<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarterly period ended SEPTEMBER 29, 1996
------------------
Commission File Number 1-7484
------
EKCO GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2167167
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
98 SPIT BROOK ROAD, NASHUA, NEW HAMPSHIRE 03062
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(603) 888-1212
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of November 1, 1996, there were issued and outstanding 18,567,918 shares
of common stock of the registrant.
<PAGE> 2
EKCO GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 290 $ 142
Accounts receivable, net 55,474 43,823
Inventories 60,136 47,565
Other current assets 6,464 6,719
Deferred income taxes 4,361 4,361
-------- --------
Total current assets 126,725 102,610
Property and equipment, net 54,907 56,380
Property held for sale or lease, net -- 2,830
Other assets 6,930 5,955
Excess of cost over fair value of net assets
acquired, net 112,042 136,600
-------- --------
Total assets $300,604 $304,375
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term obligations 20 18,079
Accounts payable 17,948 15,607
Accrued expenses 29,891 23,711
Income taxes 538
-------- --------
Total current liabilities 47,859 57,935
-------- --------
Long-term obligations, less current portion 128,955 96,700
-------- --------
Other long-term liabilities 8,678 9,859
-------- --------
Series B ESOP Convertible Preferred Stock, net;
outstanding 1,446 shares and 1,488 shares,
respectively, redeemable at $3.61 per share 3,919 3,458
-------- --------
Commitments and contingencies -- --
Minority interest 498 498
-------- --------
Stockholders' equity
Common stock, $.01 par value; outstanding
18,563 shares and 18,414 shares,
respectively 186 184
Capital in excess of par value 107,542 106,916
Cumulative translation adjustment 903 929
Retained earnings 7,371 33,614
Unearned compensation (3,559) (3,970)
Pension liability adjustment (1,748) (1,748)
-------- --------
110,695 135,925
Total liabilities and stockholders' equity $300,604 $304,375
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
EKCO GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 83,460 $83,041 $196,301 $203,464
-------- ------- -------- --------
Costs and expenses
Cost of sales 55,903 56,935 136,336 140,889
Selling, general and administrative 17,079 12,954 44,328 38,637
Special charges 24,728 -- 24,728 --
Amortization of excess cost over
fair value 1,109 1,109 3,327 3,326
-------- ------- -------- --------
98,819 70,998 208,719 182,852
-------- ------- -------- --------
Income before interest and taxes (15,359) 12,043 (12,418) 20,612
-------- ------- -------- --------
Net interest expense (income)
Interest expense 3,235 3,611 9,422 10,454
Investment income (2) (10) (101) (85)
-------- ------- -------- --------
3,233 3,601 9,321 10,369
-------- ------- -------- --------
Income (loss) before income taxes
and extraordinary charge (18,592) 8,442 (21,739) 10,243
Income taxes (benefit) 2,738 3,795 504 4,651
-------- ------- -------- --------
Income (loss) before extraordinary
charge (21,330) 4,647 (22,243) 5,592
Extraordinary charge for early
retirement of debt, net of tax
benefit of $2,139 -- -- (3,208) --
-------- ------- -------- --------
Net income (loss) $(21,330) $ 4,647 $(25,451) $ 5,592
======== ======= ======== ========
Earnings (loss) per common share:
Income (loss) before extraordinary
charge $ (1.15) $ 0.23 $ (1.21) $ 0.28
Extraordinary charge -- (0.17) --
-------- ------- -------- --------
Earnings (loss) per common share $ (1.15) $ 0.23 $ (1.38) $ 0.28
======== ======= ======== ========
Weighted average number of shares used
in computation of per share data 18,515 20,404 18,462 20,312
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
EKCO GROUP, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (25,451) $ 5,592
Adjustments to reconcile net income to net cash
provided by (used in) operations
Depreciation and amortization 7,445 7,477
Amortization of excess of cost over fair value 3,327 3,328
Amortization of deferred finance costs 366 427
Other amortization 4,491 5,028
Special charges 24,728 --
Extraordinary charge 3,208 --
Other (798) (201)
Changes in certain assets and liabilities, net of effects from acquisition
of businesses, affecting cash provided by (used in) operations
Accounts receivable (12,268) (11,961)
Inventories (13,268) (5,150)
Prepaid marketing costs (2,184) (4,166)
Other assets 1,432 171
Accounts payable and accrued expenses 8,319 412
Income taxes payable (537) 1,661
--------- -------
Net cash provided by (used in) operations (1,190) 2,618
--------- -------
Cash flows from investing activities
Proceeds from sale of property and equipment 1,789 245
Capital expenditures (7,362) (9,591)
--------- -------
Net cash used in investing activities (5,573) (9,346)
--------- -------
Cash flows from financing activities
Proceeds from issuance of long-term obligations 125,292 31,183
Proceeds from sale of investment held as collateral -- 3,600
Payment of dividends (792) (1,201)
Payment of long-term obligations (118,045) (26,726)
Other 461 (27)
--------- -------
Net cash provided by financing activities 6,916 6,829
Effect of exchange rate changes on cash (5) (17)
--------- -------
Net increase in cash and cash equivalents 148 84
Cash and cash equivalents at beginning of year 142 129
--------- -------
Cash and cash equivalents at end of period $ 290 $ 213
========= =======
Cash paid during the period for
Interest $ 3,739 $ 7,084
Income taxes 52 2,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION AND OTHER MATTERS
The consolidated condensed financial statements included herein have been
prepared by Ekco Group, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is believed,
however, that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. The consolidated condensed
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated. The
condensed financial statements, in the opinion of management, reflect all
adjustments necessary to fairly state the Company's financial position and the
results of its operations. Such adjustments are of a normal recurring nature.
A large part of the Company's business is seasonal. Historically, revenues
in the last half of the calendar year have been greater than revenues in the
first half of the year. Accordingly, the results for the entire year may not
necessarily be the product of annualizing results for any interim period.
(2) ACCOUNTS RECEIVABLE, NET
<TABLE>
Accounts receivable consisted of the following:
<CAPTION>
SEPTEMBER 29, 1996 DECEMBER 31, 1995
------------------ -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Accounts receivable $56,966 $44,871
Allowance for doubtful accounts (1,492) (1,048)
------- -------
$55,474 $43,823
======= =======
</TABLE>
(3) INVENTORIES
<TABLE>
The components of inventory were as follows:
<CAPTION>
SEPTEMBER 29,1996 DECEMBER 31, 1995
----------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Raw materials $11,244 $11,489
Work in process 7,835 3,097
Finished goods 41,057 32,979
------- -------
$60,136 $47,565
======= =======
</TABLE>
5
<PAGE> 6
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(4) PROPERTY AND EQUIPMENT, NET
<TABLE>
Property and equipment consisted of the following:
<CAPTION>
SEPTEMBER 29, 1996 DECEMBER 31, 1995
------------------ -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Property and equipment at cost
Land, buildings and improvements $ 23,340 $22,856
Equipment, factory and other 77,689 71,922
-------- -------
101,029 94,778
Less accumulated depreciation 46,122 38,398
======== =======
$ 54,907 $56,380
</TABLE>
(5) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET
Excess of cost over fair value of net assets acquired is net of accumulated
amortization of $27,274 September 29, 1996 and $27,727 as of December 31, 1995.
