date and
hour of the meeting, and if it is a special meeting the purpose or purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
at such meeting not less than 10 nor more than 60 days before the date of the
meeting (except to the extent that such notice is waived or is not required as
provided in the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law") or these Bylaws). Such notice shall be given in
accordance with, and shall be deemed effective as set forth in, Section 222 (or
any successor section) of the Delaware General Corporation Law.
2.5. Waivers of Notice
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (1) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (2) if it is a special meeting of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6. Business at Special Meetings
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice (except to the extent that such
notice is waived or is not required as provided in the Delaware General
Corporation Law or these Bylaws).
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2.7. List of Stockholders
After the record date for a meeting of stockholders has been fixed, at
least 10 days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place in the city where the meeting is
to be held, which place is to be specified in the notice of the meeting, or at
the place where the meeting is to be held. Such list shall also, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
2.8. Quorum at Meetings
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the shares
entitled to vote at the meeting, and who are present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. Where a separate vote by a class or series or classes
or series is required, a majority of the outstanding shares of such class or
series or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter. Once a share is represented for any purpose at a meeting other than
solely to object (1) to holding the meeting or transacting business at the
meeting, or (2) if it is a special meeting to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for the adjourned meeting. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present, may
adjourn such meeting from time to time.
2.9. Voting; Proxies
Unless otherwise provided in the Delaware General Corporation Law or
in the Corporation's Certificate of Incorporation, and subject to the other
provisions of these Bylaws, each stockholder shall be entitled to one vote on
each matter, in person or by proxy, for each share of the Corporation's capital
stock that has voting power and that is held by such stockholder. Cumulative
voting shall not be allowed in the election of directors or for any other
reason. No proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed appointment of
proxy shall be irrevocable if the appointment form states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
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2.10. Required Vote
When a quorum is present at any meeting of stockholders, all matters
shall be determined, adopted and approved by the affirmative vote (which need
not be by ballot) of the holders of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote with respect to the
matter, unless the proposed action is one upon which, by express provision of
statutes, of the Certificate of Incorporation or of these Bylaws, a different
vote is specified and required, in which case such express provision shall
govern and control with respect to that vote on that matter. Where a separate
vote by a class or classes is required, the affirmative vote of the holders of a
majority of the shares of such class or classes present in person or represented
by proxy at the meeting shall be the act of such class. Notwithstanding the
foregoing, directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
2.11. Powers and Duties of Chairperson of Meetings
The chairperson of the meeting at which the directors are to be
elected or at which the stockholder action is to be taken shall have the power
and duty (1) any business proposed to be brought before the meeting by a
stockholder in accordance with Section 2.2 of these Bylaws or to determine
whether a nomination presented by a stockholder in accordance with Section 3.3
of these Bylaws was made or proposed in accordance with the procedures set forth
in such sections, and (2) if any proposed business or nomination was not made or
proposed in compliance with the procedures set forth in Sections 2.2 or 3.3,
respectively, to declare that the proposed business shall not be transacted or
that the nomination shall be disregarded.
3. DIRECTORS
3.1. Powers
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to any
limitation set forth in the Certificate of Incorporation or as otherwise may be
provided in the Delaware General Corporation Law.
3.2. Number
The number of directors constituting the whole board shall not be
fewer than three nor more than 11. Thereafter, within the limits above
specified, the number of directors shall be fixed by the affirmative vote of
two-thirds of the directors then in office.
3.3. Nomination of Directors
The Board of Directors shall nominate candidates to stand for election
as directors; and other candidates also may be nominated by any Corporation
stockholder, provided
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such other nomination(s) are submitted in writing to the Secretary of the
Corporation no later than 90 days nor more than 120 days prior to the
anniversary of the preceding year's meeting of stockholders at which directors
were elected, together with the identity and address of the nominator and the
class and number of shares of the Corporation's common stock and preferred stock
owned, directly or indirectly, by the nominator. Such stockholder nomination
shall set forth all information regarding the nominee proposed by the
stockholder that would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission and the
consent of the nominee to be named in a proxy statement as a candidate for
election and to serve as a director if elected. The stockholder nomination shall
contain representations: (1) that the stockholder is a holder of record of
Corporation stock entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to propose the nomination; and (2) whether the
stockholder or the beneficial owner, if any, intends or is part of a group that
intends (a) to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of Corporation capital stock required to approve the
proposal, or (b) otherwise to solicit proxies from stockholders in support of
the nomination. The Board of Directors may require any proposed nominee to
furnish such other information as it may reasonably require to determine the
eligibility of such proposed nominee to serve as a Director. The directors shall
be elected at the annual meeting of the stockholders, except as provided in the
Certificate of Incorporation, and each director elected shall hold office until
such director's successor is elected and qualified or until the director's
earlier death, resignation or removal. Directors need not be stockholders. The
Board of Directors shall be elected or removed and vacancies filled as set forth
in the Certificate of Incorporation.