(6) INCOME TAXES
The Company's effective tax rate as reported in its latest annual report on
Form 10-K was 50% for the year ended December 31, 1995 ("Fiscal 1995"). Income
tax expense for the Fiscal 1996 periods has been calculated utilizing similar
tax rates to those used for Fiscal 1995. However, due to the significant amount
of goodwill expense primarily included in the special charge, the comparison of
effective tax rate is not meaningful. Goodwill expense is not deductible for
income taxes.
(7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK
<TABLE>
Series B ESOP Convertible Preferred Stock, net, consisted of the following:
<CAPTION>
SEPTEMBER 29, 1996 DECEMBER 31, 1995
------------------ -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Series B ESOP Convertible Preferred
Stock, par value $.01, redeemable at
$3.61 per share $ 5,220 $ 5,372
Unearned compensation (1,301) (1,914)
------- -------
$ 3,919 $ 3,458
======= =======
</TABLE>
6
<PAGE> 7
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(8) COMMON STOCK, $.01 PAR VALUE
<TABLE>
Share information regarding common stock consisted of the following:
<CAPTION>
SEPTEMBER 29, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Authorized shares 60,000,000 60,000,000
========== ==========
Shares issued 27,981,165 27,854,441
Shares held in treasury 9,417,947 9,440,577
---------- ----------
18,563,218 18,413,864
========== ==========
</TABLE>
In September 1996, the Company's Board of Directors approved the 1996
Performance Unit Rights Award Plan whereby selected key employees and directors
may receive performance unit rights which are rights to receive an amount based
on the appreciated value of the Company's common stock over an established base
price. The maximum number of rights that may be granted under the Plan is
1,000,000. On September 25, 1996, the Company awarded 400,000 rights to key
employees and 100,000 rights to a director at fair market value which rights
are exercisable through December 31, 2001. No provision was required in the
accompanying financial statements.
<TABLE>
(9) NET INCOME PER COMMON SHARE
Primary earnings per common share are based upon the weighted average of
common stock and dilutive common stock equivalent shares outstanding during each
period. Fully diluted earnings per share have been omitted since they are either
the same as primary earnings per share or anti-dilutive. The weighted average
number of shares used in computation of earnings per share consisted of the
following for the periods presented:
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
------------- ---------- ------------- ----------
1996 1995 1996 1995
---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding during the
period 18,515 18,432 18,462 18,326
Series B ESOP Convertible anti- anti-
Preferred Stock dilutive 1,533 dilutive 1,545
Weighted average common equivalent anti- anti-
shares due to stock options dilutive 439 dilutive 441
-------- ------ -------- ------
18,515 20,404 18,462 20,312
======== ====== ======== ======
</TABLE>
7
<PAGE> 8
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(10) CONTINGENCIES
LEGAL PROCEEDINGS
The Company is a party to several pending legal proceedings and claims,
including the matters described below. Although the outcome of such proceedings
and claims cannot be determined with certainty, the Company's management is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
In April 1996, the U.S. District Court for the Northern District of Ohio ruled
that certain insulated bakeware products manufactured by the Company infringed a
patent held by a third-party plaintiff. The Company ceased manufacturing such
products in December 1995. In July 1996, the Court concluded that a reasonable
royalty is 2% of sales or $88,000. In August 1996, the plaintiff filed a motion
to amend the Court's decision which motion is currently pending. The Company
will vigorously pursue an appeal as it deems appropriate. The Company and its
counsel believe that the Company has meritorious grounds for appeal. The
Company's management believes that the final outcome will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
ENVIRONMENTAL MATTERS
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to the
generation or handling of hazardous substances by the Company or its
predecessors and has incurred obligations for investigations or remedial actions
with respect to certain of such matters. While the Company does not believe that
any such claims asserted or obligations incurred to date will result in a
material adverse effect upon the Company's financial position, results of
operations or liquidity, the Company is aware that at its facilities in
Massillon and Hamilton, Ohio, Easthampton, Massachusetts, Lititz, Pennsylvania,
Chicago, Illinois and at the previously owned facility in Hudson, New Hampshire,
hazardous substances and oil have been detected and that additional
investigation will be, and remedial action will or may be, required at such
facilities. Operations at these and other facilities currently or previously
owned or leased by the Company utilize, or in the past have utilized, hazardous
substances. There can be no assurance that activities at these or any other
facilities owned or operated by the Company or future facilities may not result
in additional environmental claims being asserted against the Company or
additional investigations or remedial actions being required.
In connection with the acquisition of Kellogg Brush Manufacturing Co. and
subsidiaries ("Kellogg") by the Company in 1993, the Company engaged
environmental engineering consultants ("Consultants") to review potential
environmental liabilities at all of Kellogg's properties. Such investigation and
testing resulted in the identification of likely environmental remedial actions,
operation, maintenance and ground water monitoring and the estimated costs
thereof. Based upon such engineering studies, management originally estimated
the total remediation and ongoing ground water monitoring costs to be
approximately $6.0 million, including the effects of inflation and, accordingly,
at that time, recorded a liability of approximately $3.8 million, representing
the undiscounted costs of remediation and the net present value of future costs
discounted at 6%. Based upon the most recent cost estimates provided by the
Consultants, the Company believes the total remediation costs will be
approximately $2.0 million and the expense for the ongoing operation,
maintenance and ground water monitoring will be approximately $50,000 for Fiscal
1996 and approximately $25,000 for each of the 30 years thereafter. As of
September 29, 1996, the Company has recorded a liability of approximately $3.4
million. The Company expects to pay approximately $180,000 of the remediation
costs in the current year
8
<PAGE> 9
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
ENVIRONMENTAL MATTERS CONTINUED
("Fiscal 1996") with the balance being paid out in fiscal years 1997 and 1998.
During the First Nine Months of Fiscal 1996, the Company paid approximately
$132,000 of such costs. The estimates may subsequently change should additional
sites be identified or further remediation measures be required or undertaken or
the interpretation of current laws or regulations be modified. The Company has
not anticipated any insurance proceeds or third-party payments in arriving at
the above estimates.
(11) EXTRAORDINARY CHARGE
<TABLE>
On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior
Notes due 2006 at a price of 99.291% of face value in a private offering to
institutional investors. The Company used the net proceeds of the Senior Note
offering to (i) repurchase its outstanding 12.70% Notes due 1998 and 7.0%
Convertible Subordinated Note due 2002 and (ii) to repay substantially all
amounts outstanding under its revolving credit facility. Concurrently with
closing the sale of the 9.25% Senior Notes, the Company entered into an
amendment to its revolving credit facility, which amendment consolidated the
outstanding debt and borrowing capacity of the Company and its wholly-owned
subsidiaries, Ekco Housewares, Inc. and Ekco Consumer Plastics, Inc. (formerly
known as Frem Corporation), and revised certain financial covenants (as so
amended, the "Revolving Credit Facility"). Borrowings under the Revolving Credit
Facility bear interest at the bank's prime rate, or at LIBOR plus 1.25% or 1.5%,
depending on the Company's borrowing strategy and the ratio of total debt to
cash flow. The Revolving Credit Facility provides for a commitment fee of
three-eighths of one percent on the unused portion of the commitment amount and
a $60,000 annual agency fee. Borrowings under the Revolving Credit Facility
mature in December 1998. The Senior Notes, as well as the Revolving Credit
Facility, contain certain financial covenants that may restrict the sale of
assets, the incurrence of additional indebtedness and certain investments and
acquisitions by the Company. In November 1996, the Company and its lender banks
agreed to certain modifications of the Revolving Credit Facility. At the
Company's request, the credit facility has been reduced to a maximum credit of
$35.0 million from a level of $75.0 million under the original agreement. The
maximum outstanding balance of the revised credit facility will equate to 80%
of eligible accounts receivables as determined at the end of each calendar
month. The revised credit-facility provides for a commitment fee of one-half
of one percent on the unused portion of the commitment. Borrowings outstanding
at September 29, 1996, totaled approximately $4.7 million. Additionally, the
Company has letters of credit outstanding of $7.2 million. The early
extinguishment of the 12.70% Notes and 7% Convertible Subordinated Note
resulted in an extraordinary charge of $3.2 million consisting of the following:
<CAPTION>
(Amounts in thousands)
<S> <C>
Premium on 12.70% Notes, due 1998 $ 6,511
Discount on prepayment of 7% Convertible
Subordinated Note, due 2002 (3,218)
Write-off of related unamortized financing
costs 2,054
-------
Extraordinary charge before income tax benefit 5,347
Income tax benefit 2,139
-------
Net extraordinary charge $ 3,208
=======
</TABLE>
9
<PAGE> 10
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(12) SPECIAL CHARGES
The loss from operations for the thirteen week period ending September 29,
1996 includes special charges of $24.7 million. The charges were determined in
compliance with Statement of Financial Accounting Standard No. 121 which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. Under
provisions of the Statement, impairment losses are recognized when expected
future cash flows are less than the assets' carrying value. Accordingly, the
Company periodically evaluates the carrying value of property, plant and
equipment and intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company's plastic
business has continued to suffer severe price and cost pressures, primarily as a
result of higher product costs including higher resin costs which have not been
recovered through increased sales prices. In addition, the Company's plastic
business forecasts continuing deficits as it has been forced to offer larger
discounts to remain competitive in the marketplace. The Company has determined
that the carrying amount of the assets of the plastic business are no longer
recoverable from the estimated future cash flows expected to result from its
operations. Accordingly, the Company has reduced the carrying value of the
assets (principally goodwill) by approximately $22.7 million to their fair value
as determined primarily by independent third party appraisals of the property.
Additionally, the Company determined that the carrying value of certain real
property held for re-sale in Chicago, Illinois should be reduced by $2.0
million. For purposes of the Company's Consolidated Condensed Statement of Cash
Flows, these special charges are treated as a non-cash transaction.
10
<PAGE> 11
EKCO GROUP, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated results of
operations for the thirteen week periods ended September 29, 1996 (the "Third
Quarter of 1996") and October 1, 1995 (the "Third Quarter of 1995") and for the
thirty nine week periods ended September 29, 1996 (the "First Nine Months of
1996") and October 1, 1995 (the "First Nine Months of 1995") and the financial
condition at September 29, 1996 should be read in conjunction with the Company's
Consolidated Condensed Financial Statements and Notes thereto. Because of the
seasonality of the Company's revenues, which have historically been concentrated
in the second half of its fiscal year, the results of operations for any interim
period and the balance sheet as of the end of any interim period are not
indicative of either a full year's operations or the financial condition of the
Company at the end of any fiscal year.
NET REVENUES
Net revenues for the Third Quarter of 1996 were approximately the same as
the $83 million reported for the Third Quarter of 1995, however, net revenues
for the First Nine Months of 1996 declined approximately $7.2 million from the
prior year period. Although net revenues were essentially flat for the third
quarter periods, there was a change in product mix. Net revenues from the
Company's bakeware products increased approximately $1.2 million in the Third
Quarter of 1996 compared to the prior year period. This increase was primarily
due to sales of the Company's new insulated bakeware. Additionally, net revenues
from the Company's new line of VIA products increased $2.2 million for the Third
Quarter of 1996 compared to the prior year period. These increases in sales of
bakeware and VIA products for the third quarter period were offset by declines
in sales of the Company's kitchen tools and gadgets, cleaning and plastic
products. For the nine month period the decline was primarily in net revenues
from the Company's tools and gadgets ($8.2 million) and plastics products ($4.8
million) partially offset by an increase in sales ($5.8 million) of VIA
products. The revenue decline reflects the weakness in general merchandise sales
that began toward the end of 1995 and which carried over into 1996. Last year's
below average consumer spending created higher than anticipated levels of
inventory for retailers who lowered their volume of re-orders in the First Half
of 1996. In addition, sales of the Company's plastic products were adversely
affected by significant price competition and delays in seasonal shipping. The
Company also experienced lower sales volumes to its smaller customers, largely
attributable to transition issues associated with the consolidation of various
Company units into a single operating entity during the past year.
GROSS PROFIT
The Company's gross profit margin for the First Nine Month periods remained
constant at 31%, while for the Third Quarter periods there was an improvement
from 31% in the prior year to 33% for 1996. The improvement in margin was
primarily due to the change in revenue mix described above and improved facility
utilization. This improvement offset declines in gross margin for the first half
of 1996 which resulted from the continuation of increased promotional
discounting, which was initiated in the fourth quarter of Fiscal 1995 to help
stimulate consumer demand and unabsorbed manufacturing costs due to a shortfall
in planned volumes.
11
<PAGE> 12
EKCO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the Third Quarter and
First Nine Months of 1996 increased approximately $4.1 million (32%) and $5.7
million (15%) from the comparable prior year periods. The primary factors
contributing to the increase were new product development and introduction
costs, principally for the Company's new insulated bakeware products and Roach
Magnet[Trademark], increased expenditures associated with the growth of VIA and
the Company's subsidiary in the United Kingdom, and an increase in the
provision for doubtful accounts of approximately $500,000 and $1 million,
respectively. Additionally, the prior year periods benefited from the
collection of a previously written off receivable ($900,000 and $1.1 million,
respectively) relating to a 1987 real estate transaction. The increase in
selling, general and administrative expenses was also affected by marketing and
advertising commitments geared to an anticipated higher level of sales.
NET INTEREST EXPENSE
Net interest expense for the 1996 periods decreased $376,000 from the Third
Quarter of Fiscal 1995 level of $3.4 million and decreased $1 million from the
First Nine Months of 1995 level of $6.8 million. The decline in net interest was
primarily due to lower average borrowings and lower average interest rates.
SPECIAL CHARGES
The loss from operations for the thirteen week period ended September 29,
1996 includes special charges of $24.7 million. The charges include
approximately $22.7 million related to the reduction of the carrying value
(principally goodwill) of the Company's plastic business. The balance of $2.0
million reflects the adjustment to the carrying value of certain real property
located in Chicago, Illinois. See Note 12 of Notes to Consolidated Condensed
Financial Statements. On October 9, 1996, the Company announced that it will be
consolidating its cleaning products manufacturing activities in Mexico. The
consolidation will be implemented over an 18-month period, eliminating the
manufacturing activities at the Company's plants in Hamilton, Ohio and
Easthampton, Massachusetts. The consolidation will result in a fourth quarter
1996 pre-tax charge of $6.5 million related to severance costs and the
write-down of assets at the Easthampton and Hamilton sites. There also will be
additional operating expenses associated with the orderly transition of
manufacturing activities between the various locations at least through 1997.
The estimated annualized pre-tax savings from this consolidation is
approximately $4 million.
EXTRAORDINARY CHARGE
An extraordinary charge of approximately $3.2 million in the First Nine
Months of 1996 was due to the early extinguishment of the 12.7% Notes and 7%
Convertible Subordinated Note. See Note 11 of Notes to Consolidated Condensed
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During the First Nine Months of 1996, the Company utilized approximately
$1.2 million to fund operating activities, primarily to increase working
capital. Also, during the First Nine Months of 1996, the Company used the
proceeds from the sale of facilities in Lititz, Pennsylvania and Niagara Falls,
Canada ($1.8 million), net proceeds of $2.5 million from the refinancing of
debt, seasonal borrowings of $4.7 million and proceeds from net issuances of
common stock of $500,000, for capital expenditures of approximately $7.4 million
and dividend payments of approximately $800,000.