3.4. Meetings
3.4.1. Regular Meetings
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.4.2. Special Meetings
Special meetings of the Board may be called by the Chairperson or
President on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission, and on five days' notice by mail (effective upon deposit of such
notice in the mail). The notice need not describe the purpose of a special
meeting.
3.4.3. Telephone Meetings
Members of the Board of Directors may participate in a meeting of the
board by any communication by means of which all participating directors can
simultaneously hear each
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other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
3.4.4. Action Without Meeting
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if the action is taken by all
members of the Board. The action must be evidenced by one or more written
consents describing the action taken, signed by each director, and delivered to
the Corporation for inclusion in the minute book.
3.4.5. Waiver of Notice of Meeting
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at
or participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
3.5. Quorum and Vote at Meetings
At all meetings of the board, a quorum of the Board of Directors
consists of a majority of the total number of directors prescribed pursuant to
Section 3.2 of these Bylaws. The vote of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation or by these Bylaws.
3.6. Committees of Directors
The Board of Directors may designate one or more committees, each
committee to consist of one or more directors. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. If a member of a
committee shall be absent from any meeting, or disqualified from voting thereat,
the remaining member or members present and not disqualified from voting,
whether or not such member or members constitute a quorum, may, by unanimous
vote, appoint another member of the Board of Directors to act at the meeting in
the place of such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers requiring it; but no such
committee shall have the power or authority in reference to approving or
adopting, or recommending to the stockholders,
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any action or matter expressly required by the Delaware General Corporation Law
to be submitted to stockholders for approval or adopting, amending or repealing
any bylaw of the Corporation; and unless the resolution designating the
committee, these bylaws or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors, when required. Unless otherwise specified in the Board
resolution appointing the Committee, all provisions of the Delaware General
Corporation Law and these Bylaws relating to meetings, action without meetings,
notice (and waiver thereof), and quorum and voting requirements of the Board of
Directors apply, as well, to such committees and their members.
3.7. Compensation of Directors
The Board of Directors shall have the authority to fix the
compensation of directors. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
4. OFFICERS
4.1. Positions
The officers of the Corporation shall be a Chairperson, a President, a
Secretary and a Treasurer, and such other officers as the Board of Directors (or
an officer authorized by the Board of Directors) from time to time may appoint,
including one or more Vice Chairpersons, Executive Vice Presidents, Vice
Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer
shall exercise such powers and perform such duties as shall be set forth below
and such other powers and duties as from time to time may be specified by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the duties of such other officers. Any number of offices may be held
by the same person, except that in no event shall the President and the
Secretary be the same person. As set forth below, each of the Chairperson,
President, and/or any Vice President may execute bonds, mortgages and other
contracts under the seal of the Corporation, if required, except where required
or permitted by law to be otherwise executed and except where the execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
4.2. Chairperson
The Chairperson shall (when present) preside at all meetings of the
Board of Directors and stockholders, and shall ensure that all orders and
resolutions of the Board of Directors and stockholders are carried into effect.
The Chairperson may execute bonds,
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mortgages and other contracts, under the seal of the Corporation, if required,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation.
4.3. President
The President shall have full responsibility and authority for
management of the day-to-day operations of the Corporation, subject to the
authority of the Board of Directors and Chairperson. The President may execute
bonds, mortgages and other contracts, under the seal of the Corporation, if
required, except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
4.4. Vice President
In the absence of the President or in the event of the President's
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President.
4.5. Secretary
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board of Directors and of the stockholders and for
authenticating records of the Corporation. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors. The Secretary or an Assistant Secretary may also attest all
instruments signed by any other officer of the Corporation.
4.6. Assistant Secretary
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
4.7. Treasurer
The Treasurer shall be the chief financial officer of the Corporation
and shall have responsibility for the custody of the corporate funds and
securities and shall see to it that full and accurate accounts of receipts and
disbursements are kept in books belonging to the Corporation.
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The Treasurer shall render to the Chairperson, the President, and the Board of
Directors, upon request, an account of all financial transactions and of the
financial condition of the Corporation.
4.8. Assistant Treasurer
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
4.9. Term of Office
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time, with or without cause, by the affirmative vote of a majority of the Board
of Directors.