12
<PAGE> 13
EKCO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES CONTINUED
The increase in the Company's account receivable balance relates to the
seasonality of the Company's revenues, which have historically been concentrated
in the second half of its fiscal year. The increase in inventory reflects
seasonality previously mentioned, growth of VIA and lower-than-anticipated
sales.
On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior
Notes due 2006 ("Senior Notes") at a price of 99.291% of face value in a private
offering to institutional investors. The Company used net proceeds of the Senior
Note offering to (i) repurchase its outstanding 12.7% Notes due 1998 and 7.0%
Convertible Subordinated Note due 2002 and (ii) to repay substantially all
amounts outstanding under its revolving credit facility. Concurrently with
closing the sale of the 9.25% Senior Notes, the Company entered into an
amendment to its revolving credit facility, which amendment consolidated the
outstanding debt and borrowing capacity of the Company and its wholly-owned
subsidiaries, Ekco Housewares, Inc. and Ekco Consumer Plastics, Inc., and
revised certain financial covenants (as so amended, the "Revolving Credit
Facility"). Borrowings under the Revolving Credit Facility bear interest at the
bank's prime rate, or at LIBOR plus 1.25% or 1.5%, depending on the Company's
borrowing strategy and the ratio of total debt to cash flow. The Revolving
Credit Facility provides for a commitment fee of three-eighths of one percent
on the unused portion of the commitment amount and a $60,000 annual agency fee.
Borrowings under the Revolving Credit Facility mature in December 1998. The
Senior Notes, as well as the Revolving Credit Facility, contain certain
financial covenants that will restrict the sale of assets, the incurrence of
additional indebtedness and certain investments and acquisitions by the Company.
At September 29, 1996, the Company was not in compliance with certain covenants
of the Revolving Credit Facility and such noncompliance has been waived. The
Company has suspended the payment of a quarterly dividend and does not
anticipate paying cash dividends for the foreseeable future. In order for the
Company to pay a dividend, its arrangement with holders of its Senior Notes and
Revolving Credit Facility would need to be amended. The Company and its lender
banks ("Bank Group") have agreed to certain modifications of the Revolving
Credit Facility. At the Company's request, the credit facility has been reduced
to a maximum credit of $35.0 million from a level of $75.0 million under the
original agreement. The maximum outstanding balance of the revised credit
facility will equate to 80% of eligible accounts receivables as determined at
the end of each calendar month. The revised agreement will provide the Company
with a credit line sufficient to meet all working capital needs without paying
the additional cost of carrying the higher credit limits. Funds that are
required for acquisitions may be provided by the Bank Group upon review and
approval on a case by case basis. The revised credit facility provides for a
commitment fee of one-half of one percent on the unused portion of the
commitment. Borrowings under the Revolving Credit Facility outstanding at
September 29, 1996, totaled approximately $4.7 million. Additionally, the
Company has letters of credit outstanding of $7.2 million.
The Company has provided approximately $3.4 million for environmental
remediation and ongoing operation, maintenance and ground water monitoring costs
associated with facilities owned or occupied by the Company's cleaning products
business. The Company believes the provision is adequate, but will continue to
monitor and adjust the provision, as appropriate, should additional sites be
identified or further remediation measures be required or undertaken or
interpretation of current laws or regulations be modified.
BUSINESS OUTLOOK
This Quarterly Report, including "Management's Discussion and Analysis of
Results of Operations and Financial Conditions," contains forward-looking
statements made pursuant to the safe harbor provision of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties which could cause actual results to
differ materially from those described in the forward-looking statements. Such
factors and uncertainties include, but are not limited to: the impact of the
level of the Company's indebtedness; restrictive covenants contained in the
Company's various debt documents; general
13
<PAGE> 14
EKCO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
BUSINESS OUTLOOK CONTINUED
economic conditions and conditions in the retail environment; the Company's
dependence on a few large customers; price fluctuations in the raw materials
used by the Company; competitive conditions in the Company's markets; the timely
introduction of new products; the impact of competitive products and pricing;
certain assumptions related to consumer purchasing patterns; the seasonal nature
of the Company's business; and the impact of federal, state and local
environmental requirements (including the impact of current or future
environmental claims against the Company). As a result, the Company's results
may fluctuate. These forward looking statements represent the Company's best
estimate as of the date of this Form 10-Q. The Company assumes no obligation to
update such estimates except as required by the rules and regulations of the
Securities and Exchange Commission.
14
<PAGE> 15
EKCO GROUP, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to several pending legal proceedings and claims,
including the matters described below. Although the outcome of such proceedings
and claims cannot be determined with certainty, the Company's management is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
In April 1996, the U.S. District Court for the Northern District of Ohio ruled
that certain insulated bakeware products manufactured by the Company infringed a
patent held by a third-party plaintiff. The Company ceased manufacturing such
products in December 1995. In July 1996, the Court concluded that a reasonable
royalty is 2% of sales, or $88,000. In August 1996, the plaintiff filed a motion
to amend the Court's decision which motion is currently pending. The Company
will vigorously pursue an appeal as it deems appropriate. The Company and its
counsel believe that the Company has meritorious grounds for appeal. The
Company's management believes that the final outcome will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity.
ENVIRONMENTAL REGULATION AND CLAIMS
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to the
generation or handling of hazardous substances by the Company or its
predecessors and has incurred obligations for investigations or remedial actions
with respect to certain of such matters. While the Company does not believe that
any such claims asserted or obligations incurred to date will result in a
material adverse effect upon the Company's financial position, results of
operations or liquidity, the Company is aware that at its facilities in
Massillon (more fully described below) and Hamilton, Ohio, Easthampton,
Massachusetts (more fully described in Note 10 of Notes to Consolidated
Condensed Financial Statements hereinabove), Lititz, Pennsylvania, Chicago,
Illinois and at its previously owned facility in Hudson, New Hampshire,
hazardous substances and oil have been detected and that additional
investigation will be, and remedial action will or may be, required at such
facilities. Operations at these and other facilities currently or previously
owned or leased by the Company utilize, or in the past have utilized, hazardous
substances. There can be no assurance that activities at these or any other
facilities owned or operated by the Company or future facilities may not result
in additional environmental claims being asserted against the Company or
additional investigations or remedial actions being required.
Prior to the Company's acquisition of Ekco Housewares, Inc. ("Housewares")
in 1987, Housewares' Massillon, Ohio steel bakeware manufacturing facility was
the subject of administrative proceedings before the United States Environmental
Protection Agency by issuance of an administrative complaint alleging violations
of the Resource Conservation and Recovery Act resulting from operation of a
wastewater lagoon at the facility. American Home Products Corporation ("AHP"), a
former owner of Housewares, pursuant to an indemnity agreement (the "Indemnity
Agreement") with Housewares relating to acts occurring prior to September 7,
1984, assumed the costs of remediation measures in addition to the defense of
the administrative proceedings with federal and state environmental protection
agencies, as well as preparation of closure plans and other plans called for as
a result of these proceedings. While AHP has acknowledged its full
responsibility under the Indemnity Agreement with respect to the wastewater
lagoon, it has asserted that Housewares should contribute to the cost of a
remediation study and certain remediation measures to the extent that Housewares
exacerbated contamination at the facility since September 7, 1984. Housewares
has denied that it has exacerbated contamination at the facility since such
date. AHP and Housewares have agreed to allocate such costs in proportion to
their respective responsibilities based on the results of an engineering study
but in no event
15
<PAGE> 16
EKCO GROUP, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION (CONTINUED)
ENVIRONMENTAL REGULATION AND CLAIMS (CONTINUED)
will Housewares' share with respect to the wastewater lagoon exceed the lesser
of 25% of the total cost or $750,000. The Company is unable to determine to what
extent, if any, it will be responsible to contribute to such costs but the
Company does not believe that any such contribution that it may be required to
make will have a material adverse effect on its financial position, results of
operations or liquidity.
In June 1992, the United States filed an action in the U.S. District Court
for the Northern District of Ohio against Housewares seeking penalties and
injunctive relief and alleging violations as a result of an alleged failure to
provide certain closure and post-closure financial assurances with respect to
the Massillon, Ohio site. Pursuant to the Indemnity Agreement and a confirmatory
letter from AHP to Housewares on December 19, 1988 (the "Indemnity Documents"),
AHP conducted and controlled all matters relating to such financial assurances
and the defense of the action filed in June 1992. In January 1994, the court
entered judgment against Housewares in the amount of $4.6 million in the
lawsuit. AHP filed a notice of appeal on behalf of Housewares. In August 1995,
the Court of Appeals affirmed in part and reversed in part the penalty imposed
on Housewares and remanded the redetermination of civil penalties for certain
periods of time. The penalty affirmed by the Court of Appeals amounted to
$2,858,000, and, pursuant to the Indemnity Documents, AHP paid that amount, plus
applicable interest, on Housewares' behalf. With respect to the penalty reversed
and remanded by the Court of Appeals, a stipulated judgment was entered by the
Court in July 1996 which fully resolved the remaining claims for $400,000 plus
accrued interest. By letter dated May 6, 1996, AHP notified Housewares that if
such judgment is entered AHP would not seek reimbursement from the Company of
the amounts AHP had paid or would pay on Housewares' behalf in this litigation.
AHP has paid the foregoing amounts, and notice that the judgment is fully
satisfied was entered by the Court in September 1996.
16
<PAGE> 17
EKCO GROUP, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K.
a.) Exhibits:
10.1 Amendment to 1995 Restatement of the Incentive Compensation Plan for
Executive Employees of Ekco Group, Inc. and Subsidiaries dated as of
June 21, 1996.
10.2 Ekco Group, Inc. 1996 Performance Unit Rights Award Plan and Forms of
Award Agreements for Employees and Directors.
27 Financial Data Schedule.
b.) Reports on Form 8-K: None.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EKCO GROUP, INC.
------------------------------------
(Registrant)
Date: November 12, 1996 By: /s/ ROBERT STEIN
--------------------------- ---------------------------------
Robert Stein
President and
Chief Executive Officer
By: /s/ DONATO A. DENOVELLIS
---------------------------------
Donato A. DeNovellis
Executive Vice President,
Finance and Administration, and
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS FILED WITH FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
Exhibit No. Description
- ----------- -----------
10.1 Amendment to 1995 Restatement of the Incentive Compensation Plan
for Executive Employees of Ekco Group, Inc. and Subsidiaries
dated as of June 21, 1996.
10.2 Ekco Group, Inc. 1996 Performance Unit Rights Award Plan and
Forms of Award Agreements for Employees and Directors.
27 Financial Data Schedule.
19
<PAGE> 1
EXHIBIT 10.1
------------
EKCO GROUP, INC.
AMENDMENT TO 1995 RESTATEMENT OF THE
INCENTIVE COMPENSATION PLAN FOR EXECUTIVE EMPLOYEES
OF EKCO GROUP, INC. AND SUBSIDIARIES
The 1995 Restatement of the Incentive Compensation Plan for Executive
Employees of Ekco Group, Inc. and Subsidiaries (the "Incentive Compensation
Plan") is hereby amended as follows:
1. Section 6.4 is deleted in its entirety and the following is inserting in
its place:
"6.4 For 1995 the Committee shall decide and for 1996 and subsequent years
the Executive may decide whether any increases over the Executive's
1994 Base Compensation level will be paid under any of the payment
choices in Section 6.6 or a combination of two or more of them. The
Committee decisions with respect to the manner in which 1995 Base
Compensation increases will be paid is scheduled in the Appendix."
2. Section 6.5 is deleted in its entirety and the following is inserting in
its place:
"6.5 For 1995 and subsequent years the Executive may decide whether any
percentage up to one hundred percent (100%) of his Bonus will be paid
under any of the payment choices in Section 6.6 or a combination of
two or more of them."
3. Except as expressly provided for herein, the Incentive Compensation Plan
is hereby ratified and confirmed and shall continue in full force and effect.
4. This Amendment may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
Dated as of June 21, 1996.
Compensation Committee
of the Board of Directors
/S/ T. MICHAEL LONG
------------------------------
T. Michael Long
/S/ STUART B. ROSS
------------------------------
Stuart B. Ross
/S/ BILL W. SORENSON
------------------------------
Bill W. Sorenson
<PAGE> 1
EXHIBIT 10.2
------------
EKCO GROUP, INC.
1996 PERFORMANCE UNIT RIGHTS AWARD PLAN
<PAGE> 2
TABLE OF CONTENTS
-----------------
1. Purpose.................................................................. 1
2. Administration........................................................... 1
3. Participants............................................................. 1
4. Operation................................................................ 1
5. Appreciation of Rights................................................... 2
6. Nature of Rights......................................................... 2
7. Effective Date........................................................... 2
8. Limits on Awards......................................................... 3
9. Dilution................................................................. 3
10. Award Agreements......................................................... 3
11. Transferability.......................................................... 3
12. Securities Act of 1933................................................... 3
13. Withholding of Tax....................................................... 4
14. Termination and Amendment of Plan........................................ 4
15. Rights of Employees...................................................... 4
16. Compliance with Laws..................................................... 4
17. Nonexclusivity of Plan................................................... 5
18. Severability............................................................. 5
19. Applicable Law........................................................... 5
i
<PAGE> 3
EKCO GROUP, INC.
1996 PERFORMANCE UNIT RIGHTS AWARD PLAN
1. Purpose
The purpose of the Performance Unit Rights Award Plan (the "Plan") is to
provide a means by which Ekco Group, Inc. (the "Company") and/or its subsidiary
corporations shall be able to attract and retain competent key employees and
directors and provide those persons with an opportunity to participate in the
increased value of the Company which their efforts, initiative, and skill have
helped produce.
2. Administration
(a) The Plan shall be administered on behalf of the Company by the
Compensation Committee (the "Committee") of the Board of Directors (the "Board")
as that Committee may be constituted from time to time.
(b) Subject to the express provisions of the Plan, the Committee shall have
complete and discretionary authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for the administration of the Plan. The
determinations of the Committee on the matters referred to in this paragraph 2
shall be conclusive.
3. Participants
Participants in the Plan shall be selected by the Committee from key
employees and directors of the Company or any subsidiary of the Company (the
"Participants").