4.10. Compensation
The compensation of officers of the Corporation shall be fixed by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the compensation of such other officers.
4.11. Fidelity Bonds
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. Certificates of Stock; Uncertificated Shares
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates, and upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
(representing the number of shares registered in certificate form) signed in the
name of the Corporation by the Chairperson, President or any Vice President, and
by the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of
the Corporation. Any or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or
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registrar whose signature or facsimile signature appears on a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
5.2. Lost Certificates
The Board of Directors, Chairperson, President or Secretary may direct
a new certificate of stock to be issued in place of any certificate theretofore
issued by the Corporation and alleged to have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming that the
certificate of stock has been lost, stolen or destroyed. When authorizing such
issuance of a new certificate, the board or any such officer may, as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative, to
advertise the same in such manner as the board or such officer shall require
and/or to give the Corporation a bond or indemnity, in such sum or on such terms
and conditions as the board or such officer may direct, as indemnity against any
claim that may be made against the Corporation on account of the certificate
alleged to have been lost, stolen or destroyed or on account of the issuance of
such new certificate or uncertificated shares.
5.3. Record Date
5.3.1. Actions by Stockholders
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 days nor less than 10 days before
the date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 10 days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior
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action by the Board of Directors is required by the Delaware General Corporation
Law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation in the
manner prescribed by Section 213(b) of the Delaware General Corporation Law. If
no record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by the Delaware General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
5.3.2. Payments
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
5.4. Stockholders of Record
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
6. INDEMNIFICATION; INSURANCE
6.1. Authorization of Indemnification
Each person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
by or in the right of the Corporation or otherwise (a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan, shall be
(and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and
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subject to the conditions and (except as provided herein) procedures set forth
in the Delaware General Corporation Law, as the same exists or may hereafter be
amended (but any such amendment shall not be deemed to limit or prohibit the
rights of indemnification hereunder for past acts or omissions of any such
person insofar as such amendment limits or prohibits the indemnification rights
that said law permitted the Corporation to provide prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith; provided, however, that the Corporation shall indemnify any such
-------- -------
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person (except for a suit or action pursuant to Section 6.2
hereof) only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. Persons who are not directors or officers of the
Corporation and are not so serving at the request of the Corporation may be
similarly indemnified in respect of such service to the extent authorized at any
time by the Board of Directors of the Corporation. The indemnification conferred
in this Section 6.1 also shall include the right to be paid by the Corporation
(and such successor) the expenses (including attorneys' fees) incurred in the
defense of or other involvement in any such proceeding in advance of its final
disposition; provided, however, that, if and to the extent the Delaware General
-------- -------
Corporation Law requires, the payment of such expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer to repay all amounts so paid in
advance if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise; and provided
--------
further, that, such expenses incurred by other employees and agents may be so
- -------
paid in advance upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
6.2. Right of Claimant to Bring Action Against the Corporation
If a claim under Section 6.1 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring an action against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed or is otherwise not entitled to indemnification under Section 6.1, but
the burden of proving such defense shall be on the Corporation. The failure of
the Corporation (in the manner provided under the Delaware General Corporation
Law) to have made a determination prior to or after the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law shall not be a defense to the action or create
a presumption that the claimant has not met the applicable standard of
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conduct. Unless otherwise specified in an agreement with the claimant, an actual
determination by the Corporation (in the manner provided under the Delaware
General Corporation Law) after the commencement of such action that the claimant
has not met such applicable standard of conduct shall not be a defense to the
action, but shall create a presumption that the claimant has not met the
applicable standard of conduct.
6.3. Non-exclusivity
The rights to indemnification and advance payment of expenses provided
by Section 6.1 hereof shall not be deemed exclusive of any other rights to which
those seeking indemnification and advance payment of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
6.4. Survival of Indemnification
The indemnification and advance payment of expenses and rights thereto
provided by, or granted pursuant to, Section 6.1 hereof shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and administrators of
such person.
6.5. Insurance
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, partner (limited or general) or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, against any liability asserted against such person or
incurred by such person in any such capacity, or arising out of such person's
status as such, and related expenses, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of the Delaware General Corporation Law.
6.6. Offset
The Corporation's obligation, if any, to indemnify or to advance
expenses to any covered officer or director who was or is serving at its request
as a director, officer, employee or agent of another company, partnership, joint
venture, trust, enterprise or nonprofit entity will be reduced by any amount
that the covered officer or director may collect as indemnification or
advancement of expenses from such other company, partnership, joint venture,
trust, enterprise or nonprofit entity.