4. Operation
(a) Participants shall be awarded Performance Unit Rights (the "Rights")
for a period of six years or such shorter period as may be determined by the
Committee (the "Designated Period"). The Designated Period may vary as among
Participants and as among awards to a Participant. On the date on which the
Right is exercised ("Exercise Date"), the Participant shall receive an amount
equal to the appreciation in market value of his or her Rights as determined in
paragraph 5 of the Plan. That amount shall be payable in cash, shares of common
stock of the Company ("Company Common Stock"), or some combination of both, as
set forth in the Award Agreement. No fractional shares shall be issued but a
Participant shall be entitled to a cash adjustment for a fractional share that
would otherwise be issued. Rights will be cancelled upon the Participant's
exercise of such Rights, and no further payment shall be made as to Rights
exercised by a Participant.
1
<PAGE> 4
(b) Vesting of Rights. The Committee may designate a vesting schedule with
respect to each separate Award of Rights. The Committee may, in its sole
discretion (but is not obligated to) provide for the acceleration of vesting of
Rights upon the occurrence of certain enumerated events, including, but not
limited to, the death, disability or retirement of the Participant.
(c) Definition of Performance Unit Rights. A Right is an award in the form
of a right to receive, upon exercise of the right during the Designated Period,
but without other payment, an amount based on appreciation in the value of
Company Common Stock over a base price established in the Award Agreement.
Unless the Committee provides otherwise, and such provision is reflected in the
Award Agreement, the minimum base price of a Performance Unit Right granted
under this Plan shall be not less than the Fair Market Value (as defined below)
of the underlying Company Common Stock on the date the Right is granted.
5. Appreciation of Rights
Each Participant's Award Agreement shall identify a formula, based on the
market value of the Company Common Stock on a particular day or the average
price over a series of days, for determining the underlying value (the "Fair
Market Value") of the Company Common Stock on both the date the Right is awarded
("Award Date") or an Exercise Date. The appreciation in the Fair Market Value of
Rights for purposes of determining payments to be made to a Participant shall be
measured by determining the Fair Market Value of Rights held by that Participant
on the Exercise Date and subtracting from that the Fair Market Value of the same
Rights on the Award Date. The measurement of appreciation shall be made
separately with respect to each separate award of Rights.
6. Nature of Rights
The Rights shall be used solely as a device for the measurement and
determination of the amount to be paid to Participants as provided in the Plan.
The Rights shall not constitute or be treated as property or as a trust fund of
any kind. All amounts at any time attributable to the Rights shall be and remain
the sole property of the Company and all Participants' rights hereunder are
limited to the rights to receive cash or shares of Company Common Stock as
provided in this Plan.
7. Effective Date
The Plan shall become effective upon approval of it by the affirmative vote
of a majority of the Board of Directors of the Company and the Plan shall be
deemed to be adopted on the date of that meeting.
2
<PAGE> 5
8. Limits on Awards
The maximum number of Rights that may be granted under the Plan is
1,000,000.
9. Dilution
In the event of a stock split, stock dividend, reclassification,
reorganization, or other capital adjustment of shares of Company Common Stock,
the number of Rights of a Participant and the maximum number of Rights provided
in paragraph 8 shall be adjusted in the same manner as shares of the Company
Common Stock reflected by those Rights would be adjusted.
10. Award Agreements
Each award of a Right under this Plan shall be evidenced by an Award
Agreement in a form approved by the Committee setting forth the number of
Rights, vesting schedule if any, the formula for determining the price of
Company Common Stock upon which the Right is based, and the term. The Award
Agreement shall also set forth (or incorporate by reference) other material
terms and conditions applicable to the Award as determined by the Committee
consistent with the limitations of this Plan.
11. Transferability
Any rights arising under the Plan shall not be transferable otherwise than
by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined in the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder).
12. Securities Act of 1933
Upon issuance of Company Common Stock to the Participant, or his heirs, the
recipient of that Company Common Stock shall represent that the shares of
Company Common Stock are taken for investment and not resale and make those
other representations as may be necessary to qualify the issuance of the shares
as exempt from the Securities Act of 1933 or to permit registration of the
shares and shall represent that he or she shall not dispose of those shares in
violation of the Securities Act of 1933, or any applicable state securities
laws. The Company reserves the right to place a legend on any stock certificate
issued under the Plan to assure compliance with this paragraph. No shares of
Company Common Stock shall be required to be distributed until the Company or
Participant shall have taken such action, if any, as is then required to comply
with the provisions of the Securities Act of 1933 or any other then applicable
federal or state securities law.
3
<PAGE> 6
13. Withholding of Tax
There shall be deducted from each distribution under the Plan the amount of
any tax required by any governmental authority to be withheld and paid over by
the Company to that governmental authority for the account of the person
entitled to the distribution.
14. Termination and Amendment of Plan
The Board of Directors or the Committee may at any time amend, suspend or
terminate the Plan, as it shall deem advisable; provided, however, that no such
amendment or termination may, without the consent of the Participant to whom any
Right shall have been previously awarded, adversely affect any of the
Participant's rights with respect to that Right.
15. Rights of Employees and Directors
(a) No Right to an Award. Status as an employee or director shall not be
construed as a commitment that any one or more awards of Rights will be made
under this Plan to an employee or director or to employees or directors
generally. Status as a Participant shall not entitle the Participant to any
additional awards of Rights.
(b) No Assurance of Employment or Director Status. Nothing contained in
this Plan (or in any other documents related to this Plan or to any Right
awarded hereunder) shall confer upon any Participant any right to continue in
the employ or other service of the Company or any subsidiary or constitute any
contract of employment or change any employee's or Participant's compensation or
other benefits or limit the right of the Company (or, if applicable, a
subsidiary) to terminate the employment or other service of any Participant with
or without cause.
16. Compliance with Laws
This Plan, Award Agreements, and the grant, exercise, conversion, operation
and vesting of Rights, and the issuance and delivery of shares of Company Common
Stock and/or other securities or property or the payment of cash under this Plan
or Award Agreements, are subject to compliance with all applicable federal and
state laws, rules and regulations (including, but not limited to, state and
federal insider trading, registration, reporting and other securities laws and
federal margin requirements) and to such approvals by any listing, regulatory or
other governmental authority as may, in the opinion of counsel for the Company,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions (and provide such
evidence, assurance and representations to the Company as to compliance with any
thereof) as the Company may deem necessary or desirable to assure compliance
with all applicable legal requirements.
4
<PAGE> 7
17. Nonexclusivity of Plan
Nothing in this Plan shall limit or be deemed to limit the authority of the
Company, the Board of Directors or the Committee to grant awards or authorize
any other compensation, with or without reference to the Company Common Stock,
under any other plan or authority.
18. Severability
In case any provision in this Plan shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions, or of such provision in any other jurisdiction, shall
not in any way be affected or impaired hereby.
19. Applicable Law
This Plan, Award Agreements and any related documents and matters shall be
governed in accordance with the laws of the State of New Hampshire, except as to
matters of Federal law.
5
<PAGE> 8
EKCO GROUP, INC.
1996 PERFORMANCE UNIT RIGHTS AWARD PLAN
FORM OF AWARD AGREEMENT FOR EMPLOYEES
-------------------------------------
This 1996 Performance Unit Rights Award Plan Award Agreement (hereinafter
"Award Agreement") is entered into as of [Date] ("Award Date") between Ekco
Group, Inc., a Delaware corporation with a principal place of business in
Nashua, New Hampshire (hereinafter the "Company") and [Name of Employee]
(hereinafter "Executive"), an individual who resides at [Address].
The Company has adopted the 1996 Performance Unit Rights Award Plan
(hereinafter "the Plan"). All capitalized terms used in this Award Agreement
which are defined in the Plan shall have the meaning given in the Plan.
Pursuant to Section 3 of the Plan, the Executive has been designated as a
Participant in the Plan. Pursuant to Section 4 of the Plan, the Company has
granted Performance Unit Rights (hereinafter "Rights") to the Executive upon the
terms and conditions set forth herein, as required by the Plan.
In consideration of the services rendered and to be rendered by the
Executive, the Company and the Executive hereby agree to the terms and
conditions set forth herein as required by the terms of the Plan:
1. NUMBER OF RIGHTS AWARDED. This Award Agreement evidences the award by
the Company to Executive of [No. of Rights] (_______) Rights, effective as of
the Award Date, and pursuant to Section 4 of the Plan.
2. DESIGNATED PERIOD. Pursuant to Section 4 of the Plan, the Executive may
exercise the Rights awarded under this Award Agreement at any time or times
during a period of time commencing on the Award Date and ending on [Ending Date]
("Designated Period"). Executive may exercise any or all of his Rights on any
given day or days during the Designated Period and any such day or days shall be
known as an Exercise Date. The amount of the award paid to Executive on such
Exercise Date by the Company shall be calculated pursuant to Section 3 of this
Award Agreement and pursuant to the other applicable terms and conditions of
this Award Agreement and the Plan.
<PAGE> 9
3. VALUE OF THE RIGHT.
(a) Value. Upon exercise of any Right on an Exercise Date, Executive
shall be entitled to payment of an amount equal to the appreciation in value of
the Right awarded hereunder, as determined according to paragraph (b) below,
multiplied by the number of Rights exercised on the Exercise Date. The Executive
shall receive payment upon exercise of the Right in cash, unless the executive
elects payment in shares of Company Common Stock, or a combination of cash and
Company Common Stock, subject to the approval of the Committee.
(b) Formula. The formula for determining the value of the Right shall
be as follows: (i) the average value of Company Common Stock over the ten (10)
business days preceding the Award Date is (ii) subtracted from the average value
of Company Common Stock over the ten (10) business days preceding any Exercise
Date. The closing price of Company Common Stock on the New York Stock Exchange
for each of the ten (10) business days shall be the basis for determining the
ten-day average discussed above. If Company Common Stock is not traded on the
New York Stock Exchange, the closing price on the principal exchange on which
the shares are traded shall be used, or, if no closing price is available, the
basis for determining the value of the shares of Company Common Stock shall be
determined by the Committee, in its sole discretion.
4. EFFECT OF CERTAIN EVENTS ON RIGHTS.
(a) If Executive voluntarily terminates his employment, is terminated
from employment by the Company (or any subsidiary) for any reason other than for
Good Cause, as defined below, or terminates his employment with the Company
because of death or disability, Executive shall have, or Executive's
beneficiaries shall have, notwithstanding Section 2 above, three (3) months from
such termination date to exercise any unexercised Rights hereunder, according to
Section 3 and the other applicable terms of this Award Agreement and the Plan.
Immediately after the expiration of such three-month period, all Rights
hereunder which have not been exercised shall be forfeited, and the Executive
(and his beneficiaries, if applicable) shall thereafter have no rights or
entitlement with respect to such forfeited Rights.
(b) If Executive is terminated from his employment by the Company (or
any subsidiary) for Good Cause, any Right that has not been exercised shall be
immediately forfeited, and the Executive shall thereafter have no rights or
entitlement with respect to such forfeited Rights. For purposes of this Award
Agreement, termination for Good Cause shall [have the same meaning as found in
Section of the Employment Agreement by and between [Name of Company] and
[Name of Employee], dated [Date of Employment Agreement], as amended or
modified.
5. TAXES AND WITHHOLDING. The Executive agrees that to the extent
applicable, Executive shall be responsible for any and all federal, state or
local taxes which
2
<PAGE> 10
may become due and owing in relation to the Rights awarded herein, and that the
Company may withhold any federal, state or local taxes upon the exercise of the
Rights, at such time and upon such terms and conditions as required by law.
6. NO ASSIGNABILITY. Any rights arising hereunder shall not be
transferable otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order (as defined in the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations thereunder).
During the lifetime of the Executive the Rights may be exercised only by the
Executive or by his guardian or legal representative.
7. GENERAL TERMS. The Rights and this Award Agreement are subject to, and
the Company and the Executive agree to be bound by, all applicable provisions of
the Plan. Such provisions are incorporated herein by this reference. Executive
acknowledges receipt of a copy of the Plan. In the event of a conflict between
the terms of this Award Agreement and the Plan, the Plan shall be the
controlling document.
8. OTHER PROVISIONS.
(a) Neither the Executive nor any person entitled to exercise the
Rights shall have any rights as a stockholder with respect to any Rights.
(b) The Executive acknowledges that the Company has the right to
terminate, modify, or amend the Plan at any time, but that no such termination,
modification or amendment may, without the Executive's consent, adversely affect
the rights of the Executive hereunder.
(c) In the event that any provision of the Award Agreement is held to
be invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Award Agreement.
(d) The rights and obligations under this Award Agreement shall inure
to the benefit of, and shall be binding upon, the Company, the Executive and the
Executive's representatives and beneficiaries.
(e) Any notices or communications under this Award Agreement or the
Plan shall be given by delivering the same in hand or by depositing such notice
or communication in the mail, certified or registered mail, return receipt
requested, postage prepaid, as follows:
TO THE COMPANY: EKCO GROUP, INC.
98 Spit Brook Rd.
Nashua, New Hampshire 03062
Attention: PRESIDENT
3
<PAGE> 11
TO EXECUTIVE:
or at such other address as either party may hereafter designate in writing to
the other.
(f) The interpretation, performance and enforcement of this Award
Agreement shall be governed by the laws of the State of New Hampshire.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EKCO GROUP, INC.
By:
---------------------------
Attest:
- --------------------------------
Secretary
[NAME OF EMPLOYEE]
------------------------------
[Name and Address of Employee]
4
<PAGE> 12
SCHEDULE TO
FORM OF AWARD AGREEMENT FOR EMPLOYEES
<TABLE>
The following employees of the Company have Award Agreements with the
Company pursuant to the Company's 1996 Performance Unit Rights Award Plan which
are identical in form to the foregoing Form of Award Agreement except as to the
number of Rights awarded, the designated period and the value thereof:
<CAPTION>
Employee Name Designated Average Pre-Award
and Job Titles Date of Award No. of Rights Period Date Value
- -------------- ------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
Donato A. DeNovellis 09/25/96 100,000 09-25-96 to $4.8875
Executive Vice Presi- 12-31-01
dent, Finance & Ad-
ministration, and Chief
Financial Officer and
Senior Vice President,
Ekco Housewares, Inc.
Robert Varakian 09/25/96 250,000 09-25-96 to $4.8875
Senior Vice President, 12-31-01
Marketing, Ekco House-
wares, Inc. and
President, B. VIA Inter-
national Housewares,
Inc.
Jeffrey A. Weinstein 09/25/96 50,000 09-25-96 to $4.8875
Executive Vice President, 12-31-01
Secretary & General
Counsel and President,
Ekco Consumer Plastics,
Inc.
</TABLE>
5
<PAGE> 13
EKCO GROUP, INC.
1996 PERFORMANCE UNIT RIGHTS AWARD PLAN
FORM OF AWARD AGREEMENT FOR DIRECTORS
This 1996 Performance Unit Rights Award Plan Award Agreement (hereinafter
"Award Agreement") is entered into as of [Date] ("Award Date") between Ekco
Group, Inc., a Delaware corporation with a principal place of business in
Nashua, New Hampshire (hereinafter the "Company") and [Name of Director]
(hereinafter "Director"), an individual who resides [Address].