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6.7. Effect of Amendments
Any repeal or modification of the relevant provisions of the Bylaws
will not adversely affect any right or protection thereunder of any covered
officer or director in respect of any act or omission occurring prior to the
time of such repeal or modification.
7. GENERAL PROVISIONS
7.1. Inspection of Books and Records
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing authorizing the attorney or other agent to so act on behalf
of the stockholder. The demand under oath shall be directed to the Corporation
at its registered office or at its principal place of business.
7.2. Dividends
The Board of Directors may declare dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation
and the laws of the State of Delaware.
7.3. Reserves
The directors of the Corporation may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4. Execution of Instruments
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
7.5. Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
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7.6. Seal
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
* * * * *
The foregoing Bylaws were adopted by the Board of Directors on
___________, 1999.
___________________________________________
Secretary
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. OFFICES................................................................1
1.1. Registered Office...............................................1
1.2. Other Offices...................................................1
2. MEETINGS OF STOCKHOLDERS...............................................1
2.1. Place of Meetings...............................................1
2.2. Annual Meetings.................................................1
2.3. Special Meetings................................................2
2.4. Notice of Meetings..............................................2
2.5. Waivers of Notice...............................................2
2.6. Business at Special Meetings....................................2
2.7. List of Stockholders............................................3
2.8. Quorum at Meetings..............................................3
2.9. Voting; Proxies.................................................3
2.10. Required Vote..................................................4
2.11. Powers and Duties of Chairperson of Meetings...................4
3. DIRECTORS..............................................................4
3.1. Powers..........................................................4
3.2. Number..........................................................4
3.3. Nomination of Directors.........................................4
3.4. Meetings........................................................5
3.4.1. Regular Meetings.........................................5
3.4.2. Special Meetings.........................................5
3.4.3. Telephone Meetings.......................................5
3.4.4. Action Without Meeting...................................6
3.4.5. Waiver of Notice of Meeting..............................6
3.5. Quorum and Vote at Meetings.....................................6
3.6. Committees of Directors.........................................6
3.7. Compensation of Directors.......................................7
4. OFFICERS...............................................................7
4.1. Positions......................................................7
4.2. Chairperson....................................................7
4.3. President......................................................8
4.4. Vice President.................................................8
4.5. Secretary......................................................8
4.6. Assistant Secretary............................................8
4.7. Treasurer......................................................8
4.8. Assistant Treasurer............................................9
4.9. Term of Office.................................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4.10. Compensation....................................................9
4.11. Fidelity Bonds..................................................9
5. CAPITAL STOCK...........................................................9
5.1. Certificates of Stock; Uncertificated Shares....................9
5.2. Lost Certificates...............................................10
5.3. Record Date.....................................................10
5.3.1. Actions by Stockholders..................................10
5.3.2. Payments.................................................11
5.4. Stockholders of Record..........................................11
6. INDEMNIFICATION; INSURANCE..............................................11
6.1. Authorization of Indemnification................................11
6.2. Right of Claimant to Bring Action Against the Corporation.......12
6.3. Non-exclusivity.................................................13
6.4. Survival of Indemnification.....................................13
6.5. Insurance.......................................................13
6.6. Offset..........................................................13
6.7. Effect of Amendments............................................14
7. GENERAL PROVISIONS......................................................14
7.1. Inspection of Books and Records.................................14
7.2. Dividends.......................................................14
7.3. Reserves........................................................14
7.4. Execution of Instruments........................................14
7.5. Fiscal Year.....................................................14
7.6. Seal............................................................15
</TABLE>
ii
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<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 0 17,203
<SECURITIES> 0 0
<RECEIVABLES> 52,985 39,044
<ALLOWANCES> 0 0
<INVENTORY> 65,875 56,223
<CURRENT-ASSETS> 130,888 122,711
<PP&E> 139,293 131,324
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 321,192 278,359
<CURRENT-LIABILITIES> 65,273 33,416
<BONDS> 0 0
0 0
0 0
<COMMON> 10,000 10,000
<OTHER-SE> 167,450 155,825
<TOTAL-LIABILITY-AND-EQUITY> 321,192 278,359
<SALES> 171,990 296,614
<TOTAL-REVENUES> 171,990 296,614
<CGS> 129,951 222,906
<TOTAL-COSTS> 129,951 222,906
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,351 4,125
<INCOME-PRETAX> 17,547 20,612
<INCOME-TAX> 6,492 7,682
<INCOME-CONTINUING> 11,055 12,930
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,055 12,930
<EPS-BASIC> 1.56 1,81
<EPS-DILUTED> 1.54 1.78
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