The Company has adopted the 1996 Performance Unit Rights Award Plan
(hereinafter "the Plan"). All capitalized terms used in this Award Agreement
which are defined in the Plan shall have the meaning given in the Plan.
Pursuant to Section 3 of the Plan, the Director has been designated as a
Participant in the Plan. Pursuant to Section 4 of the Plan, the Company has
granted Performance Unit Rights (hereinafter "Rights") to the Director upon the
terms and conditions set forth herein, as required by the Plan.
In consideration of the services rendered and to be rendered by the
Director, the Company and the Director hereby agree to the terms and conditions
set forth herein as required by the terms of the Plan:
1. NUMBER OF RIGHTS AWARDED. This Award Agreement evidences the award by
the Company to Director of [No. of Rights] (_________) Rights, effective as
of the Award Date, and pursuant to Section 4 of the Plan.
2. DESIGNATED PERIOD. Pursuant to Section 4 of the Plan, the Director may
exercise the Rights awarded under this Award Agreement at any time or times
during a period of time commencing on the Award Date and ending on [Ending
Date] ("Designated Period"). Director may exercise any or all of his Rights on
any given day or days during the Designated Period and any such day or days
shall be known as an Exercise Date. The amount of the award paid to Director on
such Exercise Date by the Company shall be calculated pursuant to Section 3 of
this Award Agreement and pursuant to the other applicable terms and conditions
of this Award Agreement and the Plan.
<PAGE> 14
3. VALUE OF THE RIGHT.
(a) Value. Upon exercise of any Right on an Exercise Date, Director
shall be entitled to payment of an amount equal to the appreciation in value of
the Right awarded hereunder, as determined according to paragraph (b) below,
multiplied by the number of Rights exercised on the Exercise Date. The Director
shall receive payment upon exercise of the Right in cash, unless the director
elects payment in shares of Company Common Stock, or a combination of cash and
Company Common Stock, subject to the approval of the Committee.
(b) Formula. The formula for determining the value of the Right shall
be as follows: (i) the average value of Company Common Stock over the ten (10)
business days preceding the Award Date is (ii) subtracted from the average value
of Company Common Stock over the ten (10) business days preceding any Exercise
Date. The closing price of Company Common Stock on the New York Stock Exchange
for each of the ten (10) business days shall be the basis for determining the
ten-day average discussed above. If Company Common Stock is not traded on the
New York Stock Exchange, the closing price on the principal exchange on which
the shares are traded shall be used, or, if no closing price is available, the
basis for determining the value of the shares of Company Common Stock shall be
determined by the Committee, in its sole discretion.
4. EFFECT OF CERTAIN EVENTS ON RIGHTS.
(a) If Director is no longer a member of the Board of Directors for
any reason (including death or disability) other than removal from the Board of
Directors for cause, Director shall have, or Director's beneficiaries shall
have, notwithstanding Section 2 above, three (3) months from such termination
date to exercise any unexercised Rights hereunder, according to Section 3 and
the other applicable terms of this Award Agreement and the Plan. Immediately
after the expiration of such three-month period, all Rights hereunder which have
not been exercised shall be forfeited, and the Director (and his beneficiaries,
if applicable) shall thereafter have no rights or entitlement with respect to
such forfeited Rights.
(b) If Director is removed from the Board of Directors for cause, any
Right that has not been exercised shall be immediately forfeited, and the
Director shall thereafter have no rights or entitlement with respect to such
forfeited Rights.
5. TAXES AND WITHHOLDING. The Director agrees that to the extent
applicable, Director shall be responsible for any and all federal, state or
local taxes which may become due and owing in relation to the Rights awarded
herein, and that the Company may withhold any federal, state or local taxes upon
the exercise of the Rights, at such time and upon such terms and conditions as
required by law.
2
<PAGE> 15
6. NO ASSIGNABILITY. Any rights arising hereunder shall not be
transferable otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order (as defined in the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations thereunder).
During the lifetime of the Director the Rights may be exercised only by the
Director or by his guardian or legal representative.
7. GENERAL TERMS. The Rights and this Award Agreement are subject to, and
the Company and the Director agree to be bound by, all applicable provisions of
the Plan. Such provisions are incorporated herein by this reference. Director
acknowledges receipt of a copy of the Plan. In the event of a conflict between
the terms of this Award Agreement and the Plan, the Plan shall be the
controlling document.
8. OTHER PROVISIONS.
(a) Neither the Director nor any person entitled to exercise the
Rights shall have any rights as a stockholder with respect to any Rights.
(b) The Director acknowledges that the Company has the right to
terminate, modify, or amend the Plan at any time, but that no such termination,
modification or amendment may, without the Director's consent, adversely affect
the rights of the Director hereunder.
(c) In the event that any provision of the Award Agreement is held to
be invalid, void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Award Agreement.
(d) The rights and obligations under this Award Agreement shall inure
to the benefit of, and shall be binding upon, the Company, the Director and the
Director's representatives and beneficiaries.
(e) Any notices or communications under this Award Agreement or the
Plan shall be given by delivering the same in hand or by depositing such notice
or communication in the mail, certified or registered mail, return receipt
requested, postage prepaid, as follows:
TO THE COMPANY: EKCO GROUP, INC.
98 Spit Brook Rd.
Nashua, New Hampshire 03062
Attention: PRESIDENT
TO DIRECTOR:
3
<PAGE> 16
or at such other address as either party may hereafter designate in writing to
the other.
(f) The interpretation, performance and enforcement of this Award
Agreement shall be governed by the laws of the State of New Hampshire.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EKCO GROUP, INC.
By:
------------------------
Attest:
- --------------------
Secretary
[Name of Director]
----------------------
[Name and Address of Director]
4
<PAGE> 17
SCHEDULE TO
FORM OF AWARD AGREEMENT FOR DIRECTORS
<TABLE>
The following director of the Company has an Award Agreement with the
Company pursuant to the Company's 1996 Performance Unit Rights Award Plan which
is identical in form to the foregoing Form of Award Agreement except as to the
number of Rights awarded, the designated period and the value thereof:
<CAPTION>
Director Name Designated Average Pre-Award
and Title Date of Award No. of Rights Period Date Value
- -------------- ------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
Malcolm L. Sherman 09/25/96 100,000 09-25-96 to $4.8875
Chairman of the 12-31-01
Board of Directors
</TABLE>
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 56,966
<ALLOWANCES> 1,492
<INVENTORY> 60,136
<CURRENT-ASSETS> 126,725
<PP&E> 101,029
<DEPRECIATION> 46,122
<TOTAL-ASSETS> 300,604
<CURRENT-LIABILITIES> 47,859
<BONDS> 128,975
<COMMON> 186
3,919
0
<OTHER-SE> 110,509
<TOTAL-LIABILITY-AND-EQUITY> 300,604
<SALES> 196,301
<TOTAL-REVENUES> 196,301
<CGS> 136,336
<TOTAL-COSTS> 180,664
<OTHER-EXPENSES> 28,055
<LOSS-PROVISION> 614
<INTEREST-EXPENSE> 9,422
<INCOME-PRETAX> (21,739)
<INCOME-TAX> 504
<INCOME-CONTINUING> (22,243)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,208)
<CHANGES> 0
<NET-INCOME> (25,451)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
